Bilibili Inc.

Ladies and gentlemen, good morning and welcome to the Bilibili 2020 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would now like to hand the conference over to Juliet Yang, Senior Director of Investor Relations. Please go ahead.

Thank you, Operator. Please note the discussion today will contain forward-looking statements relating to the company's future performances. and are intended to qualify the safe harbor from liability as established by the US Private Security Litigation Reform Act. Such statements are not guarantees of future performances and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risk factors are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect FiliBili's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the 2020 first quarter financial results news release earlier today. As a reminder, this conference call is being recorded. In addition, An investor presentation and a webcast replay of this conference call will be available on the Bilibili Investor Relations website at ir.bilibili.com. Joining us today on the call from Bilibili Senior Management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer, Ms. Kali Lee, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam San, Chief Financial Officer. and I will now turn the call over to Mr. Fan who will read the previous remarks on behalf of Mr. Chen.

Thank you, Juliet. Thank you everyone for participating in our 2020 first quarter conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. 2020 is off to a remarkable start. We are proud to deliver stellar results and send new records within our key operating and financial matrix. For the first quarter, our MAU grew by 70% year-over-year, reaching 172 million, and our mobile MAU grew even faster at 77% year-over-year to 156 million. Our user engagement level also reached a new height. Our DAUs achieved a major milestone of 69% year-over-year to 51 million. Along with our large user numbers, We saw a striking increase in the amount of daily time spent on our platform, up 10 minutes from Q4 to an average of 87 minutes. This is the highest level we have seen in our corporate history. These statistics once again demonstrate our strong execution and high-quality growth we aim to deliver. We attribute our success to our incredibly broad content, friendly and sticky community, as well as improved brand awareness. Building on the success of our New Year Eve Gala event, we welcome more new users, especially during the extended winter holiday. Bilibili is becoming many people's first choice when it comes to content creation and consumption. In 2019, we affirmed user growth as one of our key objectives and raised our target of MAUs for 2021 to 220 million. We are pleased to say with the solid execution of our initiatives, we are on a fast track to meet this target. As we roll out more premium content and services and strengthen our monetization capabilities, we are converting more traffic to paying users. Our MPUs grow by 134% year-over-year to an impressive 13.4 million in the first quarter. The pay-in ratio also grew to 7.8%, more than doubled from two years ago. Our revenues reached an all-time high of RMB 2.3 billion, surpassing the top end of our guidance by more than RMB over 100 million. As our top line expands, we have seen increasing operating leverage. Growth margin jumped to 23% in the first quarter. up around 14% for the same period last year, marking the fourth consecutive quarter of margin improvements. Our strategic partnership is also expanding. On the heels of our agreement with Tencent and Bata, we were excited to bring our long-standing partnership with Sony to the next level with its US$400 million equity investment and business collaboration plans. Under the agreement, we plan to bring even more world-class enemy and mobile game content to the domestic market, further enhancing our advantages in these sectors. The equity investment will not only fuel our future growth, but also demonstrate Sony's confidence in our unique positioning and growth prospects. With that overview, I'd now like to walk through some of our initiatives and the trends we are seeing in each of our core areas of content, community, and commercialization, and how they fit into our long-term strategy. I will begin with content. Bilibili has cultivated one of the most attractive and friendly environments for our creators. Creators can easily upload content, actively interact with users, and gain broader fan-based access. For these reasons, Bilibili has become many people's first choice for POG recreation. especially during the extended winter holiday, when more people were looking for ways to express themselves. We saw a significant increase in the number of active content creators and video submissions during the first quarter. We had about 1.8 million content creators uploading 4.9 million videos per month, representing increases of 146% and 138% respectively, both year over year. With a growing number of creators and an effective operational campaign, we are gaining even more diverse and innovative content submission, and further increasing our mass market appeal. For the first quarter, our most heavily trusted verticals were lifestyle, game, entertainment, animation, tech, and knowledge. For lifestyle, during the extended holiday, people were