Bilibili Inc.

Good day and welcome to the Bilibili's 2023 Fourth Quarter and Fiscal Year Financial Results and Business Update conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliette Yang, Executive Director of Investor Relations. Please go ahead.

Thank you, Operator. During this call, we'll discuss business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purpose only. Definition of these measures and a reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili IR website at ir.bilibili.com. Joining us today from Bilibili Center Management are Mr. Ray Chen, Chairman of the Board and Chief Executive Officer, Ms. Kali Lee, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. And I will 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 2023 year-end conference call to discuss our financial and operating results. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In 2023, we navigated a landscape of challenges and opportunities and achieved a number of important milestones on community growth, commercialization efficiency improvement, margin expansion, and loss cutting. Let's review these achievements in more detail. To begin with, we exist a year with over 100 million DAUs 336 million MAUs and other healthy community metrics across the board. Daily user time span remained robust at over 95 minutes on average in the fourth quarter. We continue to emphasize and dedicate resources to reinforce our content ecosystem, support our creators and foster an inspiring community. In 2023, Over 3 million content creators earn income on our platform, up 30% year-over-year. Further enabling talented content creators to expand their fan base and make money will be one of our most important tasks for 2024. Another highlight for the year was our progress in improving our commercialization efficiency. We stepped up our efforts to incorporate advertising and vast business in a way that native to our content ecosystem. Driven by strong performance-based ads, our ad revenue grew by 28% in the fourth quarter and 27% for the full year. Vast revenues grew by 22% in the fourth quarter and 14% for the full year, all on year-over-year basis. With this growth, our total revenues for the full year came in at RMB 22.5 billion, among which ad revenue made a higher contribution, rising from 23% in 2022 to 28% in 2023. Increased revenue contribution from our high-margin advertising business and effective cost controls drove our gross profit up by 33% year-over-year, and our gross profit margin reached 26.1% in the fourth quarter, marking the sixth consecutive quarter of margin improvement. For the full year, our gross profit grew by 41%. and our gross profit margin increased to 24.2% from 17.6% in 2022. Consequently, we significantly narrowed our adjustment net loss by 58% year-over-year in the fourth quarter and by 49% for the full year. Notably, we generated RMB 640 million in positive operating cash flow in the fourth quarter, and our full-year operating cash flow also turned positive in 2023. These gains placed us on a solid footing to reach our profitability growth. 2023 has shown the effectiveness of our strategy and provided a solid foundation for our success in 2024. As we approach profitability, we are keeping our fundamental goal in mind to create value for our users. We do this by expanding our content offerings, supporting our creators, and fostering a vibrant and growing community that people love. Our industry is still benefiting from the wave of visualization with the fast-evolving generative AI as a tailwind. This leaves us with a long runway for growth. We remain confident that our virtuous growth cycle of user expansion and commercial capabilities will create increasing value for our users, creators, and shareholders. With that overview, I'd like to discuss our core pillars of content, community, and commercialization in more detail. Beginning with content and community. An ever-growing content ecosystem is vital for our community's health and vibrancy. For the fourth quarter, Daily active content creators grow by 16% and the monthly new content submission rose by 31% both year over year. And we continue to facilitate connections between high quality content and creators with fans. Content creators with over 10,000 followers were up 30% year over year in the fourth quarter. In January, 2024, We honored top 100 content creators at our sixth annual Bilibili Power Up 2023 awards ceremony to recognize their creations and contributions to our community, among which 39 content creators received the award for the first time. These top 100 content creators excelled on our platform, successfully accumulating a total of over 400 million followers. With a thriving content ecosystem, Bilibili has become our favorite platform across different age groups and agendas. In the fourth quarter, the average age of our active user base was 24. As our existing users gradually mature, their interests evolve and consumption increases. In 2023, baby and maternity, automotive, traveling, fashion and clothing categories demonstrated the highest growth in the video views. Each of these categories carry significant commercial value. The boundary between interest-based and commercial content has also improved. In 2023, the number of commercial related content with over 1 million video views more than doubled year over year. Meanwhile, over 3 million content creators made money through our various channels in 2023, among which the number of content creators who earned income via video and live commerce was up 133% year-over-year. With more content creators and a better content ecosystem, our users remained highly engaged, and the community continued to thrive. For the full year 2023, our average daily video views increased by 25% year-over-year to 4.3 billion. Our users spent 97 minutes daily on the platform during the same period. Monthly average interactions also grew by 14% year-over-year to over 15 billion in 2023. By the end of 2023, we had 230 million official members 18% more than in the prior year, and their 12-month retention rate remains strong at around 80%. Additionally, we close the year with our fifth New Year's Eve Gala, the most beautiful night of 2023, emerging as the youth must watch online New Year celebration. The event garnered 100 million playbacks within 24 hours, and received the most industry-sponsored participation ever in its history. Lastly, I'd like to talk about commercialization and dive into each of our business lines. Our surviving, interactive community is the cornerstone of our commercialization model. In the fourth quarter, our vast revenues were up 22% year-over-year to RMB $2.9 billion. and up 14% to RMB 9.9 billion for the full year. These increases were primarily driven by robust growth in our live broadcasting revenues. Our live broadcasting universe continues to be more diverse as we convert more host talent from our video content creator pool. In 2024, we will continue to integrate live broadcasting into our video ecosystem. By introducing more high-quality hosts and enhancing various tools and recommendation algorithms, we aim to convert more paying users on our platform. At the same time, our featured live broadcasting content and products, like VTubers and a celebration system, will continue to elevate payment activities and offer more monetization opportunities for us. In terms of