Good day, and welcome to the Bilibili 2019 Third 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 certain forward looking statements relating to the company's future performances and are intended to qualify the safe harbor from liability as established by the U. S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performances 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 company with Exchange 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 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 2019 Q3 financial results news release 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 Investor Relations website at ir. Bilibili.com. Joining us today on the call from Bilibili's senior management are Mr. Ray 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 lead the prepared remarks on behalf of Mr. Chen.
Thank you, Juliet, and thank you, everyone, for participating in today's earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. Our Q3 was another strong quarter of growth. Our active user acquisition strategy and increased commercialization efforts are paying off.
We secured another quarter to record high MAUs and paying users, while meaningfully improving our top line and gross margin. In the 3rd quarter, we added 17,500,000 MAUs to our platform sequentially. This is our highest quarterly net add ever, bringing our total MAUs to 127,900,000, up 38% from the same period last year. The growth rate for our mobile MAUs even more accelerated, reaching 114,200,000 in the 3rd quarter, up 43% year on year. While growing our user base, we are also keeping our community engagement at high levels.
Total DAUs were up 40% in the 3rd quarter, reaching 37 point $6,000,000 and on average, they spend 83,000,000 per day on our platform. Our user stickiness and royalties create longevity and willingness to pay for premium content and services. In the Q3, our average monthly paying users was again more than doubled compared to the same period in 2018, reaching 7,900,000. Revenues per MAU was RMB14.5, a 25% increase from the same period in 2018. This set of numbers demonstrate improving monetization of our growing traffic.
For the 6th consecutive quarter since our IPO, we exceeded our revenue guidance, beating the high end of our expectations by nearly RMB100 1,000,000. Total net revenues came in at RMB1.86 billion for the 3rd quarter, up 72% year on year. We think this means we are doing something very right. At our top line expense, we are realizing more leverage and our gross margin has improved meaningfully each quarter of this year from 13.8% in Q1 to 18.9% in Q3. To give a bit more insight into our strategy, I'd like to walk you through our Q3 performance and provide some updates on what we consider the backbone strategy of our business, content, community and commercialization.
Our full spectrum entertainment ecosystem is strong and growing. We continue to improve our tools and services to better support and inspire our content creators. The mobile content submission tools have been widely adopted by our content creators, which are around 50% of the content now being uploaded through mobile devices. We believe the 5 gs network adoption will soon have a positive impact on video creation and consumption beyond our imagination. During the Q3, we had an average of 1,100,000 active content creators, up 93% year over year, uploading 3,100,000 videos monthly, up 83% on a year over year basis.
The top 5 content categories in the Q3 were lifestyle, entertainment, game, animation and technology. For lifestyle, our broad campaign was a great success this summer. By the end of Q3, broad had more than 11,000,000,000 cumulative views. Our interactive video features continues to be a great outlet for our content creators to stretch their imaginations in various verticals, attracting our viewership of more than 300,000,000 in just 4 months. In October, we launched a new joint creation program that encourage our content creators with majoring talent to work together to jointly co produce titles.
This initiative has been well received by our community, particularly in the verticals that require more professional skills, such as music, dance and animation. Looking ahead, we aim to further expand our content offerings in entertainment, fashion and the technology with more effective operators, which we believe will help attract mass audience. Notably, as our smart content distribution engine and operational capability is improved, we are excited to see our content and content creators get traction faster than ever. In the Q3, the number of new videos that achieved 1,000,000 views more than quadrupled compared to the same period last year. The ability to showcase their talent and gain real time fans in our heavily populated community is making Bilibili the ideal platform for creators.
