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spk01: 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.
spk02: 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.
spk05: 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.
spk01: For the benefit of all participants on today's call, if you wish to ask your 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 a follow-up question, please rejoin the queue. Our first question comes from Lee Jong with Bank of America. Your line is open.
spk10: Hi, 管理層,晚上好,謝謝介紹我的提問。 然後我的問題主要是想請管理層跟我們分享一下, 剛剛過去的這個疫情 對我們整體上半年的影響, 然後疫情之後我們怎麼看下半年的用戶增長, 還有我們整體業務的一個展望呢? 我自己翻譯一下。 Thank you very much for taking my question. My question is mainly about the COVID lockdown impact to our business in first half. And then how should we look at our second half user trend as overall business outlook post the lockdown? Thank you.
spk02: Well, I believe the pandemic is one of the questions that most people cared about for the first half of this year. And it indeed has brought severe impact to macroeconomy and people's everyday life, especially in Shanghai, as one of the cities was particularly impacted.
spk07: Let's take our company as an example. On March 14th, more than 8,000 of our employees in Shanghai started to stay at home. This week, we started to gradually resume our work. On June 13th, all of our employees started to work in the company. Taking Zilibili for example, over 8000 of our Shanghai employees have been working from home since 14th of March.
spk02: and we are just now starting to gradually returning back to office this week. Until 13th of June, all the employees will be fully back to work. This is a total three full months. You can imagine how it's does to everyday people's everyday life in Shanghai.
spk07: How do you see the impact of the pandemic on Bilibili's business? My judgment is that I think And how do we see this impact? COVID impacted deliberately. Indeed, it has brought short-term impact to our business, particularly for advertising and e-commerce.
spk02: However, we don't think there's any impact to Bilibili's long-term growth.
spk07: In this case, the demand for advertising to invest in advertising must be reduced, and even some places may be delayed. So I think the entire advertising industry in Q1, especially Q2, should be greatly affected. But this is a stage-based impact.
spk02: For example, for our advertising business, there are some short-term impact. For example, in many cities in China, in the first half of this year, people are in some sort of lockdown or staying at home mode, making a lot of the advertisers putting their advertising plan on hold or delaying their advertising dollars. And that's the facts.
spk07: Yes, for example, the e-commerce business of Bilibili is the main reason why we are affected, because we all know that from March, especially in April and May, due to the static management of the epidemic, logistics will be restricted in various places. As for Bilibia's e-commerce business, because starting from March, especially April and May,
spk02: a lot of logistic disruption due to the lockdowns or staying-at-home measures across different cities in Shanghai, in China, and that's impacting people's willingness to purchase as well as deliver services. So we do expect this impact will continue in the second quarter.
spk07: Yes, but like I just said, the impact of advertising and e-commerce are all temporary. And all this impact to our app business and e-commerce business, we do think it's temporary, especially after June when we reached a certain milestone to combating the COVID situation.
spk02: a lot of the impact is starting to mitigate and disappear.
spk07: Yes, in fact, if we look at Bilibili, we will find that the basic aspect of Bilibili will not have any impact on the epidemic. For example, videography will still be an unavoidable trend. For example, we can see that there are various needs for culture and entertainment for young people. Then we can also see that cultural consumption As for availability is fundamental, we don't think there's any impact by the pandemic. For example, the visualization is an unstoppable trend and we see the young generations, their needs towards entertainment and cultural products
spk02: is still very, very, very strong. And their consumption towards cultural related product is become even stronger. So that's why we do not, we do think that there's no impact to our fundamentals.
spk07: Actually, we can also see it from the data. We look at the data of the first quarter. Our Q1 MAU share growth is 31%. Our Q1 DAU share growth is 32%. And looking at the specific user matrix, for example, in Q1, our MAU grew 31% year-on-year, DAU grew 32% year-on-year. Both of the matrix is accelerating compared to Q1 last year. And this growth is still built on the fact that we haven't increased our user growth, for example, in terms of sales and budget. And we can see that the quality of our user growth is actually higher than it was in the past. The growth rate of our DAU is more than that of MAU. As for the quality of our user growth, for this quarter, our DAU's growth rate outpaced the MAU growth rate, and for our paying user growth rate outpaced
spk02: the DAU's growth rate, and we achieved a record high paying ratio of 9.3. So we're not only experiencing a very fast user growth rate, the quality of those users is also very strong. And this is all done under the scenario that we have not increased any of our sales and marketing budget.
