Since going public in late March, shares of iQiyi (NASDAQ:IQ) have skyrocketed, up more than 100% since the stock's debut. The company, which is often referred to as the "Netflix of China," reported impressive results for its first quarter as a public company, and investors were hoping to let the good times roll -- and in that regard, they were not disappointed.

For the just-completed second quarter, iQiyi posted revenue of $932.5 million, up 51% year over year in local currency after adjusting for a change in accounting standards. This exceeded analysts' consensus estimates for $910 million, and easily surpassed the 48% growth at the high end of management's guidance. The company reported a net loss of $316.9 million, resulting in a loss per share of $0.45, worse than the loss of $0.31 expected by analysts.

Growth in every segment

Metric

Q2 2018

Q2 2017

Year-Over-Year Change in Local Currency

Membership revenue

$374.0 million

$238.7 million

66%

Online advertising services

$395.6 million

$288.4 million

45%

Content distribution

$81.5 million

$73.5 million

18%

Other

$81.4 million

$53.2 million

62%

Data source: iQiyi second-quarter financial results. Differences between year-over-year change figures listed and actual changes in U.S. dollar terms are due to shifts in exchange rates.

Membership revenue of $374 million, from the company's paying subscribers, increased 66% year over year, as its subscriber base grew to 67.1 million, up 75% compared to the prior-year quarter. Like that of its American cousin, much of iQiyi's success or failure will depend on the company's ability to grow its paying subscriber base.

Online advertising services revenue of $395 million increased 45% year over year, as the strength of the company's original programming resulted in greater ad sales and increased the momentum of its in-feed advertising business. The majority of its customers still use the free ad-supported service, which acts as a funnel enticing customers to upgrade to monthly or annual subscription plans.

Content distribution revenue of $81 million grew 18% over the prior-year quarter, resulting from several major motion pictures that iQiyi sublicensed to partners during the quarter.

The "other revenue" category is a catchall for sales the company generates from a variety of sources, including online games and content merchandising based on its original shows. Revenue from the segment increased 62% year over year, spurred on by strength in several of these ancillary businesses.

Cost of revenue ballooned to $923 million, up 47% year over year, as the company continued to build out its library of original content, and had higher amortization of self-produced programs. Breaking that down further, the content costs were $709 million, up 47% compared to the year-ago quarter.

Both selling, general and administrative expenses (SG&A) and research and development (R&D) expenses increased, to $144 million and $67 million respectively, up 51% and 50% year over year. Greater marketing spend and headcount in the R&D department drove those increases.

Asian couple reclining on a couch and looking at a tablet

Image source: Getty Images.

Plenty of recent developments

The company has made a number of announcements that point toward a brighter future. In conjunction with its previous earnings release, iQiyi announced an exclusive deal with e-commerce platform JD.com. The companies embarked on a joint program that would allow customers to sign up and enjoy the premium benefits of both services for one year. In the first week alone, over 1 million users signed up.

iQiyi also became the first streaming company in China to have its platform certified by China's most prestigious DRM organization, ChinaDRM Lab; the organization's certification is accepted by Hollywood's biggest studios, MovieLabs, and the American Film Association.

The company's original content continues to draw rave reviews from customers and critics alike, with productions Blue Amber and Mirrors and Feathers being singled out for awards at various international film festivals.

Promotional image for iQiyi original series Hot-Blood Dance Crew, featuring four of the show's contestants

Hot-Blood Dance Crew is iQiyi's latest smash hit. Image source: iQiyi.

iQiyi also revealed that its original series Hot-Blood Dance Crew, a street-dance-themed competition show, has attracted more than 1.8 billion views and broken China's industry record for advertising revenue for a streaming program -- earning 650 million yuan (about $98.2 million at current exchange rates). The company had similar success with last summer's smash hit, The Rap of China. The last 60 seconds of advertising from the final episode earned more than the entire production cost for the 12-episode series.

Looking ahead

For the upcoming third quarter, iQiyi expects revenue in a range of 6.70 billion yuan to 6.98 billion yuan (between $985.3 million and $1.03 billion at current exchange rates). This would represent year-over-year growth of between 43% and 49%. It's important to note that those growth rates could fluctuate with changes in exchange rates.

Being called the "Netflix of China" certainly gives iQiyi a lot to live up to -- and so far it's doing just that.

Danny Vena owns shares of iQiyi, JD, and NFLX. The Motley Fool owns shares of and recommends JD and NFLX. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.