Good day, and welcome to the Bilibili 2019 First 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 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 the risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and in 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 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 reconciliation of GAAP to non GAAP financial results, please see the 2019 Q1 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 Bilibili's 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 read 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. We have started the year off with strong first quarter results. Our total revenues reached RMB1.37 billion, representing growth of 58% year over year and beating the high end of our guidance of RMB1.29 billion.
We have also achieved 2 exciting milestones on the user front. Our total MAUs grew 31% year over year and surpassed 100,000,000 for the first time, reaching 101,300,000. Our MAU mobile MAUs accelerate even more, increasing by 39% year over year, reaching 88,600,000, including a total 3,200,000 mobile MAUs from our Bilibili Comic app and the MAU app and audio drama platform, which we acquired in December 2018. Our DAUs also reached a milestone of 13,000,000 in the Q1, demonstrating the heightened stickiness of our growing community. Based on our high quality content and unique community experience, Bilibili is becoming a must have among our primarily audience of J and D users.
This generation readily pays for premium content, more so than any other generations. With this in mind, we are actively exploring ways to satisfy their diverse entertainment needs and expand our paying user group. Our initiatives with our high quality PUGV and OGV content, exciting mobile game portfolio, comic app and audio and e sports lines are continuously acting, attracting and converting our massive community of users to new paying users. In the Q1, our average monthly paying users grew 132% year over year to 5,700,000, laying a solid foundation for further monetization opportunities. I will now review our Q1 results through the lens of our 3 key metrics: content, community and commercialization.
Content remains the cornerstone of our business model and our ever growing PUGV ecosystem continue to be our leading source of content creation, accounting for 89% of our total video views. In the Q1, we had an average of 732 1,000 active content creators, uploading 2,100,000 videos monthly, representing increase of 150% and 130% year over year, respectively. Engaging and incentivizing these content creators remain one of our key tasks. We continue to introduce new functions and improve our product design to make content creation more streamlined and user friendly. For example, the mobile content submission function is playing a large role in attracting new creators by enabling easy uploads with just a few finger strokes anytime, anywhere.
We have also launched a number of programs to reward ingenuity and inspire creative content through monetary rewards and healthy competition. In January of this year, we heard Bilibili Power UP 100, an award ceremony to celebrate and give wider recognition to these important contributors in a number of categories. In tandem with PUGVs, we continue to invest in high quality OGV content to broaden our user base and attract more premium members. We do this with 2 key strategic approaches. First, we licensed premium content from leading content producers.
For example, in March this year, we have announced the partnership with Funimation, a subsidiary of Sony Pictures Television to acquire premium Japanese anime IP for global distribution. 2nd and most importantly is to jointly or self produce original content in anime, documentaries and variety shows. Where we benefit from a relatively low content cost and owned IP. On the anime side, we continue to strengthen our leadership by producing dozens of high quality domestic animation projects, including Linglong, a highly anticipated sci fi anime series, which will be released in June. On the documentary front, beside a number of well received documentaries in handcraft, food and historic, we welcome season 2 of our self produced hit food documentary, The Story of Char this summer.
In addition to select TV and movies, we introduced our 1st self produced pet reality show, Animal Hospital, early this month. This new series is already resonating well with many pet lovers on Bilibili. Our partnership with market titans such as Tencent and Alibaba are also well underway. With Tencent, we have already exchanged a number of domestic animation copyright and jointly working on new anime related projects. We have also launched a number of Tencent games on our platform and have gained considerable traction, including with our exclusive license of Unheard in collaboration with Tencent Next Studio.
This story driven audio drama game with exciting puzzle elements is resonating well with fans, selling more than 115,000 copies in just 1 week. Our partnership with Taobao is also progressing. In the Q1, the 1st batch of Bilibili's outcome equators began producing content and attracting followers on Taobao's e commerce platforms in preparation for the next stage of the commercialization process. We believe our content creators have great commercial value, particularly in e commerce. Our partnership with Taobao will help us and help those content creators to realize and improve their commercial value on both platforms.
