Bilibili Inc.
Q3 2019 Earnings Call Transcript

Published:

  • Operator:
    Good day, and welcome to the Bilibili 2019 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 certain 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 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 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 exchange -- 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, and thank you, everyone, for participating in today's earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. Our third quarter was another strong quarter of growth. Our active user acquisition strategy and increased commercialization efforts are paying off. We secured another quarter to record high MAUs and paying users, while meaningfully improving our top line and gross margin. In the third quarter, we added 17.5 million MAUs to our platforms sequentially. This is our highest quarterly net adds ever, bringing our total MAUs to 127.9 million, up 38% from the same period last year. The growth rate for our mobile MAUs even more accelerated, reaching 114.2 million in the third quarter, up 43% year-on-year. While growing our user base, we're also keeping our community engagement at a high level. Total DAUs were up 40% in the third quarter, reaching 37.6 million, and on average, they spend 83 minutes per day our platform. Our user stickiness and loyalty creates longevity and willingness to pay for premium content and the services. In the third quarter, our average monthly paying users once again more than doubled compared to the same period in 2018, which is 7.9 million. Revenues per MAU was RMB 14.5, a 25% increase from the same period in 2018. These set of numbers demonstrate improving monetization of our growing traffic. For the sixth consecutive quarter since our IPO, we exceeded our revenue guidance, beating the high end of our expectations by nearly RMB 100 million. Total net revenues came in at RMB 1.86 billion for the third quarter, up 72% year-on-year. We think this means we are doing something very right. At our top line expense, we are realizing more leverage and our gross margin has improved meaningfully each quarter this year from 13.8% in Q1 to 18.9% in Q3.
  • Operator:
    Your first question today comes from the line of Jialong Shi from Nomura.
  • Jialong Shi:
    First of all, congratulations on a solid quarter and also congratulations on achieving the company's 120 million to 130 million MAU target ahead of schedule. So I just wonder if management can provide some colors on the profile of the new users acquired in the current quarter, in the past quarters? And how are the new users compared to those of old users in terms of their profile and engagements? And since the company has already achieved this year's MAU target ahead of schedule, so I was just wondering what is your new MAU target for the end of this year -- end of this and the next year? And my second question is about the outlook of competition landscape. We heard some of the game live broadcasting platforms are trying to diversify their content offering by adding more and more anime-related contents into their libraries. So I just wonder what management think of the potential for these new entrants?
  • Rui Chen:
  • Juliet Yang:
    So Mr. Chen will first share his view on user growth and Carly will share colors on this quarter's new user profile. So Mr. Chen feels very optimistic about our future user growth trend. He feels that we can upkeep the current speed of user growth or even achieve accelerated growth without compromising the quality of our users. That quality translates to the engagement, the time spend, the retentions, and we are quite confident to keep up a very high-quality growth while achieving relatively higher growth rates.
  • Rui Chen:
  • Juliet Yang:
    The confidence comes within our more and more mature content creator ecosystem. Over the past year, we have developed very mature and self-sustaining content ecosystem that attracts more and more content creators come to our platform creating high-quality content. At the same time, our improved AI content recommendation is pushing more high-quality content to meet with more mass audiences drive our -- also at the same time our community also help our content to spread faster through word-of-mouth, and that can be supported by, over the past few quarters, we can see our content category expanded to much wider categories. At the same time, the new videos that achieved 1 million video views become much, much more.
  • Rui Chen:
  • Juliet Yang:
    So in the past few quarters, we've seen reports from different third-parties suggesting that the benefit of the growing population of China is diminishing that more users -- they are less time spent, less active users in overall Internet space. On the contrary, Bilibili's very unique content ecosystem and our unique user growth models will definitely help -- will definitely attract more and more attention in this field.
  • Carly Li:
  • Juliet Yang:
    I will now give a quick update on the monthly active user acquisition and the new user profiles.
  • Carly Li:
  • Juliet Yang:
    So first of all, organic growth still takes a big part of our user growth strategy. Given our current content ecosystem and community environment, this is very beneficial for word-of-mouth user growth.
  • Carly Li:
  • Juliet Yang:
    At the same time, we'll also be more proactive in acquiring traffic that includes investment in different app stores and work with larger traffic platforms.
  • Carly Li:
  • Juliet Yang:
    So for this part of growth, the acquired traffic, we will be very focused on the core user retention and time spent and engagement. At the same time, our AI-powered recommendation system will continue to improve that in that direction to help to maintain a higher retention rate of the new users.
  • Carly Li:
  • Juliet Yang:
    So we've observed that the new users paying ratio has gradually improved. The new users who are coming in 2017, paying ratio -- who come in, in 2018, paying ratio is significantly higher compared to 2017. And we've seen the new user who come in, in the third quarter, paying ratio is also higher than previous quarters.
