Bilibili Inc.
Q2 2019 Earnings Call Transcript

Published: 27 Aug 2019

[Operator:]

Good day, and welcome to the Bilibili 2019 Second 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, Julia. And I thank you everyone for participating in today's earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. I'm happy to report that on June 26, 2019, we celebrated Bilibili's 10 years anniversary. Over the past decade, we have grown from a small personal size to a leading online entertainment platform. We've over a 100 million active users come together to provide and share their interests. We attribute our success to our constant focus on PUGB content ecosystem and community involvement which form the foundation for continued high quality growth. Looking into the next 10 years, we are charged, we are accelerating this growth. We plan to achieve this in two ways, more proactive user growth and improved commercialization efforts. We are proud to deliver another remarkable period of growth in both our user base and top-line. Importantly, our second quarter results demonstrate the type of high quality user growth we are aiming to achieve. We added 9 million MAUs to our community of subscription on quarter basis. This is a highest net add since 2017 bring our total MAUs to 110.4 million including 30% year-on-year. Within this group, our mobile MAUs once again grow faster than our MAUs and were up 35% year-on-year reaching 96.2 million. High quality user growth has always been a key focus for Bilibili. The young accelerated growth, we're continuously improving the activities and engagement for our user community. In the second quarter, our total DAUs outpaced our MAUs growth rate and grow by 41% year-over-year reaching a record 33.2 million.

[Operator:]

Your first question comes from the line of Hillman Chan from Citi. Please ask your question.

[HillmanChan:]

[JulietYang:]

Excuse me, Hillman, we can't hear you. I am sorry.

[HillmanChan:]

Thank you, management for taking my question. Noting that MAU growth accelerate in the quarter. Could management share more on the user growth strategy? Why are we trying to accelerate user growth right now in this quarter? And also where are we acquiring the users from which particular channel and addressing which particular user demographics? And how should we think about the related marketing expense and target for MAU by the end of this year and next year? And then my second question is on live streaming. Could management shed more its strategy as to how we control users from video viewers to live streaming? And how we step up, help the user system update behavior going forward? Thank you very much.

[RuiChen:]

Okay. So I'll take the first question. I'll discuss why we wanted to accelerate our user growth at this stage and how we are going to do it. And Sam will explain little bit more on the cost side. So, first of all, why we are doing so because we have made substantial growth on our content ecosystem. We have made breakthrough on both quality and quantity of our content. So first for example on the content side, we've seen substantial growth on the number of content release submitted daily on our platform. And our video views also improved substantially. How many users have participated in the inter action and how many searches per DAU per day. They have all grown substantially over the past few years. So second we have extended to new content categories without doing massive subsidy on the content or signing massive new content creator. For example, the new content submission in the log session increased 81% sequentially in Q2 and on the mobile content submission side on average in Q2 over about 47% of the content was submitted through mobile content submission function. And this ratio was even over 50% as we move into summer. So we work at our blockbuster hit new titles, new videos emerging on our platform, we see a lot of new content creators and new videos emerging in lifestyle, entertainment and technology. Those are the relatively more general emerging content categories that become more and more popular on out platform. So based on the length and depth of our content we evaluated the overall content supply on our platform now can at least supply over or can support twice as much of our existing user base. So second of all also based on our internal data as our content getting more massive and our users increasing faster than ever, the retention level and engagement level of our community also improved. So for example, when went for IPO in late 2017, the 12-months retention rate of our official members, member who take the community exam test were about 80%. And when we are looking at the data right now in second quarter 2019, the one who joined us since second quarter 2018, their top month retention were even above 80%. So the long-term retention rate has been essential to the longevity and activeness of our community. And from this data is suggesting that user's long-term satisfaction rate and to our community actually improved over time. Third is we have improved our monetization capability. So for example, looking in the show, the number of users who paid in the first half were also newly registered user actually improved 60% year-on-year. And that absolute number of paying users actually already surpassed the number of users who paid in 2017 who are also joined on 2017. So this supports our theory that we have improved our ability to monetize new users. And on our ability to monetize to non-game business, our non-game revenue per MAU actually improved 102% year-on-year in the second quarter. And the money we spent on user acquisition actually improved -- increased 70% year-on-year much lesser than the revenue. This means we are able to make much more money on single new users compared to the money we spend on acquiring them. And another data that we can provide is the paying ratio for users who joined in 2017, their 2018 paying ratio actually doubled compared to 2017. That mean once the user are in our community they are tend to spend over time. So that concludes our three points one as we are able to attack a lot of high quality users and we are virtually retain them and mostly importantly we can better monetizing those new users as our amortization progresses. And we would like to update our MAU target we previously guided our MAU target for this year were 110 million to 120 million. Now we raised that target to reach 120 million to 130 million by end of this year. And we also like to update our three year MAU target from 150 million to 220 million by 2021. More importantly to achieve this target we do not just simply want to increase the number of users; we also like to maintain the quality of the user. And we can achieve that by leveraging the longevity, the power to activeness of our content ecosystem. And how we are able to -- how we achieve to that type of target is the same as we said in before. Bilibili's user growth are not purely just rely on buying traffic or making subsidies to our content creators, it's rely on our substantial and rich content ecosystem, we wanted to do content optimization and upgrade on our content ecosystem and improve the engagement and activeness of our community and improve our product design and upgrade on our branding, on our marketing effort, also improve our channel user acquisitions. And make elaborate our strategy from three assets. First is on the branding side. Over the past 10 years, we barely did any promotion in marketing on Bilibili brand. Although a lot of youngsters know Bilibili very well but from wider demographic age bracket or lower tier city, and there are still 70%-- some of the new users do not know Bilibili; do not know what Bilibili can give. So in this starting from the second half of this year, we will be past-- we are going to upgrade our branding campaign and starting to do more branding awareness and promotion to those users who do not know Bilibili. So those are one of the highest priority job in our do list. Second is to optimizing improved on our product as well as our algorithm. In the past we have been very focused on the long-term retention of our users. And now we wanted to also focus on the retention rate of our new users and this will definitely be very helpful on the user growth. And third is to improve our ability to acquire users from various channels. In the past our investment in channel acquisitions actually is lower than industry average or at around our similar scale to their product. And in the future we are going to improve our ability to acquire users from various online and offline channel. And above all else we wanted to improve our conversion from our top x to paying and increase revenue per MAU. And I think in the past we have proven our ability to monetize our traffic and as our user continues to grow we should be able to grow our top line as we expand our user base.

