Good day and welcome to the Bilibili 2018 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.

Thank you, operator. Please note that discussion today will contain forward-looking statement statements relating to the Company’s future performances 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. 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. 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 statement except as required by law. During today’s call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2018 third quarter financial results news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on Bilibili Investor Relations website at ir.bilibili.com. Joining us today on the call from Bilibili’s senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Lee, Vice Chairwoman of the Board and Chief Operating Officer; and Mr. Sam Fan, Chief Financial Officer. And I will now turn the call over to Mr. Fan who will read the prepared remarks on behalf of Mr. Chen.

Thank you, Juliet and thank you everyone for participating in today’s third quarter call. I am pleased to deliver today’s opening remarks on behalf of Mr. Chen. The third quarter was again another period of healthy growth for our business. We continue to execute on our strategy centered around content community and commercialization leveraging our high-quality content. We are attracting a number of users to our platform. The user interaction become member help to create and solidify our community supporting a high level of user engagement and commercialization comes naturally through our understanding of each user’s entertainment needs. In the third quarter, our total net revenues were RMB1.08 billion exceeding the high end of our previous guidance and representing 48% year-over-year growth. Meanwhile, our monthly average paying users continue to grow reaching 3.5 million demonstrating over 200% growth year-over-year. Over the quarter and in recent months, we have enhanced and expanded our content through a number of collaborations as announced in early October. Foreign Tencents increased equity investments totaling approximately US$380 million. We deepened our partnership by entering a strategic collaboration. The agreement will enable us to leverage Tencents primary content, particularly in licensing, co-producing and investment in Anime as well as publish Tencents large portfolio of high quality mobile games. Going forward, we are open to forging relationships with more industry leaders to improve our content offerings and monetization capabilities. Cultivating in content continue to invigorate our global standards growing community in the third quarter. Our average monthly active users grew by 25% year-over-year reaching 93 million. The number of mobile monthly active users grow even faster by 33% year-over-year reaching 18 million. Our core user group or official members who took a 100 question exam will again outgrow our MAU by 45% year-over-year to 42 million. We continue…

Thank you, sir. [Operator Instructions] And our first question comes from the line of Alex Yao from JPMorgan. Alex, your line is now open.

Thank you. Thank you management for taking my question. So I have two questions. One is about partnership with the Tencent. Now that Tencent increased the shareholding in Bilibili in the quarter. What’s the areas you guys will further collaborate? Can you guys elaborate on the partnership over the next couple of quarters? And then, secondly, on advertising, can you guys give us a update in terms of the advertising progress? Any metrics such as, as low the CPM will be helpful. And then also, on the back of a slowing macro consumption and potentially ad budget cuts, how do you think about advertising growth outlook in the coming quarters? Thank you.

Alex. Thanks a lot for your question. I will take your question. So in October, we are happy to announce we have further established a strategic collaboration with Tencent specifically on the animation industry as well as jointly game operations. On the animation collaboration front, we are going to exchange and purchase of existing animation copyrights jointly procure, produce and investing in animation projects, as well as seek investment opportunities in the comic and animation industry. So, Tencent and Bilibili are two of the major players in the animation industry. So by working with Tencent, this will intensively expand our content offering and effectively decrease our content investment in the animation copyright procurement. On the games front, we have achieved agreement on a jointly operating more Tencent game and we think that’s very positive for our pipeline that will be able to offer more diverse, more content to our game lovers on our platform. So both of the animation and game collaboration are in some extent as it will extend our content offerings on our platform further diversify our monetization capability. So, as for your second question on the advertising business progress, we think we have delivered a solid quarter of advertising business in Q3, specifically on the performance-based advertising now is contributing more than 40% of our total revenue that demonstrate our progress and potential of this business line. So, as for the brand advertising, we also delivered a solid growth. We continue to expand the different forms of advertising based on our content ecosystem specifically on some of the original advertising content as well as some of the brand advertising on our self-produced variety shows. The number of advertisers in the third quarter were over 660 which grew over 1500% year-on-year. And we think we still have a lot of room to grow on the advertising business front. That comes from one, the increase of number of advertisers to improved hours and to improve the advertising efficiencies. So, as far as the upload for our performance-based ads, right, in Q3 it was only 5%. So, we think on that front there is still a lot of room to increase. So, the upload ratio, number of advertisers, as well as the algorithm efficiencies are the three main factors that will affect our performance-based advertising revenue. We think all three factors has a lot of room to grow leading large potential in our performance-based advertising business.

Okay, I will add more color on our advertising business. Our top-five industry for our advertising business in Q3 for brand advertising , food beverage, games, communication, digital and beauty products and for the preset there again allocation ,e-commerce, information and software.