spk07: B站是一个非常典型的互联网的 a platform-based business model. So what I just mentioned, whether it's DAU or our pay rate, including our first quarter, the daily usage of Japanese users reached 95 minutes a day, which is also historical. Including our interaction rate, which increased by 87%. So these data can actually be converted into future commercialized data. So why do I say that from a long-term perspective, I think the epidemic has no impact on Bilibili? Because the growth of these data is very fast and very healthy.
spk02: Bilibili has the business model of a typical internet platform business model, whether it's DAU or paying ratio or this record high time span of 95 minutes and the engagement level grew 87% year on year, all those matrix can be translate to commercialization. And that's why we think the COVID for Bilibili has no long term impact.
spk07: As for the future outlook, as I just said, I think that Q2 is still affected by the epidemic. And we predict that Q2 will be affected by the epidemic, even more than Q1. As for the outlook for the second half of this year, for Q2,
spk02: there's still impact lingering and perhaps the impact to Q2 is even greater than Q1. But since June this year, we can see there's a sudden change of the environment, different cities in the country starting to recover from the lockdowns. And that's why we do think for the second half of this year, things will start to recover.
spk07: In terms of user growth, we think that we are actually following a plan step by step, and then complete the user growth goal that we mentioned before. And now that we have completed the digital goal, we still pay more attention to the quality of user growth, and we will pay more attention to using less investment to achieve our user growth goal.
spk02: As for the user growth, we have delivered step-by-step of our user growth target. At the same time, we're paying more attention to the quality of the user. At the same time, closely monitor the expense we spend on sales and marketing. For the business side, as I mentioned, June is the month we're starting to walk out of the COVID impact. And we also believe this is the time we're starting to pick up our growth rate for each of our business lines.
spk01: Our next question comes from Yiwen Zhang with China Renaissance. Your line is open.
spk03: 晚上好,郭林辰,谢谢接受我的提问。 我这边有个关于Story Mode的问题, 因为在咱们Prepare Remote也提到Story Mode在咱们整体VV的渗透在提升, 同时也带一些广告直播这些机会。 So my question is regarding story mode. So can you mention more kind of latest update such as what role it plays in our broader content ecosystem and what's the progress on the commercialization around that? Thank you.
spk07: It is true that a lot of people have been paying attention to Story after the release of the report. Because the number of VVs in Story Mode has already exceeded 20% of the total number of VVs in the whole market. And it is clearly a new product that everyone can see.
spk02: Indeed, since we released the earnings, a lot of people are asking about the progress of story mode, because the story mode's total video views has now contributed more than 20% of our total video views. This is a very tangible new format of content that's playing a bigger role.
spk07: Right, so I'm going to talk about my three points of view on story mode. My first point of view is that I think Bilibili's story mode is a pure increase. First of all, I have three points I wanted to emphasize on story mode.
spk02: it is a pure incremental traffic for Bilibili. It's not like the story mode traffic is replacing some of the old PUGB traffic, but while users are watching more PUGBs, they're watching even more story mode.
spk07: Yes, we can see from the data that the total number of plays, which is a slight increase, is 84%. And then... And from a statistical
spk02: Statistic perspective our video views has grown 84% a year and story mode is contributing over 20% of the total traffic and if we're excluding the storm of contribution the Pugv growth rate is still around 50 to 60 percent which is the similar rate we have kept in the past that means this story mode is a pure incremental addition to our Bilibili ecosystem.
