Bilibili Inc.
Q3 2020 Earnings Call Transcript

Published: 19 Nov 2020

[Operator:]

Good day, and welcome to the Bilibili 2020 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn 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 performance, and are intended to qualify for the Safe Harbor from liability, as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors.

[Sam Fan:]

Thank you, Juliet. And thank you everyone for participating in our 2020 third quarter conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. We see a golden opportunity to expand our reach in today's market to see this window we step up our post user growth, with a focus on further growing our content, expanding our brand awareness and the targeted channel acquisition. This will especially fit for our third quarter pre-season. And as a result, our user base hit a record high. In August, our MAUs exceeded 200 million milestone, marking a new monthly record. Total revenue for the third quarter was up 54% to 197 million, and the DAU were up 42% to 53 million, both on a year-over-year basis. Mobile users also continue to grow at a faster pace. Mobile MAUs were up 61% year-over-year to 184 million in the third quarter. Our users are highly engaged, spending an average of 81 minutes per day on our platform making Bilibili one of the biggest video communities in China. The quality growth of our users is not only reflecting the high engagement levels, but also in the paying user conversions. MPUs were up 89% year-over-year, which is 15 million in the first quarter.

[Operator:]

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question on queue comes from the line of Daniel Chen from JP Morgan. Daniel, please ask your question. Your line is now open.

[Unidentified Analyst:]

Hi, this is Alex from JP Morgan. I have a question regarding the user growth and the user profile of the newly added users. So you guys have been continuing delivering very strong user growth in the past several quarters. Can you talk about the typical new user profile that you guys have acquired in the recent quarters? And why exactly is the value that you offer to these guys to drive the user growth? Also, lastly, what's the user growth outlook into the next one to two quarters?

[Rui Chen:]

Mr. Chen said that the profile of the new users actually hasn't changed much compared to historical data. The average age of our users is about 21 years old. And the average age for the newcomers is about 20 years old. We see a very balanced geographic mix with about 50% of the users coming from 30 years and below. And notably, we've seen that the users above 30 is actually gradually increasing its contribution year-over-year. We've always been attracting our users from our content. The reason why user come to Bilibili is that they can find what they like, what type of content they like on a Bilibili. For example, animation, music, games, digital content et cetera. So based on the data as we have been experienced a very fast user growth. On the quality side we also maintained a very high quality of growth based on the users' retention, their engagement also the paying conversion rate. We are quite happy and satisfied with our high-quality growth. Because we have a very healthy self-sustaining ecosystem, which is our mass content creators continuously creating high quality content, we are quite optimistic about the user growth trend as we look into the future. And also video-lization as an inevitable trend that Bilibili as a pioneer in the video community industry, we are quite confident will continue to deliver high quality growth. So, mid-last year we have set a new user target which is to reach 180 million for 2020 and 220 million for 2021, as you have already achieved this year's user targets, and we are also confident to achieve next year's user targets in advance. And we are likely to set up a refresh our new user target beginning of next year.

[Operator:]

Your next question comes from the line of Yiwen Zhang from Citi. Yiwen, please ask your question. Your line is now open.

[Yiwen Zhang:]

So, thanks management for taking my question. So I have two questions regarding content ecosystems. So, historically, Bilibili has a focus on documentary on access to genre series and the movie. Now increasingly, we see some premium content coming out, for example, variety show and also in the drama series, also F tournament for the E-sports contents. Can you share your thoughts on premium OTT on a non-media under what law do they play our ecosystem? And secondly, so if we take a step back, let's say the broad industry, for short video is 100% compute you see where media the majority productivity are coming from licensed content. So how do you see the if we expand our user base to a much bigger level in terms of Bilibili? What ratio to think that would be between QTV and OTV? And what are the implications for content? Thank you.

[Rui Chen:]

