Good day, and welcome to the Bilibili 2021 Second Quarter, Second Financial Quarter Results, and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference to Juliet Yang, Executive Director of Investor Relations. Please go ahead.

Thank you, Operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as in say, actual events or results could differ materially from those mentioned in today's news release and in those discussions. Due to a number of risks and uncertainties, including those mentioned in our most recent filing with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provided are for comparison purposes only. Definition of these measures and a reconciliation table are available in today's news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and webcast replay of this conference call will be available on the Bilibili IR website at ir.bilibili.com Joining us today from Bilibili's senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Li, Vice Chairwoman of the Board and Chief Operating Officer; and Mr. Xin 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 our 2021 [Indiscernible] Conference Call I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In August 2019, we announced our addition to further grow our user base. Today, two years later, we found ourselves on the fast track to executing that strategy, achieving many great milestones along the way. In the second quarter, we added 14 million MAU sequentially, bringing our total MAU s to 237 million, up 38% year-over-year. Global MAU also rose by 44% year-over-year, reaching 220 million. And the DAU s reached 53 million marking a 24% increase year-over-year. Importantly, our users became even more engaged, spending an average of 81 minutes per day on our platform, marking the highest second-quarter level in our operating system. As we move into the peak summer season, we are pleased with the increasing momentum we have seen so far, which places us firmly on track to achieve our growth target. Our robust user growth also translated to strong [Indiscernible] expansion. In the second quarter, our total revenues reached RMB 4.5 billion up 72% year-on-year, once again, meeting the high end of our guidance. Driven by improved products and services, MPUs were up 52% year-over-year to 21 million, and our paying ratio improved to 8.8% versus 7.5% in the same period last year. As the total definition for young Chinese. Our platform has also gained wider recognition among our tighter across different, either through vertical. In the second quarter and revenue growth by an impressive 201% year-over-year. So the breaking our 12th year anniversary on June 26, we all know the remaining year, we have grown with our users. Over the past 12 years, we have remained true to our original aspirations to create an outstanding community for…

[Operator Instructions]. Please note there might be a slight pause as we collate the Q&A roster. [Operator Instructions] For the benefit of all participants on today's call, if you wish to ask the question to management in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time. If you wish to have follow-up questions, please rejoin the queue. Once again, it is star 1 to ask the question. We have the first question this is coming from the line of Lei Zhang from Bank of America. Please go ahead.

[Indiscernible] Thanks, management, for taking my question, and congrats on a strong set of results. My question is mainly on user growth. Can you give us more color on the second quarter's user growth, which is typically a low season, but our growth number was pretty good? Then secondly, how should we look at the second half user trend and our long-term user target? Thank you.

[Indiscernible]

In the first-half performance we did a pretty good job. I think that's all thanks to our content ecosystem-driven business model. And this model's character is the long term it's evolved, we think the more competitive it is because this is a truly healthy business model that's self-driven and sustainable. [Indiscernible] So I believe many of the participants for today's call is Bilibili user itself. And I will be, you might have the same feeling as I do while using Bilibili, that the content on Bilibili is more and more diversified and more high-quality. Sometimes for my personal use on Bilibili, I will be surprised to find out the diversity, the varsity, and depth of our content offerings. So I believe the business model that we're running is very, very healthy, and we believe this model [Indiscernible] our long-term sustainable growth.

[Indiscernible]

As for our long-term user guidance, currently, we have already experienced half of the Q3, so far what we have observed in Q3, that we see very good progress in terms of user growth for both quality and quantity. And early this year, we have given out a user forecast for this year that our MAU will reach 260 million. So far, we think, we should be quite a on track to deliver and achieve that goal or even surpass that goal. [Indiscernible] For our long-term goal of 400 million MAU by end of 2023, we -- so far, feel very confident to achieve that goal. We're on track.

[Indiscernible]

And one thing I want to emphasize is that Bilibili's user growth, the best of is its quality, that we have maintained a very high quality of user growth. From our perspective, we're not only just attracting users to join Bilibili, but they actually really recognize the value of the platform and they're willing to stay with us for the long term. Even though that we have experienced a very fast, healthy user growth in the past, we've noticed that engagement level and the activeness of our users still growing, that in the second quarter our daily user time spend reached 81 minutes, that is the best results we've seen compared with our previous second-quarter time spend...

