愛奇藝iQIYI, Inc. (IQ) 2018年20-F年度報告「NASDAQ」.pdf

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1、 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549 FORM 20-F(Mark One)REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)OR 12(g)OF THE SECURITIES EXCHANGE ACT OF 1934OR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended Decemb

2、er 31,2018.OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934OR SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report.For the transition period from to Commission file number

3、:001-38431iQIYI,Inc.(Exact name of Registrant as specified in its charter)N/A(Translation of Registrants name into English).Cayman Islands(Jurisdiction of incorporation or organization)9/F,iQIYI Innovation BuildingNo.2 Haidian North First Street,Haidian DistrictBeijing 100080,Peoples Republic of Chi

4、na(Address of principal executive offices)Xiaodong Wang,Chief Financial OfficerE-mail:9/F,iQIYI Innovation BuildingNo.2 Haidian North First Street,Haidian DistrictBeijing 100080,Peoples Republic of ChinaTelephone:+86 10-6267-7171(Name,Telephone,E-mail and/or Facsimile number and Address of Company C

5、ontact Person)Securities registered or to be registered pursuant to Section 12(b)of the Act:Title of each class Name of each exchange on which registeredAmerican Depositary Shares,eachrepresenting seven Class A ordinary shares,par value US$0.00001 per share Nasdaq Global MarketClass A ordinary share

6、s,par value US$0.00001 per share*Nasdaq Global Market (1)*Not for trading,but only in connection with the listing on the Nasdaq Global Market of our American depositary shares,each representing seven Class A ordinaryshares.Securities registered or to be registered pursuant to Section 12(g)of the Act

7、:None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d)of the Act:None(Title of Class)Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.As of Decem

8、ber 31,2018,there were 5,075,817,301 ordinary shares outstanding,being the sum of 2,199,425,905 Class A ordinary shares(excluding 381,524,626 Class A ordinary shares issued to our depositarybank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards under our

9、share incentive plans)and 2,876,391,396 Class B ordinary shares.Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes NoIf this report is an annual or transition report,indicate by check mark if the registrant is not required to fil

10、e reports pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934.Yes NoNote Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 from their obligations under those Sections.Indicate by che

11、ck mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter periodthat the registrant was required to file such reports),and(2)has been subject to such filing requirements

12、 for the past 90 days.Yes NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during thepreceding 12 months(or for such shorter period that the registrant was

13、required to submit such files).Yes NoIndicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or an emerging growth company.See definition of“accelerated filer and large accelerated filer”and“emerging growth company”in Rule 12b-2 of the

14、Exchange Act:Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company If an emerging growth company that prepares its financial statements in accordance with U.S.GAAP,indicate by check mark if the registrant has elected not to use the extended transition period for com

15、plyingwith any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.The term“new or revised financial accounting standard”refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5,2012

16、.Indicate by check mark which basis of accounting the registrant has been to prepare the financial statements included in this filing:U.S.GAAP International Financial Reporting Standards as issued Other by the International Accounting Standards Board If“other”has been checked in response to the prev

17、ious question,indicate by check mark which financial statement item the registrant has elected to follow.Item 17 Item 18 If this is an annual report,indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No(APPLICABLE ONLY TO ISSUERS INVOLV

18、ED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12,13 or 15(d)of the Securities Exchange Act of 1934 subsequent to the distribution of securitiesunder a plan confirmed by a cour

19、t.Yes No TABLE OF CONTENTS INTRODUCTION2FORWARD-LOOKING INFORMATION3PART I.4 ITEM 1.IDENTITY OF DIRECTORS,SENIOR MANAGEMENT AND ADVISERS4 ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE4 ITEM 3.KEY INFORMATION5 ITEM 4.INFORMATION ON THE COMPANY37 ITEM 4.A.UNRESOLVED STAFF COMMENTS61 ITEM 5.OPERATING

20、AND FINANCIAL REVIEW AND PROSPECTS61 ITEM 6.DIRECTORS,SENIOR MANAGEMENT AND EMPLOYEES81 ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS90 ITEM 8.FINANCIAL INFORMATION93 ITEM 9.THE OFFER AND LISTING94 ITEM 10.ADDITIONAL INFORMATION95 ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MAR

21、KET RISK103 ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES104PART II.106 ITEM 13.DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES106 ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS106 ITEM 15.CONTROLS AND PROCEDURES106 ITEM 16.A.AUDIT COMMITTEE FINA

22、NCIAL EXPERT107 ITEM 16.B.CODE OF ETHICS107 ITEM 16.C.PRINCIPAL ACCOUNTANT FEES AND SERVICES107 ITEM 16.D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES107 ITEM 16.E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS107 ITEM 16.F.CHANGE IN REGISTRANTS CERTIFYING ACCOU

23、NTANT107 ITEM 16.G.CORPORATE GOVERNANCE108 ITEM 16.H.MINE SAFETY DISCLOSURE108PART III.108 ITEM 17.FINANCIAL STATEMENTS108 ITEM 18.FINANCIAL STATEMENTS108 ITEM 19.EXHIBITS108 iTable of Contents INTRODUCTIONUnless otherwise indicated and except where the context otherwise requires,references in this

24、annual report to:“ACGN”refers to anime,comic,games and light novels;“ADSs”refers to our American depositary shares,each of which represents seven Class A ordinary shares;“AI”refers to artificial intelligence;“Baidu”refers to Baidu,Inc.,our parent company and controlling shareholder;“China”or“PRC”ref

25、ers to the Peoples Republic of China,excluding,for the purpose of this annual report only,Taiwan,Hong Kong,andMacau;“IP”refers to intellectual property;“IT”refers to information technology;“mobile DAUs,”for our iQIYI platform,refers to the number of unique mobile devices that have accessed our platf

26、orm through our iQIYImobile app at least once during a day.Our mobile DAUs are calculated using internal company data that has not been independently verified,and we treat each distinguishable device as a separate user for purposes of calculating mobile DAUs,although it is possible that some peoplem

27、ay use more than one mobile device and multiple people may share one mobile device to access our platform;“mobile MAUs,”for our iQIYI platform,refers to the number of unique mobile devices that have accessed our platform through our iQIYImobile app at least once during a month.Our mobile MAUs are ca

28、lculated using internal company data that has not been independentlyverified,and we treat each distinguishable device as a separate user for purposes of calculating mobile MAUs,although it is possible that somepeople may use more than one mobile device and multiple people may share one mobile device

29、 to access our platform;“RMB”and“Renminbi”refer to the legal currency of China;“shares”or“ordinary shares”refers to our Class A and Class B ordinary shares,par value$0.00001 per share;“subscribing members,”refers to the individuals who purchased our monthly,quarterly or annual membership packages,in

30、cluding individualswith trial membership,and excluding individuals who pay for video on-demand services,sports paid content,online literature,comics andonline games;“total user time spent,”for our iQIYI platform,refers to the cumulative amount of time our video content is played through PC,mobile an

31、dsmart TV devices during a given period of time;“US$,”“U.S.dollars,”“$,”and“dollars”refer to the legal currency of the United States;“video views”refers to the number of times a video is launched on our platform,regardless of time spent viewing the video;“WAP”refers to wireless application protocol;

32、and“we,”“us,”“our company”and“our”refer to iQIYI,Inc.,a Cayman Islands company,and its subsidiaries,and,in the context of describing ouroperations and combined and consolidated financial information,also include its consolidated affiliated entities in the PRC.We present our financial results in RMB.

33、We make no representation that any RMB or U.S.dollar amounts could have been,or could be,convertedinto U.S.dollars or RMB,as the case may be,at any particular rate,or at all.The PRC government imposes control over its foreign currency reserves in partthrough direct regulation of the conversion of RM

34、B into foreign exchange and through restrictions on foreign trade.This annual report contains translationsof certain foreign currency amounts into U.S.dollars for the convenience of the reader.Unless otherwise stated,all translations of Renminbi into U.S.dollarswere made at the rate at RMB6.8755 to

35、US$1.00,the exchange rate as set forth in the H.10 statistical release of the Board of Governors of the Federal ReserveSystem in effect as of December 31,2018.2Table of Contents FORWARD-LOOKING INFORMATIONThis annual report contains forward-looking statements that involve risks and uncertainties.The

36、se statements involve known and unknown risks,uncertainties and other factors that may cause our actual results,performance or achievements to be materially different from those expressed or implied bythe forward-looking statements.These statements are made under the“safe harbor”provisions of the U.