There remains tremendous opportunity for growth in the ACG market. As the industry leader, we continue to invest in and develop premium content in a number of ACG areas to expand and diversify our reach. In late 2018, we acquired a majority interest in Maoer Inc, a platform that offers audio drama. We also launched our 2nd mobile application Bilibili Comic to better address our core user group interest for premium content Comic content. Both our new Comic and audio platforms are already contributing to our top line.
Virtual Idols and VTuber related live broadcasting is another engaging business getting more popularity among young generations. With a number of investment and business initiatives underway, we are pioneering these relatively uncharted areas of entertainment. In February of this year, we had a concert for our virtual idol Luo Tianyi, featuring top planet, Lan Lau in Shanghai. This essential event combined 2 distinct entertainment genres of classic music with modern virtual idols, marked the first gathering of its kind. I'd now like to look at our 2nd pillar, community.
As we welcome the more users to our platform, our community engagement levels were higher than ever, once again showing the quality of our growth. In Q1, users spend a daily average of 81 minutes on our platform, up by 5 minutes compared to the same period a year ago. This measure includes the time users spend on our mobile games, audio and comic products. Our co user group official members who have passed our community entrance exam is also on the rise, increasing by 39% year over year to 49,300,000 by end of Q1. These users not only tend to be the most active and engaged with our content and each other, but are also more like to purchase premium content.
Their 12 month retention rate remains at about 80%. On the engagement front, during the Q4, our user generated 514000000 daily views and 1,400,000,000 monthly interactions through bullet charts, comments, likes and Bilibili Moments posts, up 93% and over 3 60% year over year, respectively. Active interfaces among our community further engage our content creators to produce more content. Over 40% of our MAUs now visit our Bilibili Moments function, all of which promote our growing community and help to raise Bilibili's profile on our core demographic of JMB users. With that overview of our content and community, I'd now like to review the progress we have been making with our commercialization strategy.
In the Q1 of 2019, revenues from mobile games grew 27% year over year to RMB873 1,000,000 led primarily by FateGrand Order or FGO. FGO's parent led to chase its new heights in the Q1 with a major content upgrade, Chapter 2.0 revealed in early February. Earlier this month, we also jointly launched 2 highly anticipated ACG themed mobile games, Arknights and RWBY, both of which are gaining good traction. Our pipeline of games for the year is also strong with a number of new games in our release lineup. Our currently high regulatory approval for our exclusively licensed game, Band Dream, a highly rated Japanese music RPG in the Final Gear and exciting domestic RPG, which will be released in May July, respectively.
On the jointly operated game front, we are looking forward to bring ACG themed mobile games, The Legend of Heroes, Trails of Stars and the mobile game, The Legend of Heroes, Akatsuki to our users in coming quarters. As we roll out more premium game titles, we are confident that we can satisfy more users pent up and diversify demands. Our live broadcasting and the VAS revenues increased by 205% year over year to RMB292 1,000,000 in the Q1 of 2019, with contribution from both our live broadcasting business and premium memberships. The initiatives we began in 2018 to diversify our live broadcasting content is helping us to expand into new genres and grow our paying user group base. We continue to enlarge our game related offerings in PC, mobile, console and e sports content.
These include top matches in League of Legends and Overwatch League Championships. Notably, our e sports team, Hangzhou Spark, won over millions of fans globally for their brilliant performance in 2019 Overwatch Championship. So far, they have already made to top four position in the stage 2 playoffs, which was the best performance Chinese team have ever achieved. Meanwhile, we are also curating unique content and perfectly fit Bilibili users' entertainment preference, VTuber, audio and ACG related talent shows are top categories gaining traffic and converting paying users. In the Q1, we had 11,400,000 valid MAUs who visited live broadcasting room pages for over 5 minutes.
