iQIYI, Inc.

Thank you for standing by and welcome to the IKEE first quarter 2023 earnings conference call. All participants are in the 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 Chang Yu. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining IT's first quarter 2023 earnings conference call. The company's results were released today and available on the company's investor relations website at ir.it.com. On the call today are Mr. Lin Feng, our founder, director, and CEO, Mr. Jun Wang, our CFO, Mr. Xiaofeng Wang, our CCO, Chief Content Officer, Mr. Wenfeng Liu, our CTO, Chief Technology Officer, and Mr. Yuxiao Zhang, Senior Vice President of our membership 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, Xiaohui, Linfeng, and Yuxiao will join Mr. Gong and Jun in the Q&A session. Before we proceed, please note that the discussion today will contain forward-looking statements. made under the proper provisions of the U.S. Private Security Litigation Reform Act of 1995. Overlooking statements are subject to risks and uncertainties that may cause the 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 ICC. ICC does not undertake any obligation to update any overlooking statements except as required under applicable law. With that, I will now turn the call over to Mr. Fung. Please go ahead.

Hello, everyone. This study, Dissolving Entertainment, is an exceptional knowledge. A strong first quarter entering a new chapter of high-quality growth. Our company's live view, once again, demonstrated its power. The exceptional knowledge exceptional IT original growth, financial performance, and market share reaching new highs. To be specific, IT maintaining its dominant leading position in China, reaching new highs in market share, a long-standing original company strategy, both moved once again the more cost becomes the best performing driver in our industry. In Q1, original content continues to be the main driver of new related and brand new performance and further enforce the brand perfection that IT is a blockbuster powerhouse and significantly improve subscriber savings. Both total annuals and membership solicits' annuals keep quarterly all-time highs. Total annuals recorded double-digit growth both annually and sequentially. In particular, the whole membership solicits' annuals reached a new high of 24% annually and 17% sequentially. The quality of original content drove robust growth in subscriber sales. In Q1, the average saving number of total subscribing members approached 129 million, a corporate net addition of over 17 million. This marked the second consecutive quarter with corporate net addition of over $10 million. As of March 31, the number of subscribing members was $170 million, which reflects the usual seasonality following the Chinese New Year. And it's all past the average end of Q1 performance. Now the gap operating income exceeded RMB $1 billion in Q1. for the 6th consecutive quarter. More importantly, flash cash flow also exceeded R&P 1 billion this quarter, a critical milestone as it steadily becomes more self-sustaining. As we mentioned last quarter, we believe this recent solid result are just the start of a phase of high-quality growth. In Q1, we witnessed the power of premium one-point video and its strong appeal to users. Our ability to produce and deliver high-quality, popular or remote content is of course competent, which is difficult to surpass in the short term. We will continue to evolve to secure our industry leading position in the long run. Currently, our businesses can be classified into three stages, core, growth, and early stage. Our core businesses include membership-based, online advertising services, content distribution, IP accessing, et cetera. Our growth businesses include IT Life, Energy Club. Our early stage businesses include our overseas business and cloud seminar business. Now, let's go through the performance of our business segments in VR, starting with membership services. Both membership services annual and the number of subscribers is record high in Q1. Membership services annual surpassed RMB 5.5 billion, up 24% annually and 17% sequentially. The average data number Daily number of subscribing members reached 138.9 meetings into one. Sequentially, net addition of over 17 meetings, marking the second consecutive quarter with a net addition of over 10 meetings. I would like to reiterate that the goal of membership units is maximizing user experience and in return, tracking and optimizing of network performance. The economics of a membership unit are driven by three factors, namely subscriber base, subscriber lifetime, and arm. We take the dynamic of our membership business based on many factors, including company supply, user demand, and the market environment. This allows us to drive continuous improvement in both membership revenue and user experience. The above-mentioned strategy has helped us build stronger, longer, and broader relationships with our users. We saw further optimization of our membership structure and stronger user engagement into the proportion of annual subscribers increased significantly year-over-year, while the lifetime level and the long-term retention rates also improved. In addition, our membership process into one, we saw strong growth from both subscribers with live stream privilege and IT life, and supported basic subscription package, which targets differentiated user demographics. So what brought the strong growth into one? First, the diversified premium content we released drove new subscribers and improved user retention. Among the strong content offerings, the more cost brought a number of records and a faster-performing drama, which generated the highest membership revenue during the new release window. drummers, dash apps, and . Every day and night, under the microscope, and the ,, they are all well received by users. Second, we continue to refine our membership business operations, increasing members presentation with enhanced advantages. For example, we improved subscribers' convention and monetization efficiency through sophisticated user analytics. Common and the narrowest marketing initiatives and in-depth research into user flow strategies. In addition, We upgraded our membership center, introducing various high-quality benefits, which drove a significant increase in member benefit consumption in Q1. Looking forward to 2023, we will continue to focus on driving high-quality growth and to pursue further growth in granular subscribers and on. Moving on to content. During the quarter, our content methodology remained highly effective and off-brand image as a diversified and high-quality premium content protocol reached a new height. Not only Our market share of drama reached a new high. We remain number one in terms of effective legal deals for both overall drama and inclusive drama categories for the fifth consecutive quarter. Our regional content continues to account for the majority of drama supply and revenue. original content accounted for 70% of the key drummers we released in Q1, the highest in our history. The drumming contribution ratio of original content also reached a new high. As a factor for drumming drummers in IT history, the know-how to compute was a two-megabit value. for multiple key metrics that are generated. IT journals have become a major source of company supply for domestic TV networks, including CCTV and the following channels with whom we have built long-term partnerships. We are the player industry leader in this area. In Q1 alone, we distributed around 20 premium drummers to CCTV and calling show central TV stations, including the knockouts, early at night, and multiple. Also, volume and the value of distributed content reached a record high. The knock-off also becomes the highest-rated show over the past 30 years on the major domestic-primer channel, CCTV8. As an online media entertainment service provider, our goal is to systematically increase the piece ratio of our streaming content. Our long-term Commitment to original content enables us with structural advantage in the industry. For years, we have successfully built three strong pillars that support our training content offering, namely, optimize the content production intelligence, strong operating and technical capabilities, and top talents. These capabilities will empower us to steadily grow the world of high-quality content to further enrich our premium content offering. For content production, we've actually improved our internet-led visual content production capability through our sophisticated