Bilibili Inc.

Good day and welcome to the Bilibili 2021 second quarter, second financial quarter results and business update conference call. Today's conference is being recorded. At this time, I would like to turn the conference to Juliette Yang, Executive Director of Investor Relations. Please go ahead.

Thank you, Operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations 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 SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provided are for comparison purpose only. Definition of these measures and the reconciliation table are available in today's news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and webcast replay of this conference call will be available on 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. 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 the prepared remarks on behalf of Mr. Chin.

Thank you, Julia. And thank you everyone for participating in our 2021 Second Quarter Resolution Festival. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In August 2019, we announced our ambition to further grow our user base. Today, two years later, we found ourselves on the fast track to executing that strategy, achieving many great milestones along the way. In the second quarter, we added 14 million MAUs sequentially, bringing our total MAUs to 237 of 38% year-over-year. Mobile MAUs also rose by 44% year-over-year, reaching 220 million. And the DAUs reached 63 million, marking a 24% increase year-over-year. Importantly, our users become even more engaged, spending an average of 81 minutes per day on our platform, marking the highest second quarter level in our operating system. As we move into the peak summer season, we are pleased with the increasing momentum we have seen so far, which places us firmly on track to achieve our growth target. Our robust user growth also translated to strong pipeline expansion. In the second quarter, our total revenues reached R&D 4.5 billion, up 72% year-on-year, once again meeting the high end of our guidance. driven by improved products and services, MPUs were up 62% year-over-year to 21 million, and our pay-in ratio improved to 8.8% versus 7.5% in the same period last year. And to go to definition for young Chinese, our platform has also gained a wider recognition among advertisers across different industry verticals. In the second quarter, and revenue grow by an impressive 201% year-over-year. Celebrating our 12th year anniversary on June 26, we honor the many years we have grown with our users. Over the past 12 years, we have remained true to our original aspirations to create an outstanding community for all of our users and content creators, and to bring Chinese original content to users worldwide. We give mission in our heart. We continue to uphold our public responsibility to our community. We insist on data authenticity, content positivity, and invest in Made in China original content. In July of this year, we published our first ESG report. Here we outline our ESG policies and actions. deepening our commitment to being a responsible public company with a goal of bringing positive social and cultural impact to the world. Looking ahead, the transformative effort of visualization is creating an era of massive opportunity for us. Graphics and the text are being reinterpreted into video format to deliver information in more lively, vivid, and powerful ways. As we see it, video-format platforms will be the new gateway for people to connect to the Internet and access the work. And Bilibili is on track to be one of them. The momentum from video trends along with our solid strategic execution to expand our content, community, and commercialization give us great confidence in our future sustainable growth. With that overview, I would now like to provide more granularity on our second quarter operations, beginning with content. Our PUTV ecosystem continues to thrive, representing 93% of our total video views in the second quarter. Over the past 12 years, we have accumulated our platform as a destination for young people to showcase their talent and realize their career goals as professional content creators. We continue to improve our services to attract content creators, launch more tools, and modify our app to make content creation easier. In the second quarter, Bilibili was home to 2.4 million content creators, up 25% year-over-year. And the monthly video submission rose to 8.4 million in the second quarter, up 41% year-over-year. The increase in our matrix are no small feat given last year's high base. We continue to improve our traffic distribution mechanism to let high quality content creators quickly match with their fans. In the second quarter, the number of content creators with more than 10,000 followers increased by 47% year-over-year. Our live broadcasting platform and the Sparkle advertising platform provide means of our content creators to unlock their commercial value while showcasing their talents. By the end of the second quarter, 409,000 content creators had also joined our ongoing cash incentive program. For the second quarter, our top five most populated verticals were the lifestyle, entertainment, game, tech and knowledge, and enemy. We see many new verticals on the rise. such as relationships, home decorations, fitness, beauty, and cosmetics. The emerging popularity of this category reflects the involving content needs as we expand to wider demographics. Being a hub for young minds to discover and explore various interests, we firmly believe the content we provide should have positive impact on people's lives. We actively promote content that is informative