Bilibili: What will support growth in the second half of the year? (2Q24 earnings call minutes)

The following is the summary of Bilibili's second quarter financial report conference call in 2024. For financial report analysis, please refer to " Bilibili: Reducing User Acquisition Costs, Is Gaming the Destiny of the Small Station? 》

1. Review of Core Financial Information:

2. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1) Business Progress:

① Advertising Business: Improved the advertising delivery system, optimized ad placements and conversion capabilities, with advertising revenue increasing by 30% year-on-year. The number of advertisers increased by over 50% year-on-year. Especially during the 618 shopping festival, e-commerce platforms and online merchants in various verticals increased their advertising budgets, with video and live e-commerce total transaction volume growing by over 140% year-on-year.

② Gaming Business: Gaming revenue increased by 13% year-on-year, reaching RMB 1.01 billion. The new strategy game "Three Strategies" performed exceptionally well, becoming a new hit, entering the top three in iOS game revenue rankings on the first day.

③ Value-Added Services (VAS): VAS revenue increased by 11% year-on-year, reaching RMB 2.57 billion. The number of premium members grew to 22.3 million, with over 80% choosing annual payment or auto-renewal. User spending on premium services such as high-quality courses grew rapidly, especially in the content creation field.

④ User Engagement:

• Daily active users increased by 6% year-on-year, reaching 102 million, while monthly active users grew to 336 million.
• Users spent an average of 99 minutes per day on the platform, an increase of 5 minutes year-on-year.
• Community remained highly active, with monthly interaction frequency increasing by 11% to over 16.5 billion times.
• As of the end of the second quarter, the official membership reached 243 million, with a 12-month retention rate of approximately 80%.

⑤ Content and Creator Support:

• Video views and interactions increased by 18% and 11% year-on-year, respectively.
• Content creators' income grew by 30% year-on-year, with significant monetization effects through advertising and value-added services.

⑥ Future Outlook: Management is confident in achieving non-GAAP breakeven in the third quarter and plans to further improve profitability thereafter. Bilibili will continue to unlock more monetization potential through high-quality content and community development, driving further growth.

2.2. Analyst Q&A

Q: Advertising revenue grew significantly by 30% in the second quarter. What were the main driving factors behind this growth? How should we expect advertising growth in the second half of the year?

A: Despite challenging macroeconomic conditions, Bilibili's advertising business achieved a 30% year-on-year growth in the second quarter, with revenue exceeding RMB 2 billion for the first time, accounting for approximately one-third of total revenue Advertising revenue has continued to grow for multiple quarters, mainly benefiting from the healthy growth of Bilibili's traffic and the gradual release of user commercial value. In the second quarter, user growth increased by 6% year-on-year, while video views increased by 18%, reflecting the continuous growth of commercial traffic on the platform.

Among Bilibili users, over 70% are young people in China, with an average age of 25, in a stage of rapid growth in consumption demand and purchasing power. Consumption-related content categories saw significant growth in the second quarter, with viewing of categories such as home decoration, real estate, automotive, fashion, and beauty increasing by over 30% year-on-year, and baby care categories growing by over 80%. By optimizing advertising infrastructure and industry solutions, we have achieved effective matching of advertiser and user needs. In the first half of this year, the upgrade of advertising infrastructure led to a 50% year-on-year increase in the number of performance-based advertisers, while the newly launched Creative Center and AIGC technology also increased conversion rates by 30%.

In the second quarter, Bilibili's main advertising clients came from the mobile gaming, e-commerce, digital products and home appliances, food and beverage, and automotive industries. During the 618 shopping festival, the number of Bilibili advertisers increased by over 300% year-on-year, and live streaming and video e-commerce GMV grew by 140%.

Looking ahead to the second half of the year, we are confident in maintaining an advertising growth rate above the industry average, mainly due to the continuous optimization of product infrastructure and expansion in emerging industries. Finally, Bilibili's revenue growth does not solely rely on advertising. Through a dual-track B2B and B2C strategy, we continue to strengthen the advertising platform while also exploring the potential of consumer-end businesses such as mobile games, premium memberships, and live streaming to support sustainable revenue growth.

Q: Congratulations on achieving strong quarterly performance and the successful launch of "Sanmou". Could the management share the key factors for the success of this game and expectations for its lifecycle? What game types are the future plans focused on expanding or investing in?

A: This game has achieved tremendous success in the first half of this year, attracting millions of new players, receiving wide acclaim, and making a profound impact in the gaming industry. It quickly entered the top three in iOS game revenue rankings after its launch and has consistently been in the top ten, becoming the fastest game in Bilibili's operation history to reach RMB 1 billion in revenue. Since last year, we have emphasized the importance of long-term operation. This game's genre is very suitable for long-term operation, and its performance in the second quarter is strong, with high player enthusiasm and excellent retention rates, giving us confidence in its potential to become an evergreen game.

