Bilibili (Minutes): Reaffirming the long-term operating profit margin target of 15-20%

The following is a summary by Dolphin Research regarding $Bilibili(BILI.US) the Q2 2025 earnings call minutes. For earnings interpretation, please refer to 《Bilibili: After the 'Three Strategies' Game, What's Next?》

I. Key Financial Information Review:

1. Guidance:

a. Management will continue to focus on providing the best PUGV community experience to attract more users and achieve mutual growth. Meanwhile, the company plans to actively invest in commercialization initiatives to drive sustainable profitability.

b. In the future, the company will continue to focus on its unique high-quality content, which resonates strongly with China's Gen Z+ users and serves as the foundation for influence growth and the engine for expanding business opportunities.

c. The company will actively embrace transformative opportunities brought by AI to enhance operational efficiency, optimize user experience, accelerate commercialization, and expand global influence, thereby further solidifying the foundation for sustained growth and long-term profitability.

2. Cash Flow:

a. The second quarter generated approximately RMB 2 billion in operating cash flow.

b. As of June 30, 2025, the company held cash and cash equivalents, term deposits, and short-term investments totaling RMB 22.3 billion (approximately USD 3.1 billion).

3. Shareholder Return Plan:

a. In the second quarter, the company enhanced shareholder returns by repurchasing approximately 5.6 million Class Z ordinary shares (each share equals one ADS) for a total of HKD 783 million or USD 100 million. As of the end of Q2 2025, these shares have been canceled.

b. Under the USD 200 million share repurchase plan approved by the board in November 2024, as of June 30, 2025, the company has cumulatively repurchased 6.4 million shares at a total cost of USD 116 million, with approximately USD 84 million remaining for future repurchases.

II. Detailed Earnings Call Content

2.1, Executive Statements on Core Information:

1. Business Progress:

1) Advertising Business:

- Net advertising revenue increased by 20% year-on-year to RMB 2.4 billion, consistently outperforming the industry average growth rate.

- Through deeper AI integration (including LLM integration and multimodal content understanding), the company continues to advance advertising infrastructure in recommendation algorithms, creative generation, and intelligent ad placement, significantly improving ad conversion efficiency.

- AIGC tools help advertisers generate high-performance creative ads at scale, with approximately 10% of new ad titles and over 30% of splash ads created using these tools in the second quarter.

- Intelligent ad placement tools can allocate, rank, and monitor ad performance in real-time, effectively reducing manual operations and lowering ad spending.

- ECPM (Effective Cost Per Mille) increased by over 10% year-on-year.

- Performance-based ad revenue grew by approximately 30% year-on-year.

- Games, digital products and appliances, e-commerce, internet services, and automobiles were the top five advertising verticals in the second quarter.

- The number of advertisers increased by over 20% year-on-year.

- During the 618 shopping festival, Bilibili brought about a 60% average new customer acquisition rate for advertisers across various industries under the "Bilibili Plan."

- GMV of thousand-yuan products increased by nearly 50% year-on-year.

- During the 618 event, total GMV grew by over 33% year-on-year, and the number of influencers with over RMB 10 million GMV increased by over 60% year-on-year.

2) Gaming Business:

- Gaming revenue increased by 60% year-on-year to RMB 1.6 billion.

- Growth was primarily driven by the new season of the popular SLG game "Three Kingdoms: Strategy Edition" and its strong performance in its first year of launch.

- The company is developing new game seasons, piloting mini-games, and preparing to launch the international version of "Three Kingdoms: Strategy Edition" later this year.

- The company has several ACG and casual games under review, and once approved, they will be brought to the community.

3) Value-Added Services (VAS):

- VAS revenue increased by 11% year-on-year to RMB 2.8 billion.

- Growth was driven by the robust momentum of live streaming, premium memberships, and other value-added services.

- Through refined operations, the gross profit margin of live streaming continued to improve in the second quarter.

- The number of premium members increased to 23.7 million, with over 80% on annual or auto-renewal plans.

- Other VAS products, particularly the charging plan, continued to grow rapidly in the second quarter, with a year-on-year increase of over 100%, indicating more user support for creators and high-quality content.

4) User Engagement:

- Daily active users (DAU) reached a new high of 109 million, up 7% year-on-year.

