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spk05: Good day and welcome to Bilibili's second quarter 2022 financial results and business update conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Thank you. Please go ahead. Thank you, Operator.
spk06: 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 the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purpose only. Definition of these measures and a reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and webcast replay of this conference call will be available on 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 Li, 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.
spk08: Thank you, Juliette. And thank you, everyone, for participating in our 2022 Second Quarter Results Conference Call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. We confronted immersed headwinds in the second quarter. During the period, we steadied our company by bringing users improved products, expanding our content, and implementing further cost control measures. With lockdowns in Shanghai lifted in June, we believe the worst impact is behind us. Importantly, we expected to recover our operating margin in the second half of the year while continuing to grow our users and narrowing our net loss. Our total MAUs reached a new record of $306 million in the second quarter, up 29% year-over-year, representing another exciting milestone. While we remain committed to our MAU target, we are putting additional focus on the quality of users, looking at matrix such as DAUs and engagement levels. In Q2, our DAUs grow by 33% year-over-year to 84 million, outpacing the growth rate of our MAUs. This brought our DM ratio to 27.3% up from 26.4% in the same period last year. Daily average time spent was 89 minutes, a nine-minute increase compared with the same period last year. Longer user time spent and high user activity increase our total user traffic, which grew by 48% year-over-year. We believe our growing matrix of products Expanding content library and the quality-driven growth strategy will strategically position us to continue our growth momentum. Impacted by the challenging micro-environment, our total net revenues were on the 4.9 billion, up 9% year-over-year in the second quarter. NPUs increased by 32% year-over-year to 27.5 million, and our paying ratio was 9%. Followed by a slower April and May, our advertising business rebounded nicely when the lockdowns lifted in June. With increasingly popular advertising products, such as ads in story mode, we grew our ad revenue by 10% year-over-year. We expect to continue gaining market share in the second half of the year. During the second quarter, we also put further cost control initiatives into effect. Specifically, we cut sales and marketing expenses by 16% year-over-year. Sales and marketing expenses as a total percentage of revenue decreased to 24% from 31% in the same period last year. Server and brand-wise cost per video views also declined by 37% year-over-year. Other adjustments we made to improve our organizational efficiency included canceling underperforming projects and reallocating resources to co-branders. We expect positive impact to our P&L will start to show in the second half of the year. In July, we also made some pivotal adjustments to our organization. Our goal was to be more congruent to our long-term sustainable growth. we have integrated the operations of live broadcasting with our video platform and made organizational changes that integrate our commercialization efforts across our content ecosystem, create synergies and improve efficiency. With that overview, I'd like to go through some details of our second quarter operations across our content, community and commercialization. We have seen many iterations of the online video space. Ours is the one that has remained expansive and transcending. The introduction of our different formats, such as Story Mode, POGV, Live Broadcasting, and Smart TV, significantly boost our signal of all the videos we like anytime, anywhere. Looking at Story Mode as an excellent example, The story mode is one of our newest verticals covering users on the go entertainment needs. It is more efficient in distributing video in shorter length of time. While video views from PUGV grow 53% year over year, video views from story mode increased by over 400% year over year, bringing incremental traffic to our platform. This is an ongoing trend that we are seeing throughout the second half of the year. Moreover, story mode presents a parallel commercial prospect as a gateway to different monetization opportunities, such as advertising and live broadcasting. MAU penetration in live broadcasting continues to grow across our user base. In July, we began to fully integrate our live broadcasting and POGB ecosystems. Over time, we expected the combination of these two ecosystems to result in more efficient traffic execution and allocation, and inspire more content creators to become live broadcasting hosts. During the second quarter, our users primarily gravitated to lifestyle, games, entertainment, ACG, and knowledge categories. We continue to accumulate a massive amount of content through our growing pool of talented creators. In the second quarter, we had 13.2 million total monthly average content submissions of 56% year-over-year. Our growth stems from our 3.6 million monthly active content creators and increase of 50% year-over-year. In the second quarter, The number of creators with 10,000 followers grew by 46% year-over-year, and creators with over 1 million followers grew even faster, at 58% year-over-year. Notably, over 60% of content creators who gained 1 million followers during Q2 were benefited from the fast-growing story mode