Bilibili 2024Q2 - Highly anticipated, but the valuation model remains unclear.

In August 2024, Bilibili released its second-quarter performance. In Q2 2024, Bilibili achieved accelerated revenue growth and improved profit margins, moving closer to its target of profitability in the second half of the year.

Specifically, in Q2 2024, Bilibili's total revenue increased by 15% year-over-year to RMB 6.13 billion. Advertising revenue grew by 30% year-over-year, playing a significant role. Additionally, revenue from gaming and value-added services increased by 13% and 11% year-over-year, respectively.

Thanks to strong performance in advertising and gaming, Bilibili's gross profit rose by 49% year-over-year. On a Non-GAAP basis, the company's net loss continued to narrow.

In Q2 2024, Bilibili's gross margin rose to 29.9%, up from 23.1% in the same period last year, marking eight consecutive quarters of growth.

Moreover, the company's operating cash flow of RMB 1.75 billion was the best quarterly performance in its history.

Bilibili emphasized that it is confident in achieving Non-GAAP breakeven in Q3 2024 and will continue to improve profitability thereafter.

As a key content community, Bilibili's daily active users (DAU) grew by 6% year-over-year to 102 million, while monthly active users (MAU) reached 336 million. User engagement remains strong.

The younger demographic, once Bilibili's core user base, is increasingly demonstrating strong purchasing power.

Despite having such a high-quality community, Bilibili has not rushed to monetize its users and traffic. To some extent, the company's monetization strategy still seems unclear.

However, it's evident that Bilibili's content continues to dominate traditional categories like technology, gaming, and entertainment. Meanwhile, videos in home appliances & renovation, automotive, fashion, and cosmetics are growing at over 30%, representing significant advertising potential.

In the first half of 2024, Bilibili continued its community co-creation with content creators.

Approximately 2.1 million content creators earned income on Bilibili. Total revenue generated by creators through advertising and virtual products grew by 30% year-over-year.

Notably, Bilibili's advertising business performed exceptionally well in Q2 2024. The company further improved its ad products and infrastructure to enhance efficiency. Upgrades to the ad delivery system, user-friendly tools, and better conversion capabilities attracted and retained more advertisers.

The company reported that the number of advertisers in H1 2024 increased by over 50% year-over-year, with more native video-style ad content introduced to boost ad load while maintaining user experience.

Currently, the top five ad verticals in Q2 were mobile gaming, e-commerce, digital products & home appliances, food & beverages, and automotive.

Another highlight for investors was the recovery in gaming revenue. In Q2 2024, Bilibili's gaming revenue grew by 13% year-over-year to RMB 1.01 billion, driven by the strong performance of the strategy game *Three Kingdoms: Tactics* and the ACG game *Arknights*.

*Three Kingdoms: Tactics* became an instant hit, ranking among the top three iOS games by revenue on its launch day and attracting millions of players. It also became the fastest Bilibili-operated game to reach RMB 1 billion in revenue, reminiscent of the days when *Fate/Grand Order* single-handedly supported the company's IPO.

In Q2 2024, Bilibili's value-added service revenue grew by 11% year-over-year to RMB 2.57 billion. Premium membership continued to rise, reaching 22.3 million by the end of Q2, with over 80% opting for annual subscriptions or auto-renewals, demonstrating strong loyalty.

Financially, total revenue in Q2 was RMB 6.13 billion, up 16% year-over-year. Value-added services contributed 42%, advertising 33%, mobile gaming 17%, and IP derivatives & others 8%.

On the cost side, revenue costs in Q2 increased by 5% year-over-year to RMB 4.3 billion, resulting in a gross profit of RMB 1.8 billion, up 49% year-over-year.

Gross margin in Q2 reached 29.9%, up from 23.1% in the same period last year.

Operating expenses in Q2 2024 decreased by 3% year-over-year to RMB 2.4 billion. Sales and marketing expenses rose by 13% to RMB 1 billion, mainly due to increased marketing for new game launches.

General and administrative expenses were RMB 488 million, down 10% year-over-year, while R&D expenses were RMB 895 million, down 15%, primarily due to workforce reductions.

Adjusted operating loss and adjusted net loss narrowed to RMB 284 million and RMB 271 million, down 69% and 72% year-over-year, respectively.

In Q2 2024, the adjusted net loss margin decreased to 4% from 18% in the same period last year. H1 operating cash flow totaled RMB 2.4 billion.

As of June 30, 2024, cash and cash equivalents, time deposits, and short-term investments totaled RMB 13.9 billion (~$1.9 billion).

Bilibili's H1 2024 performance shows that revenue growth and narrowing losses rely primarily on two traditional internet drivers—advertising and gaming.

As a platform with massive traffic and high-quality users, advertising is a natural monetization tool. However, unlike other long-video platforms with pre-roll ads (minimum 15 seconds), Bilibili has prioritized user experience, sacrificing some ad revenue.

Additionally, Bilibili's UGC content, while high-quality, lacks the polished ad integrations seen in platforms like Youku, iQiyi, and Tencent Video.

Nevertheless, Bilibili has avoided aggressive monetization, gradually refining its ad delivery methods.

In the current landscape, neither service providers, advertisers, traffic owners, nor users are the ultimate deciders—user habits are the invisible hand behind monetization and community growth.