In addition, we continue to expand our OGV library to supplement our ever growing PUGV offerings. We remain the dominant leader in the animation field with one of the China's largest anime libraries. We recently released updates on dozens of Chinese anime projects, including the 3 body problems, and over 20 new titles, including Heaven Official's Briefing, Tian Guan Ci Fu and the Legend of Mortel Accession, Firein Xiu Xian Zuan. In the documentary and variety show department, our signature full documentary series, The Story of Troy Season 2, and our self produced animal reality show, animal hospital, has been hot topics all summer long. At the same time, we continue to work with leading overseas producers to bring our audience top level titles.
These include a Chinese version of Discovery's adult survival reality show First Man Out, starring Eddie Stafford and Hidden Kingdoms of China, a phenomenal documentary that we co produced with National Geographic. This mass appeal titles have not only helped attracting broader audience, but also yield decent advertisement and premium membership revenue. Looking at our community, we are seeing accelerated user expansion. We are expressing fast growth in numbers as well as the engagement levels. In the Q3, we have 725,000,000 daily video views, up 60% year on year.
This largely base is deeply engrossed in our platform, connecting with each other and our content. In Q3, our users generated 2,500,000,000 monthly interactions through Twitter chats, comments, likes and bilibili moment posts. This is up 122% compared to the same period last year. Our official membership program is also on the rise. At the end of Q3, we have 62,000,000 official members who passed our 100 question exam, up 46% year over year.
Our 12 month retention rate remained high as well at above 80%. This is an excellent indicator of the high quality of our user growth. Turning to commercialization. According to the latest eye research report issued in November this year, by 2023, China's online entertainment market will achieve a market size of RMB1.1 trillion. As the driving force of this remarkable growth, Gen Z will contribute nearly 66% of the overall market.
And more so than any other generations, paying for entertainment is a new norm in China. Drawing down a bit further, the ACG game market is forecast to hit RMB62 1,000,000,000 by 2023. As China's leading online J and D entertainment platform and the leader in the ACG field, we are well positioned to capitalize this market boom and grow our position. 1st, let's take a look at our game business. Our game business is now accounting for 50% of our revenues.
As we further diversify and expand our game offerings, we continue to grow our market share in the high quality and ACG game space. For the Q3, revenues from our mobile games were up 25% year over year at RMB933 1,000,000. The enduring FateGrand Order, or FGO, continued to lead our growth. With growing revenue contribution from our jointly operated ACG themed mobile game, Arknights, which was released in Q2. FGO further grow in Q3.
After the release of a major content update, FGO ranked number 1 on China's iOS top grossing chart 3x in September. The game's enduring life cycle is an excellent showing of our ability to acquire premium content and our strong game distribution power. Our game community continues to be one of the largest in China. We are excited to bring new titles to our massive audience. We released a series of ACG titles, including an exciting domestic RPG called Final Gear and 2 high rated Japanese female based RPG titled Untouchable Palms and A3, all have been well received.
On the jointly operated game front, we launched a number of high quality domestic titles, including Tencent highly anticipated ACG mobile game, Fox Sports Matchmaker and the Paper game, Shiny Niki. Looking at our content update and new game pipeline, we are excited to release a major content update for FGO planned for New Year's Day 2020. With a total of 30 high quality games in our top line, we have 8 titles that have acquired approval as scheduled to be released in the coming months. This includes today's release of GYRO! Cafe Gun 2, a highly anticipated domestic RPG that combines simulation and shooting gameplay.
Over 1,000,000 users have already pre registered for this title. On top of that, the previous Yama, Yama, 12 Weapons of God, Sha She Ming Chi, Ayakashi Children, Cao Yuanxiang and a couple of others have also been approved and will be released in the coming months. Our platform is also slated to bring audience jointly operated games such as NetEase or Muji, the card game, League 0 and more. In addition, we are excited to expand our game distribution outside of Mainland China with dozens of high ranking titles to be released in Japan and Korea as well as the Great China region. A few of the planned international release at this time include titles such as the Furious Yama, Final Gear, Girl Capitan 2 and Darkbone.