traffic. We continue to expand avenues to unleash content creators' monetization potential. In the second quarter, over 1.1 million creators received the monetary rewards through live broadcasting, advertising programs, or cash incentive programs, up 97% from the same period last year. Turning to our community, we continue to feature robust content that resonates with our users along with a welcoming community environment. We saw this across our user matrix in the second quarter. with impressive year-over-year gains. Daily video views grow by 83% to 3.1 billion, and the monthly interactions grow by 73% to 12.5 billion. As I previously mentioned, the average daily time span also increased by nine minutes year-over-year to 89 minutes. Now, let's take a look at our commercialization effort. Advancing our commercial prospects is one of our leading goals this year. In the second quarter, we continue to convert paying users and improve our advertising efficiency to gain more market share, maximizing our high-quality user base. Looking first at vast business, net revenues for vast was RMB 2.1 billion, an increase of 29% year-over-year. we converted more traffic to paying users in the second quarter, driven primarily by our live broadcasting, where we hold unique advantages given this natural extension of our video universe. Despite the challenges of stricter regulations, our live broadcasting conversion rate remains strong in the second quarter. By integrating our POGV ecosystem with live broadcasting, we have created a win-win solution. The number of active live broadcasters increased by 107% year-over-year in the second quarter. Our live broadcasting MAUs penetration rate continued to grow, and MPUs for live broadcasting increased by nearly 70% year-over-year. At the same time, we improved the live broadcasting scores margin by optimizing revenue sharing plans. Premium membership for the second quarter reached 21 million, up 19% year-over-year. The majority of our users continue to be annual or auto-renewal subscribers. Looking at our advertising services, revenues from this segment reached RMB 1.16 billion, an increase of 10% year-over-year. Despite the micro-high winds, our top five verticals in the second quarter like games, digital and 3C products, skincare and cosmetics, e-commerce, and food and privilege. Optimizing our product offerings and conversion efficiency remains our strategy for our ad business. In the second quarter, we continue to dedicate our resources to expand our advertising scenarios with diverse products and improved conversion modules. We also executed our integrated marketing campaigns as selling strategy to realize more cost-selling opportunities. The story mode ads we launched in April have also been welcomed by our advertisers. Lastly, on game spendings, net revenues were RMB 1.05 billion in the second quarter. The lack of supply for new game content in the domestic market was the main challenge in the first half of the year. As the domestic game approval process returns to normal, we look forward to seeing approval for imported titles. Nevertheless, our game strategy remains focused on the in-house development and bringing exciting, high-quality games to both domestic and international markets. In the second quarter, Our self-development game revenues contributed around 5% of total game revenue, mainly thanks to our successful launch of Artery Gale in many countries and regions. And for our pipeline, domestically, we are actively applying for game licenses and have four titles approved for release. Six games in our pipeline, including two self-development titles, are ready to hit overseas market in the second half of the year. As a 13-year-old company, our user numbers and revenues are still seeing robust growth, and we foresee a long runway of growth in this future. Our attention and resources are focused on improving both our top line and bottom line. With this in mind, we plan to further enhance our operational efficiency, tighten spending, and strengthen our execution. We are committed to improving our growth margin and narrowing our operating loss in the second half of the year. This concludes Mr. Chen's remarks. I will now to provide a brief overview of our financial results for the second quarter of 2022 and outlook for the third quarter of 2022. Total net revenues for the second quarter was RMB 4.91 billion, up 9% from the same period of 2021. Our total net revenue breakdown by revenue stream was approximately 21% mobile games, 43% VAS, 24% advertising, and 12% e-commerce and other business. Cost of revenues increased by 19% year-over-year to RMB 4.2 billion. Revenue sharing cost, a key component of cost revenues, was RMB 2.1 billion. representing an 18% increase from the same period in 2021. Server and bandwidth cost, as part of a relatively fixed cost component, decreased 9% quarter over quarter. Server and bandwidth cost per video views decreased 37% year over year, demonstrating the impact of ongoing efforts and the progress in cost savings. Our gross profit in the second quarter was RMB 738 million and our gross profit margin was 15%. We are actively tightening our cost control measures and improving our operating efficiency. We expect our gross profit margin will start to recover beginning this quarter. Total operating expenses was RMB 2.9 billion, up 17% from the same period in 2021. Sales and marketing expenses for the RMB 1.2 billion, representing a 16% decrease year-over-year. Sales and marketing expenses as a percentage of total revenue, or 24%, down from 31% in the same period last year. The year-over-year decrease was primarily attributed to decreased promotional expenses for mobile games, as well as lowered user acquisition costs. G&A