Bilibili Inc.

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

Thank you, Operator. During this call, we'll discuss our business outlooks 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 Phan, Chief Financial Officer. I will now turn the call to Mr. Chen.

Thank you, Juliette, and thank you to everyone for joining us today to discuss our 2025 second quarter results. We maintain strong momentum in the second quarter, delivering solid revenue growth alongside our thriving community of high-value, loyal young users. Total net revenues for the second quarter grew by 20% year-over-year to RMB 7.3 billion, driven by the continued strength of our core games and advertising businesses. Games revenues rose 60% year-over-year to RMB 1.6 billion, propelled by new seasons of our popular SLG title, San Guo Mou Ding Tian Xia, San Mou. Advertising revenues increased 20% year-over-year to RMB 2.4 billion, supported by greater AI integration that made our ads more efficient and effective. Underpinned by operating efficiency, our growth in games and advertising drove a 46% year-over-year increase in gross profit, with gross margin expanding to 36.5% from 29.9% in the same period last year. As a result, we achieved gap net profit of RMB $218 million and adjusted net profit of RMB $561 million. Our performance reflects our growing influence among China's Gen Z plus audience. By providing users with high quality content they love, we foster deeper engagement that fuels our commercial ecosystem. In the second quarter, DAUs reached a new high of 109 million, up 7% year over year. And MAUs grew by 8% to 363 million. MPUs also grew by 9% to 31 million. The average daily time spent rose to 105 minutes. up six minutes compared to the same period last year, reflecting our continued focus on high-quality videos that capture and hold our community's interest in meaningful and fulfilling content. Our growing influence among our core users is showing up both online and offline. This year's Bilibili World and Bilibili MacroLink grew in record crowds. Over 400,000 participants attended the three-day event, 60% more than last year. making it one of the largest offline animation expos in China. The strong turnout reflects the vitality of our brand and the power of our community, showing the tremendous potential of our young users. Their tastes are already shaping mainstream trends, and countless more interests within our community are waiting to be unleashed. Looking ahead, we will sharpen our focus on delivering the best PUGV community experience, attracting more users and growing alongside them. At the same time, we will continue to proactively invest in monetization initiatives to drive sustainable profitability. Through these efforts, we are confident in our ability to create long-term value for all of our stakeholders. With that overview, let's take a closer look at our core pillars of content, community, and commercialization. Beginning with content and community, We remain firm believers that high-quality content and an engaging community are essential to the lives of today's young generation. Gen Z Plus comes to Bilibili not for quick hits, but for meaningful content they care about. And we're seeing that translate into stronger influence, longer watch time, and greater commercial potential across every corner of our platforms. Driven by high-quality PUGB content, the average daily time spent reached 105 minutes in the second quarter, up six minutes year over year. Notably, the watch time for videos longer than five minutes increased nearly 20% year over year in Q2, proving Bilibili's undeniable user mindshare to consume mid-to-long form meaningful content. Not only are people spending more time, but more people are paying for premium content. Monthly paying users increased by 9% year over year to 31 million, driven by membership, fan charging, and live broadcasting. In the meantime, our community remains engaged and loyal. The number of official members was up by 11% year over year to 270 million, with a 12-month retention rate remaining around 80%. We maintained our dominant leadership in ACG content. Chinese anime content performed strongly during the second quarter, with watch time up 34% year-over-year, driven by popular titles such as A Record of Mortals' Journey to Immortality , The Tales of Hurting Gods , and Linkage Season 2 . Game content remained one of our top categories, with watch time increasing by 21% year-over-year, making Bilibili an essential platform for game developers to engage deeply with the gamer community and strengthen their IP. It is also no surprise that AI-related content continues to be a breakout category. Watch time grew 61% year over year, cementing Bilibili's role as the go-to platform for Gen Z Plus to learn, explore, and create with AI. Likewise, AI advertiser demand increased by about 150%, highlighting the great synergy between content value and commercial potential. Meanwhile, consumption-related content categories continue to grow, driven by evolving user behavior. As our Gen Z Plus users become more financially independent, they increasingly rely on peer creators for trusted reviews and tutorials when making purchase decisions. This has boosted engagement across verticals. Watch time for home appliance content rose 14% year over year, Parenting and early education rose more than 50%, and travel and lodging saw an 11% increase, reflecting growing interest in experience-driven consumption. We continue to enhance our products and services to help creators make more money. In the first half of the year, about 2 million creators earned income on Bilibili through various channels. Creators' total income from our fan charging program more than doubled in the first half of the year. once again showing users increasing willingness to pay for quality content. The number of creators monetizing through Sparkle ads and video and live stream e-commerce also grew 19% and 49% year over year, respectively, in the first half of the year. Now, let's talk about our commercial businesses and their progress. Our commercial growth. demonstrates how our growing influence among younger users is directly translating into commercial value. Advertising is one of the most direct business lines that shows this. In the second quarter, our ad business grew 20% year over year, reaching RMB 2.4 billion and continuing to outpace the industry's average growth rate. During the second quarter, we continued to advance our ad infrastructure improving ad conversion efficiency through recommendation algorithms, creative generation, and smart ad placement. Through deeper LLM integration with multimodal content understanding, we are capturing user intent more precisely and delivering smarter, more personalized ad recommendations. The upgrades we've made to the AIGC tools are