1,200,000 users pay for live broadcasting services at least once during this period, which is up 139% year over year. Our premium membership program is paying users access to advanced or exclusive content and continues to bring in new subscriptions. By the end of March, we had recorded 3,800,000 valid premium members, up 95% year over year. Turning to our advertising business, revenues for advertising increased 60% year over year to RMB112.5 million in the Q1 of 2019. Our unique platforms offers considerable traffic advantages and our performance based advertising continues to grow.
The top 3 industrial verticals for brand advertising in the Q1 were digital products, games and skincare and cosmetics. And the top 3 verticals for performance based advertising were games, education and Internet services. And finally, our e commerce and other revenue stream also continued to grow, reaching RMB96 1,000,000 in the first quarter, an increase of 6 21% from the same period in 2018, largely due to our expanding e commerce platform product sales. We are highly focused on strategic growth through leading content creation that brings our community together, as well as continued monetization with a solid game pipeline, strong user growth and excellent traction with our live broadcasting and VAS business as well as positive momentum with our newer comic and audio offerings. We are confident in our ability to attract even more users to our robust online entertainment ecosystem and further grow our business in 2019.
This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the Q1 of 2019. Our total net revenues increased by 58% year over year to RMB1.4 billion. Our non GAAP revenues accounted for 36% of total revenues in the Q1, up from 21% in the Q1 of 2018.
We are pleased with the progress of our commercialization strategy And the average number of monthly paying users more than doubled year over year in the Q1 of 2019, reaching 5,700,000. Cost of revenues increased by 81 percent to RMB1.2 billion, compared to RMB655 1,000,000 in the same period of 2018. Revenue sharing cost, a key component of cost of revenues was RMB552 1,000,000, representing an increase of 65% from the same period in 2018. Gross profit was RMB189 1,000,000 compared to RMB230 1,000,000 in the same period of 2018. Our gross profit margin was 13.8%, primarily due to increases in content cost, staff cost and the brand wide cost, which were primarily reflecting continued user expansion as well as lower revenue contribution mix from our higher margin game business.
Total operating expenses increased to RMB496 1,000,000, representing an increase of 73% from the same period of 2018. S and M expenses were RMB182 1,000,000, representing 130% increase year over year. The increase was mainly primarily attributed to their increased channel and marketing expenses associated with Bilibili's app and the brand as well as promotional expenses for the company's mobile games and the increase in Hong Kong in selling and marketing personnel. R and D expenses was RMB186 1,000,000, representing a 76% increase year over year. The increase was primarily due to increased headcount in R and D personnel and other increased R and D expenses for online games, apps development and the virtual idol business.
G and A expenses were RMB129 1,000,000, represented 25% increase year over year. The increase was primarily due to increased G and A personnel related expenses and increased amortization expense related to intangible assets acquired through business acquisition, partially offset by the decreased IPO related one time share based compensation costs. Loss from operations was RMB307 1,000,000 compared to RMB74 1,000,000 in the same period of 2018. Investment income was RMB82 1,000,000 representing an increase of 2 22% from the same period of 2018. The increase was primarily due to the gain arising from the disposal of an equity investment during the Q1 of 2019.
Net loss was RMB196 1,000,000 for the Q1 of 2019 compared to RMB58 1,000,000 in the same period of 2018. Adjusted net loss, which is a non GAAP measure that excludes share based compensation costs and amortization expenses related to intangible assets acquired was RMB145 1,000,000 compared to RMB3 1,000,000 in the same period of 2018. Basic and diluted net loss per share were RMB6. Adjusted basic and diluted net loss per share was RMB0.44. As of March 31, 2019, we had cash and cash equivalents as well as time deposits of RMB3.5 billion compared to RMB4.3 billion as of December 2018.
In April, the company completed offering of US500 million dollars in aggregated principal amount of convertible senior notes and the concurrent offering of 14,000,000 ADS at $18 per ADS. The company received a total of approximately 7.30 $4,000,000 of net proceeds from the offering. After deducting the underwriting discounts and the commissions and estimate offering expenses payable by the company. The company plan to use the new proceeds for enriching content offering, investing in research and development and other general corporate purpose. As we look ahead, our financial goals are to further grow our business and improve our operation efficiency.