content management mechanism and content production tools. We believe this creates effective competitive barriers that are difficult for others to defeat. For content management mechanisms, we have established an efficient and comprehensive mechanism running through the whole process from product incubation to assessment, production, promotion, operation, and distribution. For company production tools, we have built in-house developed systems to support industrialized visual production based on AI, big data, and cloud computing. So these methods can further improve our company's production and operational efficiency. and a new standard for the Chinese video industry. With respect to industry talent, we have a compelling creative culture and talent composition mechanism that is highly valued and appreciated by in-house talent and industry content partners. Our approach is reflected in two aspects. First, in addition to providing competitive economic incentives, we give creators sufficient freedom, allowing them to take initiative and unlock their creativity within our discipline framework. Second, we have always been committed to encourage fresh young talents in addition to work with well-known and experienced creators. They also nurture young and emerging talents and help them develop their potential. In 2023, we will continue to launch Diversified Content Across All Genres for Drummers in Q2. Echo, Wei Xiang, directed by famous Chinese director Hong Xiaogang. In 13 years, I've been on Shenzhen and then on New South Wales. And the injurious one, Yin Xiangzhuang, Yin Xiangzhuang has generated some awards of mine, also starting from Q2. A number of key company drummers will be released. including storage of cleaning pallets, and remodeling. The largest casebook, Lianhua Low, best-teamed Changlong Du and W7X, Shi Shi Jixiang. The diverse line-ups of dramas in other categories will also be released. A number of original variety shows will also be launched in Q2, including both the training season of gig shows and the debut of new titles. In addition to the already out, The Lady in the Land, Ha Ha Ha Ha Ha Zui, Yes, I Do It, 4, The Detective Adventure Zui, Please also participate in the launch of flagship titles such as The Life of China 2020. Looking ahead, we plan to increase our investment in the agricultural industry with the gradual recovery of the advertising market. Please also anticipate to see new related in other categories, including original children cartoon, food pamphlets, maps, summits, and the locals, and the original animation, the garden legend, and the IOC. Moving on to advertising, we are pleased to see that advertising revenue reached RMB 1.4 billion in July, up 5% year-over-year. For performance ads, revenue grew 75% annually, and its revenue contribution reached a new high, totally high. We successfully acquired a high share of advertising value from key industries. including internet services, e-commerce, and make full use of ad slots to effectively improve monetization. In addition, we optimized our algorithm to strengthen our targeting and improve ad effectiveness. For brand ads, Q1 was soft due to typical season editing. The year-over-year decline was due to their relative high base in Q1 last year, and the ad market aspect was not impacted by the pandemic lockdown in Shanghai, which is a new hub for the domestic advertising market. Despite that, we observe growing pressures among advertencers driven by our premium drummers, variety shows, and diversified ad products. And the launch of a number of variety shows in Q2 would likely drive the recovery of the brand and the business. We are passionate. optimistic towards the overall brand advertising market this year. Consumption is still recurring in the first half of the year. and the chance to see further recovery in the second half overall. We are positive about the long-term development of the brand ad market. Meanwhile, IT's brand influence and user base are highly valued by advertisers. In terms of other factors, we are optimistic about the NMCT factor, which includes food and beverage, travel, domestic cosmetic breath, and smart home appliances and healthcare. Moving on to technology and the products, technical innovation is one of our core values. which is critical in driving video industrialization and improve company production efficiency. For workflow production, the technology has been applied in two of our key original dramas. Filmstacks that adopted this technology for efficiency and reduce the required phone number by one third. The IT data protection management system is a data-driven and high decision-making system that captures every critical moment in the entire content protection process. For example, the system can in just a few minutes. It can also generate estimated content-related cost ratio, a key measure that we use in our original content decision-making and efficient monitoring process. Management can utilize these tools to monitor production process ROI and use of funds and manage the overall production in real time. They continually optimize our products with the aim of bringing the ultimate entertainment experience to every user IT app was opened by the Ministry of Industry and Information Technology for providing user-friendly access, tailored for elderly and disabled. We upgraded IT's thematic search capability to better understand user's search intentions. The search by character feature helps users quickly find videos based on character, providing a highly efficient way to search for videos. We also articulate how generated AI applications build upon large-language models. can improve content production and promotion efficiency in the long-form video industry. Our internal assessment indicates that generative AI technology can be implemented in multi-business scenarios, including streaming, streamlining, script brainstorming, creation and review processes. We have initiated the integration of the regenerating AI technology into our intelligent production system, and we impact the resulting library model-empowered intelligent production system will achieve higher performance and better income by combining Large library model applications with computer vision and audio models, we can gain deeper insight into video content, resulting in significantly improved quality and production efficiency of promotional images and videos for use in advertising and content marketing. Text-to-image and text-to-video applications are also valuable tools for generating pre-visualization during production preparation for use in comic and animation production processes. Next, I'd like to discuss the programs of ITV Light and our overseas business. In Q1, actually attained high quality growth and once again recorded operating profits. For the corresponding basic subscription package, the number of subscribers grew by over 70% sequentially and revenue grew by over 80% sequentially. For the overseas business, driven by the outstanding performance of the training content. The membership revenue achieved a solid growth in the quarter. The membership revenue rose with exceeded 90% annually in general, in regions including the U.S., Hong Kong, Japan, and Mexico. The improved inflows of original Chinese drama continued to grow which has a growth of 54% annually, from the top to the leadership, ranking in multiple markets in Southeast Asia and North America, generating outstanding war of minds and a huge social gap. Coming into Q2, we have a solid pipeline of trading companies, including key Chinese drummers, which will drive the growth in both subscribers, members, and venues. Q1 represents a solid first step into a new stage of high-quality growth. After 13 years of development, our industry leading brand improves. It is deeply embedded in the mindsets of users and industry partners. We are confident about the future prospects of the industry, and as an online leader, our business has strong resilience and promising growth potential. We treasure the trust and the support of our stakeholders, and we will keep pushing ourselves to unleash more potential and achieve high quality growth over the long term. Now, let me pass to Jun, who will go through our financial performance.

Thank you, Michelle, and hello everyone. Here we are with another record-setting employee for us in the serving mission. We achieved historical highs across all key aspects. Not only we achieved all-time high in total revenues and membership services revenue, we also further improved our profitability, cash flow, and balance sheet.

