iQIYI's big knife is not only waved at employees, but now also at users.
Just today, iQIYI announced that since December 16, the existing Gold VIP member subscription price has been raised: ordinary monthly members have risen from 25 yuan to 30 yuan, consecutive monthly subscription members from 19 yuan to 22 yuan; ordinary season card members from 68 yuan to 78 yuan, continuous season subscription season from 58 yuan to 63 yuan; ordinary annual members and continuous annual membership prices remain unchanged.
Earlier, iQiyi reported large-scale layoffs: the proportion of layoffs was 20%-40%. Based on the number of 7721 employees at the end of 2020, iQIYI will lay off 1544-3088 employees.
The two actions pointing to throttling and open source, only half a month apart, revealed iQiyi's current helplessness and urgency.
In the context of the general coldness of Chinese stocks, in October, iQiyi reported the news that it would return to Hong Kong for listing at the end of the year at the earliest, so it is now laying off employees first and then increasing prices, which is likely to pave the way for future listings.
How much revenue will the price increase bring in?
From iQiyi's standpoint, the direct motivation for price increases is to stimulate revenue growth.
iQiyi's current round of price increases is between 8.62% and 20%, so let's first take a look at how much new revenue the price increase can bring to it under the ideal situation.
From the fourth quarter of last year to the third quarter of this year, in the four quarters, iQIYI's membership service revenue was 16.428 billion yuan, and according to the highest increase of 20%, the annual new revenue that the price increase could bring to iQIYI was about 3.286 billion yuan.
iQIYI has a large number of monthly subscription users, and 20% is the highest increase among all subscription methods, and the estimated extreme value is the most optimistic data for iQIYI.
To get closer to the real situation, the following factors need to be considered:
First, the price increase is likely to affect its membership.
After a round of adjustments to membership prices last November, iQiyi's membership grew by about 3.6 million in the first quarter, only 700,000 in the second quarter, and 3 million in the third quarter.
Looking at a few sets of data: Q3 iQiyi MAU rose 1.6% year-on-year, but its subscription membership fell by 1.72% year-on-year, and the payment rate also fell by 0.74%.
It can be seen that the change in the number of members is greatly affected by the content.
It is advisable to extend the time, because last year's price increase occurred in November, the impact on last year's annual revenue is small, the operating income for the whole year of 2020 is 16.491 billion yuan, and the sum of the revenue from Q4 to Q3 this year is 16.428 billion yuan, the two figures are almost the same, indicating that last year's wave of price increases, at the level of income, is an invalid price increase.
Second, the growth drive of a single blockbuster content for the number of members is obvious, but the blockbuster is scarce.
The growth of iQIYI's membership in the first quarter was largely due to the dividends of the solo drama "Son-in-law", which ended with more than 64 million member accounts, accounting for 60.8% of the total number of members in the first quarter.
In the third quarter, iQiyi was higher than Tencent Video, Youku and Mango TV in the number of new dramas and variety shows, but the number of subscription members and the payment rate showed a "double decrease".
This is because the user's preferences always follow the content, the loyalty to the single platform is not solid, once the lack of high-quality content, on the one hand, it will affect the user stickiness of the platform, on the other hand, it will have an impact on the user's payment behavior.
Therefore, the competition between Aiyouteng is more important to see the reserve of high-quality content.
Third, iQIYI's content reserves are not enough, which is also a hidden danger.
According to media reports, in the layoffs at the beginning of the month, the content department laid off nearly 30%, and many studios were withdrawn.
How much impact of large-scale open source throttling on iQIYI's content layout has not yet been reflected, but a more obvious trend is that iQIYI's past large-scale content investment may have passed, and the next test is its judgment on the long video market, user preferences, content themes and other aspects.
To put it simply, it needs to maintain a stable supply and even growth of explosive content in the gradually compressed own content pool, but this is a law that many older video platforms have not found in the past.
More importantly, while making a series of actions such as layoffs and price increases, iQiyi is still in competition with its opponents.
After this round of price increases, iQiyi no longer has a price advantage, at least until Youteng Mang follows up.
Can you fill the funding gap?
To answer this question, the first thing to solve is how big the gap is, how did it arise, and will it continue to produce gaps?
Long video platforms have been fighting for many years, all of which are backed by trees, in order to build their own content moat, heavy money smash content. And because of the pulling effect of a single explosive content on the number of members, the "exclusive broadcasting right" is naturally higher and higher.
Users are not much sticky, and they encounter short videos to grab attention, and the survival of long video platforms is becoming more and more difficult.
The high amount of copyright is the most important reason for the loss of long video platforms. From its listing to the third quarter of this year, iQiyi's net loss has accumulated more than 30 billion yuan.
Years of losses and high content costs have forced iQiyi to turn to external financing.
From 2016 to 2020, plus the first three quarters of 2021, in less than six years, iQIYI's net cash flow from financing activities totaled 52.91 billion yuan.
Among them, the issuance of convertible notes is an important financing method, which has caused iQIYI's debt ratio to rise and its solvency to weaken.
After the listing, iQIYI's asset-liability ratio has shown an overall upward trend, with an overall upward trend of 85.7% as of September 30, 2021, and a current ratio of only 0.68%.
Specifically, cash and cash equivalents amounted to RMB7.3 billion, short-term investments amounted to RMB3.66 billion (such as short-term bonds purchased by companies, wealth management, etc.), and total current assets amounted to RMB19 billion.
Among the short-term liabilities, interest-bearing debt includes short-term borrowings of $3.99 billion, $660 million of long-term borrowings maturing within one year, and $4.81 billion of convertible senior notes, totaling about $9.5 billion.
