Bilibili Inc.

Good day and welcome to the Bilibili 2020 Fourth Quarter and Full Year Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliette 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 the safe harbor from liability as established by the U.S. Private Security Litigation Reform Act. Such statements are not guarantees of the 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 in 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 company with the security and exchange commissions. 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 a reconciliation of GAAP to non-GAAP financial results, please see the 2020 fourth quarter and full year financial results news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on Bilibili Investor Relations website at ir.bilibili.com. Joining us today on the call from Bilibili Senior Management are Mr. Ray Chen, Chairman of the Board and Chief Executive Officer, Ms. Kali Lee, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam Phan, Chief Financial Officer. And I will now turn the call over to Mr. Phan, who will read prepared remarks on behalf of Mr. Chen.

Thank you, Juliette. And thank you everyone for participating in our 2020 fourth quarter and fiscal year-end conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. We had an exceptional year in 2020. Through a challenging micro-environment, we remained focused on our growth strategies and achieved record results. In the fourth quarter, our MAUs reached 202 million, up 55% year-over-year, marking a new starting point for our growth journey. In addition, mobile MAUs were up 61% year-over-year to 187 million. On the user engagement front, we had 54 million DAUs of 42% year-over-year. Our users remained highly engaged and spent an average 75 minutes on our platform daily in the first quarter, reflecting the strong appeal of Bilibili content offerings and the thickness of our growing community. The high quality and rapid growth of our user base laid a solid foundation for our commercialization efforts. In the fourth quarter, our premium content services continued to drive premium user conversion. MPUs reached 18 million, up 103% year-over-year. Our overall paying ratio increased to 8.9% compared with 6.8% in the same period last year. At the same time, more business partners are turning to Bilibili to reach and engage our massive audience base of young generations. Our advertising business grew by 149% in the fourth quarter year-over-year, marking the seventh consecutive quarter of accelerated growth on year-over-year basis. On the back of this momentum, our total revenues reached another record high of RMB 3.8 billion in the fourth quarter and RMB 12 billion for the full year. This represents impressive year-over-year growth of 91% and 77% respectively. We attribute our success to our broad content library, engaging community experience, and rising brand awareness. In 2020, we made some key moves that resulted in a significant boost to our brand. We kicked off 2020 with a blockbuster New Year's Eve Gala, followed by our Hou Lang, Ru Hai, Xi Xiang Feng marketing trilogy, and introduced our brand proposition, All the Videos You Like. We carried these efforts into the fourth quarter and across the year with our second New Year's Eve Gala. the most beautiful night of 2020. During the live broadcast night, the popularity index more than tripled compared with our 2019 event, achieving 120 million playbacks within 48 hours. These successful marketing initiatives have allowed us to connect and resonate with more users and reach a more diverse audience, and we believe We can continue with the strong momentum in 2021. Building on the success of our 2020 user growth, one thing is clear. Our appeal is much broader and reaches beyond Gen Z. We are now widely recognized by a larger audience that now includes those born between 1985 to 2009, popularly referred to as the Gen Z plus demographic. This group of users share similar attributes and we have established and parallelized myShare among these Vibrant Gen Z Plus community. According to the iResearch latest report, over 86% of our MAUs were below the age of 35 in 2020. This group is the driving force for all kinds of consumption in China, especially the video-based consumption market. In 2019, GenZ Plus contributed 65% of the video-based market dollars. Video continues to be integrated with more and more aspects of daily lives. It is becoming the primary means of communicating, entertaining, and exchanging information. This visualization trend is creating massive market opportunities in China. The video-based market is expected to reach RMB 1.2 billion. in the revenues generated by nearly 1.2 billion video users by 2025, according to our research. As a full-spectrum video community platform and a go-to platform for the J&D demographics, we are at the forefront of this exciting visualization opportunity. With that, I will walk you through some of our activities during the fourth quarter, beginning with our content. Our content creators are extremely important to us. Their creations represent their vision of the world around them, which reflects an influence in Gen Z plus preferences. For the fourth quarter, we had approximately 1.9 million content creators uploading 5.9 million videos per month, representing increases of 88% and 109% respectively, both year over year. We continue to provide our content creators with support on multiple levels. These include video editing tools and the tutorings that help facilitate new creations, as well as monetary rewards and our advertising