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.

As a reminder, ladies and gentlemen, it is star followed by the number 1 on your telephone keypad if you wish to ask a question. If you wish to cancel your request, please press the pound or hash key. Please note there might be a slight pause as we collate the Q&A roster. Once again, it is star followed by the number 1 to ask a question. For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time. If you wish to have follow-up questions, please rejoin the queue. Once again, it is star one to ask a question. We have the first question. This is coming from the line of Li Zhang from Bank of America. Please go ahead.

Hi, management. Good evening. Thank you for accepting my question. Congratulations on your strong performance. My question is mainly about users. I saw that the previous year's Q2 was actually the current level of users, but the growth data of our 2Q users this year is very good. I don't know if there are any colors that can be provided to everyone. Thanks management for taking my question and congrats on strong set of results. My question is mainly on the user growth. Can you give us more color on the second quarter's user growth, which is typically a low season, but our growth number was pretty good. Then, secondly, how should we look at the second half user trend and our long-term user target? Thank you.

So the first half performance, we did a pretty good job. I think that's all thanks to our content ecosystem-driven business model. And this model's character is the longer term it develops, we think the more competitive it is.

because this is a truly healthy business model that's self-driven and sustainable.

Yes, I believe that the analysts or investors who are listening to this press conference also have a lot of Bilibili users. You should be able to feel that the content on Bilibili is getting better and better. This is a strategy that we use to attract users with quality content. I believe that Bilibili will continue to improve in terms of quality and richness in the future. Actually, when I watch Bilibili, I'm always surprised to see that the content is getting better and better. And I'm always surprised to see that there is such content. So I think this model is a So I believe many of the participants for today's call is Bilibili user itself. And I believe you might have the same feeling as I do while using Bilibili, that the content on Bilibili is

more and more diversified and more high-quality. Sometimes for my personal use of visibility, I will be surprised to find out the diversity, the vastity, and depth of our content offering. So I believe the business model that we're running is very, very healthy, and we believe this model can bring our long-term sustainable growth.

Regarding the next one, which is the growth of our users, Because Q3 is already halfway through, I think from the perspective of Q3, the number and quality of our users' growth is still quite good. I remember at the beginning of the year, we predicted that we could achieve a monthly profit of $2.6 billion this year. From now on, we will definitely be able to achieve this goal, even more than this goal.

So as for our long-term user guidance, currently we have already experienced half of the Q3. So far what we have observed in Q3 that we see very good progress in terms of user growth for both quality and quantity. And early this year we have given out a four user forecast for this year that our MAU will reach 260 million. So far, we think we should be quite on track to deliver, achieve that goal, or even surpass that goal.

From a longer term perspective, we have also predicted that by 2023, we can achieve the goal of 400 million moon fires. From my point of view, I think we are very confident in achieving this goal.

As for our long-term goal of 400 million MAU by end of 2023, so far we feel very confident to achieve that goal while on track.

What I would like to emphasize is that the biggest advantage of Bilibili's user growth is its quality. It's not just that we are looking at the users, but that they will really recognize the content of this platform and that they are willing to stay for a long time. We can see that from the trend, although our users are growing faster and faster, and the number of users is getting bigger and bigger, but the number of users we use on a daily basis is actually increasing. This quarter is up to 81 minutes.

And one thing I wanted to emphasize that Bilibili's user growth, the best of it is its quality, that we have maintained very high quality of user growth. From our perspective, we're not only just attracting users to join Bilibili, but they actually really recognize the value of the platform and they're willing to stay with us for long term Even though that we have experienced a very fast healthy user growth in the past, we've noticed that engagement level and the activeness of our user is still growing. That in the second quarter, our daily user time spent reached 81 minutes. That is the best result we've seen compared with our previous second quarter time spent.

And we can see that the activity of the users in the long term is also increasing. For example, the activity of the users registered between 2018 and 2020 is also increasing compared to the past in 2021.

And additionally, we see the long-term engagement level for our user is also improving. Actually, we've seen that the registered user in 2018, 2019, and 2020, their DAU to MIU engagement level in 2021 is actually improving on a year-on-year basis.

And we can see that every quarter, we will also announce our VV, And every quarter, we release our daily BB and our monthly user engagement number. And that young year growth rate is actually faster than our MAU growth rate.

So all of those matrix shows that we are not only be able to attract user to join our platform, they actually stay with us and become more engaged.

Okay.

We have the next question. This is coming from Alex Hu from Morgan Stanley. Please go ahead.