Next question please?

Thank you so much. And our next question comes from the line of Edward Leung from the Bank of America Merrill Lynch. Eddie, your line is now open.

Hey, good morning. Two questions. The first one is on paying memberships. Could you talk a little bit about your strategy to grow the membership program, not just in the near-term but perhaps into 2019? And then a second question is about your deferred revenues. It’s quite interesting to your deferred revenue actually coming down in the third quarter. On the other hand, the revenue guidance actually quite stable from the second quarter. So just wondering why there is a discrepancy.

So, in the third quarter, we achieved a remarkable growth of our number of paying users and large – that was largely driven by the increase of our premium membership. So, from earlier this year and Q1 we started to monetize through our premium membership our subscription model of our business, we see the progress for the last three quarters as very strong and very healthy. So, for example majority of our premium memberships are from our yearly subscribers or monthly automatically renewed members. So, the progress is in line with our estimation that is because, first of all, we have very deep user insights regarding their interest and behavior and our users’ stickiness to – their stickiness and loyalty to Bilibili platform is much higher than they are to other platforms. So, as long as we provide the content delight, they will continue to spend on our platform and this trend is likely to last a very long time. And so, from the first three quarters of this year, we noticed that the majority of the users who pay for our membership is paying for our copyright animation and documentary content. For this animation and documentary content aspect we will continue to invest and increase our content offerings. So we are confident this increase will continue. So, the monetization strategy and the content offering will be tightly linked to the nature of our users and linked to the areas that we have most advantage such as animation and documentary. We won’t be splurging too crazily to other content categories. So, we are confident to say that our – the number of premium membership will grow like the past three quarters very healthily and sustainably.

I will take the second question about the balance of the revenue. As you know that, the major component for our deferred revenue balance therefore our online games, we amortized our mobile game revenue, the growth in revenue over the user’s lifecycle. About FGO, we amortized FGO’s growth in revenue in six to seven months period. So, in Q3, we recognized or in Q4, we recognized monthly for our accounting-wise the growth in revenue for Q2 and Q3 for FGO. So you will see in our guidance we indicated that there will be some quarter-over-quarter decrease for our game revenues to have a single-digit decrease and on account, that will be offset by the increase for our advertising and the live broadcasting and value-added services. And based on our current projection for our growth in revenue of our game business in Q4, we estimate that the balance of our deferred revenue will resume increased trend in the end of this year.

Thank you.

Thank you so much. And our next question comes from the line of Alex Poon from Morgan Stanley. [Operator Instructions] Alex, your line is now open.

To ask my questions in English. I have one question. My question is regarding the MAU target. Could you give us a reassessment of your current MAU target for 2019 and 2020? Given you content offering is much more diversified, you have partnerships with Tencent and other parties inside and outside of China. And user behavior data is very strong and step-up in sales and marketing efforts et cetera. Could you give us a reassessment? Is there any upside to – further upside to 140 million that previous MAU target for 2020? Thank you very much.

So, for the user growth trend for the next two years it will be still consistent with what we have communicated. So, by the year of 2020, we are looking on average MAU of 140 million to 150 million. And by 2019 an average yearly MAU will be 110 to 120 million.

I have a follow-up question on the 140 million to 150 million MAU in 2020. Could you give us some breakdown regarding the demographics, composition of this MAU if we can break down into students and non-students and also by tier cities, it would be greatly helpful. Thank you very much.

So, students estimate is as the platform grow bigger and bigger, the demographic of that platform will be closer to the demographic of the country. So, take our this year’s user profile for example, we are seeing an average age of 21 years old for our platform and our new users’ average is 19.8 years old. So, that is already a period one year older than the previous profile and that’s closer to our – to China’s internet demographic profile. So, our new users that were registered this year we see further penetration to the third and fourth tier cities and that percentage has increased by 2% year-on-year. For the content preferences, we also see a increase in the consumption of more general entertainment content and that also in line with what’s the general public or the general young generation’s interest and behavior. So, as for the whole platform, because we are a very decentralized community, people with different interests can find their old specific content. So, even though we see more older demographic coming in and more general content consumption behavior, as well as lower tier penetration city, but as for the old users the absolute perception of the content quality and content diversification for them is only getting better and better. So, we are quite confident to keep the stickiness of the community. Yes, so that’s why you see under in Q3, even though our user grow drastically, the number of time spent and engagement level of our community and the retention level of our community continued to stay stable and even grow even stronger. So we are not just growing our user base, but also increased the stickiness and the experience of quality growth. So, we are confident going forward even though that we are going to expand our user base to 110 million to 120 million next year 140 million to 150 million in 2020. We are still quite confident to say that we will be able to maintain intact community a very sticky and engaged community behavior. So, more importantly, I would like to highlight that, in Q3, our out of the 93 million MAU, 80 million were from our mobile devices. That’s also evidence of our high quality user component. So, as everybody know, mobile devices is becoming integral part of young generation’s life and the high percentage of our mobile devices is evidence that the quality of our users’ matrix.

