Bilibili Inc.
Q1 2020 Earnings Call Transcript

Published: 19 May 2020

[Operator:]

Ladies and gentlemen, good morning, and welcome to the Bilibili 2020 First Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, I would now like to hand the conference over to Juliet Yang, Senior Director of Investor Relations. Please go ahead.

[Juliet Yang:]

Thank you, operator. Please note, the discussion today will contain forward-looking statements relating to the company’s future performances and are intended to qualify the Safe Harbor from liability, as established by the U.S. Private Security Litigation Reform Act. Such statements are not guarantees of future performances and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risk factors are beyond the company’s control and could cause actual results to differ materially from those mentioned in today’s press release and this discussion. A general discussion of the risk factors that could affect Bilibili’s business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law.

[Sam Fan:]

Thank you, Juliet. Thank you, everyone, for participating in our 2020 first quarter conference call. I’m pleased to deliver today’s opening remarks on behalf of Mr. Chen. 2020 is off to a remarkable start. We are proud to deliver stellar results and set new records within our key operating and financial metrics. For the first quarter, our MAU grew by 70% year-over-year, reaching 172 million and our mobile MAU grew even faster at 77% year-over-year to 156 million. Our user engagement level also reached a new height. Our DAUs achieved a major milestone, up 69% year-over-year to 51 million. Along with our large user numbers, we saw a striking increase in the amount of daily time spent on our platform, up 10 minutes from Q4 to an average of 87 minutes. This is the highest level we have seen in our corporate history. These statistics once again demonstrate our strong execution and high-quality growth we aim to deliver. We attribute our success to our increasingly broad content, friendly and a sticky community, as well as improve the brand awareness. Building on the success of our New Year’s Eve Gala event, we welcomed more new users, especially during the extended winter holiday. Bilibili is becoming many people’s first choice when it comes to content creation and consumption. In 2019, we affirmed our user growth as one of our key objectives and raised our target of MAUs for 2021 to 220 million. We are pleased to say, with the solid execution on our initiatives, we are on a fast track to meet these targets. As we roll out more premium content and services and strengthen our monetization capabilities, we are converting more traffic to paying users. Our MPUs grew by 134% year-over-year to an impressive 13.4 million in the first quarter. The paying ratio also grew to 7.8%, more than doubled from two years ago. Our revenues reached an all-time high of RMB2.3 billion, surpassing the top-end of our guidance by more than – over RMB100 million.

[Operator:]

Thank you, ladies and gentlemen. We will now begin the Q&A session. Okay. So your first question today comes from Jialong Shi from Nomura. Please ask your question.

[Jialong Shi:]

Congratulations on a very solid quarter. My question is about MAU. We saw a big acceleration in this quarter. Could management give us some colors on how much of the growth was driven by the pandemic in 1Q and how much was organic? And as light in China is getting back to normal, how should we look at the trend of your MAU growth post the pandemic? For the new users of hired in the quarter, how is their engagement level compared to those of old users? Lastly, for China’s PUGV market, could you give us some colors on what would be the size of the user base this segment could potentially reach? Thank you.

[Rui Chen:]

[Juliet Yang:]

Your first question on the MAU, indeed, we had an outstanding first quarter in terms of user growth. And we believe that user growth is based on two factors. One is 10 years of devotion and dedication in building a healthy content ecosystem and friendly community to ensure that we always have the highest quality content to offer to our users. And second of all, is our continuously raising brand awareness and our actively impressive user acquisition strategy.

[Rui Chen:]

[Juliet Yang:]

Probably we have already experienced that, Bilibili has become not only for the younger generation, but more for massmarket people’s first choice when it comes to content creation or content consumption. And there’s more and more chatters about what type of videos you’ve seen on Bilibili.

[Rui Chen:]

[Juliet Yang:]

So all of these factors that we’ve mentioned above actually has nothing to do with the extended holiday result by the pandemic.

[Rui Chen:]

[Juliet Yang:]

So we believe the pandemic only helped us to accelerate our user growth process, but it will not change or become a main factor of how our users grow.

[Rui Chen:]

[Juliet Yang:]

So regarding your second question about how the MAU is trending after people are returning back to school or work. So, as I mentioned earlier, the accelerated user growth that we’ve seen in the first quarter has more to do with the fundamentals of our company and the extended holiday only helped us to accelerate our process. So we’re still quite confident that in the second and third quarter, we’ll still see – we’ll still be seeing relatively decent rate of user growth.

[Rui Chen:]

[Juliet Yang:]

So in terms of the new user profile that we’ve seen in the first quarter, it has – there’s no big difference between the new users and the old users. There’s still majority young – younger generation. Their average age is around 20 years old. And over 50% of the new user comes from very long third-tier cities or below.

[Rui Chen:]

[Juliet Yang:]

So in terms of user growth, we never just purely focus on the quantity, but we always put the quality first. As you can see from the user matrix, our MAU grow 70% year-on-year. Our DAU also grow 69% year-on-year. And our time spent for DAU increased 10 minutes quarter-over-quarter to 87 minutes per day, and our video views surpassed 10 billion, reaching 1. – I’m sorry, past 1 billion, reaching 1.1 billion on a daily basis. And the overall retention rate and engagement level of our user base is also very, very strong. The 12-month retention rate of our official members who took and passed the 100-question test, they are also well above 80%. All of this matrix was achieved under the environment as the overall user increased significantly. So this is another set of results that demonstrate our quality of growth.

[Rui Chen:]

[Juliet Yang:]

So at the same time, as you can see, our paying users are also experiencing very fast growth. Our paying user has reached over 13 million this quarter, which means we’re converting more traffic to paying users. So this is another very strong matrix that supports the quality growth.

[Rui Chen:]

[Juliet Yang:]

So according to the latest CNIC report, the overall Chinese video user has already reached 860 million. As the adoption of 5G technology, we believe video will become the most common format of content consumption or creation. By that time, we believe the overall video user is probably going to be equivalent for the overall Internet users.

[Rui Chen:]

[Juliet Yang:]

So the reason why we call PUGV is the professional part of the terms, because it’s professionally produced. So it has higher quality. We don’t believe anybody will say no to higher quality video content. And because of that, we think that all the video users could potentially be PUGV users.

[Rui Chen:]

[Juliet Yang:]

So we believe in the near future, everything will be video-lized, which is a great opportunity for Bilibili. And from what we have observed that we believe video is not just pure content or communication, it has become as a service or as a scenario or an important part of entertainment. Based on what we have seen so far, there’s a trend that everything marketing-related has become more video-lized. And there’s tons of users are studying, learning new things, gaining general knowledge on Bilibili. So this video become a format of get – gaining knowledge. And in the longer-term, we believe video is going be the new connector that connects everything. Hope that answers your question, Jialong?

[Jialong Shi:]

Yes, indeed, and thanks very much for the color.

[Operator:]

Your next question comes from the line of Lei Zhang. Please ask your question Lei.

[Lei Zhang:]

My question is mainly about the commercialization of non-game business. We have seen strong revenue growth in fourth quarter of non-game, especially less and we also noticed some positive business development recently in music and the live streaming. Could management share more color on the efforts we have made in non-game business, especially our policy with live streaming? And also wondering your growth outlook in non-game business in live streaming and advertisement in 2020? Thank you.

[Rui Chen:]

[Juliet Yang:]

So we haven’t changed our concept in our non-game business plan or strategies since our IPO.

[Rui Chen:]

[Juliet Yang:]

So from every part of our live broadcasting business, we’ve always emphasized live broadcasting for Bilibili as an ability. It is based on current view content ecosystem, and we have massive users gathering around Bilibili content, live entertainment content, such as animation and other professionally generated content, where we launched our premium membership services to satisfy their growing needs. And if I have to talk about our strategy, again, it still come back to the same logic that we have, the user, we understand the need and we recommend the right products to suit their right needs.

[Rui Chen:]

[Juliet Yang:]

And our strategy is always to attract massive loyal engaged users through PUGV at the same time to provide them live broadcasting content, professional OGV content to satisfy their growing needs.

[Rui Chen:]

[Juliet Yang:]

So in terms of the growth potential of our VAS business, we believe for many years to come, we will maintain a high growth rate for a relatively longer-term to be more specific regarding the high growth rate will be over 100%.

[Rui Chen:]

[Juliet Yang:]

So we avoid using monetization when we talk about our commercialization progress is because we believe essentially, our commercialization process is providing user better services for more premium content. This is beneficiary for our users.

[Operator:]

Okay. Your next question comes from the line of Alex Liu from China Renaissance. Please ask your question, Alex.

[Alex Liu:]

Thanks for this opportunity. My question is on sales and marketing spending. Could management provide us some breakdown this quarter’s sales and marketing expenses? And also could management share more updates on this year’s brand image upgrade, considering our recent platform branding initiative resulted in a pretty heated discussion among users? Thank you.