37、S.Private Securities Litigations Reform Act of 1995.You can identify these forward-looking statements by words or phrases such as“may,”“will,”“expect,”“anticipate,”“aim,”“estimate,”“intend,”“plan,”“believe,”“likely to”or other similar expressions.We have based these forward-looking statements largel

38、y on our current expectations andprojections about future events and financial trends that we believe may affect our financial condition,results of operations,business strategy and financialneeds.These forward-looking statements include,but are not limited to,statements about:our goals and strategie

39、s;our ability to retain and increase the number of users,members and advertising customers,and expand our service offerings;our future business development,financial condition and results of operations;expected changes in our revenues,costs or expenditures;competition in our industry;relevant govern

40、ment policies and regulations relating to our industry;general economic and business conditions globally and in China;and assumptions underlying or related to any of the foregoing.You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits t

41、o this annual report completelyand with the understanding that our actual future results may be materially different from what we expect.Other sections of this annual report discuss factorswhich could adversely impact our business and financial performance.Moreover,we operate in an evolving environm

42、ent.New risk factors emerge from timeto time and it is not possible for our management to predict all risk factors,nor can we assess the impact of all factors on our business or the extent to whichany factor,or combination of factors,may cause actual results to differ materially from those contained

43、 in any forward-looking statements.We qualify all ofour forward-looking statements by these cautionary statements.You should not rely upon forward-looking statements as predictions of future events.The forward-looking statements made in this annual report relateonly to events or information as of th

44、e date on which the statements are made in this annual report.Except as required by law,we undertake no obligation toupdate or revise publicly any forward-looking statements,whether as a result of new information,future events or otherwise,after the date on which thestatements are made or to reflect

45、 the occurrence of unanticipated events.3Table of Contents PART I.ITEM 1.IDENTITY OF DIRECTORS,SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.4Table of Contents ITEM 3.KEY INFORMATIONA.Selected Financial DataSelected Consolidated Financial D

46、ataThe following selected consolidated statements of comprehensive loss data for the years ended December 31,2016,2017 and 2018 and selectedconsolidated balance sheet data as of December 31,2017 and 2018 and selected consolidated cash flows data for the years ended December 31,2016,2017and 2018 have

47、 been derived from our audited consolidated financial statements included in this annual report beginning on page F-1.The following selectedconsolidated statement of comprehensive loss data for the year ended December 31,2015,selected consolidated balance sheet data as of December 31,2015and 2016 an

48、d selected consolidated cash flow data for the year ended December 31,2015 have been derived from our audited consolidated financialstatements not included in this annual report.We have not included financial information for the year ended December 31,2014,as such information cannotbe provided on a

49、stand-alone and U.S.GAAP basis without unreasonable effort or expense.Our historical results for any period are not necessarily indicativeof results to be expected for any future period.The selected consolidated financial data should be read in conjunction with,and are qualified in their entiretyby

50、reference to,our audited consolidated financial statements and related notes and“Item 5.Operating and Financial Review and Prospects”below.Ourconsolidated financial statements are prepared and presented in accordance with U.S.GAAP.Starting from January 1,2018,we adopted a new revenueaccounting stand

51、ard ASC topic 606(“ASC 606”),Revenue from Contracts with Customers,which reclassifies value added taxes(“VAT”)from cost ofrevenues to net against revenues among other changes.The consolidated statements of comprehensive loss data for the year ended December 31,2018presented below have been prepared

52、in accordance with ASC 606 and is net of VAT of RMB1,457.8 million(US$212.0 million),while the consolidatedstatements of comprehensive loss data for the years ended December 31,2016 and 2017 presented below have been prepared in accordance with the legacyrevenue accounting standard ASC topic 605(“AS

53、C 605”),Revenue Recognition,and,unlike the consolidated statement of comprehensive loss data for theyear ended December 31,2018,is not net of VAT of RMB630.8 million and RMB981.6 million,respectively.For the year ended December 31,2015(1)2016(1)2017(1)2018 RMB RMB RMB RMB US$(in thousands,except for

54、 share and per share data)Selected Consolidated Statements of Comprehensive Loss Data:Total revenues 5,318,584 11,237,407 17,378,350 24,989,116 3,634,516 Operating costs and expenses:Cost of revenues(2)(6,041,764)(11,436,595)(17,386,563)(27,132,811)(3,946,304)Selling,general and administrative(2)(1,

55、204,464)(1,765,824)(2,674,990)(4,167,889)(606,194)Research and development(2)(499,957)(824,482)(1,269,806)(1,994,652)(290,110)Total operating costs and expenses (7,746,185)(14,026,901)(21,331,359)(33,295,352)(4,842,608)Operating loss (2,427,601)(2,789,494)(3,953,009)(8,306,236)(1,208,092)Total other

56、(expenses)/income,net (136,345)(271,440)208,512 (676,194)(98,347)Loss before income taxes (2,563,946)(3,060,934)(3,744,497)(8,982,430)(1,306,439)Income tax(expense)/benefit (11,166)(13,088)7,565 (78,801)(11,461)Net loss (2,575,112)(3,074,022)(3,736,932)(9,061,231)(1,317,900)Less:Net income attribute

57、d to non-controlling interests 48,545 7,061 Accretion of redeemable convertible preferred shares (2,342,385)(4,874,739)5,073,140 (298,990)(43,486)Extinguishment and reissuance of Series B preferred shares (363,279)Net(loss)/income attributable to ordinary shareholders (4,917,497)(7,948,761)972,929 (

58、9,408,766)(1,368,447)Net(loss)/earnings per ordinary share:Basic (14.36)(23.20)0.30 Diluted (14.36)(23.20)(1.15)Net loss per Class A and Class B ordinary share(3):Basic (2.43)(0.35)Diluted (2.43)(0.35)Net loss per ADS:Basic (17.01)(2.45)Diluted (17.01)(2.45)Shares used in net(loss)/earnings per ordi

59、nary share computation:Basic 342,548,237 342,548,237 342,548,237 Diluted 342,548,237 342,548,237 3,243,147,261 Shares used in net(loss)/earnings per Class A and Class B ordinary share computation:Basic 3,867,931,786 3,867,931,786 Diluted 3,867,931,786 3,867,931,786 Notes:(1)In accordance with the le

60、gacy revenue accounting standard(ASC 605),VAT is presented in cost of revenues rather than net against revenues.(2)Share-based compensation expenses were allocated in operating costs and expenses as follows:5Table of Contents For the year ended December 31,2015 2016 2017 2018 RMB RMB RMB RMB US$(in

61、thousands)Cost of revenues 5,837 9,479 34,895 83,351 12,123 Selling,general and administrative 21,330 30,447 130,994 368,598 53,610 Research and development 17,027 22,466 67,535 104,262 15,164 Total 44,194 62,392 233,424 556,211 80,897(3)Our ordinary shares are comprised of Class A ordinary shares a

62、nd Class B ordinary shares.Each holder of Class A ordinary shares is entitled to one vote per share and eachholder of Class B ordinary shares is entitled to ten votes per share on all matters submitted to them for a vote.Class B ordinary shares are convertible at any time by the holderthereof into C

63、lass A ordinary shares on a one-for-one basis.As holders of Class A and Class B ordinary shares have the same dividend right and the same participation right inour undistributed earnings,the basic and diluted income(loss)per Class A ordinary share and Class B ordinary share are the same for all the

64、periods presented during whichthere were two classes of ordinary shares.The following table presents our selected consolidated balance sheet data as of the dates indicated.As of December 31,2015 2016 2017 2018 RMB RMB RMB RMB US$(in thousands)Selected Consolidated Balance Sheet Data:Cash and cash eq

65、uivalents 1,588,739 964,207 733,010 4,586,405 667,065 Restricted cash 2,174,042 316,201 Short-term investments 160,000 902,978 779,916 6,061,832 881,657 Total current assets 4,473,910 5,154,305 5,700,528 19,853,443 2,887,563 Total assets 10,424,986 13,631,636 20,200,899 44,759,698 6,510,027 Total cu

66、rrent liabilities 5,862,949 11,889,853 11,625,612 19,812,356 2,881,587 Total liabilities 5,877,095 11,897,142 11,918,299 26,604,135 3,869,410 Total mezzanine equity 12,164,428 17,039,167 22,601,664 Total shareholders(deficit)/equity (7,616,537)(15,304,673)(14,319,064)18,155,563 2,640,617 The followi

67、ng table presents our selected consolidated cash flow data for the years indicated.For the year ended December 31,2015 2016 2017 2018 RMB RMB RMB RMB US$(in thousands)Selected Consolidated Cash Flow Data:Net cash provided by operating activities 1,070,770 2,612,121 4,011,784 2,884,186 419,489 Net ca

68、sh used for investing activities (3,133,375)(6,663,100)(10,660,674)(20,949,094)(3,046,918)Net cash(used in)/provided by financing activities (131,708)3,411,766 6,561,110 23,474,959 3,414,292 Effect of exchange rate changes on cash,cash equivalents and restricted cash 71,951 14,681 (143,417)617,386 8

69、9,791 Net(decrease)/increase in cash,cash equivalents and restricted cash (2,122,362)(624,532)(231,197)6,027,437 876,654 Cash,cash equivalents and restricted cash at the beginning of the period 3,711,101 1,588,739 964,207 733,010 106,612 Cash,cash equivalents and restricted cash at the end of the pe

70、riod 1,588,739 964,207 733,010 6,760,447 983,266 B.Capitalization and IndebtednessNot Applicable.C.Reasons for the Offer and Use of ProceedsNot Applicable.6Table of Contents D.Risk FactorsRisks Related to Our Business and IndustryWe have incurred net losses since our inception and may continue to in

71、cur losses in the future.We incurred net losses since our inception,including net losses in the amount of RMB3.1 billion,RMB3.7 billion,and RMB9.1 billion(US$1.3billion)in 2016,2017 and 2018,respectively,primarily due to significant content and bandwidth costs.Between 2017 and 2018,our net margin de

72、terioratedfrom negative 22.8%to negative 36.3%,which was the net margin after the deduction of value added-taxes in 2017 total revenues resulting from theadoption of ASC 606.Our ability to achieve profitability is affected by various factors,many of which are beyond our control.For example,our reven

73、uesdepend on the increased number of subscribing members and advertising customers allocation of more budget to internet video streaming platforms.Inaddition,our users willingness to pay and subscribe to our content depends on the quality and breadth of our content offerings and availability of alte

74、rnativeentertainment content offerings.The production and procurement of content,as well as bandwidth,have historically accounted for the majority of our cost ofrevenues.We expect our costs to increase on an absolute basis as traffic to our platform grows,users of our platform increase,the resolutio

