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IQIYI Inc (NASDAQ:IQ)
Q3 2019 Earnings Call
Nov 8, 2019, 7:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the iQIYI Third Quarter 2019 Earnings Conference Call. [Operator Instructions]

I'd now like to hand the conference over to your first speaker today, Investor Relations Director of iQIYI, Dahlia Wei. Thank you. Please go ahead.

Dahlia Wei -- Director-Investor Relations

Thank you, operator. Hello, everyone and thank you all for joining iQIYI's third quarter 2019 earnings conference call. The company's results were released earlier today and are available on the company's Investor Relations website at ir.iqiyi.com. On the call today are Dr. Yu Gong, our Founder, Director and CEO; and Mr. Xiaodong Wang, our CFO. Dr. Gong will give a brief overview of the company's business operations and highlights, followed by Xiaodong, who will go through the financials and guidance. After their prepared remarks, we will hold a Q&A session.

Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigations Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

With that, I will now turn the call over to Dr. Gong. Please go ahead.

Yu Gong -- Founder, Chief Executive Officer and Director

Hello, everyone. Thank you for joining us for our third quarter 2019 earnings call. Despite a challenging environment, we delivered another quarter of growth with total revenues increasing 7% year-over-year to RMB7.4 billion. We continued to strengthen our platform, expand our user base and improve user engagement by offering high quality content and super [Phonetic] entertainment experience. We solidify our leading industrial position with mobile app and AU, DAU and user time spent ranked first in most of the models throughout the year according to various third-party data service.

Let me start our membership business. At September 30th, 2019, total subscribers reached 105.8 million, a 31% increase year-over-year and corporate net addition of 5.3 million. Subscription revenue growth 30% year-over-year and contributing more than half of our total quarterly revenues for the first time. We continued to make strides in delivering premium content, upgrading membership experiences and penetrating further into low tier clients, which have collectively contributed to subscribers growth. High quality content remains the primary motivation for users to pay for the subscription. We released multiple premium titles during the quarter that were immensely popular among our subscribers, including original drama series Arsenal Military Academy, Love and Destiny, lessons titled Go Go Squid!, A Little Reunion, inclusive drama My Mowgli Boy and new episodes for our inclusive animation serials, one piece among others.

In the third quarter, we started to adapt privileged releasing strategy for some of our self-produced variety shows. Subscribers were granted early access to Mr. Housework, a reality show, featured men doing housework, which quickly become one of the top contributors for subscriber conversion. We also released member inclusive content for some of our popular variety shows, including The Rap of China 2019 and The Big Band. This exclusive privileged from our key part of premium membership in turn that helped convert that into subscribers and attracting member retention.

Low tier class have always been an important demographic market for China's Internet companies to penetrate. According to QuestMobile, there are more than 600 million mobile Internet users in the third-tier and below cities. These users [Indecipherable] significantly higher and is growing at a faster pace than that in first and second tier cities. Going forward, we believe subscriber growth were mainly driven by users in low-tier cities and we have rolled out several initiatives to improve penetration. For instance, we are diversifying our content offering to cover more vertical achievers that cater to a wide variety of types among low-tier city users. They are also implying additional indicators in our AI [Indecipherable] to gain more user impact is allowing us to better target them, assume regional and demographic strategy.

In addition, we expanded our alliance membership programs to include increasing number of online and offline partners and to expand our user reach, given subscriber penetration and enhance membership benefits for users in lower-tier cities. As experimental step, we started to explore opportunities in overseas market. In August of this year, we launched a multi [Indecipherable] ITF that can be downloaded globally from App Store and Google Play. We will be gradually expanding our global footprint with local language support in South Eastern Asia countries including Malaysia, Indonesia and Thailand and others, as well as Greater China regions including Hong Kong, Macau and Taiwan. Our iQIYI app also facilitates English language, interprets and title that caters to users as in the world.

Moving on to our advertising business, the challenging macroeconomic environment and delay in content launch continued to wait on broader industries. As a result, our advertising revenue continued to fall, but at a lower pace than last quarter decreasing 40% year-over-year. Despite this headwind, we remain committed to better serving our advertisers and have rapidly adapted our ad product through optimized solutions, leveraging the visual audio recognition and synthetic technology. We are able to integrate advertisement thing likely into content.