spk07: In fact, the performance of this kind of short video It's not a new thing anymore. Bilibili was also there earlier. I remember two or three years ago, we had a lot of this kind of video. But in the process of operation, how to make the video of this video become an increase for us, instead of replacing the PUGV in our original ecosystem. This is a very, very important issue in the process of operation. From the current result, we have achieved this point.
spk02: As for the story mode, the vertical short video format, this is not something new. As a matter of fact, we have this type of content starting from two to three years ago. And to our daily operation, the most important thing is to make sure for this type of content is adding an incremental traffic instead of replacing old traffic. And from the result, we have done a very good job.
spk07: It's just because the scene of its consumption is very fragmented and light. So, many of our current users are using some short time of free time, some of their daily free time to consume these videos. So, we can think that the existing story mode is integrated with our original PUGV in terms of ecology. It's just that it expands the user's new consumption time and new consumption scene.
spk02: why we can build an incremental traffic growth from story mode. Because we have viewed the story mode a very Bilibili unique flavor type of content. If we look at the story mode's video creator, many of those are our content creator. And for the consumer of the story mode are Bilibili existing users. But those users are consuming this type of content during their fragmented time on a more light scenario. So we believe for the story mode, actually, it is comprehensive as a whole product supplement to our original PUGV content. And it is actually expanding a new consumption scenario for our users.
spk07: And for our content creator who's very good at making long form videos, it's actually very easy for them to create a short vertical format of content.
spk02: It's like asking you what to post on Weibo, but it's very difficult to, as a Weibo user, to write a long article.
spk07: Of course, we let these existing app owners make short videos of this video, which also increases their amount of posts. And it also increases the frequency of our original users using Bilibili and expands their usage. I think it's a win-win situation.
spk02: And asking our content creator to make more shorter vertical format of content actually help us to increase the video submission and also is helping our user to expand their video consumption scenario, making them become more active and engaged on our platform. It's a win-win situation for us.
spk07: The third point I would like to make is that everyone's understanding of Bilibili shouldn't be a tool. And thirdly,
spk02: I wanted to emphasize for Bilibili, we are not a tool type of product. It's very easy for people to see some of the internet platform or product as a tool. This particular product is for a player for long-form video. This is a product for a short video player. This is a platform for live broadcasting. But for Bilibili, we have it all because instead of being a tool, is actually a content, a community platform that gathers people.
spk07: We are used to using the concept of the industry to classify users. But if you are a real user, you will find that when you choose a product, you don't look at it from the perspective of the industry. What is it based on? It is based on the category. If I am interested in a category, for example, a person who likes to watch For the industry player, we are used to separate users by the product's means. However, from the user perspective, they choose product
spk02: by the content verticals, not by their industry categories. For example, a game lover will not only watch the game PUGV, they will watch the game-related live broadcasting. He or she might also play deliberately produced or licensed games. As for acknowledged sector users, he or she might both consume the knowledge-related PUGB and also watch the documentary on visibility.
spk07: And so is for story. There are massive content supply on story.
spk02: is related to lifestyle, foodie, pet, and those content categories are actually mirroring the PUGV categories on Bilibili.
spk07: Yes, at the very beginning of Bilibili's live broadcast, everyone was curious about why you guys were doing live broadcasts. Did you guys want to compete with this and that? And then I answered that no, it might have been four or five years ago. That's what I answered. Now we're doing story mode, and we're doing story mode not to compete with this and that product, but to satisfy my existing user needs at Bilibili.
spk02: Many years ago when Bilibili started to do live broadcasting business, people would ask if we want to compete with certain live broadcasting platforms. My answer has been no, because this is expanding our users' needs and expanding our content offerings. And so is for story mode. We're not competing with the short form video platforms out there are actually satisfying our users' existing need and expand their content consumption scenario given what they need.
spk07: 最后我说一下关于Story Mode的商业化。 其实Story Mode在商业化方面的好处就是它的模式比较成熟。 其实已经有很多行业案例证明它在 Lastly, on commercialization, the beauty of the short form videos are its model has been very, very mature.