memberships, By the end of 2023, we had 21.9 million premium members. Our members continue to demonstrate high brand loyalty and trust, with over 80% subscribing annual or auto-renewed packages. Additionally, users continue to exert increasing spending power on other featured products and experiences. Turning to our advertising business, we made some exciting progress. In 2023, our total advertising revenues increased by 28% to RMB 1.9 billion for the fourth quarter and were up by 27% to RMB 6.4 billion for the full year, both on year-over-year basis. Robust revenue growth in our performance-based ads was the most significant contributor. including over 60% year-over-year for the quarter and over 50% for the full year. We also achieved positive young year growth in brand and native ad revenues throughout the year. We credit our solid ad revenue growth to our unique position as the most densely populated community of the young generation and our ability to connect with them in their own language. in the meantime we continue to enhance our ad infrastructure including product optimization and algorithms improvement this enables advertisers not only to improve their brand equity and influence user purchasing conditions but also direct convert sales on billy billy in the fourth quarter our top five advertising verticals were games e-commerce digital products and home appliance, automotive and skincare and cosmetics. Among these verticals, the e-commerce and game sectors stood out with impressive results. Over the course of 2023, we deepened our collaboration with e-commerce advertisers. We further integrated direct sales conversion tools into our video and live commerce ad products. This enabled our users to seamlessly transition from viewing content to making relevant purchase, enhancing our ad conversion efficiency and user experience. Meanwhile, our deeper data collaboration with key e-commerce platforms further improved accuracy and efficiency of our ad recommendation algorithms. In 2023, the number of users engaging in consumption-related behaviors increased by over 200% year-over-year. Meanwhile, we successfully gained more marketing budgets from key game developers during the fourth quarter as they launched new games and promoted existing game updates. We maintained our position as an effective channel to convert gamers and the must-investing community to build game IP, thanks to our integrated advertising strategy and extensive resources within our gaming ecosystem. While we are encouraged by the progress we made in our advertising business in 2023, we believe there is still great potential and ample room for growth. In 2024, we will further integrate ads with our content ecosystem in our more native, natural, and a seamless way. We will prioritize our resources to improve ad infrastructure, including upgrading and refining our ad products, further optimizing the accuracy and efficiency of ad aggregations. We will also actively explore generative AI for ad material creation, supporting productivity for advertisers, Industry-wise, we'll continue to expand our shares in our leading games and e-commerce sectors and gain more presence in digital products and home appliances, skincare and cosmetics, and automotive verticals. Turning to our game benefits, total game revenues increased 2% quarter-over-quarter to RMB $1 billion in the fourth quarter, coming in at RMB $4 billion for the full year. Currently, three titles in our pipeline have been approved for release in the domestic market in the coming quarters. One Japanese card game, Heaven Burn Red, Zhi Yan Tian Qiong. One domestic SLG game, Sanguo, Mou Jing Tian Xia. And other domestic card game, Artifactors, Wu Hua Ni Xin. In addition, We are able to create value for our broader game partners by increasing integrating our advertising products with our game distribution capabilities. As for our self-development game, we stimulate our resources and adapt a more selective game development strategy in 2023. The refined strategy will enable us to reduce our R&D expenses in 2024 while keeping us lean and focused on top-quality projects. Looking forward, our priorities in 2024 are consistent with 2023. We will further improve our commercialization capabilities by strengthening our technology infrastructure and improving our product offerings. particularly for our advertising and live broadcasting business. Company-wide, we aim to further improve our operation efficiency with a tight and targeted expense structure. Overall, we are dedicated to developing content ecosystem, enabling our content creators to earn more money and further expanding our user base. We believe these endeavors will lead us to reach our goal of profitability and set the stage for sustainable growth for many years ahead. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the fourth quarter of 2023. In the interest of time, on today's call, I will be reviewing our fourth quarter highlights as Mr. Chen's remarks have touched our full-year results at a high level. We encourage you to refer to our press release issued earlier today for a closer look at our full-year results. Throughout 2023, our financial profile improved significantly alongside our community growth and ecosystem expansion. Of particular importance, and the gains we made in our revenues, gross profit, and reduction in adjusted net loss, which we narrowed for the sixth consecutive quarter. Total net revenues for the fourth quarter was RMB 6.3 billion, up 3% year-over-year. Our total net revenues breakdown by the revenues team for the fourth quarter was approximately 45% VAT, 30% advertising, 16% mobile games, and 9% from IP directives and other businesses. Our cost of revenues decreased by 4% year-over-year to RMB 4.7 billion in the fourth quarter, driving our gross profit to RMB 1.7 billion, up 33% year-over-year. Our gross profit margin exceeded 26% in the fourth quarter, up from 20% in the same period last year. We expect our gross profit margin to continue to improve in 2024. Our total operating expenses were down 17% year-over-year to RMB 3 billion in the fourth quarter. We cut our sales marketing expenses by 11% year-over-year to RMB 1.1 billion. Sales and marketing expenses were 18% of total revenues, compared with 21% in the same period last year. G&E expenses was RMB 512 million, down 37% year-over-year. R&D expenses was RMB 1.3 billion, down 11% year-over-year. As a result, we narrowed our adjusted operating loss and adjusted net loss by 53% and 58% year-over-year in the fourth quarter, respectively. Our adjusted net loss ratio for the fourth quarter was 9%, improving from 21% for the same period a year ago. Notably, for the fourth quarter, we also generated RMB 640 million positive operating cash flow, demonstrating that our business has entered a healthy path for sustainable development. We expect to reach positive net gap operating profit in Q3 2024 through our sustained top-line growth and the growth margin improvement. As of December 31, 2023, we had cash and cash equivalents, time deposits and short-term investments of RMB 15 billion or 2.1 billion US dollars. As of December 31, 2023, the aggregate outstanding principal amount of our convertible bonds was $862 million. We believe our cash position is sufficient to cover all of our remaining capital bonds. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.