We further upgraded our theatre mode advertising product, which now accounts for approximately one-third of the content definite ad revenues for our drama channel. During the third quarter, we introduced China's very first interactive app, which was integrated into the Rap of China Season 3, it represents another innovative move forward for the industry interactive ad facility, a greater integration between brands and users and results in a 38% [Phonetic] increase in ad impressions. It also generates enormous high-quality user behavior data that helps enhance targeting and improve our advertising value.

For performance ad, we continued to strengthen our product and advance in and have regained growth momentum compared to the first half of the year, adaptability of our cutting edge AI technology allows our advertisements to be tailored to different scenarios and reach our users as they watch videos, search for content or interaction with other users on our platform. For in-feed app, we are fine-tuning our products metrics and actively applying optimized CPF tools to our ad inventory.

As I mentioned last year, our true wheel ad product is increasingly well received by advertisers. Audiences can choose to watch or close advertisement and only truly build ad will be built. Many of our brand advertisers are also opting to use our performance based apps, two new apps and inbuilt app, service app dual engine for the future growth of our performance based advertising business.

Turning to our content strategy. We continued to produce distinctive and original content by innovating and enhance our production capability. Our content with emphasis on positive values, traditional Chinese culture and social theme not only appeal to general public, but also caters to diversify taste of various vertical audience groups. During the quarter, we launched a number of drama serials covering that very -- from urban romance, parallelism, such as environmental protection, conference labs to military legends and many more. The best performance included Go Go Squid! Destiny and Love, No Way For Stumer, My Mowgli Boy, Waiting For You In Future and IREP [Phonetic].

According to latent, six out of the top ten channels taking up users screen time in September were iQIYI original or inclusive dramas. Our initial content continued to build reputation for English original language, the Big Band and Rap of China both out their seasons finals in August with [Indecipherable] reaching and audience reviews, in addition to content that caters to wide us worth of society. We're also producing variety shows in vertical genres for example, our original show Mr. Homework, Culprit as a slow reality show performed particularly well in low-tier cities in terms of popularity and viewership.

Our original content is increasingly being recognized for its quality and have received numerous international -- respected awards most recently our original drama series The Golden Eyes was awarded Golden Bird Prize at the Seoul International Drama Awards. Our original reality show were recognized with 13 different awards at the China Variety Show Summit 2019 including Producer of the Year, Director of the Year, Photography of the Year and Virtual Effects of the Year honors. Our co-produced film, Balloon was shortlisted for the 76th Venice International Film Festival.

Our original content was also well received across international markets. So far we have distributed more than 2,000 episodes of original content to over 200 territories around the world. We continue to execute on multi-dimensional IT development strategy to strengthen our ecosystem, positioning our self as an IP incubator and distributor. We have launched partnership initiatives in more than 10 vertical areas to drive soon and create synergies.

One good example is the walk-in product which is designed to adapt comics and animation to fill grammar and games. So far, it was successfully incubated more than 20 IPs. During the third quarter, we released a drama adapted from online comic, Transparency of Life which generated over RMB10 million in revenue sharing within the first eight days of its release. The Grandmaster another drama adapted from animation serial of the Thin Man is scheduled to launch in the fourth quarter.

We have a strong content pipeline heading into the fourth quarter of 2019 and full year of 2020. Our content reflects our mainstream values and dedication to Chinese culture apart from our original drama, [Foreign Speech] and Flagship Qipa Season 6 that we already released so far in Q4. Other major scheduled for the rest of the year include [Foreign Speech], The Great Master, [Foreign Speech].

Looking ahead into 2020, we have over 20 titles planned for release, including over 100 dramas, 30 variety shows, 5 vertical short dramas and 90 other titles which ranged from animation to documentaries. In addition, iQIYI Sports will broadcast UEFA Euro 2020, La Liga 2022 FIFA World Cup qualification games in Asia, as well as the ultra-open Wimbledon Championships, WTA PGA Tour and other top sporting tournaments.

As a technology based entertainment service, our growth is driven by continuous technology innovation in particular service as cornerstone for our development. So far this year 60% of the 800 patent applications we have submitted were related to AI. AI applies to almost all aspects of our business including content creation, production, distribution, recommendation, marketing and monetization. Leveraging our cutting edge AI technology, we are also exploring new runways for growth such as short form video products and content.