75、n of our videosincreases and as we produce and acquire more content to enrich user experience.Producing high-quality,popular original content is costly and time-consuming and it will typically take a long period of time to realize returns on investment,if at all.The market prices for professionally-

76、produced content,especially popular TV series and movies,have increased significantly in China during the past few years and may continue to increase in the foreseeablefuture.Between 2017 and 2018,our cost of revenues increased significantly by 56.1%from RMB17.4 billion to RMB27.1 billion(US$3.9 bil

77、lion),outpacing the growth rate of our total revenues.If we cannot successfully offset our increased costs with a significant increase in total revenues,our financialcondition and results of operations may be materially and adversely affected.We may continue to incur net losses in the foreseeable fu

78、ture due to ourcontinued investments in content and technology.We may also continue to incur net losses in the foreseeable future due to changes in the macroeconomicand regulatory environment,competitive dynamics and our inability to respond to these changes in a timely and effective manner.It is no

79、t possible for us toaccurately predict when we will be able to achieve profitability.If we fail to anticipate user preferences and provide high-quality content,especially popular original content,in a cost-effective manner,we may not beable to attract and retain users to remain competitive.Our succe

80、ss depends on our ability to maintain and grow user time spent on our platform.To attract and retain users and compete against ourcompetitors,we must continue to offer high-quality content,especially popular original content,in a cost effective manner,which provides our users with asuperior online e

81、ntertainment experience.To this end,we must continue to produce new original content and source new professionally produced or partner-generated and user-generated content in a cost effective manner.Given that we operate in a rapidly evolving industry,we need to anticipate user preferencesand indust

82、ry changes and respond to such changes in a timely and effective manner.If we fail to cater to the needs and preferences of our users,control ourcosts in doing so or fail to deliver superior user experience,we may suffer from reduced user traffic,and our business,financial condition and results ofop

83、erations may be materially and adversely affected.Various phases of our original content production are outsourced to our content production partners.Ifthey fail to generate quality content satisfactory to our demands or provide services upon terms commercially acceptable to us,we may be unable to p

84、rovidehigh-quality original content offerings to our users.We rely on our in-house team to generate creative ideas for original content and to supervise the original content origination and production process,and we intend to continue to invest resources in content production.We face fierce competit

85、ion for qualified personnel in a limited pool of high-qualitycreative talent.Our competitors include well-capitalized companies that are capable of offering compensation packages more attractive to talents.If we arenot able to compete effectively for talents or attract and retain top talents at reas

86、onable costs,our original content production capabilities would benegatively impacted.Any deterioration in our in-house content production capability,inability to attract creative talents at reasonable costs or losses inpersonnel may materially and adversely affect our business and operating results

87、.If we are unable to offer popular original content that meets user tastes andpreferences in a cost effective manner,our user experience may be adversely affected,we may suffer from reduced user traffic and our business,financialcondition and results of operations may be materially and adversely aff

88、ected.If we fail to procure content from content providers upon terms acceptable to us,our business may be materially and adversely affected.Our ability to provide our users with high-quality,popular content depends in part on our ability to procure content from studios and other contentproviders,as

89、 well as distributors and other licensors of content.We typically enter into license and sub-license agreements with third-party content providersand other IP holders.The license periods and the terms and conditions of such licenses vary.If content providers and other rights holders are no longerwil

90、ling or able to license content to us upon terms acceptable to us,or,in the case where we obtained the right to distribute content through sub-licenseagreements,if the licensors lose their right to sub-license such content to us,our ability to offer content to our users will be adversely affected an

91、d/or our costcould further increase.For content sub-licensed and currently being showcased on our platform,we may be forced to remove such content as a result of our7Table of Contents licensors disputes with the original content provider,which may result in loss of user traffic and revenues.If we fa

92、il to remove such content in a timelymanner,we may become the subject of adverse legal actions from the original content provider.As competition intensifies,we may see the cost of licensedcontent increase.As we seek to differentiate our service,we are increasingly focused on securing rights other th

93、an merely distribution and online streamingrights.We also acquire other forms of copyright such as rights to adapt the original content into online games,films,drama series,animation and otherentertainment formats.We focus on offering an overall mix of content that appeals to our users in a cost eff

94、icient manner.If we do not maintain a compellingmix of content,our user acquisition and retention may be adversely affected.If our efforts to retain members and attract new members are not successful,our business and results of operations will be materially and adverselyaffected.We have experienced

95、significant membership growth over the past several years.Our ability to continue to retain members and attract new memberswill depend in part on our ability to consistently provide our members with compelling content choices,as well as a quality experience for selecting andviewing video content.Fur

96、thermore,the relative service levels,content offerings,pricing and related features of competitors may adversely impact our abilityto attract and retain members.If we introduce new or adjust existing features,adjust pricing or service offerings,or change the mix of content in a manner thatis not fav

97、orably received by our members,we may not be able to attract and retain members.Many of our members originate from organic growth.If ourefforts to satisfy our existing members are not successful,we may not be able to attract new members,and as a result,our ability to maintain and/or grow ourmembersh

98、ip revenues will be adversely affected.Members may cancel or decide not to renew our service for many reasons,including a perception that theydo not use the service sufficiently,payment inconveniences,the need to cut household expenses,availability of content is unsatisfactory,competitiveservices pr

99、ovide a better value or experience and customer service issues are not satisfactorily resolved.We must retain existing members and continuallyattract new members to increase our membership base.If we are unable to successfully compete with current and new competitors in both retaining ourexisting me

100、mbers and attracting new members,our business will be adversely affected.Further,if an excessive number of members cancel or opt not to renewour service,we may be required to incur significantly higher marketing expenditures to attract new members than we currently anticipate.If we fail to retain ex

101、isting or attract new advertising customers to advertise on our platform,maintain and increase our wallet share of advertising budgetor if we are unable to collect accounts receivable in a timely manner,our financial condition and results of operations may be materially and adverselyaffected.We gene

102、rated a substantial part of our revenues from online advertising.Although online advertising revenue as a percentage of our total revenues hasdecreased recently,online advertising remains one of our largest sources of revenue.We cannot assure you that we will be able to retain our advertisingcustome

103、rs in the future,attract new advertising customers continuously or be able to retain our advertising customers at all.If our advertising customers findthat they can generate better returns elsewhere,or if our competitors provide better online advertising services to suit our advertising customers go

104、als,wemay lose our advertising customers.We experienced a deceleration in the growth of our online advertising revenue,net of VAT,between 2017 and 2018,which saw such revenue increase by 21.2%.This is compared to a growth rate in online advertising revenue of 44.4%between 2016 and 2017.In addition,t

105、hird parties may develop and use certain technologies to block the display,and our members are able to skip the viewing,of our advertising customersadvertisements on our platform,which may in turn cause us to lose advertising customers and adversely affect our results of operations.If our advertisin

106、gcustomers determine that their expenditures on internet video streaming platforms do not generate expected returns,they may allocate a portion or all of theiradvertising budgets to other advertising channels such as television,newspapers and magazines or other internet channels such as e-commerce a

107、nd socialmedia platforms,and reduce or discontinue business with us.Since most of our advertising customers are not bound by long-term contracts,they may lessenor discontinue advertising arrangements with us easily without incurring material liabilities.Failure to retain existing advertising custome

108、rs or attract newadvertising customers to advertise on our platform may materially and adversely affect our financial conditions and results of operations.We may continue toexperience deceleration in the growth of our online advertising business,and we cannot assure you that we will be able to resum

109、e our historical growth inonline advertising revenue.Our brand advertising customers typically enter into online advertising agreements with us through various third-party advertising agencies.InChinas advertising industry,advertising agencies typically have good relationships and maintain longer pe

110、riods of cooperation with the brand advertisingcustomers they represent.In addition to entering into advertising contracts directly with advertising customers,we also enter into advertising contracts withthird-party advertising agencies,which represent advertising customers,even if we have direct co

111、ntact with such advertisers.As a result,we rely on third-party advertising agencies for sales to,and collection of payment from,our brand advertisers.In consideration for the third-party advertising agenciesservices,we offer them rebates based on the volume of business they bring to us.The financial

112、 soundness of our advertising customers and advertisingagencies may affect our collection of accounts receivable.We make a credit assessment of our advertising customers and advertising agencies to evaluate thecollectability of the advertising service fees before entering into an advertising contrac

113、t.However,we cannot assure you that we are or will be able toaccurately assess the creditworthiness of each advertising customer or advertising agency,and any inability of advertising customers or advertising agenciesto pay us in a timely manner may adversely affect our liquidity and cash8Table of C

114、ontents flows.In addition,there has been some consolidation among Chinas advertising agencies.If this trend continues,a small number of large advertisingagencies may be in a position to demand higher rebate for advertising agency services,which could reduce our online advertising revenue.In addition

115、,we do not have long-term cooperation agreements or exclusive arrangements with third-party advertising agencies and they may elect todirect business opportunities to other advertising service providers,including our competitors.If we fail to retain and enhance the business relationships withthird-p

116、arty advertising agencies,we may suffer from a loss of advertising customers and our financial condition and results of operations may be materiallyand adversely affected.We operate in a capital intensive industry and require a significant amount of cash to fund our operations,content acquisitions a

117、nd technologyinvestments.If we cannot obtain sufficient capital,our business,financial condition and prospects may be materially and adversely affected.The operation of an internet video streaming platform requires significant and continuous investment in content and technology.Producing high-qualit

118、y original content is costly and time-consuming and it will typically take a long period of time to realize returns on investment,if at all.To date,wehave financed our operations primarily with net cash generated from operating activities,as well as financing activities such as placements of preferr

