Fair Value Measurements

12 Months Ended

Dec. 31, 2023

26.	FAIR VALUE MEASUREMENTS

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level 1	–	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2	–	Include observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3	–	Unobservable inputs which are supported by little or no market activity.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

Assets and Liabilities Measured or Disclosed at Fair Value on a recurring basis

In accordance with ASC 820, the Group measures equity investments with readily determinable fair value, investments accounted for at fair value,

available-for-sale

debt investments and derivatives instruments at fair value on a recurring basis. The fair values of time deposits are determined based on the prevailing interest rates in the market. The fair values of the Group’s

held-to-maturity

debt investments as disclosed are determined based on the discounted cash flow model using the discount curve of market interest rates. The fair value of the Group’s short-term

available-for-sale

debt investments are measured using the income approach, based on quoted market interest rates of a similar instrument and other significant inputs derived from or corroborated by observable market data. The fair values of the Group’s equity investments in equity securities of publicly listed companies are measured using quoted market prices. The fair value of derivative instruments of interest rate swaps are based on broker quotes. The fair value of financial liability is estimated based on the quoted market price of a similar asset to the underlying assets. Investments accounted for at fair value are equity investments in listed and unlisted companies held by consolidated investment companies. These investments in unlisted companies and long-term

available-for-sale

debt investments do not have readily determinable market value, which were categorized as Level 3 in the fair value hierarchy. The Group uses a market approach based on the Group’s best estimate, which is determined by using information including but not limited to the pricing of recent rounds of financing of the investees, liquidity factors and multiples of a selection of comparable companies.

The fair values of the Group’s notes payable are extracted directly from their quoted market prices. The fair values of the convertible senior notes are classified as Level 2 or Level 3 in the fair value hierarchy. The Group carries the convertible senior notes at face value less unamortized debt discount and issuance costs on its consolidated balance sheets and presents the fair value for disclosure purposes only. For further information on the convertible senior notes, see Note 15.

Assets and liabilities measured on a recurring basis or disclosed at fair value are summarized below:


			Fair value measurement or disclosure at December 31, 2022 using
	Total fair value at December 31, 2022		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	RMB		RMB		RMB		RMB
	(In millions)
Fair value disclosure (i)

Cash equivalents:
Time deposits		12,968				12,968
Money market funds		3		3

Short-term investments:
Held-to-maturity debt investments		120,464				120,464

Long-term investments:
Long-term time deposits and held-to-maturity investments		23,688				23,688

Notes payable, current portion		6,812				6,812

Convertible senior notes, current portion		6,756				6,756

Notes payable, non-current portion		36,268				36,268

Convertible senior notes, non-current portion		7,253				7,253

Fair value measurements on a recurring basis

Short-term investments:
Available-for-sale debt investments		855				855

Long-term investments:
Equity investments at fair value with readily determinable fair value		12,100		12,100
Equity investments without readily determinable fair value using NAV practical expedient (ii)		945
Investments accounted for at fair value		4,616		97				4,519
Available-for-sale debt investments		2,447						2,447

Other non-current assets:
Derivative instruments		1,416				1,416

Total assets measured at fair value		22,379		12,197		2,271		6,966


Amounts due to related parties, current:
Financial liability		328				328

Total liabilities measured at fair value		328				328


					Fair value measurement or disclosure at December 31, 2023 using
	Total fair value at December 31, 2023				Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	RMB		US$		RMB		RMB		RMB
	(In millions)
Fair value disclosure (i)

Cash equivalents:
Time deposits		6,266		883				6,266

Short-term investments:
Held-to-maturity debt investments		167,740		23,626				167,740

Long-term investments:
Long-term time deposits and held-to-maturity investments		24,872		3,503				24,872

Notes payable, current portion		5,999		845				5,999

Convertible senior notes, current portion		2,727		384				2,727

Notes payable, non-current portion		32,742		4,612				32,742

Convertible senior notes, non-current portion		8,881		1,251				3,757		5,124

Fair value measurements on a recurring basis

Short-term investments:
Available-for-sale debt investments		1,671		235				1,671

Long-term investments:
Equity investments at fair value with readily determinable fair value		9,610		1,354		9,610
Equity investments without readily determinable fair value using NAV practical expedient (ii)		942		133
Investments accounted for at fair value		4,841		682		66				4,775
Available-for-sale debt investments		3,682		519				423		3,259

Other non-current assets:
Derivative instruments		994		140				994

Total assets measured at fair value		21,740		3,063		9,676		3,088		8,034


Amounts due to related parties, current:
Financial liability		321		45				321

Total liabilities measured at fair value		321		45				321

(i)	Fair value disclosure shows financial instruments which are not measured at fair value in the consolidated balance sheets, but for which the fair value is estimated for disclosure purposes.

