Bilibili Inc.

Good day and welcome to the Bilibili 2021 First Quarter Financial Results and Business Update 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. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectation as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purpose only. Definition of these measures and a reconciliation table are available in the news release we 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 the Bilibili IR website at ir.bilibili.com. Joining us today from Bilibili Senior Management are Mr. Ray Chen, Chairman of the Board and Chief Executive Officer Ms. Carly Lee, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. And I'll now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Thank you, Julia. And thank you, everyone, for participating in our 2021 First Quarter Results Conference Call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. 2021 is off to an excellent start for Bilibili. On March 29, we successfully completed our secondary listing on Hong Kong Stock Exchange, three years after we listed on NASDAQ. We would like to take this opportunity to thank our supporting shareholders, as well as our talented content creators, loyal users, and the dedicated colleges that helped make this happen. With our secondary listing, we see an opportunity to broaden our investor base and attract more high-quality shareholders. We also gain more strength in the capital market, laying a solid foundation to better execute our growth strategy and tap into the massive video-based market in China in the coming years. After officially stepping into the 200 million MAU club in 2020, we continue the momentum further increasing our influence among China's Gen Z Plus cohorts, and expanding our user base. In the first quarter of 2021, our MAUs were up 30% to 223 million, and our mobile MAUs grew by 33% to 209 million, both on year-over-year basis. And our DAUs reached 16 million, up 18% year-on-year, This is particularly impressive given last year's remarkable high base. As a testament to our rich offerings and engaged community, our users spend an average of 82 minutes per day on our platform in the first quarter. During this time, we roll out more premium content and services and strengthen our commercialization capabilities while converting more traffic to paying users. Our MPUs grow to 21 million, increasing by 53% versus Q1 2020. And our paying ratio is a record high of 9.2%, compared with 7.8% from the same period last year. Our titlers are widely recognized in Bilibili as a destination to reach young generations. As a result, our ad revenue once again achieved accelerated growth, increasing by 234% year-over-year. On the back of this strong momentum, our total revenues reached RMB 3.9 billion, up 68%, and our gross margin improved to 24% from 23%, both compared with the same period of last year. Throughout the first quarter, We continue to enrich our content offerings and enhance our mindshare as the go-to video community for Gen Z Plus. Entering their 20s and 30s, Gen Z Plus is deeply influencing society and mainstream ideals, as well as driving all kinds of consumption in China. By offering diversified content in great brands and deeps, We aim to further increase our market share among these Code Gen Z Plus user base, while expanding our appeal to all video users. We are confident we are on the right track to achieve our three-year user target. One of the primary drivers for our next wave of growth is anchored by the increasing trend in visualization, where video has become the pervasive across many scenarios of daily life. As China's leading video community, we are the clear frontrunner in this transformative opportunity, and we are only at the beginning stages of this rapidly growing trend. According to our research, China's video-based market will comprise nearly 1.2 billion video users and more than 1.8 trillion in revenues by 2025. Over the next few years, We are committed to capturing this exciting market opportunity with visualization and detailing to our growth trajectory. With that overview, I would like to go through our operations for the period in a bit more detail, beginning with our content. Our PUGV community remains the center of our content ecosystem, representing 91% of our total video views for the first quarter. We had approximately 2.2 million content creators uploading 7.7 million videos per month, representing increases of 22% and 57%, respectively, both year over year. We strive to create an ideal home for all video creators, where they can improve their ingenuity, build a fan base, and monetize their talent. We continue to invest in algorithm improvements to ensure that our content creators can easily locate the audience who most appreciate their work. In the first quarter, the number of content creators with over 10,000 followers increased 54% year-over-year. At the same time, our advertising platform, Sparkle, continued to connect more content creators with advertisers, while cash incentive programs supported over 375,000 content creators in Q1. We also maintain an upbeat and encouraging community atmosphere that provides a supportive environment for lifelong content creation. As a full-spectrum video