Good day, and welcome to the Bilibili 2020 Second Quarter Earnings 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. Please note the discussion today will contain forward looking statements relating to the company's future performance and are intended to qualify for the safe harbor and from liability as established by the U. S. Private Securities Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors.
Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Bilibili's business and financial results is included in certain filings of the companies with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward looking information, except as required by law. During today's call, management will also discuss certain non GAAP financial measures for comparison purpose only. For a definition of non GAAP financial measures and a reconciliation of GAAP to non GAAP financial results, please see the 20 2nd quarter financial results news release issued earlier today.
As a reminder, this conference call is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili Investor Relations website at ir. Bilibili.com. Joining us today on the call 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. Sam 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 2022nd quarter conference call. I'm pleased to deliver today's opening remarks on behalf of Ms. Chen. The Q2 was another strong quarter of growth of JV. Owing to our increasing diverse content and wider awareness of our brand, we are reaching a much broader audience.
For the Q2, MAUs were 172,000,000 up to 55%, and DAUs were 52% to 51,000,000, both on a year over year basis. Mobile MAUs continue to be our fastest grower, reaching 153,000,000 in the period, up 59% compared to the same period in 2019. Along with the expanded user base, user engagement continued to be strong. In the Q2, our users spend on average of 79,000,000 per day on our Bilibili app, making us one of the most popular platforms among our peers. As we move into our peak summer season, with solid execution of our initiatives, we are looking forward to further building on our user growth momentum.
We continue to roll out more premium content and services, strengthen our monetization capabilities and we are increasingly converting traffic to paid users. Our MPUs were up 105% year over year, reaching 12,900,000 in the 2nd quarter. And our payment ratio improved to 7.5% compared to 5.7% from the same period last year. These increases fueled our top line growth and we once again reached a weaker high revenues of RMB2.6 billion, hitting the high end of our guidance. Our gross margin expanded to 23% from 16% in the Q2 of last year, as we continue to realize more operating leverage.
We remain committed to our user growth strategy. After 11 years of cultivation, we believe our content pool is deep and diverse enough to accommodate a much larger user base and our community is friendly and robust enough to retain those newcomers. Hence, we have made more proactive user growth paths. Our primary areas of focus are creating additional brand awareness and targeted channel acquisition. In the Q2, we launched a series of campaigns and are expanding the Bilibili brand name among broader audience.
In tandem with expanding our content appeal for mass market. During our 11 years anniversary, we introduced a new slogan, Bilibili, all the videos you like, helping to define our brand proposition and appeal to a wider base. With this vision in mind, we launched a branding campaign series that started with our blockbuster New Year's Eve Gala in the Q1, followed by Ho Long, Hu Hai, Qishanfeng, Trilogy videos, which all have been widely successful and we are seeing a clear awareness across different demographics. This strategy is working well for us and we are determined to carry on as we move into the summer peak season. Looking ahead, a number of positive industry trends are working in our favor.
The adoption of faster network and smarter hardware is making content creation easier and more accessible to everyone. Particularly, the video industry is emerging as the biggest beneficiary. Video is rapidly becoming the most inductive and influential method to convene information. Building on that decade of experience and leadership in the video community, we are well positioned to capture the growth opportunity. With that overview, I would like to walk through the latest update of our content community, commercialization and the strategic growth plans.
1st, our content. Our PUGV ecosystem remains the cornerstone of our business. For the past decade, we have carefully accumulated our PUGV community and risen as a clear industry leader. Our effective traffic distribution mechanism and friendly community environment make Bilibili an increasingly attractive platform for content creators. In addition to easy to use tools that make the content creation process simpler and more accessible, we launched our new ad platform to bring more commercial opportunities to our content creators.
For the Q2, we had approximately 1,900,000 content creators uploading 6,000,000 videos per month, representing increases of 123% and 148%, respectively, both year over year. For the Q2, our most heavily attractive verticals are lifestyle, game, entertainment, animation and technology With rapid trends in video content, new commerce and key opinion leaders from other platforms are turning to Bilibili. In the first half of twenty twenty, the number of content creators who submitted their first video creation trial grew by 139% year over year. This creative market opened Bilibili up to expanded content categories. For instance, we officially launched a knowledge sector to encourage content creators to share their insights, such as a business story, how to skill and professional experiences.
