iQIYI - Earnings Call - Q1 2025

Transcript

Operator (participant)

Thank you for standing by, and welcome to the iQIYI First Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Chang You. Please go ahead.

Chang You (Director of Investor Relations)

Thank you, Operator. Hello, everyone, and thank you for joining iQIYI's First Quarter 2025 Earnings Conference Call. The company's results were released earlier today and are available on the company's investor relations website at ir.iqiyi.com. On the call today are Mr. Yu Gong, our Founder, Director, and CEO; Mr. Jun Wang, our CFO; Mr. Xiaohui Wang, our CCO, Chief Content Officer; Mr. Youqiao Duan, Senior Vice President of our Membership Business; Mr. Xianghua Yang, Senior Vice President of Movies and Overseas Business; and Mr. Gang Wu, Senior Vice President of Brand Advertising Business. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by Jun who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session.

Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statement except as required under applicable law. I will now pass on to Mr. Gong. Please go ahead.

Yu Gong (Founder, Director, and CEO)

Hello, everyone, and thank you for joining us today. We deliver a solid first quarter, gaining sequential growth in both total revenues and profits. This was built on a strong rebound in our long-form premium content and strategic investment in vertical format micro-dramas. iQIYI is rapidly cementing its position as a go-to platform for users seeking a seamless blend of long-form and short-form entertainment, creating exciting opportunities for future commercializations. This will strengthen our confidence and commitment to drive even deeper upgrades across our business model and content ecosystem in response to evolving market and user demands.

For the core long-form video content, we are committed to delivering engaging and sought-after stories as reflected in our strong lineup of top-tier dramas. Notably, Drifting Away from our flagship Love on Theater brand surpassed the 10,000 iQIYI popularity index score, while The Demon Hunter's Romance [Foreign language] and Moonlight Mystique [Foreign language] all achieved a score of over 9,600. Looking ahead, we are dedicated to focusing on premium content with a strong commercial value, while also upholding artistic excellence. Additionally, we will further enhance our certain production mechanism to deliver shorter, faster-paced, and more captivating storytelling that resonates strongly with audiences. Through this user-centric approach, we are confident in our ability to unleash our full creative potential and foster a world-class content ecosystem. For micro-dramas, we made notable progress on iQIYI Live.

Micro-dramas now rank second in terms of daily time spent and first in the number of daily unique visitors. This clearly shows their growing appeal in captivating audiences, reinforcing our confidence in further unlocking their full potential. Moving forward, we are committed to expanding our micro-drama portfolio, placing a strong emphasis on premium micro-dramas by enhancing original production and acquisition capabilities. At the same time, we aim to effectively monetize their growing traffic through advertising and e-commerce. Beyond our content ecosystem, we are leveraging technical innovation to improve user experience. A standout example is the launch of our AI-powered iJump feature, Talkout, which transforms how users engage with long-form videos. With a simple swipe up or down on their mobile screen, users can effortlessly skip between key highlights in each episode without missing any exciting moments, delivering a user-centric micro-drama-like experience tailored to today's fast-paced viewing habits.

Highlight points are generated by AI-based videos and personalized behaviors of each user. As all investors are aware, the market is becoming increasingly unpredictable as it continues to evolve. However, in such a volatile environment, the ability to create sustainable value is emerging as a real and valuable asset. With this in mind, we are wrapping up our investments in strategic areas such as enriching our content ecosystem and enhancing the user experience. While these investments may lead to short-term costs, they are designed to deliver long-term benefits. Now, let's move on to the details of our core business segment. Starting with long-form videos, which serve as the foundation of our content ecosystem, we maintain leadership in the score drama category, securing the top spot in terms of total viewership market share during the quarter, according to Enlightened Data.

