Bilibili Inc.

Good day and welcome to Bilibili fourth quarter and fiscal year 2022 financial results and business updates conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Juliette Yang, Executive Director of Investor Relations. Please go ahead.

Thank you, operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and end 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 call 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 Senior Management are Mr. Ray Chen, Chairman of the Board and Chief Executive Officer, Ms. Kali Lee, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. And I'll now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Thank you, Juliette. And thank you everyone for participating in our 2022 fourth quarter and fiscal year financial and operating results conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In 2022, we proactively adjusted our strategies and reprioritized our goal to better align ourselves with the new industry paradigm. Specifically, we place our focus on DU growth and how to reach profitability. Digging into our progress on these two fronts. First, our users and their engagement with our community remain the foundation of our business. By focusing on DAU growth, we are bringing higher quality users to our platform, which ties in more closely to our monetization potential. In Q4, our DAUs increased to 93 million, up 29% young year. This brought our DAU to MU ratio to 28%, a meaningful improvement from 26% in the same period last year. The average daily time spent per user on our platform reached 96 minutes, driving the total time spent on our platform up by 51% year-on-year. We will continue to accumulate our DAUs with optimized product offerings and algorithms. and further support our commercial prospects with controlled sales and marketing spending. Second, we improved our commercialization efficiency and elevated our cross-reduction measures to bring us closer to our goal of profitability. Our total net revenues for 2022 were RMB 21.9 billion, and the total net revenues for Q4 were RMB 6.1 billion, up 6% year-on-year. Our growth margin improved to 20% in Q4 compared with 18% in the previous quarter. We continue to take measures to control our expenses and improve our organization efficiency. Specifically, in the first quarter, we cut sales and marketing expenses by 28% year-on-year. Sales and marketing expenses as percentage of total net revenues reduced from 30% in the same period last year to 21% in the first quarter. We have also streamlined our personnel and trimmed our non-core and underperforming business. As a result, our non-gap net loss in the first quarter narrowed by 21% year-on-year and 26% quarter-on-quarter. As we move through 2023, our operational goal is to become a more efficient company. We will centralize our resources to focus on less but more important tasks. Specifically, we plan to continue to grow our DAUs, improving our growth margin and tightening our expenses. As we are executing on these actions, we believe we are on the right track to achieve our break-even target by 2024. With that overview of our strategic approach and progress, I would now like to provide a brief update on our three core pillars of content, community, and commercialization. Starting with content. Our ever-growing content ecosystem is our most valuable asset. In the fourth quarter, our platform hosts 3.8 million content creators, 25% more than the same period a year ago. Creators submit 17.6 million videos, up 62% year-on-year, both on a monthly basis. To encourage more users to turn their ideas into creations, we will provide them with more easy-to-use tools to get WorkV creators started. At the same time, more traffic will be led toward mid- and long-tail creators. Our goal is to turn more users into creators, driving both our content offerings and user engagement. Expanded content scenarios are also attracting more traffic to Bilibili. For the fourth quarter, Total daily video views were up 77% year-on-year to 3.9 billion. In particular, story mode daily video views increased by 175% year-on-year YPUGV video views increased by 56% in the first quarter. Story mode has allowed us to expand into the vertical video market, broad-stering our DAUs, increasing user time spent on our platform, and opening more commercial opportunities for us to pursue, to unlock our commercial potential. In 2022, we further integrated our commercial channels within our content ecosystem. The combination has created more immersive advertising opportunities and various monetization channels for content creators. Over 1.3 million content creators earn income through multiple channels on Bilibili in Q4, up 64% year-over-year. Looking at our community, our inclusive community environment and the rich interaction tools are creating tighter bonds between our users and our platform. In the fourth quarter, users' average daily time spent on Bilibili reached 96 minutes. Monthly interactions also increased by 35% year-on-year to 13.6 billion. As for the co-members of our community, the number of official members reached 195 million in the fourth quarter, up 34% year-on-year, and their 12-month retention rate continued to exceed 80%. Now, let's review our commercialization progress and how we think about it moving forward. For the fourth quarter, our total net revenues reached RMB 6.1 billion, up 6% year-over-year, and our full-year revenue grew by 13% to RMB 21.9 billion. We are now more focused on improving our commercialization efficiency and specifically on improving our growth margin at the company level. Now, I'd like to share more color on each of our commercial business lines. First, Our vast business. Revenue from vast was RMB 2.3 billion for the first quarter and RMB 8.7 billion for the year, up 24% and 26% year-on-year, respectively. Live broadcasting, in particular, has shown solid growth. For 2022, revenues from live broadcasting increased by over 30%. Our strategy to integrate live broadcasting within our video ecosystem has prompted more creators to tap into live broadcasting universe. This has helped to penetrate more video users, converting paying users and optimize our revenue sharing structure organically. In the fourth quarter, the number of monthly active live broadcasting hosts increased by over 70% and MPUs for live broadcasting grew by over 40%, both on year-on-year basis. Looking ahead, Live broadcasting will continue to be one of our primary revenue growth drivers. We expect to optimize our revenue sharing ratio and further improve live broadcasting's growth margin. By the end of the first quarter, we had added nearly 1 million premium members from the prior period, reaching a total of 21.4 million premium memberships. We launched multiple Chinese anime titles during the period. including the highly anticipated sci-fi thriller The Three-Body Problem. In January 2023, our co-produced traditional Chinese-style graphic anime Yao Chinese Folktale become a smash hit, generating over 200 million video views on our platform. As for our advertising art, we continue to gain market share in 2022. Advertising revenues were up by 12%, reaching RMB 5.1 billion in 2022 and RMB 1.5 billion in Q4. Our top performing verticals in the first quarter were mobile games, e-commerce, digital products and home appearance lines, automotive and skincare and cosmetics. In 2022, we further opened up our ecosystem to embrace more advertising opportunities across various video viewing scenarios. The new ad scenarios we introduced in story mode and improved sales conversion modules have proven a success in performance-based ads and carry higher ROIs. In the fourth quarter, our performance-based ad revenue grew by over 50% year-on-year. In addition, As our users getting mature and into new life stages, their new consumption needs such as automotive and home appliance also attract more advertisers and their ad budgets have been allocated to our platform. Moving into 2023, we'll continue to invest in and improve our ad infrastructure and further integrate our ad capabilities within our content ecosystems. Turning into GANs. Revenue for the year will be RMB 5 billion and RMB 1.1 billion for the fourth quarter. We are committed to the strategy of development in-house distributed globally. In Q4, we restructured our game development to effectively align with this goal. Specifically, we eliminate underperforming self-development projects and centralize our resources to focus on genres where we are already experts. In 2022, our self-development games contributed 5% of our total game revenues. We expect this ratio will continue to expand in 2023 as we roll out more self-development games. Looking at our pipeline, We are planning to launch two self-development games, Silude and Yiluxia, as well as six exclusively licensed titles in the second quarter of this year. As game license approvals have gradually resumed in China, we expect to engage in more opportunities in the domestic market. In summary, the new industry dynamics call for more efficient operations. In 2023, we will continue to centralize our resources to grow our DAUs, increase our gross margin, and narrow our losses. Throughout this process, we will continue to strengthen our execution and tighten our spending while selectively investing in R&D where it improves our commercialization efficiency. With these measures in place, we believe we are on the right track to reach our financial goals. and become a stronger, more resilient, and efficient organization. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the fourth quarter of 2022 and outlook for the fiscal year of 2023. For a review of our fiscal year 2022 results, please see our press release issued earlier today. Total net revenues for the first quarter were RMB 6.1 billion, up 6% from the same period of 2021. Our total net revenues braided down by revenue streams were approximately 38% VAT, 25% advertising, 19% mobile games, and 18% from e-commerce and other business. Cost of revenues increased by 4% year-over-year to RMB 4.9 billion. Our gross profit in the first quarter was RMB 1.2 billion, and our gross margin was 20.3%, up 2.1 percentage points sequentially. With our tightly controlled cost structure, we expect to show continued margin improvement throughout 2023. Total operating expenses were RMB 3.6 billion, up 15% from the same period in 2021. As we work on increasing our commercial prospects, We are also keeping a lean cost structure. We cut sales marketing expenses in Q4 by 28% year-on-year to RMB 1.3 billion, while DAU grew by 29% year-over-year. Sales marketing expenses as a percentage of total revenues was also down to 21%, compared to 30% in the same period last year. We will continue to control our sales marketing expenses while delivering solid DAU growth in 2023. G&A expenses were RMB 870 million, a 52% year-over-year. The increase was primarily due to the one-off surveillance pay of RMB 252 million related to our organizational restructuring. R&D expenses was RMB 1.5 billion, representing an 87% increase year-over-year, which was primarily due to increase of R&D personnel and a one-off cancellation cost of RMB 470 million related to our certain GAN projects. As we move through 2023, we will take additional actions to reduce our operational expenses. We think our overall operating expenses peaked in 2022 and will start to decline in 2023. Net loss and adjusted net loss was RMB 1.5 billion and RMB 1.3 billion. narrowing by 29% and 21% young year, respectively. Our net loss ratio in the fourth quarter was 24%, a very notable improvement from 36% for the same period a year ago. We expect to continue to narrow our losses in 2023. Turning to our capital allocation and liability measurement. We are keenly aware of our cash reserves and have taken steps to improve our balance sheet, which gives us the flexibility we need to reach our break-even target by 2024. We are actively managing our liabilities and to improve our balance sheet. In the fourth quarter, we repurchased and retailed a total principal amount of US$547 million notes for a total cash consideration of US$420 million. As a part of our liability management plan in January 2023, we completed our US$409 million equity offerings and note exchange program. we were told a principal amount of $385 million of convertible notes for consideration of $331 million cash funded by this offering. The remaining $69 million in proceeds were used to replenish our cash reserve. After these transactions, we currently have three outstanding CBs that totaled $1.6 billion. As of December 31, 2022, we had cash-on-cash equivalents, time deposits, and short-term investments of RMB 19.6 billion or USD 2.8 billion. We believe this amount is sufficient to cover all of our remaining comfortable bonds and fund our future operations while we take further action to narrow our losses and reach non-GAAP breakeven by 2024. With that in mind, we are currently projecting net revenues for the full year of 2023 to be between RMB 24 billion and RMB 26 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Thank you.

