Bilibili Inc.

Good day and welcome to Bilibili first quarter 2024 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 Juliet 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 in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with SEC and the Hong Kong Stock Exchange. The non-GAAP financial measures we'll provide are for comparison purposes only. The definition of these measures and our 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 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. 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 first quarter 2024 conference call to discuss our financial and operating results. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. 2024 will be a turning point in our journey toward profitability. We are already steadily on this path, advancing both our financial profile and community growth in the first quarter. Total revenues for the quarter came in at RMB 5.7 billion, up 12% year-over-year. Growth in advertising and VAT revenues, in particular, accelerated at 31% and 17% year-over-year, respectively. With increasing revenue contribution from the higher-margin ad business and our continued efficient operations, we achieved a notable 45% year-over-year increase in our gross profit. And our gross profit margin reached 28.3% in the first quarter, compared with 21.8% in the same period last year, marking the seventh consecutive quarter of margin improvement. As a result, in the first quarter, our adjusted operating loss and adjusted net loss meaningfully narrowed by 52% and 56% over the year, respectively. Meanwhile, we generated RMB $638 million in operating cash flow in the first quarter. The solid progress we have made is placing us firmly on track to reach our profitability goal this year. While we focus on improving our commercialization capabilities, we continue to attract more users and foster a vibrant community. In the first quarter, our DAUs increased by 9% year-over-year to 102 million, and our MAUs grew by 8% year-over-year to a new high of 341.5 million. User engagement in the first quarter was also strong. Users are spending more time with us than ever, bringing our DAU's average daily time spent to a record 105 minutes. As a result, user total time spent on our platform increased by 19% year-over-year. As we advance through the year, we will continue to dedicate our resources to enhancing our commercialization capabilities, particularly in our high-margin revenue streams. First, we are working to advance our advertising infrastructure and efficiency to sustain the positive momentum of our ad business. Second, we will bring more high-quality games to our users. Our highly anticipated licensed game, Sanguo, Mou Ding Qian Xia, is scheduled for launch on June 13. This is the first SLG game that caters to our expanding gamer base. In addition, we will continue to increase and diversify our vast content offering to convert more paying users and improve margins. We believe these initiatives, together with our ongoing efficient operating leverage, will naturally lead to improved financial results. As we uphold profitability, we remain committed to our core mission, building a stage for content creators to shine, fostering a healthy, vibrant community for users to enjoy, and bringing value to our shareholders and partners over the long term. With that overview, let's discuss in detail our core pillars of content, community, and commercialization. Beginning with content and community. In the first quarter, our leading top content keeps thriving, with video views in games, entertainment, and the tech and knowledge categories are increasing by over 20% year-over-year. Among these leading verticals, we have emerged as a go-to platform for AI-related content and discussion in China. In the first quarter, daily active content creators and video views of AI-related content grew by over 60% and over 80% year-over-year, respectively. driving a surge in AI-related ads and making it one of our fastest-growing ad verticals. Also, we continuously boosted our support to emerging content categories, providing customized operational and traffic assistance for high-quality content creation. During the quarter, video views in automotive, home appliances and decoration fashion, and the baby and maternity grow rapidly, or up by over 40% year-over-year. These categories meet our users' involving content needs and they enter new life stages while also inherently processing strong consumer appeal. In many cases, good content can also be a good commercial, attracting more advertisers and incentivizing more creators to join our platform. For instance, ad revenues from home appliance and decoration increased notably by over 70% year-over-year in Q1, and the daily active content creators in this category grew by 30% year-over-year. As such, our community matrix in the first quarter are encouraging. Our average daily video views increased by 22% year-over-year to nearly 5 billion. Our users spent a record setting 105 minutes on platform daily in the first quarter, compared with 96 minutes in the same period last year. Meanwhile, monthly interactions exceeded 16.4 billion, up 15% year-over-year. At the end of the quarter, we had over 236 million official members, which increased by 15% year-by-year, and their 12-month retention rate remained around 80%. In terms of recent community events, Our sponsored esports team, BLG, won their first championship of League of Legends Pro League 2024 Spring Season and the second place of Mid-Season Invitational 2024, joining more esports enthusiasts to our platform. What's more, our extensive content library and the user base gave us a natural advantage to Pioneer AI exploration. we are launching various AI-related applications to benefit all stakeholders in our community, including our users, content creators, and advertisers. With our AI assistance in searching and video watching scenarios, users can gather information more efficiently and receive more personalized content recommendations. On a creator front, we launched the AI content creation tool, Beka Studio, and enabled content creators to customize their digital human and voice, improving creative efficiency. As for advertisers, we are launching a creative center, which will enable advertisers to easily generate headlines and edit materials for their ads. More importantly, With our AI-enabled algorithms, our content and ads can be more effectively matched with our users' consumption needs. Now, I would like to talk about our commercialization progress and how we achieve margin expansion and reach profitability. For the first quarter, our total revenues increased by 12% year-over-year to RMB 5.7 billion. As our biggest top-line growth driver, revenues from our advertising business