With our effective operational campaign and welcoming community atmosphere, knowledge has quickly become the fastest growing sector as we have ever seen we have seen excellent traction. Turning to our OGV, we remain as a dominant leader in the animation field with one of the China's largest anime libraries. Since the beginning of this year, there were 3 new Chinese anime during our 100,000,000 video views club, including One Cat Legend, Dali Xiluzi and our self produced The Daily Life of Immortal King, Xianlong, De Yu, Chun, Shengbo and Capital Gong, Yuanlong. Additionally, we plan to roll out more Bilibili produced Chinese anime, including Linkage, Lin Long, A Mortal Journey, A Financial Shenzhen, We believe this new series will attract even more Chinese anime lovers to our platform in this summer. As a supplement to our vast content library, we expanded various shows and documentaries continue to resonate with fans and provide good advertising avenues to our business partners.
In August, we were excited to introduce our very first self produced music variety show, Rev for Youth, Shou Tang Xin Shidai, sponsored by Alibaba's Qiu Hua Chun. We hope these reps in the talent show will help further expand our content offerings, while inspiring our content creators and young generations alike. In the industry department, we are pleased to have received wide recognition, not only from our users, but also professional institutions. 2 of our Bilibili produced documentaries were nominated by Bai Yu Lan for the best documentary award, including An Year's The Book, and Police Story, The Hidden Scene of China, a documentary that we co produced with National Geographic was nominated as the best limited series long form documentary by Jackson Wide Media Network. Turning to our community, our community size and engagement has been accelerating rapidly.
Our platform is more robust than ever, and we have seen record high across all of our primary engagement metrics. In the Q2, our daily video views reached 1,200,000,000, up 97% year over year, and our users generated nearly 5,200,000,000 monthly interactions through the booty chats, comments, likes and Bilibili Moments posts, nearly 3 times the amount from the same period in 2019. Our official membership program is on a similar growth path. By the end of the Q2, we have 89,000,000 official members who passed our 100 question exam, up 65% year over year. The tension for this group remains well above 80%, demonstrating the loyalty of our users.
Turning to our commercialization progress, I will first review the status of our game business. Revenue from our mobile game business were up 36% year over year to RMB1.2 billion, accounting for 48% of our total revenues. Building our massive and expanding gamer community, our distribution power in the ACG sector is becoming even stronger. In the Q2, we were excited to add the new broadcast title, Princess Connect, into the NDA 12 game portfolio. This exclusive licensed Japanese RPG was an instant hit after the release in April and topped China's iOS download and browsing chart multiple times.
Our next big title, Big Red Order, or FGO, continues to hold a considerable draw for this stable brand base. At the end of June, we were excited to celebrate Asuna Life's 3 year anniversary with a major content update and accompanying offline activities. A long life cycle of these games continues to be a strong testimony to our ability to operate and sustain high quality games. Looking at our game pipeline, currently, we have 11 games that have acquired approvals and are scheduled to be released in the coming months. These include Majia Record, a highly anticipated ACG title adapted by a popular Japanese anime and the Sword Art Online, and Exciting and Memo RPG.
Additionally, while strengthened our ACG game operation, we continue to expand offering in high quality games. As to the end of July, we hosted our first ever game release event, Enter Your Fantasy World, where we introduced 11 exciting titles across different genres. These included simulation game Darkbone, Paytou, a self development ACG game, Lin Long Guozhong, a highly anticipated title adapted from our self Chinese anime IP and several high quality 80 gs titles, and In August, we are delighted to announce we are going to bring Chinese audience the mobile version of Fall Guys, Pandora and exciting casual battle royale games. As we solidify our game related content offerings and welcome more game lovers to our platform, Bilibili has become the go to place for joint and operating partners. In the second half of the year, we will continue to work with leading game developers to bring our user premium games such as Mikhail Yuan Shen and Net Yee's Harry Potter.
