Bilibili Inc.

Good day and thank you, and welcome to the Bilibili First Quarter 2025 Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please go ahead.

Thank you, Operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purposes only. The definition of this measure and the 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 to Mr. Chen.

Thank you, Juliette. And thank you everyone for joining us today to discuss our 2025 first quarter results. We started 2025 on promising ground, delivering solid financial results and healthy community development in the first quarter. Our total revenues accelerated year-over-year, increasing by 24% to RMB 7 billion, driven by strong performances in our high-margin advertising and game businesses. Advertising revenues were up 20% year-over-year to RMB 2 billion, supported by our ongoing product enhancements and infrastructure upgrades, fueled by the sustained popularity of our SLG title sample. Our game's revenues also rose 76% year-over-year, to RMB 1.73 billion. The continued top-line expansion in these high-margin businesses, combined with operating efficiency, provided us with greater operating leverage. In the first quarter, our gross profit increased by 58% year-over-year, with gross profit margin expanding to 36.3%, up from 28.3% in the same period last year. As a result, we sustained positive adjusted net profit of RMB 362 million and narrowed our gap net loss by 99% year over year in the first quarter. While further strengthening our financial performance, we continue to grow our community and enhance user engagement. The successful collaboration with CCTV's Chinese New Year Gala also helps bring the Bilibili name to a broader audience. In the first quarter, DAUs reached 107 million and MAUs climbed to a new high of 368 million. Meanwhile, our compelling and diverse content drove users' average daily time spent to a record 108 minutes. Next month, Bilibili will turn 16. Looking back, it has been an incredible journey, one that is truly unique. Over the years, our community has grown tremendously. What is most remarkable is that the sense of connection between users and creators and the welcoming, inspiring vibe that defines Bilibili has stayed the same. Over this time, our users have grown with us too. Today, the average age of our active users is 26, a life stage where consumption needs and purchasing power are both on the rise. As the go-to platform for Gen Z Plus to discover high quality, creative video content in China, we are in a great position to meet their evolving needs and unlock even more monetization opportunities. With that overview, let's take a closer look at our core pillars of content, community, and commercialization. Beginning with content and community, as we look at today's video landscape, it's clear that people have more content than ever, especially with the explosion of short videos. But what really stands out is that people are craving and spending more time on high-quality content. At Bilibili, that has always been our focus. We have built a community known for the best content out there, and we will keep prioritizing and promoting quality above all else. This commitment is showing up in our numbers. In the first quarter, users spent an average of 108 minutes on our platform every day compared to 105 minutes in the same period last year, marking a new record. Our monthly paying users also reached an all-time high of 32 million, as our users discover and connect with more quality content they love. Monthly interactions were nearly 16.7 billion in the first quarter, and our official member count reached 264 million by the end of Q1. up 12% from last year. On top of that, their 12-month retention rate stayed strong at around 80%. The quality of our content is also showing up in our content categories. Our core ACG content continues to thrive, and our game content is a great example. In the first quarter, game-related watch time increased 14% year over year. drawing in both longtime fans and new gamers who come to Bilibili for reviews, walkthroughs, and game IP content. As Gen Z Plus users mature and their spending power increases, many are turning to Bilibili with real purchase intent, looking for trusted, unbiased recommendations. That's reflected in our travel and lodging and home appliance-related content, with watch time growing by over 20% year over year in Q1. Additionally, being the hub for curious minds and the best knowledge video library, we saw a big surge in our AI related content. More young people are coming to Bilibili to explore and learn about AI and AI related watch time more than doubled from Q1 last year, along with a 400% increase in advertiser demand. Behind all of this is our amazing creator community. By the end of Q1, the number of creators with over 1,000, 10,000, 100,000, and 1 million followers all grew by more than 20% year over year. About 1.5 million creators made money on Bilibili during the quarter, not just through ads or live streaming, but also by using our e-commerce tools and various fan support programs. In fact, creators' total income from our fan charging program was up over 200% in Q1, showing how users truly appreciate and are willing to pay for quality content. Lastly, our partnership with CCTV for the Chinese New Year Gala gave us a big boost in brand awareness. It both attracted new users and strengthened engagement with our existing community. What's more, viewers can now revisit all the past Chinese New Year Gallas right here on Bilibili. It's another great example of how we curate the quality content and deliver value through our unique community. Meanwhile, our self-produced Chinese anime, The Tales of Hurting Gods, Mu Shen Ji, was well-received. It's garnered over 560 million views so far and is showing strong potential to