The exceptional Q1 result was once again driven by the success of our original company strategy. To be more specific, we opened RMB 8.3 billion in total revenues hitting quarterly all-time high of 15% annually and 10% sequentially. Membership services revenue continues to serve as the biggest growth driver, with revenue exceeding RMB 5.5 billion, up 24% annually and 17% sequentially. Meanwhile, our advertising revenue and accounting distribution revenue up by 5% and 16% respectively on annual basis. Moving on to the cost and expenses, our cost of revenue increased by 10% sequentially, among which the accounting cost increased by 7% sequentially. We launched a more diversified premium content, original content, in the fourth quarter, as Q1 is a typical high season with Chinese New Year holidays. Then total operating expenses increased both annually and sequentially, mainly due to the increase in FD&A expenses. We devoted more resources in marketing as we believe this will amplify our content influence, increase user penetration, and enhance the strong momentum generated by escalating some of our original content. For Q1, we continued to strengthen our profit and cash flow generating capability. Non-debt offering income exceeded RMB $1 billion, expanding for the six-convective supporters. More importantly, free cash flow also exceeded on the $1 billion. In Q1, we raised approximately $1.1 billion through follow-on income portable note offerings. We also repurchased approximately $340 million was the principal amount of the convertible notes due to 2026. At the end of Q1, the company had cash, cash equivalent, restricted cash, short-term investment, and the long-term restricted cash included in the prepayment and other assets of R&B $6.3 billion in total.

This $6.3 billion in decash balance does not include the payment of around $1.2 billion to the paying agent to meet the company's repurchase obligation on April 4, 2023 for the convertible notes due in 2025, which was classified as prepayment of other assets on the balance sheet.

The repurchase has been completed in April 2023.

To conclude, the first quarter results demonstrated the success of our high-quality work strategy. We will continue to focus on execution and are confident in our ability to generate more value for our stakeholders in the long run. For detail on the financial data for the first quarter, please refer to our prior release on our website.

Now we will open the floor for Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, Please pick up the handset to ask your question. Your first question comes from from CICC. Please go ahead.

Thank you for your question. My question is about the content and the cost. I would like to ask how the management thinks about the content investment trend of the company this year and the mid-term. And in terms of revenue, what is the level this year compared to last year? And I will translate myself. Thanks for taking my question and congratulations to Realt. My question is related to content and content cost. What's the trend of content investment for this year and the longer term? and what's the level of this year's production compared to previous years. Also, regarding to account costs and the income statement, how does management think about the growth rate of this year and in the future? And last, could management share with us highlights of the pipeline this year? Thank you.

I would like to invite our CCO, Wang Xiaofei, to answer the question.

Hello, everyone. I am Wang Xiaofei. Let me answer this question.

First, from this year and the mid-term, our overall internal investment remains stable.

will continue to stick to this reasonable plan to maintain a relatively stable investment.

For this year and over the mid-term, the overall content cost will remain stable with marginal increase. And in the long run, we will maintain a reasonable content launch schedule and also a relatively stable content cost level.

The second is that we will continue to invest in self-made head products. the number of high-quality original functions and the number and portion of high-quality original functions will increase in the future.

Secondly, we will continue to invest in high-quality original functions. The number and portion of high-quality original functions will increase in the future. And third, compared with last year, the number of titles going into production for this year will also increase. In order to meet the demand of head premium content inventory and the launch schedule.

From the beginning of KOR, we will continue to present various high-quality content in various categories. Including in the collection aspect, Gu Gang Da Ju will continue to meet our audience. For dramas, starting from Q2, we'll start to launch this year's key costume dramas.

including, for example, stories of clinging plates, palace, death time, the latest case book, last few seven times, and et cetera. We will also monitor traumas, including violence, bright eyes in the dark, a husband, a wife, we are criminals, and et cetera.

Q2 will be the strong return of the four-line variety show. As long as there is an influential Chinese-language generation program, there are also some new and innovative programs.

For variety shows, Q2 will mark a strong return of our original variety shows, including both returning seasons of K-shows and the debut of new titles.

We have already announced the detailed slides at the IT World Conference, which is also for your reference.

Investors may refer to the detailed content pipeline list we just released last week during our IT Works conference for more details. Thank you.

I will add on to what Xiaohui just mentioned and explain the finance perspective. He mentioned that content investment

for a content investment and content cost from the financial perspective. And then we believe for this aspect, it will remain stable with merchants.

In the past year, including in the first two or three years, we have seen that the proportion of our production is increasing. It is also the most important driving force for our high-quality production. This trend itself will continue to maintain. Over the past year, and also including the Q1 in 2003, we can see the portion of our original content has been increasing steadily, and it's been the main driver of our high-quality growth over the past period.

And right now, because of the original content, proportion is relatively at a high percentage. So we anticipate going forward that the percentage of fits will be relatively stable in the future.

The second concept of safe and sound means that because of our high-quality guarantee, we have completed a more systematic and regular broadcast plan in the past. And now we are interested in the investment of opening, which can be carried out more smoothly according to our broadcast plan. OK.

For our original content, especially now that it's entering into a very high quality stage, and then we have designed a very systematic content launch schedule. So because of this, we can launch the content more at ease and more on our own pace. And for now, we have a full system from producing the original content to broadcasting. And this is a very systematic, programmatic approach to our rotation in managing our original content. So our funding is relatively stable and our need for capital is relatively stable as well. From the financial aspect, we anticipate to see the continuous performance of the above mentioned two points. Thank you.

Thank you. Your next question comes from Lincoln Kong from Goldman Sachs. Please go ahead.

Thank you for answering my question. My question is related to competition. I would like to ask if there are any changes in the market. In the next two or three years, will other players in the industry increase their investment in the market in order to gain a higher market share? How does iQIYI maintain its competitive advantage? Thank you, management, for taking my question. The question is about the competition. So how do we see the competition landscape has changed or evolved in the current market? And over the next two to three years, will we expect any of the other peers will increase their investment in order to to grab more market share in the space? And how do IQ maintain their competitive edge in overall industry? Thank you.

Yes. We have been maintaining our market leadership for the past period.

Right now, we think the entire long-term video industry has gone through a pretty structural change over the past period. The irrational investment style and the barbaric growth is no longer applicable, and our goal is to pursue profitability and the high-quality growth. This is also the consensus of the entire industry, and we all think it's a very key indicator.

ITE has just passed its 13th birthday. In the past 13 years, ITE has been the most popular company in the world. We put a focus on the content system. So, in the long term, we are the strongest in the field of content system. We have crossed the threshold to a certain extent. We will continue to increase this advantage, so that we can have more people in the future.

In our 13 years of history, we have never been the most deep pocket player in the market. So we actually put more focus into original content and we have seen very promising results and have seen excellent results on this as we have maintained market leadership on this front. and it has built very concrete and competitive strength on this area. And going forward, we will continue to enforce our competitive strength to ensure a more in leadership over the long run.

