Below is the minutes of Bilibili's fourth quarter 2022 results call. Station B's revenue in the fourth quarter was 6.1 billion yuan, with 92.8 million daily active users, a year-on-year increase of 29%;
Management speaks
We actively align our strategy and prioritize our goals to better align with the new industry paradigm. Specifically, we focused on DAU growth and how to achieve profitability. Start our progress on both fronts. Two key tasks that helped us turn around –
First, our users and their interactions with the community remain fundamental to our business.
By focusing on DAU growth, we are bringing high-quality users to our platform, which brings us closer to our monetization potential. In the fourth quarter, our DAUs were 93 million, up 29% year-over-year. This increased our DAU/MAU ratio to 28% from 26% over the same period. Spend an average of 96 minutes per day, driving a 1% increase in total time spent on the platform. We will continue to accumulate our data through optimized products and algorithms and further support our business prospects by controlling sales and marketing spend.
Second, we improved commercialization efficiency and cross-cutting measures to bring us closer to our profitability targets.
Net income for the full year 2022 was $21.9 billion, compared to $6.1 billion in the fourth quarter, up 6% year-over-year. Our gross margin increased from 18% in the previous quarter to 20% in the fourth quarter.
We continue to take steps to control our expenses and improve the efficiency of our organization. Specifically, we cut marketing expenses by 28% in the fourth quarter. Sales and marketing expenses as a percentage of total revenue decreased from 30% in the year-ago quarter to 21% in the fourth quarter.
We also streamlined our people and cut our non-core and underperforming businesses. As a result, our non-GAAP net loss for the quarter decreased 21% year-over-year and 26% sequentially.
As we enter 2023, our operational goal is to become a more efficient company. We will focus our resources on leaner and more important tasks. Specifically, we plan to continue to expand our DAU, improve gross margin, and tighten expenses. As we execute these actions, we believe we are on the right track to achieving our break-even goal.
With an overview of our strategic approach and progress, I would like to briefly introduce our three core pillars of content, community, and commercialization.
1. In terms of content, our growing content ecology is our most valuable asset. In the fourth quarter, our platform had 3.8 million UP owners, a 25% year-over-year increase. Up Master creates 17.6 million videos per month, a 62% increase year-over-year. To encourage more users to turn their ideas into creations, we're providing them with more easy-to-use tools.
At the same time, more traffic will go to mid- and long-tail creators. Our goal is to convert more users into creators and drive engagement with our content offerings and users. The expanded content scene is also attracting more traffic to the bilibili platform.
In the fourth quarter, daily video views increased 77% year-over-year to 3.9 billion, StoryMode video views increased 175% year-over-year, and PUGV video views increased 56% year-over-year. StoryMode allows us to expand into the vertical video market, underpins our daily active users and the time users spend on our platform, and opens us up more business opportunities to unlock our business potential.
We further integrate our commerce channels into our content ecosystem. The existing mix creates more immersive advertising opportunities and monetization channels for content creators – in the fourth quarter, more than 1.3 million UP owners generated revenue through multiple channels on Bilibili, up 64% year-over-year.
2. On the community side, our inclusive community environment and rich interactive tools are building closer ties between our users and our platform. In the fourth quarter, users spent an average of 96 minutes a day on bilibili, and average monthly video uploads grew 35% year-over-year to 13.6 billion.
In terms of core members of our community, the number of regular members reached 195 million in the fourth quarter, up 34% year-over-year, and the 12-month retention rate continued to exceed 80%.
3. In terms of commercialization progress, our net revenue reached 6.1 billion in the fourth quarter, up 6% year-over-year, and full-year revenue increased 13% year-over-year to 21.9 billion. We are now focusing more on improving commercialization efficiency, especially improving the company's gross margin.
3. In terms of VAS business, VAS revenue in the fourth quarter was 2.3 billion yuan, a year-on-year increase of 24%; $8.7 billion for the full year 2022, up 26% year-over-year
Live streaming was particularly strong, with revenue from live streaming growing more than 30% in 2022. Our strategy of integrating live streaming into the video ecosystem drives more creators into the live streaming space. This helps penetrate more video users, convert paying users, and organically optimize our revenue sharing structure.
In the fourth quarter, the number of monthly active live streaming rooms increased by more than 70% year-on-year, and monthly paying live streaming users increased by more than 40% year-on-year. Going forward, live streaming will continue to be one of our key revenue growth drivers. We want to optimize our revenue share and further improve the gross margin of live streaming. At the end of the fourth quarter, we had a total of 21.4 million premium members.
