iQIYI's Strategic Turnaround: Can AI and Content Innovation Revive the Streaming Giant?

In the face of a 11% year-over-year revenue decline in Q2 2025, iQIYI (NASDAQ: IQ) has embarked on a high-stakes strategic overhaul. The Chinese streaming giant, once a dominant force in online entertainment, now faces a dual challenge: reversing its financial slump while competing in a market saturated by short-form content platforms. Yet, beneath the surface of its current struggles lies a compelling narrative of innovation. By leveraging AI-driven tools, micro-dramas, and global expansion, iQIYI is betting on a future where fragmented viewer attention and algorithmic dynamics become its greatest assets.

The AI-Driven Content Revolution

iQIYI's integration of artificial intelligence into its content ecosystem is not merely a technological upgrade—it's a redefinition of user engagement. The “I Jump” tool, which allows viewers to skip directly to highlights in long-form dramas, exemplifies this shift. By reducing friction in content consumption, iQIYI has extended user retention, a critical metric for monetization. Meanwhile, the OVA AI chatbot platform, featuring over 1,000 AI characters from popular IPs, has generated 1 million user interactions since its April 2025 launch. These tools not only enhance user experience but also create a feedback loop of data that refines content production and personalization.

The results are measurable. Micro-drama usage on iQIYI surged by 300% in Q1 2025, with daily unique users rising 110% compared to December 2024. These short-form, 1–3 minute episodes are designed for rapid consumption and shareability, aligning with the algorithm-driven dynamics of platforms like TikTok and Instagram Reels. Crucially, micro-dramas operate on a favorable cost-to-revenue ratio: average production costs per title remain under RMB 1 million, while top-performing titles generate over RMB 1 million in weekly revenue shares. This efficiency is a stark contrast to the high costs of traditional long-form dramas, which often require massive upfront investments.

Global Expansion: A New Frontier

While iQIYI's domestic market remains its core, the company's global ambitions are gaining traction. The overseas business, though still a small portion of revenue, has demonstrated profitability and a 30% year-over-year revenue growth in Q1 2025. A dual-revenue model—combining paid subscriptions via the iQIYI app and ad-supported content through the iQIYI Lite app—has amplified monetization potential. This strategy targets lower-tier Chinese cities and older audiences, where ad-supported content drives virality and expands reach.

International expansion is further supported by AI-optimized production, which reduces costs and accelerates content localization. For example, Chinese content now constitutes about half of iQIYI's global offerings, with the remainder tailored to regional preferences. This approach mirrors Netflix's early global strategy but with a lower-cost, data-driven edge. Analysts project that iQIYI's overseas revenue could grow to $9.27 billion by December 2025, a 29% increase from current levels.

Financial Resilience Amid Headwinds

Despite a Q2 2025 net loss of RMB133.7 million, iQIYI's balance sheet remains robust. The company holds RMB5.06 billion in cash and equivalents, providing flexibility to fund its AI and global initiatives. Debt reduction efforts have also strengthened its financial position: convertible debt has declined by 63% year-over-year, and net interest expenses have dropped for seven consecutive quarters. These moves signal a disciplined approach to capital management, even as content costs rise.

The key question is whether these investments will translate into sustainable growth. While Q2 2025 saw a 10% sequential increase in content costs to RMB3.8 billion, pricing revenue grew 48% year-over-year, driven by micro-dramas and international expansion. Non-GAAP operating income, though down from RMB501.4 million in Q2 2024 to RMB58.7 million in Q2 2025, remains positive—a sign that cost controls are holding. Analysts project a 640% surge in earnings per share (EPS) by December 2025, with a $1.40 EPS target, suggesting confidence in the company's ability to scale.

Risks and Rewards

iQIYI's strategy is not without risks. The short-form content market is intensely competitive, with platforms like Douyin (TikTok's Chinese counterpart) and Kuaishou dominating user attention. Additionally, macroeconomic pressures could further erode advertising revenue, a segment that declined 13% in Q2 2025. However, iQIYI's focus on premium content and AI-driven efficiency provides a buffer. Its long-form dramas continue to lead in market share, while micro-dramas offer a scalable, low-cost alternative to traditional production.

For investors, the calculus hinges on patience. iQIYI's current valuation appears undervalued relative to its fundamentals, with an average one-year price target of $2.02. The company's ability to balance short-term costs with long-term value creation—through AI, micro-dramas, and global expansion—positions it as a compelling long-term play.

Conclusion: A Streaming Renaissance?

iQIYI's strategic turnaround is a high-risk, high-reward proposition. The company's AI-driven content innovations and global expansion efforts address key trends in the OTT market, from fragmented attention spans to the rise of algorithmic platforms. While the revenue slump is a cause for concern, the underlying financial discipline and early success in micro-dramas suggest a path to recovery.

For long-term investors, the question is not whether iQIYI can return to growth, but whether it can redefine the streaming landscape. If its AI tools and short-form content strategy prove as transformative as its long-form dramas once were, iQIYI could emerge not just as a survivor, but as a leader in the next era of digital entertainment.