Turning to our live broadcasting and events business, revenues increased by 160 7% year over year, reaching RMB453 1,000,000 in the 3rd quarter. Also, we improved the revenue contribution from our live broadcasting, premium memberships and the mall and the comic business. We continue to enrich our game and entertainment content offerings in live broadcasting and attracting new viewers with increasing demand in this area such as premium e sports content. During the League of Legends SNI final, our peak concurrent user almost doubled compared with last year's S8 final. In addition, our featured VTuber and audio related content remain our top verticals.
With access to additional and open exclusive content, members are highly incentivized to join our permanent membership program. Permanent membership continue to bring in new subscriptions. And by the end of September, we had 6,100,000 valid premium members, up 129% year on year. During the Q3, we initiated a jointly member program with Tencent Music, which has been a great win win collaboration for both parties. As for our advertising business, we are seeing encouraging sign of settling our market environment.
Revenues from advertising increased by 80% year over year to RMB247 1,000,000. We continue to improve our performance ad efficiency, yielding positive results with better click rates. The top 3 industry verticals for brand ads in the Q3 were food and beverage, games and e commerce. And the top 3 verticals for performance based ads was games, education and e commerce. I will now briefly update you on our partnership with Alibaba.
During this year's Double Year 11 event, we launched an integrated marketing program with Timao and Taobao. The campaign include a number of e commerce and advertisement initiatives and the combined Bilibili vast content ecosystem with Alibaba's extensive e commerce ecosystem. To be more specific, the campaign allows e commerce advertiser to complete 1 stop shop marketing on Bilibili. They can first raise brand awareness through various display ads secondly, influence user purchase decisions through native ads and third, complete the transactions through performance based ads that link to the merchandise. The initial results were very encouraging.
We look forward to work closely with Alibaba and bring our partnership to the next level. Finally, I would like to touch on our e commerce business. For the 3rd quarter, our e commerce and other business grow by 703 percent to RMB226 1,000,000, largely driven by an increased number of paying users spending more on our e commerce platform. We are pleased to announce that by the end of October, our year to date e commerce GMV has achieved an exciting milestone of RMB1 1,000,000,000. In summary, we are excited by the momentum that we are seeing across our business.
Our solid Q3 results are a strong testimony of our ability to grow our user base, while maintaining a healthy and engaged community. The abundant traffic we generated along the way quickly translated into top line expansion as our monetization power improves. More importantly, at the revenue expense, we see growing leverage with our gross margin, which give us more confidence to invest in our future growth. Looking ahead, we plan to continue our active user growth strategy while enhancing our commercialization power. At the same time, we are committed to bring our community more exceptional content that help young users engage, connect and entertain.
That concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for Q3 of 2019. Our total net revenues increased by 72% year over year to RMB1.86 billion, exceeding the high end of our guidance by 5%. Our nongam revenue made up nearly 50% of total revenues in the 3rd quarter, up from 31% in the same period of last year.
With almost half our revenues coming from multiple sources, we are pleased with our commercialization progress and the implant case. We are also converting more and more online traffic to paying users. The average number of monthly paying users increased by 124% year over year, which is 7,900,000 in the 3rd quarter. Cost of revenues increased by 71% year over year to RMB1.5 billion. Revenue sharing costs, a key component of cost of revenue, were RMB655 1,000,000, a 49% increase from the same period in 2018.
Gross profit increased by 18% year over year to RMB351 1,000,000. We are also starting to see operating leverage from our diversified revenue streams. With more revenue contribution for our higher margin business, including advertising and incorporated games, as well as additional income from paying users, our gross profit margin improved to 18.9% compared with the 16.4% in the Q2 of 2019. Total operating expenses increased to RMB770 4,000,000, up 71 percent from the same period in 2018. Selling and marketing expenses were RMB 3 64,000,000 representing an 85% increase year over year.
