Bilibili Inc.
Q1 2019 Earnings Call Transcript

Published: 14 May 2019

[Operator:]

Good day, and welcome to the Bilibili 2019 First 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 that 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 Securities and 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 risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and in this discussion.

[Sam Fan:]

Thank you, Juliet, and thank you, everyone for participating in today's earnings call. I am pleased to deliver today's opening remarks on behalf of Mr. Chen. We have started the year off with strong first quarter results. Our total revenues reached RMB1.37 billion, representing growth of 53% year-over-year and beating the high-end of our guidance of RMB1.29 billion. We have also achieved two exciting milestones on the user front. Our total MAUs grew 31% year-over-year and surpassed 100 million for the first time, reaching 101.3 million. Our mobile MAUs accelerate even more, increasing by 39% year-over-year, reaching 88.6 million, including total 3.2 million mobile MAUs from our Bilibili Comic app and the Maoer app, an audio drama platform, which we acquired in December 2018. Our DAUs also reached a milestone of 30 million in the first quarter, demonstrating the high dense thickness of our growing community. Based on our high-quality content and the unique community experience, Bilibili is becoming a must have among our primarily audience of Gen Z users. This generation readily pays for premium content, more so than any other generation. With this in mind, we are actively exploring ways to satisfy their diverse entertainment needs and expand our paying user group. Our initiative with our high-quality PUGV and OGV content, exciting mobile game portfolio, comic app and audio and e-sports lines continuously acting, attracting and converting our massive community of users to new paying users. In the first quarter, our average monthly paying users grow 132% year-over-year to 5.7 million, laying a solid foundation for further monetization opportunities.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Hillman Chan from Citigroup. Please ask your question.

[Hillman Chan:]

Thank you very much, for taking my questions and congrats on a solid quarter of results. My first question is regarding the content strategy. Could you provide more color on the content cost for license and self-produced, video content, for anime as well as for the comic content? And how should we think about the gross margin in 2019 and 2020, please? And my second question is, regarding the e-commerce and Taobao operation. Could you share more with us the operating metrics, some of the financial contributions right now? And how should we think about the growth strategy in coming few quarters, on operations and monetization, please? Thank you very much.

[Rui Chen:]

Okay. So Hillman, Carly will take the first question, on the content expenditure. So first of all, we'll continue to execute our strategy in continuing with spending on the high quality OGV content. And all of the strategy is built on our ever-growing PUGV ecosystem, while investing certain verticals that we are specializing and echo with our user group.

[Carly Li:]

So as for the OGV expenditure, we will be mainly focused on the self-produced content categories. And the reason why we choose that path is, first of all, that will help us to increase, our premium membership sales. And more importantly, we'll gain more of a big value on the long IP that the long-term IP value that bringing to us and all of our strategy will be focused on that. So on the premier membership front, we noticed the end new package ratio or multi-automatic renewal ratio are extremely high and will also be focusing on trying out different initiatives to unlock the value of those IPs.

[Sam Fan:]

Okay. On the financial side, we already guidance that the common cost will be in around of 50% of total revenues, and we still maintain those kind of outlook. And if you compare with the revenue from our membership and the percentage for the amount content cost, it's around 60%. So, it's pretty much healthy for the company. So we're keeping this kind of investment.

[Rui Chen:]

So as regards for your second question, the collaboration with Taobao, because the first batch of our content creator only entered Taobao ecosystem, which is over a month. So we currently don't have many detailed operation data here. So as for the commercial helping our content creator to allow their commercial value and the partnership with Taobao, we will definitely have some number to share by end of this year. So, on the top line contribution front, we don't see any significant contribution with the Taobao partnership this year. Well, we value the partnership, because it's creating a healthy circulation of merchant, merchandise and content creators on both platforms. That's very positive for both of our ecosystem.

[Operator:]

Thank you. Our next question comes from Natalie Wu from CICC. Please ask the question.

[Natalie Wu:]

Hi. Thanks for taking my question and congratulations on very solid quarter. My question is related with the live broadcasting. Just wondering, if management can give us some more color on the strategy of your live broadcasting initiatives determine this year. More specifically, it would be great if you can give us some update on your VTube initiatives, including revenue contribution, margin profile as well as the difference between this model and traditional live broadcasting model you have observed in your past operation? I would just led myself briefly.