Our AI based iQIYI light app mainly providing short form video content based on intelligent recommendation saw rapid AU and video build growth in recent quarter. Recent event in October, our next generation Content Delivery Network, CDN system, [Foreign Speech] received the China Computer Federation Science and Technology Award for Outstanding Technology Advances at 2019 China National Computer Congress, the largest and the most respected academic computer science event in China, using [Indecipherable] technology to start a computer, analyze the content in close proximity to users [Foreign Speech] limits of bandwidth and latency, localized search engine process and seamlessly deliver video content to 4K, 8K and VR [Indecipherable].

Meanwhile, [Foreign Speech] brand new content dispatching solution help us to real life web patch deployment of CDN, which enables users to enjoy the ultimate entertainment experience regardless of where or how they watch videos, which will greatly drive the commercial applications of 5G technology.

In summary, we made solid progress during the quarter as we continued to execute our strategy. We are faced both with challenges and opportunities as external environment constantly change, while user behavior and monetization models continue to evolve. We are confident in the long-term perspective of online entertainment industry and with the increasing demand from consumers for high quality content with rapid development of our AI and 5G technology advancement such as optimized bandwidth and enhanced video quality will not only improve users view, but also promote greater integration between media and technology.

AI and 5G combined will create astonishing new opportunities and make possible new breakthrough in content production, distribution and entertainment format. As a patient and a leader in digital entertainment industry, we will continue to move forward AI innovation and convergency between technology and produce more blockbuster content, stretching our ecosystem and incubate premier IPs as we create deeper value and greater perspective for the future.

With that, I will pass the call to Xiaodong to go over our financials.

Xiaodong Wang -- Chief Financial Officer

Good morning everyone. Let me go through our financial highlights. For the third quarter of year 2019, iQIYI's total revenue were RMB7.4 billion, up 7% year-over-year. Membership service revenue were RMB3.7 billion, up 30% year-over-year. This was driven by solid growth in a number of subscriber number which reached 105.8 million at the end of third quarter, thanks to our premium content, as well as our various operational initiatives.

Online advertising service revenue were RMB2.1 billion, down 14% year-over-year, mainly due to the challenging macroeconomic environment in China delayed after the content launches under the intensified competition in case of the title. Content distribution revenue were RMB680.4 million, down 18% year-over-year mainly due to the delay of certain content launches this quarter, as well as high base in the same period of previous year. Other revenue were RMB932.3 million, up 12% year-over-year. The increase was mainly driven by the growth of our game business following several new game launches this year by Skymoons.

Moving on the cost of revenue. Our cost of revenue were RMB8.2 billion, up 7% year-over-year. The increase was primarily driven by the high content cost as well as other cost items. Content cost were RMB6.2 billion up 3% year-over-year.

Turning to the operating expenses, SG&A expenses were RMB1.3 billion, up 4% year-over-year partly due to the increased sales and marketing expense of game business associated with the consolidation of Skymoons, as well as higher marketing spending in certain iQIYI apps. Our R&D expenses were RMB703.2 million, up 26% year-over-year. The increase were primarily due to the -- due to our continued investment in R&D personnel.

Operating loss were RMB2.8 billion compared with operating loss of RMB2.6 billion in the same period last year. Operating loss margin was 38% compared to the operating loss margin of 37% in the same period last year. Total other expenses were RMB826.8 million compared with a total R&D expense of RMB539.4 million during the same period last year. The year-over-year increase were mainly due to the increased interest expense associated with our financing activities and the high foreign exchange loss related with the exchange rate fluctuation.

Loss before income tax was RMB3.7 billion compared with the loss of RMB3.1 billion in the same period last year. Income Tax expenses was RMB16 million compared to the income tax benefit of RMB6.1 million in the same period year 2018. Net loss attributable to iQIYI was RMB3.7 billion, compared with a loss of RMB3.1 billion during the same period of the year 2018. Diluted net loss attributable to iQIYI per ADS was RMB5.04. As of September 30, 2019, the company had cash, cash equivalents, restricted cash and short-term investment of RMB13.9 billion.

Turning to the first quarter 2019 guidance, we expect total revenue to be between RMB6.86 billion and RMB7.28 billion, representing a increase of minus 2% to 4% year-over-year. This forecast reflect iQIYI's current and preliminary view subject to change.

This concludes our prepared remarks. Now I will open to Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Thomas Chong from Jefferies. Please ask the question.

Thomas Chong -- Jefferies -- Analyst

[Foreign Speech] Thanks management for taking my questions. I have a question on the 2020 strategies, in particular in online advertising, as well as our net ads in membership for this year. Given the fact that we are penetrating into lower-tier cities, is there any differences in the user acquisition strategies versus top-tier cities in the past? And my second question is relating to the content cost, is there any color about how we should think about this line next year? Thank you.