become Bilibili's next long-lasting anime IP. We also released our self-produced title, To Be Hero X, Tu Bian Ying Xiong X, Worldwide in April, it quickly gained traction, ranking number one on my anime list for best spring title 2025. Now let's talk about our commercial businesses and their progress. Our advertising business continued to deliver solid results in the first quarter with revenues growing 20% year over year to RMB 2 billion. As our users mature and have more spending power, They increasingly look to Bilibili for content that informs their lifestyle and consumption choices. This trust within our community and the influence of our quality content have become powerful drivers for advertisers. In the first quarter, the number of advertisers placing orders on our platform increased by more than 35% year over year. Meanwhile, we have been integrating a large language model to help us better understand users' interests and commercial intent, enabling more accurate ad targeting and smarter ad delivery. We also upgraded our AIGC ad content tools to help advertisers generate more tailored and effective ad titles and covers at scale, allowing them to reach users more efficiently through compelling and user-friendly storytelling. These enhancements have fueled the growth of our performance-based advertising, which grew by over 30% year over year in Q1. while brand and native ads continue to show steady momentum. Industry-wise, we strengthened our position in core verticals while attracting more advertisers from emerging sectors. In the first quarter, our top five ad verticals were games, internet services, e-commerce, digital products and home appliances, and automotive, powered by our vibrant and highly engaged gaming community. Gaming ads continue to contribute a strong share of our ad revenues with new formats like Bilibili minigames driving additional growth. Moreover, we saw a notable increase from sectors targeting younger consumers as they enter new life stages with evolving needs. In the first quarter, ad revenues from home appliances and decorations grew by nearly 40% year over year. Similarly, AI-related ad revenue surged by 400% year-over-year, reflecting Bilibili's growing appeal to emerging industries, looking to engage our young high-value user base through innovative ad formats. Turning to our game business, game revenues rose by 76% year-over-year to RMB $1.73 billion, attributed to the continued strong performance of our CLG title, 三國謀定天下三謀。 Meanwhile, our legacy ACG titles, FGO and Azure Lane, continue to deliver stable revenues and demonstrated impressive longevity in the first quarter. We are encouraged to see that Sunmo is evolving into a long cycle title with enduring appeal. With our expanded game development capabilities and upgraded gameplay, Sunmo's active users and engagement in season seven improved from previous seasons. Demonstrating the game's continued draw for core SLG players. On May 31st, we will kick off Season 8, marking the game's biggest update since its initial launch. This highly anticipated anniversary edition will include a refreshed map, new characters, and special in-game events. These updates enhance the gaming experience and are designed to attract more younger players to the SLG genre. We expect this launch to mark a meaningful milestone in SAML's continued growth and long-term success. The momentum behind SAML also highlights our gaming community's strengths and our ability to build differentiated experiences that resonate with diverse player groups. In addition to SAML's international launch later this year, we have several new games in our pipeline awaiting approval. As we expand our game portfolio, We are focused on creating titles with lasting value by leveraging our leadership in the gaming space to reimagine gameplay for the next generation of gamers. And finally, let's look at our VAS business. Revenues from our VAS business increased by 11% year over year to RMB 2.81 billion. Our live broadcasting business regained momentum during the first quarter. fueled by the supply of more quality content and more paying users. We also further refined our operations and incentive plan, which led to a meaningful improvement in the business's margin profile. We are also unlocking more value from our broader VAS portfolio. Gen Z Plus users show a strong willingness to pay for content they care about. By the end of the quarter, premium memberships exceeded $23.5 million, with over 80% on annual or auto-renew plans, a clear sign of user loyalty. In addition, revenues from our fan charging program surged by over 200% year-over-year, highlighting the potential of our direct-to-creator monetization tools. And lastly, while we are making solid progress on our commercialization efforts, we are also staying true to our role as a responsible cultural brand and corporate citizen, In April, we published our 2024 ESG report, sharing the steps we are taking to create social value and build a more sustainable business. We are proud to have received an A rating from MSCI for our ESG performance. While we keep growing our ecosystem with high quality content, we are also committed to pushing the industry forward through innovation, both in technology and storytelling. While continuing to spread positive energy and making a real difference in society. As we move through the year, we will focus on advancing our commercialization capabilities with more enhanced and efficient commercial offerings. At the same time, we will continue promoting high-quality content that defines our vibrant community. In addition, we are actively embracing GenAI to optimize user experience, monetization efficiency, and unlock new growth opportunities. With that, I will turn the call over to Sam to share more financial details. Sam, please go ahead.