Thank you, Mr. Guan, for introducing my question. Congratulations on your very strong performance, especially in terms of advertising growth. My question is about advertising. In the first half of this year, our advertising growth has increased by more than 200%. I would like to ask how we should look at the future of advertising growth and the trend of income growth. We have also considered various management requirements recently, such as I'll translate my question. My question is regarding the advertising business. Congrats on very strong growth of over 200% for two quarters. Given that there are recently regulations around data privacy, flash screen ads, education, et cetera, how should we forecast and look at the second half growth Where will the growth drivers come from? Thank you very much.

So for second quarter, our quarter ad revenue has surpassed $1 billion for the first time and achieving over 200% year-on-year growth.

And this is the ninth consecutive quarter that we deliver beat advertisement results.

For the second half of the year and for a longer period of time, in the next few years, in addition to the historical infrastructure, we have also done a few more key things in this quarter.

As we look into the second half and for the next few years, we've done several things to continue to improve our ad efficiencies and lay solid foundation for our future ad growth.

to meet the needs of customers, and to realize the multi-stage expansion of Bilibili. Once a customer has invested in Bilibili, they can accurately reach users in different scenarios and different corners of Bilibili. This actually makes it easy for our brand to quickly establish a new understanding between users. This has been basically promoted and realized in this quarter.

So first of all, we have continued to explore multiple scenarios for our ad products based on our clients' needs. And we hope to help our clients to precisely reach their target audiences multiple times across various scenarios across Bilibili's product ecosystem and quickly view their brand image through just one campaign investment. And we have already achieved that within this quarter.

At the same time, B站's entire advertising model is a comprehensive marketing method. We have actively tried many new models. In fact, the video art of advertising will be a big direction in connection with the creative connection between the advertising and the up group. You also mentioned the issue of supervision just now. In fact, the logic of supervision is more about hoping that the consumer community will see the ad when it is announced. Thank you.

Secondly, we are also actively exploring new ad formats, including ad in the video format, as well as advertising with content creators' creativity. The regulatory environment you mentioned, we believe that the foundation or the logic behind it is that the regulatory hope our consumer will be notified. It is advertisement. And what Bilibili has been practicing is, first of all, all of our advertisements will not be a blockage type of advertisement. We hope really to embed and connect and combine content with advertisement, make it more interchangeable. Good content could be a good commercial, and good commercial could be a good content. And from that perspective, our integrated marketing solution, as well as our content creators' own creation, their own production towards native ads, is a perfect solution towards that problem.

The second point is that we continue to further strengthen our algorithm and strategic business technology team. We have realized the efficiency of the transformation and continued to increase the speed. And secondly, our ad efficiency was also greatly improved in this quarter thanks to our ad tech and ARGO team. And we're also investing in frontier ad tech-related R&D. The third point is that we will provide the original product advantage with a complete solution for the industry, such as games, digital, education, e-commerce, food and drinks, etc. Following the pace of the growth of users, we are still actively expanding the new industry and the big budget industry, such as cars and new goods. In this quarter, we can see very obvious changes.

And thirdly is that we will be focusing on our leading verticals and provide industry-based ad solutions, such as game, technology, education, e-commerce, and food and beverage, et cetera. And as we expand our user base, we hope to further expand our new industry verticals and verticals with sufficient ad budget, for example, such as automotive, and new domestic consumer goods. And all of that has been reflected in our second quarter's performances.

The most important thing is that this quarter, we have still upgraded the structure of the commercialized team. We have built the original commercial flow management system, advertising system, and fire and fire system into the business center of Bilibili. The main purpose is to dig up commercial resources for the Bilibili ecosystem.

And most importantly, we have upgraded our organizational structure of our commercialization team. In the second quarter, we have integrated Bilibili commercialization where a platform consists of commercial traffic management system, app system, and our Sparkle advertising system. The purpose of doing so is to further optimize and allocate CWB's commercial resources and improve our commercialization efficiency.

At the same time, the integrated marketing team and the marketing team of Up主 have also merged into a large marketing center. While we can provide Bilibili's special integrated marketing plan to our customers, we will also help the brand achieve the growth of the brand's assets at Bilibili.

And additionally, we have also regrouped ourselves from integrated marketing team and our content creator related sales team, forming one centralized sales center. The goal is to provide availability featured integrated marketing solutions and help our clients to improve their brand equity and achieve self-reinforcing marketing circulation on Bilibili?