  • Carly Li:
  • Juliet Yang:
    In addition, we'll also -- to invest in raising the brand awareness of Bilibili, we'll upgrade our overall branding campaign and this is prepared for 2020 user growth.
  • Carly Li:
  • Juliet Yang:
    So in terms of new user profile, there's no significant difference between the new users that we attracted in the previous quarters, still majority being young generation and first- and second-tier cities with a further penetration in the lower-tier cities.
  • Carly Li:
  • Juliet Yang:
    So the overall platform's average age are still 21.5 years old.
  • Carly Li:
  • Juliet Yang:
    So in terms of their content preferences, still relatively the same with the old users. They are into lifestyle, Chinese animation, PUGV and this is thanks -- this is beneficiary to our increasing content supply in lifestyle, specifically in vlog and other high-quality content verticals.
  • Rui Chen:
  • Juliet Yang:
    So first of all, in terms of anime content supply, Bilibili was never the first one to do it, and we're not the only one who is providing that type of content. And as a matter of fact, there are a number of players, including some of the industry giants, supplying this type of content.
  • Rui Chen:
  • Juliet Yang:
    But our results prove ourselves -- especially in the past 5 years, we have proven to be the most influential platform, and our partners across the industry also agree that Bilibili is the most powerful and most influential anime platform in China.
  • Rui Chen:
  • Juliet Yang:
    So our advantage does not only include that we basically have all the anime fans gathering together on Bilibili, but also our pipeline, our preparation in terms of content IP as well as creation -- content creation teams has also been leading the industry.
  • Rui Chen:
  • Juliet Yang:
    So we have full confidence to continue to be the leader in the anime field. At the same time, while we see more and more competitors coming into the space, we think that, that is a positive sign showing this industry has very promising growth future. We are also delighted to see that.
  • Operator:
    Your next question comes from the line of Alex Poon from Morgan Stanley.
  • Alex Poon:
    I'll translate myself. My first question is related to advertising. We noticed very strong year-over-year growth acceleration to 80% in Q3. Given you have a lot of ad inventories, can you share with us what's your plan of releasing more ad products in the coming quarters? Especially, any spots on your platform that you have a lot of viewership but have not monetized properly yet? As some companies have mentioned that the macro is bottoming out, do you expect to release more products and also expect this year-over-year trend to continue to accelerate? My second question is related to live streaming. Can you share a little bit more about the trends about paying users ARPU? And in terms of monetization and economics of scale of revenue, are you at a point where you can start negotiating down your revenue share ratio with ad agencies?
  • Rui Chen:
  • Juliet Yang:
    Okay. So the ad load for our business this quarter has remained at 5%. This hasn't changed in many quarters, and we do not intend to raise that ad load in the short term. And my overview about our advertisement business is to first improve our commercialization efficiency and discover more advertising format better combines our content ecosystem with our commercialization capabilities.
  • Rui Chen:
  • Juliet Yang:
    And we think our advertisement team is growing stronger, and they are starting to find a way to improve our advertising efficiency without jeopardizing user experience and discovering more effective commercialization method. And we believe without us raising our ad load, we can achieve a faster overall advertisement growth rate.
  • Carly Li:
  • Juliet Yang:
    So we do see some, at the macro, shipment in last year and this year. However, under the unsettling environment, we're still able to achieve 80% year-on-year growth on our advertisement growth revenue.
  • Carly Li:
  • Juliet Yang:
    So first of all, we have overall improved and optimized our overall brand advertisement, improved our brand awareness and better merged our brand influence with our content ecosystem.
  • Carly Li:
  • Juliet Yang:
    So because we have further improved our community environment in brand advertisement, that we can better help to build brand awareness among our community, hence to further improve our brand advertisement efficiency.
  • Carly Li:
  • Juliet Yang:
    So we've come to relatively newer method of integrated marketing campaign that includes raising brand awareness through display ads to brand ads and influence users' purchasing decision through native ads with our content creators and last, complete the transaction through our various performance ads.
  • Carly Li:
  • Juliet Yang:
    On the performance-based ads, we've done 3 major improvement to improve the efficiencies. One is in terms of performance ads format, we are creating new formats to better present the advertisement. And second is to improve our overall algorithm to result in better click-through rate. And third is to better -- further expand our customer base to higher-quality customers, higher-quality advertisers to improve our overall efficiencies.
  • Carly Li:
  • Juliet Yang:
    So looking ahead to 2020, we're still very confident to achieve a higher growth rate of advertisement business. At the same time, we're going to explore better ways to present our advertisement that combines our overall content ecosystem.
  • Carly Li:
  • Juliet Yang:
    And upkeep at least the current growth rate of Q3's advertisement.
  • Rui Chen:
  • Juliet Yang:
    So our live broadcasting business has upkeep -- has been upkeep-ing 100% year-on-year growth rate.