Turning to our VAS business. Revenue from VAS increased by 153% year over year, reaching RMB825 1,000,000 in the 2nd quarter. Our growth was mainly driven by increased contribution from premium memberships, live broadcasting and other value added services. We continue to enrich our live broadcasting content and increase the penetration among our growing traffic. As our platform become more influential in China's online entertainment industry, we have seen more hosts and talent agencies turn to Bilibili to grow their fan base and maximize their commercial potential.
On the e sports front, our 3 year strategic partnership with Riot Games will significantly enhance our position in this area. We were working with Riot Games and the local government to host diversified online and offline activities to promote world renowned League of Legends World Championship events, while bringing more e sports lovers to Weebly. Our premium members, which offer additional exclusive or advanced content to pay users, continued to flourish in the Q2. By the end of June, we had 10 point 5,000,000 premium members, up 100% year over year. These members represent the golden cohort of our most loyal users, who are also the most prime for future cost selling opportunities.
Notably, our comic business is also on the rise. Within 2 years, Bilibili Comic has grown from scratch to top 3 comic platforms in China, with over 1,000,000 paid subscribers. As a natural extension from our core SEG content offering, we see great synergy between our main app and Bilibili Commerce app with significant room to growth. As for our Tidy business, our growing user base and increased brand awareness make Bilibili a must go to platform for advertisers. Despite the tough macroeconomic environment, we grow our advertising business to RMB349 1,000,000, up 108% year over year and continue to broaden our customer base.
The leading industry verticals in the period were games, e commerce, 3 d products, food and beverage, and education. In summary, we had another strong quarter of growth and we are well poised to continue on this trajectory. Building on the positive momentum in the first half of this year, we plan to make additional investments in branding and channels in the coming quarters to further drive user growth and raise brand awareness. We believe these investments will boost our self fulfilling growth cycle and yield considerable return in the long run. As we reach new heights, our focus will remain on the quality of the growth and we will continue to closely monitor the ROI of our marketing expenses.
We are confident that our effective strategic initiative will further fuel our user growth and support our top line expansion, and we continue to build values of our company, investors, and growing community of our users. This concludes Ms. Chen's remarks. I will now provide a brief overview of our financial results for the Q2 of 2020. Our total net revenues increased by 70% year over year to RMB2.6 billion, exceeding the high end of our guidance, With our games accounting for just under half our total revenues, we are pleased with the commercialization progress of our non game offerings and our ability to convert our online traffic into paying users.
The average number of monthly paid users increased by 1 105% year over year reaching 12,900,000 in the 2nd quarter. Cost of revenues increased by 57% year over year to RMB2 1,000,000,000. Revenue sharing cost, a key component of total revenues was RMB1 1,000,000,000, a 79% increase from the same period in 2019. Gross profit increased by 130% year over year to RMB6 104,000,000. We are also starting to see operating leverage from our diversified revenue streams.
With more revenue contribution from our higher margin business as well as additional income from paying users, our gross profit margin continued to improve, reaching 23% in the 2nd quarter. Total operating expenses increased to RMB1.2 billion, up 103% from the same period in 2019. Selling and marketing expenses were RMB670 5,000,000, representing a 181% increase year over year. The increase was primarily attributable to the increased channel and marketing expenses associated with Bilibili's ads and brands as well as expenses for company's mobile games and selling marketing personnel. G and A expenses were RMB208 1,000,000 representing a 48% increase year over year.
The increase was primarily due to increased headcount in G and A, P and L and increased share based compensation expenses. R and D expenses were RMB331 1,000,000, representing a 53% increase year over year. The increase was primarily to increase headcount in research and development personnel and increase share based compensation expenses. Net loss was RMB571 1,000,000 for the Q2 of 2020, compared to RMB350 1,000,000 in the same period of 2019. Adjusted net loss, which is a non GAAP measure that excludes share based compensation expenses and amortization expenses related to intangible assets across Huberian's acquisitions were RMB470 6,000,000 compared to RMB 256,000,000 in the same period of 2019.