The advertising value of the platform is actually dependent on the value of the users. Just now, Yuezhong also repeatedly mentioned the content of Bilibili's user value. Bilibili's current average user age is actually 22.8 years old. 86% of them are still under 35 years old. Most of them are still in the first and second-tier cities. We still believe that this group of users is the main force of China's future consumption. Bilibili also occupies the platform of the highest advertising value group. So under this prevailing advantage, we will still firmly build the advertising business. In the second half of the year and the next one to three years, we are still very confident to maintain a healthy and high-speed growth.

So there's a saying that the platform value equals the user's value on this platform. And Mr. Chen has repeatedly mentioned the value of the user. Our current average age of our user is around 22.8 years old. 86% of our users are under age 35 and the majority of them are in first and second tier cities and for this group of cohort they are the main consumption groups for for in China and they represent the highest value of demographics. And building on that, Advantage will continue to reinforce our infrastructure and continue to improve our app product. And for the second half of this year and one, two, three years ahead, we're still quite confident to maintain a healthy and fast growth for our app business. Thank you.

Thank you, Holly. Thank you, Julia.

The next question comes from the line of Alex Yao from JP Morgan. Please go ahead.

Thank you, Guan Lipeng, for giving me the opportunity to ask questions. I also want to congratulate you on your very strong performance. Kali just talked about some of your understanding of the change in the monitoring environment from the perspective of advertising. From another perspective, for this kind of digital entertainment, especially the change in the monitoring policy of games and live broadcasts in these two industries, does it have any impact on our B站 business? I will discuss it myself. So my question is about the regulatory impact on gaming and the live streaming operation given the changing regulatory environment in this space and potentially more quality coming out in the next couple of quarters. How should we think about the impact on our gaming and the live streaming operation? Thank you.

In fact, this year, there has been no significant change in the management of video games and the video industry. I think all the recent discussions on the management of video games and the video industry are actually on the self-media level. Because we also have a lot of contact with the government and so on. But to be honest, from the company's point of view, we don't feel I actually think that for games, for video games, and even for the entire Internet industry, in all countries around the world, their supervision of these aspects is increasingly standardized. And then, in fact, there is nothing new this year in this area, that is, video games and video games.

So actually for 2021, what we have observed, there's no significant change of the regulatory environment towards games or towards live broadcasting. The speculation and discussion that's all over the Internet is just based on the media. It came from the media level. And as a company ourselves, we have kept a regular dialogue with different government authorities. And from the company's perspective, we actually haven't heard anything new. And the discussion is generally from the media or the Internet users. And it's just based on their own speculations or imaginations. and there's no ground to those discussions. And from our perspective, we think that from a global perspective, the regulation towards internet content game or live broadcasting, it will be more and more standardized and rule-based. And that hasn't changed.

Yes, I'd like to add a few more words. In the past, since the B-war, we have been very active in our attitude towards policy supervision. Because I think for a big and fast-growing industry, policy supervision is necessary to lead the industry to a healthy direction.

And from our perspective in the past, Bilibili has always responded very actively towards all kinds of regulations from the government. We believe our industry that's experiencing fast growth, certain regulation is actually beneficiary for this industry's long-term and healthy growth.

And as the development of this industry grows, it will definitely have a different impact on society. In this case, I think it is natural for the management of this industry to become more regular and detailed. Video industry will definitely be more than 10 billion in production in the future. And the future of video games must be mainstream entertainment. So I think it's different from the past. In the past, it might be new. So maybe the government doesn't know how to go about it in detail. And as the industry develops, the more mature it is, the greater the impact it will have. It will definitely be more and more standardized in terms of details. I think this is also a natural phenomenon.

So we think as the industry's development, as it has more influence and impact towards the society, it's a very natural process for the regulations to become more rule-based and standardized. And I believe the video industry, it will be a multi-billion, trillion R&B worth of industry, and gain probably will become they're very likely to become the mainstream format of entertainment. In the past, it probably is emerging new verticals and the details of those regulations were not mature and as you grow bigger, it's just very natural for the regulatory to warm up of a more standardized and rule-based regulatory environment.

And the government is very clear about the supervision of video games. First of all, they want to see the development of this industry. They encourage the development of this industry. Secondly, So we think that

the government's regulation towards video content and game content has been very clear. And in general, they do hope this industry will develop and they encourage the development of this industry. And they have been very specific on the things that they hope to regulate. One is on the minor protection. Two is the compliance of the content itself. And in the past and up to now, Bilibili has been very clear on those requirements and has followed and implemented all the regulatory requirements.

