Bilibili Inc.

Good day and welcome to the Bilibili 2022 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 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 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 Center 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 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, Juliette, and thank you everyone for participating in our 2022 First Quarter Results Conference Call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In the first quarter, The unexpected outbreak of COVID-19 struck China nationwide, impacting people's everyday lives. Shanghai, where our headquarters are based, was particularly impacted by the strict lockdowns. During this challenging time, our top priority is to the health and safety of our employees. Over 8,000 of our staff members have been working from home since mid-March. and we arranged essentials to be delivered to our employees in Shanghai when it was the most difficult to get supplies. In addition, we opened our documentary library to the public free of charge during the May holidays and donated 2 million premium Bilibili memberships to Shanghai citizens. We are glad to see that the lockdown just ended last week and hope everyone's life and our daily business can return to normal order soon. Confronting the challenges, our business foundation remains strong and resilient. In the first quarter, our Vaborate community continues to grow at a fast pace. Total MAUs grow by 31% year-over-year to 294 million and the DAUs grow even faster at 32% year-over-year. reaching 79 million. Total user traffic, which we calculate as DAUs multiplied by daily time spent per user, grew 52% year-over-year. During this period, each user spent an average of 95 minutes on Bilibili per day, the longest we have seen in our operating history. This strong user matrix represents our solid business fundamentals and we are seeing the momentum continue as we move through the second quarter. Despite the short-term impact from the COVID lockdown, our total net revenue for the first quarter came in at RMB 5.05 billion, up 30% year-over-year. In the first quarter, Both our paying ratio and MPUs reached record highs of 9.3% and 27.2 million, respectively. Live broadcasting was a major driver during the period, with paying user numbers growing 60% year-over-year. Despite software industry demands, we continued to gain market share in advertising and grow our ad revenue by 46% year-on-year in Q1. improving our ad efficiency, and exploring new products, such as ads in story mode, a few of the initiatives we expected to leverage as we walk our way through the challenging micro environment in the coming quarters. User growth, effective spending control, and improving our operating efficiency are our top goals. We have made some progress on each of these funds in Q1. Sales and marketing expenses decreased by 29% quarter-over-quarter, accounting for 25% of total revenue, down from 31% in the previous quarter. Server and bandwidth costs decreased by 2% quarter-over-quarter, which is no small feat given our daily video views increased by 36% sequentially. We continue to invest in R&D in Q1, which we believe is essential for our long-term and sustainable growth. Regardless of the pandemic's impact to our short-term financial matrix, we remain committed to our mid- and long-term growth of narrowing our loss ratio and ratio breakeven. Moving forward, we will further strengthen our commercialization capabilities, control costs, and improve human capital efficiency. With that overview, I'd like to go through some details of our first quarter operations across our content, community, and commercialization. Bilibili's unique content and community offerings provide our users an irreplaceable experience in the online video space. Since 2021, we have successfully expanded to a multi-scenario video community by launching our Story Mode and the Smart TV app. These have effectively brought our rich content to users in more formats that resonate with them across different viewing preferences. User response to our short-form video story mode has been very inspiring. This short-form video with Bilibili features provides a unique watching experience to satisfy users' on-the-go entertainment needs. Story Mode brought an incremental increase in total video consumption, contributing more than 20% of our total video views in the first quarter. And these numbers have continued to grow in Q2. In addition to more views and creating deeper community bonds, Story Mode has also opened up a new avenue for commercialization opportunities with advertisers as well as our live broadcasting services. During the period, users primarily engaged with content in the Lifestyles, Games, Entertainment, ACG, and Knowledge categories. Across these top verticals and others, content creation remained robust. Monthly average content submission was 12.6 million, increasing by 63% compared with the same period last year. Monthly active creators during the quarter was 3.8 million, up 75% year-over-year. The deep value we place on our creators is one of the reasons we are able to maintain our robust content and healthy community. The key to motivate their continuous creation is to help them gain recognition and provide monetary rewards. We are providing them with both. Content creators with more than 10,000 followers increased by 44% in the first quarter, beyond our cash incentive program. Content creators are encouraged to realize their commercial value more fully through multiple avenues, including live broadcasting, our SPACO ad platform, creator-recommended ads, and direct tips from users. In the first quarter, a total of 1.1 million content creators had received monetary compensation for their work, up 90% year-over-year. As for our community, We continue to foster an active environment for our users to get closer to the content and interact with creators and each other. We can see this not only with the record average daily time span on our platform of 95 minutes in the first quarter, but also in the increased average daily video views, which grow by impressive 84% year-over-year to nearly 3 billion. The number of monthly interactions in Q1 reached 12.3 billion, up an impressive 87% year-over-year. The bonds between our users and community have continued to grow. By the end of March, we had 158 million official members, a 41% with a stable 12-month retention rate of 83%. Both our story mode and Smart TV have played positive roles in driving engagement levels. Now, let's take a look at our commercialization efforts. Accelerating our commercialization efforts is our most important target this year. Despite the micro headwinds, our business is resilient. With advertising and e-commerce business have and will be particularly impacted in the near term, we are paying more attention to the quality of our revenue growth, particularly the margin contribution of each business segment. For our game business, in the first quarter, net revenues