Bilibili (Minutes): In the AI era, the value of "content is king" will further increase

The following is the minutes of Bilibili's Q4 2024 earnings conference call. The financial report interpretation can be reviewed in "Bilibili: A Moment of Revaluation for Chinese Concepts, Not Falling Behind is Winning?"

1. Important Financial Indicators & Management Report

1. First Profit Under GAAP: Previously, when discussing Bilibili's profitability, it was based on Non-GAAP earnings after excluding stock-based compensation (SBC) expenses. However, in Q4, the operating profit under GAAP reached 126 million, with a profit margin of 1.6%, just turning positive. Therefore, adding back approximately 4 percentage points of SBC expenses, the adjusted net profit is 450 million, with a profit margin of 5.8%, showing further improvement compared to Q3.

Profitability relies on high growth in games and advertising, both of which are essential as they are high-margin businesses. Additionally, operating expenses have been relatively restrained, with continuous optimization of the expense ratio.

Regarding expectations for profit improvement, management is quite confident, projecting a long-term gross margin of 40%-45% and an operating profit margin of 15%-20%.

2. Traffic Continues to Grow Slowly: The growth rate of monthly active users continued to slow in Q4, slightly below expectations. The DAU/MAU stickiness remains at 30%, with an average daily user duration of 99 minutes in Q4.

However, according to QM data, unlike Bilibili, the growth of Xiaohongshu's user base continues to soar, further widening the gap compared to Bilibili.

3. A Game "Three Strategies" for Many Years?: Q4 game revenue achieved a high growth of 79%, primarily driven by "Three Strategies." Based on deferred revenue and third-party data estimates, out of less than 1.5 billion in revenue for Q4, "Three Strategies" accounted for 800 million, more than half, but showed signs of weakening compared to Q3. The newly launched "Jujutsu Kaisen" in November performed mediocrely, with an estimated monthly revenue of only 100-200 million.

The base dividend of "Three Strategies" can still be enjoyed once more in Q1 but will be completely diminished afterward. The lack of new hit games this year is the biggest concern for the market regarding Bilibili. Last quarter, management mentioned that this year's gaming work mainly focuses on the international release of "Three Strategies" and the release of another type of game, but relying solely on these two may still put pressure on this year's gaming growth.

4. What Will Drive High Growth in Advertising Next Year: Q4 advertising revenue grew by 23.8% year-on-year, a high growth rate as expected, mainly benefiting from e-commerce advertising during the shopping season, game advertising, and AI-related application advertising.

Additionally, as mentioned by Dolphin Research last quarter, the upgrade of the advertising system should not be overlooked, especially during the e-commerce peak season, where content creators are strongly motivated to purchase traffic from the platform to expand video exposure 5. Live streaming has dragged down value-added subscriptions: The revenue from live streaming and premium membership subscriptions grew by 7.9% year-on-year in the fourth quarter, but the growth rate continues to slow under a high base. However, the number of premium members has recovered this quarter, so the potential drag should mainly come from live streaming.

In fact, Bilibili started live streaming in the second quarter of 2023, and it began to show results in the second half of the year. It is currently in a high base period after the early dividend phase, so some base pressure is expected in the next quarter.

6. Significant improvement in cash flow: Both gaming and advertising are good at generating cash flow. In the fourth quarter, Bilibili's cash, deposits, and short-term investments increased to RMB 16.5 billion. After deducting short-term debts of RMB 1.57 billion, the net cash is RMB 15 billion, an increase of RMB 4 billion compared to the third quarter.

7. Share buyback plan

On November 14, 2024, the company announced that its board of directors had approved a stock buyback plan to repurchase up to $200 million of publicly traded securities within 24 months. As of December 31, 2024, the company had repurchased approximately 840,000 ADS under this plan, at a total cost of $16.4 million.

8. Convertible note buyback

In November 2024, the company completed the tender offer for the repurchase of its 0.50% convertible senior notes maturing in December 2026 ("December 2026 Notes"). A total principal amount of $419.1 million (approximately RMB 3.01 billion) of the December 2026 Notes was validly submitted and repurchased for cash consideration of $419.1 million (approximately RMB 3.01 billion). After this transaction, the total outstanding principal amount of the April 2026 Notes, the 2027 Notes, and the December 2026 Notes is $13.4 million (approximately RMB 96.4 million).

