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.