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spk13: 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.
spk12: Please go ahead.
spk04: Thank you, Operator. During this call, we'll discuss our business outlook
spk05: 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.
spk14: 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 vet 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 TIAN 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 approach possibilities, 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 go-to platform for AI-related content and the discussion in China. In the first quarter, daily active content creators and the 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 Inventational 2024, joining more esports enthusiasts to our platform. What's more, our extensive content library and user base give 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, B-Cast 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 achieved margin expansion and the 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 was 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 appliances, 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 earn 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 measures, 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 game business, our revenues were RMB 983 million for the first quarter. In April, we launched an exclusive license game Artifactors 物華迷心 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 had already pre-registered as of today. We also plan to launch a Japanese RPG titled Heaven Burned Red 赤眼天窮 in the third quarter. Last but not least, as we make progress on 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 was $5.7 billion, up 12% year-over-year. Our total revenue 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&A 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 U.S. dollars. 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 the december 2026 notes was 433 million us dollar 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.
spk13: Thank you. We will now begin the question and answer session. To ask questions on the phone, please press star 11 and wait for our name to be announced. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your questions in English. The company will provide consecutive interpretations for management statement during the Q&A session. Please note that the English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. One moment for the first question. Our first question comes from the line of Thomas Cheung of Jefferies. Please go ahead.
spk11: Thanks, management, for taking my question. My question is about our online advertising business. Given advertising growth exceeds our expectation, can management comment about the key growth driver? What are the areas that we have strengthened in our ad product offerings and our ad technology upgrades? On the other hand, if we look into the Q2, in particular for June 18th, can management comment about the advertising trend and how we should think about 2024 advertising outlook? Thank you.
spk06: Thank you for this question. As for Q1, Bilibili's overall advertising revenue is actually more than 160 million yuan, which is 16.7 billion yuan. The same increase has also reached 31%. In terms of effective advertising revenue, the growth will be faster, which is 50% of the same. We have done a few core drives. The first level is mainly the user experience that Bilibili community cares about. Based on the user experience, we have achieved an improvement in advertising storage. In Q1, we still expanded the advertising scene such as dynamic search and so on. But the most important thing is that we are still based on the mix of natural and commercial traffic, so that the content of this advertisement can get more traffic and achieve the increase in inventory. Even if it achieves the increase in inventory, it still has a lot of space for us in the future. This is the first one. RR app.
spk05: Our ad revenue in Q1 reached $1.67 billion of 31% year-over-year. Among them, performance-based advertising saw a strong growth exceeding 50% year-over-year. Speaking of the key driver, one of the drivers is that while maintaining a good user experience, which we care a lot, we increased our overall advertising inventory. We further expanded our ad scenarios such as Moment and Search. And in addition, by mixing the natural and commercial traffic, high quality advertising content can gain more organic traffic, resulting in an increase in effective ad inventory. Having said that, as we increase our effective ad inventory, our ad load is still low and have significant room to expand. compared to other platforms.
spk06: Second growth driver is that we have integrated our Sparkle ads and our advertising system as well as to improve our ad placement tools.
spk05: We have enabled and achieved Spark's app placement in different app scenarios. In Q1, over 50% of the Sparkle apps also purchased our content promotional service, aka Project Takeoff, CFA. We also launched a creative center to enable bulk processing of app materials. And also we believe the continuous exploration of AIGC-related functions can help us to improve our ad efficiency.
spk06: In addition to this, we are also very concerned about the overall ecosystem of our app team. We have also upgraded our app team's take-off and take-off function to a product called B.H.O.R. It is already open to the entire app team. At B.H.O.R., you can achieve the complete path of how to make content, heat, grow powder, and achieve transformation. You can achieve this through this product. And secondly, on our content creator site, we've launched our content promotional tools for content creator.
spk05: Project Takeoff now has been officially upgraded to a new product called Bi Huo, which was made available to all content creators in Q1. The function allows content creators with one-stop service to promote their content through paid traffic amplification. They can also increase fans and improve their monetization capabilities. The number of clients who purchased our content promotional service in Q1 increased by 190% year-over-year, while the repurchase rate and the satisfaction rate continues to improve.
spk06: As for the third point, we have improved the overall business data infrastructure and improved the efficiency of the algorithm, deepening various business labels. In other words, we can provide advertisers with more comprehensive and comprehensive guidance, including their data quantity, And thirdly, we have optimized our marketing data infrastructure and improved our algorithm efficiency.
spk05: We refined various commercial tags to provide advertisers with more comprehensive measurement and guidance on branding and marketing outcome. Currently, we have already launched a trial version of our B data and Z index for advertiser in-game mobile phones and cosmetics. We expect Q3 and Q2 will push it out to more industry verticals.
spk06: The fourth point is that our vertical industry-based solution is actually further deepening. Still in our top three industries, it is our games, digital home appliances, and platform telecom. The gain is all in the large double-digit number. In terms of games, we are still stable in the advantage of premium games. We provide full-chain services. The latest has also increased the gain of small games. Our future improvement is also more than 50%. This is a game. In terms of digital add-ons, the consumption of mobile phone industry is actually more than 10%. In the future, I believe that digital add-ons will also have more room for competition. In the future, everyone can pay more attention to the platform e-commerce. We have realized some restructurings in the original structure. In addition to JD, Taobao, Tianmao, and Pinduoduo, we also expanded cooperation with Weipinghui, Dewu, Xianyu, etc. In the upgrade of non-economical nodes, it is still very good. Another one is that we are still critical to actively introduce business budget with e-commerce platforms. This will be a big argument and argument in the future. So I also believe that in some of the methods in these three industries, we can copy the argument that car, internet service, medical education and other industries achieve higher rates of growth. These four points are the core drivers of QE.
spk05: And the fourth growth driver is that we have deepened our vertical industry solutions. In Q1, games, digital products, and home appliances and e-commerce platforms are our top three growth sectors, with growth around high double digits year over year. In the gaming sector, we have focused on high-quality games covering all stages in their game operation from prelaunch to long-term operations. Notably, we have captured incremental shares in minigames market, resulting a 50% increase in daily ad spending. And on digital and common appliances, We've already took over about 10% of the market share in smartphone app market. And in the future, we believe there's still significant growth potential for other digital products and home appliances. And we move on to the e-commerce platforms. For this quarter, we have achieved diversified customer structure. Besides the traditional partner, Taobao, Jingdong, Tianmao, and Pinduoduo, we have expanded our collaboration with VIP Shop, Dewu, and Xiaoyu. We improved our art pool during our non-shopping festival period and introduced additional budget with other key active merchants. And we do expect those advertising budget from merchants will continue to drive our advertising growth. As to sum up, we do expect we can replicate that solution and apply to more additional verticals, including automotive, internet services, healthcare, and education industries. Meanwhile, we will continue to expand to more clients with more industries.
