IQIYI is accused of fraud: overstated revenue by over 8 billion users and overstated by over 40%

China News Service Client, Beijing, April 8 (Reporter Wu Tao) Recently, a third-party agency Wolfpack Research issued a questioning report saying that iQIYI data fraud, including user number fraud, income fraud, and consumption of false cash.

"Iqiyi estimates that it will boast about 8 billion to 13 billion yuan in revenue last year, accounting for about 27% to 44% of revenue, and exaggerating the number of users by 42% to 60%." The report said.

According to iQiyi's latest financial report, revenue in 2019 was 29 billion yuan, an increase of 16% year-on-year, of which revenue in the fourth quarter of 2019 was 7.5 billion yuan, an increase of 7% year-on-year.

However, iQiyi is still at a loss. The financial report shows that iQiyi's operating loss in the fourth quarter of 2019 was 2.5 billion yuan, and the annual operating loss was 9.3 billion yuan.

Data map. The site of iQiyi World Congress.

IQIYI is accused of exaggerating the number of users

Wolfpack Research said that iQiyi has exaggerated the number of users. Their research from three independent sources shows that iQiyi has exaggerated its DAU (Daily Active Users) by 42% to 60%.

First, two Chinese advertising companies provided Wolfpack Research with data on iQiyi ’s back-end systems. These data indicate that iQiyi ’s actual mobile DAU from September 2019 is higher than the average of 1.75 claimed by iQiyi in October 2019. The 100 million mobile DAU decreased by 60.3%.

Second, iQiyi's "heat value" map shows evidence of brushing. According to a report by the National Bureau of Statistics of China in 2018, Tibet has only 1.478 million inhabitants, of which only a small number are residents of the Han nationality. Tibet also has its own unique local language and culture. Logic shows that in any iQIYI program, Tibet should not appear in the top ten.

However, recently Iqiyi's popular programs (including "Old Boys", "Idol Trainees" and "Blood Street Dance Troupe") have appeared in the top ten areas with small populations, such as Tibet, Hainan, Ningxia or Inner Mongolia.

Third, in February 2020, a report released by QuestMobile showed that the average mobile DAU of iQiyi was only 126.2 million in the first 10 days of the Spring Festival of 2020, while the average mobile DAU claimed by iQiyi was 180 million. In addition, the QuestMobile report shows that iQiyi's DAU did not increase during the Chinese New Year from 2019 to 2020.

"Exaggerated revenue from 8 billion to 13 billion yuan"

Not only the number of users, the Wolfpack Research report also stated that iQiyi is also fraudulent in revenue: iQiyi estimates that it exaggerated last year ’s revenue by 8 billion to 13 billion yuan, accounting for approximately 27% to 44% of earnings.

First, the report points out that iQiyi ’s barter transactions are like a black box, and iQiyi ’s management can effectively allocate any value they want to these transactions, thereby easily increasing revenue. The revenue from cargo subcontracting licenses is so high that even if iQiyi has bartered every episode of TV shows produced in China every year for the past three years, their income is incredible. "

According to the report, the revenue from the bartering subcontracting license reported by iQiyi means that each episode of TV shows produced in China in 2018 and 2019 will be traded at a price of about 79,000 yuan and 64,000 yuan respectively. A former iQiyi employee engaged in content acquisition claims that the price of a non-exclusive license is usually 1,000 yuan to 5,000 yuan per episode, and the most popular program is not more than 20,000 yuan.

Data map: iQiyi booth. Photo by Wu Tao

The report also pointed out that the deferred income of the iQiyi report was overestimated, proving that it overstated income. For example, from the third quarter of 2018 to the first quarter of 2019, iQiyi's paying users increased by 16.1 million, and the average subscription period increased from 6 months to 8 months. However, iQiyi's deferred revenue fell by 17% over the same period-this mathematical contradiction indicates that at least one of these numbers is fabricated.

The report also believes that iQiyi's advertising revenue is fraudulent. In its prospectus filed with the US Securities and Exchange Commission (SEC), iQiyi claimed that advertising revenue in 2015 was 3.4 billion yuan. In 2015, iQiyi reported only 1.95 billion yuan of advertising revenue to the former State Administration for Industry and Commerce, which was overestimated by 74%.

Citing the 2016 report of the former Shanghai Administration for Industry and Commerce, the report shows that iQIYI's advertising revenue was 3.358 billion yuan. The advertising revenue reported to the SEC in 2016 by iQiyi was 5.65 billion yuan, an overstatement of 38.6%.

According to iQiyi's latest financial report, advertising revenue for 2019 will reach 8.3 billion yuan.

Report says iQIYI consumes fake cash

If the income is false, how is it consumed? The report also pointed out that iQiyi consumed fake cash through various channels.

According to the report, iQIYI data fraud is counted as a dual membership, which means it will record all revenue and record its partner's share as an expense, which allows iQIYI to increase revenue and destroy false cash at the same time.

"Iqiyi's management has not yet provided data on the number of dual members, the percentage of total members brought through these partnerships or the actual revenue share of iQiyi in these partnerships," the report said.

“From October to November 2019, we conducted a personal survey of 1,563 people in the Chinese target population of iQiyi, and found that approximately 31.9% of iQiyi users through their iQiyi partners such as JD.com or Xiaomi TV Membership access to exclusive content for iQiyi VIP members. "Wolfpack Research said.

By exchanging advertising purchases, other services and membership income commissions with related parties and other partners, iQiyi can easily increase membership income while providing a channel to consume fake cash.

For example, the cooperation between iQiyi and Xiaomi did not disclose details of the cooperation. However, financial data shows that iQiyi paid a large “commission” for Xiaomi and purchased advertising and other services from Xiaomi. The impact of their disclosure of the transaction between 2015 and 2017 led to iQiyi ’s loss, but its member income was 110.3 million yuan.

The report also pointed out that iQiyi has exaggerated its contribution to the new Ai Sports joint venture and created deferred revenue of approximately US $ 110 million. IQiyi's acquisition of Tianxiang Interactive and others exaggerated the prices of expenditures and asset purchases to consume false cash and cover up its income inflation.

However, iQiyi said in its latest financial report that iQiyi's other revenues reached 874.4 million yuan in the fourth quarter of 2019, and that its other revenues reached 3.7 billion yuan for the whole year, an increase of 30% compared with 2018. The growth of business in many vertical areas, especially the strong growth of the game business after the acquisition of Tianxiang Interactive Entertainment.

On the 8th, Beijing time, iQiyi also responded to the doubt. I believe that the above report contains a large number of errors, unconfirmed statements, and misleading conclusions and explanations related to iQiyi. (Finish)