spk02: and there are so many very successful precedents in the industry. It has been proven to have very high efficiency at conversion rate, and its conversion for live broadcasting is also very good. And from our practice, it's also been proven this model works, and this will bring incremental commercialization opportunity to Bilibili.
spk07: From the beginning of last year, we did the story mode test. Now, the results are in line with our expectations. I think that story mode will continue to be an increase in the original PUGV ecosystem and continue to grow. I even think that in the future, the increase brought by story mode will exceed the current PUGV number.
spk02: We're starting to make a lot of trial runs with Story Mode product. Until now, so far, the progress has met with our expectations, and we'll continue to allocate more resources to develop Story Mode, and we believe it will bring incremental traffic to our billability ecosystem. Essentially, it could be even bigger than the incremental PUGV traffic that that has brought to Bilibili.
spk07: Yes, and please don't worry. I think that the story mode will not change the original PUGV ecosystem of Bilibili. It will become a new highlight of our ecosystem. A few years ago, when we did a live broadcast, And rest assured, the launch of story mode will not change how the billable ecosystem works.
spk02: it will actually become a new highlight of the Bilibili ecosystem. It's like many years ago, we started to do live broadcasting, and some of the users expressed concern whether we're going to change to a live broadcasting platform. As a matter of fact, now live broadcasting has become an essential element embedding within our ecosystem. I believe The same thing will happen with the story mode. Bilibili will not become a short video platform. However, this will be part of our ecosystem, serving users different needs and expanding our content offerings, bringing incremental traffic.
spk07: Bilibili will have more and more high-quality mid-range videos, but at the same time, there will be more and more high-quality short videos. Yes, that's it.
spk02: We believe in the near future we'll have more and more high-quality mid- to longer-form videos being born on Bilibili. There will be even more high-quality short-form videos born and expired on Bilibili. That concludes Mr. Chen's answer. Next question, please.
spk01: Our next question comes from Alex Yao with JP Morgan. Your line is open.
spk04: Thank you, Mr. Guan. I want to ask some questions about advertising. Of course, I agree with Mr. Wei's opinion on advertising. The long-term basics of Bilibili are actually not related to the epidemic. I think the main factors that determine the transformation of long-term advertising are, first of all, the Japanese general market of the platform, second, the attributes and consumption of users, The third one is the advertising technology of the platform. These three factors should be said to have nothing to do with the epidemic. But back to our investment circle, this model is still doing it step by step. It is also through the company's performance of step by step to track our progress and development. So I still want to ask some questions about advertising. short-term trends. For example, in the case of the pandemic, which types of ads are more likely to be delayed? Which types are relatively slower? Or which types of advertising products are relatively less likely to be delayed? Which types of advertising products are more likely to be affected by the pandemic? I would like to ask some questions on advertising. Fundamentally, we agree with Mr. Chen Rui's The long-term determinator to advertising monetization includes, number one, the total platform usage, number two, user demographic, and number three, the ad pack, none of which has anything to do with the short-term COVID impact. But we at the investment community follows the company and attracts the company on a quarterly basis. We would like to understand the near-term trend of our advertising. For example, what are the advertiser categories that are more vulnerable to the COVID impact and what are the categories who are more resilient? Similarly, what are the advertising formats that are more resilient and what are the more vulnerable advertising format. Now that Shanghai has reopened, how do we see the advertising revenue growth rate into the next couple of quarters? Thank you.
spk09: Thank you, Alex. I think Alex has already familiarized us with some of the core keys of advertising, including our core points. For Q1, Bilibili's advertising revenue is $4.4 billion, which is 46% of the total growth. Indeed, due to the impact of the epidemic and the economic environment just mentioned, many advertisers are still delaying or even delaying the launch. I think the entire industry is the same. I think this actually accelerates the market to think about what the essence of advertising is. In fact, there is a characteristic of Bilibili, which is that the value of users is relatively high. Then, it can affect users' mindsets for a long time. 我们也持续地用过技术跟产品的改进 让转化效率越来越高 所以我们还是比较认为 未来的话 广告组会更青睐于这种用户价值高 转化效率高 能影响用户心智的平台 Thank you, Alex. I think you mastered the very essential advantage of Bilibili's advertising business.
