Good day. 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 senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer, Ms. Ni Li, Vice Chairwoman of the Board and Chief Operating Officer, and Mr. Xin Fan, Chief Financial Officer. I'll 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 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 on 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, loyal users, and 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 market, laying a solid foundation to better execute our growth strategy and tap into the massive video-based market in China in the coming years.
After officially stepping into the 200 million MAU club in 2020, we continue 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 was up 30% to 223 million, and our mobile MAUs grew by 33% to 209 million, both on a year-over-year basis. Our DAUs reached 60 million, up 18% year-on-year. This is 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 services and strengthen our commercialization capabilities while converting more traffic to paying users. Our MPUs grow to 21 million, increasing by 53% versus Q1 2020.
Our paying ratio hit a record high of 9.2%, compared with 7.8% from the same period last year. Our advertisers are widely recognizing Bilibili as a 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 CNY 3.9 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 enrich our content offerings and enhance our mindshare as the go-to video community for Gen Z+ . Entering their 20s and 30s, Gen Z+ is deeply influencing society and mainstream ideals, as well as driving all kinds of consumption in China.
By offering diversified content in great breadth and depth, we aim to further increase our market share among this core Gen Z+ user base while expanding our appeal 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 anchored by the increasing trend in visualization, where video has become pervasive across many scenarios of daily life. As China's leading video community, we are the clear frontrunner in this transformative opportunity, and we are only at the beginning stages of this rapidly growing trend.
According to our research, China's video-based market will comprise nearly 1.2 billion video users and more than CNY 1.8 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 an 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 algorithm 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 maintain an upbeat and encouraging community atmosphere that provides a supportive environment for lifelong 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 and knowledge. In recent quarters, we have seen increasing numbers of both content submission and video views about games, knowledge, and animal-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 among to 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 explore new territories. For example, our investment in Chinese animation has become a huge boom for ACG categories, successfully attracting old users and new ones. Advancing our Chinese animation production capabilities, in January, we acquired Haoliners Animation League, Huimeng Donghua, one of the China's top anime studios. Its highly popular production, Heaven Official's Blessing, Tian Guan Ci Fu, launched in 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 bullet chats.
We also released multiple new original Chinese anime titles in April, including final chapter of Ling Cage, Ling Long, and Link Click, Shi Guang Dai Li Ren, which were immediately hits, trending on social media for weeks. Turning to our documentaries, variety shows, and TV and movie categories. To satisfy user diverse needs, we launched several hit productions in Q1, including our highly anticipated New Year Eve Gala, The Most Beautiful Night of 2020, and the Bilibili Chinese New Year Gala. Our self-produced documentaries, Peculiar Foods, Qi Shi Ji, and The Little Giant, Xiao Xiao Shao Nian, and our self-produced reality show, Shall We Eat at Your House?, Quan Jia Chi Fan Hao Ma, all of which were welcomed by our Gen Z+ users. In the second half of this year, we have plans to introduce two more self-produced music and dating-themed variety shows.
These shows are geared towards users with relevant interests and supplement the newer music and relationship series in our content ecosystem. Turning to our community. The bonds that were created with Bilibili and the community members remain strong. Despite a 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 rates remained around 80%. We are very proud of these metrics, as these demonstrate the strength of our model, bonding our users and community closer. 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 array of revenue streams born out of a solid mobile game business, thriving VAS business, as well as our rapidly growing advertising business. Starting with our games. Revenues from our mobile game business was CNY 1.2 billion in the first quarter, an increase of 2% year-over-year. At the end of April, we successfully launched another exclusive distributor of the mobile game, Guardian Tales, [Non-English content ]. This thriving ACG title has won over millions of new followers, topping the iOS game download and grossing charts for weeks after its release. Other existing games that we operate, including Fate/Grand Order, Azur Lane, and Princess Connect! remain popular among their followers during Q1.