spk06: 刚才也提到618, 618相对于去年的618来说, 涨幅还是超过30%的, 就是B站也看到在所有的电商节点的预算, 拿到客户的预算的占有率, 其实是越来越提升的,也在前几。 So, we still insist on the strategy of the grand opening. We have established a deeper cooperation with Ali, Jindong, Pinduoduo, and Weiping. But there are two things that are different and deepened from the past. In the past, we would upgrade from pure traffic-based cooperation to both traffic and content cooperation. For example, our brand, Yingguang, has increased by 40% in the same ratio. This can actually prove the value of Bilibili's crowd. But this year, Taobao Tianmao has added a new way of playing with our partner Huahuojia. Jindong is still actively participating in all of our conference events. It also combines the flow and the value of the content to form a new model and model. The second point is that we originally started from a platform-to-platform collaboration. It has also become a platform-to-business collaboration model. So 618, our overall platform budget has increased by more than 30%, but our business budget is actually still more than 250%. So in the future, we will strengthen this kind of vertical industry cooperation, which will lead to a heavy stir on B站, and at the same time, we can realize the entire whole chain of transaction consumption.
spk05: And you asked about our June 18th performances. We do expect, we estimate the growth during June 18th shopping festival this year will be around, will be over 30% year over year. And we have further increased our shares of advertising budget at this significant shopping festival. This year, we'll continue to execute our open-loop strategy, establishing deep partnership with Alibaba, JD, Pinduoduo, VFC Shop, and others. Additionally, we also have two upgrades in our strategy. First is that we will upgrade our partnership from pure traffic collaboration to traffic plus content collaboration. Brand advertising revenue is expected to increase by 40% year over year during this period. This year, Taobao also introduced a new budgeting targeting, targeting total GMB from purchasing Sparkle plus content promotion. And JD is also actively engaging in our integrated marketing activities, combining both traffic and content value strategies Secondly is that we will transition from platform to platform collaboration to platform plus merchant collaboration. Platform budget for 618 will be expected to increase by 30% year over year, while the merchant budget is expected to increase significantly over 250% year-over-year. We will strengthen the collaboration with more vertical industries and encourage more consumption-related behavior from product seeding to purchasing transitions during the period.
spk06: more and more reflective of some of the data, so that everyone can feel the current state more clearly. The user consumption mentality is actually improving relatively quickly. So in Q1, we are looking at the content of the transaction, and the number of users is actually 37.2 million. The same amount of growth is also more than 100%. This kind of data can still show that users' awareness of the transaction scene is actually getting stronger and stronger. The second data is that the growth of the same ratio of the up主 who get the income is also more than 100%. These data prove that we will have a lot of room for growth based on advertising in the trading system in the future. Now in the trading industry, our four major industries are 3C, 3C home appliances, home appliances, and food and drink, clothing and makeup. Speaking of the June 18th Shopping Festival, let me briefly touch on some of the data points that reflect the current situation on Bilibili.
spk05: So first of all is that we've noticed that consumption willingness among Bilibili users have further improved. In Q1, the number of users have watched transaction related content has reached over 37 million, nearly doubling year over year. And we believe our users have more mindset and perception towards watching commercial or e-commerce related content on our platform. At the same time, our content creator are benefiting from this improvement. Content creator has received income or generate revenue through live and video comments also increased over 100% year over year. and we believe there's a lot more potential for us to further get into. And for the transaction-related advertising sectors, the top four industries in terms of transaction volumes are digital products and home appliances, food and beverage, apparel, and beauty and cosmetics. And to sum up, we remain very confident to maintain a high growth rate for our advertising for the full year. Thank you. Operator, next question, please.
spk13: Thank you. Next question comes from the line of Lei Cheng from Bank of America. Please go ahead.
spk07: Hi. Good evening, Manager Cheng. Thank you for accepting my question. Congratulations on the very strong advertising revenue. Thank you for taking my question. Congrats on a strong advertising growth. My question is mainly about the game business. Can you give us some updates on the overall game outlook for this year and also your expectation about the upcoming new game 三国摩天仙侠. Thank you.
spk15: Bilibili has always been the highest quality game video platform in China. It is also a community with the highest number of game players in China. So this advantage allows Bilibili to do game business with the advantage of the main venue.
spk05: So Bilibili has always had the largest and the most high-quality game-related content library. At the same time, we have the highest density in terms of high-quality gamers. This gives us a great advantage in the gaming business.
spk15: For the full year, when we think about game business, there's two words to some of our direction. One is stable, and two is we're looking for new things. Stability is more important to us when it comes to our classic old games. We pay more attention to their users' maintenance and their continuous innovation in terms of content. So we can see that our classic old games have improved the players' age this year. And they also show their youthful vitality.
spk05: Stable is referring to that Bilibili is paying a lot of attention to our legacy classic games. We expect to achieve a very long-term operation, maintaining the stickiness of our gamers and also to see continuous innovation in terms of content. We have witnessed that For the gamers in our legacy games, their retention level and engagement level has increased continuously. At the same time, showing a very robust longevity.
spk15: For example, FGO has been operating in China for eight years. We can see that in April, it successfully entered the top ten of the IOS chart again. And then Bilan Line, we entered the seventh year this year. That is, in May, just during our 7th anniversary, it also entered the top 10 of the IOS sales list.
spk05: FGL, one of our most popular legacy games, has entered, has already launched for, been launched for eight years. And for this year, during its April content upgrade, this game has returned to the top iOS grossing chart. As for Azur Lane, it's also a seven-year-old game. And for the seventh-year anniversary, which happened just now in May, this game once again returning to the top 10 grossing chart on iOS as well.