119、edshares,convertible notes and asset-based securities,the substantial financial support from Baidu,and the proceeds from our initial public offering.As ofDecember 31,2018,we had an outstanding loan balance of RMB700.0 million(US$101.8 million)to Baidu.In order to implement our growth strategies,wewi

120、ll incur additional capital in the future to cover,among others,costs to produce and license content.We may need to obtain additional financing,including equity offerings or debt financing,to fund the operation and expansion of business.Our ability to obtain additional financing in the future,howeve

121、r,is subject to a number of uncertainties,including those relating to:our future business development,financial condition and results of operations;general market conditions for financing activities by companies in our industry;macro-economic and other conditions in China and elsewhere;and our relat

122、ionship with Baidu.As a public company with a growing business,we expect to increasingly rely on net cash provided by operating activities,financing through capitalmarkets and commercial banks for our liquidity needs.However,we cannot assure you that we will be successful in our efforts to further d

123、iversify our sourcesof liquidity and obtain financing.If we cannot obtain sufficient capital to meet our capital needs,we may not be able to execute our growth strategies and ourbusiness,financial condition and prospects may be materially and adversely affected.The success of our business depends on

124、 our ability to maintain and enhance our brand.We believe that maintaining and enhancing our iQIYI brand is of significant importance to the success of our business.Our well-recognized brand iscritical to increasing our user base and,in turn,expanding our membership base and attractiveness to advert

125、ising customers and content providers.Since theinternet video industry is highly competitive,maintaining and enhancing our brand depends largely on our ability to remain the market leader in China,which may be difficult and expensive.To the extent our content,in particular,our original content,is pe

126、rceived as low quality or otherwise not appealing tousers,our ability to maintain and enhance our brand may be adversely impacted.We may be the subject of detrimental conduct by third parties,including complaints to regulatory agencies and the public dissemination of maliciousassessments of our busi

127、ness,which could have a negative impact on our reputation and cause us to lose market share,users,advertisers and revenues,andadversely affect the price of our ADSs.We have been,and in the future may be,the target of anti-competitive,harassing or other detrimental conduct by third parties.Such condu

128、ct mayinclude complaints,anonymous or otherwise,to regulatory agencies regarding our operations,accounting,revenues,business relationships,businessprospects and business ethics.Additionally,allegations and other negative publicity,directly or indirectly against us,may be posted online or otherwisege

129、nerally disseminated by anyone,whether or not related to us.We may be subject to regulatory investigations,lawsuits or public perception backlash as aresult of such third-party conduct and may be required to expend significant time and incur substantial costs to address such third-party conduct,and

130、there isno assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time,or at all.Our reputation may also benegatively affected as a result of the public dissemination of anonymous allegations or malicious statements about our business,which in tur

131、n may cause usto lose market share,users,advertisers and revenues,and adversely affect the price of our ADSs.9Table of Contents Increases in market price of professionally-produced content,or PPC,may have a material and adverse effect on our business,financial condition andresults of operations.PPC

132、constitutes a significant part of our content offerings.The market prices for PPC,especially TV series and movies,have increased significantly inChina during the past few years.Due to the improving monetization prospects,internet video streaming platforms are generating more revenues and arecompetin

133、g aggressively to license popular content titles,which have in turn led to increases in licensing fees of PPC in general.As the market further grows,the expectations of copyright owners,distributors and industry participants may continue to rise,and as such they may demand higher licensing fees for

134、PPC.Furthermore,with the expansion of our content library,we expect the costs for PPC to continue to increase.If we are unable to generate sufficient revenues tooutpace the increase in market prices for PPC,we may incur more losses and our business,financial condition and results of operations may b

135、e adverselyaffected.We operate in a highly competitive market and we may not be able to compete effectively.We face significant competition in China,primarily from Tencent Video and Youku Tudou.We compete for users,usage time and advertisingcustomers.Some of our competitors have a longer operating h

136、istory and significantly greater financial resources than we do,and,in turn,may be able toattract and retain more users,usage time and advertising customers.Our competitors may compete with us in a variety of ways,including by obtaining IPrights to popular content,conducting brand promotions and oth

137、er marketing activities,and making investments in and acquisitions of our business partners.In addition,certain internet video platforms may continue to derive their revenues from providing content that infringes third-party copyright and may notmonitor their platforms for any such infringing conten

138、t.As a result,we may be placed at a disadvantage to some of these companies that do not incur similarcosts as we do with respect to content production,acquisition and monitoring.If any of our competitors achieves greater market acceptance than we do or isable to offer more attractive internet video

139、content,our user traffic and our market share may decrease,which may result in a loss of advertising customers andmembers,as well as have a material and adverse effect on our business,financial condition and results of operations.We face competition from traditional media such as major TV stations,w

140、hich are increasing their internet video offerings.Most large companies inChina allocate,and will likely continue to allocate,a significant portion of their advertising budgets to traditional media,particularly major TV stations.Wealso face competition for users and user time from other internet med

141、ia and entertainment services,such as internet and social platforms that offer content inemerging and innovative media formats.The continued and collaborative efforts of our senior management and key employees are crucial to our success,and our business may be harmed if welose their services.Our suc

142、cess depends on the continued and collaborative efforts of our senior management,especially our executive officers,including our founder,Dr.Yu Gong.If,however,one or more of our executives or other key personnel are unable or unwilling to continue to provide services to us,we may not be ableto find

143、suitable replacements easily or at all.Competition for management and key personnel is intense and the pool of qualified candidates is limited.Wemay not be able to retain the services of our executives or key personnel,or attract and retain experienced executives or key personnel in the future.If an

144、y ofour executive officers or key employees joins a competitor or forms a competing business,we may lose crucial business secrets,technological know-how,advertisers and other valuable resources.Each of our executive officers and key employees has entered into an employment agreement with us,whichcon

145、tains non-compete provisions.However,we cannot assure you that they will abide by the employment agreements or our efforts to enforce theseagreements will be effective enough to protect our interests.Our limited operating history makes it difficult to evaluate our business and prospects.We launched

146、our platform and internet video streaming services in 2010 and have grown rapidly since then.However,due to our limited operatinghistory,our historical growth rate may not be indicative of our future performance.We cannot assure you that our growth rate will be the same as in the past.In addition,we

147、 may in the future introduce new services or significantly expand our existing services,including those that currently are of relatively smallscale or with which we have little or no prior development or operating experience.If these new or enhanced services fail to engage users and customers,ourbus

148、iness and operating results may suffer as a result.We cannot assure you that we will be able to recoup our investments in introducing these new services orenhancing existing smaller business lines,and we may experience significant loss and impairment of asset value due to such efforts.Furthermore,as

149、 atechnology-based entertainment company,we frequently introduce innovative products and services to our users and advertising customers in order tocapture new market opportunities.However,we cannot assure you that our products and services will be well received by our users and advertising customer

150、s.In addition,it is possible that our users and advertising customers may find our products and services objectionable.For example,there was media reportingin 2017 that the beta-testing version of our Vivi virtual assistant service was deemed by some of our users as offensive.We immediately suspende

151、d suchservice pending further modifications.If our existing or new products and services are not well received by our users and customers,we may suffer damages10Table of Contents to our brand image and may not be able to maintain or expand our user and customer base,which in turn may have a material

152、 and adverse effect on ourbusiness,financial condition and results of operations.You should consider our prospects in light of the risks and uncertainties fast-growing companies withlimited operating histories in a fast evolving industry may encounter.We may not be able to manage our growth effectiv

153、ely.We have experienced rapid growth since we launched our services in 2010.To manage the further expansion of our business and the growth of ouroperations and personnel,we need to continuously expand and enhance our infrastructure and technology,and improve our operational and financialsystems,proc

154、edures,compliance and controls.We also need to expand,train and manage our growing employee base.In addition,our management will berequired to maintain and expand our relationships with content providers,distributors,advertising customers,advertising agencies and other third parties.Wecannot assure

155、you that our current infrastructure,systems,procedures and controls will be adequate to support our expanding operations.If we fail to manageour expansion effectively,our business,results of operations and prospects may be materially and adversely affected.We cannot guarantee our monetization strate

156、gies will be successfully implemented or generate sustainable revenues and profit.Our monetization model is evolving.We currently generate a substantial majority of our revenues from membership services and online advertising.We plan to strengthen revenue contribution from our IP-related monetizatio

157、n methods,such as content distribution,live broadcasting,online games,and IPlicensing.We have no proven track record or experience in generating substantial revenues from IP-related monetization methods.If our strategic initiativesdo not enhance our monetization ability or enable us to develop new a

158、pproaches to monetization,we may not be able to maintain or increase our revenues orrecover any associated costs.In addition,we may in the future introduce new services to further diversify our revenue streams,including services with whichwe have little or no prior development or operating experienc

159、e.If these new or enhanced services fail to engage users,customers or content partners,we mayfail to attract or retain users or to generate sufficient revenues to justify our investments,and our business and operating results may suffer as a result.We have significant working capital requirements an

160、d have historically experienced working capital deficits.If we experience such working capitaldeficits in the future,our business,liquidity,financial condition and results of operations may be materially and adversely affected.We have historically experienced working capital deficits.We have achieve

161、d a working capital surplus as of December 31,2018.However,there is noassurance that we will continue to improve our working capital position or to achieve a surplus.For actions that we plan to take in order to manage ourworking capital,see“Item 5.Operating and Financial Review and Prospects B.Liqui

162、dity and Capital Resources.”There can be no assurance,however,that we will be able to prudently manage our working capital,or raise additional equity or debt financing on terms that are acceptable to us.Our inability totake these actions as and when necessary could materially adversely affect our li