spk02: Like you said, due to macro economy slowdown and the pandemic impact, many advertisers' budget were delayed or placed on hold in the first half. At the same time, this is also making the advertising market reflecting the various reasons to invest for advertising. We believe the platform that we have has high user value and the ability to influence users' mindset. And we've also continued to invest in technology that improves our conversion rate. We believe in the longer term, Bilibili will be more favored by advertisers.
spk09: 其实B站现在的用户平均年纪是23.5岁 有86%的用户是35岁以下 B二线城市的占比也超过了50% This group of users, as we all know, are major consumers in China. Bilibili occupies the highest value platforms for advertising consumers. In the two to three-year process, our AppLoad has maintained a 5% growth in the long term, and advertising businesses have maintained a high growth. On the side, we can actually verify the value of Bilibili users and the value of the brand. The average age of Bilibili users is 23.5 years old, and 86% of our users are below 35 years old.
spk02: More than half of our users are from first and second tier city, all of which matrix represents the main cohort that's driving all kinds of consumption in China. By mastering this population, we have become the platform that all the advertisers crave. And if you look at past two to three years, our ad load has stayed 5%. We haven't increased any of our ad load our advertising has maintained relatively higher growth rate throughout the last two to three years. And this is an evidence that the advertiser really values Bilibili's user as well as the Bilibili brand. Even though that the ad dollar in the market might reduce in the short term, but we remain optimistic about Bilibili's advertising long-term growth.
spk09: From the advertiser's point of view, Q1, we are more familiar with some industries, such as games, 3C digital, food, drinks, car, makeup, are still our advantage. Relatively speaking, in these areas, games and the car industry performance will be more outstanding. I think the first one is still based on the game is a strong product of Bilibili. Even if there is no version release, the growth of our game advertising can still reach and exceed our expectations. The customer of the automotive industry is due to the growth of our consumer age and consumer power. So the automotive industry is also a big field of advertising.
spk02: As for the industry vertical, that's especially resilient in the first quarter. Game, 3C, food and beverage, skincare and cosmetics has been pretty strong and resilient, especially for games and automotive. In first quarter, without any game approval being issued, we have delivered better than expected. game advertising dollar increase. As for automotive, because Bilibili's user is growing with the platform, their consumption power is also growing. This has been captured by a lot of the automotive advertisers. They are willing to spend more advertising dollars to attract and influence Bilibili users.
spk09: In the face of uncertainty, including what Alex just mentioned, and short-term fluctuations, in the second half of the year, including now, in fact, we are still more focused on doing long-term and correct things, including the marketing model that we are good at. The first thing is that the whole marketing ability of standardized industrialization is relatively the engine that we can maintain and continue to grow for a long time. It will still accelerate the delivery of new product forms and data. In addition, our business platform construction, in fact, in Q1, you will see that 47% of the customers have cross-products. It doesn't mean that I only put single product. Because everyone knows that the efficiency of integrated marketing is the highest in B站. The growth of the number of customers who integrate and purchase the brand effect business list is also particularly obvious.
spk02: Confronting the macro uncertainties and short-term fluctuations, we will be focusing on doing the right things, the right thing that serves for long-term. We will be focusing on developing more standardized and industrialized integrating marketing ability. This will be our long-term growth engine. And relying on the rapid iteration of our product capabilities and data capabilities will continue to strengthen the construction of our middle platform for commercialization. And among the ad customers who invested in Q1, 74% of them brought across different ad products. Ad customer who brought integrated marketing campaign, namely brand performance and native ads, also grew significantly year over year.