Our strong performance was highlighted by breakthroughs in our genre-specific genre mode, as we have now established five distinct signature brands, each featuring unique content genres. In the suspense genre, our Night Unfiltered brand achieved a remarkable milestone with the release of Drifting Away, its first title to surpass the 10,000 iQIYI popularity index score. It also generated the third-highest single-episode revenue in our history, just behind the mega-hit The Knockout [Foreign language] and My Heroic Husband [Foreign language]. In the romance genre, our Love on Theater [Foreign language] brand made notable progress in this quarter, expanding our portfolio of content for female audiences with the release of four captivating titles. Notably, our in-house-produced fantasy drama, Moonlight Mystique [Foreign language], garnered impressive popularity index score of over 9,600.

Our modern romance drama, The Best Thing [Foreign language] was not only a success in the domestic market but also the best-performing modern romance C-drama on our overseas platform. C-drama with Chinese drama. Our Masterpiece Theater [Foreign language] specializing in literary adaptation and realistic stories, debuted its first title, Northward. This drama adapted from a modern literature prize-winning novel has further strengthened our reputation for popular drama. Lastly, our Microcosm Theater [Foreign language] and Love on Theater [Foreign language], focus on innovative drama genres with fewer episodes and are accommodated respectively. Building on the success of past hits such as To the Wonder with Our Times and The Great Nobody, I want to point out this brand has set to release an exciting lineup this year.

Turning to movies, we continue to dominate the category during the quarter with the highest viewership market share according to Enlightened. Premium content drives a strong long-tail effect. Exemplified by the success of Ne Zha 2 during Chinese New Year, the film boosted viewership of the original Ne Zha, making it the most-watched movie on our platform this quarter. In addition, our original production Bleed for Past Logo achieved strong revenue and viewership, especially among male users drawn to action and crime genres. For variety shows during the first quarter, our flagship multi-season IP, Become a Farmer [Foreign language], made a strong comeback, sustaining strong traffic and positive word-of-mouth. Our brand-new IP, The Blooming Journey [Foreign language], excelled with a peak popularity index score of over 8,000, attracting audiences in lower-tier cities and among older audiences beyond conventional variety show viewers.

In terms of animations during the first quarter, we continued to improve our production capabilities. Key titles such as Super Cube [Foreign language] and [The Rufu Season 2], [Foreign language], generated positive user feedback during the quarter. Moving on to our content strategy and pipeline. In our core drama category, our focus is on creating a well-balanced content mix that aligns commercial success with artistic excellence. We are committed to three key genres: realistic, suspense, and female-focused drama. To cater to past-paced viewing habits, we are enhancing our content creation strategies. This includes reducing the episode counts for long-form dramas and increasing the number of high-quality short dramas with each episode lasting 5 minutes-20 minutes. This changes well if planned. The value of diversity of our offering enriches the user experience and drives deeper audience engagement. Our drama pipeline features an exceptional lineup of top-tier content.

The already released The Demon Hunter's Romance and Love in Pavilion [Foreign language] gathered widespread acclaim. Adding to the excitement, the highly anticipated film, [Foreign language], A Dream Within A Dream [Foreign language], will be released soon. In the suspense genre, our renowned [Night Unfiltered] brand recently debuted, Breaking the Shadow [Foreign language] and A Live For A Life [Foreign language]. Fans can also look forward to upcoming releases, including Justifiable Defense [Foreign language] and Born with Luck [Foreign language], adapted from the renowned novel, Low IQ Crime. Additionally, the new science fiction suspense drama, What A Wonderful World [Foreign language], will be released shortly as well. Our lineup of realistic dramas includes highly anticipated titles such as The Thriving Land [Foreign language], and [Foreign language], among others.

For movies, we are increasing investments in original productions, focusing on the theatrical releases with strong box office potential. Notably, our original production, Mumu, has already achieved box office revenue of over RMB 140 million. We have six more titles scheduled for their theatrical release throughout the rest of the year, including The Shadow's Age [Foreign language]. Additionally, we are boosting support for online movies with revenue-sharing models. Our diverse lineup includes eight original online movies such as Ultimate Mission [Foreign language], Mother [Foreign language], and Northeast Brothers Season 3 [Foreign language], covering popular genres such as martial arts, comedy, and action.