Yu Gong -- Founder, Chief Executive Officer and Director

[Foreign Speech] I will answer your first question on advertising, we have two kinds of advertising, one is brand and the other is performance based ads. For brands ads because you've given the challenging macro environment, we actually haven't seen any sign of improvement for next year. So we tend to be conservative on brand advertising.

For performance ads, because we have seen a lot of initiative to refine our technology and product, so we are relatively more optimistic on the performance ads versus brand ads. And for membership penetration into lower-tier cities, you're very right that we are already at a very high conversion ratio in first and second tier cities compared to the lower tier cities. So we are trying to focus more on the third, fourth and fifth tier cities. And the initiative we are taking to improve penetration includes one, we are incubating more long tail content, which cater to the diversified need of the low tier city users.

And secondly, we are taking more targeted marketing and operational efforts. For example, we are launching more joint memberships to attract users and also some target marketing. And in terms of ARPU, I think we will be gradually increasing the ARPU level by first narrowing some of the discount we offer in our marketing campaign. And secondly, the potential that we could increase the pricing in the future.

And I will comment a little bit on the content cost and Xiaodong will add more comments. As you all know the licensed content is on a -- gradually declining, the unit price is declining. So, if you look at our content cost in year 2019 versus 2018, the growth rate actually decelerated a lot compared to previous years. And looking at heading to 2020, because the license copy -- licensed content, the price is declining and the volume is with more lap, this is very stable, but on the other hand, we are investing more in our self-produced content.

So whether that will -- the two will offset each other, it depends, but overall we think the content cost will grow at a slower pace. I will let Xiaodong add more comment to that.

Xiaodong Wang -- Chief Financial Officer

I think we explained before, content cost itself I mean the dollar amount, it doesn't have much about the better of our business, because we see content cost is kind of investment. For example, license [Indecipherable] passive investments originals or self-produced content, you can call the active investment, all this investment are actually necessary for the business. As Dr. Gong just explained, I don't think those passive investment over the license copyrights will still accounts for a major part of our business, because we stand before the importance of HD originals. So we keep eye and focus on the investment on HD original.

And therefore this active investment, I think important thing is whether we have enough return for this investment instead of a low dollar amount, so let's get back to the original target about the content cost as a percentage of revenue. We will continue keep the original target to lower the number down to somewhere below 70% next year, I think that we are consistent with our original target. Thank you.

Thomas Chong -- Jefferies -- Analyst

Thank you.

Operator

Your next question comes from the line of Ella Ji from China Renaissance. Please ask your question.

Ella Ji -- China Renaissance -- Analyst

[Foreign Speech] So my first question is if Dr. Gong can provide us an update of the regulation environment in the current quarter and outlook for next year? My second question is regarding the ROI of the lower-tier city market. How is your ARPU, how is the ARPU comparing to major tier cities and how is the content cost comparing to the majors -- comparing to the contents that major tier cities people like? Thank you.

Yu Gong -- Founder, Chief Executive Officer and Director

[Foreign Speech] For the content regulation, we have seen some gradual loosen up after the October 1st holiday, for example, for the capturing drama we have launched a new drama called [Foreign Speech] that targeted for the young generation in low tier city. And also there's another type we call it remake of some classic video content, those are two are already released. But again, the content approval is not like all of a sudden overnight it's all approved, it will take some time, it's a gradual process.

And for penetration into low tier cities, we have -- incubating many long run vertical type of content for example, some are targeted for youth groups and some are targeted for female oriented groups in low tier cities. And you need to keep in mind that content don't have a very clear the bottom line between first-tier city and low tier cities. For example, when we make some content for low tier cities, we also need to at least cater to a part -- a partial of the high tier cities as well. So indeed the content cost and ROI does not vary that much in high tier city and low tier cities.

[Foreign Speech] I want to add some comments, in the pipeline I just mentioned for example The Great Master, the Sword Dynasty and [Foreign Speech] are all used to be the type of content that under content regulation. We expect those content will be gradually released either toward later of fourth quarter or the beginning of the first quarter next year. Thank you.

Ella Ji -- China Renaissance -- Analyst

Thank you very much.

Operator

Your next question comes from the line of Wendy Chen from Goldman Sachs. Please ask the question.