spk15: Actually, for these old games that have been time-tested, I think they did better. In terms of efficiency, it's actually better than us looking for a new game. So we will definitely make the operation more detailed. And then a game like FGO, because I'm an FGO player, I think after you've played it for eight years, it's already become a part of your life. And then a lot of your topics and friends are on it. So we think And from Bilibili's perspective, to operate these tested games for a longer period of time, its return for us is even better than syncing new games.
spk05: what we will plan to do is continue to refine our operation, maintain a long life cycle. As an FGO player myself, I can see that FGO has become part of my life and I will continue to play it if the game is there. So we're confident we can continue to operate this game. towards its 10th year anniversary or even longer.
spk15: I'll give you two examples of new games. Based on the old games we made, if we want to make an increase, we have to make new games. In April, we released a 2D game called Wuhua Mixin. This game has a 2D style in terms of aesthetics, but it has a very typical Chinese style in terms of materials and cultural connotations. a work of art. It is a game that uses Chinese culture as a world view of women. In fact, the users it introduces in this game is just an increase. It is what we have not covered in the past. It is in the hands of the Chinese culture itself, but it also accepts the users of the secondary aesthetic part. This game's results in the second quarter are actually in line with our expectations. It is an obvious increase for our second quarter. And speaking of new games, we actually launched a new game in April called Arctic Crafter. It's a Chinese-style ACG game. The artistic style can be classified as ACG title.
spk05: but the story and the plot and the game play is actually very traditional Chinese. It was based on cultural relics as its own persona, very creative. We've noticed this type of game has opened a new demographic to us, the traditional Chinese cultural lovers. So we'll continue to look for new opportunities with the HCG+, new categories to help us to expand to more gamer demographics. As for this game, Archie Crafter, We think this game's performance so far has met our expectations and it will contribute to our game revenue in the second quarter.
spk15: For the second example of a new game, I would like to mention the game you mentioned earlier, The Three Kingdoms. This is an SLG game. As for another game, I would like to make an example of it. You were asking. For this game, we already set the launch date at June 13th. And for this game, it already has over 2 million pre-registration users, and we have done multiple rounds of paid, non-paid beta testing, as has received very good feedback from the gamers. Let me use this game as an example to talk about how we explore innovation in the game industry. We signed this game the year before last. We decided to work with its developer. This is not a matter of our awareness. Instead, we found that Bilibili has a large number of users who are interested in history, humanities, military, and political economy. Because Bilibili's knowledge is very strong. I will elaborate a little bit on how we plan to explore into new fields.
spk05: S.L.G. game, actually we signed this, we have signed this game the year before last year. The reason behind that is not, it's not a spur of moment, it's that we have discovered unbelievably there's a big demographic who are interested in topics in history, military, political knowledge, As you know, that knowledge has been a very big content category on Bilibili. So to satisfy this group of users or potential gamers' needs, we have signed this SLG game. So far, the feedback has been very positive and showing that this strategy is working.
spk15: After we confirmed the three-nation SLG, we are actually We have made a lot of innovations in terms of games. Because the users of Bilibili are basically post-90s, post-95s, post-00s. So their aesthetics, including some of their preferences in terms of games, must be different from the mainstream SLG games in the market. For example, they will pay more attention to fun rather than fighting. For example, they may be more So as we set up the target on SOG strategy, we have worked together with the game developer to conduct many innovations in the game.
spk05: As you know that we have a massive Gen Z users. For this group of users, their preferences towards SOG has evolved compared to the older generation. They value a lot of the gameplay, the fun in the gameplay, over the competition, the battle itself. And also they care about whether it requires to top up a lot of money and spend a lot of time on the game. So on this field, we have targeted solutions and to improve this gameplay. So far, the user feedback has been very positive.
spk15: Yes, I'm using these two games to give an example of the innovation and exploration we have done in the game industry for the future. And those two examples show our strategy and thinking in terms of the game business innovation and long-term strategy. As a matter of fact, Bilibili is the biggest
spk05: game content community has the largest game-related video library. So we'll continue to focus on this track and aim to bring more high-quality games to our users.
spk03: Operator, next question, please.
spk13: Thank you. One moment for the next question. Our next question comes from the line of Xueqing Zhang from CICC. Please go ahead.
spk08: Thank you for taking my question about user engagement.
spk02: The company's first quarter time span hit a new high, and the average daily VV also achieved good growth. So what's the main driver behind that, and which content categories are expected to have great potential in the future? Thank you.
spk15: I think first of all, we are still maintaining an obvious growth in the original advantage category. Because Bilibili is actually on some of the new products, including some of the competitive advantages of some of the content of some of the products. For example, like knowledge, for example, like mobile games, for example, like digital technology, it is very obvious. And then, and these are also the needs of the users themselves. So, keeping our competitiveness in these categories will lead to growth. Last year to this year, we had 37%, 28%, and 24% of the video playback of technology, knowledge, and games. For example, if we continue to do well in our original advantageous category, it will lead to new growth.
spk05: So as a matter of fact, Bilibili has its own content categories that's very advantageous compared to other platforms. And users have a strong mindset of looking for that type of content on Bilibili. This includes knowledge, ACG, tech, and digital products, and et cetera. And for this type of content categories, users have hardcore needs. they naturally want to watch this type of content. As long as we stay competitive, continue to enhance our leadership in this category, we will experience natural traffic growth. For example, this year that we are looking at the technology, tech, knowledge, and game sector, for this sector's VV has increased 37% 28% and 24% respectively.
spk15: And then in addition to that, we continue to dig deeper in the original priority category, we also pay great attention to the new needs of our current users. For example, we have announced that the average age of our current B站 users is now 24 years old. At the age of 24, according to the strictest marriage standard, their child should also be one year old. As we
spk05: enhance our leadership counting categories, we're also actively exploring new categories. For example, the average age of a Bilibili user is already 24 years old. For some of the demographics, by theory, their children could be around one year old. So we've naturally seen those content consumption needs rises including baby maternity automotive and home appliances etc for example in q1 video views in baby and maternity grew by over 100 percent and we're also seeing strong growth for automotive and home appliances home decorations
spk15: to bring more content creators to join and then realize a more positive cycle of our ecosystem.
spk05: At the same time, for this emerging content categories, we are naturally attracting more content creators to join our platform, forming a virtuous cycle.
