B Station Management: Market Has Many Misunderstandings About Us (1Q23 Conference Call Minutes)
Below is the summary of the BILIBILI-W Q1 2023 earnings call. For financial analysis, please refer to "BILIBILI-W: The Small Broken Station That Never Grows Up".
Management Overview
The top priority for 2023 is to improve commercial efficiency and reduce losses. The Q1 performance shows solid progress towards these goals.
Firstly, our advertising business achieved over 20% revenue growth. The gross profit margin increased from 16% a year ago to 22% in Q1 this year, driving a 37% YoY growth in gross profit. We continue to take measures to strengthen cost control, reducing total operating expenses by 11% YoY in Q1. Specifically, we cut sales and marketing expenses by 30% YoY while continuing to expand DAU. These actions have proven effective in strengthening the bottom line. In Q1, our net loss narrowed by 72% YoY - progress that gives us confidence in achieving our goal of breakeven.
While focusing on improving financial metrics, we continue to attract more users and increase community engagement. In Q1, DAU increased by 18% YoY to 93.7 million, while MAU reached 315 million, driving the D/M ratio up from 27% a year ago to 29.7%.
Our users continue to value constantly evolving and diverse content. In Q1, the average time spent by users on Bilibili per day reached 96 minutes, resulting in a 19% YoY increase in total time spent on the platform.
This year, we will continue to accumulate DAU in a cost-effective manner and improve overall commercial efficiency. Through this approach, we can better allocate resources to further consolidate the community, expand the creator base we are working hard to grow, and help creators earn more money. We will also continue to invest in commercial capabilities, including improving advertising infrastructure, further integrating live streaming and video operations, developing high-quality internal games, and exploring opportunities for AIGC in the content community. All of these efforts will help build a closer community and unlock more commercial potential for the platform.
After summarizing our progress, I would like to briefly introduce the latest developments in our three pillars: content, community, and commercialization.
Content Business
Content creation is an important part of our ecosystem, dedicated to building a community that is recognized and motivated by users. By providing more user-friendly editing tools, professional content operation support, and improving traffic distribution mechanisms that benefit mid-to-long-tail content creators, we can increase the amount of content created and attract more creators to join. By further integrating our commercial channels into the content ecosystem, we will continue to empower more content creators to realize commercial value through diversified channels. Different talents can monetize their skills in areas they excel in, such as advertising, live streaming, online paid courses, and workshops. With the help of platforms and support, we will continue to develop more channels and products to help content creators realize their commercial value in the future.
Products such as Storymode in multiple scenarios also help attract users' widespread attention and meet their diverse video viewing preferences. In the first quarter, the total daily video views increased by 37% to 4.1 billion. The daily video playback volume of Storymode in the first quarter increased by 82% year-on-year, and the pugv video playback volume increased by 26% year-on-year. The stable consumption trend of Storymode is continuing, providing more opportunities to accumulate DAU, improve community participation, and increase commercial potential.
In addition, we are exploring the integration of AIGC into the content ecosystem. Using AIGC can improve content creation efficiency and user experience. We believe it brings huge prospects and potential to the video industry. With these constantly evolving technologies, we can further enrich the content supply, enhance the creators' abilities, and make their visions easier and more effective to achieve. We are also testing new features powered by AIGC to further enhance the user experience.
Community -
The user group still maintains stickiness and high engagement. The average time users spend on bilibili every day continues to remain stable at 96 minutes. Monthly interaction volume also increased by 15% year-on-year to 14.2 billion. In the first quarter, the official members of bilibili reached 205 million, a year-on-year increase of 29%. The 12-month retention rate of official members also remained at around 80%. Users' loyalty and active community allow us to explore more diverse and community-based exclusive products and services, further opening up more business opportunities.
Commercialization -
We are improving how to monetize our products to drive profit margin expansion and reduce losses. In the first quarter, the total revenue of bilibili reached RMB 5.1 billion. We will continue to actively improve our commercial efficiency to support our front-line business and improve our gross profit margin at the company level.