So before we get into the strategy of our OGV business, I want to re-emphasize video as Bilibili's core business, which includes PGV, OGV, and live broadcasting. And the brand upgrade that we've been focusing on this year is proposing all the videos you like, which actually includes short form video, long form video and mid form video, and will continue to cultivate and reinforce content offering new video services based on users' needs and we'll also continue to invest in our OGV content. So I would also like to emphasize that our PUGV content creator ecosystem remains the core of our business. And from the engagement level and our active content creator and content submission, all this key data continues to show that we have a very strong position in the PUGV ecosystem. And the PUGV component will be Bilibili's unique advantage in running our OGV business and as we look into the future more further to integrate our OGV content ecosystem with our PUGV content ecosystem. So for the OGV strategy, going forward, we'll continue to focus on self-produced self-publishing, and will be on quality driven, IP driven and will also serve our content ecosystem. We hope that Bilibili produced will be a label for high quality content. And at the same time, we'll be focusing on improving our ROI and paying conversion. So Bilibili started to get into the self-produced Chinese anime back in 2017. And in 2018, we started getting to the documentary self-production, in 2019 into variety show self-production and for this year, we are making a few attempts into the real person TV and movies for the internet users. And we have already formed a very integrated methodology to how to get into certain verticals. As for now Bilibili has already become the go-to platform for animation and documentary and user already have the perception that visibility has the best in those categories. And for this year our attempt in the TV movie and variety shows for example, Run for Young and Rap for Youth has generated a very good feedback among our users and received very high ratings across all platforms. And this has been show marked for our attempt in tap into new content categories. For those content, the revenue from the premium membership as well as the revenue from sponsorship and advertisement, and actually, the revenue has already exceeded our expectation. We are quite confident to continue to try out more new content offerings in those categories. The value for OGV for Bilibili, I believe that there are several factors. One is premium memberships, advertising revenue, new user attraction, and the add-on value for our PUGV ecosystem as well as IP generation. And in the short-term, we think we have already formed a virtuous cycle where the premium membership revenue and ad revenue has pretty much covered OGV content cost. And our first three quarters this year, operating cash flow for the first three quarters for this year is positive. And as for our membership we have achieved outstanding results. In the third quarter we have 12.8 million paying member premium membership, which grow 110% year-over-year and the quality of those members are also high. About 80% of them have signed at the end new membership or automatic renewal membership. As for the sponsorship and advertising revenue associated with our OGV business grew 230% year-over-year. All of our key project has become a very valuable advertising outlet source for all advertisers. So in summary, we believe the OGV has very important strategic role in our business. So the OGVs high quality content actually served very, very well for our user growth. And for example, the Carp Reborn the Chinese anime, and Run for Young of this latest high quality OGV content has been attracted a lot of new user coming onto Bilibili. And once they join Bilibili, the majority of them say on Bilibili to consume more PUGV content. And actually the new users that were attracted by those OGV their retention is quite good. As for the variety shows Rap for Youth has been quite successful attempt for Bilibili, despite music variety shows, or specifically Rap related variety show have been around the industry and there seem precedents but we are still to make a new breakthrough in this verticals. And our PUGV content ecosystem continue to reinforce the effect and influences because you show a lot of the derivative content were produced by our content creator. The overall video views related to the derivative content has reached a mere 300 million, which also helped us to further expand into the music category by attracting a lot of music lover or musician to join Bilibili. And also for this show, we also generated quite decent sponsorship revenue and advertising revenue. And because we have an integrated product chain on Bilibili, we continue to extend the IP's value by launching new music label waves and long chain series of offline concerts relating to the show. So on Bilibili we're able to further extend and enhance the value of the IP. So to summarize, we believe the value of the IP can be further enlarged on Bilibili's ecosystem, which includes game, anime, TV movies, merchandise and multiple offline events. And going forward, we are looking to further integrate our PUGV and OGV content ecosystem.

[Operator:]

Your next question in queue comes from the line of Binnie Wong from HSBC. Binnie, please ask your question. Your line is now open.

[Binnie Wong:]

First of all, congrats on the amazing set of result and also strong outlook. It was, I think the midpoint is ahead by 12%. Wondering, if you can comment a bit on the competitive landscape. We impressive to see on amortization, advertising, live streaming or continue triple digit growth. And if we look at engagement here, it seems to retreat a bit. If you look at the time spent, 3Q is a slight decline, but videos usually is the strongest in the past years and DAU, MAU ratio also come down to 27%. So anything that we should be aware of structurally and how do we see the competitive landscape among the different entertainment platform evolves? And especially as we see some of your short video and live streaming players are also very aggressive in growing the advertising business in particular. So how do you see that evolve? I understand that we have a very strong ecosystem here, I just want to hear a bit more into how you see as these players getting more aggressive, more capital and then how will you see it? Thank you so much.

[Rui Chen:]

So as for the user engagement metrics, we are actually seeing a quite positive metrics from the time spent, which is 81 minutes in Q3 compared to 79 minutes in Q2 this year. And overall community engagement improved to 5.4 billion times versus 5.2 billion in Q2. And also the metrics from video use per user per daily is also improving. So, in general, we are still carrying out this high-quality user growth momentum in the third quarter. As for the competitive landscape, in the video business, the competitive landscape has always been fierce, whether as competition between A, B, C or TV app. Bilibili has announced for many years we have witnessed many player come and go. And most importantly, we believe the trend of utilization represents a huge market opportunity for the entire internet services industry. And as a pioneer in this space, Bilibili is well positioned to capturing this market opportunity. As for the advertising business, we believe the advertising value for certain platform actually is a reflection of the user's value. So on Bilibili, we have captured the best set of users in terms of time spent in terms of user engagement, as well as the user cohort. So, that's been backing up our advertising revenue growth. At the same time, we continue to improve our advertising efficiencies, launching innovative ad product that's also helping to re-accelerate our ad revenue. And as our brand perception and brand power continue to increase Bilibili has now became a must invest platform across many advertisers.