[Indiscernible]

And additionally, we see the long-term engagement level for our users is also improving. Actually, we've seen that the registered users in 2018, '19, 2020, the DAU to MAU engagement level in 2021 as actually improving on a year-on-year basis.

[Indiscernible]

In every quarter, we release our daily [Indiscernible] and our monthly user engagement number, and that year-on-year growth rate is actually faster than our MAU growth rate.

[Indiscernible]

So all of those metrics show that we'll not only be able to attract users to join our platform, they actually stay with us and become more engaged.

Okay.

[Indiscernible]

Thank you.

We have the next question which is coming from Alex Poon from Morgan Stanley. Please go ahead.

[Indiscernible] I will translate my question. My question is regarding the advertising business. Congrats on a very strong growth of over 200% for 2 quarters. Given that there are recently regulations around data privacy, flat-screen ads, education, etc. How should we forecast and look at the second-half growth? Where will the growth drivers come from? Thank you very much.

[Indiscernible]

So for the second quarter, our quarter ad revenue has surpassed 1 billion for the first time, and achieving 200 -- over 200% year-on-year growth, and this is the ninth consecutive quarter that we deliver each advertisement results.

[Indiscernible]

As we look into the second half and for the next few years, we've done several things to continue to improve our ad efficiencies and lay a solid foundation for our future ad growth.

[Indiscernible]

So first of all, we have continued to explore multiple scenarios for our ad products based on our client's needs. And we hope to help our clients precisely reach their target audiences multiple times across various scenarios across Bilibili's product ecosystem and quickly view their brand image through just 1 campaign investment. And we have that -- already achieved that all within this quarter.

[Indiscernible]

So secondly, we are also actively exploring new ad formats, including an ad in the video format, as well as connect advertising with content creators' creativity. In the regulatory environment you mentioned, we believe that the foundation or the logic behind it is that the regulatory hope our consumer will be notified it is an advertisement. And what Bilibili has been practicing is, first of all, we -- all of our advertisements will not be a blockage type of advertisement. We hope really to embed and connect and combine content with an advertisement, make it more interchangeable. Good content could be a good commercial and a good commercial could be good content. And from that perspective, our integrated marketing solution, as well as our content creator's own creation, their own production towards native ads is a perfect solution to our problem.

[Indiscernible]

And secondly. Our ad efficiency was also greatly improving in this quarter thanks to our ad - tech and our NGL team. And we're also investing in frontier ad-tech-related R&D.

[Indiscernible]

And thirdly is that we will be focusing on our leading verticals and provide industry-based solutions such as a game, technology, education, e-commerce, and food and beverage, etc. And as we stand to -- expand our user base, we hope to further expand our new ad vertical -- industry verticals and verticals with sufficient ad budget for example, such as automotive and new domestic consumer goods, and all of that has been reflected in our second quarter's app performances.

[Indiscernible]

And most importantly, we have upgraded the organizational structure of our commercialization team. And that second quarter we have integrated the Bilibili commercialization net where the platform consists of commercial traffic management systems, ads systems, and our Sparkle advertisement system. The purpose of doing so is to further optimize and allocate Bilibili 's commercial resources and improve our commercialization efficiency. And additionally, we have also regrouped. We grouped our sales from the integrated marketing team and our content creator-related sales team, forming 1 centralized sales center. The goal is to provide Bilibili featured integrated marketing solutions and help our clients to improve their brand equity and achieve self-reinforcing marketing circulations on Bilibili.

[Indiscernible]

So there's a thing that the platform's value equals the user's value on this platform and we --- and Mr. Chen has repeatedly mentioned the value of the user. Our current average age of our users is around 22.8 years old and 60 -- 86% of our users are under age 35 and the majority of them are in first and second-tier cities. And for this group of cohort main consumption groups for in China, and they represent the highest value of demographic. And building on that advantage, we'll continue to reinforce our infrastructure and continue to improve our ad profit. And for the second half of this year and 1 to 3 years ahead, we're still quite confident to maintain healthy and fast growth for our ad business.

Thank you.

The next question comes from the line of Alex Yao from JP Morgan, please go ahead.

[Indiscernible] So my question is about what the regulatory team has on theming and the live streaming operation. Given the changing regulatory environments in the space, and potentially more quality coming out in the next couple of quarters. How should we think about the impact on our gaming and the live streaming operation? Thank you.