platform. Most importantly, we continue to improve our algorithm to make sure the right content is distributed to the right audiences, while promoting high quality original content. These attributes are what make Bilibili the most sought-after platform for content creators to showcase their talents, share their passions, and make a living doing what they love. We continue to enhance our content offerings both in deep and in breadth. In the fourth quarter, our most popular content verticals in terms of video views were lifestyle, game, entertainment, anime, and tech knowledge. Among those leading verticals Knowledge was one of the fastest-growing verticals attracting numerous intellects to our platform to share their knowledge and insights. In the fourth quarter, our tech and knowledge verticals attracted a wider audience and had contributed a significant 10% of total video views. Meanwhile, we continue to invest in areas where we see high potential to build out new strongholds. For 2021, as we grow with our existing users and attract new ones, we have identified several areas with large and growing demand, such as automotive, home furnishing, relationships, and parenting. In January 2021, we launched the Story Mode, our new PUGV content format that allows users to enjoy short videos in vertical formats. With StoryMod, we hope to satisfy users' diverse needs by providing them with their seamless access to our high-quality content, ranging from seconds for their fragment time to minutes and hours for more immersive experiences. We are encouraged by the initial results brought by the new model. Turning to our OGV content, our years of investment in Chinese anime brought fruit in 2020. Chinese anime MAUs have surpassed Japanese anime MAUs and have become our number one category within OGB. Over 160 million users watched Chinese anime on our platform in 2020. During the year, we've released a number of popular Chinese anime titles and hit new records for attracting new users and converting them to paying members. These include Cap Rebound, Yuan Long, Daily Life of Immortal King, Xian Wang De Ri Chang Sheng Huo, Linkage, Ling Long, and the more recently launched Heaven Official's Pleasing, Tian Guan Si Fu, forming valuable API sets. In November, we heard our third annual Chinese anime press conference made by Bilibili. Here, we introduced 33 new titles that we plan to release over the next two years. In addition to market developments in China, we are excited to be a pioneer in promoting Chinese anime worldwide. Some of our international invaders include our cooperation with Sony Foundation and Netflix to steam Bilibili produced Chinese anime series around the world. Our documentary, variety shows and TV series continue to enrich our content library as well. In particular, we have been very successful with our recent endeavors in self-produced TV drama, Room for Young , and the music reality show, Rap for Youth . Not only have we attracted new users, generated sizable memberships, and advertising revenue with these additions, but we have also opened the gateway to new content verticals and formats. Turning to our community, as our user base continues to grow, particularly among the Gen Z Plus audience, we are further nurturing bonds and strengthening our community ties. In the fourth quarter, our daily video views reached 1.2 billion, up 70% year-over-year. Monthly interactions were also up by 94% year-over-year, with users generating 4.7 billion bullet chats. comments, likes, and Bilibili Momento. Our official member numbers reached new heights as well. Until the end of the fourth quarter, we surpassed the milestone of our first 100 million official members, with 103 million official members up 51% year-over-year. Our 12-month retention also remained strong, well above 80%. This consistent matrix is a strong testimony to the success of our platform and growth strategies. Turning to our commercialization progress, we diversified our game offering even further in 2020. Led by existing popular games such as Princess Connect, FGO, and Azula Line, mobile game revenue grew to RMB 1.1 billion in the fourth quarter, up 30% year-over-year. Old and new fans alike continue to find great joy in these games, driving their steady performances. Gingsheng Impact continued to win fans with massive success, and Bilibili is the game's primary Android partner in China. As for our game pipeline, we have 14 titles that have obtained approvals and are scheduled for launch. We are very excited about our new exclusive licensed games. In the upcoming quarters, we plan to bring players Sword Art Online , Artillery Gear , and Guardian Tales . As for jointly operated games, we continue to be a partner of choice for leading game developers. In 2021, we will continue to work with top developers to bring more premium games to Chinese users, such as NetEase Harry Potter and Diablo, as well as Tencent's League of Legends mobile game. Turning to our VAST business, driven by our premium memberships and live broadcasting business, revenue from VAST increased by 118% year-over-year, reaching RMB $1.2 billion in the fourth quarter. Premium memberships are on the rise, gaining viewers exclusive or advanced access to our OGB content. At the end of the fourth quarter, we had engaged 14.5 million premium members, 91% year-over-year. The majority of our members paid for annual memberships or our automated renewal programs. As a natural extension of our medium platform, we continue to build our live broadcasting content ecosystem. While more hosts are attracted to Bilibili, more