were up by 31% year-over-year to RMB $1.7 billion. Performance-based ads continued to be the primary growth contributor, up over 50% year-over-year in the first quarter. We are encouraged by the results we achieved in Q1 and expected growth momentum to continue. For the first quarter, Our top five advertising verticals were mobile games, digital products and home appliance, e-commerce, automotive, and skincare and cosmetics. As I mentioned in our last quarter's earnings call, we are allocating more resources to integrate ad products within our content ecosystem in a more native, natural, and seamless way. we have made some remarkable progress in the first quarter. We integrated and upgraded our ad platforms with visualized data analysis and more user-friendly tools, empowering advertisers to bid more efficiently. In addition, as we deepen our understanding of users' consumption profiles, we are further improving our ad matching algorithm to be more accurate and targeted Collectively, these enhancements in efficiency, as well as our increasing traffic, enabled us to secure more advertising budgets from our ad customers. In addition, our video and live commerce ad products with direct sales conversion tools continue to yield results. These transaction-based ads enable advertisers to effectively transition users from product viewing to making purchases. As of last week, our total video and live commerce GMV in women's fashion and clothing has exceeded the corresponding total GMV for the entire year of 2023. In addition, our video and live commerce products provide a great way to unleash commercial value for our content creators. The number of content creators who earned income via video and live commerce more than doubled year-over-year in the first quarter. On top of the progress we made in the first quarter, we are working on more product upgrades, some of which are ready to be applied in the upcoming 6.1a Shopping Festival. We will unveil better ad placement and analysis tools allow more flexible ad formats, and expand additional ad scenarios. This empowers advertisers to achieve smarter, more creative, and integrated advertisement across our content ecosystem, leading to better branding and conversion results. Turning to our vast business, driven by the growth of live broadcasting, Revenues from our vast business increased by 17% year-over-year to RMB $2.5 billion in the first quarter. We continue to strengthen the synergies between our live broadcasting content offerings and our PUGV ecosystem, especially in our advantages content categories like games, VTubers, and entertainment. Moreover, through refined operational methods, We are also improving our gross margin while increasing the supply of high-quality live broadcasting content. The number of premium memberships remains steady at 21.9 million as of the end of quarter, with over 80% of premium members on annual subscription or auto-renewal packages. Users are also showing a growing propensity for spending on our other vast products, including our premium online courses, exclusive fan-charging video products, and virtual community accessories. We will continue to actively explore these unique community features to provide users with products and experiences they love. Turning to our Gambianess. Our revenues were RMB 983 million for the first quarter. In April, we launched an exclusive license game, Artifactors 物華迷星. This creative card game was well received by game lovers. Looking at our game pipeline, we expect to release our highly anticipated SLG game 三國謀定天下 on June 13. Over 2 million players have already pre-registered as of today. We also plan to launch a Japanese RPG title, Heaven Burn Red in the third quarter. Last but not least, as we make progress on the commercialization front, we are actively shouldering our social responsibilities as a cultural enterprise. We published our 2023 annual ESG report last month, outlining our efforts in creating and bringing value to young generations in China. Collaborating with content creators, employees, and industry partners, we strive to explore more technological innovation and engage in social welfare activities to positively impact society at large. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the first quarter of 2024. I would now like to review our first quarter financial highlights. For a closer look at our financial results, we encourage you to refer to our press release issued earlier today. Our commercialization and operational efficiency enhancement initiatives continue to yield great results in the first quarter. We improved the quality of our revenues, expanded our margin for the seventh consecutive quarter, and significantly narrowed our losses, based largely on our revenue growth and platform efficiency. Total revenues for the first quarter were $5.7 billion, up 12% year-over-year. Our total revenues breakdown by revenue stream for Q1 was approximately 45% VAS, 29% advertising, 17% mobile games, and 9% for our IP directives and other businesses. Our cost of revenues increased by 2% year-over-year to RMB 4.1 billion in the first quarter, while our gross profit rose 45% year-over-year to RMB 1.6 billion. Our gross profit margin reached 28.3% in Q1, up from 21.8% in the same period last year. Our total operating expenses were down 2% year-over-year to RMB 2.4 billion in the first quarter. Sales and marketing expenses increased by 5% year-over-year to RMB 927 million. mainly due to early promotion expenses related to the release of our upcoming SLG game. G&E expenses were RMB 532 million, down 7% year-over-year. R&D expenses were RMB 965 million, down 6% year-over-year. We cut our adjusted operating loss and adjusted net loss to RMB 512 million and RMB 456 million in the first quarter, narrowing these losses by 52% and 56% year-over-year, respectively. Our adjusted net loss ratio in the first quarter improved to 8% from 20% in the same period a year ago. For the first quarter, We also generated RMB 638 million in positive operating cash flow, demonstrating our business' ongoing healthy path for sustainable development. We expect to reach positive non-GAAP operating profit in the third quarter of 2024 through our sustained top-line growth and gross profit margin improvement. As of March 31, 2024, we had cash and cash equivalents time deposits, and short-term investments of RMB $12.9 billion, or $1.8 billion. In March this year, we completed the repurchase rise offer for our April 2026 notes. After completion of this transaction, the aggregate outstanding principal amount of April 2026 notes, 2027 notes, and December 2026 notes was $433 million. We believe our cash position is sufficient to cover all of our remaining convertible bonds. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.