expenses. was RMB 626 million, representing a 44% increase year-over-year. The increase was primarily due to increased headcount in general personnel, higher rental expenses, and the non-recurring expenses related to optimizing our organizational structure. R&D expenses was RMB 1.1 billion, representing a 68% increase year-over-year. The increase was primarily due to increased headcount in research and development, increased the share-based compensation expenses, and non-recurring expenses related to adjustment of certain GAM projects. Net loss and adjusted net loss was RMB 2.0 billion and RMB 1.96 billion for the second quarter of 2022, respectively. Turning to our capital allocation and the liability measurement. In aggregate, we repurchased a total 2.6 million ADS for a total cost of US$53.6 million at the end of June 30, 2022. In addition, we repurchased a total of US$275 million 2026 notes for a total cost of US$198 million with total future cash savings of US$84 million at the end of June 30, 2022. And as of June 30, 2022, we had cash or cash equivalent time deposits and shorting investments of RMB 24.9 billion. compared with RMB 13.2 billion as of December 31, 2021. As for our intent to convert to a due primary listing on the main board of Hong Kong Stock Exchange, with respect to the proposed conversion, we successfully obtained all necessary shareholders' approval at our company's annual general meeting, which was held on June 30, 2022. The Hong Kong Exchange has also acknowledged our application, setting October 3, 2022 as the proposed effective date. Our endeavor will expand our access to a wider investor base, and we expect to concurrently maintain our listing status on Nasdaq. With that in mind, we are currently projecting net revenues for the third quarter of 2022 to be between RMB 5.6 billion and RMB 5.8 billion. Thank you for your attention. We would now like to open the call to questions. Operator, please go ahead.
spk05: Thank you. We will now begin the question and answer session. To ask a question, please press star one one on your telephone keypad. For the benefit of all participants in 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 follow-up questions, please rejoin the queue. Once again, if you wish to ask a question, please press star 11 on your telephone keypad. Our first question comes from the line of Lei Zhang from Bank of America Merrill Lynch. Please ask your question, Lei.
spk03: Oh, hi. Thank you for taking my question. My question is mainly on the margin profile. We noticed that we have taken some cost control measures in the first half, especially on sales and marketing expenses. So, do we see any room in other cost items? And how should we see our growth margin and net profit margin trend in the second half? Thank you.
spk09: First of all, I would like to talk about our understanding of the cost-benefit ratio. Let me share some of my thoughts about cost control and efficiency improvement. We believe this slogan is not just about cost control.
spk06: It's not about not to spend money, but spend our money more wisely. Spend money on the right places.
spk09: Because of the pandemic, the environment of the company is facing a lot of challenges. That's why I emphasize focusing on doing less and doing more important things.
spk06: Under the current extremely challenging environment and the COVID impact is causing business everywhere, very challenging environment. And I have been telling our employees, our business under this environment needs to be more focused. Focused means means that we need to allocate our best resource to our core business to be exceedingly good at our core. And if it's non-core, we should put less effort and focus on what matters the most.
spk09: What is the core of B站? I think first of all, it's video. Then, it's growth. Growth includes user growth and sales growth.
spk06: What's our core? Video and growth. And the growth is not just about user growth, but also our top-line growth.
spk09: Yes, so in the first half of this year, I should pay a lot of attention to spending resources and money on these core tasks, including video, user growth, and revenue growth.
spk06: So in the first half of this year, we have been allocating all of our resources, including our capital, into the areas that is our core, that is our video business, user growth, in areas that can help us to expand our top line.
spk09: Although the global environment is very challenging, I still emphasize that growth
spk06: Even though it's a challenging environment, but I'm still emphasizing the importance of growth within the company, because growth, we believe, is the most important priority within our community.
spk09: And the feature of this model is that all its value comes from the value of the user.
spk06: Bilibili runs a very typical internet platform business. The value of our platform really comes from the value of our users.
spk09: We pay great attention to the work on user growth. But in the first half of the year, we also pay great attention to improving the efficiency of user growth. We want to reduce
spk06: We value the user growth, but we are also emphasizing on improving the user growth efficiency and lowering the user growth cost.
spk09: We are also emphasizing on improving the user growth efficiency and lowering the user growth cost. We are also emphasizing on improving the user growth efficiency and lowering the user growth cost.
spk06: As you can see, we have achieved new user acquisition costs continue to decrease, and our sales and marketing expense decreased by 16% year over year in the second quarter. And sales and marketing expense as a percentage of revenue came down from 31% same period last year to 24% in the second quarter.
spk09: And also at the same time as our costs go down, our user engagement, our user retention has continued to improve. some improvements on the technical infrastructure to improve costs and reduce costs.
spk06: And improving the efficiency also comes goes with the technology side. In this quarter, we have optimized the allocation of our technical resources and unified investment in technology infrastructure and concentrated our resource on solving key problems.
spk09: Let me give you an example. We can see that our Q2's DAU has increased by 33% and our VV has increased by 83%. And as you all know, the clarity of Bilibili's video has been getting higher and higher. In such a situation, through optimization technology, the loan cost of our single VV has actually decreased by 37%.
spk06: For example, in the second quarter, our DAU grew 33% year over year. Our video views grew 83% year over year. As you may aware, the resolution of our videos has become more and more premier. And we are using everything we can, and on the technology side, improving the algorithm resulted in the unit VB cost came down by 37% year-over-year.
spk09: My prediction is that this year, the DAU will rise significantly. At the same time, our user market is also rising. This year, our IT technology investment, such as bandwidth and server-side investment, will not be more than last year. This is actually an example of us optimizing costs through technology to achieve cost reduction.
spk06: I'm expecting for this year, as our DAU grows significantly and our time spent also grows simultaneously, our total investment, the servant bandwidth cost, the overall expense, will not be exceeding what we spent last year. This is a perfect example of how we use technology to improve efficiency.
spk09: I will let Sam answer the question of cost, cost and labor.
spk08: Okay, I will take the question about the growth profit trend. We believe our Q2 result has already reflected the impact of the COVID lockdown, and we estimate revenue will regain sequential growth momentum in the second half of this year, in Q3 and Q4. So our growth margin will gradually improve to around, let's say, 20% in Q4. And we will continue to adopt strict expense control measures as mentioned by Chairman Chen. At the same time, so we expect our non-GAAP, non-loss ratio will also narrow down from around like 40% in Q2 to around 30% in Q4. Right. Thank you.
spk05: Next question comes from the line of Daniel Chen from JPMorgan. Daniel, please ask your question.
spk07: Thank you, Manager, for giving me the opportunity to ask a question. My question is mainly about the users. In this area, the company's MAU broke through 300 million for the first time. It's relatively strong. We also saw that the overall MAU I will translate myself. So my question is on the user side. Billy's MAU has surpassed over $300 million this quarter, and we also noticed that in the second quarter, the DAU actually outgrows MAU, and the average time span per user also grows quite nicely. So I was wondering what's the driver behind, and also what's management's expectation for the DAU and MAU matrix for the second half and also in 2023. Thank you. I will mainly talk about three points.
spk09: The first point is to talk about the basics of supporting Bilibili users' growth. In the past year, we all know that the external environment has changed dramatically. But in fact, the basics of Bilibili have not been affected at all.
spk06: I'll share three points. As you may all aware, there has been a significant change of macro environment globally. However, we think the fundamentals of Bilibili remain unchanged. Here are three points that supporting our growth.
spk09: is a global wave that will last at least three more years. I think this will make the growth of Bilibili not only last this year, but also next year and the year after.
spk06: Visualization, for a start, is a global phenomenon. And we think the visualization movement will continue for three years at least. And this will also support Bilibili's growth, not for just one year, to two years, three years, this will continue to support us.
spk09: The second thing is the young generation needs their own cultural and entertainment content.
spk06: We have half of our users are below 25 years old. Why they're using Bilibili? Because we are providing their own cultural and content product.
spk09: Third, I think that consumer improvement is still a big trend in society. And content consumption is an important part of consumer improvement. Young people of this generation are more willing to put their money into the consumption of spirit and culture.
spk06: Their point is the consumption upgrade is still the largest driving force within the consumption sector. And the content consumption will be a major part of it. The Z generation, the Z plus generation, are more willing to spend their money into spiritual and cultural products, cultural consumption.
spk09: So I think Bilibili is still a seal-shaped business.
spk06: I believe Bilibili is on the front line of this movement. That's why these three points are supporting our continued sustainable growth in the future.
spk09: Yes, you said earlier that the increase in DAU is higher than the increase in MAU in this and last quarter. As you mentioned, indeed, for the past two quarters, our BAU growth rate has outpaced the MAU growth rate. That's because we have keep emphasizing
spk06: that we will focus on the quality of the growth, which means the DAU and the engagement level of time spent.
