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.

Thank you. We will now begin the question and answer session. To ask questions on the phone, please press star 11 and wait for a name to be announced. If you'd like to cancel your request, you can press star 11 again. For the benefits of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your question in English. The company will provide consecutive interpretations for management statements during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. Please submit your questions to one at a time. If you wish to have a follow-up question, please rejoin the queue. One moment for the first question. Our first question comes from Thomas Chong of Jefferies. Please ask your question.

Good evening. Thank you for accepting my question. I think before I answer this question, I would like to briefly review our work in 2023.

In 2023, we have made good progress in terms of community and commercialization.

Before I answer the question for 2024, I would like to take a moment to review our work done in 2023, which we have made decent progress in both community development and commercialization.

First of all, our DAU has broken 100 million barriers and achieved continuous health growth in the community. Secondly, our advertising business has started to grow in the last two or three years. Our annual advertising revenue has increased by 27%. This figure should be relatively prominent in the industry.

And this marks even for the among our peers should be the one of the highest advertising revenue growth rate.

Our net profit has been continuously improved in the past six seasons. Q4's net profit reached 26%, and it rose by six points year-on-year. In 2023, our annual net loss was reduced by 49%, and it achieved a straight line of business cash flow throughout the year.

Our gross profit margin continued to increase over the past six quarters, reaching 26% in the fourth quarter, up six percentage points year over year. And our adjusted land loss narrowed by almost half, 49% year over year for the full year of 2023. And notably, we've also achieved positive operating cash flow for the full year.

Actually, we're very delighted to see that our community ecosystem

has become more aligned with our commercial value. The commercial efforts does not hurt our community development, but in contrary, it's helping our community content ecosystem to be even stronger. In 2013, over 3 million of content creator earned income on Bilibili. This is reinforcing the development of our content creator.

In these apps, through live streaming, And also over 1.8 million creators earn income on Bilibili through our live broadcasting services.

And the number of creators earn income via advertising services almost double year over year.

In 2024, our direction of work will be the same as in 2023. There are two most important jobs for us. The first one is to achieve the goal of profit. We will continue to strengthen our commercialization ability, and then continue to improve our business efficiency, further optimize our profit margin, and properly manage our expenses. We have confidence in the Q3 profit transfer in 2024, and we will start to make profit.

Looking ahead into 2024, our focus remains consistent with 2023 with two main tasks. First of all is focused on our profitability. We'll continue to strengthen our commercial capabilities and improve our commercialization efficiency at the same time to improve our gross margin and manage our cost. We expect We will continue to strengthen our content ecosystem by expanding our content richness and fostering very specific content categories to ensure the mindset of Bilibili being the go-to place for highest quality content.

This year, we will focus more on the development and activity of high-quality app owners and

And in 2024, we'll focus on the discovering top content creator development and supporting them to make more money. In terms of content categories, we'll continue to solidify our existing advantages in ACG, gaming, tech, knowledge, and other categories while providing more support and assistance to new categories. that has grown in response to users' change of consumption demands, such as baby and maternity, travel, automotive, and home decoration.

We believe with this effort,

And after achieving profitability, we'll further achieve and enhance the virtuous cycle of our community ecosystem and to ensure sustainable growth in our both community and our profitability.

Thank you for the questions. Our next question comes from Yiwen Zhang from China Renaissance. Please ask your question.

So that's what I'm thinking about. So can you give us an update on our development strategy for this business segment in 2024, and then including this business line, including live broadcasting, premium membership, and other value-added service? Thank you.

Bilibili has a lot of high-quality content and a lot of high-quality creators. On Bilibili, we have gathered a massive amount of high quality content creator and it's also a welcoming home for diverse interests.

our users feel a strong sense of belonging, unbelievably. All of this combined results in users very much willing to spend for content that they like, spend for content creators that they adore.

So, in my opinion, Bilibili itself is the most natural business model. After users pay for it, their experience will actually increase because they will be happy. At the same time, when the app owner gets the content or rewards from the users for him, he will actually have the value of being recognized by fans. And this kind of income is actually more fulfilling and motivating for the app owner. For example, our app owner sold a class on Bilibili. The customer bought his class and got the income. In fact, the same income is much higher than the sense of accomplishment of advertising on Bilibili. Therefore, the service of these increases itself is also a very positive and healthy experience for the entire community of Bilibili.