[SamFan:]

Okay. I'll take the -- have a shot. As Chairman stated, we are at the right time to entering to this strategy. And that two key were all the spending will be . We will take order wise order spending, we actually-- Chairman mentioned that we are not enter to look at accumulate acquire the new users through the marketing spending but if you look at marketing dollar we spent, we will make sure that, that all the marketing dollar we spend will be collect through the growth of the top line. There are also two or three quarters delayed we should take time for our platform to monetize that user traffic. But based on the metrics mentioned during our call as Chairman also mentioned that our conversion from our video users to pay users is quite good and their spending behavior is exceeding our expectations. So we want to take that very seriously. And secondly, if you look, want to note on guidance about the marketing dollar spending, actually in Q3 last year we spent about 18% of the total revenues for the telemarketing expenses and 16% marketing expenses in Q4. We now guide that number in this year will be around 19% to 20% in Q3 and Q4. So it will continue -- it's not significant delay in quest of the marketing dollar spending by the way of allocating work to various annual growths and the growth of the top line in next year.

[RuiChen:]

So on your second question regarding our live broadcasting, over the past few quarters we can see the content consistent of our live broadcasting is also rising. And on the games front, we already have our edge in terms of game related video content. And game related live broadcasting is actually helping us to even elevating that competitive advantage, you can see whenever we have that when the market have new games that will stimulate the growth of content on our live broadcasting content platform. And also the popularity among East Port is also starting to show positive effect on our platform. So new emerging content category is gaining popularity on our video platform. The new live broadcasting content also thriving. For example, live type of content we are seeing as the law getting more and more popular, the lifestyle related live broadcasting is also gain traction similar with the steadying live broadcasting. Those are the emerging category that we see on our live broadcasting platform. We used to say live broadcasting is our natural extension of our live broadcasting -- of our video platform and is also a type of ability we have to acquire. And over a few, past few quarters we have proven that ability. So in the past we haven't spent big bucks to -- on top post signing or big marketing campaign. However from the performance of our live broadcasting that can -- in the past few quarters that also is strong evidence that our live broadcasting is growing with our content ecosystem. And on the monetization front we can also see a lot of highlight and narrows or echo with our video platform ecosystem built uprising of YouTuber live broadcasting is an evidence to show our dominant position in the ACG industry. The number of YouTuber host and the number of viewers who watch YouTuber content and number of users who pay for YouTuber live broadcasting is increasing very fast. And we can also see the paying ratio for YouTuber is much higher compared to other regular entertainment categories. And we are confident that we are able to become the leading player in the YouTuber live broadcasting industry. On Bilibili, there is a strong fan host emotional connection already established on our video platform. And we can leverage that connection on our live broadcasting platform. That function is actually a tool to monetize the fan economy. So to summarize the Bilibili live broadcasting advantages on the games front, we have equivalent or even stronger capabilities to continue to grow our game related live broadcasting content given our massive gamer's user base and game video content. And Bilibili's strongest ACG area we can also see some of the emerging new content category; we can also monetize our emotional connection from host and fan.

[Operator:]

Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question.

[ThomasChong:]

Thanks management for taking my question and congratulations on the strong results growth this quarter. I have a question about our live streaming and VAS. Given the fact that revenue per AMU is growing very lightly how should we think about the revenue contribution from live streaming and VAS going forward over the next couple of years? And should we consider it is more driven by revenue per AMU or paying ratio? Thank you.

[SamFan:]

Okay. Thomas, let me take your question. Currently, the live broadcasting and VAS contribute about 20% of the total revenue. We foresee that number will going up in the short term period. But we also guided that our non-game revenue represent total revenue will ultimately contribute around 50% of the total revenue. That includes advertising, live broadcasting and VAS and other revenue. So we quite look at over to that and the growth driver for live broadcasting again is now mainly for the paying ratio as well as the total targeted growth of the MAU converted through our total MAU to those live broadcasting event as well as our VAS venue. I hope that answer your question. End of Q&A

[Operator:]

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

[Juliet Yang:]

Thank you once again for joining us today. 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 in today's press release. Have a great day.