spk09: Yes, not only does the DAU increase more than the MAU, but also our daily active market, we can see that it is also gradually increasing. And we can see that our Japanese number of plays and interaction has increased even more than the DAU. And not only our DAU has surpassed the MAU growth rate, our daily user time span has also improved sequential year-over-year for many quarters, and our daily video views grow overs.
spk06: 80%, and our user engagement, multi-user engagement numbers has also grown significantly. So this is a very healthy model that the VWs and engagement outpace the DAU, and the DAU itself outpace the MAU, means this community has become more sticky and engaged.
spk09: On top of spending our money more wisely,
spk06: we believe that our business model, which is the content ecosystem-driven business model, is more healthy.
spk09: Yes, the development of our various content types is very healthy. In the past, the types that we all loved, including animation, food, music, and other types, their growth was still very fast and healthy. As for our content categories,
spk06: it has been very healthy across different verticals. Our traditionally strong anime, music, food, it's growing very healthily. We are also witnessing a lot of new category expansion. Because we have such healthy ecosystem, you can continuously discover new content creator, very high quality content, and we have many, many new titles went viral. For example, the phenomenal Second Uncle PUGB has been a perfect example of how visibility can continuously create high quality content. And you can see Second Uncle PUGB has been a perfect example of how visibility can continuously create high quality content, and you can discover very talented content creator on our community.
spk09: And I think what we've been emphasizing in the past, the multi-talented development strategy, it actually also has a very good effect on health growth. We can see that our POGV, our live broadcast, our OGV, including our story, And secondly is our multi-scenario, multi-content category approach is also helping us to grow healthily, as you may
spk06: from our platform, the PGV live broadcasting, OGV, and even a newly emerged story mode, they are all growing very nicely. And we are actively supplementing those video scenarios that's helping our user become more engaged.
spk09: Finally, I would like to emphasize that we are confident that we have achieved what we said in 2023. Our goal is to achieve 400 million MAUs. And the way we achieve this goal is not by teaching homework. You can see that in fact, our attention to DAU is higher than MAU. Our work must be done under the premise of ensuring health to achieve our user growth.
spk06: Here I wanted to lastly to want to re-emphasize our MAU target to achieve 400 million by end of next year. And we won't be achieving this number just for the sake of achieving a number, but we will be more focused on the quality of the user growth. As you can see, we're putting more emphasis on the DAU growth We wanted to achieve a healthy and sustainable growth going forward.
spk05: Thank you. Thank you. Next question comes from Brian Gong from CT. Please ask your question, Brian.
spk01: Good evening, thank you for accepting my question. My question is about the latest progress in the story mode. We also see that the growth of the story mode is very strong. I would like to ask how the management is positioning and strategy for the story mode, and how is the current progress in all aspects, including commercialization? I will translate myself. Good evening. Thanks, Benjamin, for taking my question. My question is regarding the progress on story mode. The viewership has shown strong growth. Can Benjamin give more colors of the positioning and the strategy of the story mode? And how is the progress on the story mode, like its ecosystem and the commercialization? Thank you.
spk09: Let me answer the question about the storage mode. In the past two seasons, I found that everyone is more concerned about the storage mode because the number of its growth is very bright. But I still have to emphasize that the reason for the growth of the number is that the storage mode is from nothing to something. So it looks like its number is indeed very large. But if we look at the overall number, we will find that it is actually growing in our overall it creates a new amount of growth. That is, our VV's overall share growth is 83%, and then our original PUGV's VV's share growth is 53%. Then the rest of it is a small growth of a story mode. This part of the VV growth looks very big, 400%, but because it is a new amount of growth,
spk06: For the past two quarters, we've seen a lot of attention being placed on the story mode. Indeed, we have delivered a very outstanding result of how its story mode expanding its traffic. And the reason why behind that is Partially because this is from zero. We're growing this from zero. However, I wanted to emphasize here is that our overall traffic is also growing very significantly. And story mode is the incremental traffic add on to our total traffic. For example, if you look at the total VV, we grow by 83% year over year. And the POGV video views also grow over 15% year-over-year. Our story mode grew 400% from a very low base. But I just wanted to emphasize this is indeed a very nice incremental traffic growth to our ecosystem. But don't forget our overall traffic is also growing very nicely.
