(Yicai) Aug. 21 -- Chinese video-on-demand platform operator iQiyi swung to a loss in the second quarter, after a drop in revenue from membership services and advertising outweighed growth in other business lines.

The net loss was CNY133.7 million (USD18.7 million) in the three months ended June 30, compared with a net profit of CNY68.7 million (USD9.6 million) a year earlier, the Beijing-based company said in its latest earnings report released yesterday. Revenue tumbled 11 percent to CNY6.6 billion (USD925.3 million).

The slimmer top line reflected a 9 percent fall in membership services income to CNY4.1 billion, a 13 percent drop in online advertising sales to CNY1.27 billion, and a 37 percent slump in content distribution revenue, due respectively to a lighter content slate, advertisers tightening spending, and a decrease in barter transactions and a drop in cash transactions.

Meanwhile, revenue from overseas membership services surged 35 percent, with key markets such as Brazil, Mexico, and Indonesia up more than 80 percent.

Cost of revenue shrank 7 percent to CNY5.3 billion, with content costs down 8 percent to CNY3.8 billion. Selling, general, and administrative expenses and research and development spending fell 1 percent and 6 percent to CNY958.6 million (USD134 million) and CNY421.9 million, respectively.

IQiyi notched up its 14th consecutive quarter of operating profit based on non-generally accepted accounting principles and maintained a solid balance sheet, with nearly CNY5.1 billion in cash, cash equivalents, restricted cash, short-term investments, and long-term restricted cash included in prepayments and other assets.

The company repurchased USD85 million of bonds maturing in 2028 for cash, with USD208 million outstanding principal balance remaining for the 2028 notes, said Chief Financial Officer Wang Jun. Net interest expenses shrank by a third in the quarter from a year earlier, he pointed out.

"We effectively managed our resources and optimized our capital structure, with net interest expense consistently declining over the last seven consecutive quarters," Wang said. "This better positions us for long-term value creation.”

In pre-market trading in New York, iQiyi’s shares [NASDAQ: IQ] were trading down 0.9 percent at USD2.28 each as of 5.40 a.m. local time, after sliding by the same degree yesterday.

According to recent media reports, iQiyi has hired Bank of America, China International Capital Corporation, and JPMorgan Chase as underwriters for a secondary listing in Hong Kong that could raise about USD200 million to USD300 million. The company has declined to comment.

Despite its earnings setback, iQiyi retained the top spot in China by movie viewership for the 14th consecutive quarter, according to figures from Enlightent. “During the second quarter and into the summer season, we delivered a series of blockbusters and secured the top market share in total drama viewership," founder and Chief Executive Gong Yu said, citing the market research firm.

Three blockbuster dramas released by iQiyi in the period logged popularity index scores exceeding 10,000. The Shadow's Edge, an action crime drama starring Jackie Chan, hit theaters in the quarter and took over CNY300 million in box office revenue.

"We are focusing on innovation and investing in key growth areas, such as artificial intelligence applications, micro dramas, experience business, and global expansion, all with the goal of driving sustainable, long-term success," Gong noted.

The pivot shows early signs of traction. IQiyi said roughly 15,000 micro-drama titles delivered double-digit sequential gains in average daily viewing time and unique visitors in the three months.

The company introduced several AI innovations in the quarter, including the iJump feature, which enables viewers to navigate between key scenes across over 2,300 titles, and Taodou World, an AI agent platform featuring more than 1,200 characters from popular content to help the audience in video search, recommendations, and plot insights to boost user engagement.

Management welcomed recent regulatory changes that removed the 40-episode limit and eased seasonal programming restrictions. The changes should shorten production and review cycles, broaden creative scope, and help attract talent and capital back into longer-form content, Chief Content Officer Wang Xiaohui said.

Editor: Futura Costaglione