Good day, and welcome to the Bilibili 2021 Fourth Quarter and Full Year Financial Results and Business Update Call. Today's conference is being recorded. At this time, I would like to turn the conference over 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 of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purpose only. Definition of these measures and a reconciliation table are available in today's news release we 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 IR website at ir.bilibili.com. Joining us today from Bilibili 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 2020 first quarter results conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. Growth remained the key word for Bilibili throughout the year of 2021. In the fourth quarter, our MAUs rose to 272 million and mobile MAUs rose to 252 million, representing a 35% increase year-over-year, making us one of the largest growth companies in China's Internet space. At the same time, average daily time spent on our platform rose to 82 million with DAUs reaching 72 million in Q4, 34% more than the same period in 2020. In fact, we have more than doubled our MAUs in the past three years, far outpacing the industry growth rate, and this is no small feat. Importantly, our expanding user scale translated to top line expansion with consistent quarterly growth in 2021. For the fourth quarter, our total revenues reached another record high of RMB 5.8 billion, up 51% year-over-year, and our full year revenues grew by 62% to RMB 19.4 billion. NPUs in Q4 grow to 24.5 million, up 37% year-over-year. And our paying ratio expanded to 9%. Above all, as we gain more users, more advertising dollars are being directed to our platform. And our full year advertising revenue reached to CNY 4.5 billion, up 145% year-over-year, spreading our top line growth. We firmly believe the value of our community is tied closely with the scale of our users and their level of trust in our platform. There is no doubt that our Gen Z plus users are the most valuable group in the market. They are our society backbone and the mainstream consumers in all types of economics. Our engaging community connects and tightly bound those users to our platform, creating an…

Our first question is from Lei Zhang with Bank of America Merrill Lynch. Your line is open.

For today, a first high-level question on your strategic focus in 2022. And I think your side with our outlook in user growth for 2022 and how should we achieve our user target. Related to that, any color on the fourth quarter user and their community divestment? Thank you.

Our key word for 2022 will still be focused on growth. Growth on the user side, on the revenue side and most importantly, we wanted to remain the growth quality. We want to keep it a high-quality growth. For example, in Q4, we maintained a very high-quality user growth rate. Our MAU reached $272 million, up 35% year-over-year. And most importantly, the healthiness of that MAU is very strong. For example, the average daily time spent per DAU reached 82 minutes, and that is the highest DAU time spend we've seen in the fourth quarter of operating history. And on the community engagement side, our monthly interactions grew over 116% year-over-year, reaching 10 billion. And on the retention side, the 12-month retention rate of our official member have further increased to 84%. And on top of those engagement numbers, we noticed that all the users that come into our community has effectively converted to our paying users. In the fourth quarter, the monthly MPUs increased 37% year-on-year, outpacing the MAU growth rate, and our annual paying ratio reached 9% and which has improved from 8% from last 2020 and 6 -plus percent compared to 2019. And over -- this is very important over the period of growth we are able to deliver this quality set of numbers to show that we really have delivered high-quality growth rate. As we look ahead, we still are very, very confident to achieve our 400 million MAU user target by end of 2023. And looking at our January number, our overall MAU have reached over 300 million milestone. And more importantly, the daily time spent per DAU has reached over 90 minutes. So the momentum -- growth momentum remained very, very strong, and we are confident to continue to deliver this high-quality, high-growth rate…

Our next question comes from Alex Yao with JPMorgan. Your line is open.

Good evening management. I'd like to ask a couple of questions on relatively new product story mode. Can you share with us some of the latest thoughts around the product penetration rate? And then what kind of the role you want this product to play in our content ecosystem over the medium to longer-term? Lastly, how do you guys think about the monetization potential and the revenue model for this product? Thank you.

The product story mode actually has already been in line last year. However, our users really -- they can tell -- they don't know the product name, it's called story mode, because it's been integrated in our overall user interface. It's naturally embedded in our recommendation feeds to satisfy users' need for this certain product. The reason why we started the story mode, because from my personal perspective, I think Bilibili should not be a tool. It should be a video community surround with people's needs, and that means may involve multiple scenarios on multiple screens, whether it's mid to longer form, whether it's in the horizontal format. We believe those content can be shorter, and they can also be a vertical format. It could also be live broadcasting, and addressing this trend or our understanding to users' needs, we launched the story mode to supplement our obligation scenarios. In the last earnings report call, we mentioned our initiatives on the Smart TV side. And those initiatives are adapt to this multi-scenario strategy, which we are putting hard client and into people's living rooms. And for the adoption of a story mode, we hope to satisfy users on the go entertainment needs in their fragmented time. So, if you use to story mode, you would notice even though the user interface is in vertical format might look like doing product. However, the actual experience will be full Bilibili-featured experience. For example, on our story mode, there's content range from one minute, two minutes, three minutes, and the quality is similar to RPU GV and there will be fullage chat flying off the screen. On the Content category, we can see store as a very natural extension to our PUGV ecosystem. Massive number of store remote video has been produced by…

That would be all.