On Bilibili, users pay for content and services that they love. It's the most natural business model for us. As people pay for the content and services they love, they actually are happy for that experience and they feel good about that experience. As for content creator, when they earn the income through this kind of services, they will have an even stronger sense of value and appreciation And for our content creators, they will be even more motivated to continue to create content on Bilibili. For example, if our content creator are earning more income on Bilibili through selling his proprietary premium classes, this money will represent a much more sense of value over what he could have made in advertising.

Yes, it is also because of the above reason ah That is, we have developed a series Is the increase of this one That product and that kind of service project For example, uh, live broadcast For example, the members of the conference For example, comics For example, there is a play And then there are paid classes and charging and so on And then this series of this one This uh Service and product functions are the result of our VAS income The growth of our VAS income is still

Based on that service model or the connection within our community, we have developed our value-added services combining live broadcasting, premium membership, comic audio drama, premium course, fan charging, etc. And all of that is closely related to the current community and our content. In the fourth quarter, our overall fast revenue grew by 22% year-over-year.

And in these WAAS services, I think the one with the most potential growth and the fastest growth will be live streaming. Why? Because live streaming is still among all that services we believe within that live broadcasting probably has most the biggest potential and could grow the fastest

because we believe live broadcasting is more universal. Anyone could be a live broadcasting host. Last year, 1.8 million of content creators earned income on Bilibili through live broadcasting. And this is a universal and very low entry barrier monetization model for all content creators.

Although it is a platform now, there will be live broadcasts. Even though there are many platforms who are doing live broadcasting business, but Bilibili's live broadcasting is still very, very unique. That is because in terms of the content creators slash hosts,

as well as the content categories of our live broadcasting has very much similar offerings or minerals that we have in the PUGB community.

Let me give you an example. When we think of live streaming, we often think of it as impulsive consumption, such as hormones and so on. But the live broadcast of Bilibili is different. Most of our live broadcasts are actually fans' emotions for the long-term attention of the owner of the app. Let me give you an example. In 2023, the monthly subscription of DaHangHai's income accounted for one-third of our entire live broadcast income. DaHangHai's project has the shortest time of one month. And then there are a lot of I'll make an example here. While many others might think live broadcasting is an impulse or hormone-driven payment, however, if you're looking at Bilibili's live broadcasting revenue component,

close to one-third of our revenue actually generated from a multi-subscription model called The Great Voyage. And for this particular payment, it's a reflection or representation of a fan's devotion and appreciation for our content creator over at least a month. And many of our paid users are actually subscribing for several months ahead. Their renewal rate is very high. This example distincts us from the traditional live broadcasting platform because the connection with our content creators, the host and the user is quite unique and lasting.

Our live broadcast business is still based on the PUDC ecosystem of Bilibili. There are nearly 1 million live broadcasts on Bilibili on Q4. And then these live broadcasts, only a part of them come from the third party. Most of them actually come from our own ecosystem, which is what we do on Bilibili. As for the content supplier, which is the host, if we look at the fourth quarter, near a million hosts were active on Bilibili. Only a small portion of them were from professional guilds.

Most of them are actually native content creator from our PUGV ecosystem. And this also sets us apart from other traditional web broadcasting platform is because that we're cultivating our own supply and demand within our PUGV ecosystem.

Actually, it's the same in terms of quality. Our live broadcasts have a lot of quality that has the characteristics and advantages of Bilibili. It is the same as our video's competitive advantage. For example, in terms of virtual broadcasting, we should be the strongest in China. We are the leading. Then, for example, in terms of content categories, the content category in our PUGV ecosystem can also be our live broadcasting categories, especially the categories where Bilibili has our own unique advantage,

such as the virtual content creators, we are considered to be, if not the most leading platform in China. And also knowledge-based content, such as legal-related live broadcasting. It's hard to imagine this category to be a top vertical on other platforms, but it is very popular on visibility.

As for our priorities for live broadcasting business in 2024,

we'll be putting a lot of priorities in terms of the quality of our revenues as the gross profit and gross profit margin of this business. We hope to achieve sustainable and high quality revenue growth in my broadcasting in 2024. Thank you.

One moment for the next question. Our next question comes from Felix Liu from UBS. Please go ahead.

Thank you for accepting my question. My question is about our advertising business. The income of 4G advertising exceeds the expectation of the market, and our increase in momentum is much faster than the industry. So I would like to ask what is the main driver of the 4G advertising income increase? Let me translate myself. Thank you, management, for taking my question. My question is on the advertisement business. I noticed that your first quarter advertisement delivered a strong world momentum. So may I check the reason behind this good performance? and what is your outlook for the advertisement business for 2024? What will be the key growth drivers from here? Thank you.

In 2023, the annual advertising revenue exceeded 6.4 billion, and the net growth exceeded 27%. In Q4, the net growth of our advertising revenue was 28%. So the overall revenue of advertising increased from 25% last year to 30%. It also directly drives the overall revenue growth rate of the company.

Our advertising revenue in 2023 totaled about over $6.4 billion, marking a 27% young year growth. And in the fourth quarter, advertising revenue grew by 28% year over year, contributing 30% of our total revenue. up from 25% the same period of last year. The increase in as revenue and its proportion has directly a result of improving our gross margin and gross profit.

This is a summary of Q4 2020-2023 annual growth drive. First, let's look back at Q1 2020-2023. Actually, we proposed a strategy for the whole year, which is one red and one heavy. and at the same time focus on the opportunity of community trading. Yiheng refers to the ability of the business center, including the flow strategy we mentioned, the ability to calculate and the data construction. Yizhong refers to the vertical industry strategy. We turn the original brand-based advertising, the effective advertising, and the model of integration and marketing into the ten largest vertical industries. The ultimate goal is to provide customers with better experiences and ROI. And the first, please allow me to recap what we have done in 2023 and in the fourth quarter and the growth driver.

In the beginning of 2023, we have put forward Yi Heng Yi Zou strategy while paying close attention to the opportunity brought by the active commerce activities within our community. Yi Heng refers to the middle platform capabilities for commercialization, including our traffic strategy, algorithm capabilities, and our data power development. And the refers to our vertical industry strategies. Our ultimate goal is to provide customers with a better ad placement experience and higher ROI. And then we have formed 10 vertical strategies for different industry verticals. We believe We also believe in the revenue potential that fall from active commerce related activities within our community. As we sticking to the open loop strategy, we plan to connect Bilibili into a more broader ecosystem with our e-commerce partners.

As we have already shared a lot of information and cases about eco-neutral strategy in previous calls, I will not dive into more detail here.

However, because of that strategy, our advertising revenue has also exceeded expectations for the first three quarters of 2024. And now I will share some additional highlights in fourth quarter.

First, we are able to leverage our advantage in the big events in specific verticals and to catch the momentum of the new product launch stage.

I'll make two examples here. First of all, in the gaming industry, we have made record high grossing during few new games open beta testing stage, such as the Dream Star, as well as the Girls Frontline 2.

The second example is that we are also familiar with the revenue from advertising. In the future, at Double 11 and Double 12, as well as the annual festival of our organization, and held many large e-commerce events. Among them, Double 11 brought the same growth rate of more than 250% compared to GMV, and the same growth rate of more than 100% in the field of live broadcasting. In fact, there are some interesting data, including the mother-child care industry. In our view, for Bilibili's users who are looking for a little bit earlier, it still brought 90% of the e-commerce platform and our brand customers' new customers.

Another example is what we've seen in the e-commerce sector. So we actually hosted several e-commerce promotion events during Double 11, Double 12, and our New Year Shopping Festival, leveraging our video and live e-commerce capabilities. Here are some interesting numbers to share. During Double 11, the total GMV generated from our live and video e-commerce increased over 250% year over year. The number of live e-commerce sessions that happened on Bilibili also increased over 100%. And additionally, here are some interesting verticals. Maybe in maternities, it might sound a little bit too mature for our users. However, we're still able to bring over 90% of new users to the baby and maternity clients through our video and live e-commerce campaigns.

Secondly is that we have strengthened our advertisement placement

capabilities. In the fourth quarter, our deep conversion capabilities, including provide ROI and order information within 24 hours, has gradually improved and matured. As a result, we're able to achieve the budget target for our customers more accurately, and therefore gain more budget from them. Advertising with deep conversion pocket contributed over 30% of our total performance as revenue in the fourth quarter. 第三点的话,在Q4我们首先尝试了多产品线的整合,包括在组织上,包括在业务策略上。 联动花火业务平台进一步的扩大了原生内容的供给,

And thirdly is that we have integrated our multiple product lines in terms of

organizational structure as well as the product offerings. For example, by integrating our Sparkle ads platform with our other ad products, we have further expanded the quantity and the quality of our native content. Therefore, it enhanced and expanded our customers' lifespan and investment cycles on our platform. Those three reasons combined with what we have said about the Yi Heng Yi Zong strategy is the key drivers for our fourth quarter advertising revenue growth.