Thank you, Mr. Chen. Hello, everyone. This is Sam. In the interest of time on today's call, I will review our first quarter highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. In the first quarter, we accelerated revenue growth and further expanded our margins, fueled by the strong performance of our high-margin games and advertising businesses while sustaining positive non-GAAP net profit. Total net revenues for the first quarter were RMB $7 billion, up 24% year over year. Our revenue breakdown by revenue stream for Q1 was approximately 40% VAS, 29% advertising, 25% mobile games, and 6% from our IP derivatives and other businesses. Our cost of revenues increased by 10% year-over-year to RMB $4.46 billion in the first quarter, while our gross profit rose 58% year-over-year to RMB $2.54 billion. Our gross profit margin reached 36.3% in Q1, compared with 28.3% in the same period last year. Our expanding gross profit and margin show how well our model adapts and scales as the business grows. Our total operating expenses increased 4% year-over-year to RMB $2.52 billion. Sales and marketing expenses increased 26% year-over-year to RMB $1.17 billion. The increase was mainly due to a one-off marketing expense related to our partnership, with CCTV for the 2025 Chinese New Year Gala and higher year-over-year promotion expenses for our SLG game Sunmole. G&A expenses were RMB 516 million, down 3% year-over-year. R&D expenses were RMB 841 million, down 13% year-over-year, mainly related to R&D efficiency improvements. These efforts allowed us to maintain positive operating results. Our operating profit was RMB 15 million, and our adjusted operating profit was RMB 342 million, both compared with losses in Q1 2024. We also maintained a positive adjusted net profit of RMB 362 million versus a loss in the prior year period. And we narrowed our gap net loss by 99% year over year to RMB 11 million. Our adjusted net profit ratio in the first quarter was 5% compared with an adjusted net loss ratio of 8% in the same period a year ago. Cash flow wise, we generated over RMB 1.3 billion in operating cash flow in the first quarter. As of the 31st of March, 2025, we had cash and cash equivalents, time deposits, and short-term investments of RMB $17.4 billion or USD $2.4 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 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 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. Our first question comes from Lincoln Kong from Goldman Sachs. Please go ahead.

谢谢管理层接受我的提问。 也恭喜公司一季度取得比较强劲的业绩。 那我的问题是关于内容这块。 上个季度的话,其实电话会议上, 瑞总也提到咱们要加强优质内容的建设。 想问今年咱们的计划, 怎么样进一步去加强优质内容的新制? Thank you, Benjamin, for taking my question. So, congrats on a very solid first quarter result. So, my question is about the content. I think last quarter, Rachel, you mentioned about to enhance building our quality contents. So, what's our specific plan this year to increase the user mindset or our quality contents. And in terms of the AI applications, is there any progress or specific rollout we should expect? Thank you.

Actually, now the Internet has entered an era where everything is video. I think the current supply of video content is actually too much. Now everyone can use Pinduoduo to play short videos and short dramas on Pinduoduo. So videos can be viewed anywhere. And then I think now the pain point of users is not the lack of videos to watch, but the lack of quality content to watch. So I think the next trend of users is that they want to spend more and more time on quality content. I think this trend of consumption is the same as physical consumption, which is the so-called consumer upgrade. People are always inclined to consume

I think we're in an era where there's too much content, especially where the short video content is becoming increasingly abundant. For example, you can even watch short video content on shopping apps. And what we have observed is that users are not lacking in content to watch. Rather, they are seeking high-quality content. And what we observe is that users are dedicating more time to engage with premium quality content. The growing demand for quality content mirrors the changes in consumer habits. People are willing to pay for content that brings them a sense of fulfillment and quality.

