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PostsGame Execution Differentiation Strategy (Bilibili 3Q23 Conference Call Summary)
Summary of the third quarter performance conference call for Bilibili.US in 2023. For a review of the financial report, please refer to the article "Bilibili: The Confidence of the King of Mediocrity is Being Worn Away".
I. Management Report
The third quarter achieved an important milestone of positive operating cash flow, indicating that our business has entered a virtuous cycle.
In the fourth quarter, we further streamlined our organization, and it is expected that the total number of employees will reach around 9,000 by the end of 2023, compared to 11,000 at the end of 2022. By focusing on ROI in future projects, these measures will make our organizational structure more flexible, improve efficiency, adapt to environmental changes, and achieve long-term success.
Key community indicators continue to rise:
(1) Daily active Up hosts increased by 21%, with a monthly average of 2.1 billion video uploads, a YoY increase of 37%.
(2) Up hosts with over 10,000 fans increased by 36% YoY.
(3) Daily video views increased by 26% YoY to 4.7 billion.
(4) Story Mode views increased by 45% YoY.
(5) Daily user engagement reached 100 minutes, the highest level in history, with a monthly average interaction growth of 18%, reaching 17 billion.
(6) Official VIP members reached 224 million, with a YoY growth of 23%, and a retention rate of 80% over the past 12 months.
(7) Monetization opportunities for Up hosts: The content sector continues to expand, attracting more users and creating new business opportunities. For example, in the third quarter, the upload volume of home decoration content increased by 19% YoY. In the third quarter, a total of 1.68 million Up hosts earned income on Bilibili, a YoY increase of 34%. Up hosts earning money through live e-commerce in the third quarter increased by over 160% YoY.
Value-added services, mainly driven by the live streaming business, with more Up hosts involved in live streaming. The number of VIP members reached 21.1 million, with over 80% subscribing to annual or auto-renewal packages. The second season of the original animation "Time Agent" received positive reviews in the third quarter.
Game performance declined, mainly due to weaker-than-expected performance of new games compared to last year's "Time Hunter 3". Older games such as "Azur Lane" and "FGO" remained stable.
The game "Shining! Handsome Girls" was temporarily taken down for content optimization and efforts are being made to restore download access as soon as possible.
In the past two years, the gaming industry has undergone significant changes. In early Q4, we assessed the projects currently under development and further streamlined the content development team, terminating projects that do not meet our standards.
Strong advertising growth drives gross profit growth and improves gross profit margin. We have improved our conversion efficiency, with advertising growth of 21% in the third quarter, mainly driven by performance advertising, which saw a YoY growth of 40%. During the Double 11 period, we collaborated with traditional e-commerce platforms, resulting in a YoY growth of 250% in video and live streaming GMV.
Our goal is to further leverage our growing advertising capabilities to enhance our game publishing capabilities, invest in content development to bring high-quality games to our users, and create value for our business partners.
II. Analyst Q&A
Q1: How do you view the potential for user growth? There have been recent media reports that the company has set a goal to double DAU. Can you share the path and timeline for achieving this goal?
A: A good video product can naturally attract traffic and grow bigger. We started emphasizing the ROI of platform user acquisition in the second quarter of last year. Now, while reducing sales expenses, we are maintaining DAU growth. This is a virtuous cycle where we focus on operational efficiency, product capabilities, and the simultaneous pursuit of commercialization and user growth.
100 million DAU is just the beginning. User base is a key advantage of internet products. Only with larger traffic can Upstream's commercialization opportunities increase. Similarly, users are the foundation for our platform's commercialization. From Bilibili's business model, we can see a direct correlation between the growth of advertising and live streaming and the growth of DAU.
Our user base still has tremendous growth potential. Bilibili has a strong word-of-mouth effect, and the entire platform is not just about users. We have exceeded expectations in terms of video views and the number of Upstream, which means we have achieved a virtuous cycle between content users and the community.
In the future, we will continue to focus on ROI-centered user acquisition to obtain traffic that can be monetized.