In 2023, we will completely incorporate the context of the transaction into the content ecosystem, and realize Bilibili's transformation from a heavy market to a trading platform. We now have more than 26 million users a year who go to watch the relevant content of the delivery. Through Bilibili's delivery ads, after watching Bilibili's delivery ads, they go to the comment area or play the page, and directly click and jump to the same proportion of users. The growth is more than 200%.

As for the video and live e-commerce business that many investors were very interested about, I will share more detail on that. In 2023, we further integrated the commercial scenarios into our content ecosystem, influencing our users from product seeding to transaction conversion. In 2023, daily On daily average, over 26 million users have viewed our video e-commerce-related content. And the number of users click on the e-commerce-related videos and redirect to external platforms increased over 200%.

The second point is that the advertising It also brings new income channels for app owners. In Q4, there are more than 60,000 app owners involved in the delivery of goods every day. Among them, the app owner that we are familiar with, Lideng, has more than 160 million transactions of live delivery transactions during the Double 11 period. At this point, it is still very surprising to find out the unique advantage of Bilibili. What is that? So actually, on the other side, the video and live e-commerce product also introduced new monetization and commercialization avenues.

for our content creators. In the fourth quarter, over 60,000 content creators have participated in video and live e-commerce related activities on a daily basis. During Double 11, our home and decoration content creator, Mr. Meaden, has generated over 1.6 billion RMB GNVs through Bilibili. This demonstrates Bilibili's unique advantage in depth, in comprehensive and in-depth long-form content, especially in durable consumer and retail factors, such as home and decoration and technologies and digital products.

The second app is our women's clothing app, Yingwu. On the spot of the live broadcast in December, This actually further proves that the consumer potential of BZen's female users is huge. I think these two cases are placed on all the content platforms on the whole network. It should be a case of exceeding the period. It also proves BZen's advantage in the future trading business.

And another example would be one of our female content creators, Ying Li. In December, the total GME of her single live e-commerce session hosted by her were over 50 million RMB. And this also represents the significant consumption potential of Bilibili's female user base. And with Mr. Midan and Ms. Yingwu, these two cases, we believe this is considered to be the leading showcase across our industry peers and also showed the great potential, commercialization potential of Bilibili's community.

So in 2023, Bilibili's stock price will be more than $100 billion. In 2023, the total GMB on Bilibili's video and live e-commerce were over 10 billion RMB. We believe that the

commercial value of Bilibili's user base has just started to be realized, and they are enormous rooms for our future growth.

Right. For 2024, we are very positive about the expectation of the advertising business. We are also very confident that we can maintain this high score as high as in 2023. Let's review why we are so confident. Let's review what is the core competitiveness of Bilibili. In fact, Bilibili is the most popular platform for young people in China. At the same time, the value of the advertising platform lies in the value of the users. These young people have actually left the school. They are at an average age. They are in the space of increased consumption. So Bilibili is now a must-select platform for brands to establish a consumer mindset. Whether it's a short-term transaction transformation or a long-term consumer mindset, they will choose Bilibili.

We maintain a very positive outlook for our advertising business in 2024, and we are quite confident to achieve a high growth rate in terms of advertising revenue. So first of all, let's review Bilibili's core advantage in advertising, which will be our user base. Bilibili has the highest density of young populations in China, and the value of our advertising platform lies within its own user base. With the average age of our user being 24 years old, we believe our users' consuming power, buying power, is gradually, and Bilibili has now become the go-to platform for advertisers, to whether it's improve their brand equity in the longer term or influence users' purchasing decision and convert sales in the short term. Bilibili has become the must-invest advertising platform.

In 2024, we will stick to the original one-on-one strategy and make some upgrades. For example, we will integrate all the investment systems, including our investment ability and efficiency improvement. to realize a smart investment, a multi-faceted investment, to achieve a reliable service as soon as possible. The investment data will also allow customers to see the data of Bilibili to determine the effect of the investment. In addition to this, we will also pay special attention to the improvement of AIGC's advertising efficiency. The first part is that we will pay special attention to the improvement of investment capability and efficiency, which is also part of the upgrade. The second part is the integration of community scenes and the improvement of traffic strategy. This will further drive the ad-loading of effective ads. In fact, in 2023, it is more important for us to expand the story, PC, OTT, and many other scenes. In 2024, we will focus on combining Bilibili's large traffic scene, including our dynamic, our search, We have created a new advertising model for community natural scenes such as our hot收. In fact, in terms of technology, we have also implemented this mixed-race algorithm. In addition, our original ads will further improve our flow. To sum up, this may release more ad deposits.