This increase were primarily from increased channel and marketing expenses associated with our app and brand during the summer holidays. We also had additional promotional expenses for our mobile games and then an increase in headcount in sales and marketing personnel as well as the higher fulfillment costs for our e commerce related products. G and A expenses were RMB163 1,000,000, representing a 48% year increase year over year. This increase will primarily result from additional G and A personnel related expenses and increased amortization expenses related to the intangible assets acquired through business acquisitions and other increased G and A items. R and D expenses were RMB247 1,000,000, representing a 69% increase year over year.
The increase was primarily due to increased headquarter in R and D personnel, increased share based compensation costs and others. Net loss was RMB406 1,000,000 for the Q1 of 20 18 compared to RMB246 1,000,000 in the same period of 2018. Adjusted net loss, which is a non GAAP measure that excludes share based compensation expenses and amortization expenses related to the intangible assets acquired through the business acquisitions was RMB343 1,000,000 compared to RMB203 1,000,000 in the same period of 2018. Basic and diluted net loss per share were RMB1.24. Adjusted basic and diluted net loss per share were RMB1.05.
As of September 2019, we have cash and cash equivalents, term deposits and short term investment of RMB8.4 To further grow our business, we plan to improve our monetization by leveraging our considerable and growing traffic. We are comfortable with a fifty-fifty split in revenues between game and non game business, but see benefit in expanding our device revenue stream and improving revenue contribution for MAU even further. Creating additional operating efficiency also further improve our gross profit margin. Longer term, we believe our monetization efforts, higher paying user conversion rates and the scale will yield and improve the bottom line. With that in mind, we are currently projecting net revenue for the Q4 of this year to be between RMB1.93 billion and RMB1.98 billion.
Thank you for your attention. We would like now to open the call to your questions. Operator, please go
ahead. Thank you very much. Ladies and gentlemen, we will now begin the question and answer
First of all, congratulations on a solid quarter and also congratulations on achieving the company's 120,000,000 to 130,000,000 MAU target ahead of schedule. So I just wonder if management can provide some colors on the profile of the new users acquired in the current quarter in the past quarters? And how are the new users compared to those of old users in terms of their profile and engagements? And since the company has already achieved this year's MAU target ahead of schedule, so I was just wondering what is your new MAO target for end of this year end of this and the next year? And my second question is about the outlook of competition landscape.
We heard some of the game live broadcasting platforms are trying to diversify their content offering by adding more and more anime related contents into their library. So I just wonder what management think of the potential for these new entrants. Thank you.
Okay. So Mr. Chen will first share his view on user growth and Carly will share some colors on this quarter's new user profile. So Mr. Chen feels very optimistic about our future user growth trend.
He feels that we can upkeep the current speed of user growth or even achieve accelerated growth without compromising the quality of our users. That quality translates to the engagement, the time spent, the retentions. And we are quite confident to keep up a very high quality growth while achieving a relatively higher growth rates. The confidence comes within our more and more mature content creator ecosystem. Over the past year, we have developed a very mature and self sustaining content ecosystem that attracts more and more content creators come to our platform creating high quality content.
At the same time, our improved AI content recommendation is pushing more high quality content to meet with more mass audiences, drive our also, at the same time, our community also help our content to spread faster through word-of-mouth. And that can be supported by over the past few quarters, we can see our content category expanded to much wider categories. At the same time, the new videos that achieved 1,000,000 video views become much, much more. So in the past few quarters, we've seen reports from different third parties suggesting that the benefit of the growing population of China is diminishing, that more users they are less time spent, less active users in the overall Internet space. On the contrary, Bilibili's very unique content ecosystem and our unique user growth models will definitely helps will definitely attract more and more attention in this field.
I will now give a quick update on the method of user acquisition and the new user profiles. So first of all, organic growth still takes a big part of our user growth strategy. Given our current content ecosystem, our community environment, This is very beneficial for word-of-mouth user growth. At the same time, we'll also be more proactive in acquiring traffic that includes investments in different app stores and work with larger traffic platforms. So for this part of growth, the acquired traffic, we will be very focused on the core user retention and time spent and engagement.