spk15: Yes, because of the two strategies that we just talked about, our Q1 DAO has a 9% similar growth rate. So in the first quarter, our overall community has delivered a strong growth. Our DAU grew by
spk05: and our video views grew by 22%. The daily average user time spent has reached a historical high of 105 minutes. This all demonstrating our strategy of content development and community operation is very effective. We will continue to execute a strategy and to achieve sustainable growth going forward. Operator, next question please.
spk13: Thank you. One moment for the next question. Our next question comes from Felix Liu from UBS. Please go ahead.
spk09: Thank you for accepting my question. I also congratulate the company for its performance in the first quarter of this year. My question is also about the interest rate. I want to see which aspect of the interest rate we did better. Thank you, management, for taking my question and congratulations on the good GP margin performance in the first quarter. May I check, you know, what specific areas you did well in cost control? How do you see the mid-long-term margin outlook as well as the third quarter profitability target, if any update to that. Thank you.
spk14: Thanks, Felix. This is Sam. I will take this question. In Q1, our total revenue grew by 12%, when cost of revenue only increased by 2% year-over-year. So our gross profit increased by 45%. Thanks for the improved operational efficiency, our non-GAAP operating expenses decreased by 2% year-over-year and 8% quarter-over-quarter, which leads to further loss reduction. Our path to profitability is mainly driven by the revenue growth and the continuous growth profit improvement, which we believe is more sustainable. Specifically, the growth profit margin has increased, reaching like 28% in Q1. The main reason for this improvement contributed by the high margin-bearingness such kind of our ad revenue, which increased by 31% year-over-year, and now the sales mix has come to like 29%. Based on the current business development trends, we expect that in Q2 and Q3, with the continuous rapid growth of the advertising business and the recovery of our game business, we'll resume the year-over-year growth. our gross profit margin will further improve quarter over quarter, and to reach 30% gross profit margin in Q3, and we were achieving non-GAAP operating break-even in Q3. We are quite confident to achieve that. In the longer term, the gross profit margin will depend on the scale of the revenue and the mix of each business line. We still believe there is great potential there. Meanwhile, the achieving push even is just our first step. We will allocate more resources on enhancing our commercialization efficiency while continuing to refine the operational strategies to achieve sustained improvements in both of the gross profit margin and the net profit margin. Thanks for the question.
spk13: Thank you. Our last question. comes from the life of Lincoln Kong from Goldman Sachs. Please go ahead.
spk10: Thank you, Mr. Guan, for accepting my question. I want to ask about our paid business. I see that our company has nearly 30 million paid users. In addition to traditional members, we have also launched some paid courses, social decoration, and political service. How do you think about the future development of our community-based paid business? So, thank you, Majoran, for taking my question. So, my question is about the paying users business. So, we see the company has now close to 30 million paying users, so on top of the traditional subscription membership, we have also successfully launched a value added service such as content creator charging, paid courses, or community decoration. So how does the company think about the prospects of this community-based content payment business? Thank you.
spk06: First of all, Bilibili is actually a video community based on interest. So Bilibili's users always have three characteristics, which are high-end, active, and up-to-date. So users have a sense of recognition and belonging to the community. it will become a kind of wiretapping mode where the content is paid back to the community.
spk05: So Bilibili has always been an interest-based video community. And Bilibili user has three key characters, one high retention level, high engagement level, and high ARPU. And because all the users have strong sense of belonging towards our community, and also have a sense of belonging towards the community. It all makes content, pay for content, is a natural monetization method for availability.
spk06: On our premium membership business, at the end of the first quarter,
spk05: we have close to 22 million premium paid members. And this interesting number is that 80% of them chose long-term commitment payment, aka the monthly automated subscription or yearly subscription. This is what sets us apart from the regular content platforms.
spk06: In addition to live streaming and large member businesses, we have been exploring and exploring some business models in the community for the past year or two, including paid classes, charging, community decoration, etc. In fact, these are all users who can get a better sense of achievement and a better experience after paying. At the same time, they can also express their support for their favorite app owners or their favorite IP. In fact, the app owners use these new ways, which is also their new income channel, to make the whole community use a healthier political cycle.
spk05: So on top of traditional live broadcasting and premium membership, we have continuously explored more business models to better combine our community and content. This includes the premium courses, charging stations for our content creators, as well as the cosmetic custom business. And users generally will gain more experience and feel better after paying for this type of service. At the same time, they can also express their liking and appreciation towards their favorite content creator or their favorite IP. At the same time, our content creator can gain a new avenue of monetization. This is forming a virtuous growth cycle for our community.
spk06: The total revenue of Q1, including members, paid classes, charging, and other content, is close to 100 million. So here you can see that the paid classes, in addition to the professional courses that we traditionally know, also cover life skills, interest, knowledge, emotions, and so on. This class has also become one of the most important ways to transform the B站 knowledge area. In Q1, the premium membership, premium courses, charging, as well as the community costumes combined together, their total revenue is already close to RMB 1 billion.
spk05: First is on the premium courses. On top of the traditional professional courses, our courses covers a wider category, including life skillset, interest-based knowledge, even relationships. It's more diversified. And the premium courses has already become a primary and important avenues for our content creator in the knowledge sector to monetize. In Q1, the number of content creator that gain revenue from the premium courses has grew by over 450%. And the overall revenue also increased by 45% year over year.
spk06: Let's take a look at the original charging mode. We have upgraded it. In fact, the total number of users who participated in the Q1 is 47%. In the past, there was a case that everyone paid more attention to, which is our app called 10 channels. In the past six months, they have only uploaded four high-quality documentaries. Until now, they have received more than 10 million charges. And secondly is that we have upgraded our charging program recently to extend it to exclusive fan charging videos.
spk05: In Q1, the number of content creators that received income from the charging project has increased 47% year-over-year, and the total GMV of the charging program has increased 125% year-over-year. An example would be one of our content creators named Shiping Dao. Over the past six months, he released four episodes of high-quality documentaries. And at the end of the first half of May, his GMV has exceeded RMB 10 million. And from this case, we do think that in many new areas such as the short play, short documentaries, and short movies actually has great potential and we are quite excited about Bilibili.
spk06: In the second half of this year, we plan to systematically review and upgrade our value added services, including those content services.
spk05: We are quite confident for this part of the business will continue to bring additional revenue and help our content creator to gain more revenue. Thank you. Operator, that concludes this question.
spk13: Thank you. And that concludes the question and answer session. Thank you once again for joining Bilibili's first quarter 2024 financial results and business update conference call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director of Piyasanti Financial Communications. Contact information for IR in both China and the US can be found on today's press release. Thank you and have a great day. Thank you.