content creators are leveraging our live broadcasting platform to connect with fans and showcase their talents. Having secured three years of exclusive live broadcasting rights to the League of Legends World Championship in China, we further enhance our esports content offering with the recent S10 event hitting record high viewership. Last but not least, let's review our advertising business. Thanks to our strong user growth and enhanced brand name, advertisers are even more aware of our users' value and coming to Bilibili for increased visibility. At the same time, our ad efficiency and effectiveness further improves, as our algorithm improves. Revenue from our advertising segment reached RMB $722 million, up $160 149% year-over-year in the fourth quarter. Again, food and privilege, e-commerce, skincare and cosmetics, and 3C products were the leading verticals in the fourth quarter. Our New Year Eve Gala proved to be a great job for advertisers as well. This year, we welcome the new customer brand, Yuanqi Senling, and the traditional Appearance giant, Meidi, as our key sponsors of Gala. Our results speak for themselves, and our business continues to gain momentum. Bilibili is decidedly the go-to platform capturing the hearts and minds of Generation Z+, and our audience of young users keeps growing. We have entered a new era where video is becoming the dominant vertical for people to get connected inform and entertain. The trend of visualization is only getting started. At the same time, China's overall economics is on the rise and is expected to continue with vigorous growth. We are not only helping to shape the new visualization paradigm, but also gaining market share in this huge and growing video market. In 2021, we will continue to invest in our content and our brand to expand our reach and further capitalize on this tremendous opportunity. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the fourth quarter and the full year of 2020. Total net revenues for the fourth quarter will all be 3.8 billion. of 91% from the same period of 2019. In the fourth quarter, we continue to see a more balanced and diversified revenue mix. Our total net revenues breakdown by streams was approximately 29% gains, 33% bets, 19% advertising, and 19% e-commerce and other business. Cost of revenues increases by 80% year-over-year to RMB 2.9 billion. Revenue sharing cost. A key component of cost of revenues was RMB 1.3 billion, also an 80% increase from the same period in 2019. Gross profit increased by 137% year-over-year to RMB 944.1 million. Our gross margin improved to 20.6% in the first quarter, compared with 19.8% from the same period last year. Total operating expenses will only be 1.8 billion, about 126% from the same period in 2019. Selling and marketing expenses will only be 1 billion, representing a 147% increase year-over-year. The increase will primarily attribute to the increased channel and marketing expenses associated with our app and brand, such as our 2020 branding campaigns, as well as expenses for our mobile games and the salary marketing personnel. By allocating resources to build our brand and appeal among a broader audience, we achieved a substantial growth in 2020. We believe that efforts will be further and further reaching with positive impact to the market over the long run. We can already see the benefit of this strategy through our broadened user base, demographics, content, and overall industry leadership. We plan to continue building on this momentum in 2021 to further strengthen and expand our virtuous growth cycle. GNN expenses were RMB 343 million, representing a 115% increase year-over-year. The increase was primarily due to increased headcount in general administrative personnel, increased share-based compensation expenses, increased allowance for double accounts, and higher rental expenses. R&D expenses were RMB 484 million, representing a 97% 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 844 million for the fourth quarter of 2020, compared to RMB 387 million in the same period of 2019. Adjusted net loss, which was a non-GAAP measure that excludes share-based compensation expenses and amortization expenses related to the intangible assets acquired through business acquisitions and the income tax related to the intangible assets acquired through business acquisition was RMB 682 million compared to RMB 337 million in the same period of 2019. Basic diluted net loss per share was RMB 2.34. Adjusted basic diluted net loss per share was RMB 1.88. For the full year of 2020, our total net revenues increased by 77% to RMB 12 billion. Notably, we saw a shift in our revenue streams with 60% of our total revenues in 2020 coming from our non-game business and game accounts for 40%. Gross profit for the 2020 full year increased 139% to RMB 2.8 billion. Net loss for 2020 was RMB 3.1 billion compared to RMB 1.3 billion in 2019. Adjusted net loss for 2020 was RMB 2.6 billion compared with RMB 1.1 billion in 2019. Basic and diluted net loss per share for 2020 was RMB 8.71. This compared with RMB 3.99 in 2019. Adjusted basic diluted net loss per share was RMB 7.46 compared with RMB 3.3 in 2019. As of December 31, 2020, we had cash and cash equivalents, time deposits, as well as short-term investments of RMB 12.8 billion compared to RMB 8.1 billion as of December 31, 2019. With that in mind, We are currently projecting net revenues for the first quarter of 2021 to be between RMB 3.7 billion and RMB 3.8 billion. Thank you for your attention. We would like now to open the call to questions. Operator, please go ahead.