As for our jointly operated games, Genshin Impact, [Non-English content] , had another solid run in the first quarter. Derived from classic anime IP, we also added Yu-Gi-Oh![Non-English content] to our jointly operated game library in January. With China's mobile games market expected to reach over CNY 500 billion in 2025, according to iResearch, we strategically invest in xindong.com. and the CMGE Technology Group, further strengthening our position in the game industry. Turning to our game pipeline. 12 of the games we hold exclusive license or have acquired approval for release. These include Artery Gear, [Non-English content] , a thrilling ACG title, and Sword Art Online, [Non-English Content] , 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, [Non-English content] , mobile games, as well as NetEase's Harry Potter. Turning to our VAS business. Our VAS services soared in the first quarter, with our premium members reaching a record high and a robust growth in the live broadcasting. Revenues for our VAS grew to CNY 1.5 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+ demographic have spending 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 esports content contracts, including live broadcasting rights of League of Legends World Championship, and more recently acquired League of Legends Pro League in China. Additionally, our VTuber and other entertainment live broadcasting continue 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 CNY 750 million, up 234% year-over-year, representing our eighth quarter of accelerated growth. For the first quarter, the top five leading advertising verticals were games, digital and 3C products, food and beverage, e-commerce, and skincare and cosmetics.
Increasing 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+ demographic, and improve our ad products, we are confident that advertising CNY 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 in Q1 place us on firm footing to achieve our next phase of growth. We have entered a new era when 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+ demographic, 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 visual market, where we are established leaders and continue 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 CNY 3.9 billion, up 68% from the same period of 2020. We continue 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 CNY 3 billion.
Revenue sharing cost, a key component of cost of revenues, were CNY 1.4 billion, also a 58% increase from the same period in 2020. Gross profit increased by 77% year-over-year to CNY 937.9 million. Our gross margin improved to 24% in the first quarter, compared with 23% from the same period last year. Total operating expenses were CNY 1.97 billion, up 83% from the same period in 2020. Selling and marketing expenses was CNY 1 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 an increase in sales and marketing personnel. By allocating resources to build our brand and appeal among broader audience, we achieved substantial growth in 2020. We believe the effects that will be even further-reaching, with positive impact to the market over the long run.
This is a continuation of the momentum we achieved in 2020, and we can already see the benefits 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 were CNY 389 million, representing 127% increase year-over-year. The increase was primarily due to increased headcount in general and administrative personnel, increased shared-b ased compensation expenses, higher rental expenses, and other G&A expenses. R&D expenses were CNY 580 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 CNY 905 million for the first quarter of 2021, compared with CNY 539 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 the intangible assets acquired through business acquisitions, were CNY 666 million, compared with CNY 475 million in the same period of 2020. Basic and diluted net loss per share were CNY 2.54. Adjusted basic and diluted net loss per share were CNY 1.87. As of March 31, 2021, we had cash and cash equivalents, time deposits, as well as short-term investments of CNY 27 billion, compared to CNY 12.8 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 CNY 4.25 billion and CNY 4.35 billion. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.
Your first question comes from the line of Alex Poon of Morgan Stanley. Please ask your question.
[Non-English content]
The question I have is regarding advertising business. We have seen a continuous acceleration in year-over-year growth for eight consecutive quarters. Could management share with us the drivers behind this growth? How should we think about the growth in the next one to three years? Thank you very much.
[Non-English content]
Okay, I'll briefly translate for Mrs Carly Lee . We think the value of platforms advertising business actually equals the values of the user itself. A not so accurate metaphor would be, many other platform out there, they are running a rental or a tourist model. You never know when your user will come, when they will go. 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.
For Bilibili, what we are trying to do is to build a city. We are trying to gather the young users with the similar interest, ask them to become a resident of this city. We provide different type of consumption scenario to them to cater their needs, including such as games, live broadcasting, movie and content and derivative products, and even offline activities. They will grow fond of the city and even fall in love with it, and they will inviting more friend to join the neighborhood. For this process, it might start really slow, but once the momentum is built, it will accelerate and has great potential.