also helping advertisers generate high-performing creative ads at scale. In the second quarter, Roughly 10% of new ad titles and over 30% of ad covers were created using these tools, helping advertisers reach users more effectively with content that resonates with their target audiences. We also offer smart ad placement tools to allocate, sequence, and monitor ad performance in real time, significantly reducing manual operations at the same ad spend. These enhancements are boosting both efficiency and scalability. improving eCPM by more than 10% year-over-year, and fueling around 30% year-over-year growth in performance-based advertising revenue in the second quarter. Revenues for brand and native advertising also maintained healthy momentum. Industry-wide, games, digital products, and home appliances, e-commerce, internet services, and automotive were our top five advertising verticals in the second quarter. The number of advertisers increased by over 20% year over year, reflecting our growing appeal to brands. Leveraging our dominant user mindshare, game developers are allocating larger ad budgets to Bilibili to engage more deeply with young gamers. Demand for 3C and digital products remained robust, supported by our leadership in these categories and national subsidy tailwinds. In e-commerce, Bilibili delivered an average new customer acquisition rate of about 60% for advertisers across industries under the SINCO plan during this year's 618 season. GMV from products priced above RMB 1,000 increased nearly 50% year over year, further demonstrating our users' strong purchasing power and our ability to convert user engagement into high-intent transactions. Turning to our games business, In the second quarter, revenues increased by 60% year-over-year to RMB $1.6 billion, owing to Sanmo's enduring strength in its first year and Evergreen titles FGO and Azur Lane, which recently celebrated their 9th and 8th anniversaries, respectively. To mark Sanmo's first year anniversary, we rolled out and upgraded Season 8 on May 31st, featuring new gameplay, characters, and in-game events, backed by a targeted marketing push. Both engagement and retention have been solid as we enhanced onboarding, monetization paths, and returning user experiences. Building on this strong momentum, we are developing new game seasons, piloting mini-program offerings, and preparing for Semmo's international rollout later this year. Looking at our game pipeline, we have a number of games in the approval process, including multiple ACG titles and casual games. Once approved, we are prepared to bring them to our community and further expand our presence in the gaming space. And finally, let's look at our VAS business. Revenues grew 11% year over year to RMB 2.8 billion, driven by steady momentum across live broadcasting, premium memberships, and other value-added services. Our focus remains on refining live broadcasting operations by fostering more quality content and diversifying monetization features to support steady growth. Through refined operation, gross profit margin for live broadcasting continued to improve in the second quarter. Premium memberships maintained stable growth, reaching 23.7 million at the end of the period, with over 80% on annual or auto renewal plans, demonstrating their loyalty and commitment to our platform. Meanwhile, our other VAS products continued to grow rapidly in the second quarter, especially our fan charging program, which increased by more than 100% year over year, with more users showing their support for the creators and high quality content they love. Looking ahead, our focus remains on what sets Bilibili apart, high quality content that resonates with China's Gen Z plus generation. This is the foundation of our growing influence and the engine behind our expanding commercial opportunities. At the same time, we are actively embracing the transformative opportunities brought by AI, from enhancing operational efficiency to elevating user experience, accelerating monetization, and expanding our global reach. These advancements further strengthen our foundation for sustained growth and long-term profitability. 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 second quarter highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. In the second quarter, we continue to grow revenues, expand our margins, and grow our profitability, driven by growth across our commercial businesses, particularly in our high margin advertising and games businesses. Total net revenues for the second quarter were RMB 7.3 billion, up 20% year over year. Our revenue breakdown for Q2 was approximately 39% from VAS, 33% from advertising, 22% from games, and 6% from our IP derivatives and other businesses. Our cost of revenues increased by 9% year over year to RMB 4.7 billion in the second quarter, while our gross profit rose 46% year over year, to RMB $2.7 billion. Our gross profit margin reached 36.5% in Q2, compared with 29.9% in the same period last year. Our expanding gross profit and margin show that our model is built to scale. Our total operating expenses were RMB $2.4 billion, remaining stable compared with the same period last year. S&M expenses increased 1% year over year to RMB $1 billion. G&A expenses were RMB 510 million, up 4% year-over-year. R&D expenses were RMB 866 million, down 3% year-over-year, mainly related to R&D efficiency improvements. These efforts allowed us to maintain positive operating results. Our operating profit was RMB 252 million, and our adjusted operating profit was RMB 573 million, both compared with losses in Q2 2024. adjusted operating profit margin reached 7.8% in the second quarter. Net profit was RMB 218 million, and adjusted net profit was RMB 561 million versus losses in the prior year period. Our adjusted net profit ratio in the second quarter was 7.6%, compared with an adjusted net loss ratio of 4.4% in the same period a year ago. Cash flow-wise, we generated about RMB 2 billion in operating cash flow in the second quarter, As of 30 June 2025, we had cash and cash equivalents, time deposits, and short-term investments of RMB $22.3 billion, or USD $3.1 billion. During the second quarter, we enhanced our shareholder return by repurchasing approximately 5.6 million Class Z ordinary shares, each equal to one ADS, for a total of HK$783 million, or USD $100 million, as part of our ongoing share repurchase program. These shares have all been canceled as of the end of the second quarter of 2025. Under our $200 million share repurchase program, approved by the Board in November 2024, we've repurchased a total of 6.4 million shares so far, at a total cost of $116 million, leaving about $84 million available for future buybacks as of June 30, 2025. Thank you for your attention. We would now like to open the call to your questions. Operator.

Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. The company will provide consecutive interpretation for management statement during the Q&A session. Please note that English interpretation is for convenient purposes only. In the case of any discrepancy, management statements in the original language will prevail. We will now take the first question. From the line of Xuexin Zhang from CICC, please go ahead.

感谢管理层接受我提问,恭喜公司二次度数的非常亮眼的一个成绩。

My question is about the user environment. I am concerned about the growth of BAU and MAU this year compared to last year. The single-user market has also been growing. I would like to ask what the main driving force is and how to look forward to the future. In addition, this year's summer BW event has also created a record of 400,000 participants. What opportunities can we see from BW to Bilibili? Thank you. Thanks, management, for taking my question, and congratulations on this, John Carter. My question is about the user ecosystem. We have noticed that the company's DAO and MAU growth accelerated in the first half of this year, and the average daily time spent has also continued to increase. So what are the main drivers, and what's your outlook for the future? In addition, some B2B awards set a record with 400,000 participants.

So what opportunities can we see for the B2B community from BW's success? Thank you.

Okay. I think what we have been doing for the past 16 years is to make good quality content and make good community atmosphere, and then make them to the extreme. I think in the current Internet environment, quality content and good community atmosphere are more lacking competitiveness.

In the past 16 years, we have been focusing on providing the highest quality content and fostering a thriving, welcoming community culture. And under the current internet environment, we think the high-quality content and supportive, constructive community environment is what's in scarcity.

I think the information of the current Internet environment is outdated. There is no lack of content, no lack of videos. And in the current video landscape, we think there's an oversupply of video content.

People are not lacking content to watch, but they're lacking high-quality content to watch. The same thing goes with the content, the feedback, the voice from the netizens. There's plenty of voices across all apps, but what's truly missing is those supportive, resonating voices from welcoming, friendly communities.

So what Bilibili is doing is

So that's what Bilibili will continue to focus on by curating the highest quality content and also fostering a welcoming community environment that allows people to connect over the same interests and designate with each other.

We believe that if we do these two things, the users themselves will come. Because this kind of experience is what users really need.

We believe that by mastering both high quality content and a thriving community culture, users will naturally come. They will be drawn into this unique experience.

So I think that we see an increase in our platform this year.

And the user's statistics in second quarter are DAU grew by 7% and they grew by 8%. That's a result of us focusing on the quality content as well as a welcoming community environment.

And we also believe that if we do these two things well, it can also bring a space for future users to grow. Because I think that, in fact, users' requirements for content quality and taste for aesthetics are in a single-way upgrade direction. Once users see good content, they will not look at bad content again. So, I think Bilibili is actually in many categories, whether it's in animation, games, knowledge, or in some categories such as life, entertainment, and interest. Its high-quality PUGC content has already formed a user's mind. Then, in fact, this mind will allow users to be willing to look for more high-quality content here, which is content that fits their interests. Just like the update we see in lifestyle consumption, content consumption is also evolving.

And more importantly, the upgrade in content consumption, particularly in aesthetics and taste, is largely one way. Once someone receives and has been watched high-quality content, it's very hard for them to go backwards. And over the past 16 years, we have really established a strong presence in users' mind shares in categories like anime, games, and knowledge-based content. And there's still a lot of things we can do to further expand surrounding the users' interest networks. And in addition to that, we think there are more to be done beyond just QGD. For example, podcasts, picture and text-based content, AI-based virtual companionship. There are lots of potentials and tremendous room for us to expand into.