9. Performance guidance

The company expects its advertising business to maintain a growth rate above the industry average in 2025.

Gross margin is expected to improve in 2025, with a long-term target of 40% to 45%.

10. Artificial intelligence strategy

The rise of open-source models like DeepSeek has opened new frontiers for innovation, allowing the company to bypass the demanding and capital-intensive process of developing models in-house and instead develop and implement solutions in a cost-effective manner.

The combination of artificial intelligence and high-quality content is seen as a powerful opportunity, with Bilibili uniquely positioned to unlock the value of large language models due to its high-quality video content and data assets.

The evolution of large language models requires high-quality data assets to unlock their value, and Bilibili's continuous generation of high-quality video content and real-time user feedback provides opportunities for the company's future development in AI.

The emergence of open-source and cost-effective AI models (like DeepSeek) enables Bilibili to better leverage low-cost AI models. Bilibili's data assets, including high-quality comments and bullet chats, can be used to train AI models. The company plans to further leverage AI to unlock and discover the value of its data assets. II. Analyst Q&A

Q1: We have already seen comprehensive profitability achieved in 2024, what is the strategy for 2025? Additionally, there are many opportunities in the AI field right now, how should we think about the integration of AI with community platforms?

A1: First, it is important to note that we have indeed reached a very significant milestone in 2024, which is achieving comprehensive profitability. We set a timeline for profitability back in 2022, with the goal of achieving Non-GAAP profitability by 2024. Now, we are pleased to see that not only did we achieve Non-GAAP profitability in the fourth quarter of 2024, but we also achieved GAAP profitability, completing this milestone ahead of schedule.

In 2025, we will continue to adhere to the "content + community" development model. Currently, we have entered a profitable state and achieved a positive business cycle, making business our new engine for growth. We will aim for the healthy and sustainable development of the community as our long-term goal. On the execution level, we will maintain our growth momentum in 2025 and further improve our gross margin.

When discussing the development strategy for 2025, we reflected on a question: why can Bilibili continue to grow? From the user's perspective, high-quality content is Bilibili's irreplaceable positioning, and it is also a key reason for users' long-term use of Bilibili. Therefore, when discussing subsequent strategies, we believe that high-quality content must be at the core of all strategies, and we believe that high-quality content can transcend cycles; it is our ticket to enter the next AI era.

I would like to elaborate on the perspective of high-quality content from three aspects:

(1) The value of high-quality content in PUGC. Currently, we are in an era where opening any app or platform reveals videos; the video traffic dividend has ended, and users do not lack for videos to watch. However, users still crave better videos. Therefore, we believe that the future opportunities in the video field lie in the quality of content rather than quantity, and this is precisely Bilibili's stronghold. If you ask Chinese users which video platform has the highest video quality, I believe the vast majority would mention Bilibili. Bilibili has the most dedicated content creators in the industry and the community users who understand high-quality content the best.

Thus, we believe that in the next era, Bilibili's positioning of high-quality content will be more attractive and valuable. For example, we have a content creator called "Food Dao," who produced a food documentary series called "The Comedy of Humanity." Due to Bilibili's own production of many other documentaries, this series has already achieved annual revenue of tens of millions. What many may not know is that this series has become the most profitable documentary in China, and it was produced by a content creator. This is enough to illustrate the potential of high-quality content and the support from users for high-quality content—users are willing to pay for the high-quality content produced by content creators.

(2) The combination of high-quality content and self-produced IP. I believe everyone was shocked by "Black Myth: Wukong" last year and is now astonished by the box office of "Ne Zha 2." This actually reflects a trend, that in a saturated content environment, users' demand for high-quality content is more concentrated, and Bilibili is no exception For example, our self-produced national animation work "A Mortal's Journey to Immortality" has become the highest in terms of total views and membership revenue on the platform, and it has been continuously updated for 5 years. Bilibili itself started from animation and comics, and ten years ago, I wouldn't have believed that the highest-viewed and highest-revenue animation on Bilibili would be a cultivation work, but looking back now, it seems quite reasonable.