So I feel that for video games or games, the trend is definitely moving forward. At the same time, I think we, as an Internet company, we will also do our best to meet the requirements of the government. For example, in the game for underage people, in the legal and regulatory aspects of content. Personally, I have always been optimistic about this aspect. I think the industry will definitely develop better and healthier.

So generally, I think that the game industry will definitely move forward and experience better development. And as an internet company, we'll be fully compliant with the key areas that the government has specifically required. One is on the minor protections and two is on the compliance of the content itself. My personal view is they're still very optimistic. I believe that this industry will only become better and better under the supervision of the government.

And this industry is different from 10 years ago. If 10 years ago it still had this feeling of wild growth, I think now this industry is actually quite mature. It's been at least 10 years of industry experience. So I think the entrepreneurs in the industry can also clearly understand the importance of healthy development in this industry. This is actually a consensus. This consensus is a consensus that the industry companies and the government have formed. In fact, we are also reducing the time for underage people to play games. According to our internal statistics, people under the age of 18 who play our games account for about 1% of our revenue in 2021. In fact, all the game companies are limiting and reducing some of the unhealthy effects in our eyes. So I think the current situation is actually developing in the direction of the economy.

Generally, I think that this industry is quite different from 10 years ago. Probably in 10 years ago, it's still an early stage. There's not a very precisely regulated. But 10 years later, this industry has become much more matured. The participants in this industry also gain more experience, over 10 years of experience I think we have already reached a consensus with the industry players and the regulatory is that the industry needs to be regulated towards a healthy development path. And from visibility's perspective, we have strictly followed that rules. For example, on the minor protections that the revenue generated from user that's below 18 years old. the gain revenue only takes about one, takes around 1% of our total gain revenue. So we have been implementing restrictions and rules to better protect our miners and follow the regulatory requirements. So I think overall industry growing towards a more healthy and positive track. And I personally feel quite comfortable with the existing environment.

Yes. To sum up, I think in the past few months, I haven't felt any major changes in game and video monitoring policies. So to summarize in the past few months, I personally don't believe there's a vast change of regulatory environment towards games or video.

And we believe the regulatory, the existing practice and requirement from the government is very appropriate and scientific. And we believe our peers in this industry also agree with that and already reached a consensus that this industry needs to be moved towards a more healthy and regulated path.

Okay.

The next question comes from the line of Felix Yu from UBS. Please go ahead.

Let me try to play myself. So first, congratulations on the strong set of results. My question is on the GP margin. I noticed the GP margin of this quarter showed some weakness Q1, Q2, and Q3. So may I know the reason or any color behind that? And what is the management's thoughts on GP margin trend for the rest of this year and for the longer term potential? Thank you.

Okay, this is Sam. Let me take your question. You're right, the slightly decrease of the margin in Q2, actually it's mainly due to the change of the sales mix. In Q2, we saw the contribution of our GAM revenue actually was decreased as a percentage of the whole revenue, and there were also lower contributions from our cooperation GAMs. And also for our network accounting revenue, the gross profit margin also declined a little bit due to because we launched a campaign to offer higher revenue-sharing ratio. It's like a performance-based incentive, and it's for those new hosts only. So actually, if you look at the short-term GDP margin trend, we are still in the early stage on the monetization side, so it will be fluctuating over the quarters. But before we get into the details of our long-term margin trend, I would like to emphasize on the you know, the way we, the strategic thinking of us on the portability. You know, while we have the opportunity to quickly, you know, expand our user base, our priorities are always focused on user growth and popular expansion, rather than to limit our growth potential for the sake of the Brook event. When we are thinking about the path to the portability, actually we are thinking what's the sensible revenue level to achieve a healthy breakeven status and whether it's sustainable to keep improving the profitability after the breakeven. So for example, a company with like RMB 20 billion revenue and the same company with RMB 15 billion revenue, the bigger revenue size is surely more sustainable for long-term development. Over the past 12 months, we successfully achieved a quality revenue growth with the expansion of our user base. Our MAUs were up 38% year-over-year, and monetization efficiency per MAU was also increasing. Specifically, the non-GAMS revenue per MAU actually increased by 72% year-on-year to around 13.8 RMB per quarter in Q2. We believe there are plenty of upside because we grow our user base and improve our monetization efficiency. And also on the cost side, our key relatively fixed operating costs including the content, server, and the staff cost decreased from 34% of the total revenue in 2019 to 28% in Q2 this year. As we grow our top line and improve the efficiency, our random mix will also be more diversified, and our segment margin, such as live broadcasting and online games, as I mentioned, will have room to improve. So that's what we want to look at for the long-term gross profit margin trend.