engaging, fulfilling, and help our users to become their better shape. It could be a small pressure, such as how to bake cookies or engage users in deeper thinking through a guidance into the cosmos. In the past 12 months, over 130 million users accessed Penn Knowledge content across a variety of subjects on our platform, such as solidifying the MyShare among users of LearnAmbility. Turning to our OGV content. Augmenting our POGVs and unlocking commercialization potential, our high-quality OGV content continues to attract new users and convert paid users to our platform. In addition, many of our self-produced titles have become valuable IP assets that we can build up. as we leverage our network to further our IP inference. Representing Chinese culture and a part of China's soft power, Chinese animation has become increasingly popular domestically and internationally. And our investments in this category are paying off. A primary example for our evolving IP creation and self-production capability is Link Click, Shiguang Daliren. Produced by our own anime studio, these Bilibili original IP assets become an immediate hit following its release in April, accumulating over 150 million video views. Partnering with Sony Animation, Linkei was released in multiple countries and regions where it continues to be highly rated. Other popular Chinese anime titles have also helped us to attract many new young users. that had been well-received by overseas enemy lovers. These titles further solidify our leading position in the ACG space, including the final chapter of Linkage, Ling Long, Legend of Hei, Luo Xiao Hei Zhan Ji, Children 2 of Cup Reborn, Yuan Long, and Heaven Official's Pleasing, Qian Guan Sifu. Our self-produced matchmaking variety show, Yin Hun Jie Suo, was launched last week. and the music bar to show the next banner where the English team will be released in August. With this new OGB offering, we hope to attract more young minds with relevant interests and assimilate even more discussion within our community. Turning to our community, our community continues to be a vibrant one. Users are incredibly engaged and tighten the boundaries both to our content and with our platform. Over time, we have become a part of many people's regular daily routines. For the second quarter, average daily video views were up by 48% year-over-year, reaching 1.7 billion. Monthly interactions were also up by 39% year-over-year, with users generating 7.3 billion bullet charts, comments, live video moment posts, and virtual giftings. The number of official members on Bilibili are also increasing with high retention rates. By the end of second quarter, 121 million people were official Bilibili members, an increase of 35% from the end of the second quarter last year. And our 12-month retention rate remained around 80%. In fact, more than 50% of our registered users in 2011 still remain active to this day, 10 years later. Over the years, we continue to involve our community management system to ensure a friendly and welcoming community environment and inspiring positive social interactions. We strongly believe that a community is a place for people to reach consensus, not to create disputes. In addition to our official member mechanism, we continue to reinforce community member patrol and enhance our designated response team to protect the integrity of the community. With this effort, we hope to create an enjoyable and lovely place for all users and creators to share, learn, and thrive. Now let's look at our commercialization program. We continue to provide more products and services. As we execute our commercialization strategy, we are further realizing the deep value of our high-quality users. Starting with our game. In the second quarter, revenue from mobile games has remained relatively flat over the year at only 1.2 billion. Going into the second half of the year, our priorities are to expand our mobile game roster domestically and internationally. For our next stage of growth, we're committed to building on our internal development capabilities. We currently have six game studios with over 1,000 members working on a dozen projects. leveraging our game operating experience, rich PUGB and live broadcasting ecosystem, strong distribution power, and our deep understanding of users' preferences. We are confident we can bring exceptional internal development games to our users. We welcome the three new titles to our roster in the second quarter, as an exclusive distributor in China. Improving user-centered game promotion techniques, such as clever means and the POGV content. Players immediately embraced Guardian Tales, Kan Gong Ji Guan Jian, with the game ranking highly on China's iOS top-grossing and top-download charts for weeks following its release. Our exclusively licensed indie game that sells, Tongsheng Qi Bao, was another climbing example of Bilibili's distribution power. By the end of July, over 2 million copies had been sold. Overseas market represents with another growth opportunity. In May, we successfully launched RefinelGear in South Korea. For its dedicated art design and innovative gameplay, RefinelGear quickly won the hearts of like-minded ATG lovers. For three weeks after its release, RefinelGear continued to hover on Google Play's top 10 growth charts in South Korea. This success story demonstrates our established capabilities in game selection and execution in overseas markets. We believe we can build on this success with other titles in other regions. As for our game pipeline, we currently have 11 titles approved for domestic release and a number of ACG titles slated for international release in the coming