Yes, in fact, this is also a direction that Bilibili has been adhering to. In the eyes of the user, Bilibili certainly represents a high quality content. I think Bilibili is the best platform for creating high quality content in China. And we can also see that what users consume on Bilibili represents a long-term Equality content is what we have been focused on and stands for.

I think Bilibili is probably one of the biggest content platforms that holds the high-quality content standards. And when people come to Bilibili, what they are consuming stands for a long-term sense of fulfillment, not for a short-term stimulation or a hormone-driven type of satisfaction. And this will help Bilibili to stand and thrive in the next era of video competition.

Yes, the data from Q1 also proves this. The daily usage of Q1 users is 108 minutes. This should be a new high since then. Moreover, users are not only more willing to spend more time in B站, they are also more willing to spend more time Our Q1 monthly paid users have created a new high of 32 million yuan, and our charge-related income has increased by more than 200%. I think that the user pays for the content they like will become a new increase in the video field.

This is showing in our Q1 data. For example, in Q1, the average daily user time spent reached a historical high of 108 minutes. Additionally, users are increasingly willing to pay for premium content. Our average monthly paying user hit a new record of 32 million, and revenue from our fan charging feature grew over 200% year-over-year, And this is all highlighting the potential substantial revenue in video platform, which is people directly paying for content that they love and care about.

That's why I think the strategy we've been holding on to in the past is even more important for the present and the future. It's even more competitive. So this year, we should strengthen this part more, which is to let more users see the quality content on Bilibili, and to let the quality app owners get more traffic and money on Bilibili.

Quality will stand for a place that even bigger and more important role in our strategy into 2025. We'll continue to position high quality content as one of the most important attributes. We'll also help our content creator, the talented content creator, to gain fans more quickly and also receive better monetary rewards.

Then I will also talk about a category of our content. Under such a big premise that we insist on the quality of the content, we will find that the content of Bilibili is actually more and more open-minded and open-minded. Our original ACG and knowledge and various interests are getting better and better. At the same time, we will find that there are more and more advantages related to life and consumption on Bilibili.

upholding high quality as the standard, we can see the strategy working from the content category development. First of all, on the core ACG content, the Penn Knowledge content, and it's gradually evolving into lifestyle-related, consumption-related. All of these content categories are thriving and expanding abundantly.

For example, for me personally, how to wash a down jacket is the most complete explanation I've ever seen on Bilibili. For example, how to choose a good sofa for a man like me, who doesn't even know how to use the window. From what I've seen on Bilibili, I know how to choose a good sofa. I think there's more and more diversified quality content on Bilibili.

For me personally, I learned great knowledge and consumption-related advice on billability, such as how to wash a duvet cover and how to pick a right sofa. This is very easy and transparent. I find the content on billability super helpful and fulfilling.

And not only do we diversify the content, but the income of the app owners is also diversified here. I saw that last quarter there was an up-and-comer with less than 1 million fans. And then the charge in the B-Stars was more than 1 million. And then he was talking about knowledge. An up-and-comer who is serious about knowledge like this, it's more difficult for him to bring his audience down to a large group. But he did it on a vertical track. It's deep enough. He can get the deep love of the track users.

In addition to the content category involvement, we are also providing various monetization avenues to help our quality content creators to make more money. For example, last month I discovered this content creator with less than 1 million followers made over 1 million RMB in a month through fan charging programs. and he's a knowledge sector content creator. Even though what he's talking about is quite niche and professional, probably won't bring him a lot of followers. But if you do something really good in the segment category, you can also earn a lot of love and appreciation, and even monetary rewards, unbelievably through our monetization avenues.

I think that as video becomes It's a must-have for people's daily spiritual consumption. I think this leafy vegetable will also return to a long-term health level. For example, for the short term, many people haven't seen the video. It's a very attractive content. Maybe it will gain some attention in the short term. But if it In the next three to five years, he will definitely choose the video that is more beneficial to his own growth and mental health. I believe he will be in this trend. Therefore, I think the reason why high-quality content will become more and more popular in the future will also prove its commercial value.

video content becomes a necessity in terms of spiritual consumption, we discover that the quality video in the longer term will gradually pick up its potential and showing great value. Probably for people who just have the access to short video content or to do the video content, you might be attracted to those very short, stimulative content in a short period of time. But over a longer time horizon, let's say five years, people will naturally choose content that brings them a sense of fulfillment and those quality content. That's why we have been focused and will continue to focus on promoting quality content, fulfilling content.