If Bilibili finds a unique ad model distinct from domestic video platforms and YouTube, it could pioneer a new monetization paradigm.

This remains speculative for now.

The second pillar is gaming, Bilibili's historical strength. Over time, platforms like Huya, Douyu, and YY have faded, while Bilibili and Douyin emerged as traffic giants. Bilibili's early-mover advantage in conversion is evident. The success of *Three Kingdoms: Tactics* has been pivotal, but relying on a few games is insufficient for sustained profitability. Thus, cost-cutting has been crucial.

Cost reduction is a trend among Chinese internet firms, inspired by iQiyi's profitability through layoffs. However, layoffs require finesse.

Bilibili's deliberate approach is commendable. Like Tencent, slow but thoughtful product development ensures longevity. Bilibili must further optimize its revenue structure and monetization strategy. History shows advertising and gaming are the best paths, but balancing user demographics—now older and broader—is key.

During the earnings call, investors focused on ads, gaming, and users, indicating Bilibili needs better execution.

[Q&A]

Q: What drove the strong ad growth in Q2? How do you view H2 ad trends?

A: Despite macroeconomic challenges, ad revenue grew 30% year-over-year in Q2, exceeding RMB 2 billion for the first time and accounting for one-third of total revenue. Bilibili's ad business has grown rapidly for multiple quarters, underpinned by traffic growth and rising user commercial value.

DAU grew 6% year-over-year, and video views rose 18%, reflecting expanding commercial traffic. Over 70% of Chinese youth use Bilibili, with the average user age now 25—a demographic with growing consumption power. This is evident in video categories like home & real estate (+39%), automotive (+43%), fashion & beauty (+30%), and parenting (+80%).

Our "horizontal + vertical" ad strategy has been key. The "horizontal" focus is infrastructure, while "vertical" targets industry-specific solutions. Upgrades to our ad platform improved targeting. For example, the revamped PC ad tool attracted 50% more performance advertisers. Our AI-powered creative center boosted ad conversion rates by 30%+.

Top ad verticals in Q2 were gaming, e-commerce, digital/home appliances, F&B, and automotive, with e-commerce and digital/home appliances driving the most growth.

E-commerce is a highlight. Our open-loop strategy deepened collaboration with major platforms during 618, securing more merchant budgets. 618 ad spend from e-commerce clients surged 300% year-over-year, with GMV up 140%. New customer acquisition rates exceeded 50%, hitting 70%+ in parenting. Nearly 40 million users watched live commerce content in Q2 (+70% year-over-year), with live streams up 270%.

Female users, now half of Bilibili's base, are unlocking spending potential. Fashion ad spend grew 4x year-over-year.

Looking ahead, we expect to outpace industry growth, supported by ad product upgrades and vertical expansion into education, healthcare, and parenting.

Lastly, Bilibili's revenue isn't ad-dependent. We balance user payments and ads, as our community willingly supports creators. This dual model—gaming, memberships, live streaming, and ads—will drive future growth.

Q: What drove *Three Kingdoms: Tactics*' success? What’s its lifecycle outlook? Any new gaming plans?

A: *Three Kingdoms: Tactics* was a breakout hit, topping iOS charts and becoming Bilibili's fastest game to RMB 1 billion in revenue. Its Season 2 launch on August 3 met expectations, reinforcing our long-term 运营信心。

This success stems from our two-year "youth-oriented gaming" strategy. The project began in 2022 with dedicated R&D. As Bilibili's MAU tripled to 340 million, gaming audiences expanded beyond ACG. For instance, history/military content fans overlap with SLG players. We identified this demand and developed "New SLG"—addressing pain points in existing SLGs while attracting younger users.

This approach applies to other genres. SLGs typically have long lifecycles (8+ years), and we aim to operate *Three Kingdoms: Tactics* for 5+ years by prioritizing player feedback.

Q: How has content consumption shifted as Bilibili's average user age reaches 25?

A: Older users have diversified content. Lifestyle categories like home/auto/fashion grew 30%+, while parenting videos surged 80%. Bilibili is now a go-to platform for major purchases—e.g., 73 million users researched cars monthly in H1. Our in-depth reviews excel for high-trust decisions.

Traditional interests (gaming/knowledge/tech) also grew 20%+. For example, *Black Myth: Wukong* drew 20K+ simultaneous live streams on launch day.

Q: With rising margins and cash flow, what’s the H2 financial outlook? Can you achieve profitability?

A: Q2 demonstrated our margin potential: revenue up 15%, gross profit up 49%, and gross margin hitting 29.9% (+680 bps year-over-year). H1 operating cash flow was RMB 2.4 billion.

For Q3, deferred revenue grew RMB 770 million sequentially, supporting further growth. We expect ads and gaming to drive top-line expansion with margin improvements. Beyond Non-GAAP breakeven, we aim for meaningful GAAP operating profit. Cost discipline will sustain margin gains into 2025.

Q: How is Bilibili applying AI?

A: Bilibili hosts China's richest AI content due to its educated, urban user base. Monthly AI video viewers exceed 80 million. We pioneered AI-assisted 创作 tools (e.g., "AI Sun Yanzi" covers) and host AI short film contests. For users, AI search and summarization enhance 体验. Partnerships with AI firms (e.g., video-generation R&D) will expand capabilities.$Bilibili(BILI.US)