(ii)

Investments are measured at fair value using NAV as a practical expedient. These investments have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

Reconciliations of assets categorized within Level 3 under the fair value hierarchy are as follow:

Investments accounted for at fair value:


	Amounts
	RMB
	(In millions)
Balance at December 31, 2021		3,771
Additions		343
Disposals		(212	)
Net unrealized fair value increase recognized in earnings		502
Foreign currency translation adjustments		115

Balance at December 31, 2022		4,519

Additions		250
Disposals		(90	)
Net unrealized fair value increase recognized in earnings		55
Foreign currency translation adjustments		41

Balance at December 31, 2023		4,775

Balance at December 31, 2023, in US$		673

Available-for-sale

debt investments:


	Amounts
	RMB
	(In millions)
Balance at December 31, 2021		2,262
Additions		10
Conversion from equity investment		657
Share of losses in excess of equity method investment in ordinary shares		(161	)
Net unrealized fair value change recognized in other comprehensive (loss) income		(432	)
Accrued interest		78
Foreign currency translation adjustments		33

Balance at December 31, 2022		2,447

Additions		313
Disposals		(332	)
Conversion		838
Share of losses in excess of equity method investment in ordinary shares		(7	)
Net unrealized fair value change recognized in other comprehensive (loss) income		(71	)
Accrued interest		76
Foreign currency translation adjustments		(5	)

Balance at December 31, 2023		3,259

Balance at December 31, 2023, in US$		459

Assets measured at fair value on a

non-recurring

basis

The Group measures certain

non-financial

assets on a nonrecurring basis.

For equity securities accounted for under the measurement alternative, when there are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are

re-measured

to fair value (Note 4). The

non-recurring

fair value measurements to the carrying amount of an investment usually requires management to estimate a price adjustment for the different rights and obligations between a similar instrument of the same issuer with an observable price change in an orderly transaction and the investment held by the Group. These

non-recurring

fair value measurements were measured as of the observable transaction dates. The valuation methodologies involved require management to use the observable transaction price at the transaction date and other unobservable inputs (level 3) such as expected volatility and probability of exit events as it relates to liquidation and redemption preferences. When there is impairment of equity securities accounted for under the measurement alternative and equity method investments, the

non-recurring

fair value measurements are measured at the date of impairment. The fair values of the Group’s equity method investments in publicly listed companies are measured using quoted market prices. Estimating the fair value of investees without observable market prices is highly judgmental due to the subjectivity of the unobservable inputs (level 3) used in the valuation methodologies used to determine fair value. The Group uses valuation methodologies, primarily the market approach, which requires management to use unobservable inputs (level 3) such as selection of comparable companies and multiples, expected volatility, discount for lack of marketability and probability of

exit events as it relates to liquidation and redemption preferences, when applicable. These unobservable inputs and resulting fair value estimates may be affected by unexpected changes in future market or economic conditions.

Other

non-financial

assets, intangible assets, licensed copyrights and produced content, would be measured at fair value whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The fair values of

non-financial

long-lived assets were measured under the income approach, based on the Group’s best estimation. Significant inputs used in the income approach primarily included future estimated cash flows and discount rate.

The following table summarizes the Group’s financial assets held as of December 31, 2022 and 2023 for which a

non-recurring

fair value measurement was recorded during the years ended December 31, 2022 and 2023:


	Total Balance				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Adjustment				Impairment
	RMB		US$		RMB		RMB		RMB		RMB		US$		RMB			US$
	(In millions)
Fair value measurements on a non-recurring basis

As of December 31, 2022
Long-term investments (i)		3,466				99		29		3,338		256				(3,025	)
Produced content monetized on its own (ii)		85								85						(68	)

As of December 31, 2023
Long-term investments (i)		5,383		758		43		—		5,340		580		82		(815	)		(115	)
Produced content monetized on its own (ii)		25		4						25						(253	)		(36	)

(i)

Due to declined financial performances and changes in business circumstances of certain investees, the Group recognized impairment charges of long-term investments in the consolidated statements of comprehensive income during the years ended December 31, 2022 and 2023. For equity securities accounted for under the measurement alternative, when there are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are

re-measured

to fair value.

(ii)

Due to adverse changes in the expected performance of certain produced content and the reduced amount of ultimate revenue expected to be recognized, iQIYI performed an assessment to determine whether the fair value was less than unamortized content costs. iQIYI uses a discounted cash flow approach to estimate the fair value of the produced content titles predominantly monetized on its own. The significant unobservable inputs (level 3) include forecasted future revenues, production costs required to complete the content and exploitation and participation costs. iQIYI considers the historical performance of similar content, the forecasted performance and/or preliminary actual performance subsequent to the release of the produced content in estimating the fair value. Based on the above assessment, certain produced content predominantly monetized on its own were determined to be impaired and

re-measured

to the fair value as of each quarter end. Impairment charges of RMB161 million, RMB68 million and RMB253 million (US$36 million) were

recognized for produced content predominantly monetized on its own and was recognized as cost of revenues in the consolidated statements of comprehensive income for the years ended December 31, 2021, 2022 and 2023, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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