[Sam Fan:]

Okay. Alex, I will take your question and Carly will add more color about upgrades. As Chairman generally mentioned, our user growth is still the top priority of our business in this year. So it’s also the cornerstone of our commercial monetization progress. So if you look at all the numbers, the main component for our marketing expenses, there are channel promotion, the channels like app store, as well as the feedback channel and our brand obliquity activities, as well as for our game release and promotions and our sales staff’s bonuses. The incremental part, if we compare that with our Q4 numbers are mainly for the channel promotion and brand activities. We don’t set a very specific market cost target for financial purpose. But instead, we monitored on our eyes very closely to ensure the high-quality user growth. And the decision will be made according to both of the quality and quantity observations on all the newly added users, including the activity the great, for example, the DAU, their retention level, time of spend, and average daily VV and the numbers of their interactions. When the market opportunities comes and the ROI is found reasonable and we will continue to invest. At the same time, with the deepening our commercialization progress, the new users we see, they also effectively converted into our paying users. In Q1, MAU cost increased by 70% year-on-year, but the number of paying users increased over 130% year-over-year and our overall paying ratio are also improving. So that demonstrates that we still have room to raise our paying ratio as it get better long-term return from our UG strategies. And the users growth will also lead to the growth of the top line, you will see that the leverage is still there. The top line increased by, I think, 69% in Q1 and our gross profit increased by 180%. So that means, we just need to accelerate our commercialization progress to get a better return from our investment. So currently, we have over 10 billion cash reserve after Sony’s capital injection. And all the strategic shareholder, they are still very supportive for our user growth strategy. And generally, in Q1, we still generate positive operating cash flow and actual cash burn for Q1 just like RMB200 million, which are must less than the loss recorded in our P&L payment. So the financial status is quite healthy. We believe the market is still booming and the opportunity is still there. So we’re just on the right track to catch those kinds of opportunities. So I will let Carly to comment about the brand upgrade profile.

[Carly Li:]

[Juliet Yang:]

So as you can – already aware, user growth will be our primary focus for 2020, and we have set up a comprehensive plan to grow our user in 2019 last year, that includes to raise brand awareness and to correct by some misperception of how our brand represents or some of our content vertical represents in among users or content consumers.

[Carly Li:]

[Juliet Yang:]

So from late last year, we have tried some independent marketing campaign, some of the events you probably already be very aware. One is the – our investment in The World Championship in League of Legends and our New Year Eve Gala, and the most recent, the Youth Day campaign rewarding the new generations, and all of that have echoed strongly with our existing and potential users.

[Carly Li:]

[Juliet Yang:]

In addition, we’ll also actively promote our content verticals within the mobility ecosystem such as studying, such as blogs, letting people know this is the go-to-platform to consume those content verticals. This is also helping us to raise more brand awareness and platform awareness.

[Carly Li:]

[Juliet Yang:]

So from the Q1 operating data, it’s already pretty obvious that the efforts and initiatives that we take has quite significantly raised our brand awareness and the influence among Internet users that age between 16 to 35. And we have taken great pride of what we have done so far.

[Carly Li:]

[Juliet Yang:]

So going forward, I will continue to promote our brand through online and offline campaign will create festival, create more events and will continue to educate our users about our categories and our content offerings.

[Carly Li:]

[Juliet Yang:]

So going forward, we’re going to launch a serious of campaign in terms of raising our brand awareness, brand mission and positioning through bunch of online and offline activities. And the time – timeline will be surrounded with several important timestamps, for example, the graduation season and Bilibili’s anniversary, as well as some applications.

[Carly Li:]

[Juliet Yang:]

So tomorrow, on March 20, it is also a very interesting time of the year, we will collaborate with a famous singer, Mao Buyi, to launch a graduation theme song called, , to dedicate that – to dedicate the song to the new generation that is about to graduate from schools and enter the society, and we quite look forward to that piece to meet everybody.

[Alex Liu:]

[Operator:]

Your next question comes from the line of Wendy Chen from Goldman Sachs. Please ask your question, Wendy.

[Wendy Chen:]

Thank you, management, for taking my question. My question is related to the mobile game business. So just a follow-up on the previous question, how do we perceive the mobile game business growth for the coming quarter, considering many gamers potentially have resumed work in schools with potential reducing gaming time? And my second question is regarding since we’re doing some very innovative campaigns to marketed our new title, Princess Connect!, wondering we will utilize such a marketing toolkit for the future games to be launched? And lastly, wondering management can share your insight on our strategic cooperation with Sony in term of the game business? Thanks very much.

