Confident in Sustained High Growth of Live Streaming and Advertising (Bilibili 2Q23 Earnings Conference Call)

Below is the summary of the 2Q23 earnings conference call for Bilibili.US. For the analysis of the financial data, please refer to the article "Bilibili: Can Advertising Save the Small Station? It's Not That Easy!".

I. Management Remarks

1. Three core objectives:

2. Content: Content creators remain the most valuable assets in our ecosystem. Our primary task is to support these talented content creators in accumulating a large number of fans and earning more money. In the second half of this year, we plan to shift our video metrics from video views to total watch time, which will help our users discover more high-quality content on Bilibili. We are also testing AI search functionality within our community to make related videos easier to find.

3. Community: Our users continue to maintain high engagement and stickiness. The number of our premium members has increased by 26% YoY to 214 million, with a stable 12-month retention rate of around 80%.

4. Monetization: Total revenue in the second quarter increased by 8% YoY, with advertising and live broadcasting revenue growing by 36% and 32% respectively. Meanwhile, we will continue to improve gross profit and profit margin.

5. Value-added services: By further integrating live broadcasting into our video business and transforming content creators into anchors, we have opened up various opportunities to expand and diversify our live content. In addition, we are exploring new live streaming products to create more paid channels for our users, including live celebration events. We expect the ongoing integration efforts to continue supporting revenue growth in the second half of 2023.

6. Advertising: In the second quarter, the top five advertising industries were gaming, e-commerce, digital products and home appliances, skincare, and FMCG. With the progress of integrating sales conversion with advertising products, we believe we have found an effective way to convert high-quality traffic into advertising revenue growth.

7. Gaming: This includes the highly anticipated game "Shining! Handsome Girl," which is scheduled to be released on August 30th and is now available for pre-registration. As for the revenue contribution from non-core businesses, it was lower than expected. We now expect full-year revenue for 2023 to be between 22.5 billion and 23.5 billion yuan.

II. Q&A Analyst Questions and Answers

Q: How do you foresee the trend of DAU in the future? How is user engagement performing during the peak season of summer?

A: We value the healthy growth of DAU as it is a prerequisite for Bilibili's profitability. We have gradually explored methods to convert traffic into revenue through advertising and live broadcasting, and we believe that DAU growth and revenue growth can form a positive cycle. Regarding the summer stage, DAU and average daily usage time have maintained healthy and steady growth.

Q: What are the driving factors behind the faster-than-expected advertising growth in Q2? How do you foresee the advertising business? What is the contribution of advertising in livestreaming e-commerce?

A: Regarding the driving factors, the "vertical and horizontal" strategy has shown initial effectiveness. This includes optimizing the recommendation model, improving the inventory and matching efficiency of advertisements, as well as the efficiency improvement brought by AIGC. Various sectors such as gaming, e-commerce, fast-moving consumer goods, automotive, and internet services have demonstrated significant growth and effectiveness.

We adhere to the integration of content ecology and business ecology. Based on ensuring user experience, we explore the effective inventory of advertisements in different community scenarios. In the first half of this year, we have formed initial momentum, accelerating the overall growth of advertising revenue.

In Q2, we integrated transaction scenarios into advertisements, commonly known as "livestreaming e-commerce," further promoting revenue growth. In the coming months, we will upgrade and revamp the mobile entrance to create a "browsing" scenario entrance. We are confident in making greater breakthroughs in the transaction ecosystem in the future.

This year's Double Eleven...

By promoting on Bilibili, businesses can continuously acquire new customers and generate valuable audience conversions within 15 days after the release of cooperative articles. This is what we call "long-term advertising value."

Nowadays, all content platforms are developing their own e-commerce, known as closed-loop e-commerce.

We still need to establish the mindset of young people consuming on Bilibili and have confidence in unleashing their long-term consumption potential.

The rumor that Bilibili's female users lack purchasing power has been debunked. Female users account for 45% of the overall user consumption profile. We will explore more categories and form a category structure with Bilibili's unique characteristics. In the second half of the year, we will iterate strategies in industries where we have advantages, while ensuring sustained and healthy user growth.

Q: Why did the company lower its full-year revenue guidance?

A: The first reason is... The second reason is... However, these are temporary or localized reasons and do not represent fundamental changes in revenue.

Although game releases were delayed, the release dates have been determined.

The company's financial goals are to increase gross profit and reduce losses, so this year we prioritize ensuring the growth of gross profit. Although the revenue of this segment has been affected, our total gross profit has achieved faster growth. I believe that our goal of narrowing losses for the full year can be achieved this year, and the goal of achieving a balance between profit and loss next year can also be realized.

Q: What is the pipeline for the gaming business? What are the expectations for the game "Shining! Handsome Boys and Girls"?

A: In the second half of the year, we will meet with players from both domestic and international markets. Among them, five games that have obtained licenses will be released in China, and two games will be released overseas.

"Shining! Handsome Boys and Girls" is indeed highly anticipated by everyone. We have put a lot of effort into localizing the game to ensure an authentic gaming experience for players. This is also the reason why the game's launch was delayed compared to the initial plan. The competition in the gaming market has become increasingly fierce this year. Self-developed games will focus on advantageous categories and adopt the right mindset. Ensuring the success of games is now a crucial indicator.

The second aspect is long-term operation. If a game cannot be operated in the long run, it will not be approved or distributed. For games that are already launched, long-term operation is the most important indicator.

Q: What is the company's strategy and progress in AIGC applications?

A: AIGC is a groundbreaking technological trend. In fact, we have conducted a certain level of research and development, and we believe that there are many scenarios where it can be utilized. If effectively utilized, it can help improve user experience, enhance the experience of content creators, and increase the efficiency of commercial conversion.

For example, on Bilibili, there are many knowledge-based videos. AI can help content creators read scripts, saving them time in video production. Although we have not publicly announced our large-scale language model, it has already been applied in our business. In terms of content safety review, because the large-scale language model has the ability to understand language, it can greatly improve the efficiency of content review. The large-scale language model can also enhance Bilibili's search experience. We are currently conducting a gray test on an AI-enhanced search function, where users can directly ask questions in the search box.

The AI video assistant can also enhance the user's video-watching experience. We attach great importance to AIGC internally, as it will bring significant opportunities to Bilibili's content platform.

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