[Rui Chen:]

So we think for our company, live broadcasting was never just a business line up contributing revenue, but it's more of ability because live broadcasting of the content format plays an important role in our overall content ecosystem. So there are three key characteristics with our live broadcasting business. First of all, our users that are watching all this recorded video are the same set of audiences that potentially could be our live broadcasting users. And the categories also narrows onto formats of content. We have also released the number of valid MAU for our live broadcasting this quarter, which is over 10 million. And we also think this number will continue to increase. And second of -- majority of our live broadcasting post are also content creators on Bilibili platform. In the first quarter, actually over 50% of the valid host have also been our content creators. That gives us a deep flow of access to very fine and high-quality potential live broadcasting post, and that is the most important thing for live broadcasting business to ensure that you have a big resource for high-quality content host. And thirdly, as our content creators were have already formed a big connection with their fans on Bilibili platforms. So for their followers, they have more stickiness and they are -- have more willingness to pay. And they also have a stronger sense of belonging and ownership of the community. We believe Bilibili platform will become the most influential content platform for Gen Z. And Bilibili live broadcasting will also be the most popular, most influential live broadcasting platform for this generation. As for certain content categories that we believe, we have very strong agent for example, games related, e-sports related, VTubers, we should be able to achieve absolute leadership, in those content categories. As for the VTuber, a subcategory, we have seen very good traction in the first quarter. So we have over 6,000 VTubers, coming from all across the globe. We have set up live broadcasting in the first quarter of Bilibili platform. And the viewership was over 6 million. Okay. Because we are in absolute monopoly and ACG -- in terms of ACG content, and we also held absolute leadership in this industry with -- from the success of VTuber business, we can see that our user have resonated extremely well with this format of content and their engagement, their game ratio all of the metrics that are very high. So we are confident to keep our leadership in the VTuber, content categories. And we believe these are very creative format of entertainment we potential to grow.

[Sam Fan:]

Yeah, actually the live broadcasting VAS all the revenues streams growth is very strong. And for Q1, the live broadcasting contributed about 40%, of the total live broadcasting VAS revenue streams, so that's for your reference.

[Natalie Wu:]

Thank you very much for the detail answer. Just a very quick follow-up, for the VTuber-related live broadcasting what was the revenue contribution in the first quarter?

[Sam Fan:]

We don't disclose that number yet. We just started this kind of business. So just as Juliet mentioned that, we for that has a great potential to grow in this year. But we actually disclose …

[Natalie Wu:]

Got it, understood, thanks.

[Sam Fan:]

…first time the MAU and the content paying users, so it is just for your reference.

[Natalie Wu:]

Yes. That's good. Thanks, Sam.

[Operator:]

Thank you. Our next question comes from the line of Thomas Chong from Credit Suisse. Please ask your question.

[Thomas Chong:]

Let me translate in English. Congrats on the very strong quarterly results. I have two questions. The first question is, related to the games market outlook, especially in the ACG market, given the very strong first quarter result. The second question is the advertising revenue was a bit weaker in the first quarter. We understand that there is some seasonality as well as China macro elements in it. So just wanted to see what is the management monetization strategy going forward, especially in the video platform? Thank you.

[Rui Chen:]

So we stayed very positive towards ACG game market. There has been a report -- research report forecasting that the overall ACG game market will reach RMB30 billion in three years. So from our perspective, this is quite a realistic forecast that we think we can achieve. So there are key -- two key areas we wanted to focus. One is certainly on the ACG related games that that is very in line with our user profile and our strength in the operation field. And second of all to better address our existing users who have high demand, better understanding of specific games and for those games that requires or are in a better -- of more creative ways, we will introduce those games to our users. So looking at our pipeline, we have two set of pipeline that’s satisfying these two categories. First of all, the high-quality ACG games, we have BanG Dream! 2 exclusively licensed game that will be released in the coming months, which is BanG Dream! and Final Gear. We believe those two titles have their high-quality and should resonate well with our users. And second, for -- to satisfy user with higher demand in creative content format, we also partnered with Tencent Next studio launched audio drama puzzle element games called Unheard and this games have received a very high review from our users and once achieved top two in China team chart and their top -- the best review is over 94%, people gave good review. So in terms of game publishing, we think we are at a very advantageous position, because we have acquired the core user growth for both ACG and for games. And for those categories are the top five most popular content categories on our video platform. So as those users are using Bilibili, we are in a very precise environment to collect their data to their behavior and what type of content they are watching, what type of community behavior they have exhibiting, so we can put more -- be more precisely recommend the right games to the right user. And also our team has very deep understanding of our user’s preferences and how the market is shaping out. So we're quite confident to standout very leading position in terms of ACG games as well as those new creative format of games. So in our pipeline, we currently have over 30 exclusively licensed games and 100s of jointly operated games that pretty much covered all the best quality games that coming in the next one or two years. So as for -- we remain quite confident towards our gaming business.