Basic diluted net loss per share were RMB1.63. Adjusted basic diluted net loss per share were RMB1.35. As of June 30, 2020, we had cash and cash equivalents, term deposits, as well as short term investments of RMB15.6 billion or US2.2 billion dollars compared to RMB8.1 billion as of December 31, 2019. For the Q3 of 2020, we are currently projecting net revenues to be between RMB3. 5,000,000,000 and RMB3.10 billion.
Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer Your first question in queue comes from the line of Alex Un from Morgan Stanley. Alex, please ask your question. Your line is open.
My first question is regarding the user growth. First half, the user growth is very strong. May I know can you share with us the quality and retention and the user profile of the new user growth in first half? And about the second half growth and also next year, what is the key focuses of your strategy of user growth? How are you going to balance user retention and maintain the fast user growth in second half of next year?
Thank you very much.
I'll translate for Mr. Chen. Last year, we have reinforced and reaffirmed user growth will be our key strategic focus, and we have been carrying out the strategy efficiently going through the first half of this year and have made very positive progress. As for the new user profile, you asked, there's no significant change of the new user profile. We still see a lot of young generations are coming in.
The average age of our new users is about 20 years old. However, we would like to emphasize during the user growth process, we're more focused on the quality over quantity and the quality of our users can be supported by the daily time spent, daily daily time spent of 99 minutes per day and our user engagement were up to 5,200,000,000 on a monthly basis and our daily video views reached 1,200,000,000. So, all of these numbers supported our users are not growing very not only growing very fast and their quality are very, very high. And notably, we've noticed that the new user who come in during the first half of twenty twenty and also paid for our services within the same period, the ratio has significantly increased compared to the same period last year. And also, the new users who came on our platform during 2017, 2018 2019, who also stayed and paid for the next few years, their pain ratio is also increasing.
So once again, this set of numbers is a strong testimony of the quality of our new user growth. So here, I always also wanted to emphasize the methodology of our user growth. The reason why we are very confident in the user growth trajectory is based on the concept that we have been emphasizing that we use our content to attract user and use our community to retain users. And as you may notice, in the first half of this year, we've done made some significant progress to allow our content to reach a much broader audiences. And this type of user growth cannot be achieved by purely channel acquisition or user acquisition.
If a user comes to our platform simply through the channel acquisition, we cannot retain that if there's no good content. And the key strategy is to allow our content to grow to a much broader category. And this opens up to new for us to new demographics. And Bilibili is a community with high engagement level and high retention level. Although our users increased significantly, our overall community is staying the same intensity and continues to be very sticky and with high retention rate.
So I'll update you the schedule of our user growth plan. So everybody know during Q1, the pandemic period, people have more time in their hands. So that gives us very good window to invest in user growth. And the second quarter, as we are going back to work and return to school, it came to a more stabilized period that we'll be focusing on raising our retention and converting those users to paying users. And notably, we've also made very good progress to raise our brand awareness in the Q2 and achieved pretty good results.
And in the Q3, it's a traditionally strong peak season for us so that we plan to make additional investment in both brands as well as channel acquisition. I would also update you with our brand branding campaigns. In the Q2, starting from May, we have made a very successful marketing campaign trilogy with Houang, Wutai and Xu Xianfeng. And we believe this series of campaign is a complete marketing event, which we consider to be the most successful branding campaign among Chinese Internet companies during the Q2. This proves our ability not only to do amazing events among young generation, but we also have the ability to touch a much wider, broader audiences.
And the reason why we wanted to emphasize on branding campaign is based on our business model We use content to attract user and community to retain user. As our content continues to evolve to reach wider audiences, one important step is to allow more people to know that Bilibili has so much content to offer, which are in line with our new brand slogan Bilibili, all the videos you like. Okay. As for our Q3 user outlook, we believe we'll reach historical highs during this quarter. And this summer is a little bit special because in July, a majority of the students are still in school and August is a full month of summer vacation and September will be the period where students are returning to school.