Looking at operating liabilities, iQIYI has tens of billions of yuan of accounts payable on its books, according to the information in the prospectus, which is mainly generated by purchasing content and bandwidth costs from third parties, and because its customers are mainly to C, the receivables are only less than 3 billion yuan.
The high payables, on the one hand, show that iQIYI has strong bargaining power for the upstream and can occupy supplier funds free of charge, on the other hand, there is a gap of tens of billions of yuan between them, which is always debt.
Overall, iQIYI's funds are in a tight state, and its solvency is also average.
According to the most optimistic annual capital inflow of 3.29 billion yuan, can it alleviate the financial pressure of iQIYI?
According to the announcement, iQIYI's net cash outflow from operating activities in 2020 was 5.411 billion yuan, compared with 4.856 billion yuan in the first three quarters of this year, and the proportion is estimated to be about 6.01 billion yuan in net outflow for the whole year, if the lower value in 2020 is taken, the cash outflow from operating activities will be reduced by about 60% in the next year.
In terms of layoffs, suppose that according to 3,000 people (about 40% of the number of employees at the end of 2020), when the average annual salary of these people reaches 660,000, the company can save 2 billion yuan after the layoffs, and the operating activities are the state of net cash inflow, in order to self-hematopoiesis, and this level, the probability is not reached.
The most optimistic scenario brought about by price increases and layoffs is that iQiyi will no longer lose blood on the business side, but it will not be able to alleviate the pressure on the debt side.
The actual business situation is bound to be not only one or two variables, it will be ever-changing, such as a sharp decline in copyright expenditure in the coming year, so this conclusion is for reference only.
Can layoffs and price increases reshape valuations?
The layoffs were only half a month, and the price began to rise, and iQiyi open source and throttled both hands.
However, from the outside point of view, layoffs have caused large-scale unemployment of employees, and at the moment when the ESG (environment, social responsibility, corporate governance) corporate evaluation standards are popular, the optimization of the elderly and elderly employees does not meet the corporate commitment to social responsibility; the price increase has attracted netizens to collectively complain, which is not conducive to maintaining iQIYI's positive image and reputation.
This kind of image damage is not a sentence "low prices are not conducive to the healthy development of the industry" can be hedged. Ignoring the emotions of netizens who are employees can only show that iQiyi is in a hurry.
Especially this year, iQIYI has experienced two major profit means of talent shows and advanced on-demand have been stopped, and the superimposed external environment is not friendly to Chinese stocks, and iQIYI's stock price has continued to hit a record low, as of December 15, 2021, the market value is only 3.7 billion US dollars, a shrinkage of more than 80% from the highest point.
This was followed by a weakening of the financing function. On the one hand, Wall Street investors prefer companies that implement stock buybacks rather than business models that need to raise capital from the stock market, iQiyi issued common stocks publicly last year, and frequent financing is not a wise move, on the other hand, the current stock price is not conducive to the amount of financing.
The U.S. stock market is already a chicken rib-like existence for iQiyi. In October this year, iQIYI reported the news that it would return to Hong Kong for listing at the end of the year at the earliest, opening up new financing channels, which became reasonable.
How is it priced and how much money is raised? It depends on two aspects.
First, a good report. Layoffs are the most immediate way to cut costs, and if price increases don't lead to a drop in subscriptions, net profit margins and operating cash flow are expected to improve significantly.
Second, a new story, a bright road. iQiyi wants to prove its growth to the capital market: it can not make money now, but it will make money in the future.
Short-term profit problems can be achieved by layoffs and price increases, in order to break the ceiling of member income that rises and falls in price and form a healthy profit model, it is necessary to gain the right to speak on the cost of content and continue to maintain the supply of high-quality content.
In this regard, Mango TV and Netflix are two samples worth studying.
Mango TV is the only player in China to achieve profitability, and its advantage lies in its backing hunan satellite TV, which has a rich library of high-quality variety shows, film and television dramas, and it can achieve membership growth at a small copyright cost.
Streaming giant Netflix also achieved a positive cash flow from operating activities in the first quarter of last year, it has no advertising, all rely on user payment, but its investment in content costs is absolutely higher, and the investment in original content in 2019 is as high as $15.3 billion.
The biggest difference between Netflix and Aiyouteng is that it has cultivated the ability to continuously produce explosive content, users are willing to continue to pay for content, and the acceptance of price increases is higher.
Aiyouteng is still far from the stage where it can rely on content to achieve a positive cycle of service and revenue.
Since 2018, the proportion of iQIYI's self-made content has increased from 30% to more than 50%, which can alleviate some of the pressure on their purchased copyrights, and iQIYI has also achieved a narrowing of losses after 2018.
However, under the long-term deformed development of China's industrial benefit distribution mechanism, the industry has not really shifted from traffic operation thinking to content operation thinking.
On the one hand, content producers prefer to use traffic stars for content creation due to data considerations such as the amount of playback, which ensures ratings, but may also sacrifice the quality of the content itself;
On the other hand, China's entertainment content industry is not yet perfect, the audience's consumption tendencies and aesthetic tastes are not mature, and the brokerage companies and film and television content companies are not mature enough, which leads to their lack of bargaining power in front of traffic stars, and the final result is that the video platform has invested a huge amount of content costs, but the proportion of real use in the production of episodes is likely to be not high.
In 2018, the State Administration of Radio, Film and Television issued a salary restriction order to ease the situation, but the improvement of the overall environment is difficult to change qualitatively in the short term.
Aiyouteng wants to turn around by making self-made content, which must be a long-term cultivation process. In such an environment, iQIYI's move is only to survive self-help, long-term development, but also depends on how iQIYI makes business strategy adjustments next.