In addition to the content system, we also use this technology innovation to allow our content to be from the very beginning, from the draft to the final online publicization, and so on, to maintain this feasibility, stability, and then to improve uh uh uh

Thank you. So we also utilize technology to improve our overall content production process. For example, from the screening process to incubation to production to actually content launch and the entire cycle of the original production can be covered through our technology-driven tools. And using these tools, we can largely manage and also forecast our original content in order to secure very stable supply of our original content and also to increase the likelihood of blockbuster content going forward. And also in the meantime, we will also utilize AIGC to improve our production efficiency and to improve our overall original content quality to also decrease the content cost of that. So going forward, these are the tools and technology that we can use to enforce our market leadership position. Thank you.

Great. Thank you.

Thank you. Your next question comes from Daniel Chen with JP Morgan. Please go ahead.

Thank you for answering my question. I want to ask a question about membership. How do we look at the second quarter and a longer-term membership scale and the growth of the membership business? Can we talk about the main strategy of the membership business this year? Thank you. So my question is related to the membership assistance. So could management provide some color on the outlook of the subscriber number in the second quarter and also longer term? Also, how should we think about the overall growth for the membership service in this year and longer term? And also, what's our major strategy for membership assistance in 2023? Thank you. Q1 membership services revenue and subscriber rate both hit record highs.

It is expected that the Q2 membership services revenue and subscriber base will still have good year-on-year growth.

And we estimate that for Q2, the sub-base and the revenue will be the best-performing second quarter in our history.

From the quarter-on-quarter perspective,

It is expected that the sub-base and revenue in Q2 will have some sequential dips, mainly reflecting the seasonal pattern after the Chinese New Year holiday.

But overall, we still maintain an optimistic outlook for the year-round meeting size and meeting revenue, mainly due to the following two aspects.

But overall, we remain optimistic about the subscriber base and the revenue outlook for this year, mainly because of the two factors I will be mentioning.

First of all, we are very confident in the future, especially in the most important period of this year, especially in the most important period of this year, especially in the most important period of this year,

The first reason is we are still very confident about the content set one.

as the content loss schedule for this year, especially during major windows such as summer vacations. Our highly efficient content production mechanism, strong operating and technical capability, and also the top talent will empower us to steadily grow the number of high-quality content compared to last year.

In addition, our membership structure has been further optimized. First, we have significantly improved the value of our year-end membership. Although the short term of the year-end membership does not have a significant impact on ARM, but in the long term, it plays a very important role in the health development of the overall membership business. Not only can it effectively contribute to the growth of the overall membership revenue, but it can also improve the health of our cash flow.

The second factor is we are seeing the proportion of annual subscribers increase significantly year-on-year. Although it might not have the short-term uplift effect on ART, but the long-term benefit is significant. It represents longer and closer relationships with our subscribers, and this would drive the annual revenue performance and also improve the cash flow healthiness.

The second point is that the number of LTVs and long-term processing rates of our members are constantly increasing.

The third point is that the growth of our large-scale members, i.e., QiFu members, WNB members, and JiFu members has been very good recently. And also that we saw strong growth from both subscribers with large screen privileges and also IT-like app-supported basic subscriber packages.

Thank you.

The main strategy for our membership business this year is to reach high quality skills, which means maximizing user experience, and in return, strengthening our subscriber base, LTV, and Alzheimer's. Thank you.

Thank you. The next question comes from Alicia Yap with Citigroup. Please go ahead.

Hi, thank you. Can management share with us what is your view of brand advertising outlook this year and what is the ad demand for each major sub-vertical industry looks like? In addition, wondering if you have seen any meaningful difference in terms of demand sentiment between brand ads and performance ads. Thank you.

As the pandemic broke out, China's economy is experiencing a recovery, but it has reacted to the advertising market. After a while, I estimate that there will be one to two levels. I'll talk about brand advertising and performance advertising separately. For brand advertising,

The performance of that is very closely correlated with the macroeconomic development. And we are seeing the overall average market will recover with gradual recovery of China's economy, especially the post-COVID period. But the reflection in the advertising market will lack by one or two quarters. Actually, after April, We are seeing a gradual recovery of brand advertising, and we are still very cautiously optimistic about the overall brand advertising for this year. And in the first half of the year, the consumption is still gradually recovering, so we expect to see more evidence of recovery in the second half of this year.

Overall, in the long term, we are optimistic about the development of the marketing and marketing market. We know that iQiyi has high quality users in the Chinese network industry. We have more than 100 million real-time users. And the real-time users and consumers are very strong in all platforms. So it has a very high value for Guanghao.

And so overall, we are very confident, still very confident in the long-term development of the brand advertising market as IT is one of the platforms with the highest user quality, the strongest willingness and ability to pay in the China internet industry, which can effectively help advertisers to enhance the brand influence and also sales conversion.

Looking at the sub-sectors, the SMPG, retail, travel, entertainment, and also health indicates they covered the faculty so far. um um um um um um

and food and beverages and toiletry industries. So we expect Q2 should have positive growth both annually and officially. And at the same time, Q2 also has key marketing campaigns such as June 18th. So the ad budget of some e-commerce platforms should also expect to see some increase to them.

We are optimistic about the long-term prospects of the new energy vehicle sector and also the home furnishing sector.

In the second quarter, it is relatively harmonious, but according to the other growth indicators, it will definitely exceed the growth of the industry, because of the optimization of production and the strengthening of consumption. We hope that in the third quarter and the fourth quarter, we will have a stronger growth. This is the industry. We have to make a stronger growth in the industry to achieve greater benefits.

The performance ad market will gradually recover in 2023 with moderate recovery in the domestic market. And especially for ITE in particular because we have optimized our algorithm and also to increase our sales efforts. So our Q1 performance, our quarter of the performance were actually above the market industry. And also only looking into the future quarters we expect to see strong growth in Q3 as well.

Overall, the performance ad market is currently showing

pretty big budget growth in the areas such as online services, game launches, e-commerce, travel, and the local lifestyle. Thank you.

Thank you. I'll now hand the conference back to Ms. Yu for closing remarks. Over to you, ma'am.