Wendy Chen -- Goldman Sachs -- Analyst

[Foreign Speech] So quickly translating myself, thanks for taking my question. I have -- so question for the CEO is, I wonder how do we see the long form video positioning in the overall video space, especially potential opportunity in the 5G era? And my question for the CFO, Xiaodong is for the fourth quarter guidance, which we are still seeing revenue deceleration despite the pipeline has been supposedly recovered after the recession. So just wondering what's driven this potential deceleration? And if I may adding on question on why we're seeing the other revenue growth decelerate so much this quarter? Thanks.

Yu Gong -- Founder, Chief Executive Officer and Director

[Foreign Speech] I think there are three types of video network in China, one is the long form professional video, which focuses on the movies, drama, reality show content which basically are copying the content from the traditional cinema and TV screens to the streaming platform. And number two is we call it a mini video or the live broadcasting platform, which focuses on the Internet delivery or we call it internet influencer, this kind of content. And we also have the short form video which I'm talking about something like [Foreign Speech] from Baidu.

I think if you look at the long form video, if you look at MAU and the growth rate is actually as low as a single digit right now. The good thing is we have a lot of monetization model for lots of videos including advertising, membership and many others. For brand ads, as you all know, the macro environment impacted that growth, but we hope it will regain momentum in the future. And for membership, we have seen dramatic growth in the past years. And we hope in next year and the year after, we'll continue to see relatively high growth rate. And we also develop other additional channels, including gaming, licensing and other derivative revenues for long-form videos. And for short-form video, we actually also have some initiative there, we launched iQIYI [Foreign Speech] recently and that's a live app and we will monetize that to performance app. Thank you.

Xiaodong Wang -- Chief Financial Officer

Good morning, Wendy, this is Xiaodong. Okay, it's November 7th and almost half of the fourth quarter has passed, but we still use future tense while we're talking about the potential content release in the first quarter. So you know and the sense that most of those content will be released at the end of the first quarter, which will contribute limited financials in this quarter, so that's why we provide a relative soft guidance even with better trends now.

And about other revenue, it also has something to do with content because you know, there are two kind of other revenues, one is like the further monetization of our traffic and other one is further monetization of our IP. So for the traffic part because of the game business we can manage it to contribute some in the past few quarters, but for the IP related other revenues, because of like lag or legacy on the control of certain content, we don't have a lot of new IP release this year that's why you see a relatively slowing down trend of other revenue. But once we are back to the normal track next year or next quarter or even next year, you would see more or as the original come online, more IP were generated from those content offering and then gradually we'll see the increase of other revenue. Thank you.

Wendy Chen -- Goldman Sachs -- Analyst

Thanks very much.

Operator

Your next question comes from the line of Binnie Wong from HSBC. Please ask the question.

Binnie Wong -- HSBC -- Analyst

[Foreign Speech] Sorry, I'll translate my question. On the first question here is on the softer outlook right, actually do you see that the softness is actually due to -- in terms of the advertising or actually on the subscription revenue side? And then in terms of the recovery trend as you said that like the blockbuster movies, are we expecting that those will happen more more into -- like are we confident that the blockbuster ones will get approval and we'll be releasing in 1Q 2020 or is it that it could might still see some delay? Is it OK do we say that the worse in terms of the regulatory environment should be over and then into 2020 we should expect a better outlook that's recovering from here?

And then second question is also on the advertising side. I want a better understanding is it on structurally, because of the rising inventories in the short video space, on the competition side that because that's why it also affect the long-form video advertising or is it not really not structurally is more just because of the regulation environment here and that we will see the recovery trend again pretty much as soon as the content approval release and then we'll see that recovery trend gradually. And then last question is also on the content cost, we actually see content cost this quarter spike up to 84% of revenue, so earlier guidance in terms of retaining at a range of 70% to 80%, is it sill realistic to see? Thank you.

Yu Gong -- Founder, Chief Executive Officer and Director

[Foreign Speech] So, I think since Q2 and Q3, we do have some [Speech Overlap] especially on the costume drama, if you look at these three platforms since June actually only one costume drama for each platform so far. So you can see the regulation is quite strict at that time, but as the content process is gradually getting released and we are able to release more dramas in our titled video. I think as I said, the two kind of content costume drama as well as remake of classic video content, we can gradually see some loosen up, but I cannot guarantee like 100% when that will be released, but my estimation is we should be able to release the delayed content or the backlog in our pipeline of this year in Q4 or in Q1 next year that's my estimate -- best estimation. And also for your second question on advertising, we do see some impact from short video platform including [Foreign Speech]. It's actually on the competition on the user time spend.