Let me talk about the relationship between high-quality content and AI. I said that high-quality content can go through the cycle. From 2000 years ago to now, only high-quality content can flow through time. My prediction is that high-quality content is also an entry for the AI era. Why? Lastly, I wanted to touch upon on the high quality

content combined with the AI can bring great potential to our business. First of all is that the quality content can transcend times. From early 2000 till now, we can easily see that only the quality content can live and continue to produce value. And currently, with the evolution of AI models, hinges on the access to high quality training data. And Bilibili happens to own the world's largest respiratory of Chinese video content. The high quality video content data will provide us a very unique and advantageous position in the time of AI-related opportunity.

In fact, I think the computational capabilities of the model itself are already good enough. However, because it is too powerful, in the past, human beings have accumulated the language of two thousand years. This kind of text has been digested by it. At this time, if you interact with it in depth, If they want to provide you with something new, it's actually a problem that every AI company is solving. But another advantage of Bilibili is that we have a lot of real high-quality videos. And the amount of information that this high-quality video carries is not... a few words can be measured. For example, I will ask him who takes good pictures of portraits on A phone and B phone. AI can directly see this sample in our video platform. It can directly give some suggestions to users. I think some scenarios like this are unique to platforms such as Bilibili.

And currently, I would say the model itself has great computing power and inferencing power and all the historical text-based data corpus has already been provided to the various different models. But can they generate something new and provide creative and additional information is what all of the video manufacturing is trying to resort. And from that aspect, Bilibili stands a great advantage because our video content carries a much more dense set of information. For example, when I asked our own AI model which mobile phone can take a better human portrait and our AI model can analyze the historical video data and summarize and subtract the right information to provide me with that solution. And this is something Bilibili, only Bilibili can do.

Well, probably AI can fake a lot of

text-based messages online as of now, but it's still a long way for AI to produce a high-quality, reliable, trustworthy video content. And from that perspective, Bilibili holds a very valuable data asset on that.

Let me give you another example. Bilibili stands in some categories. The competitiveness of its content is advantageous all over the world, such as animation, games, and some knowledge-related fields. And I think in the AI era, it's easy for us to make these high-quality content multilingual. So it's equivalent to the value of these contents can be doubled. It can be used by more users.

And Bilibili holds a unique and leading offerings in certain content categories such as animation, gaming, and knowledge. And this, with the help of AI translation, we can easily multiply those values into multiple language and unleash much greater potential and value of that content categories.

And also from a commercial aspect, AI can also help us to improve our commercialization efficiency.

I can elaborate on that in a later question if there's any. Yeah, that concludes Mr. Chen's answer. Operator, next question, please.

Thank you. One moment for the next question. Our next question comes from Xueqing Zhang from CICC.

Please go ahead. 我的问题是关于游戏的。 管理层可以帮我们回顾一下三毛在S6和S7赛季的表现吗? 然后在6月份的话,三毛也上线满一年了。 我们对于周年庆的版本有什么展望? 那么我们也如何看待下半年游戏业务的一个增速以及后面的游戏pipeline是怎么样的? 谢谢。 Thanks management for taking my question. My question about your game business. a commencement review of the performance of SAML in season six and seven. SAML has been launched for one year in June. So what are your expectations for the anniversary version? How does management view the growth rate of the game business in the second half of the year? And what's your game pipeline? Thank you.

The company's most important requirement for 3M is long-term operation. And then every time I have a meeting with the project team, the most important thing is the activity and flow of the users, as well as the long-term flow of the loyal users. Therefore, my requirement for this project is a stable business cycle of at least five years, and

The most critical and important goal for a SAML operation team is to achieve a long-term healthy operation with at least a five-year or longer life cycle and user retention as is something that I care most about and this is also the most important topic every time we have a staff meeting on this game operation. My ultimate goal is to help Sanmo to become a game that the gamer can play for a lifetime.

Yes, so the game system is a very important part of Sanmo's long-term operation. The season-based game system is one of the most important mechanisms to help this game to sustain a long term of probation.

Every game season, we listen very carefully about users' feedback and adapt that into the next game's design and promotion.