Firstly, the revenue of our massive business increased by 5% year-on-year to RMB 2.2 billion, mainly driven by the growth of our live broadcasting business. We will continue to integrate live broadcasting capabilities into our video ecosystem as one of the main ways for creators to monetize their talents. More and more creators are trading with live hosts. The monthly active users of live broadcasting in the first quarter increased by 34% year-on-year, and the number of paying users for live broadcasting increased by 15% year-on-year. We also improved the gross profit margin of our live broadcasting business from both a quarter-on-quarter and year-on-year basis, and this trend is expected to continue. As of the end of March, there were 20.2 million premium members. More than 80% of them are annual or renewal package users, which represents a strong trust in the bilibili brand and content.
Advertising Business -
In the first quarter, our advertising revenue increased by 22% year-on-year to RMB 1.4 billion, and increased by 50% year-on-year, while brand advertising and native advertising also recorded year-on-year growth. The best-performing verticals in the first quarter were games, digital products and home appliances, e-commerce, skincare and cosmetics, and automobiles. As users grow into new stages of life, their consumption power increases and their consumption needs become more diverse. This dynamic is attracting more advertisers from a wider range of platforms, such as automobiles and home appliances, to bilibili. Gaming Business -
Revenue for the first quarter was RMB 1.1 billion. As game licenses are being issued more regularly, we welcome more channels for games to enter. We plan to launch 8 new games in the domestic market in the coming quarters.
IP Authorization and Others (formerly known as E-commerce and Others) -
Revenue for the first quarter was RMB 510 million, a year-on-year decrease of 15%. The main reason for the decline in revenue is the proactive strategic shift to focus on improving profitability. In the first quarter, this approach resulted in a meaningful improvement in the profit margin of the IP Authorization and Other businesses, which is expected to continue to improve in the future.
Finally, we released the 2022 ESG Annual Report, emphasizing the value we create and bring to China's young generation. We are committed to fulfilling our social responsibility, cultivating popular communities for our users and creators, and striving for a sustainable future for all. In summary, our actions have effectively improved our financial performance and operational capabilities, while continuing to develop a vibrant community. We will further execute our strategy throughout the year to continue expanding our gross profit margin and reducing losses.
Q&A
Q1: What is the outlook for future user growth?
A1: At present, our strategy for user growth focuses more on quality, which refers to DAU. Improving commercial efficiency is one of the most important tasks for the company at present, and healthy DAU growth is an important cornerstone for driving commercial efficiency.
The current strategy for user growth, which focuses more on quality, inevitably shifts the focus from MAU in the past to DAU now. Therefore, in the past few quarters, with a decrease in marketing expenses, DAU growth has been sustained. Sales and marketing expenses in the first quarter decreased by 30% year-on-year, but DAU growth was still 18% to 93.7 million.
Compared with MAU, DAU can better demonstrate user activity and the commercial potential brought by B station's user base.
The ratio of DAU to MAU in Q1 has increased to 29.7%, and user activity and stickiness continue to improve. The average daily usage time of users is 96 minutes, and the ratio of DAU to MAU will continue to increase in the future, maintaining the current user stickiness.
B station's model is a continuous positive cycle, constantly improving the platform's content supply and quality, and high-quality content will attract more users. The community will retain users and increase user activity, and then further incentivize creators to provide richer and higher quality content. This positive cycle will continue to drive user growth, so DAU will definitely maintain a sustained growth trend in the next few years.
Q2: How do you plan to improve advertising efficiency? What is the outlook for the advertising market in 2023 and corresponding judgments? What is the overall strategy for the advertising business? How is the progress of product placement? A2: So B station achieved a 22% year-on-year increase in Q1, higher than the overall market growth. This further gained market share in the process, and it can also be seen that the year-on-year growth of effect-based advertising is close to 50%.
In terms of user growth, as mentioned earlier, under the premise of sustained healthy growth in DAU and user growth, we still have great confidence in maintaining continuous growth in advertising for the whole year. We will pay special attention to the new opportunities brought by the horizontal and vertical aspects and the transaction consumption in the community.
