Sometimes hitting the south wall can turn back, and it is not too late to make up for it.
Wen 丨 BT Finance Zhang Jinjing
The annual annual reporting season of Chinese stocks is coming.
From the perspective of the media, the timing of these Chinese stock companies choosing to disclose their annual reports is very measured and considered. Some are full of confidence, feel that the achievements are remarkable, and are eager to attract attention at the first time, so they released their annual reports at the beginning of March; some feel that the annual report results are not outstanding, and have to pick a date that everyone does not care about to quietly release; of course, there are also Chinese stock companies that strive to be low-key, and even do not send voices, and simply announce things on the official website.
Baidu, NetEase, Ali, these veteran Internet Chinese stock companies, when the new year's earnings season comes, the performance is full of confidence. This is understandable, after all, the profitability of these companies is very good, although the growth rate may have some decline, but the space for subsequent development is still very clear.
Unexpectedly, iQiyi, which was still evaluated by the media as having no way forward in the third quarter of 2021, also announced its unaudited fourth quarter and full-year financial reports as of December 31, 2021 on March 1, which surprised the market.
The basis for supporting iQIYI's founder and CEO Gong Yu to make such a decision is that iQIYI's loss reduction in the fourth quarter has been effective, and in the case of total revenue growth, the loss rate has dropped by 5% throughout the year, and Gong Yu even gave the expectation of striving for iQIYI's breakeven in 2022.
This is seen as the first time iQiyi has announced its own effective timetable for reducing losses.
According to the financial report, iQIYI's total revenue in fiscal 2021 reached 30.6 billion yuan, an increase of 3% year-on-year, of which the fourth quarter revenue was 7.4 billion yuan. Based on non-GAAP financial indicators, the full-year operating loss was $3 billion, and the operating loss ratio narrowed to 10% from 15% in the same period of the previous year, of which the operating loss in the fourth quarter was 520 million yuan, and the operating loss ratio narrowed significantly to 7% from 13% in the same period of the previous year. Membership revenue in the fourth quarter was $4.1 billion, up 7% year-on-year, and average monthly single member revenue (ARM) was $14.16 in the fourth quarter, up 14% year-on-year.
In the third quarterly report of iQiyi released in November last year, the revenue growth of 7.6 billion yuan was OK, more than 6% year-on-year; the key net loss was 1.7 billion yuan, an increase of 41.7% compared with the same period last year. The problem is that the loss increases so quickly, the vast majority of which is due to marketing fees, and the earnings report indicates that the purpose is to rapidly grow the number of users. But unfortunately, the last three quarterly reports showed that user growth almost peaked, only about 600,000 yuan from the same period in 2020.
This is an important reason why the loss is still there, but the media is not optimistic about iQiyi and negative evaluations are overwhelming. After all, during that time, iQiyi increased its membership fees.
Coupled with the fact that iQiyi constantly highlighted that it wanted to take the road of the entire video industry chain at that time, the stalls were too large and made others doubt the feasibility of Gong Yu's ambitions.
This is also why after the launch of the new financial report, iQiyi, which has reduced its business + laid off employees, has actually ushered in the opportunity of breakeven because of reduced operating costs, which has been recognized by the capital market. Coupled with rumors that state-owned capital may take a stake, on the day of the march 1 earnings report, iQiyi's stock price rose by more than 40%.
Behind this situation, it contains the capital market's emphasis on economic laws.
The era of capital is king is gone
Looking at iQIYI's unexpected loss reduction financial report, as well as the capital market's reaction to it and the statements of corresponding personnel, it can be seen that the era of Internet competitive capital is gradually gone.
Whether it is Ali and Baidu, and later with JD.com and Suning, or the Hundred Regiments War that makes the US Group stand out; or behind the taxi war, all of them show the role of capital in the competition of Internet companies.
This also makes many later Internet companies use capital to quickly iterate the market and expand the number of users as a code of conduct. In other words, "burning money" used to be the same choice of Internet tycoons.
The same is true in the long video industry.