Thank you. And please know that the previous discussion on Q2 is overlooking and only represents our current view based on current data points. And I would like to thank again for everyone's participation on the call today. And please do not hesitate to contact us if you have further questions. Thank you, everyone, and we'll see you next quarter. Thank you. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you. Hello. Bye. Thank you for standing by and welcome to the IKEE first quarter 2023 earnings conference call. All participants are in the 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 Chang Yu. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining IT's first quarter 2023 earnings conference call. The company's results were released today and available on the company's investor relations website at ir.com. On the call today are Mr. Lin Feng, our founder, director, and CEO, Mr. Jun Wang, our CFO, Mr. Xiaofeng Wang, our CCO, Chief Content Officer, Mr. Wenfeng Liu, our CTO, Chief Technology Officer, and Mr. Ye Xiaoduan, Senior Vice President of our membership business. Mr. Feng will give a brief overview of the company's business operations and highlights, followed by Tim, who will go through the financials. The prepared remarks, ,, and ,, will join Mr. in the session. Before we proceed, please note that the discussion today will contain forward-looking statements made under the proper provisions of the US Private Security Litigation Reform Act of 1995. Over-looking statements are subject to risks and uncertainties that may cause the actual results to differ materially from our current expectations, potential risks and uncertainties include, but are not limited to, those outlined in our public filing with the ICC. ICC does not undertake any obligation to update any forward-looking statement, except as required under applicable law. With that, I will now turn the call over to Mr. Bohn. Please go ahead.