Thank you. That makes sense. Very clear.

Thank you. We have the next question from Yuwen Zhang from China Renaissance. Please go ahead.

Thank you. So in the first half, our gaming venue is pretty stable. How should we work at the second half and also the longer-term gaming venue growth? Additionally, when we do self-developed games, what key factors do we have in mind? Thank you.

I'll simply answer the game question. Indeed, in the last quarter, the increase in the number of games is slowing down. And we actually know the reason for it. The main reason is the supply chain. Because no matter our game agent business or our joint business, its income increase needs to come from the introduction of new games. But in the past half year, the number of games in the market has been too small. Indeed, when we look at our game revenue, it has experienced some of the slowdown in the first half of this year.

The main reason that we see is because lack of supply for both of our exclusively licensed gains and jointly operated gains for the revenue to grow, we need to connect to, we need to get more new gains. And because of the overall permit issue process in the past six months that there has been some of the delay and the supply has been slower than expected. And for the same reason, some of our projects have been delayed. And that was the main reason for the slowdown for our game revenue.

But in addition to the supply side, we also saw more critical factors. For example, the users of our game The number of users who watch video games and the number of users who watch live games has increased rapidly. Its growth rate is the same as the overall growth rate of MAU. And we can also see that in the absence of supply of games, every time we release a new game, the number of new games is increasing. It's breaking records. In the first half of the year, whether it was the release of Kankun or the release of Sword and Shield, the number of new games is breaking records. What does this prove? It proves that the desire and demand of B站 users for games is very strong. This is the second one. The third one is that the games that we continue to operate have a lot of games with higher and higher income. Compared to the past few years, no matter if we look at We also see some positive signs as we operate our business.

Besides the supply issue, we've seen on the demand side, there's many, many positive signs. First of all, on the user. The game-related user who watched game-related live broadcasting and video actually kept growing with our overall MAUs, even with the under-supply for game titles for all the For many new titles that we released in the first half of this year, including Guardian Tale and Sword Art Online, its new addition, new downloads, and new users has constantly break a single game record. And on the other hand, for the old games, we are seeing its long operation cycle. many of our games continue to grow in terms of revenue and users. For example, our Azure Lane, our exclusive license game, Azure Lane, our drone-operated game, Jynx and Impass, we're seeing more users joining and it's closing continuously to grow year over year. So generally, we think on Bilibili, the gamers are growing and their desire and need for high-quality games is also growing.

So we can see that the focus of the game industry is very clear. In fact, we only need to solve supply issues. And the way we solve the supply problem is that in addition to continuing to strengthen our agent-based business, we will invest in the self-development aspect for a long time. In fact, last year we have already seen the trend of the future game industry. It is actually lack of supply. So we have been gradually investing in the self-development team since last year. From the current point of view, the scale of our game self-development team So as we see it,

We think as long as we solve the supply problem, we should be able to solve the bottleneck that we've been seeing in the past quarters. And the solution towards the supply problem is while we continue to enhance our licensing business, we will start to invest in our self-developed games. And actually, in last year, we have already seen the trend of lack of supply in the market, and we started to invest in the self-developing business. Currently, we have over 1,000 team members in our self-development team, and there's multiple titles and projects under development. We'll be expecting to launch our own self-development our own self-developed games in next year and the year after next year. So based on our existing business scale, we think our self-developed game will be our number one priority. And I believe in a few years later, our self-developed game should be contributing over half of our game revenue.

To sum up, with the growth of B站 users, there is more and more attention to games on B站. There is more and more attention to games. And the demand for games is also very strong. Currently, the reason why our game business has been affected by the increase in numbers is that the supply has been affected. And the way we solve this problem is to increase the supply. To summarize, we believe as our future continues to expand, we should have more gamers and more demand for games.

And to solve the supplier problem, we'll continue to reinforce our licensing game business while investing in self-developed games. And in the past, we might have one engine for game revenue growth, which is the licensing. And in the next few years, it will be dual-engine self-development licensing and drilling operations. and we think that should power our game revenue growth.

Thank you. And that concludes our question and answer session for today. I would like to turn the conference back to the management for any additional or closing comments.

Well, thank you again for joining us today. If you have any further questions, please contact me, Julia Yang, Bilibili's IR Director or TPG Ambassador Relations. Our contact information for IR in both China and the U.S. can be found on today's press release. Have a great day. Bye-bye.