Bilibili released its financial report for the second quarter of 2022, which ended on June 30. According to the financial report, Bilibili’s total net revenue in the second quarter was 4.9 billion yuan (about 732.9 million US dollars), an increase of 9% compared with the same period last year . Net loss was 2,010.4 million yuan ($300.2 million), compared with a net loss of 1,121.8 million yuan a year earlier. Non-GAAP adjusted net loss was 1,967.9 million yuan ($293.8 million), compared with an adjusted net loss of 1,324.7 million yuan a year earlier.
After the financial report was released, Bilibili's chairman and CEO Chen Rui, vice chairman and chief operating officer Li Ni and CFO Fan Xin attended the subsequent financial report conference call to interpret the main points of the financial report and answer questions from analysts .
The following is a transcript of the analyst Q&A session on the conference call:
Lei Zhang, Bank of America Merrill Lynch analyst: My question is about costs and margins. We saw that in the first half of the year, Bilibili still made some measures to reduce costs and increase efficiency, especially in terms of marketing expenses. I would like to ask the management, is there room for improvement in other aspects of cost and expense? How does management view Bilibili's overall gross profit margin and future profit margin trends?
Chen Rui: Let me first talk about our understanding of "cost reduction and efficiency increase". I think the focus of "cost reduction and efficiency increase" is not just "cost reduction", but more important "efficiency increase". The so-called "efficiency" actually means that we "spend money in the right place, spend it smarter, and spend money more efficiently". Including the epidemic, the current macro environment makes the external environment facing the company extremely challenging, so I especially emphasize "focusing" within the company, that is, do less things, do important things, and do what you need to do. Deep and thorough. If it's non-core, don't do it if you can't do it.
So what is the core work of station B? I think the first is video and growth, which in turn includes user growth and revenue growth . So I was very focused on spending resources and money on these core tasks in the first half of this year, including video, user growth and revenue growth. Although the whole external environment is very challenging, I still emphasize internally that "growth is still the most important work of station B".
Station B is a very typical Internet platform economy, and the feature of this model is that all its value comes from user value. We attach great importance to the work on user growth. In the first half of this year, we also attach great importance to improving the efficiency of user growth and reducing the cost of user acquisition. It can be seen that the cost of acquiring new users at station B is constantly decreasing . Our market expenses in the second quarter decreased by 16% year-on-year, and the proportion of revenue also decreased from 31% last year to 24%. This should be a very effective. work results. And you can see that while the cost of user acquisition is decreasing, our user retention rate is increasing. "Improving the efficiency of spending money" is actually reflected in the fact that we use technical means to optimize the allocation of technical resources, and use the improvement of technical infrastructure to improve and save costs. For example, you can see that our DAU (daily active users) in the second quarter increased by 33% year-on-year, and VV (viewing volume) increased by 83% year-on-year. In addition, everyone also knows that the video resolution of station B has been getting higher and higher. Under such circumstances, through our optimization technology, the bandwidth cost of a single VV at station B actually dropped by 37% . My prediction is that while DAU has risen sharply this year and user duration has risen, our technical investment in IT this year, such as bandwidth, servers, etc., will not be more than last year. This is actually an example of how we use technology to optimize costs and achieve cost reductions and efficiency gains.
Fan Xin: Let me answer questions about costs and gross profit. Our second-quarter performance report has actually reflected the impact of the epidemic lockdown. We expect that the company's revenue will resume its sequential growth momentum in the third and fourth quarters of the second half of this year, and the gross profit margin will gradually improve to about 20% in the fourth quarter. In the future, we will continue to take strict measures to reduce costs and increase efficiency. In addition, we expect the company's non-GAAP net loss margin in the fourth quarter to narrow to around 30% from around 40% in the second quarter.
JPMorgan analyst Daniel Chen: My question is mainly around the user side. The company's MAU (monthly active users) exceeded 300 million during the quarter. Strong performance. We also saw that the overall DAU, MAU and user duration growth in the second quarter performed well, especially the growth rate of DAU exceeded that of MAU. What is the driving reason behind this? How does management see the growth of DAU and MAU in the second half of this year and next year?
Chen Rui: I mainly talk about three points here. I would like to talk about the fundamentals that support the growth of users at station B. In the past year, everyone knows that the external environment has undergone tremendous changes, but the fundamentals of Station B have not been affected in any way.
First, I think video is a global wave that will continue for at least three years . In my opinion, this will allow the growth of station B to continue not only this year, but also next year and the year after. Second, I think the younger generation needs their own cultural and entertainment content. Half of our users are under the age of 25. Why do so many young people like station B? The reason is that the younger generation needs content that belongs to them. Third, I think consumption upgrading is still a major trend in society, and content consumption is an important part of consumption upgrading. Young people in Gen Z are more willing to invest their money in spiritual and cultural consumption. Therefore, I think that station B is actually still a vent-type business, which is the fundamentals of our continued growth.
You mentioned just now that everyone is concerned that our DAU growth rate exceeds that of MAU, which is indeed the case. The reason is that we have emphasized the quality of growth this year. The "cost reduction and efficiency increase" and "improving the efficiency of spending money" I just mentioned are actually the same. Not only the growth rate of DAU exceeds that of MAU, but you can also see that our daily active time is also gradually increasing. In addition, you can see that our daily average number of views and interactions have grown even more than DAU . So it's really a healthy model: engagement over VV, VV over DAU, DAU over MAU.
To be able to achieve such a high-quality and healthy growth model, in addition to the fact that I mentioned just now that Bilibili pays more attention to improving the quality of spending, I think the internal reason is that the content ecology-driven model of Bilibili is itself a healthier growth. Model. The development of various content categories at Station B is very healthy. In the past, the Bilibili categories that everyone loved very much, including animation, food, music and other categories, their growth is still very fast and healthy. At the same time, many new categories are still expanding. In this way, many new and good creators can continue to appear at station B, as well as new and good works, and even many phenomenal works, such as "Three days back to the village, the second uncle was cured." The dissemination of My Spiritual Internal Friction is one of the examples of phenomenal works at Station B.
In addition, I think that the multi-category development strategy that Station B has been emphasizing in the past has actually played a good role in (model) healthy growth. As you can see, the current PUGV (videos produced by professional users), live broadcasts, OGVs (videos produced by institutions) and even Story-Mode at Station B are growing rapidly, which is also our measure to continuously fill in more new scenarios for users.
Last but not least, I want to stress that we are confident that we can meet the previously mentioned goal of 400 million MAU by 2023 , and that we do it by not handing in assignments. As you can see, our emphasis on DAU is actually higher than MAU, and our work must be to achieve our user growth goals on the premise of ensuring health.