Bilibili Inc.

Good day and welcome to the Bilibili second 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 Juliette Young, Executive Director of Investor Relations. Please go ahead.

Thank you, Operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with SEC and the Hong Kong Stock Exchange. The non-GAAP financial measures we'll provide are for comparison purposes only. The definition of these measures and our reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili IR website at ir.bilibili.com. Joining us today from Bilibili Senior Management are Mr. Ray Chen, Chairman of the Board and Chief Executive Officer, Ms. Kali Lee, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Sam Fan, Chief Financial Officer. I will now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Thank you, Julia. Thank you, everyone. for participating in our second 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. We deliver solid second quarter results with accelerated top-line growth, improved margins, and healthy community development. In the second quarter, our total revenues increased by 16% year-over-year to RMB 6.13 billion. Our advertising business led this growth. With ad revenue growing by 30% year-over-year, revenue from our games and value-added services also increased by 13% and 11% year-over-year, respectively. The momentum across our business life is a strong testament to our execution in increasing our commercialization efficiency and unlocking the value of our community. Increased revenues from our higher-margin advertising and game spin lists boosted our gross profit by 49% year-over-year. Gross profit margin rose to 29.9% in the second quarter, up from 23.1% in the same period last year, marking the eighth consecutive quarter of margin improvement. Consequently, We significantly narrowed our adjusted operating loss and adjusted net loss by 69% and 72%, respectively, year-over-year. Moreover, we generated a record RMB 1.75 billion in operating cash flow in the second quarter. Our deferred revenue balance at the end of Q2 also increased by RMB $738 million from the end of Q1. With this progress, we are confident that we can achieve our non-gap breakeven target in the third quarter of this year and continue to improve our profitability thereafter. While we have been accelerating our financial performance, our community continues to thrive. In the second quarter, our DAUs increased by 6% year-over-year, reaching 102 million, and the MAUs grew to 336 million. Our community remains highly engaged, with users spending a daily average of 99 minutes on our platform. As we move into the summer season, we continue to see strong seasonality in terms of user engagement and the retention. On June 26th, we celebrated Bilibili's 15th anniversary. Over the past 15 years, our platform has become a regular destination for nearly 70% of China Gen Z plus population. This journey has brought us tremendous opportunities as these users have become a major consumer force in society. We have seen it in our advertising growth as we enhance our infrastructure to facilitate their involving consumption needs. We have seen it in our game business as we reinvent strategy game to resonate more deeply with the preference of younger audience. As we continue to unlock the value of our community, we remain committed to our founding mission to build a welcoming home for talented creators. and like-minded individuals to connect over shared interests and to satisfy their involving needs for good content and service. With that overview, I would like to discuss our core pillars of content, community, and commercialization in more detail. Beginning with content and community. Our strategy to encourage more high-quality creators to generate content continued to prove beneficial. In the second quarter, average daily video views increased by 18% year-over-year to over 4.8 billion. Our leading content categories, such as games, knowledge, and technology continued to show solid growth in video views, all increasing by over 20% year-over-year. Meanwhile, Users' demand in consumption-related categories also continued to surge in the second quarter. Video views in home appliance and decoration, automotive and fashion and cosmetics all grew by more than 30% compared with the same period a year ago. We continue to provide effective and diversified monetization channels to incentivize our content creators. In the first half of 2024, about 2.1 million content creators received income on Bilibili. Content creators' total income through our ads and vast products increased by 30% year-over-year. Notably, our innovative content-based products such as premium courses and fan-charging programs have been well received by our users. In the first half of 2024, Content creators' total income from these two products increased by over 40% and over 430%, respectively, year-over-year. Looking at our community matrix in the second quarter, our DAU spent an average of 99 minutes with us, compared with 94 minutes in the same period last year, driving up users' total time spent by 11% year-over-year. Monthly interactions increased by 11% year-over-year, exceeding $16.5 billion in the second quarter. By the end of Q2, the number of our official members increased by 13% year-over-year to 243 million, and their 12-month retention rate remained strong at around 80%. Moreover, this July, we heard our signature offline events, Bilibili World and Bilibili MicroLink, once again bringing our community together in Shanghai. More than 250,000 people traveled across the country to participate in the events, leading to a surge in Shanghai's travel-related consumption. The growing enthusiasm at the events showed our unparalleled influence among the young generation. Now, I'd like to talk about our commercialization progress in each of our business lines. First, our advertising business. As our users mature with more disposable income, their commercial value unfolds and they seek more consumption-related content on Bilibili. The demand is there, and all we need to do is to match the right ads with the right user. In the second quarter, we further improved our ad products and infrastructure to increase our ad efficiency. Specifically, we upgraded our ad placement system, featuring user-friendly placement tools and enhanced conversion capabilities, attracting and retaining more advertisers on Bilibili. In the first half of the year, the number of advertisers on our platform increased by over 50% year-over-year. Moreover, we continued to invest and improve our ad modeling capabilities to better understand our users' consumption behaviors and preferences, which enabled us to further enhance our ad matching efficiency. Meanwhile, we incorporated more native video style ad content, allowing us to expand ad load while maintaining