We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and write for your name to be announced. To withdraw your question, please press star 11 again. 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 follow-up questions, Please rejoin the queue. Our first question comes from the line of Daniel Chen from JPMorgan. Please ask your question, Daniel.

Good evening, Manager Chen. Thank you for giving me this opportunity to ask a question. I actually want to ask a question about the field in 2023. Now we also see that Thanks management for giving me the opportunity to ask questions. So my question is on the 2023 outlook. So with the macro economies gradually recovering, So what's our core business strategy in 2023? And what are the key focus points from a management point of view? Thank you.

We can see that since last year, the development of the entire Internet industry has entered a new stage. That is, each company will pay more attention to quality growth, pay attention to profits and cash, and not just domestic companies.

Starting from last year, we've noticed that the Internet industry has entered into a new era. Every company is more focused on the quality of the growth, the quality of revenue, as well as improving growth margin and focus on cash flow. Not just Chinese Internet companies. We noticed many U.S. companies are doing the same thing.

As for us, our key objective for 2023 would be to grow our top line, narrow our losses, and focus to achieve higher quality of user growth. This will be a long-term strategy. It will not change because of short-term environmental changes, right? This will be our long-term strategy. It will not change because of the change of the environment. But of course, as you mentioned, the recovery of the overall economy will help us better executing on this strategy. Overall, our business will be more focused. There will be two important tasks. One is to increase our top line and narrow our loss. Number two is to increase our DAU. Number one task.

increase our top line. When I say increase our top line, I'm referring to the increase of top line as well as our gross profit. We'll be focusing on improving our gross margin and narrowing our losses. In the fourth quarter, we've achieved gross margin improvement from a year-over-year and quarter-over-quarter basis. We also narrowed our net loss by 29% year over year. We expect that in 2023, our overall net loss will narrow more meaningfully and to achieve our break-even target by 2024.

In terms of user growth, in 2023, we will no longer simply pursue a number of MAUs. We will focus on more quality DAU growth.

On the user aspect, we will no longer just pursue the absolute number of MAU, but rather to focus on the growth of our DAU as well as the self-conversion of each DAU that can bring to the company.

In 2023, we are expecting our DAU to MAU ratio will continue to improve. Currently, we're at 28%. We expect to increase to 30% level. 这个会意味着更高的用户的活跃度,更高的用户粘性,以及更大的用户提供的商业价值。

This will mean better engagement, better stickiness of our company, as well as higher commercialization potential.

最后的话我还是想强调一下就是B站的立足之本一直是我们的社区和我们的内容生态。 无论我们谈怎样的发展策略,社区和内容生态都是B站的地基。

I still want to emphasize that our community and content ecosystem is the cornerstone of our business. No matter what kind of strategy, the community and the content ecosystem is the foundation of the business.

This year is the 14th year of Bilibili. In the past 10 years, we have gone through three major cycles, the cycle of PC Internet, the cycle of mobile Internet, and the cycle of upcoming In this year, we'll be celebrating our 14th

anniversary. And in the past 14 years, we have experienced three industry cycle, which is the PC era, mobile era, and as we're going through the AI-powered era. No matter how the technology industry is evolving, for Bilibili, the community and the PUGV content ecosystem aspect is what has kept us going. while others come in and go.

We believe the value of high quality content. We also believe in the value that a high talented content creator can bring.

That is the biggest moat for our business. It is also the biggest competitive advantage that we own in this ever-changing landscape.

We are confident that Bilibili's content ecosystem can continue to produce good content. We are also confident that our platform can continue to produce the most attractive, the most talented app owners. Therefore,

We believe in that our unique content ecosystem can continuously generate high quality content and talented content creator. And the value of this content that bring to Bilibili is our core competitiveness. We'll continue to cultivate that and continue to build on that and bring high-quality growth to our company.

Operator, next question, please. Thank you. Next question comes from the line of Xueqing Zhang from CICC. Please ask your question, Xueqing.

Good evening. Thank you for the opportunity to ask questions. I would like to ask a question about financial outlook. In the last question, Mr. Rui also mentioned that the company's previous several-season interest rates have been rising. How do we look at the specific trend of this year's interest rate? And I also want to know, because we gave a year-round income guide, can you help us to simply disassemble the corresponding business line? Thanks, management, for taking my question. And my question regards to financial outlook. As Rui Zong mentioned before, we see the company's growth margin has continued to increase in the past few quarters. So how does management think about the trend of margin in 2023? And since we give the four-year revenue guidance, what's the growth of each segment that it implies? And lastly, on the bottom line, what's the outlook for the net loss narrowing in detail?

Thank you. This is Sam. I will take your question. As Mr. Chen mentioned, the key objective of the company for this year is to improve our growth margin and narrow our loss. So that's why for 2023 revenue guidance, we are cutting down low margin banners, such as e-sports content, supply chain revenue banners, and certain low margin e-commerce banners. As a result, we expect our e-commerce and other revenue line for 2023 to decline by near 20 to 30%. However, we expect the gross margin and the gross profit for e-commerce and other business to improve year-over-year. And for the non-e-commerce business revenue, including our gain, VAS, and advertising, if we combine these together, we still expect to grow by 20-plus year-over-year in 2023. And then regarding to the gross profit, overall, the increase of the revenue will drive the increase of the gross margin. especially for certain fixed costs, such as server and bandwidth, staff costs, and content costs. In 2023, as I mentioned, we will be more selective and ROI focused in terms of the content investment. We also expect the percentage of the server and the bandwidth costs and staff costs will decline. In terms of the revenue sharing costs, we expect each business line's cost margin will improve year over year. As high margin bearers gradually increase their contribution, there will be more meaningful improvement on revenue sharing cost. For OPEX, total OPEX had peaked in 2022. We expect OPEX will start to decline in 2023. We cut sales and marketing expenses by 15% in 2022. We expect further cost cuts down for sales and marketing in 2023. Meanwhile, GNA and R&D expenses, in terms of the absolute dollar amount, will also decline slightly in 2023. We expect our growth margin to gradually improve to mid-20s throughout 2023, and we also expect meaningfully narrowed our non-GAAP operating loss in 2023.

Thank you.

Operator, next question, please. Thank you. The next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.

