Earnings Labs

Bilibili Inc. (BILI)

Q3 2020 Earnings Call· Thu, Nov 19, 2020

$21.44

-1.27%

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Transcript

Operator

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

Management

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. 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 the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, 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 2020 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 the 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'll now turn the call over to Mr. Fan, who will read prepared remarks on behalf of Mr. Chen.

Sam Fan

Management

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. And our paying ratio improved to 7.6% from 6.2% in the same period last year. We've included trade volume of our topline expansion. And in the first quarter revenue reached another record high of RMB3.2 billion up 74% year-over-year. While we grow our topline, we also improved our gross margin. Gross Margin was 23.6% in the third quarter up from 18.9% in Q3 last year. And we are gaining even more operating leverage. While Bilibili has become a household name among young generations, there are large groups of potential users…

Operator

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] 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

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

Analyst

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

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

Analyst

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, [Indiscernible] variety show and also in [Indiscernible] 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 [Indiscernible] 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 [Indiscernible] media the majority productivity are coming from licensed content. So how do you see the [middle media] 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

Analyst

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…

Operator

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

Analyst

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

Analyst

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

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

Analyst

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

Analyst

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

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

Analyst

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

Management

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 [Indiscernible], 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

Analyst

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

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

Management

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.