user experience. We plan to further advance this initiative in the following quarters and help our advertisers create ad materials more easily and place advertisements more automatically. Industry-wise, our top five advertising verticals were mobile games, e-commerce, digital products and home appliance, food and privilege and automotive in the second quarter. Our anchor verticals continue to deliver strong performance. During the 6-1-A Shopping Festival, we not only secured more ad budgets from e-commerce platforms, but also directly from online merchants in different verticals. Total GMV from video and live commerce increased by over 140% year-over-year during the period. Besides our leading verticals, we also saw incremental ad revenues from emerging verticals. In the second quarter, ad revenue from internet services, AI, and education all increased meaningfully. Turning to our game business, game revenues resumed growth by 13% year-over-year in the second quarter to be 1.01 billion. led by the excellent performance of our recently launched strategy game, SANGUO MOU DING JIAN XIA, SANGMOU, and the ACG game, ARTICRAFTER. Our Lexi titles also contributed steady game revenues and demonstrated remarkable longevity. As FGO celebrated its eighth anniversary, it returned to the top 10 on the iOS game grossing chart in July. As for Azure Online, monthly active users reached a new peak in June with the celebration of its seven-year anniversary. This trend strengthened our commitment to the long-term operation of high-quality games. We were delighted to see our first strategy game, Sunmo, become an immediate blockbuster. On the first day of its launch, it ranked in the top three on the iOS game growth chart attracting millions of gamers to the Three Kingdoms battlefield. Sammo also set a new record in our operating history, being the farthest title that exceeds RMB 1 billion game-grossing mark. With the launch of the second game season on August 3rd, Sammo returned to the top three on the iOS game-grossing chart. The decent size of the SLG market The early success of Sunmo and the long lifecycle nature of SLG games give us confidence that it will become one of our flagship games with enduring longevity. Over the years, our community has expanded exponentially and so has our gamer base. Sunmo's success marks our breakthrough in our general diversification strategy and shows the vast potential of our game business. We will continue leveraging our leading role as a top gaming community and capitalization our significant opportunities to reinvent games for the new generation of gamers. Turning to our vast business, revenues from vast business increased by 11% year-over-year to RMB 2.57 billion. We continue to add more live broadcasting content offerings. reinforcing the synergies between our live broadcasting and the PUGB ecosystem to better cater to user diverse interests. We will also further explore opportunities in our other vast business as our Gen Z Plus users have demonstrated an increasing willingness to directly pay for the content they love. Our premium members continue to increase, reaching 22.3 million by the end of second quarter. with over 80% of them subscribing annually or under auto-renew packages, showing their continued loyalty and trust in our platform. Users spending our other best products has grown rapidly in the second quarter, particularly in premium courses, our fan-charging program, and avatar decoration. We expect these products to open more monetization potential across our massive POGV content universe in the future. We believe good content and community can bring people together, and the value of our users is just starting to show its potential. Our community is thriving, and our solid second quarter results place us just one step away from profitability. We are excited to move forward and take Bilibili to the next level. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the second quarter of 2024. For a closer look at our financial results, we encourage you to refer our press release issued earlier today. As a reminder, all amounts are in RMB unless otherwise noted. In the second quarter, we further advance our commercialization capabilities delivering accelerated year-over-year revenue growth across our core business. At the same time, we continued to expand our margins and considerably narrowed our losses. All of these financial improvements were founded in our top-line growth with increased efficiency. Total revenues for the second quarter were $6.13 billion, up 16% year-over-year. Our total revenues breakdown by revenue stream for Q2 was approximately 42% VAT, 33% advertising, 17% mobile games, and 8% for our IP directives and other business. Our cost of revenues increased by 5% year-over-year to RMB 4.3 billion in the second quarter, while our gross profit rose 49% year-over-year to RMB 1.8 billion. Our gross profit margin reached 29.9% in Q2 up from 23.1% in the same period last year. Our total operating expenses were down 3% year-over-year to RMB 2.4 billion in the second quarter. Sales and marketing expenses increased by 13% year-over-year to RMB 1 billion, mainly due to increased marketing expenses for the new game launch. G&E expenses were RMB $488 million, down 10% year-over-year. R&D expenses were RMB $895 million, down 15% year-over-year, both related to reduced HECOM expenses. We narrowed our adjusted operating loss and adjusted net loss to RMB $284 million and RMB $271 million in the second quarter. reducing our losses by 69% and 72% year-over-year, respectively. Our adjusted net loss ratio in the second quarter comes down to 4% from 18% in the same period last year ago. Cash flow-wise, we generated a record RMB 1.75 billion in positive operating cash flow in the second quarter, and a total of RMB 2.4 billion in positive operating cash flow in the first half of the year. As I mentioned earlier, driven by the strong performances from our GAMS and Albinus, our deferred revenue balance at the end of Q2 also increased by RMB 738 million from the end of Q1, proving a solid path to achieve our non-GAAP breakeven target next quarter and the sustainable profitability thereafter. As of June 30, 2024, We had a cash-to-cash equivalence, time deposits, and shorting investments of RMB 13.9 billion, or US dollar 1.9 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for a name to be announced. For the benefit of all participants on today's calls, If you wish to ask your questions to management in Chinese, please immediately repeat your question in English. The company will provide consecutive interpretations for management statements during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. One moment for the first question. First question comes from the line of Daniel Chen of JP Morgan. Please ask your question.