For licensed theatrical movies, we launched several hits, including Legends of the Condor Heroes [Foreign language] and Detective Chinatown 1900 [Foreign language], both of which have successfully sold their article realms during the Chinese New Year and now are performing well on our platform. For variety shows, we will maintain our focus on producing top-quality programs while introducing exciting new content. This includes sequels to beloved classics like HAHAHAHAHA and The Rap of China 2025, alongside fresh IPs such as Sing Asia [Foreign language] and the reality show [I'm So Into You] [Foreign language], building on the success of The Blooming Journey, we also plan to launch its second season later in this year. For animation, we are dedicated to increasing revenue contributions from original productions, especially high-quality Chinese animation.

We also aim to broaden our collection of enduring serials and optimize our operations to maximize IP value. Major titles to be launched include animation Over the Divine Realms [Foreign language], Embers [Foreign language]. Moreover, we are excited to announce that the highly acclaimed Japanese animation One Piece [Foreign language], has resumed airing through its dedicated fan base. For children's content, we will concentrate on IP commercialization and develop a comprehensive IP ecosystem that spans the entire lifecycle, offering all-age services tailored to parent-child audiences. Anticipated titles include [Princess Zhou Ren Yi] Season 4, Deer Squad Season 4 [Foreign language], Panda in the Forest, Food Truck [Foreign language]. Moving on to micro-dramas, we have demonstrated the promising potential within our content ecosystem, harnessing this powerful momentum. We are poised to amplify our investments in micro-drama content and strengthen user acquisition efforts.

We have three key objectives, starting with strengthening our user base and boosting business resilience by increasing micro-dramas into our content ecosystem. Secondly, we perceive micro-dramas as a catalyst for attracting new users and driving membership revenue growth, especially in under-touched lower-tier cities and among older audiences. Lastly, we are actively exploring monetization opportunities for our micro-drama-zoned initiatives such as advertising and e-commerce. We have successfully achieved the first objective by revamping our apps and rapidly expanding our micro-drama portfolio to over 15,000 titles now, with half available for free and the other half exclusive to members. Our revamped apps are positioned differently in terms of design and targeted audiences. The main iQIYI app focuses primarily on long-form videos and mainly uses a subscription model, with micro-dramas serving as a complementary value-add. The iQIYI Lite app primarily focuses on free micro-dramas and monetizes them through advertising and e-commerce.

These meaningful programs have driven impressive growth in both daily viewing time and unique visitors for micro-dramas, with substantial increases of over 300% and 110% respectively when comparing the first week of April to last December. In the future, iQIYI Lite will be rebranded as iQIYI Micro-Dramas, and we are confident that this transformation will tap into its full potential. We pioneered the concept of a dedicated Chinese New Year slate for micro-dramas, releasing 28 premium titles, hits like My Sweet Home [Foreign language], and The Place Comes Into My Heart [Foreign language]. By consistently delivering premium content, we are reinforcing our position as the go-to platform for micro-dramas. As the micro-drama industry continues to evolve, the growing user demand for premium titles aligns perfectly with our core strengths.

With expertise in premium content, trusted brands, and a loyal user base, we are uniquely positioned to capitalize on this trend. Coupled with our extensive resources, talent teams, and advanced technologies, we deliver unique value to the micro-drama industry. To that end, we are continuously enhancing our ability to produce original micro-dramas while exploring innovative genres to broaden our content offering. Recent initiatives include notable projects such as adapting around 100 classic Hong Kong movies and producing an extensive series of legal educational content, all to be developed as micro-dramas. Additionally, we are integrating technologies like AI and virtual production to improve both efficiency and quality. Building on these initiatives, we are collaborating with partners to foster a thriving industry ecosystem. In March, we hosted the first micro-drama Glittering Night Ceremony, bringing together hundreds of foreign actors, creators, and industry professionals.

