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iQiyi beats on bottom-line in Q1, keeps adding users

iQiyi Inc (NASDAQ: IQ), the video streaming arm of Chinese major Baidu (NASDAQ: BIDU), on Thursday reported a 43% increase in first-quarter revenue to RMB 7 billion ($1 billion), helped by a 58% increase in subscriber base. Analysts had projected revenue of $1.03 billion in Q1.

At the end of the first quarter, iQiyi had 96.8 million subscribers, of which over 98.6% were paying members.

However, net loss attributable to iQiyi widened to RMB 1.8 billion ($270.3 million), from RMB 395.7 million in the same period last year, as higher costs of producing original content weighed on the bottom line. On a per share basis, the company lost RMB 2.52 ($0.35), narrower than the street expectation of $0.52 loss.

The stock fell over 3% during after-market trading on the top-line miss. The stock has gained 34% since the beginning of this year.

CEO Yu Gong said, “Our strategy remains focused on producing high-quality original content and refining our IP-centered content ecosystem which will be the key drivers for our future growth. As China’s online entertainment industry is entering a new phase of growth, we believe we are well-positioned to capture the enormous opportunities for us in the years to come.”

iQiyi’s content is highly popular and the company doesn’t shy away from innovating with newer technologies including augmented reality to provide better binge-watching experience to viewers. But all that is coming at the cost of squeezed margins.

READ: GLOBAL SEMICONDUCTOR REVENUES TO FALL THIS YEAR ON SUPPLY GLUT, CHINA WEAKNESS

For the second quarter, iQIYI expects total net revenues to be between RMB 6.91 billion ($1.0 billion) and RMB 7.29 billion ($1.1 billion), representing a 12-18% increase from the same period in 2018.

Meanwhile, shares of parent company Baidu (NASDAQ: BIDU) tanked 6% during the extended trading hours after its bottom line missed analysts’ estimate.

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