[Rui Chen:]

[Juliet Yang:]

So we actually don’t believe the whole pandemic has a big influence on our game business. Actually, our confidence throughout the rest of the year with our game business, we currently have 30 games, exclusively licensed games in our pipeline. Eight of those already acquired approval and majority of those pipelines are domestic titles and relatively smaller scales are from imported titles. So it’s a very healthy component.

[Rui Chen:]

[Juliet Yang:]

So the success of Princess Connect!, we believe this is another strong testimony of our strong distribution of power and our people understanding in terms of ACG games. And before the game was launched, the game had over 6.5 million preregistered users. And since its release on April 16, it has topped on the China’s iOS top download in torrent for a week and top browsing of work and reached the number two on top browsing. And based on our strong execution, we believe this is a very, very successful event and very successful.

[Rui Chen:]

[Juliet Yang:]

And based on the existing data and feedback that we have received, we believe this is going to be a title with very long lifecycle probably over three years.

[Rui Chen:]

[Juliet Yang:]

So, as I mentioned, the Princess Connect! is not their strong testimony of our distribution power in terms of ACG games, and we are becoming the inevitable channel in China to launch ACG-related titles. And we believe this advantage will further expand as our overall community is getting bigger and our overall user in-game are becoming more and more active.

[Rui Chen:]

[Juliet Yang:]

And going forward, with – some more with how we expand our content verticals, we’ll also seek to expand our game offerings into more high-quality content, high-quality titles, and we are quite confident this will also be very successful as well.

[Rui Chen:]

[Juliet Yang:]

So we indeed has a – have a longstanding relationship with Sony. Before the equity investment, we already are working with them on multiple business aspect, including animations and games. And with a strategic partnership, we are going to further solidify and bring our partnership to the next level in terms of animation and mobile games.

[Carly Li:]

[Juliet Yang:]

Sure. Carly want to add something on. So first of all, Sony is the world leader in terms of entertainment and technology. And Sony strategic investments really demonstrate their confidence in Bilibili’s growth potential and our unique positioning in the train of entertainment market. And on top of the animation and games, Mr. Chen mentioned that we are also hoping to work with Sony on other aspects, including the – including music, as well as movies are hoping to really bringing more world-class premium content to satisfy our growing user needs.

[Wendy Chen:]

[Operator:]

And your next question comes from Alex Poon from Morgan Stanley. Please ask your question, Alex.

[Alex Poon:]

I’ll translate my question. My first question is regarding MAU target. As we already achieved more than 170 million MAUs in first quarter, should we expect to revise up to full-year target and also next year? My second question is related to PUGV competition. There are many more platforms, allowing content creators to upload platform and they also provide a lot of easy tools and cash returns to these content creators. So how do – how should we see the ROI of PUGV In future? Thank you.

[Rui Chen:]

[Juliet Yang:]

Okay. Regarding first question on the user target, we are confident to say, we are – we will achieve our user target in advance. When we get there, we’ll talk further about raising our user target. And your second question about the competition. I think, the essential – the foundation of your question relies on how we are able to keep our content creator, or essentially how we are able to grow our content creators. And as you can see from our Q1 data that, actually, we have experienced a very fast growth in terms of our active content creator and their content creation, and number of content creator with more than over 10,000 followers, or the growth rate is also expediting. All of that means, we have cultivated a very healthy ecosystem that allows our content creators to grow on our platform. And the message behind that is to truly respect the high-quality content and we expect the high-quality content creators always put the quality in our priority. It’s much easier said and then done. You have to present that principle, we’re over 10 years, and to make sure this mechanism that helps you keep attracting and retaining those users. So that you can – as you can see actually, those top content creators are staying with us and growing with Bilibili. And that’s – I think that’s the key competitive edge Bilibili has compared with other competitors.

[Operator:]

And that concludes the question-and-answer session for today. I would now like to hand the conference back over to management for any additional or closing comments.

[Juliet Yang:]

All right. Thank you once again for joining us today. If you have any further questions, please contact myself, Juliet Yang, Bilibili’s Senior IR Director or TPG Investor Relations. Our contact information for IR in both China and the U.S. can be found on today’s press release. Have a great day.

[Operator:]

Ladies and gentlemen, that does conclude today’s conference call. Thank you for all participating today. You may now all disconnect.