The event sparked meaningful interest from attendees, eager for future collaborations. As the first-ever ceremony dedicated to the micro-drama industry, it not only enhanced our profile but also reinforced our role as a key industry player. Moving on to membership services, revenue regained growth momentum during the quarter, increasing 7% sequentially to RMB 4.4 billion, with a healthy growth in subscriber base in Q1, supported by the strong performance of key titles such as Drifting Away, Moonlight Mystique, and Northward. Average revenue per member remained healthy, thanks to our improved operating initiatives. Our strategy is focused on developing a membership business that caters to a broad audience. Expand our subscriber base, deliver enhanced value, and ultimately accelerate revenue growth. As the core of membership business is exceptional content, we strive to boost both member acquisition and retention by maintaining a consistent flow of premium long-form content and engaging micro-dramas.

We continue strengthening our membership base, delivering greater value to our members. We are refining product positions, provisioning to connect with our broader user base. The family-oriented premium entertainment plan saw excellent growth after we introduced free unlimited express package iQIYI benefits. Meanwhile, our ad-supported basic membership plan, designed to offer exceptional value at a lower price, reached a historic production high. Younger generation and users from low-tier cities listed third in new members, with many joining as first-time subscribers. We focus on enhancing member value through initiatives that boost loyalty and drive upgrades. Long-term members now enjoy greater discounts, while premium enterainment members receive free express packages to drive conversions. We expanded options like express package, concept seat experience programs, emotional group purchases, gift cards, and bundled membership plans with added benefits.

These steps make our membership services more attractive and valuable, supporting steady revenue growth and a strong membership community. Moving on to advertising business, advertising revenue in the first quarter decreased sequentially to RMB 1.3 billion. Other than the micro-dramas, Q1 is typically low-season compared to Q4. For brand ads, our top-tier dramas and variety shows remain a strong draw for advertisers. With content-driven ads, we contributed over half of the revenue. Notably, the sequel to our classic IP became a father-seed lead advertising sales. Without the new IP, The Blooming Journey and the fantasy drama Moonlight Mystique generated widespread positive feedback. Looking ahead, brand ads are showing encouraging signs of a potential rebound driven by premium content. We plan to drive ad sales by leveraging premium dramas and generous specific shelter brands. For variety shows, we were focused on delivering high-impact projects and expanding sequel opportunities for classic IPs.

Additionally, we aim to launch a mini-pipe, meaning variety shows, micro-dramas, and customized advertising products, providing innovative and tailored advertising solutions. On the performance ad side, we captured budgets from new high-potential customers in the internet services and education sectors, further diversifying our advertising service. In addition, incorporating AI into advertising content creation has boosted ROI by over 20% compared to ads developed without AI. The future focus is on continuously enhancing our technologies and applying compatibilities to drive revenue growth across internet services, e-commerce, gaming, and education. Furthermore, we plan to seize growth opportunities in micro-dramas and deepen the integration of AI to maximize monetization efficiency. Our commitment to enhancing ad efficiency is further demonstrated by the recent launch of our AI-driven iQIYI ad placement platform by integrating resources from both our long-form and micro-drama ecosystem. This platform empowers both brands and performance ads with sophisticated smart marketing solutions.

Moving on to technology and products, we continue to advance video production through industry realization, enhancing both efficiency and creativity. For example, by scaling up the reuse of digital assets in major original dramas like Southern Anecdote [Foreign language], we have largely reduced production time and costs without compromising quality. Moreover, our cutting-edge text-to-speech (TTS) dubbing solutions designed to convert emotions of things seated have already been applied to English dubbing for both long-form and micro-dramas. On the user front, we are harnessing AI to redefine the entertainment experience. In addition to newly launched iQIYI's future, mentioned earlier, we also introduced other AI-powered products to enhance user engagement. Our AI-powered chatbot platform, Tao Dou World, launched last April, features around 1,000 AI characters from our popular IPs and has engaged with users over 100 million times.

