Good day, and welcome to the Bilibili 2021 First Quarter Financial Results and Business Update 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. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectation 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 filing 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 the 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'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 prepared remarks on behalf of Mr. Chen..

Thank you, Juliet, and thank you everyone for participating in our 2021 first quarter results conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. 2021 is off to an excellent start for Bilibili.

On March 29, we successfully completed our secondary listing of Hong Kong Stock Exchange, three years after we listed on NASDAQ. We would like to take this opportunity to thank our supporting shareholders as well as our talented content creators. Video users are the dedicated colleagues that helped make this happen.

With our secondary listing, we see an opportunity to broaden our investor base and attract more high-quality shareholders. We also gain more strength in the capital markets, laying a solid foundation to better acute our growth strategy and tap into the massive video-based market in China in the coming years.

After officially starting to the 200 million MAU Club in 2020, we continued the momentum, further increasing our influence among China's Gen Z+ cohort and expanding our user base. In the first quarter of 2021, our MAUs were up 30% to 223 million and our mobile MAUs grew by 33% to 209 million, both on year-over-year basis.

And our DAUs reached 16 million, up 18% year-on-year. It's particularly impressive given last year's remarkable high base. As a testament to our rich offerings and engaged community, our users spent an average of 82 minutes per day on our platform in the first quarter.

During this time, we roll out more premium content and the services and strengthened our commercialization capabilities while converting more traffic to paying users. Our MPUs grew to 21 million, increasing by 53% versus Q1 2020, and our paying ratio is a record high of 9.2% compared with 7.8% for the same period last year.

Advertisers are widely turning to Bilibili as the destination to reach young generations. As a result, our ad revenue once again achieved accelerated growth, increasing by 234% year-over-year.

On the back of this strong momentum, our total revenues reached RMB3.9 billion, up 68% and our gross margin improved to 24% from 23%, both compared with the same period of last year.

Throughout the first quarter, we continued to increase our content offerings and enhance our market share as the go-to video community for Gen Z+ [Foreign Language] Gen Z+ is deeply influencing society as the mainstream ideals as well as driving all kinds of consumption in China.

By offering diversified content in great brands and deals, we aim to further increase our market share among these core Gen Z+ user base, while expanding our appeals to all video users. We are confident we are on the right track to achieve our three-year user target.

One of the primary drivers for our next wave of growth is encouraged by the increasing trend in visualization, where video has become the pervasive across many scenarios of daily life. As China's leading video community, we are the clear founder in transformative opportunity and we are only at the beginning stages of this rapidly growing trend.

According to iResearch, China's video-based market will comprise nearly 1.2 billion video users as more than RMB1.8 trillion in revenues by 2025. Over the next few years, we are committed to capturing this exciting market opportunity with visualization as a tailwind to our growth trajectory.

With that overview, I would like to go through our operations for the period in a bit more detail. Beginning with our content. Our PUGV community remains the center of our content ecosystem, representing 91% of our total video views for the first quarter.

We had approximately 2.2 million content creators uploading 7.7 million videos per month, representing increases of 22% and 57% respectively, both year-over-year. We strive to create the ideal home for all video creators, where they can improve their ingenuity, build a fan base, and monetize their talent.

We continue to invest in aggregate improvements to ensure that our content creators can easily locate the audience who most appreciate their work. In the first quarter, the number of content creators with over 10,000 followers increased 54% year-over-year.

At the same time, our advertising platform, Sparkle, continued to connect more content creators with advertisers, while cash incentive programs supported over 375,000 content creators in Q1. We also maintained an upbeat and encouraged community utmost there that provide a supportive environment for life-long content creation.

As a full-spectrum video community, we aim to offer a wider and deeper range of content to meet the growing demands of our users. In the first quarter, the most viewed content verticals on our platform were lifestyle, games, entertainment, anime and tech & knowledge.

In recent quarters, we have seen increasing numbers of both content submission and video views about games, knowledge and anime-related content. Moving forward, we plan to further expand our content offerings in relationships, fitness, and automobile.

These categories reflect the interest of Gen Z+ while also expanding our appeal amongst a broader audience. Turning to our OGV content. Supplementing our video content ecosystem, our OGVs provide an effective gateway that reinforce our leading verticals and explores new trajectories.

For example, our investment in Chinese animation has become a huge problem for ACG categories, successfully attracting old users and new ones.

Advancing our Chinese animation production capabilities in January, we are holding the animation [Foreign Language], one of the China's top anime studios with highly popular production, Heaven Official's Blessing, [Foreign Language] launching late 2020, continued to win over followers in the first quarter, reaching 370 million video views, over 6 million likes and collecting around 4.5 million [Foreign Language].