谢谢管理层给我这个机会问问题。 恭喜这个很强劲的业绩。 然后我的问题是关于这个广告的。 我看到这个二季度的广告增速比较亮眼。 能否分享一下这个背后的驱动力? 然后如何展望这个下半年广告发展的这个趋势啊? Thank you for the opportunity to ask question. So my question is on the advertising. We see that the advertising growth in the second quarter was very robust, growing about 30% year over year, which is very strong. So could you maybe share the key driver behind and also how should we expect the advertising growth for the second half?

Thank you. In a challenging micro environment, Bilibili's second quarter advertising business achieved a 30% year-on-year growth, with quarterly revenue exceeded 2 billion RMB for the very first time.

and contributing about one-third of the company's total revenue.

Yes, we should see that Bilibili's advertising business has been growing rapidly for several consecutive seasons. In our view, the underlying logic of this growth is basically the growth of our platform traffic plus a gradual release of our users' commercial value.

As you can see that our advertising revenue has grown for several consecutive quarters and the fundamental reason behind that is one that Bilibili's traffic is growing very healthily and secondly is that we are continuously unlocking the commercial value of our users.

Bilibili's DAU increased by 6% in the second quarter and the video playback increased by 18% This also means that the bottom of the business flow is continuing to grow.

Bilibili's BAU grew by 6% year-over-year in the second quarter, while our video views increased by 18% year-over-year, showing a continued growth in our commercial traffic.

At the same time, we know that more than 70% of young people in China are using Bilibili. Our average age of users is already 25 years old. This age is exactly

Over 70% of China's young generations are using Bilibili and the average age of our user has reached 25. This is the stage where their consumption needs and spending power are rapidly growing and being released.

This is evident from the booming growth in our consumption-related content categories.

In Q2, video views in the categories such as home decor and real estate, automotive, fashion and beauty all increased by over 30% year-over-year. while daily video views in baby and maternity experience a year-over-year growth of over 80%.