Okay, thank you. Good evening, Ms. Guo. I have a question about advertising. I would like to ask the company to introduce some changes and prospects for the advertising market in 2023. At the same time, I would also like to ask about the latest progress in the story mode, including our entire advertising business, including products. What will happen in 2023? So my question is on the advertisement. Can you discuss about the Outlook ad market in 2023, and what kind of change have we seen? And then, secondly, on the product side, can you give us the latest update on the story mode, and what kind of development should we expect on our ad spinners on the product side? Thank you.

Firstly, on the story mode, our multi-screen and multi-scenario is one of our key strategies that's driving Bilibili's user growth.

The 28% DAU to MRU ratio and 96 minutes daily user time span means the strategy is working effectively.

Story, as a B站 community, is a new scene. In the original POGV, OGV live broadcast, including our OTT, there is a big screen scene. It is a very important addition. We also observed that since the story was uploaded, the effect of our entire low-life users is extremely obvious. It also played a key role in attracting new creators to the whole network. In addition, it can also be seen that the number of plays and usage times are also more than seven. So Bilibili users can use Bilibili to meet their own consumption needs in any scene, any time, and any demand in 24 hours.

Story Mode as a newly added scenario is an important supplement to our existing PUGV, OGV, live broadcasting, and big screen OCT scenario. We noticed that since the launch of Story Mode, it has played a vital role in terms of increasing user engagement, especially for users who are not as active. It has also helped us to attract new content creators across the video industry. At the same time, it has driven better than expected increase in terms of video views as well as user time spent. Story mode has essentially allowed users to access their favorite Bilibili content anytime, anywhere.

Bilibili has always been a community of high quality creators and high quality content as the core video community. Since the establishment of Bilibili, PUGV has maintained a healthy and fast growth rate. In the fourth quarter, the same growth rate has exceeded 50%. So when we often mention STORY, don't forget that our PUGV ecosystem is actually continuing to grow healthily. But STORY has also exceeded 170% in the same growth rate. In 2023, STORI's traffic will also improve healthily in the entire ecosystem.

Bilibili has always put high-quality content and content creator at top priority. Since inception, PUGV ecosystem has maintained a very healthy growth. When we are mentioning the story mode grow at a fast pace, don't forget that PUGB also grew by 50% young a year and maintained a very healthy growth rate. 任何的一个无论是创作者还是内容的消费者,其实我们都观察到他们对内容的审美以及需求肯定是越来越高的。

Whether it's content creator or content consumer, their need for high quality content will evolve.

so will their sense of style. We think that store mode has served a very good vessel to carry PUGB content to support our ever-growing ecosystem. In addition, the combination of store mode traffic and our existing ecosystem has helped us to increase our ad efficiency, and this has also brought new commercial opportunity for live broadcasting and advertising.

Yes, we can also talk about advertising. As you may already aware, it has been a very challenging market for advertising in 2022.

the overall ad market only had low single-digit growth. And under this challenging market, we are continuing to gain market share. For Bilibili's four-year advertising revenue, we have reached $5 billion.

In 2023, advertisers will start to regain confidence. It is expected that the entire advertising industry As for 2023, there has been a recovery of confidence for advertisers. Maybe overall industry can achieve a double-digit growth

we will see that. However, we also notice that for all advertisers, they will be more conscious and they will be focusing more on the core value of their ad investment and their ad investment's efficiency.

At this time, we will take a look at what is the core problem that advertisers have to solve every year when they invest in budget. In fact, we have several types. One is to release new products. The second thing is that brands are afraid of aging and must continue to penetrate. The third thing is that we must continue to influence users' minds and achieve the effect of transforming consumption. Then look back, in fact, Bilibili's entire ecosystem and product form has covered the above key needs. So we are still more confident that the advertising business system is higher than the entire industry this year.

The key reason for advertisers to invest in ads, we have categorized for three main areas. One is new product launch. Number two is brand rejuvenation. Number three is continuously to increase their brand perception and drive sales conversion. The advantage for Bilibili advertising is that we can cover all above three core needs, and we are confident our ad's growth rate will beat the industry growth rate.

In 2023, we will upgrade the whole sale form and model of the industry. Integrated marketing is still the engine of our long-term growth. First of all, we can see that in the strong industry, we will upgrade the whole chain and build it up higher, including our familiar games and 3C numbers. Let's use games as an example. Bilibili is the largest community of online games. Consumers have actually reached nearly 90 million. In addition, recently, the release of the game version has also begun to expand, which is a relatively favorable condition. In Q1, we integrated the game communication, game ads, and game content into a big goal for the three major teams. The purpose is to provide more complete services to game manufacturers. Finally, to improve the overall distribution efficiency of game content to game downloads. In 2023, we will be looking to upgrade our sales model for different industry verticals. We believe that integrated marketing will continue to be our long-term growth driver.

For our leading industry verticals, we'll continue to build high barriers and upgrade full app product matrix, such as for games, 3C, and digital product. Take games for an example. Bilibili has the largest gamer and game content community in China, and with near 90 million unique user-consumed game content on a monthly basis. We think the recent regularization of Banhao is also a favorable tailwind for us. In Q1, we have unified the OKRs for three key game teams, including game distribution, game ads, and game content, in order to provide a more comprehensive service to game companies and improve the efficiency for game distribution. Our goal is to enable every game company to reach their target audiences in time and also achieve long operation cycle and higher conversion rate on visibility.

The second point is that we have some industries that can further expand their share, including e-commerce, automotive, and fast-trade. These are all industries that have a large budget. You can also use e-commerce as an example. Bilibili is the only one in the industry that insists on making open-ended video content in the ecological community. Last year, we actually worked with Ali, Pinduoduo, and Jindong. In addition to our cooperation with the brand and the logic of the effect, we have also done a better job of promoting, growing, and transforming the transaction model. In 2022, more than 1,000 new brands and more than 10,000 SKUs successfully launched on Bilibili through delivery. The effect turned into advertising and achieved more than expected revenue. So recently, we will also integrate the entire system of video and live delivery to explore Bilibili's open transaction mode.

Secondly, we expect to further gain market share and attract larger budget from areas like e-commerce, automotive, and general FMCGs. Take e-commerce, for example.

Busy billing is Hello? Hello, operator?

Please carry on.

Yeah, we were disconnected for a second. We were saying that Bilibili is the only video community who is open about e-commerce collaboration. Last year, together with Alibaba, Pinduoduo, and JD, we have optimized our brand seeding conversion model on top of our traditional brand and performance ads. In 2022, over 1,000 new brands and over 10,000 SKUs have debuted on billability through Zai Huo function, which also resulted in better than expected performance-based ad revenue. We will continue to integrate video and e-commerce live broadcasting e-commerce system and explore billability's unique open-loop transaction model. We also expect to quickly expand our market share in e-commerce apps and their budget this year.

In addition, including how to promote our algorithmic infrastructure, the application of AIGC, as well as the construction of our data capability to provide customers with more scientific marketing data as the basis for their investment, On top of all that, we're also looking to improve our algorithm infrastructure and invest in AIGC application.

and also improve our data capacity to provide our customers with more scientific marketing data points. Also, we'll continue to explore more ad scenarios in Kent's ad-friendly atmosphere in our community, all of which are the right thing to do, and that's what we have done in 2022 and will continue to carry into 2023. Operator, next question, please.

Thank you. Our next question comes from the line of Lei Zhang from Bank of America, Maryland. Please ask your question, Lei.

Hi. Thank you management for taking my question. My question is mainly about the game business. Can you share with us your in-house game strategy and outlook and any new game we can expect after the review of game licensing? Thank you.

It's also entering a new stage. We think that the number plate is just one of the reasons. I think the bigger reason is that the popularity of mobile users is gradually declining. In addition, players are becoming more and more mature about the quality of the game. This actually has a great impact on the industry. Because it directly affects the improvement of game development costs and the decrease in the success rate of new games.

We believe we have entered a new era for game business last year. But now is one of the reasons. Another reason was the increasing penetration rate for mobile gamers in China. And also gamers involving taste and their increasing demand for higher quality games are also shaping the overall games industry. As production costs rises, the success rate for games is declining.

When there is a user fear, you can make money as long as the content of the game is good. But when the game industry becomes a stock market, there are only two kinds of games that can make money. The first one is the super game of the head, and the second one is the head in the hammer.