[Non-English content]
What does the Bilibili's advertisement potential is. Look at the residents. We have captured near 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 age 35 and below. Our user, about 50% of them live in the first and second tier city. They are deeply influenced the mainstream ideals, and they are the key driving force for all kinds of consumption. They are the most wanted cohort that chased by all advertisers. 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 user to join our city, and continue a very healthy and fast growth.
[Non-English content]
We are quite confident that pretty much all of the brand, they will be looking, turning to Bilibili and become part of our community. Secondly, we think a good advertisement could also be a good content. For our users, they never repel good content. 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 KA accounts. We'll also continue to improve our product, algorithm efficiencies, and launch more creative and interesting integrated marketing solutions across multi-scenarios and multi-devices.
[Non-English content]
Additionally, we think there's a very big portion of the creativity that we could leverage our content creators. We are working with content creators to pick their brand, to pick their mind, to ask them to work with our brand advertisers together. On the Sparkle advertising platform, currently we already have over 10,000 content creator join this platform, and the overall performance is exceeding our expectations.
[Non-English content]
Last but not least, it is also very important is that we will continue to enhance our middle platform capabilities and continue to improve our ad product, including the integrated marketing solutions that combines both brand ads and performance ads. Our advertising power will not only be reflecting on the increase of our advertising revenue, but also on many of our to- customer businesses such as the efficiency of our jointly operated games and live broadcasting.
[Non-English content]
For the next one to three years, as we continue to grow our content ecosystem and extend the boundary of our content offerings, we're quite confident to maintain a healthy and fast advertising dollar growth.
Your next question comes from the line of Lei Zhang of BofA Securities. Please ask your question.
[Non-English content]
Thanks management for taking my question. My question is mainly about user engagement. We noticed that some key indicator like DAU versus MAU interaction and time spent show sequential improvement. Wondering, can you share with us what's the trend going forward? What is your plan to further improve user engagement? Thank you.
[Non-English content]
Indeed, from last year, we see a temporary drop for the DAU to MAU ratio, and we have to look into the reason behind it. The reasons, it's not because there's some matrix decline, but for the certain period of time, the growth rate of our MAU exceeded significantly of our DAU.
[Non-English content]
We think the temporary drop is absolutely normal given that last year we have raised our MAU target and we are really focusing on growing our overall users. During that process, we think this is just a temporary effect given that when the user joined the community, it really takes time for them to become a 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. If they come to Bilibili for one specific interest point, they also need time to establish and expand their interest points on Bilibili. All of that takes time, and there will be some lag during the process.
[Non-English content]
We think for product like Bilibili, we actually stand a pretty good DAU to MAU ratio in terms of the community product. Because we also have very vast content offering, we think during a fast user growth period, a temporary drop of the engagement ratio is absolutely normal. As long as we see the ratio starting to bounce back, and we continue to maintain a very fast user growth pace, it should be fine.
[Non-English content]
We'll definitely continue to be very focused on elevating the engagement level. There are several ways. One is to whether we can help our users to become a part of the community a little bit quicker. The measurement would be help them to connect with more content creators, allow them to follow more content creators that fits their interest, allow them to establish more engagement between content creators and other users.
[Non-English content]
Secondly is on our AI-powered recommendation system. We will continue to improve the recommendation efficiency to allow our algorithm to discover more interest points for certain users, to push more relevant content that fits to different users' need. For that, we'll continue to invest in R&D in our algorithm to improve our AI-powered recommendation system.
[Non-English content]
These above mentioned points will be our constant areas for improvement. Okay.
Your next question comes from the line of Zhijing Liu of UBS. Please ask your question.
[Non-English content]
Thank you management for taking my question. I have one question. Recently, we see Bilibili 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.
[Non-English content]
I've always say that game is one of the most important business for Bilibili, because for us, it's not only just a monetization, it's also a very important component of our content. There's just great synergies between our game offerings as well as our game related video content. For Bilibili, for this particular game business, it's just very natural as long as we start to offer better content, the monetization just happens very naturally.