163、quidity,results of operations,financial condition and ability to operate.Our business,prospects and financial results may be impacted by our relationship with third-party platforms.In addition to our iQIYI platform,we also distribute video content through third-party platforms.We generate membership

164、 service and onlineadvertising service revenues through revenue-sharing arrangements with such third-party platforms,which include leading internet companies in China.However,there can be no assurance that our arrangements with those platforms will be extended or renewed after their respective expir

165、ation or that we will beable to extend or renew such arrangements on terms and conditions favorable to us.In addition,if any of such third-party platforms breaches its obligationsunder any of the agreements entered into with us or refuses to extend or renew it when the term expires,and we cannot fin

166、d suitable replacement on a timelybasis,or at all,we may suffer significant loss to our user base and revenue streams we have developed therefrom,or loose the opportunity to expand ourbusiness through such platform.We may be involved with legal or other disputes with third-party platforms that may a

167、ffect our relationship with suchplatforms or have an adverse effect on our business.We face risks,such as unforeseen costs and potential liability in connection with content we produce,license and/or distribute through our platform.As a producer,licensor and distributor of content,we face potential

168、liability for negligence,copyright and trademark infringement,or other claimsbased on the content that we produce,license,provide and/or distribute.We also may face potential liability for content used in promoting our service,including marketing materials and features on our platform such as user r

169、eviews.We are responsible for the production costs and other expenses of ouroriginal content.We also take on risks associated with production,such as completion and key talent risk.To the extent we do not accurately anticipate costsor mitigate risks,including for content that we obtain but ultimatel

170、y does not appear on our platform,or if we become liable for content we produce,licenseand/or distribute,our business may suffer.Litigation to defend these claims could be costly and the expenses and damages arising from any liability orunforeseen production risks could harm our results of operation

171、s.We may not be indemnified against claims or costs of these types and we may not haveinsurance coverage for these types of claims.11Table of Contents Videos and other content displayed on our platform may be found objectionable by PRC regulatory authorities and may subject us to penalties and other

172、administrative actions.We are subject to PRC regulations governing internet access and the distribution of videos and other forms of information over the internet.Underthese regulations,internet content providers and internet publishers are prohibited from posting or displaying over the internet any

173、 content that,among otherthings,violates PRC laws and regulations,impairs the national dignity of China or the public interest,or is obscene,superstitious,frightening,gruesome,offensive,fraudulent or defamatory.Furthermore,as an internet video streaming platform,we are not allowed to(i)produce or di

174、sseminate programs thatdistort,parody or vilify classic literary works;(ii)re-edit,re-dub or re-caption the subtitles of classic literary works,radio and television programs,andnetwork-based original audio-video programs,(iii)intercept program segments and splice them into new programs;or(iv)dissemi

175、nate edited pieces of worksthat distort the originals.We shall strictly supervise our self-made content and the reprogramed videos uploaded by our users and shall not facilitate thedissemination of defective audio-video programs.Failure to comply with these requirements may result in monetary penalt

176、ies,revocation of licenses toprovide internet content or other licenses,suspension of the concerned platforms and reputational harm.In addition,these laws and regulations are subject tointerpretation by the relevant authorities,and it may not be possible to determine in all cases the types of conten

177、t that could cause us to be held liable as aninternet content provider.For a detailed discussion,see“Item 4.Information on the CompanyGovernment RegulationRegulations on Internet ContentProviders”,“Item 4.Information on the CompanyB.Business OverviewGovernment RegulationsRegulations on Internet Audi

178、o-video ProgramServices”and“Item 4.Information on the CompanyB.Business OverviewGovernment RegulationsRegulations on Information Security,Censorshipand Privacy.”Internet platform operators may also be held liable for the content displayed on or linked to its platform that is subject to certain restr

179、ictions.Inaddition to professionally produced content,we allow our users to upload professional or user-generated content,such as videos and other content formats.Although we have adopted internal procedures to monitor the content displayed on our platform,due to the significant amount of content up

180、loaded by ourusers,we may not be able to identify all videos or other content that may be illegal or otherwise objectionable.In addition,we may not be able to alwayskeep these internal procedures abreast of changes in the PRC governments requirements for content display.See“Item 4.Information on the

181、 CompanyBusiness OverviewContent Monitoring”for more details relating to our content monitoring procedures.Failure to identify and prevent illegal orinappropriate content from being displayed on our platform may subject us to liability,government sanctions or loss of licenses and/or permits.To the e

182、xtent that PRC regulatory authorities find any content displayed on our platform objectionable,they may require us to limit or eliminate thedissemination of such content on our platform in the form of take-down orders or otherwise.In the past,we have from time to time received phone calls andwritten

183、 notices from the relevant PRC regulatory authorities requesting us to delete or restrict certain content that the government deemed inappropriate orsensitive.The State Administration of Press and Publication,Radio,Film and Television,or the SAPPRFT,publishes from time to time lists of content that

184、isobjectionable,and we monitor content uploaded on to our platform and remove those referenced in the list.In addition,regulatory authorities may imposepenalties on us for content displayed on or linked to our platform in cases of material violations or lacking proper license,including a revocation

185、of ouroperating licenses or a suspension or shutdown of our online operations.Although we have not been materially penalized for our content so far,in the eventthat the PRC regulatory authorities find the video and other content on our platform objectionable and impose penalties on us or take other

186、actions against usin the future,our business,results of operations and reputation may be materially and adversely affected.Moreover,the costs of compliance with theseregulations may continue to increase as a result of more content uploaded by our users.We operate in a rapidly evolving industry.If we

187、 fail to keep up with the technological developments and users changing requirements,our business,results of operations and prospects may be materially and adversely affected.The internet video streaming industry is rapidly evolving and subject to continuous technological changes.Our success will de

188、pend on our ability tokeep up with the changes in technology and user behavior resulting from the technological developments.As we make our services available across a varietyof mobile operating systems and devices,we are dependent on the interoperability of our services with popular mobile devices

189、and mobile operating systemsthat we do not control,such as Android and iOS.Any changes in such mobile operating systems or devices that degrade the functionality of our services orgive preferential treatment to competitive services could adversely affect usage of our services.Further,if the number o

190、f platforms for which we develop ourservices increases,which is typically seen in a dynamic and fragmented mobile services market such as China,it will result in an increase in our costs andexpenses.If we fail to adapt our products and services to such changes in an effective and timely manner,we ma

191、y suffer from decreased user traffic,whichmay result in reduced member base and number of advertising customers using our online advertising services.Furthermore,changes in technologies mayrequire substantial capital expenditures in product development as well as in modification of products,services

192、 or infrastructure.We may not execute ourbusiness strategies successfully due to a variety of reasons such as technical hurdles,misunderstanding or erroneous prediction of market demand or lack ofnecessary resources.Failure to keep up with technological development may result in our products and ser

193、vices being less attractive,which,in turn,maymaterially and adversely affect our business,results of operations and prospects.12Table of Contents We have been,and may continue to be,subject to liabilities for infringement,misappropriation or other violation of third-party intellectual property right

194、sor other allegations based on the content available on our platform or services we provide.Our success depends,in large part,on our ability to operate our business without infringing,misappropriating or otherwise violating third-party rights,including third-party intellectual property rights.Compan

195、ies in the internet,technology and media industries own,and are seeking to obtain,a large numberof patents,copyrights,trademarks and trade secrets,and they are frequently involved in litigation based on allegations of infringement,misappropriation orother violations of intellectual property rights o

196、r other related legal rights.There may be patents issued or pending that are held by others that coversignificant aspects of our technologies,products,or services,and such third parties may attempt to enforce such rights against us.In addition,we may nothave obtained licenses for all content we offe

197、r and the scope,type and term of the licenses we obtained for certain content may not be broad enough to coverall fashions we currently employ or may employ in the future.In addition,if any purported licensor does not actually have sufficient authorization relating tothe content or right to license

198、a content to us,or if such purported licensor had lost its authorization to sub-license content that we are distributing on ourplatform,and do not timely inform us of such loss of authorization,we may be subject to claims of intellectual property infringement from third parties.Although we have set

199、up certain procedures to enable copyright owners to provide us with notice of alleged infringement,given the volume ofcontent available on our platform,it is not possible,and we do not attempt to,identify and remove or disable all potentially infringing content that mayexist.Similarly,although we ha

200、ve set up screening processes to try to filter out or disable access to content that we have previously been informed is subjectto claims of copyright or other intellectual property protection,we do not attempt to filter out or disable access to all potentially infringing content availablethrough ou

201、r services.As a result,third parties may take action and file claims against us if they believe that certain content available on our platform violatestheir copyrights or other intellectual property rights.We have been,and may in the future be,subject to such claims filed in China and other jurisdic

202、tions.Wehave been involved in litigation based on allegations of infringement of third-party copyright,including information network dissemination rights,and otherrights,due to the content available on our platform.We were subject to a total of 1,972 lawsuits in China for alleged copyright infringem

203、ent between January1,2016 and December 31,2018,in connection with our platform.Approximately 97%of the lawsuits filed from January 1,2016 through December 31,2018in connection with the iQIYI platform were rejected by relevant PRC courts,withdrawn by the plaintiffs or settled by the parties.As of Dec

204、ember 31,2018,atotal 60 lawsuits against us in connection with our platform were pending,with the aggregate amount of damages sought under these pending cases beingapproximately RMB121.2 million(US$17.6 million).Our platform allows users to search the internet for content that resides on certain thi