In the era of lower gamer penetration rate, it's easy to make money for game company as long as they have good quality of titles. However, we believe in this new era, there will only be two kinds of game can make money and succeed. One is the Super Mega titles. Number two will be the number one title in the segment genre, because it will have a longer life cycle. And only the two kinds of games will be able to gain market share and survive in this new era.

So the strategy of Bilibili's game development is also for the future industry trend. We will be more determined to carry out our proposed strategy, the global development of the game. Because I think this is also what we have to do in the next industry cycle of the game. Only global development can compensate for higher game development costs and make better profits. Bilibili's game strategy is designed to serve the market trend in the next few years. We will be firmly executing the strategy of developing house and distribute globally.

this will be the must to do for the next industry cycles because only global distribution could cover the increasing production cost. And only the highest quality of games will have long operation cycles, hence to achieve higher ROI.

In terms of the product category, we will focus more on, whether it's our agent business or our words, we will focus on our a field that is good at it. For example, a field like the second-dimensional card card. Then in terms of word of mouth, we will also reduce our word of mouth project, so that we can put more effort into a project with the highest success rate.

In terms of genre, we will be more focused. Whether it's a jointly operated game or our self-developed game, we'll be focused on the area that we hold the most advantage. The ACG card game will be one of the key game genres we'll be focusing on. And also we'll be looking to cut down the number of projects we will be developing. and gold kits are best resources on the unlimited product.

From a results perspective, the investment we made in self-development games is starting to bear fruit.

In 2022, our self-development gains revenue is already contributing about 5% of total gain revenue. We expect this ratio will continue to increase in 2023.

As for the license plates, we can see that the domestic license plates are issued once a month, and the imported license plates are also not issued. So we think that this year's license policy should be standardized. I think this is good for Bilibili, whether it's for our self-produced games or for our agent games. At the same time, it is also good for our game face-to-face business and game advertising business. So this is definitely good news.

As for the button, how we believe the releasing of button and how it has already been normalized, it has been quite regular for domestic somehow to be released on a monthly basis. We've also noticed that in the imported titles, there's also been a batch has been approved. So we believe that this has been an industry tailwind favorable to Bilibili, not only our self-developed games, it will also be favorable for our

game jointly operation as well as for our game advertising business.

And also we're looking to launch two self-development titles in the second quarter this year.

Operator, next question please. Can you hear me?

Thank you. Our next question comes from Lincoln Kong. from Goldman Sachs. Please ask your question, Lincoln.

Thank you for giving me a chance to ask a question. I would like to ask, as I said earlier, there will be an AI era in the future. AIGC has a high level of attention this year. Can you tell us about the future applications of Bizen in AIGC and the opportunities of products and commercialization? So, thank you for taking my question. So, my question is about AIGC. So, basically, this is a pretty hot theme for this year. Can management elaborate a bit more, you know, how we think Bilibili can apply in the whole AIGC front and the potential on the product and monetization opportunity? Thank you.

It's a big event that the entire industry and even the entire society should pay attention to. Because what does it mean? It means a huge improvement in content creation productivity. I think this improvement can be compared to an incident of the previous mobile camera. Because the mobile camera can allow ordinary people to produce content at any time. And then I think that I believe the opportunity that AIGC can bring is a mega event, not only for the industry players, but for the whole society to pay attention.

we believe will bring a huge productivity increase in terms of content generation. First, an analogy would be the invention of mobile phone camera. It has allowed everyone to record video anytime, anywhere, and the AIGC can help to increase the productivity of those content and significantly lower the production cost.

我觉得对于B站来说的话, 我认为AIGC能够给B站带来很大的一个力处。 当然我认为这是对于整个行业来说的, 我认为所有的内容平台都能够从AIGC当中获得力处。 We believe AIGC has brought a very big opportunity for Bilibili as well as for many other players in this industry. But especially so for Bilibili is because

For one, we are a massive content platform. Number two, we are a UGC platform.

Let me give you a few examples. For example, in terms of the search experience, I think AIGC can have a huge... There will be a huge increase in the search experience for B站. It's similar to ChatGPT. It can meet the more complex search needs. Um,

First aspect will be on the search front. The chat GBT similar experience will help user to find the video that they want more efficiently, such as product reviews. Let's say people want to look for a new AirPods review. For billability who has our own data, we can easily accumulate and find and organize and structure the useful information and present to the user, whether it's in the format of video clips or in the format of text. It will largely enhance the user experience when they use the search function.

大家知道B站上面有很多知识类的以及结构化的这些视频内容, 而且很多视频内容它是有 So I think what I just mentioned, similar to a search experience like ChatGPT, it can bring out the accumulated value of B站 more efficiently and make it more efficient for users to consume B站's structured content.

As for availability, because we have a massive amount of knowledge-related content and knowledge content in a constructive way, it has more time value. Even after a few years back, we can still find that historical videos that continues to generate views and bring value to users. the ChatGPT-like search experience will help us to enlarge the value of our historical video content at the same time to improve the consumption efficiency for our users.

In terms of the UGC platform, I think AIGC can greatly improve the efficiency of creators. For example, if we use AIGC as a technology in our creative tools, It can allow more users to create content in a simpler way. It can also allow the same material to be displayed in different videos in different ways. This directly improves the creator's productivity. It can also allow more creators to create content that only professionals could do in the past. Now, ordinary users can do it.

In terms of content creation tools, we believe the AIGC can bring revolutionary experience that allow more users to start creating content. For example, the same material can be presented in different formats, in different videos, and also allow many users users who used to just be content consumers, now they can easily create content like a professional.

然后我觉得第三个带来的好处 应该是在虚拟up主方面。 大家应该知道B站现在已经是 中国最大的虚拟up主的一个平台。 我们上面有几万甚至几十万的 虚拟主播、虚拟形象 活跃在B站上。 AIGC是能够让这些虚拟的形象 AIGC can be more automated and more humanized. Let me give you an example. In the past, Luo Tianyi could only read lines, but now Luo Tianyi can really talk to every user. And the content he talks to is also very clear. And this is a huge gain for the virtual image he produces. Maybe he can really become a virtual person. So I think AIGC can do a lot of things

Lastly, on virtual content creators, as you may know, Bilibili is already currently the largest virtual content creator platform in China. We have tens of thousands virtual content creator, virtual live broadcast on Bilibili. AIGC can bring more automatic and more efficiency, higher user experience to the virtual characters. For example, our virtual content host, Luo Tianyi, what AIGC can bring is transform her to a real person, and that, And that will bring revolutionary experience for people who are fans. And this has massive imaginary space that what can do with it. So we believe AIGC will serve very positive effects in terms of the virtual content creator, virtual live broadcasting host, and the virtual idols that Bilibili can offer.

Bilibili is a platform, and it connects creators and consumers. So, all the technologies that can help creators improve productivity and expand them are very profitable for Bilibili. Just like when the PC website moved, there was a creator. to expand and make it easier for creators to make videos. This change directly made Bilibili's number of users 10 times bigger. So I think AIGC is also a change like this. If it's easier to make videos, if more people can make videos, then the platform can produce better content. It's easier to attract users. So I look forward to AIGC's next-generation development.

As a platform who's connecting content creator with users, the evolution of production tool will serve very positive, bring very positive change to our platform. The change probably will be similar to the PC to mobile era. That's allowing more people to access internet, allow more users to be able to create content easily. And that's why our user has increased by tenfold in the past few years. And I'm personally very looking forward to the involvement of AIGC tools in terms of improving the video production efficiency, allowing more people to create content more easily. That will definitely serve... Bilibili as a content platform the most. Okay, I think that's the time we have for today. Operator, we can wrap up the call.

Thank you. I'd now like to turn the conference back to management for any additional or closing comments.

Well, thank you, everyone, for joining us today. If you have further questions, please feel free to contact our IR team or TPG Master Relations. Our contact information was presented in the news release that we issued earlier today. Thank you, everyone, and have a great day. Bye-bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Good day and welcome to Bilibili fourth quarter and fiscal year 2022 financial results and business updates conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Juliette Yang, Executive Director of Investor Relations. Please go ahead.