from our game business increased 16% year-over-year to RMB $1.36 billion. We continue to invest in in-house game development by acquiring a new studio in the first quarter. At the same time, we are closely monitoring our existing projects and conducting agile testing to keep our pipeline ahead of the fast evolving industry. We are also working to improve our industrialized development capabilities, which is equally important in landing an idea that works. Turning to our pipeline, three games have already been approved and some others are in the late approval stage. As for our game operation in the overseas market, we had three titles slashed for launch in the second quarter, more for the second half of this year. Turning to our VAS business, net revenues for VAS were on the 2.05 billion, an increase of 37% year-over-year. Beyond the pandemic, with a lot of monetization opportunity in this segment, particularly in live broadcasting and other innovative community-related value-added services. Our powerful PUGV video library and a pool of talented creators give us a unique advantage to leverage and reinforce our live broadcasting business. In the first quarter, the number of active live broadcasters on Bilibili increased by 88% year-over-year. We continue to roll out more tools and functions to let creators showcase their talent and introduce new forms of interactive virtual gifting programs. Meanwhile, the popularity of Story Mode opened a new gateway for users to discover interesting live broadcasting content. With these initiatives, a seamless and natural conversion to a paid user arises, In the first quarter, MPUs in live broadcasting increased by 60% year-over-year. As for our premium memberships, by the end of the first quarter, we had 20.1 million premium members, a 25% increase year-over-year. Nearly 80% of these were annual or auto-renewed package subscribers, representing their strong trust in us. In 2022, we will continue to add exciting content to attract members including a series of Bilibili-produced Chinese anime, variety shows and documentaries. Looking at our advertising services, revenues from this segment were RMB 1.0 billion, an increase of 46% year-over-year. In the first quarter, our top five advertising industry verticals were games, skincare and cosmetics, 3C products, automobiles, and food and beverage. In March, the unexpected COVID lockdown caused travel restrictions and logistics difficulties in major cities in China. Some advertising dollars were delayed or placed on hold. Confronting the headwinds, we are pressing forward to expand our advertising scenarios with more innovative ad products and increase our ad efficiency with a better conversion toolkit. We launched our story mode ads in April, and the initial feedback is encouraging. Compared with the text or picture-based ads, As in the story mode has higher ROI to add customers and bring an incremental increase to our ad inventory as well as our eCPM. We plan to allocate more resources to improve its performance, including algorithms and the product abilities. E-commerce is another area deeply impacted by the logistic disruption caused by the pandemic. As we believe our customer trust is our most valuable asset, we offer our customers our free delivery delay services and automated refund option. As recovery begins, our May GMV sales will again on the rise. Going forward, we will continue to explore new innovative models to maximize our IP value and achieve synergy with our leading content verticals. Confronting the micro-challenges, our action plan is clear for the rest of the year. First, we aim to take all necessary steps to resume normal business operations. Second, we will be focusing on the quality of our users and our revenue growth, particularly DAU matrix and our business segment margins. Lastly, we will take essential action to further control our costs and expenses. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the first quarter of 2022 and outlook for the second quarter of 2022. Total net revenue for the first quarter was RMB 5.05 billion, up 30% from the same period of 2021. Cost of revenues increased by 43% year-over-year to RMB 4.2 billion. Server and bandwidth cost as part of the related fixed cost component decreased 2% quarter over quarter. Server and bandwidth cost per video views decreased 27% quarter over quarter showing our ongoing efforts and progress in cost savings. Our gross profit in the first quarter was RMB 807.2 million and gross margin was 16%. Total operating expenses was RMB 2.8 billion, 42% from the same period in 2021, which represents a 9% quarter-over-quarter decrease from Q4 2021. Sales and marketing expenses were RMB 1.3 billion, representing a 25% increase year-over-year, and RMB 507.7 million decreased quarter-over-quarter. Selling marketing expenses as a percentage of total revenue were 25%, down from 30% in previous quarter. G&A expenses were RMB 535.3 million, representing a 38% increase year-over-year and keep flat-ish quarter-over-quarter. R&D expenses were RMB 1.0 billion, representing a 74% increase year-over-year. The increase was primarily due to increased headcount in research and development and share-based compensation expenses. We will closely monitor the progress in our eyes of our investments and make ongoing adjustments when necessary. Net loss was RMB 2.3 billion for the first quarter of 2022 compared with a net loss of RMB 904.9 million in the same period of 2021. Adjusted net loss, which is a non-GAAP measure, was RMB 1.65 billion compared with RMB 891.0 million in the same period of 2021. Basic and diluted net loss per share for the first quarter was RMB 5.80 compared with RMB 2.54 in the same period of 2021. Adjusted basic diluted net loss per share was RMB 4.20 compared with RMB 2.50 in Q1 2021. Turning to our capital allocation and the liability measurement. We announced our US$500 million share repurchase program in early March. As of March 31, 2022, approximately 1.4 million ADS has been purchased under this program for a total cost of US$13 million. We are also optimizing our liability level. In Q1, the company repurchased and canceled an aggregate principal amount of US$204 million of convertible senior notes with a total cash consideration of US$147.9 million and a recorded cash saving of RMB338.8 million. As of March 31, 2022, we had cash and cash equivalent term deposits and short-term investments of RMB 24.7 billion. As for our intent to convert to due primary listing on the main board of Hong Kong Stock Exchange and the Nasdaq, the Hong Kong Exchange has acknowledged our application, setting October 3, 2022 as the proposed effective date for our conversion to primary listing. It will expand our access to a wider investor base while we expect to maintain our listing status on Nasdaq. With that in mind, we are currently projecting net revenues for the second quarter of 2022 to be between RMB 4.85 billion and RMB 4.95 billion. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.