205、rd parties servers and online platforms.While uncertainties stillexist with respect to the legal standards as well as the judicial interpretation of such standards for determining liabilities for our providing links and access tocontent on third-party servers and websites that infringes others copyr

206、ights and other intellectual property rights under PRC laws and the laws of otherjurisdictions,third parties may take action and file claims against us if they believe that certain content we provide links or access to through our platformviolates their copyrights or other intellectual property righ

207、ts.We cannot assure you that we will not be subject to copyright laws or legal proceedings initiated by third parties in other jurisdictions,such as theUnited States,as a result of the ability of users to access our videos and other content in the United States and other jurisdictions,the ownership

208、of our ADSsby investors in the United States and other jurisdictions,the extraterritorial application of foreign law by foreign courts,the fact that we sub-licensed contentfrom licensors who in turn obtained their authorizations from content providers in the United States and other jurisdictions or

209、otherwise.In addition,as apublicly listed company,we may be exposed to increased risk of litigation.If a claim of infringement brought against us in the United States or otherjurisdictions is successful,we may be required to,upon enforcement,(i)pay substantial statutory or other damages and fines,(i

210、i)remove relevant contentfrom our platform or(iii)enter into royalty or license agreements which may not be available on commercially reasonable terms or at all.Moreover,although U.S.copyright laws,including the Digital Millennium Copyright Act(17 U.S.C.512),or the DMCA,provide safeguards or“safehar

211、bors”from claims in the U.S.for monetary relief for copyright infringement for certain entities that host user-uploaded content or provide informationlocation tools that may link to infringing content,these safe harbors only apply to companies that comply with specified statutory requirements.While

212、weseek to voluntarily comply with DMCA safe harbor requirements,we cannot ensure that we satisfy all of the requirements of any DMCA safe harbor.It ispossible that we could be subject to claims of copyright infringement or other violation of intellectual property rights in the U.S.and be required to

213、 paysubstantial damages or prevented from offering all or part of our services in the U.S.We have been subject to lawsuits in China for alleged unfair competition in connection with our platform.We may also face litigation oradministrative actions for defamation,negligence,copyright and trademark in

214、fringement,or other purported injuries resulting from the content we provide orthe nature of our services.Such litigation and administrative actions,with or without merits,may be expensive and time-consuming and may result insignificant diversion of resources and management attention from our busine

215、ss operations.Furthermore,such litigation or administrative actions mayadversely affect our brand image and reputation.13Table of Contents In addition,we operate our platform primarily through our consolidated affiliated entities and their subsidiaries,and our ability to monitor content asdescribed

216、above depends in large part on the experience and skills of the management of,and our control over,those consolidated affiliated entities.Ourcontrol over the management and operations of our consolidated affiliated entities through contractual arrangements may not be as effective as that throughdire

217、ct ownership.See“Risks Related to Our Corporate StructureWe rely on contractual arrangements with our consolidated affiliated entities and theirshareholders for our business operations,which may not be as effective as direct ownership in providing operational control.”We may not be able to adequatel

218、y protect our intellectual property rights,and any failure to protect our intellectual property rights could adversely affectour revenues and competitive position.We believe that trademarks,trade secrets,copyright,and other intellectual property we use are critical to our business.We rely on a combi

219、nation oftrademark,copyright and trade secret protection laws in China and other jurisdictions,as well as confidentiality procedures and contractual provisions toprotect our intellectual property and our brand.Protection of intellectual property rights in China may not be as effective as in the Unit

220、ed States or otherjurisdictions,and as a result,we may not be able to adequately protect our intellectual property rights,which could adversely affect our revenues andcompetitive position.In addition,any unauthorized use of our intellectual property by third parties may adversely affect our revenues

221、 and our reputation.Inparticular,our members may abuse their membership privilege and illegally distribute paid content exclusively available to paid members,which could havea material and adverse effect on our financial condition,results of operations and prospects.Further,we may have difficulty ad

222、dressing the threats to ourbusiness associated with piracy of our copyrighted content,particularly our original content.Our content and streaming services may be potentially subjectto unauthorized consumer copying and illegal digital dissemination without an economic return to us.We adopt a variety

223、of measures to mitigate risksassociated with piracy,including by litigation and through technology measures.We cannot assure that such measures will be effective.In addition,while we typically require our employees,consultants and contractors who may be involved in the development of intellectual pr

224、opertyto execute agreements assigning such intellectual property to us,we may be unsuccessful in executing such an agreement with each party who in factdevelops intellectual property that we regard as our own.In addition such agreements may not be self-executing such that the intellectual property s

225、ubject tosuch agreements may not be assigned to us without additional assignments being executed,and we may fail to obtain such assignments.In addition,suchagreements may be breached.Accordingly,we may be forced to bring claims against third parties,or defend claims that they may bring against us re

226、lated tothe ownership of such intellectual property.Furthermore,policing unauthorized use of proprietary technology is difficult and expensive,and we may need to resort to litigation to enforce ordefend intellectual property or to determine the enforceability,scope and validity of our proprietary ri

227、ghts or those of others.Such litigation and an adversedetermination in any such litigation could result in substantial costs and diversion of resources and management attention.If our security measures are breached,or if our products and services are subject to attacks that degrade or deny the abili

228、ty of users to access our productsand services,our products and services may be perceived as insecure,users and advertising customers may curtail or stop using our products and servicesand our business and operating results may be harmed.Our products and services involve the storage and transmission

229、 of users and advertising customers information,particularly billing data,as well asoriginal content,and security breaches expose us to a risk of loss of this information,loss of users,litigation and potential liability.We experience cyber-attacks of varying degrees on a regular basis,including hack

230、ing into our user accounts and redirecting our user traffic to other internet platforms,and we havebeen able to rectify attacks without significant impact to our operations in the past.Functions that facilitate interactivity with other internet platforms couldincrease the scope of access of hackers

231、to user accounts.We take measures to protect against unauthorized intrusion into our users data.Despite thesemeasures we,our payment processing services or other third party services we use could experience an unauthorized intrusion into our users data.In theevent of such a breach,current and potent

232、ial users may become unwilling to provide the information to us necessary for them to become users or members.Additionally,we could face legal claims or regulatory fines or penalties for such a breach.The costs relating to any data breach could be material,and wecurrently do not carry insurance agai

233、nst the risk of a data breach.For these reasons,should an unauthorized intrusion into our users data occur,our businesscould be adversely affected.Our security measures may also be breached due to employee error,malfeasance or otherwise.For example,we face risks of users bypassing themembership veri

234、fication process on our platform with illegal technology and manipulating our system into recognizing them as paid members.As a result,such users may illegally gain access to premium content without purchasing our membership.Additionally,outside parties may attempt to fraudulentlyinduce employees,us

235、ers or customers to disclose sensitive information in order to gain access to our data or our users or customers data or accounts,or mayotherwise obtain access to such data or accounts.Since our users and customers may use their accounts to establish and maintain online identities,unauthorized commu

236、nications from accounts that have been compromised may damage their reputations and brands as well as ours.Furthermore,we face therisk of hackers gaining illegal access to and illegally distributing our original content that has not been released.While such incidents have not occurred inthe past,we

237、cannot assure you that they will not happen in the future.Any such breach or14Table of Contents unauthorized access could result in significant legal and financial exposure,damage to our reputation and a loss of confidence in the security of our productsand services that could have an adverse effect

238、 on our business and operating results.Because the techniques used to obtain unauthorized access,disable ordegrade service or sabotage systems change frequently and often are not recognized until launched against a target,we may be unable to anticipate thesetechniques or to implement adequate preven

239、tative measures.If an actual or perceived breach of our security occurs,the market perception of the effectivenessof our security measures and our reputation and relationships with users could be harmed,we may lose users and customers and we may be exposed tosignificant legal and financial risks,inc

240、luding legal claims and regulatory fines and penalties.Any of these actions could have a material and adverse effecton our business,reputation and operating results.We rely upon our partner to make our service available through smart TV.In smart TV video streaming market,only a small number of quali

241、fied license holders can provide internet audio and visual program service to the TVterminal users via smart TVs,set-top boxes and other electronic products.Most of those license holders are radio or TV stations.Private companies that wishto operate such business need to cooperate with those license

242、 holders to legally provide relevant services.We entered into a joint venture with GalaxyInternet Television Co.,Ltd.,our license partner,and the joint venture currently offers certain of our members the ability to receive streaming content throughsmart TV.If we are not successful in maintaining exi

243、sting or creating new relationships,or if we encounter technological,content licensing,regulatory orother impediments to delivering our streaming content to our members via these devices,our ability to grow our business may be adversely impacted.Advertisements shown on our platform may subject us to

244、 penalties and other administrative actions.Under PRC advertising laws and regulations,we are obligated to monitor the advertising content shown on our platform to ensure that such content istrue,accurate and in full compliance with applicable laws and regulations.In addition,where a special governm

245、ent review is required for specific types ofadvertisements prior to posting,such as advertisements relating to pharmaceuticals,medical instruments,agrochemicals and veterinary pharmaceuticals,weare obligated to confirm that such review has been performed and approval has been obtained from competent

246、 governmental authority.To fulfill thesemonitoring functions,we include clauses in all of our advertising contracts requiring that all advertising content provided by advertising agencies andadvertisers must comply with relevant laws and regulations.Under PRC law,we may have claims against advertisi

247、ng agencies and advertisers for all damagesto us caused by their breach of such representations.Violation of these laws and regulations may subject us to penalties,including fines,confiscation of ouradvertising income,orders to cease dissemination of the advertisements and orders to publish an annou