- Monthly active users (MAU) grew by 8% to 363 million.

- Monthly paying users (MPU) increased by 9% to 31 million.

- The average daily usage time per user increased to 105 minutes, up 6 minutes from the same period last year.

- The number of official members increased by 11% year-on-year to 270 million.

- The 12-month retention rate remained around 80%.

- Offline events like Bilibili World and Bilibili Macro Link attracted a record-breaking over 400,000 participants, up 60% from last year.

5) Content and Creator Support:

- High-quality PUGV content is central to driving user engagement, with viewership of videos longer than five minutes increasing by nearly 20% year-on-year.

- ACG content remains dominant, with strong performance in domestic animation content, with viewership increasing by 34% year-on-year, featuring works like "A Record of a Mortal's Journey to Immortality," "Mu Shen Ji," and "Ling Cage Season 2."

- Game content viewership increased by 21% year-on-year, making it an important platform for game developers to interact deeply with the player community and strengthen IP.

- AI-related content viewership increased by 61% year-on-year, reinforcing Bilibili's role as the preferred platform for Gen Z+ to learn, explore, and utilize AI.

- Consumption-related content categories continue to grow: home appliance content viewership increased by 14% year-on-year, parenting and early education content grew by over 50%, and travel and accommodation grew by 11%.

- In the first half of this year, approximately 2 million creators earned income through various channels on Bilibili.

- Income earned by creators through the charging plan more than doubled in the first half of this year.

- The number of creators monetizing through Sparkle ads increased by 19% year-on-year, and those monetizing through video and live-streaming e-commerce increased by 49% year-on-year.

2.2, Q&A Analyst Questions and Answers

Q: Regarding the user ecosystem, the company's daily active users (DAU) and monthly active users (MAU) accelerated growth in the first half of this year, with average daily usage time continuing to increase. What are the main driving factors? What is the company's outlook for future user growth?

A: The company's daily active users (DAU) grew by 7% in the second quarter, and monthly active users (MAU) grew by 8%. These increases are mainly due to the company's continued focus on providing the highest quality content and fostering a thriving, enthusiastic, and friendly community culture. In the current internet environment where content supply exceeds demand, high-quality content and a supportive, constructive community environment are invaluable.

The company firmly believes that by mastering high-quality content and an active community culture, users will be naturally attracted to this unique experience. Looking ahead, the company will continue to expand around the user interest network, seeing great potential in areas such as podcasts, graphic content, and AI-based virtual companions, in addition to professional user-generated videos (PUGV). High interactivity and high-quality content feedback will continue to motivate creators, making it easy for talented creators to be discovered and grow rapidly.

Q: Bilibili World set a record with 400,000 actual participants. What opportunities does the company see from its success for the Bilibili community?

A: This year's Bilibili World conference broke multiple records, attracting audiences from over 20 countries and regions, with a total of over 400,000 actual participants. Among them, 70% of participants came from outside Shanghai, and 11% of tickets were purchased with foreign passports. Bilibili World has become the largest and most influential ACG (Animation, Comics, Games) event in China, with Shanghai even coining the term "ACG consumption" for it, as it attracts a large number of young people, boosts local offline consumption, and has become a new cultural landmark in the city. The success of Bilibili World demonstrates that it is a true reflection of the Bilibili brand and community offline, not only proving the influence of the company's IP and community but also reaffirming that the Bilibili brand has become a part of the lifestyle of China's younger generation.

Q: The advertising business exceeded expectations again in the second quarter. What were the driving factors?

A: In the second quarter, the company's advertising business maintained strong growth, outpacing the industry average, with quarterly revenue reaching a record high of RMB 2.4 billion, up 20% year-on-year. This growth was mainly attributed to the company's continued focus on the "horizontal and vertical" strategy and the enhancement of advertising infrastructure, product, and technology efficiency, further unlocking the value of users and traffic.

Specific driving factors include: strengthening integrated marketing activities that combine placement and conversion, with over 50% of Sparkle ads in the second quarter utilizing the company's application system acquisition programs; continuously enhancing marketing data infrastructure, significantly improving ad placement efficiency with multimodal large models; and continuously optimizing deep conversion capabilities, with the share of deep conversions doubling year-on-year in the second quarter.