Recently, we introduced the personal AI assistant, Tao Dou, within the platform, which users can use to discover content, discuss plots, and control playback. Additionally, we launched a senior mode feature tailored for mature users, complementing our earlier kid mode designed for younger audiences. Moving on to our business performance in regions outside of mainland China, we maintained strong growth momentum in the first quarter, with total revenues increasing by over 30% year-over-year and the average daily number of subscribing members reaching a new high. Moreover, we are thrilled to see C-dramas gaining traction with our wider global audiences. According to Google Trends data, worldwide search for C-drama recently reached a five-year high, even surpassing search for Korean drama.

Our original production has played a key role in this growing international appeal, with four of the top 10 overseas C-drama in the past six months coming from iQIYI. Our modern romance drama, The Best Thing, set records on our international platform, establishing a new revenue benchmark for this genre. Additionally, our original Chinese animation, Super Cube, also achieved the highest single-day revenue for Chinese animation within the first week of its overseas release. The influence of our premium content drove advertising revenues by 40% year-over-year. Our original Thai drama, GirlBoy, gained substantial traction from brand advertisers, while our Chinese variety show, Become a Farmer, also drew interest from overseas clients. Looking ahead, we are focused on expanding our investment in original productions to create high-quality content tailored to international audiences, while integrating micro-dramas into our global portfolio.

At the same time, we aim to deepen collaborations with local partners and further enhance our brand influence across key markets. Last but not least, iQIYI consistently pushes the boundaries of business innovation, as evidenced by our pursuit of new opportunities and exploration of untapped horizons. We are leveraging cutting-edge digital technologies to seamlessly integrate all IPs, extending their lifecycle and unlocking greater commercial potential. We recently expanded our footprint to offline experience parks. The first iQIYI Land is set to open in Yangzhou this year, with a second project underway in Kaifeng. In addition, our VR immersive theaters are expanding rapidly, featuring popular IPs such as Luoyang, Strange Tales of Tang Dynasty, and Love Between Fairy and the Devil. These VR experiences are now available in over 50 stores across nearly 30 cities.

We believe these immersive entertainment experiences will deepen user engagement with our content and IPs. On the e-commerce front, the growth of new content formats such as micro-dramas combined with consumption scenarios driven by vertical content has unlocked significant opportunities in the sector. To capitalize on these opportunities, we have launched trial operations on iQIYI e-commerce by leveraging our robust IP portfolio, extensive artist resources, and high-quality member base. We hold distinct advantages in this space. This year, we are concentrating on building a solid foundation for content-driven e-commerce with the goal of driving accelerated growth and a firm up in the year ahead. As the video entertainment industry continues to evolve, we remain committed to investing in our content ecosystem and elevating the user experience.

These strategic efforts will enable us to accelerate our content flywheel, strengthening resilience, laying a solid foundation for sustainable growth and delivering long-term value to our stakeholders. Now, let me pass on to Jun to go through our financial performance.

Jun Wang (CFO)

Thank you, Mr. Gong, and hello everyone. Now, let's take a look at the Q1 key numbers. In the first quarter, total revenues were RMB 7.2 billion, up 9% sequentially. Membership services revenue reached RMB 4.4 billion, up 7% sequentially. The increase was primarily driven by the strong performance of the long-form dramas. For online advertising revenue, it decreased by 7% sequentially to RMB 1.3 billion, primarily due to macro headwinds and seasonality. The content distribution revenue reached RMB 628.7 million, up 55% sequentially, driven by more content titles distributed during the quarter.

Other revenues increased by 24% sequentially to RMB 830.9 million, primarily driven by the growth of certain business lines. Moving on to costs and expenses. Content costs were RMB 3.8 billion, up 10% sequentially, driven by a higher number of premium dramas launched during the quarter. Total operating expenses were RMB 1.4 billion, up 8% sequentially, primarily driven by higher marketing spending. Turning to profits and cash flow, our non-GAAP operating income was RMB 458.5 million, up 13% on a sequential basis. The non-GAAP operating margin was 6%. The net cash provided by operating activities totaled RMB 339 million, positive for 12 consecutive quarters. As of the end of the first quarter, we had cash equivalents, restricted cash, short-term investment, and the long-term restricted cash included in the prepayments and other assets, the total of RMB 5.7 billion.