So in August, we will be able to achieve a pretty high MAU target. And on quarterly monthly average basis, we believe we can reach a historical high. So, on a single month basis, we believe we can achieve over 200,000,000 MAU target during Q3 on a single month basis. Cali would like to supplement a few points. During our brand upgrade campaign this year, our overall brand exposure has achieved over 5,000,000,000 times.
And the brand recognition level among the age bracket in between 17% to 35% has raised to 80% I'm sorry, 60%. And in the second half, our main focus will be on to confirm people from recognizing Bilibili brand to turning to Bilibili users. And during the second half, the marketing campaign will surrounded our key activity around the key time slots such as the summer vacation and returning to school as well as the League of Legends World Championship and our New Year's Eve Gala and many work like scenario among just young generations and to create new content, new brand campaign and further drive our user growth.
Our next question comes from the line of Lei Zhang from Bank of America Merrill Lynch. Lei, your line is now open.
Thanks, management, and congrats on the strong results. My question is actually regarding your game business, which is quite solid in Q2. I wonder if could you share more color on the performance of Princess Connect, specifically what's your expectation on the longevity for this game? And secondly, can you give us some updates on your game pipeline? Any game launch we can expect specifically your expectation about the mobile version of Fall Guys?
Thank you.
Regarding Princess Connect, We Dived, it's like we expected this game will be having a very long life cycle. And we expect this game to last to quite a long period. And for this game, our in many aspects broke the historical record in terms of pre registered number. We have over 6,500,000 people pre registered and the newly added user for this game also achieved a record high number. And the success of this game proves 2 points.
1 is that the ACG game has And second is, over the years, our ability to operate and sustain ACG titles have improved significantly, and we're quite confident to continue this success. And for Games like Princess Connect with such large user base and within the 4 month period of our operating history, it has been very smooth in terms of operations and technical operations. So, this once again supports our testimony that Bilibili is able to operate this genre's game quite well. As for the long life the life cycle of this game, we expect it could be something like FGL and to last couple of years. As for our game overall game business, currently, we have over 30 games in our pipeline and those games are not only ACG titles.
We have been actively expanding our content offerings across different genres since last year and we've made a quite good progress on some of the console game, indie games and have received good results. So the Ballgame that you mentioned is another example of our successful attempt in expanding into new genres. And looking ahead, we'll continue to explore the new genres that most fit to our user demographic. So in terms of revenue contribution, we believe ACG titles still have advantage in this area. And in our pipeline, we believe that sort of online integral factor will be a title that could make decent contribution in the growth and department.
Our next question comes from the line of Daniel Chan from JPMorgan. Daniel, please ask your question. Your line is now open.
Thanks, management. I have a question on advertising. Our ad revenue growth actually accelerated on a year over year basis from in the Q2. Should we expect the ad revenue to sustain such strong momentum in the second half? What are the key drivers behind is it brand advertising or is it because of performance advertising, including feed?
So what is our expectation for the new ad system we launch in the Q3 for the content providers? Thank you.
Overall, 2020 is still full of uncertainties and FAFO vitality. However, under this challenging macro environment, we still delivered a pretty good advertising growth rate at 108% year over year. So, Bilibili as a video platform, we are one of the biggest manufacturer in the overall videoization industry trend. And we have observed that the advertiser's budget has shifted from the traditional portal to the video platforms. So, as we mentioned earlier, we have invested significantly in expanding our brand awareness and raise our brand influence in the first half.
And we have become the must go to platform for advertisers who create viral marketing events. And AbilityBili's brand upgrade, brand awareness increases has direct relationship with advertisers' perception towards Bilibili's brand proposition. So as our user continue to grow and our PUGV ecosystem continue to thrive, we've seen that we've made decent progress in expanding our content verticals such as fashion, lifestyle, technology, fitness as well as autos. So, we are also hoping to reach expand our advertisers' customers into those industry verticals. So during the Q2, we didn't make any singular marketing campaign towards certain verticals, but rather emphasizing our overall marketing solutions as well as Bilibili brand propositions and influence.