On top of that fundamental reason, what we need to do

is to match the demand between advertisers and users with better infrastructure and industry-based marketing solutions. And the one horizontal refers to the enhancement of platform infrastructure and the multiple verticals refers to the vertical industry-based app solutions.

We have been continuously improving the infrastructure of our advertising platform. Because of this, we can match our advertising needs with our users' needs. For example, in the first half of the year, we upgraded our PC-side advertising platform and provided one-stop professional advertising tools. Therefore, in the first half of the year, the number of KAA advertisers has increased by 50%.

In the first half of this year, we implemented comprehensive upgrades to several of our advertising infrastructure modules. For example, we upgraded the placement platform on our PC and provided one-stop placement tools for K accounts. And as such, in the first half of this year, the number of performance-based KA advertisers increased by 50% year over year.

In terms of app materials, our newly launched creative center

and active application of AIGC technologies helps our advertisers to diagnose and improve their added materials. After optimization, the CVR achieved over 30% year-over-year improvement.

Let me talk about EnZong, which is a vertical industry. The top five advertisers in QoR are from games, e-commerce, digital construction, Now let's take a look at our industry verticals.

In Q2, our top five advertisers came from mobile games, e-commerce, digital products and home appliances, food and beverage, and automotive sectors.

I'll take a closer look at the e-commerce and transaction-based sectors.

With our consistent open-loop strategy during this year's June 18th Shopping Festival, we have deepened the integrated marketing and advertising collaborations with e-commerce platforms, as well as secured a larger share of e-commerce merchants' budgets.

In June 2018, e-commerce customers' advertising in Bilibili increased by 300%. Our GMV for delivery has increased by more than 140%.

During the June 18th period, the number of advertisers on Bilibili increased by over 300% year-over-year, and our GMV from live and video commerce increased by over 140% year-over-year.

In June 2018, we also brought 50% new customers to the industry. Among them, we brought more than 70% new customers to the parent-child industry.

50% of the customers that we brought to the merchants in different verticals were new customers. And specifically for baby and maternity sector, we brought over 60% of the new users to them.

And then in terms of trading, Q2 has nearly 40 million users who have seen the content of our Bilibili on Bilibili. This same increase is 70%.

On our transaction-based advertising, in the second quarter, nearly 40 million users have watched our live and video e-commerce-related content, and this number increased by 70% year-over-year.

In Q2, the same increase in the number of people who brought goods to our B站 is more than 130%.

In Q2, the average daily content creator engaged in live and video e-commerce increased by over 130% year-over-year, and the number of commerce-related videos grew by over 330% year-over-year. And the number of live e-commerce sessions rose by 270% year-over-year.

The consumption potential of B2B's female users, which constitutes near half

of our communities is also gradually unlocked. GMVs in apparels increased over four times year-over-year in the second quarter.

What I just mentioned is one of the reasons for the rapid growth of our Q2 advertising revenue. If we look at the second half of this year, we are confident that in the second half of this year, we will still maintain a rate higher than the industry.

We've talked about the second quarter and its driver behind. And if we take a look into the second half of this year, we're quite confident in maintaining an above-industry average advertising growth rate.

On the one hand, it's the optimization of the infrastructure of our advertising products that allows us to continue. On one hand, the outcome of product infrastructure optimization is being proved and will continue to show its effect.

And on the other hand, By enhancing our vertical industry solutions, we not only expand our market share in key industries, but we are also looking to achieve incremental growth in emerging industry verticals, such as online services, education, healthcare, and baby and maternity.

Finally, I would like to say that Bilibili's revenue is not only based on advertising. We have always been

Lastly, I wanted to emphasize that because we have our unique community aspect, Bilibili's revenue growth was never just being relied on advertisement growth. pursue 2B and 2C parallel strategy in our commercialization efforts, meaning that we can not only earn money from advertisers, we can also earn money directly from our consumers.

Because we are a community, users have a stronger desire to express their love for this platform through content payment and advertising.

Because we are a community, our users are more inclined to spend on content or spend on content creators that they love to show their support and appreciation.

That's right. So, on the one hand, we have the user payment as a way to pay for the C-end. On the other hand, To sum up, we will be pursuing a B2B and 2C parallel strategy.