As for our advertising division, we continued to gain market share this year, with advertising revenue up 12% year-over-year to $5.1 billion for the full year, compared to $1.5 billion in the fourth quarter. Our top performers in the fourth quarter were mobile gaming, e-commerce, digital products and home, automotive, skincare and cosmetics.
We've further opened up our ecosystem to embrace more advertising opportunities across a variety of video viewing scenarios. The new ad scenarios we've introduced in StoryMode have resulted in higher ROI. In the fourth quarter, our performance ad revenue grew by more than 50% year-over-year. In addition, as our users mature and enter new stages of life, their new consumer needs are attracting more advertisers, whose advertising budgets have been allocated to our platform, continue to invest in and improve our advertising infrastructure, and further integrate our additional features in our content ecosystem.
4. In terms of games, revenue in the fourth quarter was 1.1 billion yuan, and revenue for the full year was 5 billion yuan. We are committed to an in-house self-developed, global distribution strategy. In the fourth quarter, we restructured our game development lines to effectively align with this goal. Specifically, we eliminated underperforming self-developed projects and focused our resources on the types in which we were proficient in self-research. In 2022, self-developed games contributed 5% of our total game revenue. We expect this percentage to continue to expand as we launch more in-house games.
We plan to launch 2 self-developed games in the second quarter of this year, as well as 6 exclusive licensed games. As game license approvals gradually resume in China, we expect to participate in more opportunities in the domestic market.
In summary, new industry dynamics require more efficient operations. We will continue to focus our resources to grow our monthly active users, increase our gross margin, and narrow our losses. Throughout this process, we will continue to strengthen our execution and tighten our spending while selectively investing where we improve our commercialization efficiency. With these measures, we believe we are on the right track to achieving our financial goals and becoming a stronger, more resilient and efficient organization.
Q&A:
Q1: What is the outlook for 2023, the company's core strategy and focus?
A1: For station B, our focus this year will be on increasing revenue and reducing losses and pursuing healthy user growth. This will be a long-term strategy, and it will not change due to short-term environmental changes. Just now you asked whether we will change anything in this year's economic recovery environment, I think the economic recovery environment should help us better implement this strategy. This year, our company's business will be more focused, and the most important things for the whole company are two, the first is to increase revenue and reduce losses, and the second is the healthy growth of DAU.
Revenue increase refers to the increase in gross profit, we will pay more attention to improving gross margin and reducing losses, gross margin in the fourth quarter achieved a year-on-year and sequential increase, and net loss decreased by 29% year-on-year. We expect net loss to narrow further in 2023 and break even in 2024.
In terms of user growth, in 2023, we will not simply pursue monthly active growth, but will focus on the growth of more quality daily active users and the improvement of daily active monetization efficiency. In 2023 we will start increasing the percentage of DMs, which is currently 28%, and this year we want to increase that to 30% – which means more user activity, higher user stickiness, and greater business value.
Q2: How is gross margin outlook in 23 years? What is the outlook for spin-offs into lines of business? How to achieve loss reduction throughout the year?
A2: Guided by the overall goal of increasing revenue and reducing losses, we will reduce low-margin businesses such as e-sports, copyright sublicensing and some e-commerce businesses in 2023. We expect revenue from e-commerce and other businesses to decline by 25%-30% in 2023, while non-e-commerce revenue (games, VAS, and advertising) is expected to grow by more than 20%.
Overall, the increase in gross margin was driven by higher revenue. When it comes to investing, we will be more selective and focused on ROI. Server and bandwidth costs, and staff costs as a percentage of revenue are expected to decline.
In terms of revenue share costs, the high-margin business will effectively improve the current situation, and gross margin is expected to improve year-over-year for each business line.
OPEX has peaked in 2022 and is expected to start declining in 2023. Marketing expenses decreased 15% year-over-year in 2022 and are expected to decline further in 2023. At the same time, administrative and R&D expenses in absolute dollar terms will also decline slightly in 2023. These are expected to lead to a gradual increase in operating margin.
Q3: What is the outlook for the advertising business? How is Story Mode going? What is the outlook?
A3: The DM ratio and average daily user usage time in 2022 prove that the multi-screen and multi-scenario strategy can effectively promote the growth of site B users. As a new scene of the B station community, Story mode has an extremely obvious effect on low-activity users in addition to the original PUGV/OGV live broadcast and OTT large-screen scenes, and also plays a key role in attracting more creators to stay on station B. Story Mode also exceeds expectations in terms of playback volume and usage time, which allows station B users to use Bilibili to meet their needs in any scene, any time, and any demand.
