iQIYI Bets Its Future on AI-Generated Content as Losses Narrow Toward Breakeven
Q2 2026 earnings call, August 18, 2026
iQIYI used its second-quarter earnings call to lay out what amounts to a fundamental reengineering of its content business, one built around artificial intelligence and a shift away from the centralized, platform-curated model that has defined Chinese streaming for over a decade. The company is moving toward what CEO Yu Gong called a "decentralized creator and user-centric social media ecosystem," powered by AI tools that management says are already cutting production costs and timelines by as much as 90% in certain content categories.
The strategic pivot comes as the company's core business shows signs of stabilizing. Total revenue was RMB 6.3 billion, up 1% sequentially, while non-GAAP operating loss narrowed 8% sequentially to RMB 30.3 million from RMB 148.6 million in the first quarter, putting iQIYI within striking distance of breakeven. Operating cash flow nearly doubled sequentially to RMB 339.6 million.
AIGC Moves From Experiment to Production Line
The headline development is the scale at which iQIYI is now deploying generative AI in actual content production, not just as an efficiency tool but as a distinct content category. In July, the company premiered Mystic Tale Chitan, described as the industry's first AI-generated internet feature film to receive an official internet drama and film distribution license — a regulatory milestone that management says marks the shift of long-form AIGC "from technical testing to standard large-scale production." Year-to-date, iQIYI has also released 16 AI-generated short-form dramas under a revenue-sharing model. Management was explicit about where AI adoption is fastest and where it isn't. Chief Content Officer Xiaohui Wang laid out a category-by-category adoption curve: micro-dramas and micro-animation are now primarily AIGC-driven, with AI accounting for over 50% of iQIYI's micro-drama portfolio and unique visitors; animation and children's content are next given their existing CG industrialization; short-form dramas and internet feature films are mid-complexity targets seeing "active adoption" in genres like fantasy and supernatural; while long-form dramas and theatrical films remain "the highest emotional and artistic value" category where AI is used to support rather than replace live-action production. "AI reduces the basic costs and barriers to production, but it doesn't lower the bar for creativity and judgment," Wang said, a distinction management returned to repeatedly to frame AI as a cost lever rather than a creative substitute. The company's in-house production platform, NadouPro, is central to this shift. Management described it as "a studio-grade production platform for creators" that converts scriptwriting, shot design, editing, and dubbing into reusable platform features, with the explicit goal of both cutting internal production costs and generating a new external revenue stream by licensing production capability to third-party creators.
Short-Form Drama Share Doubles in Three Months
Perhaps the most concrete evidence that the strategy is working came in short-form dramas, a format typically running 15 to 25 minutes per episode. According to Enlightent data cited by management, iQIYI's market share in this category doubled from 25% in March to 50% in June, taking the top position for the first time, driven by the original title The Fireman: 10th Anniversary, which hit a peak daily market share of roughly 60%. Management noted that short-form dramas can reduce per-minute production costs by more than 50% versus long-form content and cut production-to-approval timelines by 30% to 50%, explaining why the company is leaning into the format as a bridge between traditional drama economics and AI-native production.
International Business Is Quietly Becoming a Real Growth Engine
Outside mainland China, membership revenue grew 40% year-over-year in the quarter, with the company describing the business as profitable on a managerial accounting basis. The growth numbers in newer markets were striking: membership revenue in Brazil surged over 215% year-over-year, Mexico grew over 150%, and Arabic-speaking markets grew 85%. Micro-dramas have become the second-largest overseas membership revenue contributor behind long-form dramas, with revenue in that category up over 300% year-over-year, and original micro-drama titles now account for three of the top ten revenue contributors internationally. SVP Xianghua Yang framed Thailand, an earlier and more mature market, as the "proving ground" for a reusable operating playbook — using Chinese drama content as a foundation, layering in local content adaptation, and partnering with local carriers and payment channels — that the company is now replicating in Latin America and the Middle East rather than expanding indiscriminately. "Our strategy is not to chase country counts," Yang said. "We are guided by unit economics and operating contribution."
Membership and Advertising: Steady, Not Spectacular
The base business remains mixed. Membership services revenue fell 4% sequentially to RMB 4.0 billion, which management attributed to seasonality, while online advertising revenue was flat at RMB 1.2 billion. Content distribution revenue rose 9% sequentially to RMB 681.5 million. On the advertising side, small and mid-sized advertisers and sectors including AI applications, instant retail, and e-commerce delivered strong year-over-year growth, suggesting some diversification away from traditional brand advertisers. Content costs rose 2% sequentially to RMB 3.8 billion even as operating expenses fell 6% on disciplined marketing spend — a combination that helps explain the narrowing operating loss.
Balance Sheet and Capital Return
iQIYI closed the quarter with RMB 4.1 billion in cash, cash equivalents, restricted cash, and short-term investments. Separately, the company disclosed a loan principal of $636.6 million receivable from PAG, sitting in prepayments and other assets on the balance sheet — a sizable related-party-style exposure investors will want to track. The company has been repurchasing shares under a $100 million buyback program authorized in March 2026 and running through September 2027, having bought back roughly 21.6 million ADS for $24.1 million through June 30.