looking for ways to entertain themselves while staying at home. We actively promote subcategories such as foodie, online fitness, and blog. And many people look for ways to cook, stay fit, and express themselves. Similarly, games overtook entertainment verticals, and we fortified our games content library, becoming the host for more and more gamers. With our recent partnership with Pentium Music and Sony Music, our music content is also attracting a growing amount of traffic. giving its universal appeal. In addition, we expanded our technology and education categories in order to support those looking to catch up on their studies, learn a new skill, or simply gain more general knowledge during the long holiday. Turning to our OGV business, building our years of investment and key leadership in anime, documentary, and other categories, we continue to turn our OGV library into valuable IP assets. attracting new users as well as converting paying users. During the first quarter, we launched the Daily Life of the Immortal King , a Bilibili-produced Chinese anime series. This high-quality series quickly gained over 100 million video views in less than 30 days, setting a new record for our OGV history. It not only attracted many new anime fans to our platform, but also converted a considerable amount of premium members. Similarly, we further expanded our documentary and variety show offerings to attract broader audience. Our reality show, Animal Hospital Season 2 and First Man Out of China , a documentary that we could produce with Discovery, were also welcomed by many pet and survival show lovers, respectively. Turning to our community, as I mentioned, we are seeing recall high across all of our primary user matrix. With this widespread influx to our community, the quality of our platform, our content, and our users have gone even stronger. In the first quarter, our data-video views reached a record high of 1.1 billion, up 113% year-over-year. Our users were more engaged with content and each other than ever before, and our overall community retention levels were improved. In the first quarter, our users generated nearly 4.9 billion monthly interactions through the booty chats, comments, likes, and Bilibili moment posts, more than tripled a month from the same period in 2019. Members of our official membership also grow at an accelerated pace in the first quarter. By the end of Q1, we had 82 million official members who passed our 100 question exam up 66% year-over-year, and the 12-month retention rate for these users remained high as well, well above 80%. The strong community engagement and retention level continue to be excellent indicators of the quality of our user growth. Turning to our commercialization progress, I will first review the status of our game banners. Revenue for our games increased 32% year-over-year to RMB 1.15 billion. accounting for 50% of our total first quarter revenues. Free Grand Order, or FGO, delivered a robust performance for the period, following a major content update. Other exclusive license titles such as Lunar Line and Furious Yama also continued their popularity during the first quarter. In April, we launched the highly anticipated Japanese RPG Princess Connect. This exclusively licensed game was an immediate hit, attracting millions of players and talking China's iOS download and growth in chart within a week after release. The phenomenal success of this release was again proved our strong distribution power and deep understanding of the ECG game market. Our jointly operated games also continued their growth momentum in the first quarter. Newly released updates of Arknights, Nui Fangzhou, and Ben Huaisan were welcomed by many existing and new players. With an increasing number of gamers gathering and more efficient distribution operations, our platform is an invaluable channel for game developers who want to maximize their exposure to quality players and reach potential new fans. Later this year, we will be further expanding our game offerings We have 30 high-quality games in our upcoming game pipeline. We are looking forward to further diversifying our portfolio. We have eight titles that have acquired approvals and are scheduled to be released in the coming months. This includes an initiative assuming a CG title that we plan to roll out this summer. On the Jointly Operated Game Front, we will continue to work with leading game developers to bring our users premium games such as Ni Hao's Yuan Shen and Natty's Harry Potter. Turning to our VAST business, revenue from VAST increased by 172% year-over-year, reaching RMB 794 million in the first quarter. Our growth was mainly driven by increased contribution from premium members, live broadcasting and other value-added services. As part of our video content ecosystem, We continue to enrich our live broadcasting offerings and increase our live broadcasting penetration among growing user traffic. Our investment of top live broadcasting IP continue to fuel our user growth and attract more live broadcasting hosts to our platform. We are seeing more talent agencies and individuals come to Bilibili to grow their influence on our fast developing platform. With access to our exclusive... members have become accustomed to paying for high-quality content. By the end of the first quarter, our premium