We also released multiple new original Chinese anime titles in April, including final chapter of [Foreign Language] which were immediately hit, trending our social media for weeks. Turning to our documentaries, variety shows and TV & movie categories.

To satisfy users' diverging needs, we launched several hit production in Q1, including our highly anticipated New Year's Eve Gala, the most beautiful night of 2020, and the Bilibili Chinese New Year Gala.

Our self-produced documentaries [Foreign Language] and our self-produced variety show, [Foreign Language] all of which were welcomed by our Gen Z+ users. In the second half of this year, we have planned to introduce two more self-produced music and dating-scene variety shows.

These shows are geared towards users with relevant interest and to supplement the newer music and the relationships [Foreign Language] content ecosystem. Turning to our community.

The bond that we created with Bilibili committee members remains strong despite the spike in the interactions and use that we saw in 2020, making the comparable base quite high. Our first quarter community activities continued to be robust.

Daily video views were up 47% to 1.6 billion and the monthly interactions increased by 35% to 6.6 billion, both compared with Q1 2020. By the end of first quarter, we had 112 million official members, up 38% year-over-year and our 12-month retention rate remained around 80%.

We are very proud of these metrics as they demonstrate the strength of our model, building our users and community growth. Now, let's look at our commercialization progress. Our diversified monetization strategy is working, growing each of our commercial avenues in the first quarter.

We now have a robust line of revenue stream formed out of the solid mobile games business, driving VAS business as well as our rapidly growing advertising business. Starting with our games. Revenues from mobile games business was RMB1.2 billion in the first quarter, an increase of 2% year-over-year.

At the end of April, we successfully launched and that excludes safe distributor of the mobile game, Guardian Tales [Foreign Language]. This driving ACG titles has won over millions of new followers, topping the iOS game download and the growth in chart four weeks after its release.

On the existing games that we operate, including frequent order [Foreign Language] remain the popular among their followers during understand.

As far our jointly operated games [Foreign Language], had another solid event in the first quarter, derived from classic anime IP, we also added [Foreign Language] to our jointly operated game library in January.

With China's mobile games market expected to reach over RMB500 billion in 2025, according to iResearch, we strategically [Foreign Language] and the CMGE Technology Group, further strengthening our position in the game industry. Turning to our game pipeline. 12 of the games withhold exclusive license or have applied approvals for release.

These include [Foreign Language], an exciting MMORPG, both are slated for launch in the second quarter. We continue to work with top developers to bring more jointly operated games to Bilibili users. These highly anticipated titles include Tencent's League of Legends in the mobile games as well as NetEase's Harry Potter. Turning to our VAS business.

Our VAS services saw a rise in the first quarter with our premium members reaching a record high and the robust growth in the live broadcasting. Revenues for our VAS grew to RMB1.5 billion, an increase of 89% year-over-year. At the end of the first quarter, we had 16.1 million premium members representing a year-over-year growth of 48%.

This is particularly impressive, again, given the high base in 2020, for comparison. It also shows that our core Gen Z+ demographics have spent powers and a high willingness to pay for high quality and premium content. As part of our video content ecosystem, we continue to build our game and entertainment content, addressing our users' diverse needs.

We have won a number of high-quality e-sports content contracts, including live broadcasting rights of League of Legends World Championship and more recently, our cloud League of Legends Pro League in China.

Additionally, our Wetuber [ph] and other entertainment live broadcasting continued to draw young users' attention, as we explore more ways to integrate live broadcasting content with our video platform. We see great potential to expand this business even further. Last, but not least, let's review our advertising business.

Beginning with the success of our 2020 New Year's Eve Gala, a wider variety of advertisers come to Bilibili to reach their desired audience of young generation. Revenue from our advertising services was RMB750 million, up 234% year-over-year, representing our eighth quarter of accelerated growth for first quarter.

The top five leading advertising verticals was games, digital and 3C products, food & beverage, e-commerce, and skincare & cosmetics, including improvements to ad distribution algorithms also supported our advertising business growth, as we continue to enhance our brand awareness, increase our influence among the Gen Z+ demographics and improve our ad products.

We are confident that advertising dollars are sure to follow. Building on the momentum of last year. We are off to a great start in 2021. Our financial and operational accomplishments across our content, community, and commercialization to Q1 place us on firm footing to achieve our next phase of growth.

We entered a new era where the transformation to visualization is taking shape as we speak.