Q: Looking ahead to the second half of the year, what are the company's expectations for industry trends and its own advertising business trends? What new products and technologies will be launched to drive growth?

A: Looking ahead to the second half of the year, the company will focus on the broader application and linkage of products and technology across multiple terminals and scenarios, including PC, OTT, social live streaming, search, and hot topics. Meanwhile, the company is confident that AI will continue to drive efficiency improvements and bring tangible advertising revenue.

Specifically, the company will launch: continuous improvement and iteration of recommendation algorithms to achieve deeper content understanding and precise ad placement based on user interests; AIGC advertising tools to help advertisers generate ad covers, titles, and even content that align with Bilibili users' language and creative style at scale, with approximately 30% of ad covers currently generated by AI, with greater potential for improvement in the future; and more AI-driven automated advertising products to enhance advertisers' cost control and sales capabilities. From an industry perspective, in the short term, advertisers' budgets are concentrating on a few indispensable core platforms.

In the long term, the company believes advertisers will focus more on brand building rather than pure sales conversion, as no one can ignore the influence and purchasing power of young people, and Bilibili is uniquely positioned in this regard.

Q: Regarding the gaming business, can you share more information about the first anniversary of the S8 season of "Three Kingdoms: Strategy Edition"? How does the company view the development trend of this game in the second half of the year and next year?

A: "Three Kingdoms: Strategy Edition" celebrated its first anniversary on June 13, with daily active users (DAU) reaching a new record in 2025. The game has successfully established itself, laying the foundation for becoming a long-lasting game, expected to have a lifecycle of over five years and continue to contribute stable gaming revenue to the company.

During the S8 season anniversary celebration, the company launched new monetization tools such as limited edition skins, which received positive feedback from users, confirming that this is a healthier and more sustainable monetization method than other tools.

In the future, the company will make the game more sustainable and healthy by combining new card monetization with skins and innovative amortization models. The company will focus on making each game season the best season, continuously providing quality experiences to retain users.

In the second half of the year and next year, the company will focus more on retaining and activating old users, and plans to launch a traditional Chinese version for players in Hong Kong, Macau, and Taiwan by the end of this year or early next year, and explore the possibility of releasing it in overseas markets such as Japan and South Korea.

Q: In terms of new game reserves, what are the key recommended games?

A: In terms of new game reserves, the company currently has four to five games awaiting approval for release, and once approved, they will be released accordingly. In the short term, the company expects to release a casual game based on the "Three Kingdoms" IP, which is expected to be fun and playable. Looking ahead, the company will continue to execute its strategy of creating and reshaping games for the new generation of players, actively exploring new game types and innovating across different genres, with many potential categories and reserves to look forward to in the future.

Q: Regarding profit margins, what are the potential areas for cost efficiency and cost control? What are the expectations for profitability in the second half of the year and the timeline for achieving the target of over 15% operating profit margin?

A: In the second quarter, the company's revenue grew by 20%, and gross profit grew by 46%, demonstrating very strong operating leverage. The company's gross margin has increased sequentially for 12 consecutive quarters, and it is expected to maintain the same trend in the second half of the year, reaching around 37% by the fourth quarter, with a mid-term gross margin target remaining at 40% to 45%.

In terms of operating expenses (OpEx), the company continues to improve operational efficiency, with the absolute amount of operating expenses in the first half of the year remaining roughly flat compared to the same period last year, and it is expected to decline year-on-year in the second half. Regarding profitability, the company's gross profit margin is growing well, and operating profit is growing even faster. The operating profit margin reached 7.8% in the second quarter. The company is confident in achieving sequential quarterly improvements, reaching a 10% adjusted operating profit margin in the fourth quarter of this year, and reiterates the mid-term target of 15% to 20% operating profit margin.

Q: In terms of cash usage, what are the main areas for future capital allocation? How does the company view its shareholder return policy?

A: To enhance shareholder returns, the company repurchased USD 100 million worth of shares in the Hong Kong market in the second quarter and has canceled all these repurchased shares. Under the current USD 200 million repurchase plan, the company still has USD 83 million available. Given the company's ample USD cash reserves overseas, future share repurchases will continue based on market conditions.

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