Thank you, Operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and end 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 call 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 Senior Management are Mr. Ray Chen, Chairman of the Board and Chief Executive Officer, Ms. Kali Lee, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. And I'll now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Thank you, Juliette. And thank you everyone for participating in our 2022 fourth quarter and fiscal year financial and operating results conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In 2022, we proactively adjusted our strategies and reprioritized our goal to better align ourselves with the new industry paradigm. Specifically, we placed our focus on DU growth and how to reach profitability. Digging into our progress on these two fronts. First, our users and their engagement with our community remain the foundation of our business. By focusing on DAU growth, we are bringing higher quality users to our platform, which ties in more closely to our monetization potential. In Q4, our DAUs increased to 93 million, up 29% young year. This brought our DAU to MU ratio to 28%, a meaningful improvement from 26% in the same period last year. The average daily time spent per user on our platform reached 96 minutes, driving the total time spent on our platform up by 51% year-on-year. We will continue to accumulate our DAUs with optimized product offerings and algorithms. and further support our commercial prospects with controlled sales and marketing spending. Second, we improved our commercialization efficiency and elevated our cross-reduction measures to bring us closer to our goal of profitability. Our total net revenues for 2022 were RMB 21.9 billion, and the total net revenues for Q4 were RMB 6.1 billion, up 6% year-on-year. Our growth margin improved to 20% in Q4 compared with 18% in the previous quarter. We continue to take measures to control our expenses and improve our organization efficiency. Specifically, in the first quarter, we cut sales and marketing expenses by 28% year-on-year. Sales and marketing expenses as percentage of total net revenues reduced from 30% in the same period last year to 21% in the first quarter. We have also streamlined our personnel and trimmed our non-core and underperforming business. As a result, our non-gap net loss in the first quarter narrowed by 21% year-on-year and 26% quarter-on-quarter. As we move through 2023, our operational goal is to become a more efficient company. We will centralize our resources to focus on less but more important tasks. Specifically, we plan to continue to grow our DAUs, improving our growth margin and tightening our expenses. As we are executing on these actions, we believe we are on the right track to achieve our breakeven target by 2024. With that overview of our strategic approach and progress, I'd now like to provide a brief update on our three core pillars of content, community, and commercialization. Starting with content. Our ever-growing content ecosystem is our most valuable asset. In the fourth quarter, our platform hosts 3.8 million content creators, 25% more than the same period a year ago. Creators submit 17.6 million videos, up 62% year-on-year, both on a monthly basis. To encourage more users to turn their ideas into creations, we will provide them with more easy-to-use tools to get WorkV creators started. At the same time, more traffic will be led toward mid- and long-tail creators. Our goal is to turn more users into creators, driving both our content offerings and user engagement. Expanded content scenarios are also attracting more traffic to Bilibili. For the fourth quarter, Total daily video views were up 77% year-on-year to 3.9 billion. In particular, story mode daily video views increased by 175% year-on-year YPUGV video views increased by 56% in the first quarter. Story mode has allowed us to expand into the vertical video market, broad-stering our DAUs, increasing user time spent on our platform, and opening more commercial opportunities for us to pursue. To unlock our commercial potential, in 2022, we further integrated our commercial channels within our content ecosystem. The combination has created more immersive advertising opportunities and various monetization channels for content creators. Over 1.3 million content creators earn income through multiple channels on Bilibili in Q4, up 64% year-over-year. Looking at our community, our inclusive community environment and the rich interaction tools are creating tighter bonds between our users and our platform. In the fourth quarter, users' average daily time spent on Bilibili reached 96 minutes. Monthly interactions also increased by 35% year-on-year to 13.6 billion. As for the co-members of our community, the number of official members reached 195 million in the fourth quarter, up 34% year-on-year, and their 12-month retention rate continued to exceed 80%. Now, let's review our commercialization progress and how we think about it moving forward. For the fourth quarter, our total net revenues reached RMB 6.1 billion, up 6% year-over-year, and our full-year revenue grew by 13% to RMB 21.9 billion. We are now more focused on improving our commercialization efficiency and specifically on improving our growth margin at the company level. Now, I'd like to share more color on each of our commercial business lines. First, Our vast business. Revenue from vast was RMB 2.3 billion for the first quarter and RMB 8.7 billion for the year, up 24% and 26% year-on-year, respectively. Live broadcasting, in particular, has shown solid growth. For 2022, revenues from live broadcasting increased by over 30%. Our strategy to integrate live broadcasting within our video ecosystem has prompted more creators to tap into live broadcasting universe. This has helped to penetrate more video users, converting paying users, and optimize our revenue-sharing structure organically. In the fourth quarter, the number of monthly active live broadcasting hosts increased by over 70%, and MPUs for live broadcasting grew by over 40%, both on year-on-year basis. Looking ahead, Live broadcasting will continue to be one of our primary revenue growth drivers. We expect to optimize our revenue sharing ratio and further improve live broadcasting's growth margin. By the end of the first quarter, we had added nearly 1 million premium members from the prior period, reaching a total of 21.4 million premium memberships. We launched multiple Chinese anime titles during the period. including the highly anticipated sci-fi thriller The Three-Body Problem. In January 2023, our co-produced traditional Chinese-style graphic anime Yao Chinese Folktale 中国奇谈 become a smash hit, generating over 200 million video views on our platform. As for our advertising art, we continue to gain market share in 2022. Advertising revenues were up by 12%, reaching RMB 5.1 billion in 2022 and RMB 1.5 billion in Q4. Our top performing verticals in the first quarter were mobile games, e-commerce, digital products and home appearance lines, automotive and skincare and cosmetics. In 2022, we further opened up our ecosystem to embrace more advertising opportunities across various videos viewing scenarios. The new ad scenarios we introduced in story mode and improved sales conversion modules have proven a success in performance-based ads and carry higher ROIs. In the fourth quarter, our performance-based ad revenue grew by over 50% year-on-year. In addition, As our users getting mature and into new life stages, their new consumption needs such as automotive and home appliance also attract more advertisers and their ad budgets have been allocated to our platform. Moving into 2023, we'll continue to invest in and improve our ad infrastructure and further integrate our ad capabilities within our content ecosystems. Turning into GANs, Revenue for the year was RMB 5 billion and RMB 1.1 billion for the fourth quarter. We are committed to the strategy of development in-house distributed globally. In Q4, we restructured our game development to effectively align with this goal. Specifically, we eliminate underperforming self-development projects and centralize our resources to focus on genres where we are already experts. In 2022, our self-development games contributed 5% of our total game revenues. We expect this ratio will continue to expand in 2023 as we roll out more self-development games. Looking at our pipeline, We are planning to launch two self-development games, Silude and Yiluxia, as well as six exclusively licensed titles in the second quarter of this year. As game license approvals have gradually resumed in China, we expect to engage in more opportunities in the domestic market. In summary, the new industry dynamics call for more efficient operations. In 2023, we will continue to centralize our resources to grow our DAUs, increase our gross margin, and narrow our losses. Throughout this process, we will continue to strengthen our execution and tighten our spending while selectively investing in R&D where it improves our commercialization efficiency. With these measures in place, we believe we are on the right track to reach our financial goals. and become a stronger, more resilient, and efficient organization. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the fourth quarter of 2022 and outlook for the fiscal year of 2023. For a review of our fiscal year 2022 results, please see our press release issued earlier today. Total net revenues for the first quarter were RMB 6.1 billion, up 6% from the same period of 2021. Our total net revenues braided down by revenue streams were approximately 38% VAT, 25% advertising, 19% mobile games, and 18% from e-commerce and other business. Cost of revenues increased by 4% year-over-year to RMB 4.9 billion. Our gross profit in the first quarter was RMB 1.2 billion, and our gross margin was 20.3%, up 2.1 percentage points sequentially. With our tightly controlled cost structure, we expect to show continued margin improvement throughout 2023. Total operating expenses were RMB 3.6 billion, up 15% from the same period in 2021. As we work on increasing our commercial prospects, We are also keeping a lean cost structure. We cut sales marketing expenses in Q4 by 28% year-on-year to RMB 1.3 billion, while DAU grew by 29% year-over-year. Sales marketing expenses as a percentage of total revenues was also down to 21%, compared to 30% in the same period last year. We will continue to control our sales marketing expenses while delivering solid DAU growth in 2023. G&A expenses were RMB 870 million, a 52% year-over-year. The increase was primarily due to the one-off surveillance pay of RMB 252 million related to our organizational restructuring. R&D expenses was RMB 1.5 billion, representing an 87% increase year-over-year, which was primarily due to increase of R&D personnel and a one-off cancellation cost of RMB 470 million related to our certain GAN projects. As we move through 2023, we will take additional actions to reduce our operational expenses. We think our overall operating expenses peaked in 2022 and will start to decline in 2023. Net loss and adjusted net loss was RMB 1.5 billion and RMB 1.3 billion. narrowing by 29% and 21% young year, respectively. Our net loss ratio in the fourth quarter was 24%, a very notable improvement from 36% for the same period a year ago. We expect to continue to narrow our losses in 2023. Turning to our capital allocation and liability measurement. We are keenly aware of our cash reserves and have taken steps to improve our balance sheet, which gives us the flexibility we need to reach our break-even target by 2024. We are actively managing our liabilities and to improve our balance sheet. In the fourth quarter, we repurchased and retailed a total principal amount of US$547 million notes for a total cash consideration of US$420 million. As a part of our liability management plan in January 2023, we completed our US$409 million equity offerings and note exchange program. we retailed a principal amount of $385 million of convertible notes for consideration of $331 million cash funded by this offering. The remaining $69 million in proceeds were used to replenish our cash reserve. After these transactions, we currently have three outstanding CBs that totaled $1.6 billion. As of December 31, 2022, we had cash-on-cash equivalents, time deposits, and short-term investments of RMB 19.6 billion or USD 2.8 billion. We believe this amount is sufficient to cover all of our remaining comfortable bonds and fund our future operations while we take further action to narrow our losses and reach non-GAAP breakeven by 2024. With that in mind, we are currently projecting net revenues for the full year of 2023 to be between RMB 24 billion and RMB 26 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Thank you.