quarter. During our recent Bilibili game press conference, The Fantasy World, we introduced 16 brand new titles, including 10 exclusive licensed games and six self-development projects, cutting to a new generation of gamers. These titles covered a wide area of genre, including sandbox, multiplayer puzzle solving, real-person interactive RPG, simulation, and MOBA. Each title features unique graphic design, and historic settings, reflecting BDB's understanding of Gen Z Plus gamers' tastes and preferences. Looking at our vast business, our vast business remains strong with revenue reach of 1.6 billion in the second quarter, up 98% in over a year. Being a natural extension to our video ecosystem, live broadcasting is a vivid way to bring high-quality video content to our users. And for our content creators, it is also an important channel to engage with their followers and realize commercial value for their creation. For game lovers, we are a one-stop platform for game-related videos, esports tournaments, and a place to engage with game KOLs. For ACG and entertainment enthusiasts, our content continues to expand with our huge anime library. and unique live broadcasting entertainment, particularly virtual steamer or V-app content. Over 60% of top global V-apps have now joined our B2B live broadcasting network, making us the largest V-app community in China. Turning to our current member business, our dominant J&D Plus users continue to show growing publicity to pay for premium content. By the end of the second quarter, the number of premium memberships reached another record high of 17.4 million, an increase of 56% year-over-year. And for our advertising business, we are pleased with another quarter of explosive growth for our ad business. Ground news grew by 201% year-over-year to RMB 1.05 billion. More and more advertisers have recognized us as a must-invest platform to gain visibility from Gen Z plus demographics. For the second quarter, the top five advertising verticals were mobile games, digital and 3C products, skin care and cosmetics, e-commerce, and food and beverage. Along with increasing our brand awareness, we continue to improve the efficiency of our ad matching algorithm and strengthen our ad products, giving us confidence in our ability to secure continuous ad revenue growth. In summary, we are pleased with our business progress so far. We have set the bar high and aim to reach higher. Building our content ecosystem driving model We will continue to grow our vibrant community and enhance our commercialization capabilities. At the same time, we place great importance on our social responsibility with a goal of spreading positivity to the world around us. Whether it's been through our Bilibili, spouse, schools, disaster relief efforts, or pandemic support, it is essential for us to always lead with integrity and give back to society. This concludes Ms. Chen's remarks. I will now provide a brief overview for our financial results for the second quarter of 2021 and outlook for the third quarter. Total net revenue for the second quarter will be 4.5 billion, 72% from the same period of 2020. We continue to see a more balanced revenue mix driven by our diversified commercialization channel. Our total net revenues, for example, by revenue streams were approximately 27% mobile games, 36% ads, 23% advertising, and 40% e-commerce and other business. Cost of revenue increased by 74% year-over-year to R&B 3.5 billion. Revenue sharing cost, a key component of cost of revenue to R&B 1.7 billion, representing a 70% increase on the same period in 2020. Gross profit increased by 64% year-over-year to RMB 989 million, and our gross margin was 22% in the second quarter. Total operating expenses was RMB 2.5 billion, up 170% from the same period in 2020. Selling and marketing expenses was RMB 1.4 billion, representing a 107% increase year-over-year. The increase was primarily attributed to increased channel and marketing expenses to promote our app and brand, as well as promotional expenses for mobile games and an increase in headcount in sales and marketing personnel. GMA expenses was RMB $436 million, representing a 109% increase year-over-year. The increase was primarily due to increased headcount in general and administrative personnel increased the share-based compensation expenses and higher rental expenses. RMB expenses were RMB $674 million, representing a 104% increase over the year. The increase was primarily due to increased outcomes in research and development personnel and increased the share-based compensation expenses. Net loss was RMB $1.1 billion for the second quarter of 2021. compared with RMB $571 million in the same period of 2020. Adjusted net loss, which is a non-GAAP measure that excludes share-based compensation expenses, amortization expenses, and income tax related to intangible assets acquired through business acquisitions, was RMB $858 million compared with RMB $476 million in the same period of 2020. Basic and diluted net loss per share were RMB 2.91. Adjusted basic and diluted net loss per share were RMB 2.23. As of June 13, 2021, we had cash or cash equivalent pump deposits as well as short-term investment of RMB 27.6 billion compared with RMB 12.8 billion as of December 31, 2020. Our sufficient cash reserve gives us more confidence in our ability to execute our growth strategy, which we believe will yield considerable returns in the long run. With that in mind, we are currently projecting net revenue for the third quarter of 2021 to be between RMB 5.1 billion and RMB 5.2 billion. Thank you for your attention. We would like now to open the call to questions. Operator, please go ahead.