spk09: The second point is that we will continue to expand the advertising scene in addition to the fan field to achieve the integration of multiple scenes. In fact, last year, the PC, mobile phones, iPads, TVs, etc. have been implemented. We have also achieved the integration of original ads from POGV live broadcasts, OGV dynamics, and other different scenes. Basically, where are the users? Where can our ads actually appear? At the TV end, QE, our MAU has actually exceeded 50 million. The TV end covers more of the family's consumption scene. So many people will say that the user on the TV end is the transfer of the user on the app end. In fact, we found that the user image on the TV end is mainly distributed in three, four, five cities, and the user group on the app end is formed into a strong household. The human consumption market is also relatively high. 所以我们会进一步尝试打通 多端连头的一种效果 刚才其实瑞中也反复提到 我们重点的拓展 Sorry Mode的视频场景 我觉得这个场景的HTML 也显著高于原来的所有视频场景的 所以转化效率也很高 所以往后从我们擅长的场景 跟多场景多端 都会进一步的 让我们的广告的场景丰富 我们的数目进行征收
spk02: On top of what we are good at, the area, we're also expanding our ad scenario, integrate multiple products and multiple scenarios, including PC, mobile apps, iPads, smart TV, as well as PUGV, OGV, live broadcasting, and moment pages, making sure whenever the users are, our advertiser can reach them. And for the smart TV devices in Q1, the total MAU has reached over 50 million. And for those TV users, it serves a nice addition to our existing user base. It's a supplement to our existing user cohort. A lot of them are from third and fourth tier cities, and their time span has been very good. and will continue to invest in those smart TVs and help us to convert more living room and family scenarios. And we aim to further enhance this multi-terminal integration to optimize our marketing solutions. On top of all that, we will further expand and invest in the story mode commercialization initiatives, and from our initial data for the store mode advertising, its eCPM has been quite significantly higher compared to our traditional advertising scenarios, and its conversion rate is also improving. So on top of that, we will first do what we are good at, and add more scenarios and continue to invest in the store mode commercialization.
spk09: The third point is also a very unique design point. We will continue to play an advertising model that is more integrated with the environment. Now, there are already 24,000 ARP owners who have joined our fire system. There are more than 6,500 brands that have joined. We estimate that the number of ARP owners and brands that have joined this year will increase by three times. The biggest advantage of Huahua is that it has doubled the advertising team to become a math pool. At the same time, the idea of the second team is to keep the advertising team in this ecosystem. We will speed up the communication between original ads and all kinds of standard ads. For example, we have achieved more than 40% of the sales in Huahua, and we will actively put in our standard information flow ads.
spk02: And further leveraging our content creators' creativity, we'll launch more ad products that fit with Bilibili ecosystem. Now more than 24,000 content creators and more than 6,500 advertisers have joined our Sparkle app platform. We believe this number will double this year. And for Sparkle app platform is one of the advantages Billabilly advertising has. It essentially is a reservoir for advertisers. Content creators' creative ideas will help us to retain advertisers to stay in our ecosystem. For the second half of this year, we will aim to expedite the process of connecting native ads with more standardized ad products. For example, in the first quarter, more than 40% of our ad customers purchased other standardized ad products to pair with their Sparkle orders. 之后的话,我们还是会发挥行业的趋势,包括生态的优势吧。
spk09: The Bilibili ecosystem itself has the trend of video-based popularity, which has achieved the growth of our healthy and high-speed users. At the same time, we found that video advertising efficiency is also significantly higher than traditional advertising. So in Bilibili's entire effective advertising, the income of video-based advertising has exceeded 65%. The growth of eCPM is also particularly obvious. Lastly, we aim to combine the industry trends with our
spk02: ecosystem advantages. Riding on the waves of videoization trend and leveraging the power of our content ecosystem, we have achieved healthy and quality growth of users. And we've also discovered the video-based ads has much better conversion rate than the traditional ads. Over 65% of our performance ads revenue came from video-based ads. And our eCPM has grown significantly year over year in the quarter and the story mode on the other hand also serves a very incremental traffic and a revenue growth for advertising business so for the as we look for the second half of year we'll continue to do the right thing and to invest for the future and the result will speak for itself
spk01: Our next question comes from Alex Poon with Morgan Stanley. Your line is open.