We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and write for your name to be announced. To withdraw your question, please press star 11 again. 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 follow-up questions, Please rejoin the queue. Our first question comes from the line of Daniel Chen from JPMorgan. Please ask your question, Daniel.

Good evening, Manager Chen. Thank you for giving me this opportunity to ask a question. I actually want to ask a question about the field in 2023. Now we also see that Thanks management for giving me the opportunity to ask questions. So my question is on the 2023 outlook. So with the macro economies gradually recovering, So what's our core business strategy in 2023? And what are the key focus points from a management point of view? Thank you.

We can see that since last year, the development of the entire Internet industry has entered a new stage. That is, each company will pay more attention to quality growth, pay attention to profits and cash. And not just domestic companies,

Starting from last year, we've noticed that the Internet industry has entered into a new era. Every company is more focused on the quality of the growth, the quality of revenue, as well as improving growth margin and focus on cash flow. Not just Chinese Internet companies. We noticed many U.S. companies are doing the same thing.

As for us, our key objective for 2023 would be to grow our top line, narrow our losses, and focus to achieve higher quality of user growth. This will be a long-term strategy. It will not change because of the short-term environment change, right? This will be our long-term strategy. It will not change because of the change of the environment. But of course, as you mentioned, the recovery of the overall economy will help us better executing on this strategy. Overall, our business will be more focused. There will be two important tasks. One is to increase our top line and narrow our loss. Number two is to increase our DAU. Number one task.

increase our top line. When I say increase our top line, I'm referring to the increase of top line as well as our gross profit. We'll be focusing on improving our gross margin and narrowing our losses. In the fourth quarter, we've achieved gross margin improvement from a year-over-year and quarter-over-quarter basis. We also narrowed our net loss by 29% year over year. We expect that in 2023, our overall net loss will narrow more meaningfully and to achieve our break-even target by 2024.

In terms of user growth, we will no longer simply pursue a number of MAUs in 2023. We will focus on more quality MAUs.

on the user aspect we will no longer just pursue the absolute number of MAU but rather to focus on the growth of our DAU as well as the south conversion of each DAU that can bring to the company 2023

In 2023, we are expecting our DAU to MAU ratio will continue to improve. Currently, we're at 28%. We expect to increase to 30% level. 这个会意味着更高的用户的活跃度,更高的用户粘性,以及更大的用户提供的商业价值。

This will mean better engagement, better stickiness of our company, as well as higher commercialization potential.

最后的话我还是想强调一下就是B站的立足之本一直是我们的社区和我们的内容生态。 无论我们谈怎样的发展策略,社区和内容生态都是B站的地基。

I still want to emphasize that our community and content ecosystem is the cornerstone of our business. No matter what kind of strategy, the community and the content ecosystem is the foundation of the business.

This year is the 14th year of Bilibili. In the past 10 years, we have gone through three major cycles, the cycle of PC Internet, the cycle of mobile Internet, and the cycle of upcoming In this year, we'll be celebrating our 14th

anniversary. In the past 14 years, we have experienced three industry cycles, which is the PC era, mobile era, and as we're going through the AI-powered era. No matter how the technology industry is evolving, for Bilibili, the community and the PUGV content ecosystem aspect is what has kept us going. while others come in and go.

We believe the value of high quality content. We also believe in the value that high talented content creator can bring.

That is the biggest moat for our business. It is also the biggest competitive advantage that we own in this ever-changing landscape.

We are confident that Bilibili's content ecosystem can continue to produce good content. We are also confident that our platform can continue to produce the most attractive, the most talented app owners. Therefore,

We believe in that our unique content ecosystem can continuously generate high quality content and talented content creator. And the value of this content that bring to Bilibili is our core competitiveness. We'll continue to cultivate that and continue to build on that and bring high-quality growth to our company.

Operator, next question, please. Thank you. Next question comes from the line of Xueqing Zhang from CICC. Please ask your question, Xueqing.

Good evening. Thank you for the opportunity to ask questions. I would like to ask a question about financial outlook. In the last question, Mr. Rui also mentioned that the company's past several seasons' interest rate has been rising. How do we look at the specific trend of this year's interest rate? And I also want to know, because we gave a year-round income guide, can you help us to simply disassemble the corresponding business line? Thanks, management, for taking my question. And my question regards to financial outlook. As Rui Zong mentioned before, we see the company's growth margin has continued to increase in the past few quarters. So how does management think about the trend of margin in 2023? And since we give the four-year revenue guidance, what's the growth of each segment that it implies? And lastly, on the bottom line, what's the outlook for the net loss narrowing in detail?

Thank you. This is Sam. I will take your question. As Mr. Chen mentioned, the key objective of the company for this year is to improve our growth margin and narrow our loss. So that's why for 2023's revenue guidance, we are cutting down low-margin business, such as e-sports content, supply chain revenue business, and certain low-margin e-commerce business. As a result, we expect our e-commerce and other revenue line for 2023 to decline by near 20 to 30%. However, we expect the gross margin and the gross profit for e-commerce and other business to improve year-over-year. And for the non-e-commerce business, revenue, including our gain, VAS, and advertising, if we combine these together, we still expect to grow by 20-plus year-over-year in 2023. And then regarding to the gross profit, overall, the increase of the revenue will drive the increase of the gross margin. especially for certain fixed costs, such as server and bandwidth, staff costs, and content costs. In 2023, as I mentioned, we will be more selective and ROI focused in terms of the content investment. We also expect the percentage of the server and the bandwidth costs and staff costs will decline. In terms of the revenue sharing costs, we expect each business line's cost margin will improve year over year. As high margin bearers gradually increase their contribution, there will be more meaningful improvement on revenue sharing cost. For OPEX, total OPEX had peaked in 2022. We expect OPEX will start to decline in 2023. We cut sales and marketing expenses by 15% in 2022. We expect further cost cuts down for sales and marketing in 2023. Meanwhile, GNA and R&D expenses, in terms of the absolute dollar amount, will also decline slightly in 2023. We expect our growth margin to gradually improve to mid-20s throughout 2023, and we also expect meaningfully narrowed our non-GAAP operating loss in 2023.

Thank you. Operator, next question, please. Thank you. The next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.

Okay, thank you. I would like to ask an advertising question. I would like to ask the company to introduce how we see some changes and prospects in the advertising market in 2023. At the same time, I would like to ask about the latest progress of Story Mode in the product side, including our entire advertising business, including products. What will happen in 2023? So my question is on the advertisement. Can you discuss about the Outlook ad market in 2023, and what kind of change have we seen? And then, secondly, on the product side, can you give us the latest update on the story mode, and what kind of development should we expect on our ad spinners on the product side? Thank you.