community, we aim to offer a wider and deeper range of content to meet the growing demands of our users. In the first quarter, The most viewed content verticals on our platform were lifestyle, games, entertainment, enemy, and attack and knowledge. In recent quarters, we have seen increasing numbers of both content submission and video views about games, knowledge, and animal-related content. Moving forward, we plan to further explain our content offerings in relationships, fitness, and automobile. These categories reflect the interest of Gen Z+, while also expanding our appeal among a broader audience. Turning to our OGV content. Supplementing our video content ecosystem, our OGVs provide an effective gateway that reinforce our leading verticals and explore new For example, our investment in Chinese animation has become a huge boon for our ACG category, successfully attracting old users and new ones. Advancing our Chinese animation production capabilities, in January, we acquired Howling Earth Animation's lead, Huimeng Donghua, one of China's top anime studios. Its highly popular production Heaven Official's Blessing, Tianguan Sifu, launched in late 2020, continued to win over followers in the first quarter, reaching 370 million video views, over 6 million likes, and collecting around 4.5 million bullet charts. We also released multiple new original Chinese anime titles in April, including final chapter of Linkage, Ling Long, and Link Click, Shigong Dailiren, which were immediately hits, trending on social media for weeks. Turning to our documentaries, variety shows, and TV and movie categories, to satisfy users' diverse needs, we launched several hit productions in Q1. including our highly anticipated New Year Eve Gala, the most beautiful night of 2020, and the Bilibili Chinese New Year Gala. Our self-produced documentaries, Coca-Cola Foods, 吉时记, and The Little Gent, 小小少年, and our self-produced reality show, Shall We Eat at a House, 去你家吃饭好吗? all of which were welcomed by our Gen Z Plus users. In the second half of this year, we have plans to introduce two more self-produced music and dating themed variety shows. These shows are geared towards users with relevant interests and supplement the newer music and relationship series in our content ecosystem. Turning to our community, The bonds that we created with Bilibili and the community members remain strong, despite the spike in the interactions and use that we saw in 2020, making the comparable base quite high. Our first quarter community activities continue to be robust. Daily video views were up 47% to $1.6 billion, and monthly interactions increased by 35% to $6.6 billion, both compared with Q1 2020. By the end of first quarter, we had 112 million official members, up 38% year-over-year, and our 12-month retention rate remained around 80%. We are very proud of this matrix. as these demonstrate the strength of our model, bounding our users and community closer. Now, let's look at our commercialization progress. Our diversified monetization strategy is working, growing each of our commercial avenues in the first quarter. We now have a robust line of revenue stream formed out of a solid mobile game business, thriving vast business, as well as our rapidly growing advertising business. Starting with our games. Revenue from our mobile game business was RMB 1.2 billion in the first quarter, an increase of 2% year-over-year. At the end of April, we successfully launched another exclusive distributor of the mobile game, Guardian Tales, 坎公奇冠店. This thriving ACG title has won over millions of new followers, topping the iOS game download and the growth in charts for weeks after its release. Other existing games that we operate, including Fate Grand Order, Azula Land, and Princess Connect, remain popular among their followers during Q1. As for jointly operated games, Genshin Impact, Genshin, had another solid run in the first quarter. Derived from classic Animal IP, we also added Yu Jing Hong, You Xi Wang, to our jointly operated game library in January. With China's mobile games market expected to reach over RMB 500 billion in 2025, according to iResearch, we strategically invest in Xindong.com and the CMG Technology Group, further strengthening our position in the game industry. Turning to our game pipeline, 12 of the games we host exclusive license or have acquired approval for release. These include Artillery Gear, 機種戰機, Assuming ACG Title, and SWAT Art Online, 刀劍神域. and exciting MMORPG. Both are slated for launch in the second quarter. We continue to work with top developers to bring more jointly-operated games to Bilibili users. These highly-anticipated titles include Tencent's League of Legends mobile games, as well as Natty's Harry Potter . Turning to our vast business, our vast services soared in the first quarter. with our premium members reaching a record high and a robust growth in the LIBOR category. Revenues from our VATs grow to RMB 1.5 billion, an increase of 89% year-over-year. At the end of the first quarter, we had 16.1 million premium members, representing a year-over-year growth of 48%. This is particularly impressive, again, given the high base in 2020 for comparison. It also shows that our CoachingZ Plus demographics