With that in mind, we are currently projecting net revenues for the Q2 of 2019 to be between RMB1.45 billion and RMB1.49 billion. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Hillman Chen from Citigroup. Please ask your question.
Results. My first question is regarding the content strategy. Could you provide more color on the content cost for license and self produced video content for anime as well as the for the comic content? And how should we think about the gross margin in 2019 2020, please? And my second question is regarding the e commerce and Taobao Corporation.
Could you share more with us the operating metrics, some of the financial contribution right now? And how should we think about the growth strategy in coming few quarters on operations monetization, please? Thank you very much.
Okay. So Hillman, Carly will take the first question on the content expenditure. So first of all, we'll continue to execute our strategy in continuing spending on the high quality OGV content. And all of the strategy is viewed on our ever growing PUGV ecosystem, while investing certain verticals that we are specializing and echo with our user group. So as for the OGB expenditure, we'll be mainly focused on the self produced content categories.
The reason why we choose that path is, first of all, that will help us to increase our premium membership sales. And more importantly, we'll gain more of a big value on the long tail IP that the long tail IP value that bring it to us. And all of our strategy will be focused on that. So on the premium membership front, we noticed the annual package ratio or monthly automatic renewal ratio are extremely high. And we'll also be focusing on trying out different initiatives to unlock the value of those IPs.
Okay. From the financial side, we already guidance that the content cost will be around about 50% of total revenues. And we still maintain those kind of outlook. And if you compare with the revenue from our membership and the percentage for the amortized content cost is around 60%. So it's pretty much healthy for the company.
So we'll keep this kind of investment.
So as regard for your second question, the collaboration with Taobao, because the first batch of our content creator only have entered the Taobao ecosystem for just a year on month. So we currently don't have many detailed operation data to share. So as for the commercial helping our content creator to unlock their commercial value and the partnership with Taobao, we will definitely have some number to share by end of this year. So on the top line contribution front, we don't see any significant contribution with the Taobao partnership this year. We value the partnership because it's creating a healthy circulation of merchant, merchandise and content creators on both platforms.
That's very positive for both of our ecosystem.
Thank you. Our next question comes from Natalie Wu from CICC. Please ask the question.
Hi, thanks for taking my question and congratulations on a very solid quarter. My question strategy of your live broadcasting initiatives at this year. More specifically, it would be great if you can give us some update on your VTube initiatives, including revenue contribution, margin profile, as well as the difference between this model and traditional live broadcasting model you have observed in your past operation. I will translate myself briefly.
So we think for our company, live broadcasting was never just a business line that's contributing revenue. It's more of ability because live broadcasting as a content format plays an important role in our overall content ecosystem. So there are 3 key characteristics with our live broadcasting business. First of all, our users that's watching all this recorded video are the same set of audiences that potentially could be our live broadcasting users. And the categories also mirror to formats of content.
We have also released the number of valid MAU for our live And we also think this number will continue to increase. And second of all, majority of our live broadcasting host are also content creators on Bilibili platform. In the first quarter, actually over 50% of the valid host have also been our content creators. That gives us a deep pool of access to very fine and high quality potential live broadcasting host. And that is the most important thing for live broadcasting business to ensure that you have a big resource for high quality content And thirdly is our content creators have already formed a big deep connection with their fans on Bilibili platforms.
So for their followers, they have more stickiness and they have more willingness to pay. And they also have stronger sense of belonging and ownership of the community. We believe Bilibili platform will become the most influential content platform for Gen Z And Bilibili live broadcasting will also be the most popular, most influential live broadcasting platform for this generation. So as for certain content categories that we believe we have very strong edge into, for example, games related, esports related, VTubers, we should be able to achieve absolute leadership in those content categories. As for the VTuber subcategory, we have seen very good traction
in the
Q1. So we have over 6,000 VTubers coming from all across the globe who have set up live broadcasting in the Q1 of Bilibili platform and the viewership was over 6,000,000. Okay. Because we are in absolute monopoly in the ACG or in terms of ACG content and we also held absolute leadership in this industry with from the success of VTuber business, we can see that our user have resonated extremely well with this format of content and their engagement, their pain ratio are all of the metrics that are very
high.