And I think that high quality content and a good community atmosphere are mutually beneficial. They are actually one. High quality content can attract users who love content more, users who know more about content, and users who love content more. And users who know more about content can also make higher quality comments. Comments and chats he can also encourage these good creators to give these creators a better inspiration to make them have a stronger emotional value That's why we find that the good author is often on the B station and he can grow faster And then the users of B station can also go to some good authors to discover these good authors when they are just emerging

So to summarize, we think that it's an integral part for high-quality content as well as a good and welcoming community environment that's actually self-sustaining and ever-evolving. For example, we think the high-quality content can attract those people who can truly appreciate this type of content. And the friendly, welcoming, supportive from the users will continue to motivate the content creator to continuously create good content. That's why, unbelievably, we've noticed that a talented content creator can be easily discovered by our users, and at the same time, they can quickly adapt and evolve into a larger, more influential content creator.

That's why we find that even if the content is all over the Internet, the quality and quantity of their comments and chats on Bilibili are often the best. Moreover, the content of high quality authors and the fans' contact on Bilibili are also the best. So this has basically formed a consensus among all the authors on the Internet.

And even for the same content, I can see everywhere. But the number of interactions and the quality of that interaction is always the best on visibility. And also for those high quality content creators, their fan base, their stickiness is the highest, the strongest on visibility. And that is a well establishing common knowledge among the content creators in China.

So we will also see that a lot of good content, it is often from the beginning of the war, the earliest user recognition, and then it starts to go out of the circle. For example, a few years ago, the first game of the Black God of War, Wukong, was released here. The PV immediately broke out and then it started to go out of the circle. For example, we are now looking at this And that's why you see many high quality content.

has been discovered on Bilibili platform. For example, a few years ago, the first PV of Black Miss Rukong was discovered by Bilibili user and quickly become viral and so influential across the internet. And also a few years ago, we co-produced the meaning animation, Nobody, Long Long Shandong Xiao Yao Gua, that was also discovered by Bilibili user and become viral and popular, um, recognizing by visibility of community. And now we're very glad to see that, um, it's big movie is now, uh, well getting more, even more wide recipients from audience and it's boxing. Um, the bra thing has exceeded 1 billion RMB.

. And another example would be

Plus, yesterday at 4 a.m., Black Lives Matter was premiered on the Bilibili platform. And within less than two days, its total video views have already exceeded 12 million. And that's why you see many, many good content will be the most appreciative and be discovered by Bilibili users because we have established that environment that allows high quality content to thrive.

Next, I would like to talk about Bilibili World. Bilibili World is a record of the number of visitors this year. The number of visitors is more than 400,000. 70% of the visitors are from outside Shanghai. And the number of overseas passports reached 11%. There are users from more than 20 countries and regions coming to Shanghai to attend our BW.

This year's Visibility World has broke many records. We have attracted audience from more than 20 countries and regions with over 400,000 people attending the event. Among them, 70% came from outside of Shanghai. and 11% of the tickets were purchased by foreign passports. And it's safe to say that Bilibili has become the largest ACG event in China, both in terms of scale and influence.

And Shanghai has also developed a new word for B-word, which is the two-dimensional economy. Because Bidibidibord has really driven the local cash flow in Shanghai. And it has also become a new name for Shanghai's urban culture.

And even for the Shanghai city has invented the word of ACG consumption for Bidibidibord because the event drew a large number of young people to Shanghai. boosting local offline consumption and even become a new cultural landmark for the city.

I think the essence of Bilibili World is actually a community brand of Bilibili in the real world. It actually represents the user's recognition of the Bilibili community brand. They will not only use our products, they will also participate in the offline gathering with this product as the name.

And at its core, visibility is a real-world reflection of visibility brand and community offline. People not only use visibility product, they also come to offline events named after visibility. This shows and reaffirms the influence of IP as well as our community. So I think to a certain extent, Bilibili has become a part of the life of many Chinese young people.

Good evening, everyone.

Thank you for accepting my question. My question is about our advertising business. We see that the second quarter's advertising business is very strong, surpassing its previous period. Can you please share with us some specific reasons for this? Looking forward to the second half of the year, what trends do we see at the end of the industry? How do you see the trend of our company's advertising business? Thank you, management, for taking my question. My question is about the advertising business. So second quarter at business, big expectation again. Can management share what are the drivers? And looking ahead into second half, what are the trends you are seeing for the industry? And what's your expectation about companies at business trends?

And what kind of new products and technologies will you roll out? Thank you.

In terms of QR, our advertising business has maintained a relatively high growth rate, which is still higher than the growth rate of the entire advertising industry. From a single quarter, our revenue has also reached a new high of 2.4 billion yuan, which is a 20% increase.

