Bilibili Inc.

Good day and welcome to the Bilibili 2020 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn 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 performance and are intended to qualify for the safe harbor from liability, as established by the U.S. Privacy Security Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks 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 Bilibili's business and financial results is included in certain filings of the companies with the Security 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 purpose only. For a definition of non-GAAP financial measures, and direct conciliation of GAAP to non-GAAP financial results. Please see the 2027 financial results news release issued 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. Kaoli Li, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. And I will now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Thank you, Juliet. And thank you everyone for participating in our 2027 Quarter Conference Call. I'm pleased to deliver today's opening remarks on behalf of Nick Chen. The second quarter was another strong quarter of growth. Owing to our increasing diverse content and wider awareness of our brand, we are reaching a much broader audience. For the second quarter, MUs were 172 million, up to 55%, and DUs were 52% to 51 million, both on a year-over-year basis. Mobile MAUs continue to be our fastest-growing, reaching 153 million in the period, up 59% compared to the same period in 2019. Along with the extended user base, user engagement continues to be strong. In the second quarter, our users spent on average 79 minutes per day on our BVB app, making us one of the most popular platforms among our peers. As we move into our peak summer season, with solid execution of our initiative, we are looking forward to further building on our user growth momentum. We continue to roll out more premium content and services, strengthen our monetization capabilities, and we are increasingly converting traffic to paid users. Our MPUs were up 105% year-over-year, reaching $12.9 million in the second quarter. and our payment ratio improved to 7.5% compared to 5.7% from the same period last year. These increases fueled our top-line growth and we once again reached a record high revenues of RMB 2.6 billion, beating the high end of our hiders. Our growth margin expanded to 23% from 16% in the second quarter of last year and we continue to realize more operating leverage. We remain committed to our user growth-focused strategy After 11 years of cultivation, we believe our content pool is deep and diverse enough to accommodate a much larger user base. And our community is friendly and robust enough to retain those newcomers. Hence, we have made more proactive user growth plans. Our primary areas of focus are creating additional brand awareness and targeted channel acquisition. In the second quarter, We launched a series of campaigns aimed at expanding the Bilibili brand name among a broader audience Intended with expanding our content appeal to the mass market During our 11 years anniversary, we introduced a new slogan Bilibili, all the videos you like Helping to define our brand proposition and appeal to a wider base With this vision in mind We launched a branding campaign series that started with our broadcaster New Year's Eve Gala in the first quarter, followed by Houlao, Ruhai, Zixiangfeng trilogy videos, which all have been widely successful and we have seen a clear uptick in brand perception and brand awareness across different demographics. This strategy is working well for us and we are determined to carry on as we move into the summer peak season. Looking ahead, a number of positive industry trends are working in our favor. The adoption of fast network and smart hardware is making content creation easier and more accessible to everyone. Particularly, the video industry is emerging as the biggest beneficiary. Video is rapidly becoming the most interactive and influential method to convey information. Building on that decade of experience and leadership in the video community, We are well positioned to capture the growth opportunity. With that overview, I would like to walk through the latest update of our content, community, commercialization, and strategic growth plan. First, our content. Our PUGB ecosystem remains the cornerstone of our business. For the past decade, we have carefully accumulated our PUGB community and are rising as a clear industry leader. Our effective traffic distribution mechanisms and friendly community environment make Bilibili an increasingly attractive platform for content creators. In addition to easy-to-use tools that make the content creation process simpler and more accessible, we launched our new ad platform to bring more commercial opportunities to our content creators. For the second quarter, we had approximately 1.9 million content creators uploading 6 million videos per month. representing increases of 123% and 148%, respectively, both year over year. For the second quarter, our most highly trusted verticals are lifestyle, game, entertainment, animation, and the tech knowledge. With rapid trends in video content, newcomers and key opinion leaders from other platforms are turning to Bilibili. In the first half of 2020, the number of content creators who submitted their