"Journey to the West" itself is also a cultivation-themed work, which has a deep user base in China. Therefore, I believe now is the right time for quality content to gain more returns. If we continue to invest, I believe that in the coming years, including Bilibili, there will definitely be more high-quality self-produced content emerging in China, and we will see similar high-quality long-form self-produced works like "One Piece" and "Naruto."

(3) The combination of quality content and AI. Since two years ago, the sudden acceleration of AI development has brought us many surprises and shocks. In this process, the value of quality content on Bilibili will be reflected in another aspect. AI needs good content or corpora, and Bilibili is considered the largest Chinese video corpus in the world, and this content is of high quality.

With the continuous development of large language models, there is a growing consensus in the industry: the current progress of AI large models is not primarily limited by computing power and algorithms, but by the excavation of quality content and corpora. The content and corpora generated by humans over thousands of years have been gradually absorbed by AI, and Bilibili happens to be a place that can continuously produce high-quality content. Therefore, the potential for Bilibili to combine with AI will increasingly manifest.

In addition, in terms of content, we have another advantage: in addition to having the highest quality Chinese videos on the internet, Bilibili also has high-quality user comments and bullet chats. These comments and bullet chats are the best annotations for video content, as they are generated daily by millions of users.

Therefore, I believe Bilibili is a gold mine of corpora and content, especially with the emergence of cheap and open-source large models like Deepseek, we can say that Bilibili has very sufficient conditions for excavating the value of quality content. In the past few months, we have conducted some small internal experiments, and the results have been surprising. In the future, we will report on our achievements in AI applications every quarter, and we ask everyone to stay tuned.

Q2: The company's advertising business achieved very impressive results in 2024. I would like to ask the management, what are the main drivers of growth for the advertising business in 2024? What is the trend for the advertising business in 2025? What are the highlights and focus areas for the advertising business in 2025?

A2: In 2024, our advertising business indeed achieved good results. The annual revenue approached 8.2 billion yuan, a year-on-year increase of 28%, achieving industry-leading growth. Among them, the high-margin performance advertising revenue increased by more than 40% year-on-year. The gross profit margin of the advertising business for the whole year has significantly improved compared to 2023, which has also driven the overall gross profit margin of the company to increase We believe that the essence of the growth in advertising business lies in Bilibili's uniqueness. First, we have a high-value young user base; second, Bilibili has a recognized advantage in high-quality content. These two unique aspects make us an important platform for premium advertisers to place their ads. Especially in 2024, our users' average age will reach 25, a demographic that is experiencing rapid growth in consumption demand. Therefore, this is also an important reason for the growth of our advertising business. In our communication with advertisers, we received two pieces of feedback: First, Bilibili is the most suitable platform to help advertisers communicate with young people; second, Bilibili is the platform that can most influence young people's deep consumption decisions.

In 2024, we also achieved significant results in implementing the "one horizontal and N vertical" commercialization strategy.

"One horizontal" refers to the platform's product capabilities. In 2024, the number of advertisers on Bilibili increased by more than 30% year-on-year. In terms of ad placements, over 65% of the advertising revenue in the fourth quarter was driven by the Huohuo merchants, while a year ago this figure was only 50%. It is particularly worth mentioning the application of AI technology. The AIGC (AI Generated Content) tools we developed, such as Ai-Seed, are used for generating and optimizing advertising materials, and the results are very significant. Currently, ads generated with the help of AIGC tools account for more than 10%, and the effectiveness of optimizing cover titles for ad click-through rates is stronger than ever.

Next, I would like to talk about the "N vertical" part. In 2024, we successfully secured more advertising budgets in advantageous industries and attracted more advertisers from emerging industries. For example, gaming has always been a strong industry for Bilibili. Based on consolidating existing gaming advertising budgets, we continued to gain more advertising budgets from emerging mini-games last year. Currently, we are testing Bilibili's mini-program, and user feedback has exceeded expectations, so we believe this area will continue to bring growth potential in 2025.