In the second quarter, our advertising business maintained a strong growth, outpacing the overall industry. Quarterly revenue reached a record high of RMB 2.4 billion, up 20% year over year.

First of all, we can see that we still pay special attention to advertising infrastructure, product and technology promotion, and the value of users and traffic in this queue has been significantly improved.

Speaking of the driver behind that growth, we continue to focus on the one horizontal and vertical strategy. In this quarter, we continue to strengthen our ad infrastructure, product and technology efficiency, allow us to further unleash our users' value and traffic value.

以下三点就可以印证到部分吧。 第一个的话是我们加强了 and the ability to integrate and transfer. In fact, we have more than 50% of Q2 up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and up-to-date and The following three points will support that.

One is During the quarter, we further enhanced our integrated campaign, combining seeding and conversion. In the second quarter, over 50% of the SPARQL ads also leveraged our chief aid program, which is the traffic acquisition program we have in our ad system. Number two is that we continue to strengthen our marketing data infrastructure. leveraging the multi-model large model to significantly improve our ad delivery efficiency. The last thing is we continue to optimize the deep conversion capabilities. The share of deep conversion doubled in the second quarter year over year and there's still room for us to improve and that directly leads to uplift in our overall ad eCPM.

第二个从行业垂直预算来看,其实QR我们的五大的广告组的行业有一些些变化,但不多就游戏,数码家电,电商,网服跟汽车,就是整个广告组的数量同比增长还是有20%。

And from an industry standpoint, in the second quarter, our top five advertisers verticals, there's slight change, which are games, digital products and home appliances, e-commerce, online services, and automotive. And the number of advertisers increased over 20% year over year in the second quarter.

游戏行业依旧是我们第一大的广告客户, B站 is still relying on the quality of our ecosystem through high-quality transformation through the whole chain. We still have the budget for high-quality game customers locked in here, including the advertising market share of premium games. We are still seeing further improvements. At the same time, new developments in games, live broadcasts, and other scenarios have also brought about a lot of new growth.

Looking at more details, game remains our largest verticals. We continue to leverage our high-quality full-chain conversion capability. We've further strengthened our market share in premium game advertising while expanding to new scenarios such as billy-billy mini games and game live streaming, creating incremental revenue opportunities.

And professional reviews by our professional content creators and in-depth content

From those creators continue to attract advertisers to target the young consumers. In second quarter, home decorations at revenue grew nearly 70% year over year.

自此之外,我们还是会持续深化垂直行业的营销方案, 在优势领域会持续的让市占可以进一步提升吧, 但也会拓展更多消费行业的客户。

We will continue to deepen our vertical marketing solutions while consolidating our leadership in key industries. At the same time, we're looking to expanding into broader consumer categories.

在这里可以补充一下618我们的一些数据,可以看到B站的一些趋势。 第一个我们肯定在坚持大开环的战略,越来越多的广告主将B站还是在大触期间还是把我们作为了B头的阵地。 So the number of customers in this period of time has increased by 60%. The second thing we can see is that the number of users and consumers has also continued to increase. During the 9618 period, the size of GNV increased by 33%, and the size of GMV with more than 10 million creators has also exceeded 60%. Finally, we can pay attention to this industry. Some of the industry data is also quite outstanding. For example, digital home appliances, we have a growth of more than 50%. There is also a growth of more than 80% in the number of daily necessities in the family. Mother and child care, food, watch, these are not so strong on Bilibili. There is also a growth of more than 60%. So you can see the trend of consumption of Bilibili in the above data, and the space for growth in the advertising industry in the future.

I wanted to add some June 18th data for your reference. First of all, we continue to press on our open-loop strategy and attracting more advertisers to come to Bilibili and see us as a must-invest platform during major sales seasons. The number of advertisers during the June 18th campaign increased 60% year-over-year, and the engagement between creators and consumers continued to rise. During the June 18th campaign, the total GMB grew over 33% year-over-year, and the number of creators exceeding RMB 10 billion GMB grew over 60% year-over-year. And here's some data points to show the consumer's trend on billability. Digital appliance grew over 50% during the season. Household up 85%. Even for categories such as maternity and childcare, food and beverage, and even watches, all grew over 60% year over year. showing Bilibili's users strong consumption power as they grow with the platform.

In the second half of the year, if you pay attention to some changes in Bilibili's advertising business, you can see some changes in these two aspects. First of all, in terms of product and technology, we will still focus on deepening the application in multiple scenarios and connecting between different scenarios. We will still pay special attention to this. This includes not only the PC side, For the second half outlook, there are two points.

we invite you to take a closer look. One is a broader application and linkage of products and technologies across multiple endpoints and scenarios, including but not limited to PC, OTP, store mode, live streaming, search, and trending topics. Any scenario that we can link the consumer with the advertiser, we will be putting more effort into.