As a full spectrum video community and the go-to platform for the Gen Z+ demographics, we have reached a new starting point from which to grow, riding the visualization wave we will continue to invest in our content ecosystem and enhance our brand among the rising and massive video market, where we're established leaders and continued to gain market share.

This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the first quarter of 2021 and outlook for Q2. Total net revenues for the first quarter were RMB3.9 billion, up 68% from the same period of 2020. We continued to see a more balanced and diversified revenue mix.

Our total net revenues breakdown by revenue stream were approximately 30% mobile games, 38% VAS, 18% advertising, and 14% e-commerce and other business. Cost of revenues increased by 66% year-over-year to RMB3 billion. Revenue sharing costs, a key component of cost of revenues, were RMB1.4 billion, also a 58% increase from the same period in 2020.

Gross profit increased by 77% year-over-year to RMB937.9 million. Our gross margin improved to 24% in the first quarter compared with 23% from the same period last year. Total operating expenses were RMB1.97 billion, up 83% from the same period in 2020. Selling and marketing expenses was RMB1 billion, representing a 65% increase year-over-year.

The increase was primarily attributable to the increased channel and marketing expenses associated with our app and brand as well as increase in sales and marketing personnel by allocating resources to build our brand and a few more broader audience. We achieved substantial growth in 2020.

We believe the FX will be even further reaching with positive impact of the market over the long run. This is a continuation of the momentum we achieved in 2020 and we can already see the benefit of strategy through our broadened user base demographics, content, and overall industry leadership.

We plan to continue building on this track in 2021 to further strengthen and expand our virtuous growth cycle. G&A expenses was RMB389 million, representing a 127% increase year-over-year.

The increase was primarily due to increased headcount in general and administrative personnel, increased share-based compensation expenses, higher rental expenses and other G&A expenses. R&D expenses were RMB580 million, representing a 95% increase year-over-year.

This increase was primarily due to increased headcount in research and development personnel and increased share-based compensation expenses. Net loss was RMB905 million for the first quarter of 2021, compared with RMB539 million in the same period of 2020.

Adjusted net loss, which is a non-GAAP measure that excludes share-based compensation expenses and amortization expenses and income tax expenses related to intangible assets acquired through business acquisitions, were RMB666 million compared with RMB475 million in the same period of 2020. Basic and diluted net loss per share were RMB2.54.

Adjusted basic and diluted net loss per share were RMB1.87. As of March 31, 2021, we had cash and cash equivalent, time deposits, as well as short-term investments of RMB37 billion compared to RMB12.8 billion as of December 31, 2020.

With that in mind, we are currently projecting net revenues for the second quarter of 2021 to be between RMB4.25 billion and RMB4.35 billion. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead..

[Operator Instructions] Your first question comes from the line of Alex Poon of Morgan Stanley. Please ask your question..

[Foreign Language] The question I have is regarding advertising business. We have seen continuous acceleration in year-over-year growth for eight consecutive quarters. Could management share with us the drivers behind this growth and how should we think about the growth in the next one to three years? Thank you very much.

[Foreign Language] Okay. I'll briefly translate for Ms. Carly Li. So, we think the value of platform's advertising business actually equals the values of the user itself and also accurate MediPharm would be many other platforms out there, they are running a rental or a tourist model, you never know when your user will come, when they will go.

So the easiest way is to leverage advertising to quickly achieve monetization and use the money that they make to buy more content. This is the traditional Internet model, but for Bilibili, what we are trying to do is to build a city. We are trying to gather the young users with similar interest, ask them to become residents of the city.

We provide different type of consumption scenarios to them to cater their needs, including such as games, live broadcasting, movie and content, and derivative products, and even offline activities, and they will grow fund of the city and even fall in love with it and they will be inviting more friends to join the neighborhood.

And for this process, it might start really - probably start really slow, but once the momentum is built, it will accelerate and has great potential. [Foreign Language] So, what does the Bilibili's advertisement potential is look at the residents. We have captured nearly half of the China's young generation.

On our platform, the average age of our user is about 22.8 years old, and 86% of our user is aged 35 and below. And our users, about 50% of them live in the first and second-tier city.

They are deeply influencing the mainstream ideals, and they are the key driving force for all kinds of consumption, and they are the most wanted cohorts that chased by all advertisers.

So, we believe in the next few years, as Bilibili continue to grow its brand awareness and expand the boundary of our content offerings, we will be welcoming more diverse and more dynamic type of users to join our city and continue a very healthy and fast growth.

[Foreign Language] So, we are quite confident that pretty much all of the brand, they will be looking, turning to Bilibili and become part of our community. And secondly, we think a good advertisement could also be a good content. And for a user, they never repel good content.