The money burning war in the long video industry began with Sohu Video. From 2009 to 2014, Sohu began to exert its power on the copyright of American dramas, including many popular American dramas such as "Prison Break", "Friends", "The Big Bang Theory", "Breaking Bad", "Bankrupt Sisters" and so on. Under the blessing of the traffic dividend of "Watching Sohu on American Dramas", Sohu Video has become a well-deserved first echelon of video players.
In 2015, the "foreign restriction order" was introduced, and the British and American dramas on the video platform were strictly censored, which led to the gradual collapse of Sohu's most important advantage in the copyright war. Later, in order to save this impact, Sohu also took the lead in opening the era of self-made dramas. He has created self-made dramas such as "The Year of Hurry", "Forensic Qin Ming", and "Fox in the Screen", which have performed remarkable in terms of word-of-mouth and broadcast volume.
However, Sohu opened this money-burning mode, which aroused the attention of real players "Ai Youteng". With the entry of the three companies, the cost of self-made dramas has gradually risen, and the sky-high salaries of actors have become more and more intense, and Sohu, whose profitability is not optimistic enough, is naturally unable to participate in such competition.
This kind of burning money also has an impact on Sohu's financial reports. From 2017 to 2019, Sohu made net losses of $556 million, $131 million and $128 million, respectively. From 2020 onwards, after strict control, small profits have been gradually realized.
After that, although the three "Aiyouteng" families continued to exert their strength, challengers still emerged in an endless stream. First LeTV, the ambitious Jia Yueting wanted to completely overthrow all competitors with three years and 50 billion yuan; the same was true of the later Storm Video, but it was only the failure to try to leverage the 5.2 billion Serie A retransmission plate with 200 million, so that the company completely fell to the bottom.
However, in this process, in order to purchase the copyright of high barriers, but also in order to support more and more sophisticated, actors and actresses with higher and higher costs of self-made dramas and self-made variety shows, as the market-led "Aiyouteng" three, had to spend a lot of content costs.
Last year, Sun Zhonghuai, vice president of Tencent and CEO of Penguin Pictures, said that the content cost invested by Tencent Video in the past three years has exceeded 50 billion yuan, and it will still invest more than 100 billion yuan in the next three years.
In fact, Tencent Video has the most content investment among the three, and it is also the one that most hopes that the capital offensive can achieve results.
Taking the popular drama "Ruyi Chuan" as an example, in 2016, Tencent Youku began to compete, originally the two companies each shared the copyright of 600 million, but Tencent finally offered 1.3 billion yuan to get the exclusive broadcasting rights. Tencent Video's IP reserves are equally arrogant. According to the data of Southern Metropolis Daily, as of April 22, 2021, of the 8826 drama Internet copyrights in the stock copyright market, Tencent covered 4715, with a coverage rate of 53%; among the 399 movie Internet copyrights with more than 100 million domestic productions, Tencent covered 327, with a coverage rate of 82%.
Youku is not far behind, because the corresponding data of non-listed companies is not disclosed, but the data in 2015 shows that nearly 400 million yuan was burned in one quarter. In recent years, with the acceleration of Tencent and iQiyi, Youku's content expenditure has also shown an upward trend.
iQiyi's net loss in 9 years exceeded 43.8 billion, and most of the reasons for the loss were caused by the surge in content costs. According to the third quarter report of 2021, iQIYI's revenue cost was 7 billion yuan, an increase of 10% over the same period in 2020, and the increase in revenue cost was mainly due to the increase in content costs in the quarter. Content costs, a significant part of revenue costs, were $5.3 billion, up 13% from the same period in 2020. The Four Seasons report shows that although the scale of content investment is controlled, iQiyi's content cost also exceeds 4.9 billion.
Some media estimate that in recent years, in order to compete with each other, Aiyouteng has burned more than 100 billion yuan on the content side.
This is indeed the same as the hundred regiment war, the taxi war, the community group purchase war and other capital wars that are famous on the Internet. However, in the past year or so, the effect of this huge investment has begun to appear unclear.