At the same time, our AI powered recommendation system will continue to improve that in that direction to help to maintain a higher retention rate of new users. So we've observed that the new users' paying ratio has gradually improved. The new users who are coming in 20 seventeen's paying ratio is to come in 20 eighteen's paying ratio is significantly higher compared to 20 17. And we've seen the new user who come in the 3rd quarter's paying ratio is also higher than previous quarters. In addition, we'll also to invest in raising the brand awareness availability.
We'll upgrade our overall branding campaign and this is prepared for 2020 user growth. So in terms of new user profile, there's no significant difference between the new users that we attracted in the previous quarters. It's still majority being young generations and first and second tier city with a further penetration in the lower tier city. So the overall platform's average age are still 21.5 years old. So in terms of their content preferences, it's still relatively the same with the old users.
They are into lifestyle, Chinese animation, PUGB. And this is I think this is beneficial to our increasing content supply in lifestyle, specifically in blog and other high quality content verticals. So first of all, in terms of anime content supply, Bilibili was never the first one to do it, and we're not the only one who do who is providing that type of content. And as a matter of fact, there are a number of players, including some of the industry giants, are supplying this type of content. But our results prove ourselves, especially in the past 5 years, we have proven to be the most influential platform and our partners across the industry also agrees that Bilibili is the most powerful and most influential anime platform in China.
So our advantage does not only include that we basically have all the anime fans gathering together on Bilibili, but also our pipelines, our preparation in terms of content, IP as well as content creation teams has also been leading the industry. So we are we have full confidence to continue to be the leader in the anime field. At the same time, while we see more and more competitors coming into space, we think that is a positive sign showing this industry has very promising growth future. We're also delighted to see that.
Your next question comes from the line of Alex Poon from Morgan Stanley. Please go ahead.
My first question is related to advertising. We noticed very strong year over year growth acceleration to 80% in Q3. Given you have a lot of ad inventories, can you share with us what's your plan of releasing more ad products in the coming quarters, especially any spots on your platform that you have a lot of viewership but have not monetized properly yet? As some companies have mentioned that the macro is bottoming out, do you expect to release more products and also expect this year over year trend to continue to accelerate? And my second question is related to live streaming.
Can you share a little bit more about the trends about paying users' ARPU? And in terms of monetization and economics of scale of revenue, are you at a point that you can start negotiating down your revenue share ratio with talent agencies? Thank you.
Okay. So the ad load for our ad business this quarter has remained at 5%. This hasn't changed in many quarters, and we do not intend to raise that outload in the short terms. And my overview about our advertisement business is to first improve our commercialization efficiency and discovery more advertising format that better combines our content ecosystem with our commercialization capabilities. And we think our advertisement team is growing stronger, and they have starting to find a way to improve our advertising efficiency without jeopardizing user experience and discovering more effective commercialization method.
And we believe without raising our ad load, we can achieve a faster overall advertisement growth rate. So we do see some of the macro shipment in last year and this year. However, under the unsettling environment, we are still we were still able to achieve 80% year on year growth on our advertisement growth revenue. So first of all, we have overall improved and optimized our overall brand advertisement and improved our brand awareness and better merged our brand influence with our content ecosystem. So because that we have further improved our community environment in brand advertisement that we can better help to build brand awareness among our community, hence to further improve our brand advertisement efficiency.
So we've come to a relatively newer method of integrated marketing campaign that includes raising brand awareness to display ads, to brand ads and influence users' purchasing decision through native ads with our content creators and last, complete the transaction through our various performance ads. So on the performance base, as we've done, are the major improvement to improve the efficiencies. One is in terms of performance ad formats, we are creating new formats to better present the advertisement. And second is to improve our overall algorithm to result in better click through rate. And third is to better further expand our customer base to higher quality customers, higher quality advertisers to improve our overall efficiency.