Another example is the e-commerce sector. Over the past few years, we have been deeply engaged, adhering to the "big open loop" strategy, and maintaining long-term in-depth cooperation with major e-commerce platforms. During the 2024 Double Eleven period, our overall GMV grew by more than 15% year-on-year, and the new customer rate brought to major e-commerce platforms exceeded 50%. In the current fiercely competitive e-commerce environment, this is a very rare figure.

In the digital home appliance sector, due to the strong consumption demand for digital products among young people, as the average age of users reaches 25 in 2025, they will gradually develop a demand for home appliance consumption. Therefore, combined with this trend, along with the policy dividends of national subsidies in the home appliance industry in the fourth quarter of 2024, digital home appliance advertising contributed the most incremental growth in the fourth quarter of last year. This is a summary of our competitiveness in the advertising business in 2024 and the achievements in various fields.

You should be able to feel that the advertising industry is a highly competitive field that heavily relies on hard power. Therefore, in 2025, we will solidly enhance our competitiveness and continue to deeply implement the achievements of our work in 2024. I hold an optimistic and positive attitude towards the development of Bilibili's advertising business in 2025 and am confident that we will continue to maintain growth above the industry average in 2025 Q3: The company's gross margin reached 36% in Q4 2024. How do you view the trends of gross margin and net margin for 2025 and the medium to long term? Additionally, regarding the gaming business, especially "San Mou," with S6 about to launch, what is the management's outlook on the performance of this game and 2025? What are the key game launch plans in the future?

A3: Regarding profit margins, the company's gross margin reached 36% in Q4 2024. We are satisfied with this achievement, which reflects our good performance in business growth and cost control. Looking ahead to 2025 and the medium to long term, we believe that with the continuous optimization of the company's business and improvement in operational efficiency, both gross margin and net margin are expected to maintain a stable growth trend. We will further enhance the company's profitability through refined management and technological innovation.

In terms of the gaming business, especially "San Mou," I would like to first review our positioning and goals for this game. Last year, when discussing "San Mou," we clearly stated that long-term operation is the most important goal for this game. We require the team to maintain a high-quality and stable operation cycle of at least 5 years, and this goal remains a top priority for our work on "San Mou."

From the performance of the first five seasons of "San Mou," the team has basically met our requirements. In terms of user activity, user retention rate, and revenue generation, "San Mou" has remained at the forefront of the industry. Therefore, we are confident that in the next five years, "San Mou" will continue to contribute good performance to the company and maintain stable operational results.

(1) On one hand, SLG (strategy role-playing game) itself is a track that can achieve long-term operation. Among similar products, "San Mou" has a good retention rate and user return rate. We have previously asked the team to make "San Mou" a game that allows users to play for a long time.

(2) On the other hand, long-term operation has always been Bilibili's philosophy. We not only have the determination for long-term operation but also possess the corresponding experience and capability. For example, "FGO" achieved double-digit year-on-year growth in revenue even after 9 years of operation in 2024; "Azur Lane" has also maintained a year-on-year increase in revenue as it enters its eighth year. Therefore, we believe we can also make "San Mou" a game with an ultra-long cycle.

(3) Additionally, as a new game, "San Mou" has only been online for half a year, and we place great importance on listening to players' feedback on the gaming experience. In this regard, the team's performance has been outstanding, being praised by players as "the team that listens to players the most." Based on player feedback, we actively incorporate suggestions and continuously optimize and adjust the game. For example, in the upcoming sixth season starting this weekend, we will introduce many improvements designed based on player feedback, including new maps, new strategies, new skins, and the introduction of a weather system to enhance the game's fun.

At the same time, we have already begun designing for the anniversary celebration in June. In the anniversary season, we will launch some major content to further enrich the game's playability and provide players with more enjoyment. We will continue to work hard in this area In addition to enhancing game content and gameplay, we will actively promote multi-platform development in 2025, allowing players on different platforms to experience "Three Strategies."

In the fourth quarter of 2024, we have launched the PC version, enabling players to enjoy "Three Strategies" on their computers. In 2025, we will successively launch more scenarios and platforms. In the second half of the year, our main plan is to release the Traditional Chinese version of "Three Strategies." Due to the differences in the gaming environment domestically and internationally, especially in Hong Kong, Macau, and Taiwan, which have their own unique gaming atmosphere and ecology, we will adapt and transform for the Traditional Chinese regions, striving to create an SLG game that is loved by local young people.

Q4: How to continue expanding the user base and brand influence? What about the effects of the Spring Festival Gala collaboration?

A4: First, I would like to talk about the Spring Festival Gala collaboration, and then extend from that to how we can expand our brand influence and user base. In 2024, we collaborated with CCTV for the first time, becoming the exclusive bullet screen live streaming platform for the Spring Festival Gala.

At the same time, CCTV opened a Spring Festival Gala account on Bilibili and uploaded exciting content from the past 42 years of the Spring Festival Gala to Bilibili, which sparked enthusiastic responses from users. As a viewer in my 40s, I have watched the Spring Festival Gala for over 40 years. When CCTV uploaded all the excellent content from the past 42 years to Bilibili, combined with the bullet screens from young viewers, I discovered many new highlights, and the experience was very good. This collaboration with the Spring Festival Gala achieved our expected goals.

Several key data points:

(1) On New Year's Eve, during the live broadcast of the Spring Festival Gala, Bilibili's DAU (Daily Active Users) increased by 20% compared to New Year's Eve 2023. As a platform with over 100 million DAU, an event that can increase the entire platform's DAU by 20% is undoubtedly a success.

(2) Because we adopted the bullet screen live streaming format, bullet screens became an irreplaceable interactive method for Bilibili users. During the live broadcast of the Spring Festival Gala, the number of bullet screens exceeded 100 million. Many users came to Bilibili to watch the live broadcast of the Spring Festival Gala just to send bullet screens.

(3) The Spring Festival Gala is undoubtedly high-quality and unique content. After the live broadcast, all programs were uploaded to Bilibili as video content, and the bullet screens and discussions below these videos were very exciting. Many users came to Bilibili to comment on individual program videos of the Spring Festival Gala, and of course, many others came to see other people's comments. This further proves that Bilibili can effectively host high-quality content that appeals to the public, as long as the content is of sufficient quality.

(4) Bilibili is a multi-screen, multi-scenario product, particularly suitable for family-friendly content. The Spring Festival Gala is high-definition live content, very suitable for presentation on large screens. Through this collaboration with CCTV, we found that the number of users on the TV large screen exceeded expectations. We have established a strong user mindset in the living room scenario, and we believe this advantage will continue to be maintained in the future.

It is particularly worth mentioning that Bilibili users may have noticed that there is a program in the Spring Festival Gala called "Spring Red Packet," which is actually an original song from Bilibili's 2017 New Year Festival, and this time it appeared on the Spring Festival Gala as Bilibili's self-produced content, becoming a phenomenon-level program. The program achieved a total online viewership of 560 million, topping 183 trending lists, with exposure exceeding 1 billion. This is a great case that proves Bilibili not only can produce high-quality content but also can distribute this content to larger platforms.

In summary, the collaboration with the Spring Festival Gala was a very successful attempt. Bilibili attracted young audiences to the Gala through this partnership, while the Gala also enhanced Bilibili's national popularity. This collaboration not only achieved user growth but also further promoted brand expansion, demonstrating that Bilibili can effectively handle high-quality content that appeals to the general public. From both the results and the training process, this is a successful project.

So, how can we extend the insights from the Spring Festival Gala collaboration to expand Bilibili's brand influence and user base? In fact, the Gala is a typical case. For a long time, an important means for Bilibili to expand its brand influence and user base has been through major event initiatives.

For example, our annual New Year's Eve gala is an important milestone for expanding brand influence and attracting new users. By consistently hosting a successful New Year's Eve gala, we can continuously achieve brand expansion and user growth. Similarly, during graduation season, we hold related activities every year, which is also an important periodic milestone.

This collaboration with the Spring Festival Gala is also an important attempt during the Spring Festival period. In the future, you will see us implementing more excellent cases during important milestones such as the summer vacation. We will continue to apply this methodology to expand brand influence and user base.

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