When often mentioning Story Mode, don't forget that the PUGV ecosystem is also continuing to grow healthily, with a year-on-year increase of more than 50% in the fourth quarter. But Story Mode also grew by more than 170% year-over-year. In 2023, the traffic of Story Mode will also be further healthy in the entire ecosystem.
In terms of advertising, the overall advertising market in 2022 was poor (low single-digit growth), and in a challenging environment, the market share of station B still increased, with annual advertising revenue reaching 5 billion. Advertiser confidence has gradually recovered this year, and the overall industry has the opportunity to achieve double-digit growth; However, advertisers will be more cautious and will focus on the core value and effectiveness of advertising. The problems advertisers face with budgets are: (1) the need for innovation; (2) It must continue to penetrate to prevent the brand from aging; (3) It must continuously influence the user to achieve the conversion effect. Station B advertising business has covered the above needs, and is confident that it will reach a growth rate higher than that of the industry.
In 2023, the sales form and model of advertising will be upgraded, and integrated marketing will remain unchanged as a long-term growth engine.
Q4: Regarding gaming, how does management look ahead to 2023? What is the strategy for self-developed games?
A4:2022 The entire gaming industry has entered a new phase. In fact, we think that the version number is only one of the reasons [that the game business is difficult to do], and I think one of the bigger reasons is that the dividend of mobile users is gradually fading. The increasingly mature requirements of players for game quality actually have a great impact on the industry, because one of its direct impacts is the increase in game development costs and the decline in the success rate of new games.
When there is a user bonus, as long as you do the game content well, you will definitely make money. But when the game industry becomes a stock market, there are only two types of games that can make money, the first is the super game of the head, and the second is what you call the head in the vertical category. Only in these two cases will you be able to make a sustained profit.
So it is a strategy for the development of the game of station B, and it is also prepared for the future trend of the industry. We will be more determined to implement our strategy of "Boutique Global Distribution", because I think this is also what we have to do in the next industry cycle of games. Only global distribution can offset higher game development costs and achieve better profits. Only boutique games can become games that can operate in the long term and provide better ROI.
In terms of categories, we will be more focused, whether it is our agency or self-research, we will focus on one area we are good at, such as two-dimensional, card, etc. In terms of self-research, we will also reduce our self-developed projects, so that we can put more energy into the project with the highest success rate and polish the high-quality products. Judging from the results, the results of our self-developed games are still slowly showing. Last year, self-developed games accounted for 5% of our total game revenue, and this proportion will continue to increase this year.
Regarding the version number, we can actually see that the domestic version number is basically issued once a month, and the import version number has also resumed issuance, so we think that this year should be the version number policy should be normalized. I think for station B, whether it is for our self-developed games or our agency games, it is also good for our game intermodal business and game advertising business, so it must be good news. Here you can also preview that we will have two self-developed games online in the second quarter of this year.
Q5: How does management view AIGC's opportunities or impact on the company?
A5: AIGC will be a big event that will affect the entire industry and even the whole society, because it means a huge increase in content creation productivity. An analogy is the previous mobile phone camera, which allows ordinary people to produce content anytime, anywhere, and the role of AIGC is to improve the efficiency of producing content, while significantly reducing costs, so that more people can create content.
I think for site b, I think AIGC can bring great benefits to site b, and all content platforms can get benefits from AIGC. Station B has two attributes - the first attribute, it is a massive content platform; The second attribute, which is a UGC (User Generated Content) content platform. On both of these points, I think AIGC can be a big help.
The third benefit should be on the virtual up main side. Everyone should know that station b is now the largest virtual up main platform in China, we have tens of thousands or even hundreds of thousands of virtual anchors and virtual images active on station b, AIGC can make these virtual images more automated and more humane. In terms of this kind of virtual anchor, virtual up master, AIGC can cause an improvement, we are also paying attention to and following up.
The essence of site B is a platform, linking creators and consumers, so all technologies that can allow creators to increase productivity and expand the number of creators are beneficial to station B; Just like the past from the PC era to the mobile era, it has also greatly expanded the creator and improved productivity, which directly increased the number of users of site B tenfold. So I think AIGC could bring similar changes, and we're excited to see what AIGC brings about the next era.
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