So we're confident to keep our leadership in the VTuber content categories. And we believe this very creative format of entertainment has great
potential to grow. Yes. Actually, you know the live broadcasting and Versus, all the revenues are streamer growth very strongly. And for Q1, the live broadcasting contributed about 40% of the total live broadcasting versus revenue stream. So that's for your reference.
Thanks, Rachel and Stan for the detailed answer. Just very quick follow-up. For VTube related live broadcasting, what's the revenue contribution in the Q1?
We don't disclose that number yet. We just started this kind of business. So just as Chen Ren mentioned that we thought that has a great potential to grow in this year. But we actually we can show the first time MAU and the quarterly pay user, so just for your reference.
Yes, that's good. Thanks, Sam.
Thank you. Our next question comes from the line of Kenneth Fong from Credit Suisse. Please ask your question.
Let me translate in English. Congrats on the very strong quarterly results. I have two questions. The first question is related to the games market outlook, especially in the ACG market, given the very strong Q1 results. The second question is the advertising revenue was a bit weaker in the Q1.
We understand that there is some seasonality as well as China macro element in it. So I just want to see what is the management monetization strategy going forward, especially in the video platform? Thank you.
So we stay very positive towards ACG game market, there has been a report research report forecasting that the overall ICG gain market will reach RMB30 1,000,000,000 in 3 years. So from our perspective, this is quite a realistic forecast that we think we can achieve. So there are key 2 key areas we wanted to focus. 1 is definitely on the ACG related games. That is very in line with our user profile and our strength in the operation field.
And second of all, to better adjust our existing user who have high demand, better understanding of specific games. And for those games that requires or in a better, more creative ways, we will introduce those games to our So looking at our pipeline, we have 2 set of pipeline that's satisfying these 2 categories. First of all, the high quality ACG games, we have Band Dream, 2 exclusively licensed games that will be released in coming months, which is Ban Drain and Final Gear. We believe those two titles are very high quality and should resonate well with our users. And second, for to satisfy user with higher demand in creative content format, We also partner with Tencent's next studio launched audio drama puzzle element game called Unheard.
And this game has received very high review from our users and once achieved top 2 in China's theme chart and their top the best review is over 94% if people give a good review. So in terms of games publishing, we think we are at a very advantageous position because we have acquired the core user group for both ACG and for games. And for those categories are the top 5 most popular content categories on our video platform. So as those users are using Bilibili, we are in a very precise environment to collect their data to their behavior on what types of content they're watching, what type of community behavior they have exhibiting, so we can be more precisely recommend the right games to the right user. And also our team has very deep understanding of our users' preferences and how the market is shaping out.
So we're quite confident to stand a very leading position in terms of ACG games as well as those new creative format of games. So in our pipeline, we currently have over 30 exclusively licensed game and hundreds of jointly operated games that pretty much covered all the best quality games that's coming in the next 1 or 2 years. So as per we remain quite confident towards our game business.
Okay. I just want to add one point on Ms. Chen's remarks that our GAAP game revenues in Q2 will be a little bit flattish compared with Q1, mainly because of two reasons. One is that we deferred FGO's cash revenue over 7 months. The FGO cash growth in revenue in Q4 last year are quite strong.
So they will help to blow up the FGO GAAP revenue in Q1. That's mainly the one reason. The second reason is that about contribution from the new games. We may release our 2 new games, Banjoins in end of May and Final Gear, very exciting domestic RPG in July. So that mainly will contribute that the game revenue will be warm up in the second half of this year, not in Q2.
So 2018 actually was groundbreaking for our advertising business. We have viewed our performance base from 0 to 1 and also achieved great growth for our brand advertising. For the Q1, we still achieved 50% year on year growth, while we see a slight decrease in quarter over quarter. So in the Q1, it's a seasonality reason, the brand advertising for the traditional advertising format, it will be a relatively low quarter plus the macro economy headwind, the brand advertising was a little below our expectation. However, our performance based advertising has been performing relatively in line with our expectation.