The choice of this game is the result of our new game strategy for the younger generation. This was not accidental but the result of long-term strategic thinking and decision-making. Since 2019, our monthly active users (MAU) have grown by over 200%, and player interests have expanded from a single ACG to various types including SLG. We found a large number of potential SLG players in the community who have a strong interest in history, military, social sciences, and other content, aligning well with the audience of SLG games. We initiated the project codenamed NSOG with the goal of innovating and addressing the needs of the younger generation that existing SLG games cannot meet, and the success of this game proves that our strategy is correct Regarding the lifecycle, SLG games usually have a longer lifecycle, with SLG games that have been operating for many years in the market. Our goal is to operate "Three Strategies" for at least five years and develop it into a "evergreen" work. The key to success lies in focusing on the long-term operation of the game rather than quick profits. We are committed to becoming a top game company that listens to and respects users.

Q: With the average age of Bilibili users reaching 25, can management discuss our content strategy, the prospects of content categories, and future consumption trends?

A: Last quarter, I mentioned that the average age of Bilibili users has reached 25. With changes in user demand, our content has significantly improved in breadth and depth. Bilibili is not only the center of young people's interests but also gradually becoming the main platform for their lifestyle consumption. This has been validated in content consumption data. As young users enter new stages of life, content categories related to consumption are rapidly growing on Bilibili.

For example, in the second quarter, the viewing volumes of categories such as home decoration, real estate, automobiles, and fashion beauty increased by 39%, 43%, and 30% respectively year-on-year, and the daily average video viewing volume of baby care category increased by 80% year-on-year. This reflects the change in user age. Being 25 years old means that about half of the users are over 25 years old, and they have broader interests and consumption needs. Bilibili has become their preferred platform before making major consumption decisions due to its authentic, professional content, mostly in medium to long videos.

In the first half of this year, an average of 73 million users watched automobile-related content monthly. Bilibili has the highest quality new car review videos across all platforms, which are very suitable for explanation and evaluation. In addition to emerging content categories, traditional content such as games, knowledge, and technology increased by 21%, 29%, and 29% respectively in the second quarter, demonstrating our continued leadership in interest-oriented content. Overall, Bilibili has proven its ability to continuously expand content categories over the past 15 years and maintain the competitiveness of the community.

Q: The company achieved continuous profit margin expansion and strong cash flow this quarter. Could management share the financial expectations for the second half of 2024? Especially the profit and loss balance in the third quarter, and the long-term profit outlook.

A: The financial performance in the second quarter shows that our business model has great potential in improving gross profit margin. Total revenue increased by 16% year-on-year, gross profit increased by 49%, and the gross profit margin increased from 23% to nearly 30%. This is the result of several quarters of improving profit margins, thanks to our effective cost control and revenue growth. With the continued growth of high-margin advertising and gaming businesses, there is still room for improvement in our gross profit margin. In the first half of this year, operating cash flow reached RMB 2.4 billion, and free cash flow was RMB 1.5 billion, indicating that the business has entered a virtuous cycle.

Looking ahead to the third quarter, we see deferred revenue balance increasing by RMB 770 million quarter-on-quarter, laying a good foundation for revenue growth. We expect the gaming and advertising businesses to continue strong growth, and the gross profit margin to significantly improve. In addition, in the third quarter, we not only aim to achieve a profit and loss balance but also plan to achieve substantial operating profit on a non-GAAP basis We believe that with the continuous growth of our business and cost control, we will continue to expand revenue and profitability by 2025, while continuously improving operating profit margins.

Q: Could the management discuss how to apply AI technology in various user scenarios on Bilibili and its future potential?

A: As we all know, Bilibili is in a leading position in high-quality AI content, thanks to our users who are mostly well-educated and concentrated in first and second-tier cities. According to internal data, in the first half of this year, over 80 million users watched AI-related content monthly, which usually involves in-depth professional discussions. Therefore, Bilibili has three major advantages in the field of AI: the largest user base interested in AI content, the most active AI professionals, and over 90% of domestic AI companies active on the platform.

This concentration of content and users provides us with an advantage in exploring AI applications. As early as 2023, users began integrating AI with content creation. This year, AI-driven music creation, animation, and short films have flourished on Bilibili, even hosting an AI short film competition that attracted a large number of participants. We have introduced AI into content creation tools, not only improving the efficiency of creators but also allowing ordinary users to participate in creation.

Furthermore, we use AI to enhance user experience, such as open AI assistants and AI search functions, to help users quickly access content summaries. We have developed AI translation tools and AI assistants, the former can translate multiple languages, and the latter can summarize video content, further enhancing user experience. We always believe that AI should benefit everyone and actively cooperate with leading AI companies to provide users with a better experience while helping partners realize more value on Bilibili. Finally, I would like to mention that our AI-generated video function is the result of cooperation with leading AI companies. In the future, we will continue to deepen this cooperation to bring users a more efficient and creative experience.

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