Hello, everyone. This package, Dissolving Under 23, is an exceptional knowledge. At one first quarter, entering a new chapter of high-quality growth. Our company's blind view, once again, demonstrates its power. The exceptional IT original growth, financial performance, and market share reaching new heights. To be specific, IT maintenance is and dominant leading position in dramas reaching new heights in the market shelf. Our long-standing original content strategies have both moved once again. The mock-ups become the best-performing dramas in our history. In Q1, original content continued to be the main driver of new releases and brand new performance. and further enforce the brand's perception that IT is a blockbuster powerhouse and significantly improve subscriber singing. Both photo venues and membership places values, P, quarterly, all-time high. Full-time values, recounted, double-digit, both annually and sequentially. In particular, the whole membership study's values reached a new high of 24% annually and 17% sequentially. High quality original content drove robust growth in subscriber sales. In Q1, the average saving number of total subscribing members approached 129 million, a quarterly net addition of over 17 million. This marked the second consecutive quarter with quarterly net addition of over 10 million. As of March 31, the number of subscribing members was 170 million, which reflects the usual seasonality following the Chinese New Year. And it's all past the average end of Q1 performance. Now the gap of creating income exceeded RMB 1 billion in Q1, expending for the sixth consecutive quarter. More importantly, flash cash flow also infinitesimally one billion this quarter, a critical milestone as it steadily becomes more self-sustaining. As we mentioned last quarter, we believe this recent solid result are just the start of a phase of high-quality growth. In Q1, we dismissed the power of premium one-point video and its strong appeal to users. Our ability to produce and deliver high-quality, popular, or remote content is our core competence, which is difficult to surpass in the short term. We will continue to evolve to secure our industry leading position in the long run. Currently, our businesses can be classified into three stages, core, growth, and early stage. Our core businesses include membership-based, online advertising services, content distribution, IP accessing, etc. Our growth businesses include IT Life and J-Club. Our third stage businesses include our overseas business and our seminar business. Now, let's go through the performance of our business segments in VR, starting with membership studies. Both membership services annual and the number of subscribers keeps black-out time into one. Membership services annual surpassed RMB 5.5 billion, up 24% annually and 17% sequentially. The average daily number Daily number of subscribing members reached 128.9 meetings in full one. Sequentially, net addition of over 17 meetings, marking the second consecutive quarter with a net addition of over 10 meetings. I would like to reiterate that the goal of membership in this is maximizing user experience and in return, tracking and optimizing of network performance. The economics of a membership in this are driven by three factors, namely subscriber base, subscriber lifetime, and arm. We take the dynamic and the benefits of host to our membership business based on many factors, including company supply, user demand, and the market environment. This allows us to drive continuous improvement in both membership revenue and user experience. The above-mentioned strategy has helped us build stronger, longer, and broader relationships with our users. We saw further optimization of our membership structure and stronger user engagement in Huma. the proportion of annual subscribers increased significantly year-over-year, while the lifetime level and the long-term retention rates also improved. In addition, our membership process We saw strong growth from those subscribers with live stream privilege and IT life, and supported basic subscription package, which targets differentiated user demographics. So, what brought the strong growth into one? First, the diversified premium content we released drove new subscribers and improved user retention. Among the 20 content offerings, the more cost for a number of rappers and as a faster performing drummer, which generated the highest membership revenue during the new release window. In addition, drummers such as i changed the last three years from six without impact every day and night on the roof under the microscope we are all well received by users second we continue to refine our membership business operations increasing numbers battle presentation with enhanced advantages. For example, we improved subscribers' conversion and monetization efficiency during the 50-day user analytics stage. A common scenario is marketing initiatives and in-depth research into user flow strategies. In addition, We upgraded our membership center, introducing various high-quality benefits, which drove a significant increase in member benefits consumption in Q1. Looking forward to 2023, we will continue to focus on driving high-quality growth and to pursue further growth in revenue, subscribers, and on. Moving on to content. During the call, our content methodology remained highly effective and off-branded image, as diversified and high-quality premium content of our hub reached a new height. Not only Our market share of drama reached a new high. We remain number one in terms of effective legal deals for both overall dramas and inclusive drama categories for the fifth consecutive quarter. Our regional content continues to account for the majority of drama supply and revenue. original content accounted for 70% of the key dramas we released in Q1, the highest in our history. The revenue contribution ratio of original content also reached a new high. As a factor for growing drama in IT history, the know-how was a two-megabit value. for multiple key metrics that are generated with modern and social facts. Meanwhile, IT journals have become a major source of content of life for domestic TV networks, including CCTV and the following shows and other channels with whom we have built long-term partnerships. We are the player industry leader in this area. In Q1 alone, we distributed around 20 premium drummers to CCTV and quality control central TV stations, including the knockouts, early at night, and multiple. Also, volume and the value of distributed content reached the warehouse high. The knock-off also becomes the highest-rated show over the past 30 years on the major domestic product channel, CCTV8. As an online media entertainment service provider, our goal is to systematically increase the piece ratio of our training content. Our long-term Commitment to original content enables us with structural advantage in the industry. For years, we have successfully built three strong pillars that support our premium content offering, namely, optimize the content production mechanism, strong operating and technical capabilities, and top talents. These capabilities will empower us to steadily grow the world of high-quality content to further enrich our premium content offerings. For content production, we've actually improved our industry-led visual content production capability through a sophisticated content management mechanism and content production tools. We believe this creates effective competitive barriers that are difficult for others to defeat. For content management mechanisms, we have accomplished an efficient and comprehensive mechanism running through the whole process from product incubation to assessment, production, promotion, operation, and distribution. For company production tools, we have built in-house developed system tools to help in the trial-like visual production based on AI, big data, and cloud computing. Through these methods, we can further improve our company's production and operationally efficiency and a new standard for the Chinese visual industry. With respect to industry talent, we have a compelling creative culture and talent composition mechanism that is highly valued and appreciated by in-house talent and industry content partners. Our approach is reflected in two aspects. First, in addition to providing competitive economic incentives, we give creators sufficient freedom, allowing them to take initiative and unlock their creativity within our discipline framework. Second, we have always been committed to encourage fresh young talents in addition to work with well-known and experienced creators. We also nurture young and emerging talents and help them develop their potential. In 2023, we will continue to launch diversified content across all genres for drummers in Q2. I hope we shall be directed by famous Chinese director Hong Haogang. In 13 years, I moved from Shenzhen and then I'll move to Delta. And the injurious one, Yin Xiangzhuai, Yin Xiangzhuai, has generated some awards of mine, also starting from Q2. A number of key company drummers will be released. including the story of Kunming Palace in 1901. The launchers of the casebook, Lianhua Road, best-teamed Changfeng Du and Love You Sometimes, Shi Shi Ji Xiang, diverse line-ups of dramas in other categories will also be released. A number of original variety shows will also be launched in Q2, including both the training season of game shows and the debut of new titles. In addition to the already out, Believing in Land, Ha Ha Ha Ha Ha 3, Yes I Do 4, The Detective Adventure 3, Please also participate in the launch of flagship titles such as The Life of China 2020. Looking ahead, we plan to increase our investment in the agricultural industry with the gradual recovery of the advertising market. For Q2, please also anticipate to see news related in other countries, including original children cartoon, food pamphlets, maps, studies, and the locals, and the original animation, the garden legend, and the IOC. Moving on to advertising, we are pleased to see that advertising revenue reached RMB 1.4 billion in Q1, up 5% year-over-year. For performance ads, revenue grew 75% annually, and its revenue contribution reached a new high, totally high. We successfully accrued a high share of advertising value from key industries. including internet services, e-commerce, and make full use of ad slots to effectively improve monetization. In addition, we optimized our algorithm to strengthen our targeting and improve ad effectiveness. for brand ads, Q1 was soft due to typical season editing. The year-over-year decline was due to their relative high base in Q1 last year, and the ad market action was not impacted by the pandemic lockdown in Shanghai, which is a new hub for the domestic advertising market. Despite that, we observe growing pressures on non-edible sensors driven by our premium drummers, variety shows, and diversified ad products, and the launch of a number of variety shows on YouTube automatically to drive the recovery of the brand and the business. optimistic towards the overall brand advertising market this year. Consumption is still recovering in the first half of the year. and we expect to see further recovery in the second half overall. We are positive about the long-term development of the brand ad market, and the brand influence and user base are highly valued by advertisers. In terms of ad factors, we are optimistic about the FMCG factor, which includes food and beverage, travel, domestic cosmetic dress, a smart home appliance, and health care. Moving on to technology and products, technical innovation is one of our core values, which is critical in driving video industrialization and improve company production efficiency. For water flow production, the technology has been applied in two of our key original parameters. that adopted this technology for efficiency improvement by over 30% and the required pool number . The IT data production management system is data-driven that captures every critical moment in the entire content production process. For example, the system can complete AI-powered value projection in just a few minutes. It can also generate estimated content-related cost ratio, a key measure that we use in our original content and efficient monitoring process. Management can utilize these tools to monitor production process ROI and use of funds and manage the overall production in real time. We continually optimize our process with the aim of bringing the ultimate entertainment experience to every user. IT app was opened by the Ministry of Industry and Information Technology for providing user-friendly access, tailored for elderly and disabled. We upgraded IT's semantic search capability to better understand users' search intentions. The search-back character feature, long-chain rule-1, helps users quickly find videos based on character, providing a highly efficient way to search for videos. We also anticipate exploring how generated AI applications build upon large-language models. can improve content production and promotion efficiency in the long-form video industry. Our internal assessment indicates that generative AI technology can be implemented in multi-business scenarios, including streaming, streamlining, script brainstorming, creation, and review. processes, we have initiated the integration of the regenerating AI technology into our intelligent production system. And we impact the resulting large library model-empowered intelligent production system will achieve higher performance and better incomes by combining large library model applications with computer vision and audio models, we can gain deeper insight into video content, resulting in significantly improved quality and production efficiency of promotional images and videos for use in advertising and content marketing. Text-to-image and text-to-video applications are also valuable tools for generating pre-visualization during production preparation for use in comic and animation production processes. Next, I'd like to discuss the programs of ITV Light and our over-stitch business. In Q1, As you can see, high quality growth and let's look at the content of rating profits. We have a common basic subscription package. The number of subscribers grows by over 70% sequentially, and revenue grows by over 80% sequentially. For the overseas business, driven by the outstanding performance of the training content. The membership revenue achieved a solid growth in the quarter. The membership revenue rose with exceeded 90% annually in general. The individuals, including the US, Hong Kong, Japan, and Mexico, were improved. The inflow of original Chinese drama continued to grow which has an approach of 54% annually from the top to build ships, ranking in multiple markets in South Asia and North America, generating outstanding wars of mass and a huge social gap. Coming into Q2, we have a solid pipeline of trading companies, including key Charleston drummers and original Chinese drummers, which will drive the growth in both subscribers, members, and venues. Q1, Dubai represents a solid first step into a new stage of high-quality growth. Our industry-leading brand is deeply embedded in the mindsets of users and industry pairs. We are confident about the future prospects of the industry, and as online leaders, our business has strong resilience and promising growth potential. We treasure the trust and the support of stakeholders. And we will keep pushing ourselves to unleash more potential and achieve high quality growth over the long term. Now, let me pass to Jun, who will go through our financial performance. Thank you, Mr. Jun. And hello, everyone.

Here we are with another record-setting employee for us in the serving mission. We achieved historical highs across all key aspects

Not only we achieved all-time high in total revenues and membership services revenue, we also further improved our profitability, cash flow, and abandoned sheet. The exceptional Q1 result was once again driven by the success of our original company strategy. To be more specific, we opened RMB 8.3 billion in total revenues, hitting quarterly all-time high of 15% annually

and 10% sequentially.