At the end of last year, I proposed three key goals for the company (improve gross profit, reduce losses, and maintain growth). We did not sacrifice the first two goals to achieve the last one.
Q2: What were the key drivers of advertising growth this quarter? Especially for performance advertising? How was the advertising performance during Double 11? How effective was live streaming for product sales?
A: Performance advertising saw a YoY growth of 40% in Q3. The key drivers were:
Internally, thanks to the deepening of our 7 vertical industry solutions and the improvement of our middle platform capabilities.
From an industry perspective, gaming and e-commerce were the main growth drivers. In the third quarter, e-commerce advertising still achieved a YoY growth of 90% during the off-season, and there was also a QoQ growth of 20% in the medical and automotive sectors.
From a technological perspective, the company has continued to explore the commercial value of Bilibili's scene traffic, with significant results.
Double 11 performance:
Overall, it exceeded expectations, with advertising revenue on e-commerce platforms growing by 80% YoY.
Video and live streaming GMV for product sales grew by 250% YoY.
The number of product sales videos increased by 230%, and the number of live streaming Upstream for product sales grew by 100% YoY.
Q3: What is the growth strategy for advertising in the fourth quarter and next year?A: There are four main points to discuss:
Bilibili will continue to adhere to the "open ecosystem" strategy within its reach, deepen cooperation with major e-commerce platforms, and build data packages. For example, it has collaborated with Alibaba's Spark Program, with over 70 partner brands. During the 618 period, there was a growth of over 160% MoM, bringing in new customers for merchants with a conversion rate of over 50%. The performance in the mother and baby product category was particularly outstanding, with an 89% YoY increase in new customers from Bilibili to Alibaba's platform. The Spark Program has fully demonstrated the value of advertising on Bilibili in terms of conversion. Bilibili is also considering cooperation with JD.com's "JD Spark Program," which will be launched soon.
The company will continue to deepen its advertising ecosystem based on brand advertising, leveraging UP main native advertising, and using performance-based advertising as an accelerator. The overall advertising model will be upgraded, integrating marketing methodologies to reach users through multiple channels and scenarios, and gain multidimensional benefits. At the same time, the company will attempt to build measurable long-term monetization models by establishing user brand assets within the platform.
The company will continue to improve the overall efficiency of advertising scenes while adapting to new scenarios that require different advertising strategies. It will further integrate natural traffic with commercial traffic to enhance the monetization efficiency of traffic.
Focus on customer needs. After in-depth exploration of user demands, the company will build effective scenarios for new product launches, transaction conversions, and major marketing events to expand its overall market share in advertising.
Q4: What is the situation with "Shining! Handsome Girls"?
A: We will complete the necessary technical optimizations and make minor content adjustments as soon as possible to restore the game to the shelves.
Q5: What is the progress of the company's self-developed games? Any changes in the strategy for the future game business?
A: Currently, the domestic game market is highly competitive, and the new user dividend is diminishing, entering a stage of competition for existing users. Homogeneous games are highly saturated in terms of quality, resulting in oversupply, and users are prone to aesthetic fatigue.
Therefore, differentiated strategies are more important now. Data shows that the active duration of existing users is increasing, and the DAU of game videos is continuously growing. To encourage existing users to try new games, new games need to provide a completely new experience.
In the future, self-developed games will follow three criteria: long-term operation, vertical head positioning, and cost control without blindly following trends.
The company has already optimized resource allocation and will focus on projects that have market competitiveness, returning to the essence of innovation.
Q6: Outlook for gross profit margin in Q4? Can the goal of achieving breakeven in 2024 be realized? What is the path to achieving it?
A: It is expected that the gross profit margin will continue to improve in Q4, with advertising contributing to a larger gross profit.
The goal of reducing losses by 3 billion in 2023 remains unchanged.
In 2024, the company will continue to increase gross profit and reduce losses. The company is confident in the growth of advertising and expects the gross profit margin to continue to improve. The company has also made structural adjustments to its resources, further reducing research and development expenses. It is expected to achieve breakeven next year.
Risk disclosure and statement in this article: Dolphin Research Disclaimer and General Disclosure