spk09: Actually, the story mode has always been emphasized in the past. It is a representation of a multi-layered strategy. In fact, Bilibili's video is a complete content ecosystem. It is mainly based on PUGV. Then our live broadcast, our story, including the scenes we see on the screen, these are all our Here, we always talk about the strategy of coding
spk06: multi-scenario, multi-content category, and Story Mode is a representation of that strategy. And Bilibili's video ecosystem is a comprehensive, full-body, well-rounded content ecosystem that centers around PUGB. And along with live broadcasting, story, and our Smart TV application, all of that is a natural extension of our original PUGB ecosystem, whether it's adding a new scenario for users, fragmented time, or allowing the original content creator to become my broadcasters. This comes from the original PUGB ecosystem.
spk09: Story does create an important supplement to the original B站 content ecosystem. It satisfies the content consumption needs of the user's fragmented time. Because in the case of user fragmented time, Story can be very efficient to satisfy the user. I just want to watch the video for one or two minutes. But maybe such a scene may have ten times in a day. It adds up to a very long time. I think Story satisfies the needs of this scene.
spk06: As for the story mode, we believe it's a very important supplement to our original content ecosystem. This product satisfies users' on-the-go entertainment needs for their fragmented time and satisfies users' kill time need for a one or two minute video. Probably there's 10 times of bad needs will come up during the day and combined together it will be a certain longer period of time.
spk09: And especially for some of our low-fire users, the original low-fire users, it has played a very effective role in promoting fire. Because some of the original low-fire users may think that Bilibili's video is too long, or that Bilibili's video has some aesthetic thresholds, etc. But with the story mode, it can More importantly, we believe the story mode has been very beneficial for us to improve the engagement level of those users that are less active. Some of them might think some of the video on visibility is too long or
spk06: is more difficult to comprehend, the launch of store mode is helping them to quickly adapt into the Bilibili community to help them understand, to get them a quick start to blend into our community.
spk09: Yes, and not only for the user, but also for our new app group and the growth of this low-end app group, it can also play an active role. Maybe in the past, our app group If the new app owner wants to grow powder, he can only upload one video at a time. But now, in addition to the original way of growing powder, he can also upload some relatively light videos. Then these videos are killed into a tower to help him grow powder at the beginning of low powder. This is an added option for the app owner. This is also more friendly to the app owner of low powder.
spk06: Additionally, Story Mode has been very beneficiary to the newly joined content creator or the content creator with fewer followers. In the past, for them to grow their followers, they have to spend a lot of time to create a high-quality, longer period of PUGB. Now we're providing there a new option to create a lighter, shorter creation. And this smaller creation comes together will help them to grow their followers more quickly.
spk09: And this scene is also for those who are already good at creating this kind of screen-to-screen up-sets, which gives them more opportunities. So we can see that in Q2, 60% of the up-sets that have been added are benefited by the story mode. That is to say, the story mode
spk06: We are also noticing that this launch of Story Mode is helping those content creators who originally are good at creating short-form videos are providing them additional opportunity to grow and expand their influence on visibility. In the second quarter, we've noticed that the number of content creators who achieved 1 million followers, 60% of them will benefit from the traffic growth of Story Mode.
spk09: Finally, I would like to emphasize that even though Story Mode is a digital video, what we see in it is also a high-quality video that can be seen as a special feature of Bilibili. In fact, for the education of this content ecosystem, And the algorithm recommendation logic in this storage mode is exactly the same as our original PUGV. We emphasize the quality of the content and emphasize the user's positive and negative feedback.
spk06: Lastly, I wanted to emphasize that even though it's a shorter vertical video, but if you browse through the content, you can tell immediately this is a deliberately featured high-quality video. the algorithm, the recommendation system behind the story mode is identical to the PUGB algorithm. We put the same amount of weighting and emphasis on the content quality and users' positive feedback towards the content.
spk09: Yes, so we can pay attention to the proportion of likes in the story mode. is higher than that of our VV. This actually shows that the quality of the video in the story mode is recognized by the users. And I think that in the future, there will be such a Bilibili screen newspaper and Bilibili original typical story mode app. In fact, there are already such and additionally our users are very inclined to engage within the story mode from the data the data shows that the user who
spk06: cast likes in the story mode has been significantly higher than the story mode as total percentage of revenue. That means that our users are recognizing the quality of the story mode videos. I believe in the future they will be definitely very typical and very popular story mode video born and went viral in the space. And there will also be original Bilibili story mode video content creator emerging. And we are already noticing that, for example, the content creator named would be a perfect example for the story mode typical high-quality content creator.
spk05: The next question, please. Thank you. Next question comes from Xueqing Zhang from CICC. Please ask your question, Xueqing.