On the one hand, we'll continue to reinforce our advertising platforms to drive the advertising growth. At the same time, we still believe there's great potential in our 2C business, meaning on mobile games, premium membership, live broadcasting. Combining together will support our sustainable revenue growth. Operator, our next question, please.

Thank you. One moment for the next questions. Next question comes from Felix Liu of UBS. Please ask your question.

Let me translate myself. Thank you, Manchester. for taking my question. Congratulations on the strong quarter and your successful launch of Dango Moudin Tien Xia. Could you mention more drivers for the game's successful launch? And what are your expectations of the game's lifetime cycle? And looking ahead, what are the future genres that you plan to further expand or invest in the future? Thank you.

The Sanmo game indeed is a blockbuster in the first half of this year.

We not only attracted millions of new players, we've also accumulated a very good user feedback. and also have a large influence among the gaming industry.

Yes, and it also created several records of Bilibili's gaming business. For example, at the beginning of its launch, it topped the top three on the IOS chart. And the first month of its launch, it remained in the top ten. And Sanmo is also the game that reached the top ten million views in the history of Bilibili.

The game Sunmo broke several records in our game operation history. Shortly after its launch, it quickly ranked among the top three on the iOS game top-grossing chart. It maintained in top 10 for the entire month afterwards. And Sunmo also became the fastest game in Bilibili operation history to reach 1 billion RMB in revenue.

Last year, I always emphasized that the principle of our gaming business must be a long-term operation. In fact, Sammo is also a game that fits the concept of long-term operation. On August 3rd, Sammo opened its second season. From now on, users' love for this game, including income data, is also in line with our expectations. This also gives us the confidence to play this game for a long time.

Since last year, we've been emphasizing the importance of operating one game in an extended time for a longer period of time. And for Sanmo, especially the SOG genre is a perfect game genre for long-term operation. And starting from August 3rd, we launched the game's second season. As of now, the performance of Season 2 reflects gamers' sustained enthusiasm and good retention rate, and this has given us very strong confidence to make this as an evergreen title.

After seeing the results of this game, I think that Sammo is the result of the game's youth that Bilibili has been talking about for the past two years. The project of Sammo was established in 2022. Many people have asked me why Fenmo would work, how we picked this game.

I think this is a result of our continuous effort in the in the strategy of making new games reinventing games to catering to the younger generation we actually saw this game back in 2022 and we also invested in the in the development team in 2022 this the success of the game is not by accident it's under under long period of time of thinking and strategy and decision making.

Starting from

In 2019, our MAU grew by over 200%. And as we expand, our gamer circle also continued to expand. They included more than ACG gamers. They are gamers. They love multiple different categories.

Five years ago, our MAU only had one billion. Five years ago, when we only have 100 million MAUs, the most condensed gamer profile would be ACG lovers.

But as we evolve into a bigger community with 340 million MAUs, what we cover of our gamer community goes way beyond just an ACG. They love SLG and many other content categories.

For example, we will find that in Bilibili, the content of our knowledge, for example, history,

There are a large number of potential FLG players within the community who are generally interested in content categories such as history, militaries, social and science, and arts and knowledge. Those are very like those demographics fits perfectly with the SLG potential audiences.

Because SLG is a big category. There are tens of millions of users who are playing SLG and who have played SLG before in the current market. And there are quite a lot of these users in our B站.

SLG is a very large market based on our observation of the existing products in the market. We estimate that there were tens of millions of users who have tried SLG games. And for this group of people, they're mostly dwell or active on Bilibili.

As we discovered those factors, we have established this project.

We named this project code name as NSLG, meaning new SLG.

Why is it called New SLG? The first reason is that we think that the current SLG game has some drawbacks. If we improve these drawbacks, it will be very attractive to players. The second reason is that we found that the current SLG product is not attractive enough for young users. If we make some innovations for this type of game, it should be able to attract young users more. That's why we set up this project.

We've discovered that in the current market, many players' pain points haven't been addressed. At the same time, the current SLG game offerings in the market does not fully satisfy the young generation's needs in SLG. So we believe as we're making more innovations and addressing their pain points, addressing their involving needs, we could be successful. And the success launch of this game has proven our strategy has been right.