248、ncement correcting the misleading information.Incircumstances involving serious violations,such as posting a pharmaceutical product advertisement without approval,or posting an advertisement for fakepharmaceutical product,PRC governmental authorities may force us to terminate our advertising operati

249、on or revoke our licenses.A majority of the advertisements shown on our platform are provided to us by third parties.Although we have implemented automated and manualcontent monitoring systems and significant efforts have been made to ensure that the advertisements shown on our platform are in full

250、compliance withapplicable laws and regulations,we cannot assure you that all the content contained in such advertisements is true and accurate as required by the advertisinglaws and regulations,especially given the large volume of in-feed ads and the uncertainty in the application of these laws and

251、regulations.In addition,advertisers,especially in-feed advertisers,may through illegal technology evade our content monitoring procedures to show advertisements on our platformthat do not comply with applicable laws and regulations.The inability of our systems and procedures to adequately and timely

252、 discover such evasions maysubject us to regulatory penalties or administrative sanctions.Although we have not been subject to material penalties or administrative sanctions in the pastfor the advertisements shown on our platform,if we are found to be in violation of applicable PRC advertising laws

253、and regulations in the future,we may besubject to penalties and our reputation may be harmed,which may have a material and adverse effect on our business,financial condition,results ofoperations and prospects.If we cannot maintain our corporate culture as we grow,we could lose the innovation,collabo

254、ration and focus that contribute to our business.We believe that a critical component of our success is our corporate culture,which fosters innovation and cultivates creativity.As we continue toexpand and grow our business,we may find it difficult to maintain these valuable aspects of our corporate

255、culture.Any failure to preserve our culture couldundermine our reputation and negatively impact our ability to attract and retain employees,which would in turn jeopardize our future success.Our quarterly operating results may fluctuate,which makes our results of operations difficult to predict and m

256、ay cause our quarterly results of operationsto fall short of expectations.Our quarterly operating results have fluctuated in the past and may continue to fluctuate depending upon a number of factors,many of which are outof our control.Our operating results tend to be seasonal.For instance,we have ex

257、perienced lower online15Table of Contents advertising services revenue in the first quarter of each year in connection with the Chinese New Year holiday as advertisers limit their budget for onlineplatforms and less blockbuster content is released during that period.Furthermore,our content distribut

258、ion revenue may fluctuate significantly from quarterto quarter as a result of the varying availability of popular content titles for distribution and adjustments to our market strategies.For these reasons,comparing our operating results on a period-to-period basis may not be meaningful,and you shoul

259、d not rely on our past results as an indication of our futureperformance.Our quarterly and annual revenues and costs and expenses as a percentage of our revenues in a given period may be significantly different fromour historical or projected rates and our operating results in future quarters may fa

260、ll below expectations.Disruption or failure of our IT systems,cybersecurity related threats or our failure to timely and effectively scale and adapt our existing technology andinfrastructure could impair our users online entertainment experience and adversely affect our reputation,business and opera

261、ting results.Our ability to provide users with a high-quality online entertainment experience depends on the continuous and reliable operation of our IT systems.We cannot assure you that we will be able to procure sufficient bandwidth in a timely manner or on acceptable terms or at all.Failure to do

262、 so maysignificantly impair user experience on our platform and decrease the overall effectiveness of our platform to both users and advertisers.Disruptions,failures,unscheduled service interruptions or a decrease in connection speeds could hurt our reputation and cause our users and advertising cus

263、tomers to switch to ourcompetitors platforms.Our IT systems and proprietary content delivery network,or CDN,are vulnerable to damage or interruption as a result of fires,floods,earthquakes,power losses,telecommunications failures,undetected errors in software,computer viruses,hacking and other attem

264、pts to harm our systems.Wehave experienced intermittent interruptions for up to 48 hours of viewer access to one popular drama title in the past.Our platform has also experiencedgeneral intermittent interruptions for approximately two hours in the past.These interruptions were caused by(i)overload o

265、f our servers;(ii)unexpectedoverflow of user traffic;(iii)service malfunction of payment gateway;and/or(iv)service malfunction of the telecommunications operators,such as poweroutage of internet data centers or network transmission congestion.We may continue to experience similar interruptions in th

266、e future despite our continuousefforts to improve our IT systems.Since we host our servers at third-party internet data centers,any natural disaster or unexpected closure of internet datacenters operated by third-party providers may result in lengthy service interruptions.Furthermore,in the future e

267、xperience,service disruptions,outages andother performance problems due to a variety of factors,including infrastructure changes and cybersecurity related threats as follows:our technology,system,networks and our users devices have been subject to,and may continue to be the target of,cyber-attacks,c

268、omputerviruses,malicious code,phishing attacks or information security breaches that could result in an unauthorized release,gathering,monitoring,misuse,loss or destruction of confidential,proprietary and other information of ours,our employees or sensitive information provided by ourusers,or otherw

269、ise disrupt our,our users or other third parties business operations;we periodically encounter attempts to create false accounts or use our platform to send targeted and untargeted spam messages to our users,ortake other actions on our platform for purposes such as spamming or spreading misinformati

270、on,and we may not be able to repel spammingattacks;the use of encryption and other security measures intended to protect our systems and confidential data may not provide absolute security,andlosses or unauthorized access to or releases of confidential information may still occur;our security measur

271、es may be breached due to employee error,malfeasance or unauthorized access to sensitive information by our employees,who may be induced by outside third parties,and we may not be able to anticipate any breach of our security or to implement adequatepreventative measures;and we may be subject to IT

272、system failures or network disruptions caused by natural disasters,accidents,power disruptions,telecommunicationsfailures,acts of terrorism or war,computer viruses,physical or electronic break-ins,or other events or disruptions.If we experience frequent or persistent service disruptions,whether caus

273、ed by failures of our own systems or those of third-party service providers,ourusers experience with us may be negatively affected,which in turn,may have a material and adverse effect on our reputation.We cannot assure you that wewill be successful in minimizing the frequency or duration of service

274、interruptions.As the number of our users increases and our users generate more content on our platform,we may be required to expand and adapt our technology andinfrastructure to continue to reliably store and analyze this content.It may become increasingly difficult to maintain and improve the perfo

275、rmance of ourservices,especially during peak usage times,as our services become more complex and our user traffic increases.If our users are unable to access our onlineapplication in a timely fashion,or at all,our user experience may be compromised and the users may seek other platforms to meet thei

276、r needs,and may notreturn to iQIYI or use iQIYI as often in the future,or at all.This would negatively impact our ability to attract users and maintain the level of userengagement.16Table of Contents If the technologies we use in operating our business fails,becomes unavailable,or does not operate t

277、o meet expectations,our business and results ofoperation may be adversely impacted.We utilize a combination of proprietary and third party technologies to operate our business.These include the technologies that we have developedto recommend and monetize content to our users as well as enable fast a

278、nd efficient delivery of content to our users and their various internet connecteddevices.For example,we use our own CDN,and third-party CDN services to support our operation.To the extent internet service providers do notinterconnect with the CDN services we use,or if we experience difficulties in

279、its operation,our ability to efficiently and effectively deliver our streamingcontent to our users could be adversely impacted and our business and results of operation could be adversely affected.Likewise,if our recommendation andmonetization technology does not enable us to predict and recommend c

280、ontent that our users will enjoy,our ability to attract and retain users may beadversely affected.We also utilize third party technology to help market our service,process payments,and otherwise manage the daily operations of ourbusiness.If our technology or that of third parties we utilize in our o

281、perations fails or otherwise operates improperly,our ability to operate our service,retainexisting users and add new users may be impaired.Also,any harm to our users personal computers or other devices caused by software used in our operationscould have an adverse effect on our business,results of o

282、perations and financial condition.Any lack of requisite permits for any of our internet video and other content or any of our business may expose us to regulatory sanctions.In 2009,the State Administration of Radio,Film and Television,or SARFT,released a Notice on Strengthening the Administration of

283、 OnlineAudio/Video Program Content.This notice reiterated,among other things,that all films and television shows released or published online must be incompliance with relevant regulations on the administration of radio,film and television.In other words,these films and television shows,whether prod

284、ucedin the PRC or overseas,must be pre-approved by SARFT,the authority of which is currently exercised by the National Radio and Television Administration,or the NRTA and the State Film Bureau,or the SFB,and distributors of these films and television shows must obtain an applicable permit before rel

285、easingthem.In September 2014,the SAPPRFT,which replaced SARFT,reiterated that all the foreign TV dramas and films published to the public via internet mustobtain their respective permit.In addition,all the foreign TV dramas and films published to the public via internet by competent license holders

286、must beregistered with the SAPPRFT before March 31,2015 and all un-registered TV dramas and films will be prohibited from broadcasting via internet from April 1,2015.In addition,online games are also subject to approval by the SAPPRFT,the authority of which is currently exercised by the State Admini

287、stration ofPress and Publication,or the SAPP,and approval by or filing with the Ministry of Culture.As mentioned in the news reports,between March and December2018,such approval or filing of domestic online games were suspended,which may have been due to the institutional restructuring of game appro

288、valauthorities involving the Ministry of Culture and Tourism and the SAPPRFT,and we can not apply for such approval or filing during this period.Suchsuspension caused significant delays in the introduction of new games in the Chinese market.In terms of licensed third-party content published or onlin

289、e games distributed jointly with third parties,we obtain and rely on written representationsfrom content providers and third-party operators regarding the NRTA,SFB,SAPP and other approval and filing status of these content and online games,and,to a lesser extent,require content providers and third-p

290、arty operators to produce evidence demonstrating that they and the licensed content or the onlinegames have received all requisite permits and approvals.We also import some foreign TV dramas and films and apply for the permits for and register suchcontents with the competent authorities by ourselves