Firstly, on the story mode, our multi-screen and multi-scenario is one of our key strategies that's driving Bilibili's user growth.

The 28% DAU to MRU ratio and 96 minutes daily user time span means the strategy is working effectively.

Story, as a B站 community, is a new scene. In the original POGV, OGV live broadcast, including our OTT, there is a big screen scene. It is a very important addition. We also observed that since the story was uploaded, the effect of our entire low-life users is extremely obvious. It also played a key role in attracting new creators to the whole network. In addition, it can also be seen that the number of plays and usage is also more than 7. So Bilibili users can use Bilibili to meet their own consumption needs in any scene, any time, and any demand in 24 hours.

Story Mode as a newly added scenario is an important supplement to our existing PUGB, OGV, live broadcasting, and big screen OCT scenario. We noticed that since the launch of Story Mode, it has played a vital role in terms of increasing user engagement, especially for users who are not as active. It has also helped us to attract new content creators across the video industry. At the same time, it has driven better than expected increase in terms of video views as well as user time spent. Story mode has essentially allowed users to access their favorite Bilibili content anytime, anywhere.

Bilibili has always been a video community with high quality creators and high quality content as the core. Since the establishment of Bilibili, PUGV has maintained a healthy and fast growth. In the fourth quarter, the growth rate has increased by more than 50%. So we often mention that we should not forget that our PUGV ecosystem is actually continuing to grow healthily. But in the case of STORY, the growth rate is also more than 170%. In 2023, STORI's traffic will also improve healthily in the entire ecosystem.

Bilibili has always put high-quality content and content creator at top priority. Since inception, PUGV ecosystem has maintained a very healthy growth. When we are mentioning the story mode grow at a fast pace, don't forget that PUGB also grew by 50% young a year and maintained a very healthy growth rate. 任何的一个无论是创作者还是内容的消费者,其实我们都观察到他们对内容的审美以及需求肯定是越来越高的。

Whether it's content creator or content consumer, their need for high quality content will evolve.

so will their sense of style. We think that store mode has served a very good vessel to carry PUGB content to support our ever-growing ecosystem. In addition, the combination of store mode traffic and our existing ecosystem has helped us to increase our ad efficiency, and this has also brought new commercial opportunity for live broadcasting and advertising.

Yes, at the same time, we can talk about advertising. As you may already aware, it has been a very challenging market for advertising in 2022.

The overall ad market only had low single-digit growth. And under this challenging market, we are continuing to gain market share. For Bilibili's four-year advertising revenue, we have reached $5 billion.

In 2023, advertisers will slowly regain confidence. As for 2023, there has been a recovery of confidence for advertisers.

Maybe overall industry can achieve a double-digit growth. We will see that. However, we also noticed that for all advertisers, they will be more conscious and they will be focusing more on the core value of their ad investment and their ad investment's efficiency.

At this time, we will take a look at what is the core problem that advertisers have to solve every year when they invest in the budget. In fact, we have a few categories in total. One is to release new products. The second thing is that brands are afraid of aging and must continue to penetrate. The third is that they must continue to influence the minds of users and achieve the effect of transforming consumption. Then look back, in fact, the entire ecosystem and product form of Bilibili has covered the above key needs.

所以我们还是比较有信心在广告业务体系上今年是高于整个行业的增速的。 The key reason for advertisers to invest in ads, we have categorized for three main areas. One is new product launch. Number two is brand rejuvenation. Number three is continuously to increase their brand perception and drive sales conversion. The advantage for Bilibili Advertising is that we can cover all above three core needs, and we are confident our ad growth rate will beat the industry growth rate.

In 2023, we will upgrade the entire sales model and model of the industry. Integrated marketing is still the engine of our long-term growth. First of all, we can see that in the strong industry, we will upgrade the whole chain and build it up a little bit higher. including our familiar games and 3C numbers. Let's use games as an example. B站 is the largest community of online games. The number of consumer users is close to 90 million. In addition, recently, the number of game boards has also started to expand. These are all relatively favorable conditions. In Q1, we integrated game communication, game ads, and game content into a big goal for three large teams. The goal is to provide a more complete service to game manufacturers, and finally, to increase the overall distribution efficiency of game content to game downloads. We still hope that after each game enters the B站 community, it can quickly reach users, and it can also operate on the B站 on a long-term basis, until it can be deeply transformed and operated on the B站.

In 2023, we will be looking to upgrade our sales model for different industry verticals. We believe the integrated marketing will continue to be our long-term growth driver. For our leading industry verticals, we'll continue to build high barriers and upgrade full ad product matrix, such as for games, 3C, and digital product. Take games for an example. Bilibili has the largest gamer and game content community in China, and with near 90 million unique user-consumed game content on a monthly basis. We think the recent regularization of Banhao is also a favorable tailwind for us. In Q1, we have unified the OKRs for three key game teams, including game distribution, game ads, and game content in order to provide a more comprehensive service to game companies and improve the efficiency for game distribution. Our goal is to enable every game company to reach their target audiences in time and also achieve long operation cycle and higher conversion rate on visibility.

The second point is that we can further expand the industry Just some industries with a share, including e-commerce, cars and big fast sales. And these are all industries, some areas of big budget in the industry. You can also give an example of e-commerce. Bilibili is the only one in the industry that insists on making a big open video content ecological community. Last year, we actually worked with Ali, Pinduoduo and Jindong. In addition to our cooperation, the logic of the brand and the effect, It is also a model that is even better in promoting, growing, and transforming transactions. In 2022, more than 1,000 new brands and more than 10,000 SKUs were successfully launched in Bilibili through delivery. The effect of transforming into advertising has also achieved more than expected revenue. So recently, we will also integrate the entire system of video and live delivery to explore Bilibili's open transaction model.

Secondly, we expect to further gain market share and attract larger budget from areas like e-commerce, automotive, and general FMCGs. Take e-commerce, for example.

Busy billing is Hello?

Hello, operator?

Please carry on.

Yeah, we were disconnected for a second. We were saying that Bilibili is the only video community who is open about e-commerce collaboration. Last year, together with Alibaba, Pinduoduo, and JD, we have optimized our brand seeding conversion model on top of our traditional brand and performance ads. In 2022, over 1,000 new brands and over 10,000 SKUs have debuted on billability through Zai Huo function, which also resulted in better than expected performance-based ad revenue. We will continue to integrate video and e-commerce live broadcasting e-commerce systems and explore billability's unique open-loop transaction model. We also expect to quickly expand our market share in e-commerce ads and their budget this year.

In addition, including our algorithmic infrastructure, how to promote AIGC applications, including the construction of our data capabilities, providing customers with more scientific marketing data as the basis for their investment, On top of all that, we're also looking to improve our algorithm infrastructure and invest in AIGC application.

and also improve our data capacity to provide our customers with more scientific marketing data points. Also, we'll continue to explore more ad scenarios in Kent's ad-friendly atmosphere in our community, all of which are the right thing to do, and that's what we have done in 2022 and will continue to carry into 2023. Operator, next question, please.

Thank you. Our next question comes from the line of Lei Zhang from Bank of America, Maryland. Please ask your question, Lei.

Hi, good evening, thank you for answering my question. My question is mainly about the game. I want to know about the progress of the game industry in the last 23 years and the game strategy. And after the remake of the game, will there be any new game opportunities in B站? Thank you for your question. Thank you very much for taking my question. My question is mainly about the game business. Can you share with us your in-house game strategy and outlook and any new game we can expect after the review of game licensing? Thank you.

It's also entering a new stage. We think that the number plate is just one of the reasons. I think a bigger reason is that the popularity of mobile users is gradually declining. In addition, players are becoming more and more mature about the quality of the game. This actually has a great impact on the industry. Because it directly affects the improvement of game development costs and the decrease in the success rate of new games.

We believe we have entered a new era for game business last year. But now is one of the reasons. Another reason was the increasing penetration rate for mobile gamers in China. And also gamers involving taste and their increasing demand for higher quality games are also shaping the overall games industry. As production cost rises, the success rate for games is declining.

When there is a user fear, you can make money as long as the content of the game is good. But when the game industry becomes a stock market, there are only two kinds of games that can make money. The first one is the super game of the head, and the second one is the head in the hammer.