Thank you so much. And our next question comes from the line of Marcus Yang from Macquarie. Marcus, you may now ask your question.

Thanks very much for taking my questions. Just two questions here. First of all, can you give us a quick update on your view in terms of the regulatory issues in China? And we understand that though you are known through your premium platform had seen ban for a while sometimes and so I’d like to know, if you have any incremental thoughts since the second quarter earnings call on the regulation issues? And also, we heard some game companies have been adopting restrictions on minors, so I’d like to know your – any potential impacts on Bilibili and also your thoughts on this? And lastly, I think on the FGOs, you mentioned that there has been update in the first quarter next year. So I’d just like to know on the progress of the approval of license on this update. Thank you so much.

So, to your first question, I think it’s a question about content security. So, this year, we have done a lot of work in terms of reinforce our content security infrastructure that includes to do a full comprehensive review of our existing content library on our platform, as well as increase the headcount in the content auditor team. I think over half of our increased headcount were allocated in the content auditor team and we have set up two additional locations for content auditor center other than Shanghai. So, we are investing our manpower to enhance our content security infrastructure. So, we will – we are quite confident about our current structure of emplacing a very safety content environment and we are very determined to protect the integrity of our platform that includes to continuously review the existing content and execute even tighter new content approval process. So, as for your minor question, actually we have always been emplacing what the government requires for all games which is a real name registration system, as well as a parent monitoring system to avoid overtime spent for minors. So, we have further reinforced our parent monitoring system to help the parents and the society to control and avoid minor’s hours, spending too much time on a mobile game. So, in the past we have been fully compliant with all the government requirements. So, we don’t see a lot of risk at that front. So, on the user profile front, our average age of our platform is 21 years old. The minors would find us 14 and above is far less than 10% and the paying user is even less than that. So, even if they were to be more stringent on minor control, that wouldn’t have a much of a impact on our revenue scale. So, as for the game approval status, we don’t have new updates, but we have been actively preparing and exploring different alternatives for game development. So, as for the games in our pipeline, four of them has complete all the pre-requisites process for approval and seven of them are nearly in completion. So, as soon as the approval process reopens we should be able to have a number of games that’s ready to launch. So, as for the approval suspension, we are – because it’s a industry-wide phenomenon, we are just dealing with it – with a humbly heart and exploring other alternatives. So, we think it’s just a matter of time for the game approval to be reopened. It won’t be a permanent issue. Okay, so, Mr. Chen feels like, it’s only a short term impact, not a long-term impact. It’s a business that’s still impacted. There is still a lot of demand for mobile game content. So, it’s just a matter of time. Okay, we will wait for the good news.

Very helpful.

Thank you so much. And our last question comes from the line of Tian Hou from T.H. Capital. Tian, your line is now open.

Yes, management. The question is related to the margin front. So, if I look at the margin, it’s slightly down. So I wonder what’s the reason. Is that because the live broadcasting was increased and taking more portion? So, the first point what’s the reason. And then second one is, what’s the trend going forward? So that’s the number one question. Number two is about the two games. So I wonder, so two games, two major games. What’s the percentage of total revenue those two games are taking? And going forward, what’s the portion of the total revenue is likely to come from these two games? That’s the two questions. Thank you sir.

Okay I will take this question. For the gross profit margin, our current gross profit margin is 18% mainly because we have some incremental cost for bandwidth cost and content cost, as well as the contribution from our campaign of game revenues they are decreasing mainly because the revenue per game in Q2 and Q3 are bit lower than Q1. And we also talk about, we saw very nice trend for the game content revenue. In Q4 – in Q1 next year, we will see the resume of increase – of a quarter increase of our game revenues. So, I feel the margin will be improved in Q1 next year. And the two new games, currently, we just launched a game this month and last month and we saw an early momentum. Okay, yes, for Fate/Grand and Azur Lane, they are quite stable and still performance in Q4 and we – the chapter will also in Q1 next year that will [Inaudible]

Thank you. That’s very helpful.

Thank you so much. And that concludes the question and answer session. I would like to turn the conference back over to the management for any additional and closing comments. Please go ahead.