BILI (Trans): Five-game reserve from H2 this year through next year

Dolphin Research's recap of $Bilibili(BILI.US) FY26 Q2 earnings call

I. Key takeaways

1) Shareholder returns

a) The BOD approved a new 2-year $300mn buyback in Jun. As of Jun 30, the company had repurchased 1.9mn shares under this plan for $31mn.

b) YTD, total buybacks reached 5.8mn shares for $118mn. Management will continue execution opportunistically based on market windows.

2) Outlook and mid/long-term targets

a) Five new titles will launch from Q4 through next year, and management guided game revenue to return to positive YoY growth starting in Q4.

b) Ads should sustain healthy growth despite macro pressure. No specific growth rate was provided.

c) Mid/long-term targets unchanged: GPM of 40%–45%, and OPM of approx. 15%–20%.

3) Q2 key financials

a) Totals: revenue of RMB 7.9bn (+8% YoY), COGS of RMB 5.0bn (+7% YoY), and GP of RMB 3.0bn (+10% YoY). GPM was 37.2% vs. 36.5% a year ago, marking the 16th straight quarter of improvement.

b) Mix: ads 39% of revenue, value-added services 37%, mobile games 18%, and IP derivatives & others 6%.

c) Opex: total Opex RMB 2.6bn (+7% YoY). S&M +1% YoY, G&A roughly flat, and R&D +16% YoY, mainly to build AI capabilities.

d) OP: RMB 373mn (+48% YoY). Adj. OP RMB 696mn (+21% YoY), with Adj. OPM at 8.8% vs. 7.8%.

e) NP: RMB 339mn (+55% YoY). Adj. NP RMB 704mn (+25% YoY), with Adj. NPM at 8.9%.

4) Cash and AI investment

a) As of Jun 30, cash & equivalents, time deposits, and short-term investments totaled RMB 24.3bn (Approx. $3.6bn).

b) Of the previously announced RMB 1.0bn AI budget, 70%–80% was spent in 1H, with the remainder mainly for computing power. Management will prudently balance AI spend and monetization pacing.

II. Earnings call details

2.1 Management highlights

1) Users and community

a) DAU rose 7% YoY to 117mn, and MAU reached 371mn. Avg. daily time spent increased to 113 minutes vs. 105 minutes a year ago, with total time spent up 14% YoY.

b) Monthly interactions grew 9% YoY to 17.4bn, with long comments over 100 characters up more than 67%. Users followed an Avg. of 96 creators per capita, +11% YoY.

c) Official members reached 299mn, with a 12-month retention rate around 80%. This underscores the community's stickiness.

d) The 3-day offline Bilibili World and Bilibili Macro Link events in Shanghai attracted over 400k visitors. They rank among China's largest offline ACG conventions.

e) MSCI ESG rating was raised from A to AA. This reflects improved sustainability practices.

2) Content and creators

a) Viewing time for videos over 5 minutes rose 18% YoY. Daily video uploads increased 28% YoY.

b) By vertical: viewing time for gaming and general entertainment grew 20% and 35% YoY, respectively. Mother & baby content rose 36%, and music, boosted by AIGC, rose 24%.

c) Video podcasts exceeded 100mn minutes in Avg. daily viewing time last month. This format is gaining traction.

d) Creators with over 1,000 followers increased 30% YoY, and Avg. creator income rose 21% YoY. Monetization for creators is improving.

3) Advertising

a) Ad revenue was RMB 3.13bn, up 28% YoY. That marked the 14th consecutive quarter of 20%+ YoY growth.

b) Home improvement, apparel/footwear, and autos each grew over 60% YoY. Search ads revenue doubled YoY.

c) Conversion rate improved 19% YoY. AI is expanding from matching to creative production and campaign ops (AIGC tools and AI agents for buying).

4) Games

a) Game revenue was RMB 1.4bn, down 14% YoY on a high base from last year's 'Three Kingdoms: Stratagem'. The title's S15 season for its 2nd anniversary ranked No. 2 on China's iOS grossing chart, while FGO and Azur Lane remained stable.

b) Casual card game 'Three Kingdoms: Hundred Generals' officially launched in Jul. User acquisition will be guided by long-term ROI and retention.