In the era of lower gamer penetration rate, it's easy to make money for game company as long as they have good quality of titles. However, we believe in this new era, there will only be two kinds of game can make money and succeed. One is the Super Mega titles. Number two will be the number one title in the segment genre, because it will have a longer life cycle. And only the two kinds of games will be able to gain market share and survive in this new era.

So the strategy of Bilibili's game development is also for the future industry trend. We will be more determined to carry out our proposed strategy, the global development of the game. Because I think this is also what we have to do in the next industry cycle of the game. Only global development can compensate for higher game development costs and make better profits. Only the high-end games can be used for long-term operation and provide better ROI.

Bilibili's game strategy is designed to serve the market trend in the next few years. We will be firmly executing the strategy of developing house and distribute globally. This will be the must-do for the next industry cycles, because only global distribution could cover the increasing production cost, and only the highest quality of games will have long operation cycles, hence to achieve higher ROI.

In terms of product types, we will focus more on both our代理業務 and our自研, we will focus on We will also reduce the number of self-proclaimed projects and invest more energy into projects with the highest success rate.

In terms of genre, we will be more focused. Whether it's a jointly operated game or our self-developed game, we'll be focused on the area that we hold the most advantage. The ACG card game will be one of the key game genres we'll be focusing on. And also we'll be looking to cut down the number of projects we will be developing. and Go kits are best resources on the unlimited product.

From a results perspective, the investment we made in self-development games is starting to bear fruit.

In 2022, our self-development gains revenue is already contributing about 5% of total gain revenue. We expect this ratio will continue to increase in 2023.

As for the license plates, we can see that the domestic license plates are issued once a month, and the imported license plates have also been reissued. So we think that this year's license policy should be standardized. I think this is good for Bilibili, whether it's for our self-produced games or for our agent games. At the same time, it is also good for our game face-to-face business and game advertising business. So this is definitely good news.

As for the button, we believe that the releasing of button has already been normalized. It has been quite regular for domestic users. somehow to be released on a monthly basis. We've also noticed that in the imported titles, there's also been a batch has been approved. So we believe that this has been an industry tailwind favorable to Bilibili, not only our self-developed games, it will also be favorable for our

game jointly operation as well as for our game advertising business.

And also we're looking to launch two self-development titles in the second quarter of this year.

Operator, next question please. Can you hear me?

Thank you. Our next question comes from Lincoln Kong. from Goldman Sachs. Please ask your question, Lincoln.

Thank you for giving me a chance to ask a question. I would like to ask, as I said earlier, there will be an AI era in the future. AIGC has a high level of attention this year. Can you tell us about the future applications and opportunities for products and commercialization of Bizen in AIGC? So, thank you for taking my question. So, my question is about AIGC. So, basically, this is a pretty hot theme for this year. Can management elaborate a bit more on how we think Bilibili can apply in the whole AIGC front and the potential on the product and monetization opportunity? Thank you.

I think AIGC will be It's a big event that the entire industry and even the entire society should pay attention to. Because what does it mean? It means a huge improvement in content creation productivity. I think this improvement can be compared to an incident of the previous mobile camera. Because the mobile camera can allow ordinary people to produce content at any time. And then I think that I believe the opportunity that AIGC can bring is a mega event, not only for the industry players, but for the whole society to pay attention.

we believe will bring a huge productivity increase in terms of content generation. First, an analogy would be the invention of mobile phone camera. It has allowed everyone to record video anytime, anywhere, and the AIGC can help to increase the productivity of those content and significantly lower the production cost.

For Bilibili, I think AIGC can bring a lot of benefits to Bilibili. Of course, I think this is for the entire industry. I think all content platforms can get benefits from AIGC. We believe it has brought a very big opportunity for Bilibili as well as for many other players in this industry. But especially so for Bilibili is because

For one, we are a massive content platform. Number two, we are a UGC platform.

Let me give you a few examples. For example, in terms of the search experience, I think AIGC will have a huge advantage in terms of the search experience for B站. Similar to ChatGPT, it can meet a more complex search requirement. For example, there are a lot of product review videos on Bilibili. Through AIGC, we can ask AIGC, for example, what valuable information does AIGC have for the new generation of AirPods? Then we can directly tell AIGC these valuable parts in the video, whether it's video clips or translated into text.

First aspect will be on the search front. The chat GBT similar experience will help user to find the video that they want more efficiently, such as product reviews. Let's say people want to look for a new AirPods review. For billability who has our own data, we can easily accumulate and find and organize and structure the useful information and present to the user, whether it's in the format of video clips or in the format of text. It will largely enhance the user experience when they use the search function.

大家知道B站上面有很多知识类的以及结构化的这些视频内容, 而且很多视频内容它是有 Very good historical value is a few years later, everyone will also go to see him because he is knowledgeable. So I think what I just mentioned is similar to a search experience like ChatGPT. He can make these contents of B站 accumulate this value to be able to play out more fully, and can also make users more efficient to consume these structured contents of B stand.

As for availability, because we have a massive amount of knowledge-related content and knowledge content in a constructive way, it has more time value. Even after a few years back, we can still find that historical videos that continues to generate views and bring value to users. the ChatGPT-like search experience will help us to enlarge the value of our historical video content at the same time to improve the consumption efficiency for our users.

In terms of the UGC platform, I think AIGC can greatly improve the efficiency of creators. For example, if we use AIGC as a technology in our creative tools, It can allow more users to create content in a simpler way. It can also allow the same material to be displayed in different videos in different ways. This directly improves the creator's productivity. It can also allow more creators to create content that only professionals can do in the past. Now, ordinary users can do it.

In terms of content creation tools, we believe the AIGC can bring revolutionary experience that allow more users to start creating content. For example, the same material can be presented in different formats, in different videos, and also allow many users users who used to just be content consumers, now they can easily create content like a professional.

然后我觉得第三个带来的好处 应该是在虚拟up主方面。 大家应该知道B站现在已经是 中国最大的虚拟up主的一个平台。 我们上面有几万甚至几十万的 虚拟主播,虚拟形象, 然后活跃在B站上。 AIGC是能够让这些虚拟的形象 AIGC can be more automated and more humanized. Let me give an example. In the past, Luo Tianyi could only read lines. But now, Luo Tianyi can really talk to every user. And the content of his conversation is also face-to-face. And this is a huge gain for the virtual image he produces. Maybe he can really become a virtual person. So I think AIGC can be used

Lastly, on virtual content creators, as you may know, Bilibili is already currently the largest virtual content creator platform in China. We have tens of thousands virtual content creator, virtual live broadcast on Bilibili. AIGC can bring more automatic and more efficiency, higher user experience to the virtual characters. For example, our virtual content host, Luo Tianyi, what AIGC can bring is transform her to a real person, and that, And that will bring revolutionary experience for people who are fans. And this has massive imaginary space that what can do with it. So we believe AIGC will serve very positive effects in terms of the virtual content creator, virtual live broadcasting house, and the virtual idols that Bilibili can offer.

The essence of Bilibili is that it is a platform, and it connects creators and consumers. Therefore, all the technologies that can help creators improve productivity and expand them are very profitable for Bilibili. Just like when the PC website moved, it had a creator. to expand and make it easier for creators to make videos. This change directly expanded the number of B站 users by 10 times. So I think AIGC is also such a change. If it is easier to make videos, if more people can make videos, then the platform can produce better content. It is easier to attract users. So I look forward to AIGC's next-generation development.

As a platform who's connecting content creator with users, the evolution of production tool will serve very positive, bring very positive change to our platform. The change probably will be similar to the PC to mobile era. That's allowing more people to access internet, allow more users to be able to create content easily And that's why our user has increased by tenfold in the past few years. And I'm personally very looking forward to the involvement of AIGC tools in terms of improving the video production efficiency, allowing more people to create content more easily. That will definitely serve... Bilibili as a content platform the most. Okay, I think that's the time we have for today. Operator, we can wrap up the call.

Thank you. I'd now like to turn the conference back to management for any additional or closing comments.

Well, thank you, everyone, for joining us today. If you have further questions, please feel free to contact our IR team or TPG Master Relations. Our contact information was presented in the news release earlier that we issued earlier today. Thank you, everyone, and have a great day. Bye-bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.