And I think that SEMO should be just a case. What I just said about young people, I think this should be

The success behind Sammo, we will credit to the overall trend of the immersive, immense opportunity that lays behind reinventing games to catering the young generation's needs. This not only adjusts to the SOG categories, it could apply to multiple categories, and we will continue to explore in that direction.

As for the estimation on its life cycle, we believe that SOG by its nature has longer life We've noticed that our SLG gains in the market has been operating for eight years and five years.

We have set the internal target of making Sanmo at least a more than five years game.

In this regard, I think it is still a matter of whether or not long-term operation is important. We must realize that the game industry can no longer be a fast-growing industry. It must be an industry that focuses on long-term optimization management and optimization user experience. We at least strive to be the company in the industry that listens to players the most and respects players the most, and then operate this game on a long-term basis.

And it all boils down to whether the company focuses on making a game into a longer lifecycle, a longer operation. We have to focus on the longevity of the game. The industry has evolved rapidly. This is no longer a time where everybody can make fast money. We are committed to be the top game who respect our users the most, who listen to our users the most, And we hope to make this game an evergreen title. Thank you. Next question, please.

Thank you. One moment for the next question. Next question comes from Thomas Chong of Jefferies. Please ask your question.

My question is related to the trend in our content offerings. As average age for BD ecosystem already reached 25 years old, can management share about the development of our content strategies and our content categories outlook, as well as the consumption trend going forward. Thank you.

Yes, I remember when I sent the report last time, I said that our user average age is already 25 years old. And this user average age of 25 also brought some changes to Bilibili. Last quarter, I've mentioned that the average age of Bilibili users have reached 25 years old.

And that brought a lot of change in terms of the wealth and depth of our content offerings. As the users' needs evolve, we've noticed that in our community there emerged many new content categories. And for Bilibili, we are not only a hub for young people's interests and hobbies, but also a common place for their lifestyle consumption.

This can be seen from the video data of our users. You can see that in the second quarter, the growth of content related to the consumption of young people on Bilibili is the fastest. For example, housing, real estate, cars, fashion, and makeup. The same growth in video playback is 39%, 43%, and 30% respectively.

This is evident in the evolve of our content consumption data. As young generation entering to enter new stages of life, content category related to their consumptions are growing rapidly on Billy Billy. For example, in the second quarter, video views in the category such as home decor and real estate, automotive, fashion, beauty increased by 39, 43, and 30% year-over-year, respectively. As I mentioned in the advertising question, the daily video views for baby and maternity category experienced a year-over-year increase of 80%.

And this is a natural outcome for our users average age to evolve into 25.

The average age of 25 meaning about a half of our users above

And those generations or those demographics naturally have wider interest and consumption needs and they seek out on Bilibili.

And because that Billy Billy has authentic and professional videos and most of, most of our videos are in the mid to longer form. It makes Billy Billy the go-to destination for young generation before they make big purchases.

Yeah. And the reason why behind or the reason behind people looking to Bilibili for larger ticket items is because first of all,

The user has to trust the platform, trust the content creator in their view and professional judgment. And secondly is that you can hardly make the decision to purchase a vehicle over 50 seconds of videos.

Speaking of cars, in the first half of the year, an average of 7,300,000 users were at B站 every month. Speaking of automotive content, in the first half of this year, on average every month,

There are 73 millions of users are looking into automotive-related content. We can say that Bilibili has the best quality new car reviews among all platforms. I personally look at the all new car reviews. They're extremely professional and well-made, and we think video... a content format is perfect for this type of reviews and walkthroughs.

What you just said is about the new life-saving content on Bilibili. Now I would like to talk about the content of our traditional young people's interests. We still have a good growth in these contents. In the second quarter of this year, the video playback volume of the three categories of games, knowledge, and technology achieved more than 20% of the same Bilibili growth.

We've talked about the emerging content category. Now let's take a look at our traditional leading content categories and young generations' interests. In the second quarter, video views in the games, knowledge, and tech categories also are over 20% year-over-year growth, which are 21%, 29%, 29% year-over-year growth rate, respectively.

This means we have established a very strong mindset among young generations where they seek out interest-based content.