The first day of the S7 launch in April has reached a new high for users this year. So, as you can see from this data, we actually use every season as a means to improve us and attract new users.

As a matter of fact, the first day of game season seven marks the highest DAU daily record in the year of 2025. It also represents how we are incorporating each new season to optimize the game design and attract and retain users.

In the process of long-term operation, Bilibili is one of the biggest game content platforms in China. It has also played a good role in the spread of new users and the flow of old users. For example, the PDD that we did some time ago, which is a joint activity of WANRENDI and Sammo, it helped us attract a lot of new users and also helped old users to activate.

As one of the largest gaming content community in China, the visibility community itself empowers the long-term operation of SunLol. For example, we did a joint marketing campaign with Sunmo, with the leading game streamers, PDD and YMD. And the campaign was quite successful and helped us to attract a lot of new users and awaken a lot of the dormant users.

For example, our virtual streamer, you may think that virtual streamer is a very two-dimensional thing. But in fact, And also another example is our virtual streamers.

are actually attracting their followers to join Bilibili and do the live streaming sessions. And we find it quite interesting that one user probably has both ACG and SLG interest habits, and this is also bringing a lot of incremental new users to the game.

Combined with those efforts and our operating strategy, we can see that Sunmode, the current DAU level and paying ratio in our pool, has ranked among the top level in the industry. For us, the S8 should be a big hit. It will launch a new map, new characters, a limited skin for the anniversary, and a series of very interesting game activities. So we are also looking forward to the S8 becoming another milestone for Samoa on the long-distance racing road.

Later this month, on May 31st, we will launch Season 8. And also this marks the anniversary edition of Sunmole. And we will start the campaign to celebrate the anniversary with refreshed map, major new characters, and limited anniversary scheme features, and a lot of interesting in-game events. We hope this Anniversary Edition will bring Sammo to a new level and a long-lasting life cycle.

Some of our friends have been asking us about the next step in the SLG series. I would say that the next game in the SLG series will be the next generation of Sammo. We will focus on expanding and strengthening the 3MOU platform. At the same time, there will be two new attempts at the 3MOU platform. The first one is that at the end of this year, we will launch the 3MOU version. This will focus on Hong Kong and Taiwan users. Many people will ask me what's the next step after Sanmo.

My answer has always been we wanted to be super focused on making SunMall sustainable and even more successful. I often said the next SunMall will be the next game season. We'll be focusing on making a better season each time and bringing new experience to our user. On top of that, we have two more initiatives with this game. In the end of this year, we're looking to launch international version in traditional Chinese that this version is targeting for user or in Hong Kong, Taiwan, and Macau. And the second initiative is that we are planning to bring SAML into multiple devices. End of last Q4, we launched the PC version, which helped us to win over a lot of the PC user, the next step we're looking to bring this game on the mini game platform. This potentially will also open doors for us to attract new additional users.

In addition to Sammo, our game business will also focus on two key tasks. One is other long-term operation games. For example, this month is the 8th anniversary of Beeline. in July, the 9th anniversary of FGO. Everyone is familiar with the FGO of Bilan. It has been operating very stably until now, and it is still growing. We can see that the 8th anniversary of Bilan and the 9th anniversary of FGO will all rely on a wave of users.

On top of Sunmo, we will have two more important jobs to do. One is to sustain our legacy titles, one on our Zerling and FGO. We'll be celebrating Zerling's eighth year anniversary this month and celebrating FGO's ninth anniversary at the end of July. And for both of the games, people, you might be very familiar with the long-term, a very sustainable and successful long-term operation. And from time to time, we can witness a new incremental increase from those two games. And we believe with the anniversary promotion, we should be welcoming a new peak of DAUs and NAUs.

The second part is new games. We have four to five games that are now ready to be released. We will actively explore some new products and new opportunities. As I said before, we believe that some new products and new opportunities are worth trying.

The second strategy is on the new games. Currently, we have four to five games in line waiting for approval. We will also actively exploring more opportunities in new genres, similar to what we have done with Sunmo, to reinvent games catering to new generations, new generation of gamers' preferences. We do think there are a few opportunities there, and we will continue to invest and explore. Okay, that concludes Mr. Chen's answer. Next question, please.

Thank you. The next question will come from Yuwen Chang from China Renaissance. Please go ahead.

