Chinese online video platform iQIYI announced on March 4 that the company has entered into subscription agreements with Baidu and a consortium of financial investors including Oasis Management Company Ltd. for a total purchase price of $285 million in cash.
Investors have agreed to subscribe for and purchase from the company, through a private placement, a total of 164,705,882 newly-issued Class B ordinary shares and 304,705,880 newly-issued Class A ordinary shares in the company. Baidu will subscribe for the Class B ordinary shares, while the financial investors will subscribe for the Class A ordinary shares.
According to its latest financial report, iQIYI‘s operating losses have been greatly narrowed under a series of measures to reduce costs and increase efficiency, but it still faces unsustainable cash flow problems. In the fourth quarter of 2021, iQIYI‘s cash reserves totaled 3.075 billion yuan ($486 million), a year-on-year decrease of 71.8%.
As of December 31, 2021, the firm held a total of 4.4 billion yuan in cash, cash equivalents, restricted cash and short-term investments. Its capital reserves at the time were deemed to be insufficient.
The high cost of content is one of the major reasons why iQIYI has struggled to generate profits. In Q4 2018, the platform’s content costs accounted for more than 90% of its total revenue. From Q2 2020, the same ratio was brought down to within 70%. Content costs mainly come from the procurement of copyright dramas, the production of online dramas and variety shows, among other categories.
During a conference call on the firm’s Q4 financial report last year, Gong Yu, Founder, Director, and Chief Executive Officer of iQIYI said that the long video streaming industry has entered a new turning point characterized by pursuing efficiency, loss reduction and profits, instead of pursuing high-speed growth and market share.
Gong also pointed out that the company’s goal is to successfully break even in terms of non-GAAP operations for the full year of 2022, and to break even in quarterly non-GAAP operations as early as possible.