have spending powers and a high willingness to pay for high quality and premium content. As part of our video content ecosystem, we continue to build our game and entertainment content, addressing our users' diverse needs. We have won a number of high quality esports content contracts including live broadcasting rights of League of Legends World Championship and more recently acquired League of Legends Pro League in China. Additionally, our VTuber and other entertainment live broadcasting continue to draw young users' attention. As we explore more ways to integrate live broadcasting content with our video platform, we see great potential to expand this business even further. Last but not least, let's review our advertising business. Beginning with the success of our 2020 New Year's Eve Gala, a wider variety of advertisers come to Bilibili to reach their desired audience of young generation. Revenue from our advertising services was RMB 750 million, up 234% year-over-year, representing our eighth quarter of accelerated growth. for the first quarter. The top five leading advertising verticals were games, digital and 3C products, food and privilege, e-commerce, and skincare and cosmetics. Increasing improvements to ad distribution algorithms also supported our advertising business growth. As we continue to enhance our brand awareness, increase our influence among the Gen Z plus demographic and improve our ad products. We are confident that advertising dollars are sure to follow. Building on the momentum of last year, we are off to a great start in 2021. Our financial and operational accomplishments across our content, community, and commercialization to Q1 place us on a firm footing of achieving our next phase of growth. We entered a new era when the transformation to visualization is taking shape as we speak. As a full-spectrum video community and the go-to platform for the Gen Z Plus demographic, we have reached a new starting point from which to grow. Riding the visualization wave, we will continue to invest in our content ecosystem and enhance our brand among the rising and massive video market. where we establish the leaders and continue to get market share. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the first quarter of 2021 and outlook for Q2. Total net revenues for the first quarter will be 3.9 billion, up 68% from the same period of 2020. we continue to see a more balanced and diversified revenue mix. Our total net revenues breakdown by revenue stream were approximately 30% mobile games, 38% VAS, 18% advertising, and 14% e-commerce and other business. Cost of revenues increased by 66% year-over-year to $1.3 billion. Revenue sharing costs A key component of cost revenues were 1.4 billion, also a 58% increase from the same period in 2020. Gross profit increased by 77% year-over-year to 937.9 million. Our gross margin improved to 24% in the first quarter, compared with 23% from the same period last year. Total operating expenses were RMB 1.97 billion, up 83% from the same period in 2020. Selling and marketing expenses were RMB 1 billion, representing a 65% increase year-over-year. The increase was primarily attributable to the increased channel and marketing expenses associated with our app and brand, as well as the increase in sales and marketing personnel. By allocating resources to build our brand and appeal among a broader audience, we achieved substantial growth in 2020. We believe the effects that will be even further reaching, with positive impact to the market over the long run. This is a continuation of the momentum we achieved in 2020, and we can already see the benefits of strategy. Through our broader user base demographics, content, and overall industry leadership. We plan to continue building on this track in 2021 to further strengthen and expand our venture's growth cycle. GMA expenses were the RMB $389 million, representing a 127% increase year-over-year. The increase was primarily due to increased headcount in general and administrative personnel increased share rent-based compensation expenses, higher rental expenses, and other GNN expenses. R&D expenses were RMB 580 million, representing a 95% increase year-over-year. This increase was primarily due to increased headcount in research and development personnel and increased share-based compensation expenses. Net loss was RMB905 million for the first quarter of 2021, compared with RMB539 million in the same period of 2020. Adjusted net loss, which is a non-GAAP measure that excludes share-based compensation expenses and amortization expenses and income tax expenses related to the intangible assets acquired through business acquisitions, was RMB666 million compared with RMB 475 million in the same period of 2020. Basic and diluted net loss per share were RMB 2.54. Adjusted basic and diluted net loss per share were RMB 1.87. As of March 31, 2021, we had cash and cash equivalents, time deposits, as well as short-term investments of RMB 27 billion. compared to RMB 12.8 billion as of December 31, 2020. With that in mind, we are currently projecting net revenues for the second quarter of 2021 to be between RMB 4.25 billion and RMB 4.35 billion. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.