Speaking of games, two days ago, on the day of Black Myth, Wukong was released. Tens of thousands of users are livestreaming their game experience on Bilibili. This is quite spectacular across the game history.

And on that day, we saw over 2 million peak concurrent users watching the darkness, blackness, vulcans related content.

This number shows that we have continuously led the interest-based content verticals.

We've always said that the evidence to show a community's competitiveness

is the ability to continuously produce good and new content. And we think we have already proved that over the past 15 years. Bilibili has the ability and the power to continuously expand its content offerings horizon and content categories. Thank you. I'll put your next question, please.

Next question comes from the from CICC. Please ask your question.

Thank you, Manager Chen, for accepting my question. My question is about financial outlook. I saw that the company's interest rate continued to rise in this quarter. The current current flow performance is also very bright. I would like to ask Manager Chen about the financial data outlook for the second half of the year. In particular, in the third quarter, can we achieve a silver balance or can we have a real profit? What is our normal profit outlook? Thank you. Thanks, Nathan, for taking my question. My question regards financial outlook. The company delivers a continual margin extension and a robust cash flow this quarter. Could management share with us the outlook for the financials in the second half of 2024? Looking at the third quarter, will we break even or make a profit? And what's the need to long-term profitability outlook? Thank you.

This is Sam. Let me take your question. Our financial performance in the second quarter demonstrates our business model has great potential for increasing the gross profit margin. In Q2, our overall revenue grew by 16%, while gross profit increased significantly by 49% year-over-year. The gross profit margin increased nearly 7% points year-over-year, from 23% to nearly 30%, in the eighth conservative quarter of margin improvements. This was primarily due to our ability to control costs when achieving rapid revenue growth. With the continued growth, our high margin advertising and the game business, there's still substantial room for further improvement for our gross margin. Additionally, it is worth noting that our operation cash flow for the first half of the year was 2.4 billion RMB and our cash flow reached 1.5 billion RMB. This indicates that our business has entered into a positive cycle. Looking ahead to our financial performance in Q3, we see that the deferred revenue balance increased by over 770 million RMB quarter-over-quarter, laying a good foundation for the third-quarter revenue growth. We expect the revenue from our games and advertising business to maintain strong growth momentum, along with a significant quarter-over-quarter growth in gross margins. At the same time, in addition to achieving our initial growth of breakeven in Q3, we now aim to achieve meaningful operating profit on non-GAAP basis. Meanwhile, we are delighted to see solid growth across our core business lines. Our growth momentum, along with the prudent cost and expense management, will lead us to continue expanding our revenue scale and profitability in 2025, resulting in ongoing improvement in our operating margins.

Thank you. Next question, please.

Thank you. The next question comes from Yiwen Zhang from China Renaissance.

Please go ahead. So thanks for taking my question. My question regarding AI application, can management discuss about

you know, how can we apply AI in our multiple user scenario and its future potential. Thank you.

And as known that Bilibili has the most extensive and highest quality AI content across the internet. I think the reason behind that is most of our users receive higher education background and they're based in a first and second tier city. We're curious.

In the first half of the year, our data statistics show that more than 80 million users watch AI-related content on Bilibili every month. And these AI-related contents are not

and based on our internal data that for the first half of this year on average a monthly average over 80 million users are watching ai related content on billy billy and for those ai related content not just a one word for 15 second headlines. Many of those content has extensive professional content in-depth discussion in AI.

So I think this also constitutes, I think in the field of AI, Bilibili has three sins. The first sin is that China has the most people who are really interested in AI in Bilibili. The second is that Bilibili is also a Chinese AI entrepreneur. That results in three, the most AI platform for Bilibili.

First most is that we believe we have the most user who are genuinely interested in AI content. And second most is we have the most AI professionals active on Bilibili. Lastly is over 90% of the domestic AI companies have set up accounts and get in touch with Bilibili users on Bilibili.

This is a natural advantage. Therefore, we have been exploring our applications in the AI field for a long time. For example, in the creation stage, the creation stage was actually started by our users at the earliest. We use AI to create, and then this content is broadcast on B站. For example, in 2023, the entire industry or many ordinary users should know that AI Sun Yanzi will be on fire on B站.