The ad load, the fill rate, we are continuing to see the increase in fill rate. So on the performance based advertising, we're executing a strategy that's focusing on building a better ecosystem. First of all, on the advertising agency system, we are more focused on the retention, the engagement of our advertising agencies. 2nd of all, we are we will continue to improve our algorithm to improve the efficiency of our performance based advertising, while lowering the conversion cost. Okay.
3rd is to improve the formatting of how we review our performance based advertising advertisement to our So as for the brand performance ads, we'll continue to increase our influence in the overall brand advertisement industry and to attract more premium brand advertisers. We will also provide new and creative integrated marketing solutions that better fit our brand advertising brand advertisers' needs to address Gen Z demographic. At the same time, we'll also continue to penetrate the customer base in our brand advertisement and also improve our ability to do better integrated marketing. So we remain confident that given our group of users that's highly engaged and highly active that will continue to convert more and more advertisers on Bilibili platform. In addition, we'll also try out new initiatives that better fit our community and content to provide value added solutions to our advertisers.
For example, in e commerce industry, we'll also try out new ways to better connect the merchandise, merchant and content. That's all. Thank
you very much.
Thank you. Our next question comes from the line of Zhang Lei from Bank of America Merrill Lynch. This will be the last question. Please ask the question. My first question is about regulation.
Do you see a more touch in the regulation on content and social community and impacts to our community? And when do we expect to launch the addiction prevention system to the teenagers? And second question about Bilibili Comics and AmoR. Do you have any details you can share with us in terms of user overlap with Bilibili's community, user time spent and the paying user revenue contribution for this year? Thank you.
So, first of all, not only just the China government, but all over the globe, the regulatory authorities are becoming are forming more standard control towards Internet content. We think this is inevitable trend that all the Internet companies should adapt and face it right on because right now as Internet penetrated to almost everybody, the regulation of content that we're facing, no matter it's privacy control or team anti addiction control, this is a problem that all the should be facing. So this is a new should be a new norm for the overall industry. So as for Bilibili, we have always given a positive active proactive attitude towards the content control. We have strengthened our overall content audit team guidance towards more positive content on our platform.
As for the teens' anti addiction control, many of you probably heard the news around end of March. And as for Bilibili, we have been actively, spontaneously trying to improve more safety content environment for teams in China. We are developing new versions of our products that better fit the team's usage, no matter on the content, the quality of content and the functionality, we are doing number of measurements to make it a safer environment for them. So as our MAU surpassed 100,000,000, we've analyzed profile, our overall average age of Bilibili users are over 21 years old. Number of users that we own 14% less than 10%, even lesser for paying user proportion.
So all the measurements that we're protecting and providing a safer environment for teen leaders will not have a material impact on our time spent as well as our revenue. So we at Bilibili, we are a true advocate for the teen anti addiction control. And we think this is our social responsibility to provide a healthy positive Internet environment for our youngsters. So Maoer and Comic are 2 new business in our group and both of them are in a relatively early stage. And for those two products, they have the same character, which is they're more paying user oriented.
They are both very professional platform that's providing high quality content that requires pay to view or pay to hear. So you won't see a massive ramp on the overall MAU, but should have a positive impact influence on our overall paying user. Also as for the overall Bilibili ecosystem, this 2 platform provides a very high quality professionally produced content, which will be the source of our IP. So we really value the high quality content on both of the platforms. So we encourage you to be to focus more on the quality of the content, the revenue contribution of those two products and influential IP that's been generated on both platforms including comic and high quality audio drama.
Thank you. And that concludes the question and answer session. I would now like to turn the conference over to management for any additional or closing comments.
Thank you once again for joining us today. If you have any further questions, please contact myself, Julia Yang, Bilibili's Senior IR Director or TPG Investor Relations. Our contact information for both IR in both China and the U. S. Can be found in today's press release.
Have a great day.