  • Rui Chen:
  • Juliet Yang:
    So in the past, a lot of people have asked Mr. Chen that China's live broadcasting industry is getting more and more competitive, how we're going to grow our position in this landscape. Mr. Chen's response has always been we're not in a position to directly compete with other live broadcasting platform. On the contrary, Bilibili's live broadcasting is more of a natural extension of our current video platform. As our user grow into a bigger scale, our live broadcasting categories have actually naturally expanded. That includes the VTuber content categories that we talked about and also games and other pan-entertainment live broadcasting categories.
  • Rui Chen:
  • Juliet Yang:
    So in the past, we haven't spent a lot of money in poaching big live broadcasting hosts or spending too much marketing dollars to promote our live broadcasting business. However, we're still being able to achieve a relatively very sustainable live broadcasting growth.
  • Rui Chen:
  • Juliet Yang:
    So in terms of the guilds related to income, in the past, indeed a portion of that has been relatively faster growth.
  • Rui Chen:
  • Juliet Yang:
    So because Bilibili has a very healthy user ecosystem, that's the major reason that attracts more and more guilds to come to our platform to work with us.
  • Rui Chen:
  • Juliet Yang:
    So in terms of the revenue sharing with guilds, because in the very beginning, the reason that we are introducing or welcoming guilds is to achieve sustainable growth, not to drive our revenue to spike in the shorter-term. So in the first, we set up our revenue split with guilds at a relatively healthy and sustainable level.
  • Operator:
    Your next question comes from the line of Daniel Chen from JPMorgan.
  • Daniel Chen:
    I will translate myself. My question is on the game business outlook for 2020. So firstly, could management elaborate on what was our expectation for our key current games in 2020, including such as FGO? And secondly, what's the key games we have in the pipeline? And what's the schedule for launch in the 2020?
  • Rui Chen:
    Okay.
  • Juliet Yang:
    So in terms of FGO, we're happy to share that FGO's still at a very healthy state. As we mentioned during the earnings call that FGO in the third quarter has reached #1 in China's iOS top grossing chart, and we're delighted to see the full year 2019 FGO's grossing has maintained relatively stable level compared to last year.
  • Rui Chen:
  • Juliet Yang:
    So in terms of the future performance of our game business, we remain very confident that is due to, number one, the macro environment. First of all, there is still a lot of younger players couldn't find ideal titles that's suitable for their game play and their preferences. And secondly, according to the latest iResearch report, China's ACG game market is forecast to reach RMB 62 billion by 2020. That is more than doubled compared to the market size we have this year. So we have the growth of the market and growth of the demand. That's number one reason.
  • Rui Chen:
  • Juliet Yang:
    And according to our internal research, about half of our existing user will actively search for games that they wanted to play. And as we further expand our user base, we are very likely to get the largest audience of game lovers in China. That is a very, very ideal user base best positioned for future game growth.
  • Rui Chen:
  • Juliet Yang:
    So there are two things we're going to focus on. One is to increase our content supply, our games supply. Number two is quickly expand our user base. As long as we're achieving that 2 steps, we're very confident about our future growth.
  • Rui Chen:
  • Juliet Yang:
    So as you may notice that we have over 30 exclusive license pipeline. And among those 30, 8 of those have -- already have permit to release, and that includes Girl Cafe Gun 2 that will be released today and Furious Yama that will be released in the next 2 months.
  • Rui Chen:
  • Juliet Yang:
    So both of the titles have gained very positive review internally. We believe these 2 titles will become a milestone of our future game revenue growth.
  • Rui Chen:
  • Juliet Yang:
    And another thing to notice, to call out is in terms of domestic game pipeline, we have drastically improved our pipeline in that category relatively compared to 2017 where majority of our pipelines are imported games. This is very positive for, number one, game approval perspective; and second, it's very beneficiary for us to further expand our overseas market. Outside of Mainland China, we can promote these titles in more regions.
  • A - Rui Chen:
  • Juliet Yang:
    So all above, that gives us very good confidence to further grow our game business.
  • Operator:
    And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing remarks.
  • Juliet Yang:
    Thank you once again for joining us today. If you have further questions, please contact myself Juliet Yang, Bilibili Senior IR Director or TPG Investor Relations. Our contact information for both IR in China and in the US can be found in today’s press release. Have a great day.
  • Operator:
    Ladies and gentlemen. This concludes today’s conference call. Thank you for participating. You may now disconnect. Thank you once again for joining us today. If you have further questions, please contact myself, Juliet Yang, Bilibili's Senior IR Director, or TPG Investor Relations. Our contact information for both IR in China and in the U.S. can be found in today's press release. Have a great day.
  • Operator:
    Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Other Bilibili Inc. earnings call transcripts: