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Below is the summary of the Bilbili Q4 2022 performance conference call, and the financial report review can refer to "B site needs a 'iQiyi-style' blood transfusion".

Management speeches

I. We proactively adjust our strategy and prioritize our goals to better align with the new industry paradigm. Specifically, we will focus on DAU growth and how to achieve profitability. We start with the progress in these two areas. Two key tasks that help us turn the tide-

First, our users and their interactions with the community remain the foundation of our business. By focusing on DAU growth, we are bringing high-quality users to our platform, which brings us closer to our monetization potential. In Q4, our DAU was 93 million, a year-on-year increase of 29%. This increased our DAU/MAU ratio from 26% in the same period last year to 28%. The average daily usage time reached 96 minutes, pushing the total time users spent on the platform up by 1% year-on-year. We will continue to accumulate our data through optimized products and algorithms, and further support our business prospects by controlling sales and marketing expenses.

Second, we have increased our commercial efficiency, and cross-cutting measures have brought us closer to our profitability goals.

The net revenue for the full year of 2022 was RMB 21.9 billion, and the net revenue for Q4 was RMB 6.1 billion, a year-on-year increase of 6%. Our gross margin rose from 18% in the previous quarter to 20% in the fourth quarter.

We will continue to take measures to control our costs and improve our organizational efficiency. Specifically, our marketing expenses were reduced by 28% in Q4. The percentage of sales and marketing expenses in total revenue decreased from 30% in the same period last year to 21% in Q4.

We also streamlined personnel, cutting our non-core and underperforming businesses. As a result, our Non-GAAP net loss for this quarter decreased by 21% year-on-year and 26% quarter-on-quarter.

As we enter 2023, our operational goal is to become a more efficient company. We will concentrate our resources on more streamlined and important tasks. Specifically, we plan to continue to expand our DAU, increase gross profit margin, and tighten our expenses. As we execute these actions, we believe we are on the right track to achieving our goal of a balance between revenue and expenditure.

II. Through an overview of our strategic approaches and progress, I would like to briefly introduce our three core pillars of Content, Community, and Commercialization.

1. In terms of content, our growing ecosystem of content is our most valuable asset. In Q4, our platform had 3.8 million up masters, a year-on-year increase of 25%. Up masters created 17.6 million videos per month, up 62% year-on-year. To encourage more users to turn their ideas into creations, we will provide them with more easy-to-use tools. At the same time, more traffic will flow to mid-to-long-tail content creators. Our goal is to convert more users into creators, drive our content products, and increase user engagement. The expanded content landscape is also attracting more traffic to the Bilibili platform.

In Q4, daily video views grew 77% YoY to 3.9 billion, StoryMode video views grew 175%, and PUGV video views grew 56%. StoryMode enables us to expand into the vertical video market, supporting our DAUs and user time spent on our platform and unlocking more commercial opportunities.

We further integrate our commercial channels into our content ecosystem. The existing portfolio creates more immersive advertising opportunities and a variety of monetization channels for content creators; in Q4, more than 1.3 million up owners earned revenue from multiple channels on Bilibili, an increase of 64% YoY.

In terms of the community, our inclusive community environment and rich interactive tools are building closer relationships between our users and our platform. In Q4, the average daily time spent by users on Bilibili reached 96 minutes, and the monthly video upload volume increased by 35% YoY to 13.6 billion.

In terms of our core community members, our official membership reached 195 million in Q4, a YoY increase of 34%, and the 12-month retention rate remained above 80%.

In terms of our commercial progress, our net revenue in Q4 reached RMB 6.1 billion, a YoY increase of 6%, and our full-year revenue increased by 13% YoY to RMB 21.9 billion. We are now more focused on improving the efficiency of commercialization, especially by increasing the company's gross margin.

In terms of our VAS business, VAS revenue in Q4 was RMB 2.3 billion, a YoY increase of 24%; for the full-year 2022, VAS revenue reached RMB 8.7 billion, a YoY increase of 26%.

The live streaming field in particular has been performing strongly, with income from live streaming in 2022 increasing by over 30%. We have integrated live streaming into the video ecosystem strategy to bring more creators into the live streaming industry. This helps penetrate more video users, convert paying users, and optimize our revenue share structure.

In Q4, the number of active live broadcasts per month grew by over 70% YoY, and the number of monthly paying live streaming users increased by over 40% YoY. Looking forward, live streaming will continue to be one of our main revenue drivers. We hope to optimize our revenue sharing ratio and further increase the gross margin of live streaming. As of the end of Q4, we had a total of 21.4 million premium members.

As for our advertising department, we continued to gain market share this year, with advertising revenue increasing by 12% YoY to RMB 5.1 billion for the full year and RMB 1.5 billion in Q4. Our best performing verticals in Q4 were mobile games, e-commerce, digital products and home furnishing, automobiles, skincare and cosmetics. We have further opened our ecosystem to embrace more advertising opportunities in various video viewing scenarios. The new advertising scenes we introduced in StoryMode have brought higher ROI. In the fourth quarter, our performance advertising revenue increased by more than 50% compared to the same period last year. In addition, as our users gradually mature and enter new stages of life, their new consumer needs have also attracted more advertisers whose advertising budgets have been allocated to our platform, continuing to invest in and improve our advertising infrastructure and further integrate our additional features into our content ecosystem.

In terms of games, the revenue in the fourth quarter was RMB 1.1 billion, and the revenue for the whole year was RMB 5 billion. We are committed to an internal self-developed and globally distributed strategy. In the fourth quarter, we reorganized our game development product line to effectively align with this goal. Specifically, we eliminated poorly performing self-developed projects and concentrated our resources on types of games that we are proficient in developing.In 2022, self-developed games contributed 5% of our total game revenue. We expect this proportion to continue to expand as we launch more self-developed games.

We plan to launch 2 self-developed games and 6 exclusive licensed games in the second quarter of this year. As gaming licenses in China gradually recover, we expect to participate in more opportunities in the domestic market.

In summary, new industry trends require more efficient operations. We will continue to focus our resources on increasing our monthly active users, increasing our gross profit margin, and narrowing our losses. Throughout the process, we will continue to strengthen our execution, tighten our expenses, and selectively invest in improving our commercial efficiency. With these measures, we believe we are on the right track to achieving our financial goals and becoming a stronger, more resilient, and efficient organization.

Q&A:

Q1: What are the company's core strategies and focus for 2023?

A1: For Bilibili, our focus this year will be on increasing revenue and reducing losses while pursuing healthy user growth. This will be a long-term strategy that will not change due to short-term environmental changes. You just asked if we will have any changes in the context of this year's economic recovery. I think the economic recovery environment should help us execute this strategy better. The most important thing for the whole company this year is twofold: firstly, increasing revenue and reducing losses, and secondly, the healthy growth of DAU.

Increasing revenue refers to the growth of gross profit. We will focus more on improving gross profit margin and reducing losses. In the fourth quarter, the gross profit margin achieved a year-on-year and quarter-on-quarter increase, and the net loss decreased by 29% year-on-year. We expect the net loss to further narrow in 2023 and achieve break-even in 2024.

In terms of user growth, in 2023, we will not simply pursue growth in monthly active users, but will focus on the growth of more quality daily active users and the improvement of daily active users' monetization efficiency. In 2023, we will work to increase the proportion of DM, which is currently at 28%. This year, we hope to increase this proportion to 30%, which means higher user activity, higher user stickiness, and greater user commercial value. Q2: How do you forecast the gross profit margin for 2023? How do you forecast the business line split? How will you achieve full-year loss reduction?

A2: Under the overall goal of increasing revenue and reducing losses, we will reduce low gross margin businesses, such as esports, copyright transfer, and some e-commerce businesses in 2023. We expect e-commerce and other business revenues to decrease by 25%-30% in 2023, while non-e-commerce business revenues (games, VAS, and advertising) are expected to grow by more than 20%.

Overall, gross profit margin growth is driven by revenue growth. In terms of investment, we will be more selective and focus on investment return rate. We expect server and bandwidth costs, as well as employee costs, to represent a lower proportion of revenue.

In terms of revenue-sharing costs, high-profit businesses will effectively improve the current situation, and we expect the gross profit margin of each business line to increase year-on-year.

OPEX peaked in 2022 and is expected to begin to decline in 2023. Marketing expenses are expected to decrease by 15% year-on-year in 2022, and further decrease in 2023. Meanwhile, administrative and research and development expenses, calculated in absolute dollars, will also decrease slightly in 2023. We expect this to gradually improve the operating margin.

Q3: What are your expectations for the advertising business? How is Story Mode progressing?