I will let Xiaodong comment more on that.

Xiaodong Wang -- Chief Financial Officer

I'm going to comment about revenue this year. I think what we are on track -- the target and we mentioned before we'll still be somewhere between 10% to 80% and essentially one more from now I think we can only take one question per person. So please understand. Thank you.

Operator

Your next question comes from the line of Eddie Leung from Bank of America. Please ask your question.

Eddie Leung -- Bank of America -- Analyst

[Foreign Speech] So my two questions are probably related to the lower tier cities subscribers. The first one is about the auto renewal user proportion, would that with the increase in lower tier city subscribers affect the retention rate or the auto renewal user proportion? And secondly, how is the price sensitivity of the lower tier city subscribers amid our potential raising prices next year? Thank you.

Yu Gong -- Founder, Chief Executive Officer and Director

[Foreign Speech] On your first question, we actually didn't see of a change on the mix of auto renewal subscribers. And your second question, we don't have a plan to differentiate the pricing strategy in the lower tier cities versus higher tier cities. If you look at Netflix, we're actually on the same curve about maybe at a slower pace or later time schedule, because Netflix also penetrate into the higher tier cities or the most developed areas first and then to the lower tier cities representing here in China, but maybe it takes longer or -- and it takes -- we'll have in later stage that's answer for your question. Thank you.

Xiaodong Wang -- Chief Financial Officer

I think we provided you this unified service we'll only use across the country, but we don't give a lot of sense to try different tier price in different tier cities, especially in like the -- in this year in China because you know the population move -- advance from the low tier cities to high tier cities. So it's almost impossible for us to divide like the what give us for like [Indecipherable] second tier city users. So basically I think we wouldn't do something like what you just judged. Thank you.

Eddie Leung -- Bank of America -- Analyst

Thank you.

Operator

We still got time for one last question and our final question comes from the line of Alicia Yap from Citigroup. Please ask your question.

Alicia Yap -- Citigroup -- Analyst

Hi, thank you. Good morning. [Foreign Speech] Thanks for taking my question. My question is related to the overall ad potential and perhaps on the short video. It seems like the traditional pre-roll ads are facing difficulty to increase in the inventory and also pricing. So will we see a recovery if the macro recover on the pre-roll ad side from the brand? And then for ITE given we are pushing more into the shot video clips, will that help to draw more ad budget to the fee based opportunity down the road? [Foreign Speech]

Yu Gong -- Founder, Chief Executive Officer and Director

[Foreign Speech] Okay. For brand advertising, actually the bottleneck is isn't about inventory, it's more about the advertisers budget, since they feel we have seen quite a lot budget cut in brand advertising. So our inventory is the sell through rate and it isn't very high because of the advertising budget cut that's a problem of brand advertising, it's not about inventory. And talking about short form video, we think these [Foreign Speech] all about the Internet deleveraging we call it [Foreign Speech] that's more for the -- that kind of mini form video platform. But our nature is allow us to explore more opportunities in the short form video which we will have some new product in that regard and we will launch more technology and content in that regard, but that will not happen in one year, we'll take some time to see some significant growth there.

Xiaodong Wang -- Chief Financial Officer

Yeah, this is Xiaodong, I just want to add one thing, even for the brand advertisement because I think the growth of our ad business come from both innovative ad provision which has led the way those inventory of this pre-rolled ad. So basically, I don't think the inventory where this bottleneck of ad business growth in next few years. So we will of course provide more innovative ad provision factor more budget from the customer efforts in [Indecipherable]. Thank you.

Alicia Yap -- Citigroup -- Analyst

Okay. Thank you.

Operator

I would now like to hand the conference back to the management. Please continue.

Dahlia Wei -- Director-Investor Relations

Great. Thank you everyone for joining this call. If you have any further questions, please feel free to contact us. Thank you.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Dahlia Wei -- Director-Investor Relations

Yu Gong -- Founder, Chief Executive Officer and Director

Xiaodong Wang -- Chief Financial Officer

Thomas Chong -- Jefferies -- Analyst

Ella Ji -- China Renaissance -- Analyst

Wendy Chen -- Goldman Sachs -- Analyst

Binnie Wong -- HSBC -- Analyst

Eddie Leung -- Bank of America -- Analyst

Alicia Yap -- Citigroup -- Analyst

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