So, on the customer side, we'll continue to work with high-quality brand and potential brand to establish deep collaboration and to build very success cases for all the key accounts.

And we'll also continue to improve our product, our recent inefficiencies, and launch more creative and interesting integrated marketing solutions across multi-scenario and multi-devices. [Foreign Language] And additionally, we think there is a very big portion of the creative activity that we could leverage our content creators.

We are working with the content creators to pick their brand, to pick their mind, to ask them to work with our brand advertisers together. And on the Sparkle advertising platform, currently we already have over 10,000 content creators joining this platform and the overall performance is exceeding our expectations.

[Foreign Language] The last but not least, it's also very, very important is that we'll continue to enhance our middle platform capabilities and continue to improve our ad products, including the integrated marketing solutions that combines both brand ads and performance ads and our advertising power will not only be reflecting on the increase of our advertising revenue, but also on many of our two customer businesses such as the efficiency of our jointly operated games and live broadcasting.

[Foreign Language] So, for the next one to three years, as we continue to grow our content ecosystem and extend the boundary of our content offering, we're quite confident to maintain a healthy and fast advertising dollar growth..

Your next question comes from the line of Lei Zhang of Bank of America Securities. Please ask your question..

[Foreign Language] Thanks, management, for taking my question. My question is mainly about user engagement. We noticed that some king indicators like DAU versus MAU interaction and types[ph] saw sequential improvements.

So, wondering can you share with us what's the churn going forward? And what is your plan to further improve your engagement? Thank you..

[Foreign Language] So, indeed from last year, we see a temporary job for the DAU to MAU ratio. And we have to look into the reason behind it. And the reasons are not - it's not because there is some matrix decline, but for a certain period of time, the growth rate of our MAU exceeded significantly of our DAU.

[Foreign Language] So, we think the temporary job is absolutely normal given that last year we have raised our MAU target and we are really focusing on growing our overall users.

And during that process, we think this is just a temporary effect given that when the user joins the community, it really takes time for them to become part of them - part of the community.

We need time to cultivate user habit and establishing community behavior such as following different content creators, they have to get in touch with the content creator and other users in the community. And if they come to Bilibili for one and specific interest point, they also need time to establish and expand their interest point on Bilibili.

So, all of that takes time and there will be some lap during the process. [Foreign Language] So, we think for products at Bilibili, we actually stand a pretty good DAU to MAU ratio in terms of that community product and because we also have very vast content offering.

We think during a fast user growth period, a temporary job of the engagement ratio is absolutely normal, and as long as we see the ratio starting to bounce back and we continue to maintain a very fast user growth phase, it should be fine.

[Foreign Language] And we'll definitely continue to be very focused on elevating the engagement level, and there are several ways.

One is to whether we can help our users to become part of the community a little bit quicker, and the measurement would be help them to connect with more content creators, follow - allow them to follow more content creators that fits their interest, allow them to establish more engagement between content creators and other users.

[Foreign Language] And secondly is on our AI-powered recommendation system. We will continue to improve the recommendation efficiency to allow our algorithms to discover more interest points for certain users and to push more relevant content that fits to different users' need.

And for that, we will continue to invest in R&D in our algorithm to improve our AI-powered recommendation system. [Foreign Language] So, these above-mentioned points will be our constant areas for improvement..

Your next question comes from the line of Xi Jing Xu [ph] of UBS. Please ask your question..

[Foreign Language] Thank you, management, for taking my question. I have one question. Recently, we see BILI has quite a few investment deals on other game-related companies. What's the reason behind? Are we going to consider more acquisition or investments in this space for coming quarters? Thank you..

[Foreign Language] So, I always say that game is one of the most important business for Bilibili because, for us, it's not only just monetization, it's also a very important component or content and there's just great synergies between our game offerings as well as our video game, space game related video content.

And for Bilibili, for this game - regular game business, it's just very natural as long as we started to offer better content, the monetization just happens very naturally.

[Foreign Language] So, second of all, we think for game industry, there is still plenty of room for growth, I believe, that in the next few years, and they could be multiple times growth for this segment. So, I personally take great care and put in a lot of efforts in looking into this market.

[Foreign Language] And for Bilibili, it's not just game department, it's dealing with or facing the game industry. It's across all business department and it's through our whole company.

For example, game-related video content has always been our top three content verticals and for our live broadcasting, game related live broadcasting is our number one content on our platform, and we are also working with majority of the game content developers in this industry, establishing close partnerships.

[Foreign Language] And for the game distribution business currently is playing a very important role in our business and it's also contributing very decent portion of our revenue. [Foreign Language] So, why we want to invest in this area? Because we wanted to establish strategic collaborations.