[Sam Fan:]

Okay. I just want to add one point on Mr. Chen's remark that our GAAP game revenues in Q2 was a little bit flattish compared with Q1, mainly because of two reasons. One is that, we deferred FGO’s cash revenue over 7 months. The FGO cash revenue in Q4 last year quite strong, so they will help to pull up the FGO GAAP revenue in Q1. That's mainly the reason. The second reason is that about the contribution from the new games. We may release our two new games BanG Dream! in the end of May and Final Gear, very exciting dominative RPG in July. So that mainly a well contribute to gain revenue well be -- in the second half of this year, not in Q2.

[Rui Chen:]

So in 2018, we actually reached groundbreaking for our advertising business. We have built a performance-base from zero to one, and also achieved great growth for our brand advertising. For the first quarter, we still achieved 50% year-on-year growth, while -- decreased in quarter-over-quarter. So in the first quarter, it's a seasonality reason. The brand advertising for the traditional advertising format is -- it will be a relatively low quarter, plus the macro economy headwind, the brand advertising was a little below our expectation. However, our performance-based advertising has been performing relatively in line with our expectation. The ad load – the field rate, we are continuing to see the increase in field rate. So on the performance-based advertising we're executing a strategy that's focusing on building a better ecosystem. First of all, on the advertising agency system, we are more focused on the retention, the engagement of our advertising agency. Second of all, we are still continuing to increase our algorithm to improve the efficiency, our performance-based advertising, while lowering the conversion cost. Okay. Third is to improve a formatting of how we review our performance-based advertising -- advertisement to our views. So, as for the brand performance, as we'll continue to increase our influence in the overall brand advertisement industry and to attract more premium brand advertisers. We'll also provide new and creative integrated marketing solutions that benefit our brand advertisers need to address demographics. At the same time, we'll also continue to penetrate the customer base in our brand advertisement and also improve our ability to do better integrate the marketing. So we remain confident given our group of users that highly engaged and highly active that will continue to convert more and more advertisers Bilibili platforms. In addition, we'll also try our new initiatives that benefits of our community and content to provide value-added solutions to our advertisers.

[Carly Li:]

For example, in e-commerce industry, we will also try our new ways to better connect the merchandise, merchants and content. That's all.

[Thomas Chong:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Xiang Li from Bank of America Merrill Lynch. This will be the last question. Please ask the question.

[Xiang Li:]

My first question about regulation. Do you see more traction the regulation on content social community and impacts to our community? And when do we expect to launch the addiction prevention system to the teenagers? And second question about Bilibili Comics and Maoer. Do we have any details, can you share with us in terms of user overlap with Bilibili's community, user time spend and the paying user and the revenue contribution for this year? Thank you.

[Rui Chen:]

So first of all, not only just the entertainment but all over the globe, the rest of the authorities are becoming -- are performing standard control towards Internet content. We think this is an inevitable trend that all the Internet company should adapt and face it right on because right now as Internet penetrated to almost everybody, the regulation of content that we're facing no matters its privacy, control or team and for addiction control, this is the problem that all the country should be facing. So this is the new -- should be new norm for all industry. So as for Bilibili, we have always given our positive active -- for active attitude towards the content control. They have strengthened our overall content audit team and also improved the safety of the content as well as guidance towards more positive content on our platform. So, as for the teens and their addiction controls as many of you, probably heard the news around end of March. And as for Bilibili, we have been actively, spontaneously trying to improve up, more safety content environment for teens in China. We are developing new version of our products that better fits the teen's usage no matter on the content, the quality of the content and the functionality. We are doing number of measurements to make it a safer environment for them. So as our MAU surpassed 100 million, new user analysis profile our overall average age of Bilibili users are above 21 years old and the number of users that's around 14 plus, 10% even less for paying user proportion. So all the measurements that we're protecting and providing a safer environment for teenagers, will not have a major impact on our time spent as well as our revenues. So we -- at Bilibili, we are a true advocate for teen and their addiction control. And we think this is our social responsibility to provide a healthy positive Internet environment for our youngsters. So MAU and Comics are two new business in our group and both of them are in a relatively early stage. And for those two products, they have the same character, which is they're more paying user oriented. They are both very professional platform that providing high-quality content that requires pay-to-view or pay-to-hear. So you won't see a massive ramp on the overall MAU, but should have a positive impact --influenced on our overall. Also as for the overall Bilibili ecosystem, these two platforms provides a very high quality professionally produced content, which will be the source of our IP to really value the high-quality content on both of the platforms. So we encourage you to focus more on the quality of the content, the revenue contribution of those two products and influential IP that's been generated on both platform including Comic and a high-quality audio drama.

[Xiang Li:]

Okay. Thank you. Very clear.

[Operator:]

Thank you. And that concludes the question-and-answer session. I would now like to turn the conference over to the 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 both -- for IR in both China and the U.S. can be found in today's press release. Have a great day.