first video creation trail rose by 139% year-over-year. These creators might open Bilibili up to extended content categories. For instance, we officially launched a knowledge sector to encourage content creators to share their insights, such as their business stories, how-to skills, and professional experiences. With our effective operational campaign and welcoming community atmosphere, knowledge has quickly become the fastest-growing sector, and we have seen excellent traction. Turning to our OGV, we remain as the dominant leader in the animation field with one of China's largest anime libraries. Since the beginning of this year, there were three new Chinese anime drawn on our 100 million video views club. including Wildcat Legend, Da Li Si Ri Ji, and our self-produced The Daily Life of the Immortal King, Xian Long's Ri Chang Sheng Huo, and Capricorn, Yuan Long. Additionally, we plan to roll out more Bilibili-produced Chinese animes, including Linkage, Ling Long, Immortal Journey, Fan Xiu Xian Zuan, and The Legend of Kong, Xian Bao, and Yao Lu. We believe this new series will attract even more Chinese anime lovers to our platform in the summer. As a supplement to our vast content library, we expanded variety shows and documentaries to continue to resonate with fans and provide good advertising avenues to our business partners. In August, we were excited to introduce our very first self-produced music variety show, Rap for Youth, 说唱新世代, sponsored by Alibaba's Ju Hua Sun. We hope these raps in the talent show will help further expand our content offerings while inspiring our content creators and young generations alike. We are pleased to have received wide recognition, not only from our users, but also professional institutions. Two of our Bilibili-produced documentaries were nominated by Bai Yilan for the Best Documentary Award, including An Year of Books, 但还有书籍, and Police Stories, 派出所故事。 The Hidden Kingdom of China, a documentary that we co-produced with National Geographic, was nominated as the Best Limited Series Long-form documentary by Jackson Wise Media Works. Turning to our community, our community size and engagement has been accelerating rapidly. Our platform is more robust than ever, and we have seen record high across all of our primary engagement matrix. In the second quarter, our daily video views reached 1.2 billion, up 97% year-over-year. and our users generated nearly 5.2 billion monthly interactions through the booty chat, comments, likes and Bilibili moment posts, nearly three times the amount from the same period in 2019. Our official membership program is on a similar growth track. By the end of the second quarter, we have 89 million official members who passed our 100 question exam of 65% year-over-year. The attention for this group remains well above 80%, demonstrating the loyalty of our users. Turning to our commercialization progress, I will first review the status of our game business. Revenues from our mobile game business were up 36% year-over-year to RMB 1.2 billion, accounting for 48% of our total revenues. Building our massive and expanding gamer community, Our distribution power in the ACG sector is becoming even stronger. In the second quarter, we were excited to add the new broadcast title Princess Connect to our game portfolio. This exclusive licensed Japanese RPG was an instant hit after its release in April and topped China's iOS download and browsing charts multiple times. Our next seed title, Fakeware Order, or FGO, continues to hold a considerable role for this stable fan base. At the end of June, we were excited to celebrate Azuna Live's three-year anniversary with a major content update and accompanying offline activities. A long life cycle of these games continues to be a strong testimony to our ability to operate and sustain high-quality games. Looking at our game pipeline, currently, we have 11 games that have acquired approvals and are scheduled to be released in the coming months. These include Magia Record , a highly anticipated ACG title adapted by a popular Japanese anime, and the Sword Art Online , an exciting MMORPG. Additionally, while strengthening our ACG game operation, we continue to expand offerings in high-quality games. As to the end of July, we host our first-ever game release event, Enter the Fantasy World. where we introduced 11 exciting titles across different genres. These included Simulation Game, Dark Bone, Hei Chao, a self-denominated ACG game, Ling Long Huo Zhong, a highly anticipated title adapted from our self-owned Chinese anime IP, and several high-quality ACG titles, Bao Zhi Huai Xiang, and Ji Dong Zhan Qi. We are delighted to announce we are going to bring Chinese audience the mobile version of Four Guys, Tang Dou Ren, an exciting casual battle royale game. As we solidify our game-related content offerings and welcome more game lovers to our platform, Bilibili has become the go-to place for joint operating partners. In the second half of the year, we will continue to work with leading game developers to bring our user-friendly games, such as Nihao's Lian Shen, and Natty Harry Porter. Turning to our VAST business, value from VAST increased by 153% year-over-year, reaching RMB $825 million in the second quarter. Our growth was mainly driven by increased contribution from premium memberships, live broadcasting and other