Like I mentioned, there is multiple departments that's jointly working in the game space, so the reason why we invest in this area is hoping to further enhance our partnership across different legs of our business.

[Foreign Language] So, for example, the investment we made in [Foreign Language] because we see a lot of the synergy and collaboration in terms of game distribution. So, all of the investment that we make has a prior purpose of establishing strategic collaborations. [Foreign Language] And that goes with the same with all our investment in other area.

The purpose is hoping to achieve business collaboration and achieve business synergies across different departments..

Your next question comes from the line of Daniel Chen of JP Morgan. Please ask your question..

[Foreign Language] I will translate myself. My question is on the - I would say more on the product side and on the content side. So, as we target to reach 400 million MAU by 2023, just wondering what's our plan in 2021 in terms of product feature, innovation, and content vertical expansion? Thank you..

[Foreign Language] So, Bilibili's growth model is content ecosystem driven and essentially is through our content creator producing more and more high-quality content across different content verticals and attract more users. And what we are - what we have been constantly doing is to view such platform to keep attracting more content creators.

[Foreign Language] So, what we have been doing is to focus on the categories that can attract young user, can resonate with young generations, and over the year, we have established unparallel leadership in categories like games, lifestyle, entertainment, knowledge, and digital products.

And step by step, we continued to be more and more diversity of content, and more and more high-quality content. As we move forward, we'll be focusing on improving the diversity of that content and continue to let out more high-quality content and to attract more wider range of content creators.

[Foreign Language] And moving forward for this year, while we continue to enhance our leader categories such as knowledge and lifestyle-related content, we aim to further expand our content offering in categories like relationship, automotive, anime-related, fitness, and health.

Those categories that fits the Gen Z+ interest points and also open up us to more wider demographics..

Your next question comes from the line of Jialong Shi of Nomura. Please ask your question..

Thanks. Good evening, management, and thanks for taking my question. So, my question is about the live broadcasting service. Can you give us some colors on the growth trends for live broadcasting service? We saw industry-wide slowdown in this live broadcasting revenue since last year.

I just wonder what is the outlook for the live broadcasting service in this year and for the next few years? [Foreign Language].

[Foreign Language] So, two years ago, I forecasted our live broadcasting business will keep a very high growth rate. The reason why I said that is because I believe Bilibili's live broadcasting has always been a part of the PUGV content ecosystem. It's a natural extension of video content.

And as a matter of fact, live broadcasting should be part of the video product. [Foreign Language] So, once again, that live broadcasting is a natural extension of Bilibili's overall content ecosystem. We don't need to deliberately expand the content categories. We don't necessarily have to pay extra high price to attract live broadcasting host.

All of the content offering is growing out of our content ecosystem is based on our content creators, is based on the popular content on our video platform.

[Foreign Language] So, like I mentioned earlier that our - on our video platform, game is our top three contemporary hosts and it's a number one contemporary host on our live broadcasting business. And for the game categories, the live broadcasting host and the video content creator has 40% overall.

[Foreign Language] And lifestyle and entertainment-related content is also very popular and entertainment live broadcasting is also our second most popular live broadcasting content. [Foreign Language] In many cases, for Bilibili, our content creators is our live broadcasting host and the video content, it's a neutral up beneficial relationship.

We think the live broadcasting can help our content creators to establish better interaction with their followers and their video submission can feedback to their live broadcasting traffic. And on the other hand, we think live broadcasting is a good revenue avenue for content creators to monetize their traffic.

So, on Bilibili live broadcasting and video, they are born to get - born to be together as they have great synergies. [Foreign Language] So, from my perspective, I think Bilibili's live broadcasting still is at the early stages and has great potential to grow. Currently, we have over 2 million monthly active content creators.

In my view, pretty much everybody could potentially become our live broadcasting host. So, there is great growth route ahead of us. [Foreign Language] So, I think the nature of live broadcasting was never just about monetization. It's more of ability. It's ability of our platform, it's also ability of our content creator.

For the content creator they can leverage live casting to connect with their followers to improve their relationship and also, they can gain monetary rewards.

[Foreign Language] So, I believe for - this type of capability should be widely adopted in the future, it's like how our content creator can write an introduction of the video, can create a cover page for a video. And probably in the next few years, every content creator would have the ability to do live broadcasting.

[Foreign Language] And our live broadcasting business still is really internally growing, it's growing from our content ecosystem.

So, the external environment will not really have any impact on our live broadcasting business, because we don't need to acquire live broadcasting host from other platform, as we think it's organically grown within our ecosystem..

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

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