Membership services revenue continues to serve as the biggest growth driver with revenue exceeding RMB 5.5 billion, up 24% annually and 17% sequentially. Meanwhile, our advertising revenue and accounting distribution revenue up by 5% and 16% respectively on annual basis. Moving on to the cost and expenses, our cost of revenue increased by 10% sequentially, among which the accounting cost increased by 7% sequentially. We launched a more diversified premium content, original content, in the fourth quarter, as Q1 is a typical high season with Chinese New Year holidays. Then total operating expenses increased both annually and sequentially,

mainly due to the increase in SB&A expenses.

We devoted more resources in marketing as we believe this will amplify our content influence, increase user penetration, and enhance the strong momentum generated by escalating some of our original content. For Q1, we continue to strengthen our profit and cash flow generating capability. Non-debt operating income exceeded RMB $1 billion, expending for the six consecutive quarters.

More importantly, free cash flow also exceeded RMB $1 billion. In Q1, we raised approximately US $1.1 billion through follow-on income portable note offerings.

We also repurchased approximately $340 million in principal amount of the convertible notes due to 2026. At the end of Q1, the company had cash, cash equivalent, restricted cash, short-term investment, and the long-term restricted cash included in the prepayment and other assets of R&D $6.3 billion in total.

This $6.3 billion cash balance does not include the payment of around $1.2 billion to the paying agent to meet the company's repurchase obligation on April 4, 2023 for the convertible notes due in 2025, which was classified as prepayment and other assets on the balance sheet.

The repurchase has been completed in April 2023.

To conclude, the first quarter results demonstrated the success of our high-quality work strategy.

We will continue to focus on execution and are confident in our ability to generate more value for our stakeholders in the long run.

for the first quarter, please do refer to our product release on our website.

Now we will open the floor for Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, Please pick up the handset to ask your question. Your first question comes from from CICC. Please go ahead.

Thank you, Manager Chen, for accepting my question. Congratulations on the bright future of the system. My question is about content and content cost. I would like to ask Manager Chen how he views the content investment trend of the company this year and the mid-term. And in terms of revenue, what is the level of this year compared to last year? And I will translate myself. Thanks for taking my question and congratulations to Realt. My question is related to content and content cost. What's the trend of content investment for this year and the longer term? and what's the level of this year's production compared to previous years. Also, regarding to account costs and the income statement, how does management think about the growth rate of this year and in the future? And last, could management share with us highlights of the pipeline this year? Thank you.

I would like to invite our CCO, Wang Xiaofei, to answer the question.

Hello, everyone. I'm Wang Xiaofei. Let me answer this question. First, from this year and the mid-term, our overall investment remains stable. long-term, we will continue to maintain a reasonable content launch schedule and also a relatively stable content cost level.

The second is that we will continue to invest in self-proclaimed head products.

the number of high-quality original content will increase in the future.

Secondly, we will continue to invest in high-quality original content. The number and portion of high-quality original content will increase in the future.

Thirdly, the opening volume will be increased compared to last year to meet the needs of our future head-on project acquisition and planning.

And third, compared with last year, the number of titles going into production for this year will also increase. In order to meet the demand of head premium content inventory and the launch schedule.

From the beginning of the KOR, we will continue to present various high-quality content in various categories. Including in the collection aspect, we will continue to introduce the KOR series to our audience. For dramas, starting from Q2, we'll start to launch this year's key costume dramas.

including, for example, stories of cleansing, palace, death time, the latest case book, lucky seven times, and et cetera. We will also launch modern traumas, including violence, bright eyes in the dark, as husband, as wife, we are criminals, and et cetera.

For variety shows, Q2 will mark a strong return of our original variety shows, including both returning seasons of K-shows and the debut of new titles.

Investors may refer to the detailed content pipeline list we just released last week during our IT Works conference for more details. Thank you.

Thank you. I will add on to what Xiaohui just mentioned and explain the finance perspective. He mentioned that content investment

for a content investment and content cost from the financial perspective. And then we believe for this aspect, it will remain stable with merchants.

In the past year, including in the first two or three years, we have seen that the proportion of our production has been increasing. It is also the most important driving force for our high-quality production. This trend itself will continue to maintain. Over the past year and also including the Q1 in 2003, we can see the portion of our original content has been increasing steadily, and it's been the main driver of our high-quality growth over the past period.

And right now, because of the original content, proportion is relatively at a high percentage. So we anticipate going forward that the percentage of this will be relatively stable in the future.

The second concept of safe and sound means that because of our high-quality guarantee, we have completed a more systematic and regular broadcast plan in the past. And now we are interested in the investment of opening, we can follow our broadcast plan to carry out a more smooth OK.

For our original content, especially now it's entering into a very high quality stage, and then we have defined a very systematic content launch schedule. So because of this, we can launch the content more at ease and more on our own pace. And for now, we have a full system from producing the original content to broadcasting. And this is a very systematic, programmatic approach to our rotation in managing our original content. So our funding is relatively stable, and our need for capital is relatively stable as well. And From the financial aspect, we anticipate to see the continuous performance of the above mentioned two points going forward. Thank you.

Thank you. Your next question comes from Lincoln Kong from Goldman Sachs. Please go ahead.

Thank you for accepting my question. My question is related to competition. I would like to ask if there are any changes in the competitive situation in the market. In the next two or three years, will other players in the industry be worried about increasing their investment in order to gain a higher market share? How does iQIYI maintain its competitive advantage? Thank you, Benjamin, for taking my question. The question is about the competition. So how do we see the competition landscape has changed or evolved in the current market? And over the next two to three years, will we expect any of the other peers will increase their investment in order to grab more market share in the space, and how do IQ maintain their competitive edge in the overall industry? Thank you.

Thank you, Ergome. I don't have any more questions. At the moment, IT has maintained a lot of the leading position in the market. Now the market has moved away from the era of running the horse and riding the horse. Now the strong industry needs to grow, but it is also a demand for high-quality growth. We have been maintaining our market leadership for the past period.

Right now, we think the entire long-term video industry has gone through a pretty structural change over the past period. The irrational investment style and the barbaric growth is no longer applicable, and our goal is to pursue profitability and the high-quality growth. This is also the consensus of the entire industry, and we all think it's a very key indicator.