And it's working well for us and we aim to continue this strategy going forward. So the reason the supporting system behind our Q2 strong growth is on our improvement in terms of our advertising products and our advertisers' verticals as well as our AI powered algorithms to improve our ad efficiencies, and we're confident to carry on this good trajectory into the 3rd quarter. So looking ahead in Q3 and Q4, we are quite confident we can deliver a continued growth rate on our advertisement business and to develop a delivery specialty advertisement solution campaign. So the area of focus could be on the e commerce area. Viability's vibrant and engaged community has become many e commerce platforms, ideal platforms to promote shopping festivals and shopping events.
So in the second half of this year, this could be a rising sector for us. So as our content verticals expansion, we are quite confident to also expand our advertisers in those verticals. So the 3rd point would be on the continuous improvement on our algorithm. We'll continue to invest in improving our advertising efficiency to increase our advertisers' ROI. And the 4th point is on the big events in the second half.
There could be new variety shows as well as new events and galas. And this type of Bilibili specialty event has become the advertisers' favorite advertising avenues to reach young audiences. So the Sparkle platform is a new platform we launched to help our content creators to connect with brand advertisers. And this platform provides our content creators a pricing system, order management as well as settlement services. We are hoping this platform will better serve our content creators to increase and expand their commercial potentials and increase their incomes.
Since its launch in July, we have over 8,000 content creator have already participated and signed up for this platform. For the GMV, we'll disclose when we reach a certain milestone. And lastly, we'll continue to focus on improving our data power and to provide better decision making assistance, presale or post sale and to increase our content creators' earning power.
Your next question comes from the line of Alex Liu from China Renaissance. Alex, please ask your question. Your line is now open.
I'll translate myself very quickly. Just wondering what are the major difference in terms of operating know how and the road map between live streaming business and all of our core business? Should we consider live streaming as a business that requires some time of incubations and will reach inflection point on user adoptions? If that's the case, how far are we standing from that inflection point? Thank you.
Live broadcasting business is, as we mentioned earlier, has always been a part of our content ecosystem. This is not a singular commercialization avenue for us, but also an important part of our content. Live broadcasting also provides a very good avenue for our content creators to activate and retain their followers as well as for them to increase their commercialization potential. So, in the past few years, you may have noticed there's such heavy competition among other white broadcasting platforms. However, Bilibili has remained within our own self sustaining ecosystem that we continue to have talented content creator rising above and they become our live broadcasting host and are providing very good content.
This is quite different. Bilibili's live broadcasting business is quite different from other singular live broadcasting platform. So our content offering on the live broadcasting business is actually mirroring what we have to offer on the video platform. For example, our popular game related video would also be our popular live broadcasting content. And hence, that on Bilibili's live broadcasting verticals, games, talent shows and lifestyle related content the top verticals.
So you may see on our platform, a lot of the popular live broadcasting hosts also are popular top content creators. And there are 2 key factors among the live broadcasting industry. One is a good base of live broadcasting host and second is a good base of users. And we believe we have these secret audiences for the 2 factors. We have both the high quality content creator, aka our live broadcasting So compared to other live broadcasting platforms, you are right about the revenue trajectory.
We tend to have more stable growth instead of a sharply increased circle because other platform are pursuing the signing top content, host, which will drive the revenue in a short term. But the merits of our business model is we tend to have a more stable and sustaining lifecycle. And our content creator, the live broadcasting host lifecycle will also tend to be longer period. We are quite confident to become the best platform for video content creators, given that the video equals live broadcasting content on our platform, we're also quite confident that will become one of the most popular live broadcasting platform in the future.
And that concludes the question and answer session. I would like to turn the conference 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 myself, Julie Yang, Bilibili's IR Director or TPG Investor
Ladies and gentlemen, this concludes our conference for today. Thank you all for participating. Stay safe, everyone. You may now disconnect.