[Indiscernible]

[Indiscernible]

Actually for 2021 what we have observed, there's no significant change of the regulatory environment towards games or towards live broadcasting. The speculation and discussion that's all over the internet are just based on the media. It came from the immediate level. And the Company ourselves, we have kept a regular dialogue with different government authorities. And from the Company's perspective, we're actually haven't heard anything here. And the discussion is generally from the media or the Internet users, and it's just based on their own speculation s or imaginations, and there's no ground to those discussions. And from our perspective, we think that from a global perspective, the regulation towards internet content game or live broadcasting, it will be more standardize and rule-based. And that hasn't changed.

[Indiscernible]

From our perspective, in the past, Bilibili has always responded very actively towards just all kinds of regulations from the government. We believe our industry that's experiencing fast growth, certain regulation is actually beneficiary for this industry's long-term and healthy growth.

[Indiscernible]

[Indiscernible]

So we think as the industry's development, as they have more influence and impact towards the society, it's a very natural process for the regulations could become more rule-based and standardized. And I believe the video industry, will be a multi-billion -- trillion of RMB worth of industry, and games probably will become -- they will very likely to become the mainstream format of entertainment. And in the past it's probably is an emerging new vertical. And the details of those regulations were not mature, and as you grow bigger, it's just very natural for the regular tree to form up of a more standardized and rule-based regulatory environment.

[Indiscernible]

So we think that the government's regulation towards video content and game content has been very clear. And in general, they do hope this industry will develop and they encourage the development of this industry and they have been very specific on the same side and hope to regulate. One is on the minor protection, 2 is the compliance of the content itself. And in the past and up to now, Bilibili has been very clear on those requirements and has followed an implementation, all the regulatory requirements

[Indiscernible]

So generally, I think that the game industry will definitely move forward and experience better development. And as an Internet Company, we'll be fully compliant with the key areas that the government has specifically required. One is on the minor protection, and 2 is on the compliance of the content itself. My personal view is still very optimistic. I believe that this industry will only become better and better under the supervision of the government

[Indiscernible]

[Indiscernible]

Generally, I think that this industry is quite different from 10 years ago. Probably, in 10 years ago, it's [Indiscernible] early stage, there is not a very precisely regulated. But 10 years later, this industry has become much more mature. The participants in this industry also gained more experience over ten years of experience. I think we have already reached a consensus, the industry players and the regulatory is that the industry needs to be regulated towards a healthy development path, and from Bilibili's perspective we have strictly followed the rules. For example, on the Minor Protections, the revenue generated from users that's below 18 years old the game revenue only takes around 1% of our total game revenue. We have been implementing restrictions and rules to better protect our minors and follow the regulator's requirements. So I think the overall industry is growing towards a more healthy and positive track. And I personally feel quite comfortable with the existing environment.

[Indiscernible]

To summarize, in the past few months, I personally don't believe there's a vast change of regulatory environment towards games or video. And we believe the regulatory -- the existing practice and requirement from the government are very appropriate and scientific. And we believe our peers in this industry also agree with that and already reached a consensus that this industry needs to be moved towards a more healthy and regulated path.

Okay. The next question comes from the line of Felix Yu from UBS, please go ahead.

[Indiscernible] Let me translate myself. So first, congratulations on the strong set of results. My question is on the GP margin. I notice the GP margin this quarter was -- showed some weakness Q-on-Q and year-on-year. So may I know the reason or any color behind that? And what are the management's thoughts on the GP margin trend for the rest of this year, and towards the longer-term potential? Thank you.