spk04: Thank you, Guan. You can accept my question. My question is about advertising. And I will translate myself. Thank you very much for taking my question. And my question relates to advertising. Given the micro-heaviness and the resurgence of COVID-19, what measures do we take to make the advertising business grow, and how does management think about the trend of the advertising business in the second half of the year? Also, a follow-up question on Star Mode. We have launched advertising commercialization in Star Mode since April, so could you share more details about it? Thank you.
spk02: Indeed, global economic changes and the pandemic have repeatedly affected the advertising industry. In fact, I think the short-term impact of the advertising industry is quite significant. But it is estimated that in the next one to two years, the long-term impact will continue. Advertisers' budget for this period is obviously sluggish, and investors will be more cautious. The development of the new industry will be more difficult than before. These are the objective conditions we know. At this time, in our opinion, the advantages of high user value and high transfer efficiency platforms will be more obvious. No matter what, it will be more difficult than 2021.
spk06: A combination of global macroeconomic challenges and repeated COVID outbreaks in China are not only causing significant impact on our advertising industry in the short term, but also will be a lasting impact in the next one to two years. We've noticed that the ad budgeting is shrinking. Advertisers become more conscious when thinking about investing in brand advertising. And emerging industries are also struggling. So all of these factors are actually the status quo. At the same time, we've also noticed that the platform with high user value and high conversion efficiencies will stand out. However, it will still be tougher to do business, especially in ad business, if we're comparing to 2021 or prior years.
spk02: Q2 B站's advertising revenue is 11.6 billion, which is 10% of the market growth. While advertising revenue can achieve the same growth, it can also achieve the same rate of growth of the platform.
spk06: Within this challenging macro environment for ability to add business in the second quarter, we grow our business 10% year over year. We are one of very few names that achieved young year growth in the advertising sector and also achieved market share gain.
spk02: How do we deal with it? First of all, In fact, it is more important that we believe that there will be a change when there is a crisis. In order to deal with the impact of the external short term, including the possibility of long-term existence, our internal Q3 proposed the core strategy for the next three years, which is to focus on growth, stick to community priorities, and drive both ecology and business. This is the first time that commercialization and community ecology have reached the same position.
spk06: What we'll do to cope with this change, we believe in every crisis lies great opportunity. In cope of the current challenges and opportunities, we raised our strategy for the next three years, which is growth centered, community prioritized, and content ecosystem plus commercialization dual engine powered. This is the first time we're putting commercialization and community ecosystem at an equally important position.
spk02: In terms of organization, we integrated the entire organization system of live broadcast and live broadcast in order to achieve the point-of-sale integration. This process also ensured that the avoidance was achieved for advertising infiltration scenarios. We have completely integrated the live broadcasting and video community
spk06: on an organizational structure level and achieved live broadcasting plus video all in one structure. This helped us to create a closed-loop app in multi-scenarios. At the same time, we further integrated our commercialization system with our content ecosystem. Namely, we created two middle platforms plus two business center structures.
spk02: One of them is the company's commercialized central platform. Its goal is to continuously improve the efficiency of currency flow. It is the foundation of advertising business. At the same time, it will also pay for many internal income businesses. There is another central platform. It is a small central platform of the company. It mainly provides up-to-date income analysis and services. The main thing is to improve up-to-date and have a better experience while making money. What do those two businesses include? They include the familiar fire, as well as the so-called delivery, which we are familiar with. The above adjustments ensure that the commercialized team can grow the community ecosystem and the commercial growth in thinking and execution, and form a positive cycle. In fact, it is the process of zero obstacles that can really become mutual driving force in the future.
spk06: The two middle platforms, two business centers, one is a large middle platform serving all commercialization efforts with a goal of improving traffic link monetization efficiency. This will be the infrastructure of our ad business and will also empower many income business segments. Another one is a smaller middle platform Its main purpose is to serve and help our content creator to increase their earning power and improve their overall earning experience. And the two products will be investors familiar Sparkle ad platform and the live video e-commerce product. And above mentioned adjustment will help our team bond together on a strategic thinking and execution level to create a barrier-free, self-reinforcing, and a positive cycle that stimulates our content ecosystem, user growth, and business growth.
spk02: The first point is to focus on infrastructure. We will continue to strengthen the construction of algorithms and data, which is to optimize the transformation of different scenarios, so that our entire product can better improve efficiency. At the same time, we will also establish a more marketing and scientific related system on the basis of data construction. I think this is the first point that we do not change. Then the second point that does not change is that the industry must continue to verticalize, including games, e-commerce, Our advertising methods will be further integrated in the second half of this year, but the two following things will remain unchanged.
spk06: One is focused on the infrastructure. strengthen this construction of our algorithm and data power, optimize the realization of different scenarios, and help improve efficiency of our products. We'll also look to build a scientific marketing system based on data construction. And the second thing we made on change is to provide a well-rounded, one-stop solution for industry verticals such as games, e-commerce, FMCG, and automotive industries, and et cetera, so that the key accounts and different industry budgets we can fully absorb. 从基本性的结果看这个趋势吧
spk02: So Q3, due to the increase in our advertising efficiency and part of the economic disarray, including the delivery of our integrated marketing plan, the estimated flow rate can achieve about 20% of the same ratio growth. Then the second one, although the brand budget in the second half of the year has been greatly uncertain about the macroeconomic situation, but from the story mentioned just now, including the fusion of our ecological scenarios, it will also bring a certain amount of growth.
spk06: To see the trend for the second half revenue trajectories, we do expect that the overall app growth will grow about 20% year-over-year in the third quarter, thanks to the ad efficiency improvement and iteration of our integrated marketing solutions. And for the second half of this year, we do notice that the budget from brand advertisers remain largely uncertain due to the macro environment. However, our multi-scenario ad approaches, including the story mode ad, transaction-based ads, will help us to gain new market share.
spk02: In Q3, we can make a new progress, which is to make Bilibili's ecosystem more open to industry partners. Now, we have reached a preliminary cooperation with e-commerce platforms such as Taobao, Tmall, Jindong, and Pinduoduo. We will actively try to carry out live advertising on Bilibili, which is the trend of up-to-date advertising, and try to trade and convert products and models. In the future, we will also actively cooperate with all brand partners and partners such as life consumption platforms to show different levels of ecological cooperation. This benefit is that in the short term, we can combine products such as fireworks, story, take-off, etc. to directly achieve the growth of advertising revenue. In Q3, we are looking to further
spk06: ecosystem with our industry partners. We have already established initial partnerships with e-commerce platforms like Taobao, Tmall, Jingdong, Pinduoduo, and we'll make active trials in models like making sales recommendations in our native ads and conduct transaction execution. Going forward, we'll also conduct various collaborations with brand advertisers and consumer goods players in a short term we can we believe we can achieve revenue growth driven by products like sparkle story and project takeoff in the mid to longer term the above mentioned collaboration will help us to establish a commercial environment and build user consumption behavior we believe we wanted to oh this can help us to create an ever-growing commercialization environment within our ever-growing content ecosystem.
spk02: In terms of the industry, Bilibili has continued to maintain 3C digital in Q3, including the advantages of food and beverage, beauty and makeup, etc. We also saw that in the first half of the year, mobile, car, digital, From an industry perspective, we will remain our edge in leading verticals such as games, 3C, and digital products with a beverage of skincare and cosmetics.
spk06: among which we believe we have standout in the mobile games, automotive, and digital products. We've seen that in the first half of this year, mobile games revenue, ad revenue from mobile game sector will near 90% year over year, and ad revenue from automotive industry grow over 110% year over year.
spk02: Although the story mentioned earlier is a fast-growing scene, it will definitely bring us new revenue. At the same time, its eCPM is indeed higher than other eCPMs of the same type. But if we look at Bilibili's revenue growth from 2023 to 2025, you mentioned about the store mode. Indeed, it's a new app scenario, and it's incremental traffic growth for our company. And we've also witnessed that the eCPM for store mode apps
spk06: is also much higher compared to the traditional text and picture based ads. This will help us to grow our advertising revenue in the short term. But if we look at longer period of time from 2023 to 2025, the app business growth will largely depend on our ability to build a well-rounded ecosystem that's ecosystem based industrialized integrated marketing solution. Under the current challenging macro environment, we still hope and believe our revenue growth can be as healthy and as sustainable as our user and community growth. We are also confident to deliver and achieve win-win situation with our business partners. Thank you.
spk05: All right. Thank you. And that concludes the question and answer session. I'd now like to turn the conference back to management for any additional or closing comments.
spk06: Thank you once again for joining us today. If you have further questions, please contact me, Julie Yang, Availability Executive IR Director or TBG Investor Relations. Our contact information for IR both in China and in the U.S. can be found today's press release. Thank you. This concludes today's conference call.
spk05: Thank you for participating. You may now disconnect.
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