members reached an exciting milestone exceeding 10 million for a record 10.9 million subscribers. This represents an increase of 127% year-over-year and further demonstrates that our users represent the Golden Coho with a high willingness to pay for premium entertainment material. As for advertising business, our rapidly growing community and increasing brand equity continue to make Bilibili a leading platform for advertisers. Despite macro headwinds, revenue from advertising segments continue to increase year-over-year, up 90% to RMB $214 million in the first quarter. The leading three industry verticals for brand advertising were e-commerce, games, and 3C products. and the top three verticals for performance-based ads were games, education, and e-commerce. Advertisers are seeking out new and innovative ways to increase their visibility, and online channels represent a popular, heavily-attracted avenue. Beginning from this year, we host multiple online new product launch conferences, including Huawei, Vivo, OPPO, and McDonald's. We expect this offline to online marketing transaction will continue throughout the year. Advertisers in other industries such as online education and e-commerce are also seeking out our platform to increase their brand reach. To summarize, we had an outstanding first quarter marked by excellent growth across our primary operational and financial matrix. The success was attributable to years of devotion in building a healthy content ecosystem, friendly community, and improved commercialization capabilities. We are also pleased with our strong execution in raising our brand awareness, growing our user base, as well as forming high-level strategic partners. Building on this early 2020 momentum, we will continue our user growth strategy, improve our top line, and drive value for all of our supporters, our growing community, and our stakeholders. This concludes Ms. Chen's remarks. I will now provide a brief overview of our financial results for the first quarter of 2020. Our total net revenues increased by 69% year-over-year to only 2.3 billion, exceeding the high end of our guidance. With a 50-50 revenue speed for our GAM and non-GAM business, we are pleased with our commercialization progress and the implications of this diversity. We are also converting more and more online traffic to pay-in-view. The average number of monthly paid users increased by 134% year-over-year, reaching 13.4 million in the first quarter. Cost of revenues increased by 51% year-over-year to RMB 1.8 billion. Revenue sharing cost. A key component of cost of revenues was RMB 889 million, a 61% increase from the same period in 2019. Gross profit increased by 180% year-over-year to RMB 530 million. We are also starting to see operating leverage from our diversified revenue streams. With more revenue contributions for our higher margin bearers, as well as additional income from paying users, our gross profit margin continues to improve, reaching 23% in the first quarter. Total operating expenses increased to RMB 1.1 billion and 17% from the same period in 2019. Selling marketing expenses was RMB $606 million, representing a 234% increase year-over-year. The increase was primarily attributable to the increased channel and the marketing expenses associated with BDB's app and brand, as well as expenses for companies' mobile games and the sales and marketing personnel. Building on the success of our New Year Eve Gala and strong user demands during the extended holiday, we made additional investment in branding and channels to further drive user growth and raising brand awareness, which we believe will yield considerable return in the long run. G&A expenses was RMB 171 million, representing a 33% increase year-over-year. The increase was primarily due to increased HACOM in general and administrative personnel and increased share-based compensation expenses. R&D expenses was RMB 297 million representing a 60% increase year-over-year. The increase was primarily due to increased HACOM in research and developed personnel. Net loss was RMB 539 million for the first quarter of 2020 compared with RMB 196 million in the same period of 2019. Adjusted net loss, which is a non-GAAP measure that includes share-based compensation expenses and amortization expenses related to intangible assets and acquired through business acquisition, was RMB 475 million compared with RMB 145 million in the same period of 2019. Basic and diluted net loss per share, or RMB 1.62. Just the basic diluted net loss per share, or RMB 1.43. As of March 31, 2020, before some of these investments, we have cash or cash equivalents, time deposits, as well as short-term investments of RMB 7.9 billion, or U.S. dollar 1.1 billion, compared to RMB 8.1 billion as of December 31, 2019. To further grow our business, we plan to improve our monetization by leveraging our considerable and growing traffic. We also see benefits in further expanding our diverse revenue streams and continuing to improve our paying ratio. Longer term, we believe our monetization efforts, high paying user conversion rates, and scale will yield an improved bottom line. With that in mind, we are currently projecting net revenue for the second quarter of 2020 to be between RMB 2.50 billion and RMB 2.55 billion. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.