5) Value-added services

a) VAS revenue reached RMB 3.0bn, up 5% YoY. Live streaming remained steady, with ops optimization to drive better margins.

b) Paying users (MPU) rose 7% YoY to 33.4mn. Premium members reached 25.7mn, up 9% YoY, with about 80% on annual or auto-renew plans.

c) 'Charging' revenue grew nearly 50% YoY. Creator tipping continues to scale.

2.2 Q&A

Q: With short videos rising and Avg. long-video length declining, what underpins Bilibili's growth resilience?

A: We do not choose by content length; we focus on quality, which naturally skews toward mid-to-long form. Supply of both short and long videos has surged in recent years, with shorts growing faster. But after users get saturated with low-quality, repetitive content, they develop a taste for quality and care whether their time spent is worthwhile.

Two factors support sustained output of quality content: a strong cohort of creators who embrace the community and the platform, and a decade-deep community with many users who truly appreciate quality content. They have their own standards and can surface the best from millions of daily uploads.

Monthly interactions exceeded 17.4bn in Q2, up 9% YoY, and long comments over 100 characters rose 67%. Such high-intensity, real-user interactions help the platform identify quality content faster.

Q: How will video content structure and user preferences evolve in the AI era?

A: AI will expand video supply exponentially, and ultimately only quality content will get traffic while low-quality content will not. We focus on two areas: content creation and content distribution.

On creation, we emphasize how high-intellect, high-creativity creators use AI to turn ideas into works. Repetitive, low-quality output will have no room, while talented creators will benefit significantly.

Our investments over the past half year have yielded positive results, with monthly uploads up 28% YoY in Q2 as hard evidence of AI tools amplifying creation. On distribution, long videos carry far richer information and structure than seconds-long shorts, and traditional recommenders struggle to fully understand them.

User intent for long-form is also more complex, so we deploy AI to boost distribution efficiency. Next-gen AI tools help the platform better understand content semantics and user intent.

Q2 DAU rose 7% YoY, total time spent increased 14% YoY, and creators with over 1,000 fans grew 30% YoY. Much of this reflects AI improving how our algorithms work.

Q: Given weaker macro and consumption since Q2, how do you view ad growth in 2H, and which verticals can carry growth as comps rise?

A: No specific 2H growth rate, but we remain confident in sustained ad growth. Despite macro pressure, ad revenue reached RMB 3.13bn in Q2, up 28% YoY, reflecting advertisers' recognition of our user base and community value.

More advertisers now see Bilibili as a must-buy to reach younger generations. Near term, advertisers are prioritizing conversion efficiency while also needing channels that build long-term brand equity rather than one-off exposure.

They are concentrating limited budgets on high-value users with real purchasing power, which aligns with Bilibili's strengths. The top five ad verticals in Q2 were games, consumer electronics/home appliances, internet services, e-commerce, and autos, with advertiser count up 14% YoY.

We acknowledge the macro is challenging and there will be notable shifts among industry participants. We will adapt to these dynamics.

Q: What are the marginal changes in AI industry advertising?

A: AI-industry ad revenue more than doubled YoY, and we are very positive on this incremental opportunity. User time spent on AI-related educational content rose 72% YoY, and Bilibili has become the largest AI learning video community in China.

Users proactively track and learn about foundation models and AI tools on our platform. The incremental spend comes from a strong match between AI product target users and our audience.

We view AI as a long-term megatrend, and expect clients at different development stages to keep investing. This should provide ongoing tailwinds.

Q: Can you break down the drivers of Q2 and 2H ad growth?

A: Three pillars: high-value users, multi-screen/multi-scenario inventory, and AI-driven efficiency. Our users' Avg. age is 26.5, representing the core consumption cohort in China.

Over the past two years, strong purchase intent has formed on-platform, with clear willingness to buy products recommended by the platform and creators. On scenarios, we pursue a multi-screen, multi-scenario strategy.

Users listen or watch during commutes, cast to TV at home, and use the app or iPad for study, with ads naturally appearing across the daily journey. In 1H, new ad inventory opened up across in-app search, the watch page, smart TV, PC, and mini-programs, with multi-scenario ad revenue up 50% YoY.