The horizontal aspect is understood as further emphasizing the technical and data capabilities of the middle platform, which will further improve advertising efficiency. Secondly, in increasing commercial traffic, we will begin to focus on increasing the supply of commercial traffic and add user commercial behavior indicators to the traffic strategy. The third point is data construction, and we will pay more attention to establishing a scientific marketing methodology. Finally, in terms of AIGC, we will continue to focus on improving advertising operations and conversion efficiency. I will pay attention to several aspects of the horizontal aspect based on the improvement of advertising efficiency in the middle platform.
The vertical aspect started to establish six major vertical industries last year, accurately matching B station's advertising model for different industries. Here are two more examples. The first example is games. B station is the most active and highest value game community in China that everyone is familiar with. Therefore, in the game content, joint operation, and advertising departments, we have deep binding, and now we can achieve user deep conversion and brand promotion at the same time with better-than-expected results.
In addition, in the field of digital fast-moving consumer goods, including automobiles and other ecological categories of B station, we are still very confident in maintaining sustained and healthy growth.
Finally, you also mentioned video and live streaming for sales. In fact, we prefer to think of it as an opportunity for incremental advertising revenue brought by the prosperity of transactions in the community, as well as a new path for up masters' income. When all content platforms achieved closed-loop e-commerce last year, we chose to insist on doing a big open loop and started to connect B station's ecological potential to all e-commerce platforms. The purpose is actually to establish a kind of mentality for users to consume in the B station community and the ability of authentication in the middle platform for B station transactions.
In Q1, it was beyond expectations to see that there were more than 10 million users per day consuming content related to sales on B station.
Sales is actually a new path for up masters' income. Currently, on average, more than 50,000 up masters try to trade and consume sales on B station every month. In terms of categories, the advertising format of beauty, food, and digital products has also been preliminarily tested on B station. In the future, under the continuous prosperity of B station's ecology, the potential for transactions and consumption will be further released.
Q3: What are the future strategies and prospects for live streaming business? How do you view the integration between live streaming and on-demand, and what trends will we see in the continuous improvement of live streaming gross profit margin in future quarters? A3: Live streaming is a natural extension of Bilibili's video ecosystem, so we have always treated live streaming and video as a whole when operating our business.
Live streaming and on-demand videos have always had the same user base, and their categories are highly overlapping. Additionally, many live streaming hosts are also video content creators. Therefore, over the past year, our focus has been on strengthening the integration of live streaming and video, and continuously empowering our live streaming business with our video ecosystem.
The success of our live streaming business largely comes from the progress we have made in integrating live streaming and video.
Our video ecosystem injects a continuous stream of vitality and rich new content into our live streaming business. The number of active hosts on Bilibili increased by 34% YoY, and the number of live streaming hosts increased by 15% YoY, which is the driving force that our video ecosystem brings to our live streaming business.
Our ecosystem also empowers live streaming in terms of categories. As we all know, Bilibili is a platform with a very rich variety of video categories, which also makes our live streaming categories very diverse. For example, virtual hosts have become one of the most important categories in live streaming and a significant source of revenue. Virtual hosts are very active on our platform, and I believe that with the popularization of AIGC technology, more vivid virtual images will appear on our platform. Moreover, virtual hosts can interact with users in a more humane way, and I am very optimistic about this field.
Bilibili's live streaming is a very rich and active content ecosystem, which is not just a revenue business for us, but also has rich content and great potential. As we continue to grow and strengthen in the video field, live streaming will also grow and become stronger.
Even today, I can still say that I believe Bilibili's live streaming still has more than twice the growth potential. This is because the integration of video and live streaming can be further strengthened. In theory, every user of a video is also a user of live streaming, and every video content creator is also a live streaming host. From the current data, it can also be seen that more and more video content creators are earning income through live streaming. In the first quarter alone, more than 700,000 video content creators earned income through live streaming. The full integration of live streaming and video also helps to improve the gross profit of live streaming. As more and more video content creators and amateurs become live streaming hosts, and with the optimization of bandwidth costs, I believe that the gross profit margin of live streaming will continue to increase in the future.