Additionally, for 2024, we plan to further upgrade our e-home strategy. First of all, we will enhance our ad placement capabilities and improve its efficiency. This includes integrating our ad placement system, achieving intelligent and multi-terminal ad placement experience. And we plan to achieve automatic placement for our advertisers. at some point this year. And we'll further develop our data visualization tools, allowing clients to validate the results of their ad placement through multi-dimensional data placement. And we'll also be very paying close attention and looking to what AIGC can bring to help us to improve ad efficiency. Secondly is that we will penetrate more community scenarios and upgrading our traffic strategies to improve our outload efficiency effectively. For example, building on our last year's expansion into multi-scenarios like story mode, PC and OTT, we will focus on integrating those scenarios as well as the moment page, the search function and other community scenarios. Meanwhile, we are also looking to enhance our monetization efficiency by arranging ads videos in a hybrid mode in the recommendation page and further promote native ads. To summarize, we'll be effectively leveraging and increase our ad inventory and ad load in 2024.

Thirdly, this is also a relatively low-level trial. We let the client become the app owner. The original method is to let the client log in to Bilibili and become an app owner, become a Lanvi account. As an app owner, we will participate in the community ecosystem of Bilibili. We will release Bilibili's unique privacy and interaction advantages to the client. The budget is realized from the end of one investment. In fact, it can be operated in Bilibili for a long time.

Finally, we will actively explore the client as content creator model to encourage our advertising clients to create native content and open their own brand accounts on Bilibili. On the other hand, we will also be releasing the private domains for those advertisers and launch more interactive functions for them to interact with our users. Through these efforts, we aim to convert a single ad placement into a long-term operation and increase our client's brand equity.

Like this successful hammer industry strategy, we can duplicate it. At the same time, we can also quickly expand our customer size and flow. So I predict that this year, including in the car, digital, home, home, online, financial, education, etc., the industry can achieve a high-speed growth. The fourth point is that the trading system in 2024 will definitely be further developed. It will also bring us more surprises in advertising revenue. Thank you.

Thirdly is on our Yizhong strategy. We believe we can replicate the successful experience we had in e-commerce and games last year and replicate that model into other fast-growing sectors, such as automotive, tech, home and decoration, online services, finance and education, et cetera. And we do believe we can achieve high-speed growth rate in those verticals as well. Lastly, to summarize, we believe the further flourishing of our e-commerce ecosystem will bring us more pleasant surprises in advertising revenue in 2024. Thank you. Operator, next question, please.

Thank you for the question. Our next question comes from Lei Zhang from Bank of America Securities. Please go ahead.

Thank you, management, for taking my question. Can you give us more color on your financial outlook for 2024, including revenue, break-even path, and our cash flow trend? Thank you.

Thank you. I will take this question. As Mr. Chen mentioned earlier, one of our most important tasks for 2024 is to improve our financials and achieve a probability. The way we plan to achieve this target will be similar to what we have done in 2023. largely through the growth of the gross profit as well as expense management. Let me go through this in more detail. In 2023, our top line grew by 3% year-over-year. Our gross profit increased by over 40% year-over-year. In 2024, we expect our top line growth will accelerate and achieve double-digit growth rate with ad revenue grow at even faster rate. We expect our gross profit will also maintain high growth in 2024 as we further improve our gross profit margin, attributed by higher contribution from high margin as business. Expense-wise, we will keep improving our operational efficiency. We expect to reach non-gap operating break-even in Q3 this year. And let me share more color on our cash flow and balance sheet side. We have achieved positive operating cash flow in Q3 and Q4 2023. Especially in Q3, we have generated over 600 million RMB operating cash flow. That means our company has entered into a positive cycle for development. We expect to keep doing that and maintain positive operating cash flow throughout 2024. From the liability side, we have repurchased of repaid 1.2 billion U.S. dollar CB last year. Now, on December 31, 2023, we had approximate 2.1 billion U.S. dollar cash reserve on our balance sheet. Compared with outstanding CB of 860 million U.S. dollar, our cash reserves are sufficient to cover all of our company debt.

Thank you. Thank you for the questions. And that concludes the Q&A session. Thank you once again for joining Bilibili's fourth quarter and fiscal year 2023 financial results and business updates conference call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director of Biasente Financial Communications. Contact information for IR in both China and the US can be found on today's press release. Have a great day. That does conclude today's conference call. You may now disconnect your lines.