Secondly, AI will actually bring us more direct advertising revenue, not just promotion. The first point is that we will continue to follow the recommendation algorithm. In fact, it is better to analyze the interests of users and their history in Bilibili's behavior in terms of content understanding, and to make accurate recommendations for advertising. I think the second one is that the tools of AIGC, the tools of advertising, can still help our advertisers to produce more quantitatively, B站 users' language, creative advertising cover, title, and even part of the advertising content. In fact, we can see in the recent Q2 that 30% of the cover is generated by AI. In the future, there should be a higher production efficiency of a material to reduce the cost of our customers and make their conversion higher. The third point is AI smart placement. We are still trying to launch automated advertising placement products. The second point will be on AI.

We believe that AI will continue to drive improvements, not only on efficiency, but also delivering actual advertising revenue. One thing is that we'll continue to improve implement ongoing iteration of our recommendation algorithm, enabling deeper content understanding and more precise ad targeting based on our user interest and historical behavior. Another point would be the AIGC advertising tools to help our advertiser to generate ad covers and titles or even content tailored to the user's language and creative style at scale. Currently about 30% of the ad covers are AI generated and there will be more room for us to push the number forward. And lastly is on AI powered automated ad developer products. We will be launching more of those products to improve our advertisers cost control capability as well as scaling capabilities.

From the trend of the industry, we can see that the budget for advertising is still accelerating from multi-platform to core platform. So in the future, platforms still have to have the uniqueness of indispensable goods, or the uniqueness of indispensable goods, in order to get more customer budget. The second point, from a more distant point of view, is that I think the domestic consumer market, customers will still pay more and more attention to brand construction. In the future, they may pursue the transformation of short-term and short-term. Before that, they will pursue the transformation of short-term and short-term. In the future, they will pay more and more attention to where they can invest to get continuous return on value. I think Bilibili will have a unique advantage. There will be no customer who will ignore the influence and consumption of young people. I think this shows some trends in the industry.

From an industry vertical standpoint, in the near term, we think the advertisers' budgets are migrating from multiple platforms to a few core platforms. Platforms that are indispensable and unique will capture larger shares of the client budget. And in the longer term, as China's consumer market evolves, advertiser will be placing more emphasizing on building their brands on top of the pure self conversion budget, because no advertiser can afford to ignore the influence and purchasing power of young people. And on that aspect, we really is at a very unique position.

So in summary, whether in long term or short term, as long as our community continues to thrive, the value of the advertising business will become increasingly evident over time.

we remain confident in our ability to sustain the growth above industry average. Thank you. Operator, next question, please.

Thank you. We'll now take the next question from the line of Felix Liu from UBS. Please go ahead.

Thank you, Manager Zeng, for accepting my question. My question is about game business. Thank you, management, for taking my question. My question is on the game business. Can management share any color on the recently concluded Sammo first anniversary season eight? How should we think about the second half trend for Sanmo as well as for next year? And on your new game pipeline, what are the key games that you would like to highlight? Thank you.

On June 13th, Sanmo celebrated its first anniversary.

And during that season, the DAU broke a record, a new record, within the year of 2035.

I think this anniversary season still proves that SEMO should be from the first year of starting line, after the first year of starting line, and then entered a stage of long-term operation. From the present, we are very confident that SEMO can at least be

The achievement of Sanmo on its first anniversary truly demonstrated that the game has established itself and laid a foundation to become a long-lasting title. we are confident that SEMO will become a lifestyle with a life cycle of over five years and continue to contribute solid gain revenue for us.

And in the S8 season of the anniversary, we have also verified some of the more important ways of operation in the future. For example, our skin. Because SEMO In terms of drawing new cards, it has been well verified in the past few years, that is, every season will pay for new cards. But this time, S8 is a consumption of our skin, which should have met our expectations. And skin, in my opinion, is a more long-term way to bring long-term user consumption.

During the season eight and anniversary celebration event, we have launched multiple new monetization tools, such as the limited edition skins. which is well received by our users. We believe, for example, like the skin cells during the anniversary have met with our expectations and showed that we have explored a new monetization tool that's even more healthier and sustainable compared to other tools. Going forward, we'll have the new card and combining with the skins as well as new innovative monetization models that will help us to make SAML even more sustainable and healthy.

Yes, I think the next important work for us should be to do every season well. Because SAML is a season-oriented game. If you do every season well, users will naturally stay in your game. The most important thing for us is to focus on making every game season the best game season.

As long as we continue to provide that experience, we think the users will naturally stay and continue to play with this game. On one hand, we think the overall development capacity for Sentinel has improved quite a lot, and each new game season will be featuring richer content. And moving forward, we will continue to optimize the gameplay, make it more fun, more balanced, and make the game even more engaging.