Because the high concentration and condensity of AI content and user give us a natural advantage and explore AI application. And as a platform, generally, we see many of the user initiate their attempt in connecting AI with their content creation. Back in 2023, there was a user who used the AI tools to mimic a famous singer's voice singing songs in her original voice. And that actually triggered the original singer to come out and say, does she support AI? this type of creation and welcome users to use it.

For example, this year, we saw a large number of music content for AI composing released in Bilibili. There are also quite a lot of AI-made animations and AI-made short films released in Bilibili. And our product type operation has also done AI short film competitions, attracting a lot of creators' attention.

And for this year we've noticed many AI-powered music creation, AI-powered animation, AI short plays were being released on Bilibili. Our operation team has even made an AI short play competition and attracting a lot of users to participate.

Yes, and we have also added some of the functions of AI to assist creation in our own creative tools. This is also very popular with our app owners. I think AI has a very important value for B站's creative section, which is that it can enhance the frequency of creators' releases and allow more ordinary users to become creators through this technology. It has a very positive effect on attack testing.

And in terms of our own content creation tools, we have leveraged and implemented AI and our AI creation tools. We believe essentially the application will help to improve the content creation efficiencies for our existing content creators and also allowing regular users to leverage this tool to become a content creator themselves. And this is very beneficial from a content supply perspective.

Then in terms of user testing, we also use some AI capabilities to improve user experience. For example, you should pay attention to the fact that B站 has already opened our AI search function in front of all users. Because there is a lot of knowledge, science, courses, and evaluation on B station, And we also use AI directly to enhance our user experiences.

As of now, we have opened up the AI Assistant and AI Search to all of our users. because we have a large amount of knowledge-based, review-based content. You can ask our AI assistant or AI search to summarize the keywords and key messaging of videos, and this is very helpful and efficient for a user who wants to get a quick summary of our content.

There are also some very useful functions, such as AI translation. Our AI translation, because it can really translate some small species, For example, we can translate the video released by some Tibetan app owners. We also have a very useful feature called AI summary. If you want to watch a video but you don't have time, you can use our AI assistant to summarize what the video talks about. And there are two more examples of our AI tools.

One is AI translations. Our AI translation tools can help to translate many different languages such as a content creator from Tibet. He spoke in the local language, and our AI assistant can help him to translate into Mandarin. And we also have a tool called AI Assistant. While playing a video, if you don't have time to watch the whole thing, you call up on the AI Assistant. The AI Assistant will summarize into short articles to tell you what this video is about, and the overlay, the outline, the key points of that video, all of which we believe will effectively help our user to improve their user experience.

In the end, I think AI is a universal technology. I think all platforms, all manufacturers, and all users will benefit from AI's technological advancements. Therefore, it is not a technology within a platform or a company's internal cycle. In the field of AI, we believe that our positioning is a platform, and we want to provide users with some values and skills provided by AI technology. At the same time, we also want our partners to contribute more value to our platform. Therefore, in the field of AI, we invest in multiple areas. We always believe that AI should be a technology that benefits everyone, including users and platforms.

And I believe that development of AI requires a joint effort of multiple numerous companies to reach its full potential, rather than a company researching AI within itself in a closed loop. So as a platform, we always take a very proactive and open attitude. We are already working with several leading domestic AI companies on various fronts. And we believe that with our joint efforts, we can bring user better experience. And for those partners, they can also unleash their full potential and value with Bilibili and our users.

For example, you should notice that the ability of our current AI video generation is to cooperate with a certain AI company. It is a technology that we do together. We will continue to carry out similar cooperation cases. We also hope to bring more and better capabilities to our users through the cooperation of many AI companies.

And as many of you might notice that our AI generated video capabilities is through our partnership with a leading AI company. And we expect to continue this collaboration with various partners. And through this partnership, we aim to bring better and more efficient and more creative experience to our users. Thank you. That concludes today's answering session.

Thank you. Thank you once again for joining Bilibili's second quarter 2024 financial results and business update conference call today. If you have any further questions, please contact Julia Yang, Bilibili's Executive IR Director, or Piyasante Financial Communications. Contact information for IR in both China and the U.S. can be found on today's press release. Thank you and have a great day.