Our next question comes from Alex Poon with Morgan Stanley. Your line is open.

Thanks management for taking my question. My question is related to our losses controlled in 2022, including how will our gross margin trend from Q1 to Q4 this year, assuming we don't get any game license approval and also by segment gross margin trend for including advertising and live streaming, how would that change this year and our headcount expansion plan and also the timetable for breakeven and profitability. Thank you very much.

Thank you, Alex. Let me take the discussion. You are right. We agree that profitability is a key objective for all the companies. Our company, we believe in long-term sale. We strive to find a balance between achieving a breakeven point and investing for long-term opportunities. Rather than just so you know pursuing certain short-term financial metrics. We believe by doing so, it will maximize the interest of our shareholders. As mentioned by our CEO, we are confident that while maintaining a healthy user and revenue growth, the non-GAAP operating loss ratio could be narrowed on a year-over-year basis starting from 2022. By improving the monetization efficiency including the revenue per MAU and control the operating expenses. The target is to achieve the breakeven point on a non-GAAP basis by 2024. Let's look into the details. First of all, we aim to proactively manage our operating expense. Selling marketing expense, for example, is measurable and controllable. For example, the user acquisition cost is a big component of our sales and marketing expenses all increased by 50%, while our total revenue increased by 61% year-over-year in 2021. There are still room to further optimize the marketing spending while we reach $400 million MAU target. We expect the total sales and marketing expenses as a percentage of revenue will decline starting from 2022. In R&D expenses, mainly include the personnel costs associated with developing the new games, enhancing the data capabilities and optimizing the new product features, which are critical to increase our productivity and monetization capability, understood the importance of attracting talent. In 2022, we will continue to invest in R&D, but we will closely monitor the ROI for all of our R&D projects. We expect that R&D expenses as a percentage of total revenue will start to show significant leverage…

And for the headcount, I'll translate for Mr. Chen's remarks.

Actually, in the past few years, the growth rates have slowed for the number of our staff. And as for 2022, there's going to be a very limited headcount increase. My request for our HR this year is laser-focused on the business areas that we wanted to have decent growth. And for those areas, we can add certain headcount and the rest of the business is controlled.

Our next question is from Felix Liu with UBS. Your line is open.

Thank you, management, for taking my question. And congratulations on the 4Q results, especially on the strong ad performance. I would like to ask a question on the ad outlook for 2022 as well as on the first quarter, especially in the light of recent macro weakness as well as the temporary suspension in new game license. And also, could you elaborate on your key commercialization initiatives for advertisements for 2022? Thank you.

I would like to take this opportunity to share with you the growth driver behind Bilibili's advertisement business. And you can see in the past few quarters, our advertisement revenue has been growing over 100% has been very strong and we also heard subsections from the market that Bilibili user experience is so good? How can you drive your advertising revenue with our compromising user experience? So the number one reason is that we have experienced a very strong user growth. And at the same time, our ad efficiency per user has also been increasing pretty nicely. In the fourth quarter, our DAU grew 34% year-over-year. And on a full year level in 2021, the ad revenue per MAU has increased 83% and for those two factors combined together, that gives you the over 100% ad revenue growth. And the second growth driver would be the value of the user has been increasing. And at the same time, the influence of our platform has been well recognized by the market. If we look in the past few years on the horizontal perspective, our user has been growing pretty nicely. And in a vertical view, we actually have constantly breaking up our own circle and may -- allowing more users, more different groups of user occupation gender, user being seen and recognize the existence of Bilibili and that leads to more attention from different advertising versions. For example, in the past few years, we are leading verticals would be games and PC digital products. And this slowly expand to skincare and cosmetics, food and beverage. And for this year, we are looking to expand into verticals like automotive. As a matter of fact, in fourth quarter last year, automotive has become our top five advertising industry verticals. And the third growth…

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

Thank you, once again, for joining us today. If you have further questions, please contact me, Julie Yang, Bilibili Executive IR Director or TPG Investor Relations. Our contact information for IR in both China or in the US can be found on today's press release. Have a great day. Thank you. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.