spk00: Thank you. Bye.
spk13: 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.
spk12: Please go ahead.
spk04: Thank you, Operator. During this call, we'll discuss our business outlook and make forward-looking statements.
spk05: 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 measure we'll provide are for comparison purpose 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.
spk14: 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 advance revenues, in particular, accelerated at 31% and 17% year-over-year, respectively. With increasing revenue contribution from the higher margin-add 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 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, users' 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 Mouding Tianxia, 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 co-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 tech and knowledge categories, or 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 appliance and decoration, fashion, and baby and maternity grow rapidly, all 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, added 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-over-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 user base give 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 they 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 our 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 algorithms 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, Revenue 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 measures, 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 Burned 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.
spk13: Thank you. We will now begin the question and answer session. To ask questions on the phone, please press star 11 and wait for our name to be announced. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your questions in English. The company will provide consecutive interpretations for management statement during the Q&A session. Please note that the English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. One moment for the first question. Our first question comes from the line of Thomas Cheung of Jefferies. Please go ahead.
spk11: Thanks, management, for taking my question. My question is about our online advertising business. Given advertising growth exceeds our expectation, can management comment about the key growth driver? What are the areas that we have strengthened in our ad product offerings and our ad technology upgrades? On the other hand, if we look into the Q2, in particular for June 18th, can management comment about the advertising trend and how we should think about 2024 advertising outlook? Thank you.
spk06: Thank you for this question. As for Q1, Bilibili's overall advertising revenue is actually more than 160 million yuan, which is 16.7 billion yuan. The same increase has also reached 31%. In terms of effective advertising revenue, the growth will be faster, which is 50% of the same. We have done a few core drives. The first level is mainly the user experience that Bilibili community cares about. Based on the user experience, we have achieved an improvement in advertising storage. In Q1, we also expanded the advertising scene such as dynamic search. But the most important thing is that we are still based on the mix of natural and commercial traffic, so that the content of this advertisement can get more traffic and achieve the increase in inventory. Even if it achieves the increase in inventory, it still has a lot of space for us in the future. This is the first one. RR app.
spk05: Our ad revenue in Q1 reached $1.67 billion of 31% year-over-year. Among them, performance-based advertising saw a strong growth exceeding 50% year-over-year. Speaking of the key driver, one of the drivers is that while maintaining a good user experience, which we care a lot, we increased our overall advertising inventory. We further expanded our ad scenarios such as Moment and Search. And in addition, by mixing the natural and commercial traffic, high quality advertising content can gain more organic traffic, resulting in an increase in effective ad inventory. Having said that, as we increase our effective ad inventory, our ad load is still low and have significant room to expand. compared to other platforms.
spk06: Second growth driver is that we have integrated our Sparkle ads in our advertising system, as well as to improve our ad placement tools.
spk05: We have enabled and achieved Spark's app placement in different app scenarios. In Q1, over 50% of the Sparkle apps also purchased our content promotional service, aka Project Takeoff, CFA. We also launched a creative center to enable bulk processing of app materials. And also we believe the continuous exploration of AIGC-related functions can help us to improve our ad efficiency.
spk06: In addition to this, we are also concerned about the overall ecosystem of our Ops team. In addition to the Ops team's launch function, we have also upgraded to a product called B.H.O.R. It has been opened to the entire Ops team. At B站, we can realize how to make content, heat, grow powder, and realize the complete path of transformation. We can achieve this through this product. And secondly, on our content creator site, we've launched our content promotional tools for content creator.
spk05: Project Takeoff now has been officially upgraded to a new product called Bi Huo, which was made available to all content creators in Q1. The function allows content creators with one-stop service to promote their content through paid traffic amplification. They can also increase fans and improve their monetization capabilities. The number of clients who purchased our content promotional service in Q1 increased by 190% year-over-year, while the repurchase rate and the satisfaction rate continues to improve.
spk06: As for the third point, we have improved the overall business data infrastructure and improved the efficiency of the algorithm, deepening various business labels. In other words, we can provide advertisers with more comprehensive and comprehensive guidance, including their data quantity, And thirdly, we have optimized our marketing data infrastructure and improved our algorithm efficiency.
spk05: We refined various commercial tags to provide advertisers with more comprehensive measurement and guidance on branding and marketing outcome. Currently, we have already launched a trial version of our B data and Z index for advertiser in-game mobile phones and cosmetics. We expect Q3 and Q2 will push it out to more industry verticals.
spk06: The fourth point is that our vertical industry-based solution is actually further deepening. Still in our top three industries, it is our games, digital home appliances, and platform telecommunications. The gain is all in the double digits. In terms of games, we are still stable in the advantage of premium games. We provide full chain of services. The latest has also increased the gain of small games. Our future improvement is also more than 50%. This is a game. In terms of digital add-ons, the consumption of mobile phone industry is actually more than 10%. I believe that in the future, there will be a greater space for digital add-ons. In the future, you can pay more attention to the platform e-commerce. We have realized the original structural reform. In addition to Jindong, Taobao, Tianmao, Pinduoduo, we also expanded the cooperation with Weipinghui, Dewu, Xianyu, etc. The upgrade of non-economical nodes is still very good. Another one is that we are still critical to actively introduce business budget with e-commerce platforms. This will be a big argument and argument in the future. So I also believe that in some of the methodologies in these three industries, we can copy the argument that car, internet service, medical education, etc. industries achieve higher rates of growth. These four points are the core drivers of QE.
spk05: And the fourth growth driver is that we have deepened our vertical industry solutions. In Q1, games, digital products, and home appliances and e-commerce platforms are our top three growth sectors, with growth around high double-digit year-over-year. In the gaming sector, we have focused on high-quality games covering all stages in their game operation, from prelaunch to long-term operations. Notably, we have captured incremental shares in the mini-games market, resulting in a 50% increase in daily ad spending. And on digital and common appliances, We've already took over about 10% of the market share in smartphone app market. And in the future, we believe there's still significant growth potential for other digital products and home appliances. And we move on to the e-commerce platforms. For this quarter, we have achieved diversified customer structure. Besides the traditional partner, Taobao, Jingdong, Tianmao, and Pinduoduo, we have expanded our collaboration with VIP Shop, Douwu, and Xiaoyu. We improved our art pool during our non-shopping festival period and introduced additional budget with other key active merchants. And we do expect those advertising budget from merchants will continue to drive our advertising growth. As to sum up, we do expect we can replicate that as solution and apply to more additional verticals including automotive, internet services, healthcare, and education industries. Meanwhile, we will continue to expand to more clients with more industries.