So looking ahead to 2020, we're still very confident to achieve a higher growth rate of advertisement business. At the same time, we're going to explore better ways to present our advertisement that combines our overall content ecosystem. And upkeep at least the current growth rate of Q3's advertisement. So our live broadcasting our live broadcasting business has upkeep has been upkeeping 100% year on year growth rate. So in the past, a lot of people have asked Mr.
Chen that the China's live broadcasting industry is getting more and more competitive, how we're going to grow our position in this landscape. Mr. Chen's response has always been we're not in a position to directly compete with other live broadcasting platform. On the contrary, Bilibili's live broadcasting is more of a natural extension of our current video platform. As our user grow into a bigger scale, our live broadcasting categories have actually naturally expanded.
That includes the VTuber content categories that we talked about and also games and other entertainment, live broadcasting categories. So in the past, we haven't spent a lot of money in poaching big live broadcasting host or spending too much marketing dollars to promote our live broadcasting business. However, we're still being able to achieve a relatively very sustainable live broadcasting growth. So in terms of the yields related income in the past, indeed, with a portion that has been relatively fast
growth.
So because Bilibili has a very healthy user ecosystem, that's the major reason that attracts 1 or more guild to come to our platform to work with us. So in terms of the revenue sharing with guilds, because in the very beginning, the reason that we are introducing or welcoming guilds is to achieve sustainable growth, not to drive our revenue to a spike in the shorter term. So in the first, we set up our revenue split with Gilt is at a relatively healthy and sustainable level.
Your next question comes from the line of Daniel Chen from JPMorgan. Please go
ahead.
I will translate myself. My question is on the game business outlook for 2020. So firstly, could management elaborate on what's our expectation for our key current gains in 2020, including such as FGO? And secondly, what's the key games we have in the pipeline? And what's the schedule for launch in 2020?
Thank you.
So in terms of FGO, we are happy to share that FGO is still at a very healthy state. As we mentioned during the earnings call that AppGio in the 3rd quarter has reached number 1 in China's ILS top grossing chart. And we're delighted to see the full year 2019 FGOs grossing has maintained relatively stable level compared to last year. So in terms of the future performance of our game business, we remain very confident. That is to number 1, the macro environment.
First of all, there are still a lot of younger players couldn't find ideal titles that's suitable for their gameplay and their preferences. And secondly, according to the latest iResearch report, the China's ACG game market is forecast to be reached RMB 62,000,000,000 by 2020. That is more than doubled compared to the market size we have this year. So we have the growth of the market and growth of the demand. That's number one reason.
And according to our internal research, about half of our existing user will actively search for games that they wanted to play. And as we further expand our user base, we are very likely to get the largest audiences, game lovers in China. That is a very, very ideal user base, best positioned for future game growth. So there are 2 things we're going to focus on. 1 is to increase our content supply, our game supply.
Number 2 is quickly expand our user base. As long as we are achieving that 2 steps, we're very confident about our future growth. So as you may have noticed that we have over 30 exclusive license pipeline. And among those 30, 8 of those already have a permit to release and that includes Girl Cafe Gone 2 that will be released today and the Furious Yama that will be released in the next 2 months. So both of the titles has gained a very positive review internally.
We believe these two titles will become a milestone of our future game revenue growth. And another thing to notice to call out is in terms of domestic game pipeline, we have drastically improved our pipeline in that category relatively compared to 2017, where majority of our pipelines are imported games. This is very positive for number 1, game approval perspective. And second, it's very beneficiary to for us to further expand our overseas market outside of Mainland China. We can promote these titles in more regions.
So all above, that gives us very good confidence to further grow our game business.
Okay.
And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing remarks.
Thank you once again for joining us today. If you have further questions, please contact myself, Julie Yang, Bilibili's Senior IR Director or TPG Investor Relations. Our contact information for both IR in China and in the U. S. Can be found in today's press release.
Have a great day.