Thank you, Ms. Feng. This is my question. First of all, congratulations on your good performance. My question is about our advertising business. So first, congrats on the very solid print. So my question regarding our advertising is in Q1, we maintain 20% and revenue growth ahead of industry average. Can you elaborate what are the underlying drivers? Also, can you discuss how these drivers will play out in the future? and which is our ultimate product growth. Thank you.

QE, our advertising, continues to maintain a growth higher than the industry. In the third quarter, the revenue reached 2 billion yuan, and it increased by 20%. Among them, our sales advertising increased by more than 30%. This is also one of the reasons why our profit continues to increase in this quarter.

In Q1, our advertising business continued to grow at a rate that is above industry average, reaching our B2 billion in revenue and up 20% year-over-year. Notably, our high-margin performance-based ads grew by over 30% year-on-year and contributing significantly to our overall revenue growth and driving continued improvement in our gross margin.

The reason why our marketing business continues to grow is also due to the core competitiveness of Bilibili. That is, the essence of the quality content plus the value of our content. This year, the average age of our B站 users has reached 26 years old. What does 26 years old mean? First, the affordable income has increased. Second, in addition to this spiritual culture, its consumption environment will also have more living consumption. Therefore, the quality content of B站 in various products will have more in-depth connections with users, and it will also allow single DAUs to bring higher gross income.

The key driving factor behind that growth is the combination of high value user and our strong brand association with high quality content. This year, our average user age has come to 26. The year of 26, the audiences represent an increasing disposable income And a diverse consumption scenario on top of the spiritual consumption, they also come to various product consumption. And the professional in-depth nature of our content continues to foster a deep connection with our users and the content creators. And all of that is leading to a continued growth in ad revenue per day here.

In terms of the implementation of advertising, over the past few years, we have been monitoring Yi Heng's and En Zong's strategy. Yi Heng refers to the infrastructure capability of our products and technologies. En Zong refers to the deepening of our vertical industry. Then I can also say that in terms of the infrastructure capability of our products and technologies, we should be in the Q1. I think the ability to grow the fastest is the ability of our AI and big models. Then we should have a deeper understanding of the user's consumption intentions and interests through this multi-model model. Therefore, the proportion of our depth of conversion to the user is doubled by Q4. This directly promotes the rise of our ECPM.

In the past, we have stick onto the strategy of one horizontal multiple vertical strategy, and the one horizontal refers to our product and infrastructure ability, and the multiple verticals refer to our integrated ad solution across different ad verticals. Let me elaborate on this a little bit. Within the one horizontal strategy, we have continuously to build a stronger ad infrastructure and product capabilities. And in Q1, what we have really improved is in the AI-related product improvement. We have continued to upgrade our marketing data infrastructure by using the multi-model AI ability to better understand our users' purchase intent and on category level interest, boosting our overall ad efficiency. We have also improved our deep conversion capabilities, leading to a greater budget allocation towards deep conversion campaigns. The proportion of deep conversion assets more than doubled

in Q1 and leads to an increase in our performance space at ACPM. The first page is a product form of a double page. This product form is relatively rare in China. Although our users consume a lot of our content, the advertising material that can perfectly match the relevant content will actually cost us a lot of money. But with the AIGC tool, it can help us to automate the production and match the product interface layout of Bilibili. And it can also match the content of Bilibili users' language. This can directly improve the transformation effect of our ads. Currently, AIGC produces 30% of the effect ads.

Another big improvement is in our GenAI-assisted ad material creation because Bilibili's product nature covers and ad materials are quite important in terms of improving click-through rate and improving our ad efficiency. We have upgraded our eight commercial AIGC tools using those gen AI models to help advertisers to auto-generate cover images and titles that really align with Bilibili's user language and also creative style. Currently, AIGC created accounts for over 30% of the performance ads spent.

Next, let's talk about N.Zone, which is our progress in the vertical industry. For example, games. Games are still the number one vertical industry in Q1. This is also a traditional advantage of Bilibili. In Q1, we announced that for a small game platform like Bilibili. Secondly, we also expanded the game live-streaming environment. So the game in Q1 should have a significant increase.