AIQIYI has just passed its 13th birthday. In the past 13 years, AIQIYI has been one of the most popular companies. We focus on the content system. So far, we are the strongest in the content system field in the whole industry. We have crossed the line to a certain extent. We will continue to increase this advantage, so that we have more people in the industry this year.

In our 13 years of history, we have never been the most deep pocket player in the market. So we actually put more focus into original content. And we have seen very promising results and have seen excellent results on this as we have maintained market leadership on this front. and have built very concrete and competitive strengths on this area. And going forward, we will continue to enforce our competitive strengths to support and market leadership over the long run.

In addition to the content system, we also use this technological innovation to allow our content from the selection of topics from the beginning to the final online circulation, currencyization, and so on to maintain this feasibility, stability, and then improve Thank you. So we also utilize technology to

to improve our overall production process. For example, from the screening process to incubation to production to actually function launch and entire cycle of the original production can be covered through our technology-driven tools. And using these tools, we can largely manage also forecast our original content in order to secure very stable supply of our original content and also to increase the likelihood of blockbuster content going forward. And also, in the meantime, we will also utilize AIGC to improve our production efficiency and to improve our overall original content quality. to also decrease the content cost of that. So going forward, these are the tools and technology that we can use to enforce our market leadership position. Thank you.

Great. Thank you. Thank you. Your next question comes from Daniel Chen with J.P. Morgan. Please go ahead.

So my question is related to the membership. So could management provide some color on the outlook of the subscriber number in the second quarter and also longer term? Also, how should we think about the overall growth for the membership service in this year and longer term? And also, what's our major strategy for membership business in 2023? Thank you. Our senior vice president of membership business is answering this question. So for Q1, Q1 membership services revenue and subscriber rate both hit record highs. It is expected that the Q2 membership services revenue and subscriber base will still have good year-on-year growth.

And we estimate that for Q2, the sub-base and revenue will be the best-performing second quarter in our history.

From the quarter-on-quarter perspective, it is expected that the sub-base and revenue in Q2 will have some sequential dips,

mainly reflecting the seasonal pattern after the Chinese New Year holiday.

But overall, we remain optimistic about the subscriber base and revenue outlook for this year, mainly because of the two factors I will be mentioning.

First of all, we are optimistic

Especially the most important, the most important, the most important, the most important, the most important, the most important, the most important, the most important, the most important, The first reason is that we are still very confident about the content pipeline and the content launch schedule for this year, especially during major windows such as summer vacations.

Our highly efficient content production mechanisms

strong operating and technical capability, and also the top talent will empower us to steadily grow the number of high-quality content compared to last year.

In addition, our membership structure has been further optimized overall. First, our year-end membership has been significantly improved. Although the short term of the year-end card is not very obvious to the entire ARM, The second factor is we are seeing the proportion of annual subscribers increase significantly year-on-year. Although it might not have the short-term uplift effect on arms, but the long-term benefit is

It represents longer and closer relationship with our subscribers. And this would drive the annual revenue performance and also improve the cash flow healthiness.

The second point is that the LTV and long-term growth rate of our members are constantly increasing.

And also the second point is the lifetime value and the long-term retention rate of our various membership packages have also increased.

And also that we saw strong growth from both subscribers with large screen privileges and also IT-like app-supported basic subscriber packages. The main strategy for our membership business this year is to reach high quality skills, which means maximizing user experience and in return, strengthening our subscriber base

LTV and also on thank you thank you the next question comes from Alicia yet with Citigroup please go ahead hi thank you why need to watch on how to say this oh what a key one and go see that I can't in the Yeti or the one she said why you can't cause I didn't she said one Can management share with us what is your view of brand advertising outlook this year? And what is the ad demand for each major sub-vertical industry look like? In addition, wondering if you have seen any meaningful difference in terms of demand sentiment between brand ads and performance app. Thank you.

The commercial advertising and the development trend of the country's economy are related. With the outbreak of the epidemic, China's economy is experiencing a recovery, and it is reacting to the advertising market. After a while, I estimate that there will be one to two levels. After the spring of this year, the price of the third quarter of the fourth quarter has already felt the commercial advertising market. I'll talk about brand advertising and performance advertising. So for brand advertising, the performance of that is very closely correlated with the macroeconomic development.

And we are seeing the overall app market will recover with gradual recovery of China's economy, especially the post-COVID period. But the reflection in the advertising market will lag by one or two quarters. Actually, after April, we are seeing a gradual recovery of brand advertising, and we are still very cautiously optimistic about the overall brand advertising market for this year. And in the first half of the year, the consumption is still gradually recovering, so we expect to see more evidence of recovery in the second half of this year.

Because iQiyi has more than 100 million high-quality users in China's blockchain industry, its payment capacity and consumption will are very high in all platforms. Therefore, it has a high value for the blockchain.

Overall, we are very confident, still very confident in the long-term development of the brand advertising market as IT is one of the platforms with the highest user quality, the strongest willingness and ability to pay in the China internet industry, which can effectively help advertisers to enhance the brand influence and also sales conversion.

Looking at the sub-sectors, the SMPG, retail, travel, entertainment, and also health in this case, we covered the faculty so far. um um um um um um

and food and beverages, and toiletries and industries. So we expect Q2 should have positive growth both annually and officially. And at the same time, Q2 also has key marketing campaigns such as June 18th. So the ad budget of some e-commerce platforms should also expect to see some increase to them.

We are optimistic about the long-term prospects of the new energy vehicle sector and also the home furnishing sector.

In the second quarter, it is relatively harmonious, but according to the other growth rates, it will definitely exceed the growth of the industry, because of the optimization of performance and the strengthening of sales power. We hope that in the third quarter and the fourth quarter, the growth will be stronger. This is the industry. We also want to get better results from the growth of the industry to the growth of the environment.

The performance ad market will gradually recover in 2023 with moderate recovery in the domestic market. And especially for IT in particular because we have optimized our algorithm and also to increase our sales efforts. So our Q1 performance, our quarter of the performance were actually above the market industry. And also looking into The future quarters we expect to see strong growth in Q3 as well.

Overall, the performance ad market is currently showing pretty big budget growth in the areas such as online services.

game launches, e-commerce, travel, and localized travel. Thank you.

Thank you. I'll now hand the conference back to Ms. Yu for closing remarks. Over to you, ma'am.

Thank you. And please note that the previous discussion on Q2 is overlooking and only represents our current views based on current data points. And I would like to thank again for everyone's participation on the call today. And please do not hesitate to contact us if you have further questions. Thank you, everyone, and we'll see you next quarter. Thank you. Thank you.

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