Station B tightens his belt

Produced by Tiger Sniff Commercial Consumer Group

Author|Huang Qingchun

Title map|Visual China

The market is still not expecting the success of Bilibili (hereinafter referred to as Station B) profit.

On August 17, Station B submitted its unaudited financial report for the second quarter ended June 30, 2023. Take a long sigh of relief from two key indicators: 2023Q2 revenue of 5.304 billion yuan, a year-on-year increase of 8.05%; Adjusted net loss of 964 million yuan, a significant narrowing of 51% year-on-year, exceeding market expectations.

In summary: 2023Q2 revenue growth slowed down, losses narrowed sharply, driving the US stock of Station B to rise by more than 7% pre-market on the day.

However, in the past, the extensive model of "loss for growth" is becoming less and less cost-effective: first, user costs are gradually increasing; Second, the retention of many buyers is not ideal, and the market has fallen from "growth worship" to profitability - in view of this, it is difficult for the market to be excited by Station B to "tighten the belt" and reduce losses.

Profitability is the turning point for self-justification.

However, there is not much time left for Station B to achieve breakeven in 2024, so that Chen Rui, chairman and CEO of Station B, stressed the urgency of "increasing revenue and reducing losses"; On the one hand, the full-year revenue forecast for 2023 will be reduced to 225 ~ 23.5 billion yuan from 240 ~ 26 billion yuan at the beginning of the year.

Whether the body plate is hard or not, commercialization has the final say

Specific to business contribution: the overall revenue of value-added services, advertising, games, IP derivatives and other four businesses accounted for 43%, 30%, 17% and 10% respectively.

Taken apart, the largest source of revenue for Station B is value-added services (including live streaming and large members), with revenue of 2.302 billion yuan (about $317.4 million) in the quarter, a year-on-year increase of 9.46%.

The financial report shows that the large members of station B do not fluctuate much (price, number of members) during the quarter, and the increase in revenue is more likely to come from live broadcast tips and commissions - the company opened more tipping channels in Q2, and live broadcast revenue increased by 32% year-on-year - however, the uncertainty of the business lies in the fact that last year the State Administration of Radio, Film and Television and other departments announced a number of short video live broadcast related policies, and the market was worried that regulation would affect the live broadcast business of station B.

However, from another perspective, the regulation of functions such as "tip list" and "peak hour PK" is more in the hope of reducing excessive guidance for tipping, and the protection of minors on content platforms, content supervision, and live streaming e-commerce supervision have entered the new normal.

The second largest revenue pillar is advertising.

Station B's advertising revenue in the quarter was 1.573 billion yuan (about 216.9 million US dollars), an increase of 35.84% year-on-year, and it has become the business that contributed the most incremental revenue for two consecutive quarters, and its total revenue accounted for 29.7%.

Specifically, the top five industries that drive B in advertising revenue are: games, e-commerce, digital products, beauty and skin care, food and beverage - especially after optimizing the advertising strategy of the e-commerce industry, the steepest upward curve:

E-commerce advertising revenue increased by more than 140% year-over-year.

Frankly speaking, advertising growth can reflect the effectiveness of site B content construction and user growth, duration, and traffic management to a certain extent, and more importantly, compared with short video platforms such as Douyin and Kuaishou, the advertising base of station B is small, and the growth rate is still in an upward channel.

In this regard, Li Ni, COO of station B, said on the earnings call: Station B plans to upgrade and revise the tab (mobile phone entrance of IP and derivatives) purchased by members on the homepage to form a "shopping" scene entrance, which is expected to drive the year-on-year growth of advertising revenue of 25% ~ 30% in 2023.

However, at this stage, the advertising mode of station B only includes commercial advertising (content IP, hard broadcast, convening order, new product day and event marketing), investment advertising (all projects of station B such as virtual idols and live broadcast investment related commercial advertising caliber), internal advertising (mainly the caliber of game traffic of station B) and effect advertising (commercial advertising launch, information flow and brand number casting flow), when is the inflection point of business outbreak.

As for the game business that continues to sluggish, it has fallen from the core pillar of the past to the third place in the revenue contribution of station B: the quarterly revenue of the game business was 891 million yuan (about 122.9 million US dollars), down 14.82% year-on-year - for the reason for the weakness of the game business, Chen Rui explained that the revenue of some released games fell and the lack of new games launched.

From the perspective of product reserves, Station B will hold 7 new games online in the second half of the year, of which 5 will be released in China and two will be released overseas. In particular, "Shine! "Handsome Girl" was pinned on high hopes.

"Shine! Handsome Girl" poster

However, according to this year's flooded version number increase and the almost white-hot sub-category game of game manufacturers, the performance of the game business of station B in the second half of the year is difficult to be optimistic:

Aside from NetEase's "Egg Party" and "Against the Water and Cold", Dawn Lightyear "Crystal Nucleus", Tencent's "Valorant" national service), "Ark of Destiny" and other blockbuster new products, the two-dimensional field that Station B is good at alone is already quite crowded, including Mihayou's "Honkai: Star Dome Railway", Deep Blue Interactive's "Back to the Future: 1999", Candle Dragon's "White Thorn Corridor", Super Creative's "The Seventh Epic", NNEXON's "Azure Files" and so on.