value-added services. We continue to enrich our live broadcasting content and increase the penetration among outgoing traffic. As our platform becomes more influential in China's online entertainment industry, we have seen more host and talent agencies turn to Bilibili to grow their fan base and maximize their commercial potential. On the eSports Fund, our three-year strategic partnership with Riot Games will significantly enhance our position in this area. We will join forces with Riot Games and the local government to host a diversified online and offline activities to promote world-renowned League of Legends World Championship events while bringing more e-sports lovers to the event. Our premium members, which offer additional exclusive or advanced content to pay users, continue to flourish in the second quarter. By the end of June, we had 10.5 million premium members of 100% year-over-year. These members represent the golden co-hosts of our most loyal users. who are also the most primed for future cross-selling opportunities. Notably, our comic business is also on the rise. Within two years, Bilibili Comics has grown from scratch to top three comic platforms in China, with over one million paid subscribers. As a natural debt extension from our co-SEG content offering, we see great synergy between our main app and Bilibili Comics app, with a significant room to growth. As for our advertising business, our growing user base and increased brand awareness make Bilibili a must-go-to platform for advertisers. Despite the tough microeconomic environment, we grow our advertising business to RMB 349 million, up 108% year-over-year, and continue to broaden our customer base. The leading industry verticals in the period were Gantt, e-commerce, 3D products, food and beverage, and education. In summary, we had another strong course of growth and we are well-appointed to continue on this trajectory. Building on the positive momentum in the first half of this year, we plan to make additional investment in branding and channels in the coming quarters to further drive user growth and raise brand awareness. We believe this investment will boost our self-fulfilling growth cycle and yield considerable return in the long run. As we reach new heights, our focus will remain on the quality of the growth and we will continue to closely monitor the ROI of our marketing expenses. We are confident that our effective strategic initiative will further fuel our user growth and support our top-line expansion as we continue to build the values of our company, investors, and growing community of our users. This concludes Ms. Chen's remarks. I will now provide a brief overview of our financial results for the second quarter of 2020. Our total net revenues increased by 70% year-over-year to RMB 2.6 billion, exceeding the high end of our guidance. With our GAMs accounting for just under half our total revenues, we are pleased with the commercialization progress of our non-GAM offerings and our ability to convert our online traffic into paying users. The average number of monthly paid users increased by 105% year-over-year, reaching $12.9 million in the second quarter. Cost of revenues increased by 57% year-over-year to RMB 2 billion. Revenue sharing cost, a key component of cost of revenues, was RMB 1 billion, a 79% increase from the same period in 2019. Gross profit increased by 140% year-over-year, to RMB 604 million, we are also starting to see operating leverage for our diversified revenue streams. With more revenue contributions from our higher margin bidders, as well as additional income from paying users, our gross profit margin continues to improve, reaching 23% in the second quarter. Total operating expenses increased to RMB 1.2 billion, up 103% from the same period in 2019. Selling marketing expenses were RMB $675 million representing a 181% increase year-over-year. The increase was probably attributable to the increased channel and marketing expenses associated with Bilibili's app and brand, as well as expenses for companies' mobile games and selling marketing personnel. General expenses were RMB $208 million representing a 48% increase year-over-year. The increase was primarily due to increased headcount in G&A personnel and increased share-based compensation expenses. R&D expenses were RMB 331 million, representing a 53% increase year-over-year. The increase was primarily due to increased headcount in research and development personnel and increased share-based compensation expenses. Net loss was RMB 571 million for the second quarter of 2020. compared to RMB $350 million in the same period of 2019. Adjusted net loss, which is a non-GAAP measure that excludes share-based composition expenses and amortization expenses related to intangible assets acquired through billions of acquisitions, was RMB $476 million compared to RMB $256 million in the same period of 2019. Basic diluted net loss per share was RMB $1.63. are just the basic diluted net of per share for RMB 1.35. As of June 30, 2020, we had a cash-to-cash equivalent come before this, as well as short-term investments of RMB 15.6 billion, or US dollar 2.2 billion, compared to RMB 8.1 billion as of December 31, 2019. For the third quarter of 2020, we are currently projecting nine revenues to be between RMB 3.2 Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.