This is Sam (ph). Let me take your question. You're right. A slight decrease of the margin in Q2. Actually, it's mainly due to the change in the sales mix. In Q2, we thought the contribution of game revenue actually was decreased as a percentage of the whole revenue. And there was also a lower contribution from our core operation gains. And also for our live broadcasting revenue, the gross profit margin also declined a little bit due to -- because we launched a campaigning Q2 to offer higher revenue -channel ratio, it's like a performance-based incentive and -- for those new hosts [Indiscernible]. Actually, if you look at short-term GP margin trends, we are still in the early stage on the monetization side, so it will be [Indiscernible] over the quarter. But before we get into the details of our long-term margin trend, I would like to emphasize the way we -- the strategic thinking [Indiscernible] for facility and why we have the opportunity to quickly extend our user base or pirated always focused on user growth and top-line station, rather than to limit our growth potential. For the sake of the break-even. When we're thinking about the past to the profitability, actually we're thinking what the center bowl, revenue level to achieve a healthy break-even status. And whether it's simple to keep improving the possibility after the break-even. So, for example, a Company with like RMB 20 billion revenue and the same Company with RMB 15 billion revenue, the bigger revenue side is sure, more sustainable for long-term development. Over the past 12 months here, actually, we successfully achieved quality revenue growth with the expansion of our user base. Our MAUs were up 38% year-over-year, and monetization efficiency per MAU was also increasing, especially, the [Indiscernible] revenue per MAU actually increased by 72% year-on-year to around 13.8 RMB per quarter in Q2. Yet we believe there is plenty of upsides because we grow our user base and improve our monetization efficiency. And also on the costs side, our key relatively fixed operating costs, including the content, server, and staff costs, decreased from 34% of the total revenue in 2019 to 28% in Q2 this year. As we grow our top-line and improve efficiency, our revenue mix will also be more diversified, and our segment margin, which is live broadcasting and online games, as I mentioned, does have room to improve. That's the way you want to look at the long-term gross profit margin trends.

Thank you. And that makes sense. Very clear.

Thank you. We have the next question from Lee Wen Zhang. Please go ahead

[Indiscernible] So my question is regarding [Indiscernible]. So in the first half-hour, can you remain pretty stable? How should we go? Okay. I've costs and also for longer-term gaming revenue growth additional late where way to the self-developed game. What're key factors we need to have in mind. Thank you.

[Indiscernible]

Indeed, when we look at our game revenue we have experienced some of the slowdowns in the first half of this year. The main reason that we see is the lack of supply for both of our exclusively licensed games and jointly-operated games for the revenue to grow we need to connect to -- we need to get more new games. And because of the overall permit issue process, in the past 6 months, that there has been some delay and the supply has been slower than expected. And for the same reason, some of our projects have been delayed, and that was the main reason for the [Indiscernible] for our game revenues.

[Indiscernible]

We've also seen some positive signs as we operate our business. Besides the supply issue, we've seen on the demand side, there are many, many positive signs. First of all, on the user. The game-related user who watch game-related live broadcasting and video actually kept growing with our overall MAU s, even with the undersupply for game titles, for all the -- for many new titles that we used in the first half of this year, including Guardian Tales and Sword Art Online. It's a new addition. New downloads and new users have constantly broken our single-game record. And on the other hand, for the old games, we are seeing a long operation cycle. Many of our games continue to grow in terms of revenue and users. For example, our Azur Lane -- our exclusively licensed game, Azur Lane, our jointly operated games gain some impact. We're seeing more users joining and [Indiscernible] continuously to grow year-over-year. So generally, we think on Bilibili the gamers are growing and their desire and need for high-quality games are also growing.

[Indiscernible]

[Indiscernible]

As we see it, we think as long as we solve the supply problem, we should be able to solve the bottleneck that we've been seeing in the past quarters. And the solution to the supply problem is, while we continue to enhance our licensing business, we will continue -- we will start to invest in our self-developed games. And actually, from -- in last year, we've already seen the trend of lots of supply in the market, and we started to invest in the self -developed game business. Currently, we have over 1,000 team members in our self-development team, and there are multiple titles and projects [Indiscernible] under development. And we'll be expecting to launch our own self-developed games next year and the year after next year. From -- based on our existing business scale, we think our self-developed game will be our number one priority. And I believe in a few years later, our self-developed games should be contributing over half of our game revenue

[Indiscernible]

[Indiscernible]

And to summarize, we believe as our future continues to expand, we should have more gamers and more demand for games. And to solve the supplier problem will continue to reinforce our licensing. Being in business while investing in self-developed games. And in the past, we might have one engine for game revenue growth, which is licensing. And in the next few years, we'll be due engine self-development Licensing and operations and we think that should power our game revenue growth.

Thank you. And that can do a huge question-and-answer session for today. I would like to turn the conference back to the management for any additional or closing comments.

Well, thank you again for joining us today. If you have any further questions, please contact me Juliet Yang, Bilibili's 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. Bye-bye.