The second thing is that in addition to focusing on the new users, we will also focus more on the activity and flow of the old users in the future, and we will, for example, do some kind of Uh, that kind of activity to pull an old user back. Uh, because in the past year, in fact, the old users he accumulated in Samo, he will be more and more. As we go to the second year, the third year to go, then his old users who have played Samo will also be more and more, and then these users can be better let him active and save up On top of the new user acquisition, going forward, we'll be putting more emphasis on retaining and activating the old users.

because this game has sustained eight game seasons and there will be a lot of user or dormant users, it's very important for us to activate and awaken those existing users who have played Sunmole but have left the game for some reason. This will be a very important channel for us to maintain a healthy game community. So as far as we see so far, the user retention rate has been maintained at a very healthy level.

We are expecting to launch the traditional Chinese version of SunMall

in the end of this year or early next year to the players in Hong Kong, Macau, and Taiwan. And we're also going to explore potential releases in overseas markets such as Japan and Korea.

Let's talk about other new games. We actually have four to five games waiting to be released. We still have plenty of product lines in our hands. Looking at our pipeline, we currently have four to five games that's waiting for licensing approval.

And once the approval is being obtained, the game will be releasing accordingly. In short term, we will be expecting to release a casual game based on non-Fanguo IP, which I believe is quite fun and entertaining to look forward to.

We are currently working on a strategy to promote what I mentioned before, the new generation of products. Because we are looking for new users Some new needs for some games So then you should be able to see what we are doing in the field of young people.

Several attempts I also hope that these attempts can get good results and going forward will continue to execute on the strategy of creating games for inventing games for the new generation of gamers and we'll be exploring new game genres and making innovation across different genres. And there are a number of potential categories in that pipeline we're quite looking forward to. I'll put your next question, please.

Thank you. Thank you. We will now take the next question from the line of Lincoln from Goldman Sachs. Please go ahead.

Thank you for accepting my question, Mr. Guan. My question is about the profit margin. As you can see, the company's profit margin continues to rise. In the future, what space do we have to control the cost and reduce the cost? In the second half of the year, do you have any specific plans for the profit margin of more than 15% in the middle of the year? And then about our cash, I would like to ask, because our cash situation is not bad, so the possible use direction in the future, including some plans after the stock return. Thank you. Let me translate it. So thank you very much for taking my question. So my question is about our profit margin. We have inner, our group profit margin continue to climb high. So what are the potential areas of our cost efficiency and the cost discipline going forward? How should we think about the second half in terms of our profitability outlook and any timeline to achieve our media target? They are 15% above operating margin. And in terms of use of the cash, so what are the future areas of our capital allocation?

How should we think about our shareholder return policy? Thank you.

Thank you, Lincoln. This is Sam. I will take your questions. In Q2, our top line grew by 20%, our gross profit increased by 46%, so we saw very strong operating leverage here. Our gross margin has been increased sequentially for 12 quarters. We expect the same trend to continue in the second half of this year, reaching around 37% by Q4, let's say. So we still maintain our mid-term gross profit margin target 40% to 45%. And for the OPEX, we have continued to improve our efficiency of the operation. So if you look at the absolute dollar amount of our OPEX in the first half of this year, it's key flat year over year. So we expect to achieve the year-over-year decline of the OPEX in the second half, because in the second half last year, we have more marketing spending on Sunmo, right? at the first two quarters. So for the profitability, over the past two years, our gross profit margin grew very well, and our operating profit has grown even faster, outpacing our gross margin improvement. In Q2, the OP margin was 7.8%, so we're confident that we can achieve quarter-over-quarter improvement to achieve like 10% adjusted operating margin in Q4 this year. So again, we maintain our mid-term target of 15% to 20% for our OP margin. And regarding to the cash usage, to enhance our shareholder returns, we already repurchased 100 million US dollar shares in our Hong Kong line in Q2. And we have canceled all those repurchased shares. So under the current 200 million buyback program, we still have 83 million remains available. As we have sufficient U.S. dollar cash reserve offshore, the purchase will continue based on the market conditions. So thank you for your question.

Thank you. I'll read your next question, please. Thank you. We will now take the next question. From the line of Yiwen Tsang from China Renaissance, please go ahead.

Thank you for your question. My question is about our main AI applications. What are the current developments of our AI applications? Thank you. So, thanks for taking my question. So, my question is on AI. Can you discuss what kind of AI application we have on platform and what is the latest progress? Thank you.