spk06: Thanks, management, for taking my question. My question is related to live streaming business. Regarding the recent new regulations, Can management share with us the impact of this regulation? And what's our expectation for development of this in future? Thank you.
spk07: Okay. The recent monitoring policy for live streaming should have no impact on our live streaming business. The goal of our live streaming business this year is that there will be no change.
spk02: So for the recent regulation update, it actually has no impact to Bilibili's live broadcasting business. And the four-year target for our live broadcasting business remains unchanged.
spk07: I have always said that Bilibili's live broadcast is part of Bilibili's ecosystem. It is a natural extension of our video ecosystem. In fact, we have always done it in this way. We are not... It's not just the new users that are being introduced, but also the users of our apps and our streamers. And the users of our videos and the viewers of our live streams are also highly overlapping. As I said before, I am confident that our live streams will continue to grow in a healthy and sustainable way in the next few years. My judgment will not change.
spk02: We've always mentioned that live broadcasting serves a very important part of our ecosystem. It's a natural extension of our video platform. Our growth will not be relying on attracting outside live broadcasters to the platform, attracting outside users to Billy Billy's live broadcasting. As a matter of fact, there's a very strong overlap between the live broadcasters and content creators. A lot of the overlap with the video users and live broadcasting users. So my confidence in live broadcasting long-term and sustainable growth remain unchanged.
spk01: Our next question comes from Shu Chen Zhang with CICC. Your line is open.
spk08: Thank you for accepting my question. I'd like to ask about the current situation of the pandemic, the company's profit and cost control issues. First of all, I'd like to see what our latest strategic focus is. Will it put the improvement of the demand rate and the control of the cost at a higher importance? In the last session of the conference, we proposed a goal to achieve a balance of profit and loss under the non-GAAP framework in 2024. Will this goal change at present? How do we balance this goal with the relationship of user growth? Finally, I would like to ask Manager Chen to help us look at the second quarter and the second half of the year and the policy changes, including policy changes in all business lines. Thanks for taking my question. I'd like to ask questions related to gross margin and cost control under the ongoing COVID-19 pandemic. Firstly, what's the latest strategic focus? Will you place higher priority on growth margin improvement and cost control? And we propose the target to achieve the break-even point on non-GAAP basis by 2024 in last quarter's earnings call. Is there any change? And how do you balance the target with user growth? And last, what's the growth margin trend for the second quarter and the second half of the year? I appreciate a lot if you could share more color on the segment growth margin change. Thank you.
spk07: The goal of the 2024 breakeven that we proposed in the past will not change. As I just mentioned, So the target of achieving non-gap operating break even by 2024 remains unchanged. As I mentioned, the COVID impact for Bilibili is short-term and temporary.
spk02: it doesn't hurt our fundamentals or nor our long-term target.
spk07: In fact, we see that the pressure of this quarter is mainly due to the epidemic. And then our income is growing slowly. So it shows the pressure of this quarter. But if we look at the data, we will find that we are not spending more than one day in this quarter.
spk02: The margin pressure you see in first quarter is mainly due to COVID that resulted in the slowdown of our revenue growth. And if you look at the expense side, we're actually not spending more money.
spk07: You just mentioned the relationship between user growth and saving costs. I think that's fine. Because Bilibili's user growth is not driven by investment and marketing. Our user growth is an ecological drive. The most important thing is that we generate more good content internally. All of our marketing and external investment is just to let users, hope that users can come in faster and see these contents. But it doesn't mean that because of these investments, users stay in Bilibili. In fact, it is our flow rate And you asked about the relationship between user growth and expense control.
spk02: As a matter of fact, Bilibili's user growth model was never purely driven by the sales and marketing expense. It's actually driven by our content ecosystem, by this in nature growth good content. Those good content is essentially attracting user growth. And the expense we spend on sales and marketing is only helping people to quickly realize there's a very good platform called Bilibili. So it's never about just spending sales and marketing to drive user growth. As a matter of fact, our users' engagement level and retention level has remained a very healthy nature. And in the future, we'll be paying more attention on the sales and marketing ROI. But For this effort, it will not impact our user growth trend as well as the retention rate.