[Non-English content]
Second of all, we think for game industry, there is still plenty of room for growth. I believe that in the next few years there could be multiple times growth for this segment. I personally take great care and put in a lot of efforts in looking to this market.
[Non-English content]
For Bilibili, it's not just game department is 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. For our live broadcasting, game related live broadcasting is our number one content on our platform. We are also working with majority of the game content developers in this industry, establishing close partnerships.
[Non-English content]
For the game distribution business, currently it's playing a very important role in our business, and it's also contributing a very decent portion of our revenue.
[Non-English content]
Why we want to invest in this area? We wanted to establish strategic collaborations. Like I mentioned, there's multiple department currently working in the game space. The reason why we invest in this area is hoping to further enhance our partnership across different legs of our business.
[Non-English content]
For example, the investment we made in XD Inc. is because we see a lot of the synergy and collaboration in terms of game distribution. All of the investment that we make has a prior purpose of establishing strategic collaborations.
[Non-English content]
That goes the same with our investment in other areas. The purpose is hoping to achieve business collaboration and achieve business synergies across different department.
Your next question comes from the line of Daniel Chen of JP Morgan. Please ask your question.
[Non-English content] I will translate myself. My question is, I would say more on the product side and also content side. 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 genre expansion? Thank you.
[Non-English content]
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. What we have been constantly doing is to build such platform to keep attracting more content creators.
[Non-English content]
What we have been doing is to focus on the categories that can attract young user, can resonate with young generations. Over the year, we have established unparalleled leadership in categories like games, lifestyle, entertainment, knowledge, and digital products. Step by step, we continue to build 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 select out more high quality content and to attract more wider range of content creators.
[Non-English content]
Move 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, animal related, fitness and health. Those categories that fits the Gen Z+ interest points and also open up us to more wider demographics.
Okay.
Your next question comes from the line of Jialong Shi of Nomura. Please ask your question.
Thanks. Good evening, management. Thanks for taking my question. My question is about the live broadcasting service. Can you give us some colors on the growth trend for your live broadcasting service? We saw an industry-wide slowdown in this live broadcasting revenue since last year. I just wonder, what is the outlook for your live broadcasting service this year and for the next few years?
[Non-English content]
[Non-English content]。
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. As a matter of fact, live broadcasting should be part of the video product.
[Non-English content]
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 hosts. All of the content offering is growing out of our content ecosystem. It's based on our content creators. It's based on the popular content on our video platform.
[Non-English content]
Like I mentioned earlier that on our video platform, game is our top three content verticals, and it's the number one content vertical on our live broadcasting business. For the game categories, the live broadcasting host and the video content creator has 40% overlap.
[Non-English content]
Lifestyle and entertainment related content is also very popular. Entertainment live broadcasting is also our second most popular live broadcasting content.
[Non-English content]
In many cases, for Bilibili, our content creators are our live broadcasting hosts, and the video content, it's a mutually beneficial relationship. We think the live broadcasting can help our content creators to establish better interaction with their followers. Their video submission can feedback to their live broadcasting traffic. On the other hand, we think live broadcasting is a good revenue avenue for content creators to monetize their traffic. On Bilibili, live broadcasting and video, they are born to be together. They have great synergies.
[Non-English content]
From my perspective, I think Bilibili's live broadcasting is still 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. There's great growth route ahead of us.
[Non-English content]
I think the nature of live broadcasting was never just about monetization. It's more of an ability. It's ability of a platform, it's also ability of a content creator. For the content creator, they can leverage live broadcasting to connect with their followers, to improve their relationship, and also they can gain monetary rewards. I believe 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.
Our live broadcasting business is really internally grown. It's growing from our content ecosystem. The external environment will not really have any impact on our live broadcasting business because we don't need to acquire live broadcasting hosts from other platforms. Everything is organically grown within our ecosystem.
Okay.
That concludes the question and answer session. I would like to turn the conference back 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 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. Bye-bye.