Finally, IP derivatives and others (previously known as e-commerce and others) are the commercial sectors that determine the upper limit of Station B – this sector generated revenue of 539 million yuan (about $74.3 million), down 10.3% year-on-year.

The performance was unsatisfactory.

Management explained that the business was mainly affected by the decrease in revenue from the resale of live e-sports copyrights, and the company was actively shrinking its unprofitable non-main business - after all, even Ma Huateng stated that "Tencent is leaning towards a high-quality revenue source with higher profit margins", let alone Station B.

In fact, since the first quarter of this year, Station B has focused on promoting on-site transactions - not only "marrying" Taobao, Tmall, Jingdong, and Pinduoduo brand advertisers to try to explore "grass consumption-transaction conversion", but also promote traffic linkage such as video, live streaming and special advertising streaming of Station B.

According to the financial report, more than 1.58 million UP owners received revenue at station B in 2023Q2, a year-on-year increase of 40%; UP owners who earn money through live streaming and video delivery increased by 220% year-on-year; In the first half of 2023 alone, nearly 30 million users generated transaction behavior through the comment area of station B (Blue Chain), the number of transaction videos on the site increased by 800% year-on-year, and the number of live broadcasts with goods increased by 700% year-on-year.

It is worth noting that Station B established a new first-level department "Trading Ecological Center" at the end of June to undertake the delivery business, and Li Ni expects that the advertising revenue generated by the goods will account for between 10% and 20% of the total advertising revenue; The original "E-commerce Division" was renamed as "Member Purchase Division" and continued to focus on ACG (short for animation, comics, and games) crowd peripheral derivatives services.

The potential is not large, and the user ecology is bottom-up

The commercialization performance of various businesses was mixed, but the user disk of station B was stable.

Longitudinal user growth: Under the premise that market expenses decreased by 22% year-on-year, the DAU (average daily active users) of station B in the 2023Q2 quarter increased by 15% year-on-year to 96.5 million, indicating that the platform continues to absorb new users in the process of coming out of the circle, and the management expects DAU to enter the 100 million mark in the third quarter; MAU (Average Monthly Active Users) grew 6% year-over-year to 324 million.

Originally, Chen Rui released a bold statement in 2021 that station B will reach 400 million MAU in 2023, seeing that MAU climbing more and more difficult, he emphasized in the last quarterly earnings conference call that DAU is the premise and foundation for station B to achieve profitability - "Compared with MAU, DAU can show the activity of users and the commercialization potential brought by the number of users of station B." ”

Horizontal view of user activity/average usage time: Station B 2023Q2 user stickiness (DAU/MAU) further increased by 29.8%, a record high; Average user spend increased to 94 minutes per day, driving a 22% year-over-year increase in total user time.

The foundation of site B is the community and content ecology, and user stickiness has reflected its content ecological advantages: the average daily video views of site B increased by 31% to 4.1 billion, and the average number of monthly interactions increased by 19% year-on-year to 15 billion.

However, user growth is a matter of skill, and it can be:

False prosperity driven by "burning money".

Take your attention back to Station B's control of expenses in the 2023Q2 quarter: total operating expenses for the quarter were $2.5 billion, down 14% year-over-year. Among them, selling and marketing expenses decreased by 22% year-over-year, and administrative expenses decreased by 14% year-over-year.

In addition, the 2023Q2 financial report of station B showed that operating costs decreased by 2.3% year-on-year, and sales, management, and R&D expenses decreased by 21.67%, 13.74%, and 7.51% respectively year-on-year - thanks to the saving of operating costs from between the teeth of station B, the operating loss rate narrowed to 24.1%, a year-on-year decrease of 20 percentage points.

It is worth mentioning that the gross profit of station B in 2023Q2 is about 1.2 billion, a year-on-year increase of 66%; Gross margin increased from 15% to 23%, marking the fourth consecutive quarter.

It is equivalent to saying that the user growth and retention of station B 2023Q2 tightening the belt are still improving, indicating that the continuous circle-breaking effect of station B content is emerging.

Although the quadratic element is still the basic disk of station B, its content ecology has jumped out of the shackles of ACG, and gradually changed the public label solidified in the early stage through ecological construction - according to the positive cycle of Animation3.

However, in the case of the overall commercialization path is ambiguous, it is not easy to grab the cake of live streaming e-commerce from platforms such as Douyin, Kuaishou, and even Taobao, Pinduoduo and other platforms - even if Station B chooses to cooperate with major e-commerce platforms and brands to expand the scale of transactions, the space for e-commerce commissions and advertising revenue will undoubtedly be compared to self-built e-commerce:

Extremely compressed.

On the whole, Station B is in a stable state in terms of revenue, user data, and loss reduction in the first half of 2023 - whether it is expanding revenue channels, improving operational efficiency, or achieving revenue, community growth has begun to show results.

However, in the second half of 2023, the management of Station B will be under obvious pressure: when iQiyi and Kuaishou climb out of the quagmire of losses, the market is increasingly looking forward to the good news of profitability from Station B, which has been established for 14 years - Chen Rui said: "I think the goal of narrowing losses for the whole year this year can be achieved, and the goal of breakeven next year can also be achieved." ”

However, the market is also waiting to see how the management will adjust next if Station B cannot deliver on the "2024 breakeven" flag.