A3: In 2022, the DM ratio and daily user usage time proved that the multi-screen and multi-scenario strategy effectively promoted B station user growth. As a new scenario in the B station community, Story Mode is extremely effective in promoting low-activity users, in addition to the original PUGV/OGV live and OTT big screen scenarios, and also plays a key role in attracting more creators to settle in B station. Story Mode also exceeded expectations in terms of views and usage time, allowing B station users to use Bilibili to meet their needs in any scenario, at any time, and for any purpose.

When mentioning Story Mode frequently, do not forget that the PUGV ecosystem is also continuing to grow healthily, with a year-on-year growth of over 50% in the fourth quarter. However, the year-on-year growth of Story Mode exceeded 170%. In 2023, the traffic of Story Mode will further improve healthily in the entire ecosystem.

In terms of advertising, the overall advertising market in 2022 was poor (single-digit growth), and in a challenging environment, B station's market share still increased, with total advertising revenue reaching 5 billion. This year, advertiser confidence is gradually recovering, and the overall industry has the opportunity to achieve double-digit growth. However, advertisers will be more cautious in their placements and focus on the core value and effectiveness of the ads. B station's advertising business has already covered the above requirements, and we are confident of achieving a growth rate higher than the industry's. 2023 will upgrade the sales form and mode of advertising, and integrated marketing will remain the long-term growth engine.

Q4: How does the management team anticipate 2023 for games? What is the strategy for self-developed games?

In 2022, the entire game industry entered a new phase. In fact, we think that the approval number is just one of the reasons why the game business is difficult. I think a bigger reason is that the dividends of mobile users are gradually disappearing. Players’ increasingly mature requirements for game quality still have a significant impact on the industry, because it directly brings about an increase in game development costs and a decrease in the success rate of new games.

When there is a user dividend, as long as you do the game content well, you can definitely make money. However, when the game industry becomes a stock market, there are only two types of games that can make money. The first is the super game at the top, and the second is the one you call the top in a vertical category. Only in these two situations can you have sustained profits.

So, Bilibili's game development strategy is also prepared for future industry trends. We will be more determined to execute our proposed strategy of “Global distribution of premium resources,” because I think this is something we must do in the next industry cycle of games. Only global distribution can offset higher game development costs and achieve better profits. Only premium games can become games that can be operated for a long time and provide better ROI.

In terms of categories, we will be more focused, whether it is our agents or self-developed, we will focus on an area that we are good at, such as second-dimensional, card games and so on. In terms of self-development, we will also reduce our self-developed projects so that we can put more energy into the most successful projects and create premium games. From the results, the achievements of our self-developed games are slowly emerging. Last year, self-developed games accounted for 5% of our total game revenue, and this proportion will continue to increase this year.

Regarding the approval number, we can actually see that domestic approval numbers are issued almost every month, and the import approval number has also resumed issuance. Therefore, we believe that the approval number policy should be normalized this year. I think for Bilibili, whether it is for our self-developed games or our agent games, it is good news, and it is also good news for our game interconnection business and game advertising business. So it is a good thing. We can also reveal that we will have two self-developed games online in the second quarter of this year.

Q5: How does the management view the opportunities or impacts that AIGC brings to the company?

AIGC will be a big event that will affect the entire industry and even the whole society, because it means a huge improvement in content creation productivity. An event comparable to this is the previous mobile phone camera, which enables ordinary people to produce content anytime, anywhere. The role of AIGC is to improve the efficiency of content creation and greatly reduce costs, allowing more people to create content. I think that for Bilibili, AIGC can bring great benefits, and all content platforms can benefit from it. Bilibili has two main features - first, it is a massive content platform; second, it is a UGC (user-generated content) platform. I believe that AIGC can be very helpful in these two areas.

The third benefit should be in the virtual up host area. As we all know, Bilibili is now China's largest platform for virtual up hosts. We have tens of thousands, even hundreds of thousands, of virtual anchors and images active on Bilibili. AIGC can make these virtual images more automated and humanized. We are also paying attention to and following up on the improvements that AIGC can bring in this area.

Bilibili's nature is a platform that links creators and consumers, so any technology that can improve creator productivity and increase the number of creators is beneficial to Bilibili. Just as the transition from the PC era to the mobile era greatly expanded the number of creators and productivity, directly leading to a tenfold increase in Bilibili's user base, I believe that AIGC may bring similar changes, and we look forward to the next era of development brought by AIGC.

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