For example, the big brother Tencent Video, although it has surpassed iQiyi in terms of membership scale, has limited growth. According to the financial report, since Q4 of 2020, the number of new paid members of Tencent Video has only 3 million, and in Q1 of 2021, it has dropped to 2 million, and in Q2 of 2021, it has repeated the plot of Q4 of 2019 - the growth rate has landed to zero.
On the other hand, although it has a certain price advantage in terms of membership fees, due to insufficient reserves of high-quality content, the growth rate of Youku's paid user scale continues to slow down, and in the fourth quarter of 2018-2021, Youku's average daily paid user scale increased by 64%, 59%, 30% and 14% respectively year-on-year.
Of course, the same is true of iQiyi. The latest financial report shows that the number of iQiyi subscribers continued to fall to 96.4 million in the fourth quarter, directly to the level of early 2019. Not only has the epidemic dividend been wiped out, but the growth for the whole of 2019 has also been lost.
This is in the context of the three companies in the past two years that have continuously invested corresponding capital and pushed up various content production, and the growth rate of members has peaked. As can be seen in this behavior, the era of constantly investing capital to produce content in the hope of gaining the favor of users is gone.
In other words, the era when long video capital was king is over.
Operation is the foundation to survive
This is also a very important insight for iQiyi.
In fact, after the release of the third quarterly report in 2021, Gong Yu, founder and CEO of iQIYI, had a corresponding view and made a very painful adjustment decision.
This is also the boiling iQiyi layoff incident in December last year.
According to the corresponding media information, the overall layoff rate of iQiyi is as high as 30%, some departments such as (game centers) have been completely destroyed, and even the content department of the top pillar has been reduced by more than 30%. The scope of layoffs is not only probationary employees, ordinary employees, but also some middle and high-level executives, and it is conceivable how determined iQIYI is to "slim down".
Reflected in the financial report, iQIYI's sales, general affairs and administrative expenses in the fourth quarter were 1.1 billion yuan, down 17% year-on-year, which provided a lot of help for iQIYI to reduce losses in the end.
Of course, the layoffs are accompanied by business adjustments.
First of all, iQiyi has strengthened the scientific decision-making of content investment. Similar to Youku, iQIYI established a content middle office in the second half of 2021, forming a standardized and scientific system from development to production management. With the support of such system goals, iQIYI's content investment in the fourth quarter has achieved a total decline of 5% while maintaining a high level, which is the first time in recent years that content investment has shown a significant decline.
Secondly, iQiyi has started an active contraction in its own business. The whole industry chain model that used to be in the center of the executive mouth has gradually been replaced by a precise business model. In this adjustment, according to the comprehensive information reported by the media, iQIYI resolutely cut off other business lines except content, VR, and short video moments, basically accounting for about 12% of the revenue in the financial report, and realized the light loading around the main business.
In this regard, Wang Xiaohui, president and chief content officer of iQIYI PCG, said in an interview with the media: "Businesses with poor benefits should do some subtraction. In the period of high-speed growth, you must make up for the shortcomings; in the expected instability, you must strengthen the long board... Only by making the long board more valuable can we survive the cold winter of the industry. ”
Third, iQIYI began to strengthen its own content longboard and achieve intensive development. Wang Xiaohui, chief content officer of iQiyi, has previously said, "In the past, we thought that the particularly small vertical category was seen by someone and could be calculated." Now it seems that the opportunity cost is too high. With this energy and time, it is better to develop A+ and S grades with a wider audience and more innovative themes. ”
In this environment, the contraction of the custom drama market will become a new wind, and the suppliers of mid-waist dramas will usher in a round of industry reshuffle, and this part of the practitioners may mainly rely on word of mouth to earn income in the form of sub-accounts. The data shows that iQiyi's self-made content in 2020 has accounted for 66%, and most of them are supporting manufacturers in the middle waist to promote the development of new boutique dramas.
In addition, while these business adjustments, Aiqi has strengthened its investment in scientific research and begun to transform itself from a pure video platform to the coexistence of technical services and video platforms. According to the annual report, iQIYI's research and development expenses in 2021 will be 2.8 billion yuan (about 438.6 million US dollars), an increase of 4% over 2020, accounting for more than 9% of revenue, far ahead of the other two major competitors.