[Operator:]

Your next question comes from the line of Alex Poon from Morgan Stanley. Alex, please ask your question. Your line is now open.

[Alex Poon:]

Hi, Rui, Carly and Juliet. I translate my question. So my question is regarding advertising business. We have seen year-over-year acceleration for a couple of quarters already. Can you share the drivers behind the strong growth and what's the outlook for Q4 and 2021? Thank you very much.

[Carly Lee:]

As Rui mentioned earlier, there are a lot of fundamental changes behind our advertising revenue. So first of all, Bilibili's user continue to deliver a high-quality growth. On Bilibili there are about half of the young generation in China has been active on Bilibili, which is the golden cohort for brand advertisers. And also the brand advertisers are able to be their brand production and influence user buying decision on Bilibili. And we have more and more high-quality content continue to reaching mass market audiences, which allows Bilibili to become the must invest the go-to-platform for advertisers. And we continue to improve our advertising efficiencies as we continue to enhance our data center platform to better support our commercialization efforts. And we'll continue to roll out more innovative ad formats and ad products. So despite the challenging macro environment as more people think it's getting more and more tougher in the advertisement business Bilibili are able to deliver accelerated advertisement revenue for five consecutive quarters. As we look into 2021, we will continue to improve our overall integrated marketing capability to launch standardized and scalable integrated marketing solutions. And we'll continue to improve our ad efficiency on single users and focusing on improving the ad efficiencies for vertical players continue to improve our services service quality for different advertisement verticals. And we'll also continue to launch innovative scenario-based commercialization method which includes multi-scenario multi-screen solution. So as for the 2020, we believe our advertising value has been widely recognized by our advertisers. As we look into 2021, we're quite confident to continue to carry out this positive growth momentum.

[Operator:]

Your next question comes from the line of Lei Zhang of Bank of America Securities. Lei, please go ahead and ask your question.

[Lei Zhang:]

Thanks, management and congrats on strong results. Two questions, first on sales and marketing. Can you give us some breakdown on for sales and marketing in Q3? And what are the trends in the next one to two quarters? And secondly, I want to follow-up on the competitive landscape. Do you observe the short video platform actually allocate relatively higher percentage on mini video parts and any updates you can share with us? Thank you.

[Sam Fan:]

Okay. Let me take your first question. First of all we have RMB14 billion on the cash reserves. And we also achieved like positive operating cash flow in the first nine months of 2020. So we have very sufficient cash reserves that will support our investment in the different areas. As we mentioned before, we pay close attention to the ROI, our investment in selling marketing, in terms of the - for example, the cost per activation, and their conversion and retention. When the time is more ripe, we will keep doing investments. In Q3 everyone knows that the season to acquire users, so we targeted to invest in user acquisition through different channels including the App Store, the video app channel and the OTT channels. We are also investing in grand advertisement to promote our new Bilibili videos live. And we also attend and organize an offline ACG related events in different cities during this summer. As a result, you all recall that MAU grow like 25 million quarter-over-quarter and also MAUs surpassed 200 million. As mentioned by Carly, we see very good return on the membership conversion and advertising , generally feeling for the MAU addition. But we will not spend that much. So, in terms of the total selling and marketing percentage of total revenues will be lower than compared with Q3 this year. And we are really stay focused on user retention and the paying user conversion in Q4.

[Rui Chen:]

So as for your second question, I wonder the concept of mid-form video because we don't believe user choose to consume video content based on the content of the video, but rather on quality of the video. It's very easy to change the length of the video, it's difficult to create the high-quality content that users like. So whether it's long form or short form is probably a scenario base. But it shouldn't be a format or product concept. So as for Bilibili, we offer video length range from dozen seconds to few hours and each type of video has different audiences. And for different content categories, the length also varies. For example, the music categories majority of the video is less than 10 minutes. And for games and lifestyle, it could up to hours. So we don't think it's a concept of the length, it's actually the concept of the content. And at Bilibili, we are a more comprehensive general content platform. So in the past couple of years, we've seen products that's focusing on providing maturity short form videos. And they've experienced quite decent growth rates, but at the same time Bilibili is also continue to deliver high quality fast growth. So we believe any product that provides the content that fits users' needs that caters to users' interests, and preferences can win over their time. In the past 11 years, Bilibili has always been focused on the content ecosystem driven business model and to satisfy users' interests and need for high quality content. And this model is proven successful for us. So as a comprehensive video community, Bilibili, actually, we believe represents the future of video product, which we believe will be only scenario and multi-screen.

[Operator:]

So that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

[Juliet Yang:]

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.