spk07: You just asked if we would control the cost and put it at a higher importance. In fact, when I was reporting last quarter, I also mentioned that from the beginning of this year, I think the entire international and domestic situation has changed with the past. I think Although the pandemic is an unexpected event, many of the challenges facing the industry are not because of the pandemic. I think it's still because of the change in the international and domestic forms. In this case, I think For Bilibili or even for the entire industry, it should become a more important job, rather than something we have to do for the epidemic. And not only in a specific form, but also in a certain form. I think the core business should be more focused on strategy. First of all, you have to choose to do your core business, instead of doing all your own business. So I think this is definitely... I think it will definitely have a negative effect not only for Bilibili but also for the entire industry in the next few years. I think it will still be an important job. But it's not done to deal with the pandemic. It's the industry that has reached this stage.
spk02: As the question whether we're going to put expense control on top of everything else, like I mentioned in last earnings call starting from 2022, there's a lot of macro changes domestically and internationally, even though there's an additional COVID impact, but a lot of the difficulties we're facing is not just brought because of the COVID. And in nature, to control costs and improve efficiency is the most important job for Bilibili and also for the industry as well. And for the specific action points, We wanted to be very, very focused strategically to go deep with our business, not go broad. And yeah, this has come to a stage for Bilibili as well as the industry player to be all focused on cost control and efficiency improvement.
spk07: Yes, I also mentioned that in the first quarter, the main reason for the decline in the number is because of the decline in income due to the pandemic in the first half of the year. Therefore, we believe that in the second half of the year, with the end of the pandemic, the growth of our income will return to the original track.
spk02: As for the gross margin, the margin pressure that we're facing in the first quarter is mainly because the COVID impact resulted in the revenue growth slowdown. As I mentioned, as the COVID started to ease in the second half of this year, our revenue growth rate will return to a normal trajectory. and also the gross margin level will come along with it.
spk05: Yeah, I just want to add some points. First of all, you know, when we were talking about the breakeven, everyone prioritized the cost control efficiency improvement, but we think for B2B animation by Mr. Chen, it's equally important to expand our top line. So, first of all, we still believe that pretty much wrong for us to improve our monetization efficiency. So we are aiming to improve our paying ratio and expand our market share to improve our segment margin throughout the second half of this year. Even in the first quarter, we still saw the gross profit margin for live broadcasting and our ad business improved quarter over quarter. So that trend will continue in the remaining of this year. And for the cost control side, we also made some progress in the first quarter. But in the second quarter, there are some pandemic. So the result of the cost control action will be more reflected in the second half of this year. And there are some highlights to the number. First of all, you saw the selling marketing expenses decreased by 29% quarter over quarter. Now it's just reflected to 25% of total revenues. Last quarter was 30%. And for the survey, bandwidth cost is down like 2% quarter-over-quarter, while our total user traffic grow like 28% quarter-over-quarter. And for R&D expenses, primarily investing in game development, data, ad efficiency, and product-related abilities. We still believe it's essential to improve our productivity and to improve our monetization efficiency, but we thought it's also important to invest in the future and also look at the ROI of those investments. So this year, we plan to continue and selectively invest in this area, but we will very closely monitor the progress of each product project and make adjustments if necessary and to improve our total capital efficiency. So we expect the selling marketing, GNA, and R&D as a percentage of total revenue will be gradually decline from Q3 as our top line expand and the loss margin will be naturally narrowed. For Q2, Yeah, the overall spending will be flat quarter over quarter, so that will be the outlook for the margin side. Yeah, that's all.
spk01: And that concludes the question and answer session. I would like to turn the conference call back over to management for additional or closing comments.
spk02: Well, thank you once again for joining us today. If you have further questions, please contact me, Julia Yang, Bill Lee's Executive IR Director, or TPG Investor Relations. Our contact information for IR in both China and U.S. can be found on today's press release. Have a great day. Bye-bye.
spk01: This concludes the program. You may now disconnect.
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