The key is that the adjusted iQiyi began to focus on the improvement of its management efficiency internally, rather than blindly expanding. After the layoffs, iQiyi's sales and management expenses in the fourth quarter fell 17% year-on-year, and the 14.8% rate was almost at a record low. Research and development expenses have accelerated their growth, which is in line with the strategic direction of iQiyi's adventure VR and intelligent production system.
The feedback from the capital market also shows that the transformation from an expansion enterprise to an internal potential enterprise is actually an optimal choice in the case of a cold market environment and a deteriorating competitive pattern in the industry.
Because no matter when, the operation-oriented enterprise can survive and live better.
The second curve should also be reasonable
To some extent, iQiyi has been trying to get rid of the competitive method of "burning money" on a large scale with several other major competitors.
This is why in 2021, iQiyi executives have been constantly emphasizing the "one fish to eat more" development strategy. The so-called "one fish eats more" is to enter from the entrance of copyright IP, and use all the commercial value brought by IP to use various marketing means to eat dry and wipe away, breaking through the original situation of simple membership fees and advertising fees as the main body of revenue.
The idea is good, and this is likely to be the second growth curve that Gong Yu tailored for iQiyi.
After all, Charles Handy described the first and second curves in Second Curve: Secondary Growth Across the "S-Shaped Curve", saying that at some point, the first curve will inevitably peak and begin to fall, and this decline can usually be delayed but irreversible; the second curve must begin before the first curve reaches its peak, so that there are enough resources (money, time and effort) to withstand the initial decline in the second curve input period.
Therefore, the so-called "eat more than one fish" is of strategic significance at this point in time when it is frequently proposed by Gong Yu and other executives. The problem is that the second curve relative to the first curve must be discontinuous innovation, or leapfrog innovation, not a simple extension of the business from the first curve.
In a sense, iQIYI is now looking for the second curve, a little late, because according to economic theory, the second curve should be started when the first curve has passed the "breaking point" and there is no "limit point", but the current iQIYI membership growth has reached the limit, and the simple content growth model cannot drive the rapid leap of the second curve.
In addition, constantly opening up new businesses and new areas that you are not familiar with is not the second curve. A large part of the "one fish to eat more" strategy has been put into the line, and various film and television drama playgrounds have been built, which not only increases the cost of expenditure, but also does contradict the principle of the second curve.
Perhaps because of seeing some of these facts and feeling the pressure of the capital market at the same time, Gong Yu's drastic adjustment to iQIYI in November last year precisely clarified the direction of the development of iQIYI's second curve in the next stage.
At present, the core adventure VR products and IP derivative production projects in the "one fish to eat more" strategy have been retained, which is a leapfrog innovation that is gradually extended by the first curve. The retention of these businesses just highlights iQIYI's exploration in the direction of IP derivatives, and if the business matures, it is likely to expand rapidly, forming a second curve that truly supports the development of iQIYI.
In addition, pay attention to the research and development and promotion of intelligent production systems, which is a very noteworthy trend of iQIYI from the end of last year to the present. In a sense, iQiyi, which has invested heavily in research and development on the video intelligent production system and has been effective, can launch another growth curve from this perspective, forming a new platform and technical barrier with online video production as the core.
At present, it seems that Gong Yu optimized the two second curve directions he chose after last year's major layoffs, which are very likely to be successful. They are judged on the basis that they are indeed based on economic principles, not on the basis of their heads.
Gong Yu, founder, director and CEO of iQIYI, said at the earnings launch: "We have significantly improved our operational and cost efficiency while maintaining our industry leadership in a variety of user indicators. I'm glad to see that we're moving in the right direction. ”
Looking at this sentence now, it is achievable, but the premise is that iQiyi must adhere to the product direction of its second curve and conscientiously do a good job in corporate operation and market research.
Because the operation of the enterprise is good or not, it is not to see how much the enterprise has in the capital market, but to see whether the data of the fundamentals of the enterprise is stable and sustainable.
Only an enterprise that is willing to work hard at the management level, and an enterprise that regards operation as the foundation, can really have a future.
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