In addition, the company had a loan of $522.5 million to PAG recorded under amounts due from earlier parties. When reviewing our financial performance, the results of our efforts to optimize the capital structure are very clear. Over the past two years, we have prioritized this goal through a series of initiatives to lower our debt levels, optimize repayment schedules, and make our debt restructure more manageable. Notably, the outstanding principal balance of our convertible bonds has sharply declined, dropping from $2.9 billion at the end of the first quarter back in 2023 to $1.17 billion this year. Of the current outstanding balance, there is $522.5 million, as we mentioned earlier, that were resolved through equivalent loan arrangements with a creditor.

As we continue to optimize this debt structure, we have also achieved a substantial reduction in net interest expense, which has declined from RMB 223 million to RMB 155 million in the first quarter this year, decreased by over 30% year-over-year. For detailed financial performance and data, please refer to our press release on our IR website. Now, we will open the floor for Q&A.

Operator (participant)

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Please ask your question in Chinese first and then translate your questions into English. Please limit to one question at a time and rejoin the queue if you have additional questions.

Your first question is from Xi Qingcheng from CICC. Please go ahead.

Shi Qingqing (Investment Bank Analyst)

[Foreign language] Thanks, management, for taking my question. My question about, micro-dramas. Gong Yu mentioned some operational updates on micro-dramas in the prepared remarks. Could management elaborate a little more on the latest developments of micro-dramas and, outline the key focus points, for its future developments? Thank you.

Yu Gong (Founder, Director, and CEO)

[Foreign language]

Our CEO, Mr. Gong, is answering this question. First of all, the users have gradually developed the habit of watching micro-dramas on iQIYI. We now have over 15,000 micro-drama titles with free content and a member-exclusive content that each accounted for about half. Our two mobile apps have also developed various distinct, brand positioning. The main iQIYI app focuses on members' watch for free model, primarily featuring paid, micro-dramas, while the iQIYI Lite app primarily focuses on free micro-dramas supported by advertising.

[Foreign language]

These development I mentioned earlier have driven that of growth in both user time stand and userbase for micro-dramas, while significantly enhancing business-user stickiness. So when we compare the April-December of last year, the number of heavy micro-drama users in our IP which our users would spend 80% of their time watching micro-dramas, has increased about three times.

[Foreign language]

We just stepped into the micro-drama field for not so long, and then just started our original production and seeing some impressive progress. For example, a recently released original micro-drama called China Inescapable Scorching Love ranked first in iQIYI's micro-drama viewing time for several consecutive weeks, and then also successfully entered the ADX Top 10 list, which is a well-renowned list in the micro-drama field.

So among the acquired top-tier titles, for example, like My Sweet Home [Foreign language] and Please Come Into My Heart [Foreign language] each achieved revenue-sharing milestone of over 1 million views within a week. These progress reflecting the high user recognition and appreciation of high-quality micro-dramas.

[Foreign language]

There's some background that I would like to share with everyone. For example, the content cost for each micro-drama title on average costs less than RMB 1 million, and the top-tier titles usually will be less than RMB 2 million per title.

[Foreign language]

Mm-hmm. As such, within the week, the revenue share, dollars, RMB reached RMB 1 million is actually a very sizable and a nice income.

[Foreign language]

Going forward, there are two areas we're focusing on. First is to have more and better quality micro-dramas, and second to invest more on user acquisition, user growth.

[Foreign language]

In addition, we'll try more ways to monetize the growing traffic, for example, advertising and also, e-commerce.

[Foreign language]

Thank you.