Q4: Regarding the "Bilibili content drought" in April and its impact on UP commercialization, how do you think about it?
A4: In April, there was an article in the media that mentioned three of the millions of active content creators on Bilibili, two of whom were still updating their content after the article was published. The article's title was indeed attractive and sparked the attention of other media outlets, but its conclusion was certainly misleading. We have discussed some issues related to the commercialization of up hosts internally, but in fact, the commercialization of up hosts on B station has been greatly strengthened internally in the past year, which can also be reflected from the data.
In the past year, we have actually done quite a lot of work to help up hosts realize their commercialization through B station. And they have earned much more income through advertising live broadcasts and other means than last year.
The outside world has also repeatedly said that the creation incentive is actually a subsidy given by the platform to those up hosts who are not yet able to earn money, mainly for those up hosts with less than 10,000 fans; while for up hosts with more than 10,000 fans, B station's role is to gradually help them earn money through B station. So this is also a misleading article. In fact, the creation incentive has little impact on the income of mainstream up hosts.
The earning of up hosts is definitely the company's most concerned work. In the past, whether it was in the fireworks system, helping up hosts to connect with business orders, or in the work mentioned earlier to make more video up hosts become anchors and bring them income through live broadcasts, these works will continue to be strengthened. Because I have always believed that only by allowing high-quality up hosts to earn more income, can they have more energy to focus on creation, which is a virtuous cycle.
Q5: What is the current game strategy, pipeline for subsequent games, and overall game strategy?
A5: This year is indeed a big year for games. The domestic version number is issued every month, and the imported version number has been issued twice since last year, so the sufficient supply of version numbers is not only good for the game business, but also for advertising and live broadcast businesses.
Then looking at the games that are about to be released, we are actively preparing for the agency, and there is a game called "Shining U Jun Girl" that is being localized in the final stage and is being worked on overtime. Then there is "Yao Guang Lu" by Gu Feng Nv Xing, and the self-developed second-dimensional card game "Slyde".
This year, because there are many game supplies, we will also find that B station's advantages in publishing and joint operations are further reflected, and it also reflects that it is the platform where young Chinese users and second-dimensional players gather the most. It has set a download record in the history of B station's joint operations, and yesterday's joint operation of a big game "Return to 1999" also achieved good results.
Many friends are also concerned about the progress of self-developed games. In fact, the two games that I just mentioned, Yao Guang Lu and Slyde, are self-developed games, and at the same time, we are definitely preparing for the next batch of self-developed games. But as you should know, because games need to follow the boutique strategy, the development cycle of self-developed games will be relatively long, and basically a self-developed game will take 3 years, so the next batch of self-developed games will not meet you until at least 2025.
In terms of self-developed games, we will adhere to the strategy of self-developed boutique global distribution proposed two years ago, focus on advantageous categories, and create the strategy of being the first in segmented verticals, and adhere to long-term operation. So we will still work hard on this. Q6: How to focus on increasing gross profit and narrowing losses?
A6: The focus this year is clear: to increase gross profit while reducing net losses. Therefore, in the first quarter, the gross profit increased by about 37% year-on-year, and the loss was significantly reduced by about 72%, a decrease of 58% compared to the previous quarter.
From the revenue perspective, we continue to improve the quality of revenue. The advertising business grew by 22% year-on-year, making it a high-profit business. On the cost side, we are still improving operational efficiency and achieved a total cost reduction of 7% year-on-year. In terms of operational management, for example, bandwidth costs decreased by about 16% and 12% year-on-year and quarter-on-quarter, respectively. Other fixed costs, such as brand operation costs, also decreased by a certain percentage year-on-year and quarter-on-quarter.
From the expense perspective, we have seen a significant decrease in overall operating expenses, with a year-on-year decrease of 11% and a year-on-year increase in DAU of 18%. Therefore, we will continue to actively control operating expenses, especially marketing expenses, which have already decreased by about 30% in Q1. I believe this trend will continue this quarter. We are confident in controlling costs and expenses.
