iQIYI’s Q1 2025 Earnings: A Glimmer of Hope in China’s Streaming Struggle?

The streaming sector in China has long been a battleground of subsidies, content wars, and razor-thin margins. Yet in the first quarter of 2025, iQIYI (IQ) delivered a report card that defied expectations—or at least, part of it did. While the company’s financials underscored enduring challenges, its resilience in a slowing ad market and incremental progress in membership retention may signal a turning point for the industry. For investors, the question is whether these glimmers of hope are enough to justify betting on iQIYI’s transformation into a holistic entertainment powerhouse.

The Numbers: A Mixed Bag, But Not All Bad

iQIYI reported Q1 2025 revenue of RMB7.09 billion, a 10.5% year-over-year decline, driven by an 8% drop in membership revenue to RMB4.40 billion. The streaming giant attributed the slide to a lighter content slate compared to Q1 2024, when hit series like The Longest Day in Chang’an 2 boosted subscriptions. Ad revenue also faltered, falling 10% YoY to RMB1.33 billion, as brands scaled back spending amid broader economic softness.

But buried in the noise were signs of stabilization. Sequentially, revenue rose 9% from Q4 2024, and operating income increased 20%, reflecting cost discipline and a modest recovery in user engagement. Management also highlighted a 20% rise in overseas membership revenue, a bright spot in an otherwise gloomy domestic landscape.

Subscriber Growth: A Delicate Balancing Act

The lack of explicit subscriber growth metrics in the earnings release is a glaring omission. Analysts estimate the company’s total paid subscribers remain stagnant near 100 million, a figure last updated in 2023. While iQIYI did not report net additions, its focus on premium tiers like the new “S Diamond” plan—which offers exclusive content and offline perks—suggests a shift toward monetizing high-value users rather than chasing scale.

This strategy faces headwinds. Domestic streaming markets are maturing, with growth constrained by saturation and competition from TikTok-style short-form platforms. Yet iQIYI’s deep library of licensed and original content, including BBC co-productions like Walking with Dinosaurs, may give it an edge in retaining core fans.

Ad Revenue: Can the Tide Turn?

The ad slump is a symptom of China’s broader economic malaise, but iQIYI’s efforts to diversify its ad offerings offer cautious optimism. The company is testing dynamic ad insertion in live-streamed events and expanding programmatic ads for small businesses—a move that could tap into underserved segments. Meanwhile, its theme parks, such as iQIYI LAND in Yangzhou, are creating new ad inventory through branded experiences, blending digital and physical entertainment.

Investors should watch for signs of ad recovery in Q2, as brands ramp up spending ahead of the Mid-Autumn Festival and National Day holidays. A rebound here could alleviate pressure on margins, currently pinched by rising content costs for mini-dramas and games.

The Bigger Picture: A Valuation Crossroads

iQIYI’s stock, down 30% year-to-date, trades at just 5.8x its estimated 2025 revenue—a historic discount to global peers like Netflix (NFLX). Analysts at Simply Wall St argue it’s undervalued by 50%, citing its IP library and theme park synergies. Yet bears point to a debt-to-equity ratio of 0.70 and execution risks in its offline ventures.

The key catalyst for a revaluation will be proof that iQIYI can grow its core streaming business without bleeding cash. Near-term, investors should monitor Q2 updates on:
1. Theme park revenue (e.g., visitor numbers at Yangzhou’s iQIYI LAND).
2. Content pipeline (e.g., the impact of The Longest Day in Chang’an 3, slated for summer .
3. Cost controls (e.g., content spending as a % of revenue).

To Buy or Not to Buy?

iQIYI’s Q1 results are a reminder that streaming in China remains a tough business. Yet the company’s strategic pivot—mixing premium content, offline experiences, and ad innovation—aligns with a market shifting toward quality over quantity. For investors willing to bet on its long-term IP value and operational turnaround, the stock’s valuation offers a margin of safety. However, success hinges on execution: if iQIYI can stabilize subscriptions and revive ad sales, it could redefine its narrative from a value trap to a growth story. The window to act is now—before the next earnings call reveals whether these early signs of stabilization are fleeting or foundational.

Risk Warning: This article is for informational purposes only and should not be construed as financial advice. Investors are urged to conduct their own research and consult with a licensed financial advisor before making investment decisions.