Operator (participant)

Thank you. The next question is from Vicky Wei from Citi. Please go ahead.

Vicky Wei (VP of Internet Research)

[Foreign language] Thanks, management, for taking my question. Would management share some color about the change of long video content strategy and the rationale behind it? Thank you.

Chang You (Director of Investor Relations)

Thank you. We will invite our Chief Content Officer, Mr. Xiaohui Wang, to answer this question.

Xiaohui Wang (Chief Content Officer)

[Foreign language]

First of all, long-form videos are the cornerstone of iQIYI's content ecosystem, and our commitment to this remains unwavering.

[Foreign language]

Dramas are at the core of long-form videos, so to better cater to evolving user preferences, our future drama strategy will focus on two key areas.

First of all, releasing high-quality, shorter episode premium dramas, and second, producing more high-quality short dramas with each episode lasting 5 minutes-20 minutes.

[Foreign language]

Going forward, the total number of drama titles will increase, accompanied by enhanced content quality and greater diversity. This approach will not only improve the flexibility and stability of content scheduling, but will also reduce reliance on individual titles and effectively mitigate risks. Thank you.

Operator (participant)

The next question is from Maggie Yee from CLSA. Please go ahead.

Maggie Ye (Research Analyst)

[Foreign language] Would you please share more details on the latest of our overseas business, such as membership and content distribution as well? From a financial perspective, what is the current situation of the overseas business in terms of revenue and profit contribution? And how shall we expect from, from the overseas? What shall we expect from the overseas business in the next one to three years?

Yu Gong (Founder, Director, and CEO)

[Foreign language]

We started our overseas business in the second half of 2019, and after that we experienced three years of COVID. There were some difficulties in terms of, you know, getting headcounts and also travel plans between mainland China and overseas. The development was actually quite slower than expectation. After COVID, in the recent two years, the business has been going through a very rapid development phase. However, we do have some restrictions in terms of the financial resources, so there is some limitation to the development.

[Foreign language]

Uh, in addition to what I mentioned in the opening remarks that we experienced very rapid growth in terms of the annual revenue growth and also subscriber count, et cetera, there is some very important progress we made. Very importantly, we kind of figured out the right content mix for each region overseas, and also what we can do from the content mix to drive user growth and also to drive revenue performance.

[Foreign language]

In addition to that, we also figured out how we can really operate in each region. For example, how we can promote content to acquire better user growth, and also, in terms of the user growth, how we can improve that as well.

[Foreign language]

In terms of the content mix for our overseas business, the Chinese content actually accounts for about half of the content and the other half are the local content.

[Foreign language]

Based on the data the we collected, the Chinese video content, actually the value of that, is increasing in the global market, which is very beneficial to our overseas business growth.

[Foreign language]

Right now, currently, the revenue contribution from the overseas market is still at a relatively low percentage, but it also depends on the future investment into the overseas business, limited to, for example, the scale of our financial support and also the financing sources. These are the areas where we look out for the overseas business.

[Foreign language]

I just added to our CEO's comments.

What we took from the past few years are really valuable revenue growth as well as the right content mix, as well as the operating takeaways from each market, and these are the key takeaways in the past few years. Of course, these are under a very disciplined investment cycle that we did over the past few years as well. From the management accounting perspective, the overseas business is profitable in the past couple of years, and in the future going forward, of course, maintaining profitability is important. However, it does not have to be a meaningful amount. What we want is to invest, take that profit and invest into the business. Hopefully, it will drive greater growth opportunities in the future.

[Foreign language].

Thank you.

Operator (participant)

Thank you. There are no further questions at this time.

I'll now hand back to management for closing remarks.

Chang You (Director of Investor Relations)

Thank you, everyone, for participating in the call today. If you have any questions, do not hesitate to contact us. Thank you, and see you next quarter.

Yu Gong (Founder, Director, and CEO)

Thank you.

Operator (participant)

That does conclude our conference for today. Thank you for participating. You may now disconnect.