AI enhances monetization across user understanding and profiling, content matching, creative generation, and algorithm efficiency. After launching our automated buying system, onboarding barriers fell and the number of new advertisers grew by double digits.

Q: Which game in the pipeline is most anticipated, and what's the launch cadence?

A: We see a harvest period from 2H into next year, with 'Lumi Master' launching globally on Sep 17. 'Lumi Master' is a self-developed light casual title featuring pet-catching and sim management.

Global tests in May and recent feedback have been strong, with gameplay and art designed for younger users. The goal is to capture a broader global casual audience.

'San Wang' is a licensed Three Kingdoms IP strategy title expected to launch by year-end, targeting a more mature audience passionate about the IP. Visuals and gameplay are significantly upgraded vs. classic IP titles.

It complements 'Three Kingdoms: Stratagem' in gameplay and audience, further strengthening our strategy niche. We have collected second CBT feedback and continue tuning.

Next year brings two more: the self-developed tactical RPG 'Three Kingdoms: The Ravages of Time', based on a 20+ year classic manga IP for which Bilibili previously produced the anime. And 'Ragnarok Online 3', a classic MMORPG with license secured, began technical testing in Mainland China today, with encouraging early feedback.

Q: How do you view the outlook for 'Three Kingdoms: Stratagem' after two years live?

A: From last year's 1st-anniversary S8 to this year's 2nd-anniversary S15, each season stayed in the iOS top-5 grossing. The major June anniversary update received positive feedback, and S15 ranked No. 2 on China's iOS grossing chart.

Our goal remains to make it a long-lifecycle strategy title that accompanies players for years. For 'Three Kingdoms: Hundred Generals', launched in Jul, the Jul build's LTV doubled vs. the Apr build.

We plan to roll out Season 2 in Oct, focusing on improving long-term retention and adding interactive features. There are two reasons to build multiple products around the same Three Kingdoms IP.

The user overlap is high and allows mutual user acquisition, and our platform has many players who share experiences and help promote, which eases iteration with users. Our games strategy is unchanged: focus on verticals, aim for No. 1 or best-in-class in each niche, and build long lifecycles for every title.

Q: How does AI enhance the community and user engagement?

A: AI investment is strictly confined to three vectors: video understanding, video distribution, and video creation. AI is a consensus for the next era, but the question is how to apply it to our business.

We will not participate across the AI value chain. Our investments tie tightly to our core business: video.

On understanding, our video library is massive, each video carries more information, and user interests are highly fragmented. Better grasping content value and user needs improves both experience and monetization, and AI is upgrading video understanding, search, and recommendations.

On creation, in the past two quarters we have seen many cases where animations or film/TV content that previously required pro teams or even entire studios can now be produced by individuals and reach tens of millions of views. AI has also birthed new formats across animation, film/TV, music, and remix culture.

In May, we launched an animation initiative for creators that amassed 270mn minutes of viewing and over 180mn plays in three months. Six series each surpassed 10mn plays.

Q: Of the RMB 1.0bn AI budget, how much has been spent and what is the cadence?

A: We spent 70%–80% in 1H, with the remainder mainly for computing power, and did not break down future quarters. Management reiterated the high focus of AI investment.

Q: How do you view margin upside by biz. line, and margins in 2H and 2027?

A: Mid/long-term targets unchanged: GPM 40%–45% and OPM approx. 15%–20%. Q2 GPM rose to 37.2%, the 16th consecutive quarterly improvement, and NP rose 55% YoY with Adj. NPM reaching 8.9%.

Upside drivers include ads, a high-margin segment now the largest at 39% of revenue, which we expect to sustain healthy growth despite macro headwinds. Five new games will go live from Q4 into next year, with game revenue returning to positive YoY growth from Q4.

AI-driven operating efficiency will further help margins. We will prudently balance AI investment and monetization, seeing today's spend as key to sustainable growth, but we did not provide specific margin figures for 2H or 2027.

Q: How are you thinking about capital allocation and shareholder returns?

A: Buybacks are a priority and will continue opportunistically; no new size or cadence was disclosed. YTD buybacks totaled $118mn.

Under the new 2-year $300mn plan approved in Jun, we repurchased 1.9mn shares for over $31mn. Management did not disclose dividends or other capital allocation measures.

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