spk06: I just mentioned 618. Compared to last year's 618, the growth was still more than 30%. Bilibili also saw that the share price of all e-commerce nodes that received the customer budget is actually increasing. It's also in the early stages. So, we still insist on the strategy of the grand opening, which has established a deeper cooperation with Ali, Jindong, Pinduoduo, and Weiping. But there are two things that are different and deepened from the past. In the past, we would upgrade from pure flow-based cooperation to both flow-based and content-based cooperation. For example, our brand, Yingguang, has increased by 40% in the same ratio. This can actually prove the value of Bilibili's crowd. But this year, Taobao Tianmao has added a new way of playing with our partner, Huahuojia. Jingdong is still actively participating in all of our venue activities. It also combines the flow and the value of the content to form a new model and model. The second point is that we originally started from a platform-to-platform collaboration. It has also become a platform-to-business collaboration model. And you asked about our June 18th performances.
spk05: We do expect, we estimate the growth during June 18th shopping festival this year will be around, will be over 30% year over year. And we have further increased our shares of advertising budget at this significant shopping festivals. This year we'll continue to execute our open loop strategy, establishing deep deep partnership with Alibaba, JD, Pinduoduo, VFC Shop, and others. Additionally, we also have two upgrades in our strategy. First is that we will upgrade our partnership from pure traffic collaboration to traffic plus content collaboration. Brand advertising revenue is expected to increase by 40% year over year during this period. This year Taobao also introduced a new budgeting targeting total GMB from purchasing Sparkle plus content promotion. And JD is also actively engaging in our integrated marketing activities combining both traffic and content value strategies. Secondly is that we will transition from platform to platform collaboration to platform plus merchant collaboration, platform budget for 618 will be expected to increase by 30% year over year, while the merchant budget is expected to increase significantly over 250% year over year. We will strengthen the collaboration with more Vertical industries encourage more consumption-related behavior from product seeding to purchasing transitions during the period. 提到618稍微带一下B站的整个交易越来越繁荣,一些数据可以让大家比较清楚的可以感受现在的状态。
spk06: The new user consumption has actually increased relatively quickly. So in Q1, we are looking at the content of the transaction. In fact, there are 37.2 million users, which is more than 100% of the same increase. This kind of data can still show that users' awareness of the transaction scene is getting stronger and stronger. The second data is that there is also more than 100% growth in the same rate of income by bringing goods. These data show that in the future, the trading system will have a lot of room for growth based on advertising. Now, in the trading industry, our four major industries are 3C, 3C home appliances, home appliances, and food, clothing, and makeup. These are some of the trading data brought by 618. Overall, we are very confident in the growth of advertising this year. Thank you, everyone.
spk05: Speaking of the June 18th Shopping Festival, let me briefly touch on some of the data points that reflect the current situation on Bilibili. So first of all is that we've noticed that consumption willingness among Bilibili users have further improved. In Q1, the number of users have watched transaction related content has reached over 37 million, nearly doubling year over year. And we believe our users have more mindset and perception towards watching commercial or e-commerce related content on our platform. At the same time, our content creator are benefiting from this improvement content creator has received income or generate revenue through life and video comments also increased over 100% year over year and we believe there's a lot more potential for us to further get into and for the transaction related advertising sectors the top four industries in terms of transaction volumes are digital products and home appliances, food and beverage, apparel, and beauty and cosmetics. And to sum up, we remain very confident to maintain a high growth rate for our advertising for the full year. Thank you. Operator, next question, please.
spk13: Thank you. Next question comes from the line of Lei Cheng from Bank of America. Please go ahead.
spk07: Hi, 管理層,晚上好,謝謝接受我的提問,恭喜非常強勁的廣告收入。 我的問題其實是關於遊戲的, 請管理層幫我們分析一下今年整體遊戲的一個趨勢, 還有可不可以分享一下對這個我們新的SLG遊戲 三國謀定天下的一個初步的展望呢,謝謝。 Thank you, Madison, for taking my question. Congrats on a strong advertising growth. My question is mainly about the game business. Can you give us some updates on the overall game outlook for this year, and also your expectation about the upcoming new game, Sankuo Moutin Kinshasa? Thank you.
spk15: Bilibili has always been the most high-quality and rich platform for video games in China. It is also a community with the highest number of gamers in China.
spk05: That's why Bilibili has always had the largest and the most high-quality game-related content library. At the same time, we have the highest density in terms of high-quality gamers. This gives us a great advantage in the gaming business.
spk15: For the full year, when we think about game business, there's two words to some of our direction. One is stable, and two is we're looking for new things. Stability is more important to us when it comes to the long-term operation of classic old games. It's more important to them to maintain their users and continue to innovate in terms of content. So we can see that these classic old games in our hands have improved the players' age this year. And it also shows their youthful vitality.
spk05: Stable is referring to that Bilibili is paying a lot of attention to our legacy classic games. We expect to achieve a very long-term operation, maintaining the stickiness of our gamers and also to see continuous innovation in terms of content. We have witnessed that For the gamers in our legacy games, their retention level and engagement level has increased continuously. At the same time, showing a very robust longevity.
spk15: For example, FGO has been operating in China for eight years. We can see that in April, it successfully entered the top ten of the IOS chart again. Bilan Hangxian entered its seventh year this year. In May, during our 7th anniversary, it also entered the top 10 of the IOS sales list.
spk05: FGO, one of our most popular lex games, has already been launched for eight years. And for this year, during its April content upgrade, this game has returned to the top iOS grossing chart. As for Azur Lane, it's also a seven-year-old game. And for the seventh-year anniversary, which happened just now in May, this game once again returning to the top 10 grossing chart on iOS as well.
spk15: Actually, for these old games that have been time-tested, I think they did better. In terms of efficiency, it's actually better than us looking for a new game. So we will definitely make the operation more detailed. And then a game like FGO, because I'm an FGO player, I think after you've played it for eight years, it has become a part of your life. And then a lot of your topics and friends are on it. So we think And from Bilibili's perspective, to operate these tested games for a longer period of time, its return for us is even better than syncing new games.