Actually, currently, AI has been used value. For example, we see that our advertising revenue has increased by 20%, including our DAU and MAU in this quarter. In fact, there is already a value of AI performance. Just now, Carly has already mentioned that our advertising business, AIGC's automatic production of advertising covers and advertising materials, is able to significantly improve the transformation of advertising. As a matter of fact, the AI application or adoption across multiple scenarios on visibility

has already started to generate value. For example, the advertising revenue grew by 20% year-over-year. And Kali mentioned AI has played an important role behind that number. For example, the AIGC cover title generation has meaningfully improved the click-through rate. And also, from behind, the MAU and DAU number increases. AI also played a vital role in terms of delivering the right content to the right users. And on the topic of providing high quality content and fostering a friendly community, we have also leveraged the AI capability to amplify Bilibili's strengths through early identification of high quality content through Understanding the users commentary section and that has helped a lot helped us to promote high quality content at very early stage and allow that content to be seen by more people. This has already shown in our user matrix and community engagement.

So it's one of those things I just talked about, which is that it's already integrated into our current In addition to the point of user growth and income growth, I will talk about three points. The first one is about how AI amplifies the advantage of Bilibili's quality content. I will just say one data. Our Bilibili has more than 1 million long comments every day. Long comments, very long comments. And these long comments are actually our users seriously After reading the content, it is a serious interaction with the content. What is it equivalent to? It is equivalent to using the words of AI now. It is equivalent to having one million people help me to mark the quality of the content data every day. And then this is actually for AI. An understanding of our video content. Including the accumulation of this language. It is all. We can think of it as the only one and only two on the Chinese Internet. So that's it. I'll elaborate on three aspects of how AI is helping Bilibili to become better.

One is that AI can really amplify visibility strengths. From one aspect, one example would be every day there will be over 1 million long comments generated by our users. In that era of AI, that means about 1 million people helping the AI to mapping the content, to identify the content as good content, good data points, And this asset, this type of long comment generated by real Bilibili user is a truly unique data asset for us to identify high-quality content at a very early stage and promote that across our platform. And we already have specific tools to help us to amplify that strength, and we will be adapting that technology are going forward across multiple content categories and scenarios.

The second one is AI-assisted creative mid-term content, which is some of our progress in this field. In fact, in terms of short videos, you can see that many of them are already doing well. Even some of the open source models are doing well. But they are still that can only be used to make material. Because what they produce is probably a clip that lasts for tens of seconds, or at most half a minute. It is used to make other video materials. But can AI make a medium-length video? In fact, from this point of view, we can see that we can look at some tools from other companies, and they can make a video with a good length. But the taste is not right. You will find that it is the taste of AI. But that's not the case with Bilibili. Why? Because we have the best author of Pugc. In fact, what is its taste? You can think of it as a taste of creation. You can also say that for us, we have a lot of 99-point examples. And then if you follow this 99-point example to train our AI, you can think of it as AI work. And the second is on AI assisted content creation for mid to longer form video.

We've seen other players have made even for open source tools for short video creation, but that's merely just on the video material itself, a little longer than 30 seconds. Whether AI can make mid to longer form video, the question we think the answer is yes. On the one hand, we've seen other players in the market have that tools to make mid to longer form videos, but it just seems that first look, it's produced by AI. However, we think we have the ability to make human-like mid to longer form video because we have the best and most talented content creators on our platform who can help us to make this into reality and we will be launching that product very soon and we think um it might be the best human-like need to longer form ai video creation tool that's out there so

Using this AI-assisted creative technology, what it produces is its own taste, not the so-called taste of AI. This can greatly improve the creative efficiency of our app. For example, if you want to make Chinese food, you first have to prepare soy sauce and stir-fried vegetables for it, and not just microwave it.

Well, the purpose of that tool, of course, goes back to help our content creator to lower their barriers and improve their production efficiency and contributing to overall content supply rather than making an AI-produced video. So we think another analogy is to make a very good Chinese food, you will have the Chinese ingredients, not just to offer them microwaves. and we are here to offer the ingredients.

Yes, the third piece is about the field of animation and virtual assistant that we are good at. We should be able to use AI to realize animation support creation and virtual assistant emotional accompaniment. We are also doing internal testing on a small scale. The effect is also quite good. In fact, we can think of this as using AI to solve

And on areas that Bilibili has key advantage on, for example, such as animation, virtual idol, and virtual streamers, AI also have a strong potential to help us to meet the demands of those ACG lovers. For example, the virtual companionship by a virtual streamer or virtual idol, that can be very effectively resolved by the help of AI. And we have already dabbed on that area, and there will be products launched soon to the market. All right. Thank you, operator. That concludes the question and answer session. Back to you.

And that concludes the question and answer session. Thank you once again for joining Bilibili's second quarter 2025 financial results and business update conference call today. If you have any further questions, please contact Juliette Yang, Bilibili's executive IR director or PSN's 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.