2Q26 Revenue: Total revenue declined by 5% YoY to RMB6.29bn, but recovered by 1% QoQ. This aligns with the Visible Alpha (VA) consensus.
Non-GAAP Operating Loss: Narrowed by 80% QoQ to RMB30mn, primarily due to revenue recovery and cost control.
3Q26E Revenue Forecast: Expected to decline by 9% YoY and 3% QoQ to RMB6.11bn, driven by a drop in content distribution and others revenue.
Revenue Breakdown
Membership Services Revenue: Declined by 2% YoY to RMB4.01bn, with the company implementing operational improvements such as student & teacher discounts and joint membership programs.
Online Advertising Revenue: Declined by 2% YoY but remained flat QoQ at RMB1.25bn. Performance-based ad revenue showed positive YoY growth, and SME advertisers contributed significantly.
Content Distribution Revenue: Increased by 56% YoY and 90% QoQ to RMB682mn, driven by higher cash transactions for popular drama series.
Others Revenue: Declined by 58% YoY to RMB345mn.
Strategic Initiatives
Micro & Short-form Drama: Average daily views grew by double-digit in June 2026 compared to March 2026, and iQiyi's market share increased from 25% to 50%.
AI-Enhanced Content Production: AI reduced content costs and increased supply, with 16 AI-generated short-form dramas launched under a revenue-sharing model. Plans to expand AI-generated content in FY27.
Overseas Business: Membership revenue grew by 40% YoY in 2Q26, driven by the popularity of Chinese dramas and micro dramas internationally.
Margin Recovery
Gross Margin: Improved by 0.6ppt QoQ to 16.5%, mainly due to sequential revenue recovery.
Non-GAAP Operating Margin: Improved by 1.9ppt QoQ to -0.5%, as total operating expenses decreased by 17% YoY and 6% QoQ.
Share Repurchase: The company repurchased 21.8mn ADSs for US$24.1mn in 2Q26, part of a US$100mn program announced in March 2026.
Financial Forecast and Valuation
Year
Revenue (RMB bn)
Adjusted Net Profit (RMB bn)
Non-GAAP EPS (RMB)
P/S (x)
FY24A
29.225
1.512
1.57
0.3
FY25A
27.291
280.6
0.29
0.3
FY26E
24.836
-0.796
-0.83
0.3
FY27E
25.488
182.3
0.19
0.3
FY28E
26.492
614.0
0.64
0.3
Target Price: Set at US$1.52, based on 0.4x FY26E PS, down from the previous US$1.58.
Valuation Context: The target PS multiple is at a discount to the sector average of 3.8x, due to intense competition in China's video streaming sector.
Share Performance and Market Data
Market Cap: US$1.185bn.
Average 3-Month Trading Volume: US$2.2mn.
52-Week High/Low: US$2.79/US$0.96.
Total Issued Shares: 963.8mn.
Shareholding Structure
Baidu: 45.1%
PAG: 12.2%
Analyst Ratings
BUY: Maintained, with a target price of US$1.52.
Potential Return: Over 15% over the next 12 months.
Risks
Intensifying competition in the video streaming sector.
Increasing content investment affecting margins.
AI disruption in content production and distribution.
Profitability and Growth
Metric
FY23A
FY24A
FY25A
FY26E
FY27E
FY28E
Revenue Growth
10.4%
-8.7%
-6.6%
-9.0%
2.6%
3.9%
Gross Margin
27.8%
24.9%
21.1%
17.4%
19.9%
21.5%
Operating Margin
9.8%
6.2%
0.8%
-1.9%
0.9%
2.8%
Adjusted Net Profit Margin
9.3%
5.2%
1.0%
-3.2%
0.7%
2.3%
Liquidity and Debt
Metric
FY23A
FY24A
FY25A
FY26E
FY27E
FY28E
Net Debt to Equity
-0.1
0.1
0.1
0.1
0.0
-0.0
Current Ratio
0.6
0.4
0.5
0.5
0.5
0.6
Receivable Turnover Days
24.7
27.4
33.7
26.5
23.5
22.5
Payable Turnover Days
89.6
107.8
112.7
111.3
111.3
111.3
Valuation Comparison
Company
Ticker
Price (LC)
2026E P/E
2026E P/PS
2027E P/E
2027E P/PS
2026-2027E EPS CAGR
Netflix Inc
NFLX US
76.0
21.2
6.0
20.1
5.4
20%
Disney
DIS US
103.5
15.0
1.7
14.0
1.6
11%
Spotify
SPOT US
492.5
35.0
4.8
27.7
4.2
20%
TME
TME US
8.9
9.6
2.9
8.9
2.7
6%
Average
-
-
20.2
3.8
17.7
3.5
-
Analyst Certification and Disclaimer
The analyst certifies that the views expressed are personal and not influenced by compensation.
No trading or dealings in the stock covered within 30 days before the report was issued.
The report is not an offer or solicitation to buy or sell securities.
CMBIGM is not liable for any losses incurred from relying on the information.
The report is for the use of intended recipients only and may not be reproduced or distributed without consent.
Important Disclosures
This report is not tailored to individual investors and should not be relied upon as investment advice.
Past performance does not guarantee future results.
The information is based on publicly available data and may change without notice.
CMBIGM may have conflicts of interest and is not responsible for the report's objectivity.
Regulatory Notes
UK: Only for persons falling within Article 19(5) or Article 49(2)(a) to (d) of the Financial Promotion Order 2005.
US: Intended for "major US institutional investors" only.
Singapore: Distributed by CMBISG, an Exempt Financial Adviser, and may not be provided to non-accredited investors without prior consent.