spk05: what we will plan to do is continue to refine our operation, maintain a long life cycle. As an FGO player myself, I can see that FGO has become part of my life and I will continue to play it if the game is there. So we're confident we can continue to operate this game. towards its 10th year anniversary or even longer.
spk15: I'll give you two examples of new games. If we want to improve our old games, we need to develop new games. In April, we released a 2D game called Maze Runner. This game has a 2D style in terms of aesthetics, but it has a very typical Chinese style in terms of materials and culture. It is a work of art. It is a game made with Chinese culture as a world view of a woman. In fact, the users it introduces in this game is just an increase. It is what we have not covered in the past. It is in the hands of the Chinese culture itself, but it accepts the users of the second-dimensional aesthetic part. This game's results in the second quarter are actually in line with our expectations. It is an obvious increase for our second quarter. And then we will try to combine what we are good at, for example, in the second-dimensional genre, with some new players.
spk05: And speaking of new games, we actually launched a new game in April called Arctic Crafter. It's a Chinese-style ACG game. The artistic style can be classified as ACG title. but the story and the plot and the gameplay is actually very traditional Chinese. It was based on cultural relics as its own persona, very creative. We've noticed this type of game has opened a new demographic to us, the traditional Chinese cultural lovers. So we'll continue to look for new opportunities with the ACG Plus new categories to help us to expand to more gamer demographics. As for this game, RTCrafter, we think this game's performance so far has met our expectations, and it will contribute to our game revenue in the second quarter.
spk15: For the second new game, I'd like to mention the game you mentioned earlier, The Three Kingdoms. As for another game, I would like to make an example of it. You were asking, for this game, we already set the launch date at June 13th. And for this game, it already has over 2 million pre-registration users, and we have done multiple rounds of paid, non-paid beta testing, as has received very good feedback from the gamers. Let me use this game as an example and talk about how we explore innovation in the game industry. We signed this game the year before last. We decided to work with its developer. This is not a conscious start. We found that Bilibili has a lot of users who are interested in history, humanities, military, and political economy. Because Bilibili's knowledge is very strong. I will elaborate a little bit on how we plan to explore into new fields.
spk05: actually we signed this, we have signed this game the year before last year. The reason behind that is not a spur of moment, it's that we have discovered there's a big demographic who are interested in topics in history, military, political knowledge, As you know, that knowledge has been a very big content category on Bilibili. So to satisfy this group of users or potential gamers needs, we have signed this SLG game. So far, the feedback has been very positive and showing that the strategy is working.
spk15: After we have confirmed the three-nation SLG, we are actually This in terms of games We have made a lot of innovations Ah, because the users of B station are basically post-90s post-95s post-00s So it's their aesthetic Including some of their preferences for games It's definitely different from the mainstream srg games in the market For example, they will pay more attention to fun rather than fighting For example, they may be more So as we set up the target on SOG strategy, we have worked together with the game developer to conduct many innovations in the games.
spk05: As you know that we have a massive Gen Z users. For this group of users, their preferences towards SOG has evolved compared to the older generation. They value a lot of the gameplay, the fun in the gameplay, over the competition, the battle itself. And also they care about whether it requires to top up a lot of money and spend a lot of time on the game. So on this field, we have targeted solutions and to improve this gameplay. So far, the user feedback has been very positive.
spk15: Yes, I'm using these two games as examples of what we have done in the future in the game industry. Bilibili is the largest gaming community in China. So we will continue to work hard to bring better gaming products to our platform users.
spk05: And those two examples show our strategy and thinking in terms of the game business innovation and long-term strategy. As a matter of fact, Bilibili is the biggest game content community has the largest game-related video library. So we'll continue to focus on this track and aim to bring more high-quality games to our users.
spk03: Operator, next question, please.
spk13: Thank you. One moment for the next question. Our next question comes from the line of Xueqing Zhang from CICC. Please go ahead.
spk08: Thank you for taking my question about user engagement.
spk02: The company's first quarter time span hit a new high, and the average daily VV also achieved good growth. So what's the main driver behind that, and which content categories are expected to have great potential in the future? Thank you.
spk15: I think first of all, we are still maintaining an obvious growth in the original advantage category. Because Bilibili is actually on some of the new products, including some of the competitive advantages of some of the content of some of the products, such as knowledge, such as online games, such as digital technology, it is very obvious. And then, these are also the needs of the users themselves. So, keeping our competitiveness in these categories will lead to growth. From last year to this year, the video playback of the technology, knowledge, and games increased by 37%, 28%, and 24%. For example, if we continue to improve our original advantageous category, it will lead to new growth.
spk05: So as a matter of fact, Bilibili has its own content categories that's very advantageous compared to other platforms. And users have a strong mindset of looking for that type of content on Bilibili. This includes knowledge, ACG, tech, and digital products, and et cetera. And for this type of content categories, users have hardcore needs. they naturally want to watch this type of content. As long as we stay competitive, continue to enhance our leadership in this category, we will experience natural traffic growth. For example, this year that we're looking at the technology, tech, knowledge, and game sector, for this sector's VV has increased 37% 28% and 24% respectively.
spk15: And then in addition to that, we continue to dig deeper in the original advantage range, we also pay great attention to the new needs of our current users. For example, we have announced that the average age of our current B站 users is now 24 years old. At the age of 24, according to the strictest marriage standard, their child should also be one year old. As we
spk05: enhance our leadership counting categories, we're also actively exploring new categories. For example, our average age, the average age of a Bilibili user is already 24 years old. For some of the demographics, by theory, their children could be around one year old. So we've naturally seen those content consumption needs rises including baby maternity automotive and home appliances etc for example in q1 video views in baby and maternity grew by over 100 percent and we'll also see strong growth for automotive and home appliances home decorations
spk15: to bring more content creators to join and then realize a more positive cycle of our ecosystem.
spk05: At the same time, for this emerging content categories, we are naturally attracting more content creators to join our platform, forming a virtuous cycle.
spk15: Yes, because of the two strategies that we just talked about, our Q1 DAU has increased by 9% So in the first quarter, our overall community has delivered a strong growth. Our DAU grew by
spk05: and our video views grew by 22%. The daily average user time spent has reached a historical high of 105 minutes. This all demonstrating our strategy of content development and community operation is very effective. We will continue to execute a strategy and to achieve sustainable growth going forward. Operator, next question please.