291、.However,we cannot assure you that our monitoring procedures with respect to licensed content andonline games are fully adequate,and we cannot guarantee that the remedies provided by these content providers,if any,will be sufficient to compensate usfor potential regulatory sanctions imposed by the N

292、RTA,SFB or SAPP due to violations of the approval and permit requirements and for the foreign TVdramas and movies imported by us,we cannot assure you that we will be able to obtain the permits for or register such contents with the competentauthorities in a timely manner or at all.Nor can we ensure

293、that any such sanctions will not adversely affect either the general availability of video,onlinegames or other content on our platform or our reputation.In addition,such risks may persist due to ambiguities and uncertainties relating to theimplementation and enforcement of this notice.Although we h

294、ave internal content monitoring procedures in place to review our procured content,we facerisks of termination of permits and approvals,contractual misrepresentations and failure to honor representations or indemnify us against any claims or costsby content providers.We have obtained the Value-added

295、 Telecommunications Business Operation License for information services via internet,or ICP License,the Permitfor Internet Audio-Video Program Service,the Network Culture Business Permit,the Permit for Internet Drug Information Service,and other relevant permitsrequired for operating our business.Ho

296、wever,we have not obtained and are in the process of applying for or upgrading and expanding certain approvals orpermits which are required or may be required for our operation of businesses.For example,we have not obtained and are planning to apply for the Permit forInternet News Information Servic

297、e to publish current political news on our platform or disseminate such news through the internet.Beijing iQIYI has notobtained and is in the process of applying for the Internet Publishing Service License in relation to our online games,comics and online literature operation.We also have not obtain

298、ed and are in the process of applying for adding and amending certain service items for our Permit for Internet Audio-Video ProgramService,such as forwarding the audio-video programs uploaded by the users,17Table of Contents rebroadcasting radio and TV channels,displaying current political audio-vid

299、eo news programs and providing video and audio live broadcasting of culturalactivities,sports events and other activities organized by the general social groups.We are also planning to apply for adding online performances for theNetwork Culture Business of Beijing iQIYI and adding electronic data in

300、terchange as a permitted business for our Value-added TelecommunicationsBusiness Operation License.We are also filing several HTML5 online games operated by us with the Ministry of Culture.Although we are planning to applyor in the process of applying for such licenses and we maintain regular oral c

301、ommunication with relevant regulatory authorities,which have not objected tothe operations of our business in question,if we fail to obtain,maintain or renew such licenses,or obtain any additional licenses and permits or make anyrecords or filings required by new laws,regulations or executive orders

302、 required for our new business in a timely manner or at all,we could be subject toliabilities or penalties,and our operations could be adversely affected.In addition,new laws and regulations may be adopted from time to time to address new issues that come to the authorities attention,which mayrequir

303、e us to obtain new license and permits,or take certain actions that may adversely affect our business operations.For example,we have recentlyvoluntarily taken down certain online advertisements on our platform due to tightened regulations on online advertisements.We may not timely obtain ormaintain

304、all the required licenses or approvals or make all the necessary filings in the future.Nor can we assure you that we will be able to timely address allthe change in policy,failure of which may subject us to liabilities or penalties,and our operations could be adversely affected.Undetected programmin

305、g errors could adversely affect our user experience and market acceptance of our video content,which may materially andadversely affect our business and results of operations.Video content on our platform may contain programming errors that may only become apparent after their release.We receive use

306、r feedbacks inconnection with programming errors affecting the user experience from time to time,and such errors may also come to our attention during our monitoringprocess.We generally have been able to resolve such programming errors in a timely manner.However,we cannot assure you that we will be

307、able to detectand resolve all these programming errors effectively.Undetected audio or video programming errors or defects may adversely affect user experience,causeusers to refrain from becoming our paid members or to cancel their membership subscriptions,and cause our advertising customers to redu

308、ce their use of ourservices,any of which could materially and adversely affect our business and results of operations.We have invested in or acquired complementary assets,technologies and businesses in the future,and such efforts may fail and may result in equity orearnings dilution.We have invested

309、 in and acquired,and may continue to invest in and acquire,assets,technologies and businesses that are complementary to ourbusiness in the future.For example,in July 2018,we acquired 100%equity stake in Skymoons.Acquired businesses or assets may not yield the results weexpect.In addition,investments

310、 and acquisitions involve uncertainties and risks,including:potential ongoing financial obligations and unforeseen or hidden liabilities,including liability for infringement of third-party copyrights orother intellectual property;costs and difficulties of integrating acquired businesses and managing

311、 a larger business;in the case of investments where we do not obtain management and operational control,lack of influence over the controlling partner orshareholder,which may prevent us from achieving our strategic goals in the investments;possible loss of key employees of a target business;potentia

312、l claims or litigation regarding our boards exercise of its duty of care and other duties required under applicable law in connectionwith any of our significant acquisitions or investments approved by the board;diversion of resources and management attention;regulatory hurdles and compliance risks,i

313、ncluding the anti-monopoly and competition laws,rules and regulations of China and otherjurisdictions;and enhanced compliance requirements for outbound acquisitions and investment under the laws and regulations of China.Any failure to address these risks successfully may have a material and adverse

314、effect on our financial condition and results of operations.Investmentsand acquisitions may require a significant amount of capital,which would decrease the amount of cash available for working capital or capital expenditures.In addition,if we use our equity securities to pay for investments and acq

315、uisitions,we may dilute the value of our ADSs and the underlying ordinary shares.Ifwe borrow funds to finance investments and acquisitions,such debt instruments may contain restrictive covenants that could,among other things,restrict usfrom distributing dividends.Moreover,acquisitions may also gener

316、ate significant amortization expenses related to intangible assets.We may also incurimpairment charges to earnings for investments and acquired businesses and assets.18Table of Contents We are subject to payment processing risk.Our members pay for our service using a variety of different online paym

317、ent methods.We rely on third parties to process such payment.Acceptanceand processing of these payment methods are subject to certain rules and regulations and require payment of interchange and other fees.To the extent thereare increases in payment processing fees,material changes in the payment ec

318、osystem,such as delays in receiving payments from payment processors and/orchanges to rules or regulations concerning payment processing,our revenue,operating expenses and results of operation could be adversely impacted.Negative media coverage could adversely affect our business.Negative publicity

319、about us or our business,shareholders,affiliates,directors,officers or other employees,as well as the industry in which we operate,can harm our operations.Such negative publicity could be related to a variety of matters,including:alleged misconduct or other improper activities committed by our share

320、holders,affiliates,directors,officers and other employees;false or malicious allegations or rumors about us or our shareholders,affiliates,directors,officers and other employees;user complaints about the quality of our products and services;copyright infringements involving us and content offered on

321、 our platform;security breaches of confidential user information;and governmental and regulatory investigations or penalties resulting from our failure to comply with applicable laws and regulations.We may also be affected by publicity relating to third party service providers.For example,in Septemb

322、er 2018,there was negative publicity involvingcertain senior officers of iResearch,the industry consultant we commissioned to prepare an industry report in connection with our initial public offering.According to a public announcement made by iResearch,certain senior officers of iResearch are cooper

323、ating with governmental investigations in China.Such publicity may raise questions as to the integrity of the industry data or opinions produced by iResearch,including the data included in iResearchsindustry report produced in connection with our initial public offering,or otherwise have a negative

324、impact on our reputation.In addition to traditionalmedia,there has been an increasing use of social media platforms and similar devices in China,including instant messaging applications,such asWeixin/WeChat,social media websites and other forms of internet-based communications that provide individua

325、ls with access to a broad audience of usersand other interested persons.The availability of information on instant messaging applications and social media platforms is virtually immediate as is itsimpact without affording us an opportunity for redress or correction.The opportunity for dissemination

326、of information,including inaccurate information,isseemingly limitless and readily available.Information concerning our company,shareholders,directors,officers and employees may be posted on suchplatforms at any time.The risks associated with any such negative publicity or incorrect information canno

327、t be completely eliminated or mitigated and maymaterially harm our reputation,business,financial condition and results of operations.A severe or prolonged downturn in the PRC or global economy could materially and adversely affect our business and our financial condition.The global macroeconomic env

328、ironment is facing challenges.The PRC economy has slowed down since 2012 and such slowdown may continue.There have been concerns on the relationship among China and other Asian countries,which may result in or intensify potential conflicts in relation toterritorial disputes.There have also been conc

329、erns on the relationship between China and the U.S.,including those resulting from the ongoing trade disputebetween the two countries.It is unclear whether these challenges and uncertainties will be contained or resolved,and what effects they may have on theglobal political and economic conditions i

330、n the long term.Economic conditions in China are sensitive to global economic conditions,as well as changes indomestic economic and political policies and the expected or perceived overall economic growth rate in China.Chinas GDP growth rate has been on adecline in the past several years.Recently th

331、ere have been signs that the rate of Chinas economic growth may be declining.Moreover,the United Nationspopulation projections(2015)project a slowdown in increase in Chinese population from 2015 to 2030 and a decrease in its population thereafter with thepercentage of population over 60 predicted to

332、 more than double from 2015 to 2050.In the absence of substantial increase in per capita productivity,thisprojected change in Chinese demographics can result in decrease in overall productivity and growth rates of the Chinese economy.Any severe or prolongedslowdown in the global or PRC economy may m

333、aterially and adversely affect our business,results of operations and financial condition.In addition,continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.19Table of Contents Our operations depend on the performance of the internet infrastructure and telecommunications networks in China.The successful operation of our