But we talked a little bit about our different ad verticals. First of all, games continue to remain our largest advertiser segment, and we continue to improve our conversion path and tools. and increased our market share in the game ad market. And we also launched new formats such as Bilibili mini games and also in-stream game live stream ads that help opening up new ad inventories and new opportunities.

in the field of life and consumption for young people, which is a progress in advertising. As mentioned earlier, our users have entered an age where they are gradually paying attention to life and consumption. On our platform, Bilibili has a lot of in-depth assessment of life and consumption. This is a link. So, we can see that in terms of Q1, we have increased our share price by more than 35%

And secondly is that as our user matures and become age of 26, average age become 26, they have come to a life stage where they have to face a lot of choices in terms of consumption related needs. And we have helped them and also our trustworthy content creator have done a lot of reviews and walks through and evaluations on those categories and established great connection between their followers. For example, in Q1, our home appliances related advertising revenue grew over 35% and baby maternity and pets related advertisement revenue grew over 300% year-over-year.

Finally, I'd like to talk about the advertisement for AI manufacturers. We can see that AI should be considered one of the hottest topics in the industry in the past year. Bilibili's users must be the most knowledgeable AI users in the industry. Bilibili's AI content is also the highest quality content in the industry. So Bilibili must be the most important advertisement for AI manufacturers. Last week on AI, as everybody knows, Bilibili hosted the most curious minds who understand

the AI-related knowledge, and Bilibili also hosts the largest AI-related knowledge type of video content. That's why almost all AI manufacturers and companies put a lot of efforts and budget trying to connect with Bilibili users and convert them to become their users. That's why we've seen a big surge in AR-related advertising spending, and also this helped us to drive the overall online services sector to become top two ad verticals.

I still believe that we are confident that we will continue to maintain an increase in advertising that is higher than the industry. Because as I mentioned just now, the essence of our quality content and the value of our constantly increasing number of users, I think, can drive the long-term and continuous growth of our advertising business.

As for the guidance for the second half of this year, we're still quite confident to continue to grow at a pace that's above industry average, combined with our key advantage of high-quality premium content user mindset. as well as the increasing user value, we remain very confident about our advertising business development and continue to expand our market share. Next question, please.

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

Thank you, Director, for accepting my question. Congratulations on the company's strong performance. My question is about the profit rate. We are very happy to see that the company has achieved the best net profit rate since last year in the first quarter. The net profit rate is also the highest rate in the first quarter of the year. I would like to ask how we see the trend of the net profit rate and net profit rate in the last three quarters of this year. In addition, I would like to ask if the company has any views on our long-term profit goals. Thank you. Let me translate myself. First, thank you, management, for taking my question and congratulations on the very strong Q1 results, especially the record level of probability on both GP margin and nonprofit margin. The question is first on the margin trend in the rest of this year. Can Benjamin share your outlook on that? And my second question is on your mid-term GP margin and the profit margin target. Thank you.

Thank you, Felix. This is Sam. I will take your question. In Q1, our profit margin reached a record high of 33.3%, making 11 consecutive quarters of improvement. The key contributors to this improvement include the growing share of high-margin gaming and advertising revenue, which accounts for, if you add that together, like 50% of the total revenue, compared with 47% in Q1 last year. Secondly, the relatively fixed costs, including content, staff, server costs, remain stable in terms of the absolute dollar value. further declined their proportion of revenue from 25% last year to 20% this year. And gross margins of advertising and live broadcasting business have been improving in Q1. We are confident that both our gross margin and net margin will achieve gradual improvements throughout the year. In the mid to long term, we are confident that our gross profit margin will reach 40% to 45%. In Q1, the proportion of operating expenses to revenue declined from 43% last year to 36% this year. Our adjusted operating margin improved from negative 9% in the same period last year to 5% in Q1 this year. For 2025, we expect R&D and GNN expenses to remain stable, while marketing expenses will fluctuate with gain promotion cycles. As a result, the operating expenses as a percentage of total revenues will continue to decline. Our long-term operation margin target remains the same. That will be 15% to 20%. Thank you for your question.

Thank you. And that concludes the question and answer session. Thank you once again for joining Bilibili's first quarter 2025 financial results and business update conference call today. If you have any further questions, please contact Juliette Yang, Bilibili's Executive IR Doctor or PSMTA Financial Communication. Contact information for IR in both China and the US can be found on today's first release. Thank you and have a great day.