spk13: Thank you. One moment for the next question. Our next question comes from Felix Liu from UBS. Please go ahead.
spk09: Thank you for accepting my question. I also congratulate the company for its relatively good interest rate performance this year. My question is also about the interest rate. I want to see which aspect of the interest rate we did better. Thank you, management, for taking my question and congratulations on the good GP margin performance in the first quarter. May I check, you know, what specific areas you did well in cost control? How do you see the mid-long-term margin outlook as well as the third quarter profitability target, if any update to that. Thank you.
spk14: Thanks, Felix. This is Sam. I will take this question. In Q1, our total revenue grew by 12% when cost of revenue only increased by 2% year-over-year. So our gross profit increased by 45%. Thanks for the improved operational efficiency, our non-GAAP operating expenses decreased by 2% year-over-year and 8% quarter-over-quarter, which leads to further loss reduction. Our path to profitability is mainly driven by the revenue growth and the continuous growth profit improvement, which we believe is more sustainable. Specifically, the growth profit margin has increased, reaching like 28% in Q1. The main reason for this improvement contributed by the high margin-bearingness such kind of our ad revenue, which increased by 31% year-over-year, and now the sales mix has come to like 29%. Based on the current business development trends, we expect that in Q2 and Q3, with the continuous rapid growth of the advertising business and the recovery of our game business, we'll resume the year-over-year growth. our gross profit margin will further improve quarter over quarter, and to reach 30% gross profit margin in Q3, and we were achieving non-GAAP operating, you know, non-GAAP operating break-even in Q3. We are quite confident to achieve that. In the longer term, the gross profit margin will depend on the scale of the revenue and the mix of each business line. We still believe there is great potential there. Meanwhile, the Achieving Bridge Event is just our first step. We will allocate more resources on enhancing our commercialization efficiency while continuing to refine the operational strategies to achieve sustained improvements in both of the gross profit margin and the net profit margin. Thanks for the question.
spk13: Thank you. Our last question. comes from the life of Lincoln Kong from Goldman Sachs. Please go ahead.
spk10: Thank you for accepting my question. I would like to ask about our payment business. I see that our company has nearly 30 million payment users. In addition to traditional members, we have also launched payment courses, social decoration, and other political services. How do you think about the future development of our community-based payment business? So, thank you, Benjamin, for taking my question. So, my question is about the paying users business. So, we see the company has now close to 30 million paying users. So, on top of the traditional subscription membership, we have also successfully launched the value added service, such as common creator charging, paid courses, or community decoration. So, how does the company think about the prospects of this community-based content payment business. Thank you.
spk06: 首先B站其实是一个基于兴趣作为锚点的视频社区, 所以B站的用户一直有三个特点, 就高流程,高活跃,跟高up值。 所以用户对于社区的这种认同感以及归属感, 就会变得在整个社区里面的内容付费或权益付费, 是B站顺势而为的一种变现模式。
spk05: So Bilibili has always been an interest-based video community. And Bilibili user has three key characters, one high retention level, high engagement level, and high ARPU. And because all the users have strong sense of belonging towards our community and also have sense of belonging towards the community, it all makes content, pay for content, is a natural monetization method for Bilibili.
spk06: On our premium membership business, at the end of the first quarter,
spk05: we have close to 22 million premium paid members. And this interesting number is that 80% of them chose long-term commitment payment, aka the monthly automated subscription or yearly subscription. This is what sets us apart from the regular content platforms.
spk06: In fact, these are all users who can get a better sense of achievement and a better experience after paying. At the same time, they can also express their support for their favorite app owners or their favorite IP. In fact, the app owners use these new ways, which is also their new income channel, to make the whole community use a healthier political cycle.
spk05: So on top of traditional live broadcasting and premium membership, we have continuously explored more business models to better combine our community and content. This includes the premium courses, charging stations for our content creators, as well as the cosmetic custom business. And users generally will gain more experience and feel better after paying for this type of service. At the same time, they can also express their liking and appreciation towards their favorite content creator or their favorite IP. At the same time, our content creator can gain a new avenue of monetization. This is forming a virtuous growth cycle for our community.
spk06: The total revenue of Q1, including members, paid classes, charging, and other content, is close to 100 million. So here you can see that the paid classes, in addition to the professional courses that we traditionally know, also cover life skills, interest, knowledge, emotions, and so on. This class has also become one of the most important ways to transform the B站 knowledge area. In Q1, the premium membership, premium courses, charging, as well as the community costumes combined together, their total revenue is already close to RMB 1 billion.
spk05: First is on the premium courses. On top of the traditional professional courses, our courses covers a wider category, including life skillset, interest-based knowledge, even relationships. It's more diversified. And the premium courses has already become a primary and important avenues for our content creator in the knowledge sector to monetize. In Q1, the number of content creator that gain revenue from the premium courses has grew by over 450%. And the overall revenue also increased by 45% year over year.
spk06: Let's take a look at the original charging mode. We have upgraded it. In fact, the total number of people participating in the Q1 is 47% more than the total number of people participating in the 8-month charging mode. In the past, there was a case that everyone paid more attention to, which is our app called 10 channels. In the past six months, they have only posted content of four high-quality documentaries. Until now, they have received more than 10 million charges. And secondly is that we have upgraded our charging program recently to extend it to exclusive fan charging videos.
spk05: In Q1, the number of content creators that received income from the charging project has increased 47% year-over-year, and the total GMV of the charging program has increased 125% year-over-year. An example would be one of our content creators named Shiping Dao. Over the past six months, he released four episodes of high quality documentaries. And as end of the first half of May, he's GMB has exceeded r&b 10 million. And from this case, we do think that in many new areas such as the short play short documentaries, and short movies, actually has great potential and we are quite excited about on visibility.
spk06: In the second half of this year, we plan to systematically review and upgrade our value added services, including those content services.
spk05: We are quite confident for this part of the business will continue to bring additional revenue and help our content creator to gain more revenue. Thank you. Operator, that concludes this question.
spk13: Thank you. And that concludes the question and answer session. Thank you once again for joining Bilibili's first quarter 2024 financial results and business update conference call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director of Piyasanti Financial Communications. Contact information for IR in both China and the US can be found on today's press release. Thank you and have a great day.
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