On the evening of November 29th, Bilibili (NASDAQ: BILI, HKEX: 9626; hereinafter referred to as "Bilibili") released its unaudited financial report for the third quarter ended September 30, 2023. The financial report shows that the total revenue of Bilibili in the third quarter reached 5.81 billion yuan, a slight increase of 0.19% year-on-year; Net loss of 1.3 billion yuan, a year-on-year decrease of 22%; The adjusted net loss narrowed by 51% year-on-year to 863 million yuan.
"Cost reduction" has been a key keyword for this company in the past two years. In this quarter, Bilibili once again achieved its goal of continuing to reduce losses, with a year-on-year decrease of 12% in total operating expenses and a continuous increase in gross profit margin for five consecutive quarters, from 18% in the same period last year to 25%.
However, in terms of various businesses, the community advantage of Bilibili has not brought strong growth to it, and both gaming and IP derivative businesses have decreased year-on-year, dragging down its commercialization process. When user growth and commercialization become the dual challenges that Bilibili needs to consider, how can it open up resources and reduce costs?
Spending Small Money for Growth
When internet companies are generally experiencing a peak in traffic, Bilibili relies on content communities to maintain its foundation. According to the financial report, the quarterly DAU of Bilibili exceeded 100 million for the first time, with a year-on-year increase of 21% in the number of daily active UP owners and a year-on-year increase of 36% in the number of UP owners with over 10000 followers; The average monthly video submission volume increased by 37% year-on-year, reaching 21 million.
According to a report by LatePost, at an internal meeting in the middle of this year, Chen Rui, Chairman and CEO of Bilibili, proposed the goal of doubling the daily active users (DAUs) on the mobile end of the main site, but did not provide a clear timeline for achieving this goal. An internal employee of Station B once told the interface news that Station B had set up a user growth department in the previous two years and recruited many ByteDance employees.
But under the big proposition of reducing costs and increasing efficiency, Bilibili no longer chooses to break through the circle with high investment.
At the financial report conference call, Chen Rui stated that since the third quarter of last year, Bilibili has been paying more attention to the cost-effectiveness of new customers, and the company is currently using less market expenses than in the past to grow. Specifically, the pursuit of higher quality DAU and commercial user growth is mainly achieved through the improvement of product capabilities and operational efficiency, as well as leveraging the advantages of our own community.
The so-called "same direction as commercialization" refers to Bilibili's efforts to increase more content that is in line with market monetization trends. Internally, the main station operators of Bilibili have already carried the indicator of commercialization.
According to Bilibili, the daily average submission volume of technology categories in the third quarter increased by 80% year-on-year, while the daily average video submission volume of home appliances categories increased by 89% year-on-year, and the video playback volume of mother, baby, and parent-child categories increased by 170% year-on-year.
These categories are also outstanding players in Bilibili's advertising business for the quarter. In the third quarter, the total advertising revenue of Bilibili reached 1.64 billion yuan, a year-on-year increase of 21%. The top five advertising industries were gaming, digital home appliances, e-commerce, food and beverage, and automobiles.
For a community platform like Bilibili, the size of users and their payment ability directly affect the brand owner's willingness to invest, which in turn affects advertising revenue. In this quarter, advertising revenue accounted for 28% of the total revenue and has become a pillar of revenue for several consecutive quarters. Therefore, it is not difficult to understand why Bilibili is still cautiously seeking user growth.
Chen Rui also explained that the primary reason for valuing user growth is that the user base is the core competitiveness of all internet platform products; Secondly, as an internet platform product, the basis for commercialization is user volume. He said that currently, the two important sectors of Bilibili's revenue - advertising and live streaming - are essentially due to year-on-year growth in user base. "The increase in advertising monetization efficiency and the growth of live streaming will also generate a portion of creators' income. After creators receive income, they will have more investment, forming a positive ecological cycle."
However, Chen Rui also emphasized that during the process of market launch, the company will strictly assess ROI (return on investment) to ensure the efficiency of market launch is positive.
Can live streaming drive the whole body to exert force while games are dragging us down?
Just recently, ByteDance announced a large-scale business contraction of its game business, making the investment and return considerations of Internet companies for the game business the focus of attention. Bilibili has also been questioned due to its gaming business.
In the third quarter, the revenue of Bilibili's gaming business reached 990 million yuan, a month on month increase of 11%, but a year-on-year decrease of 33%. The financial report explains that the main reason for the decline is the higher base and lower than expected revenue of Space Hunter 3 released in June 2022, as well as lower than expected revenue for certain new games in the third quarter of 2023.
Not long ago, Bilibili just announced the dissolution of its Guangzhou R&D studio Xinyuan Interactive. Initially, Bilibili acquired the company for 800 million yuan. As of now, Bilibili has not provided an official response to this.
But during the financial report conference call, Chen Rui specifically talked about the issue of self-developed games. He believes that the competition in the entire gaming market this year is not just fierce, but the dividend of new game users has faded and entered the standard stock competition stage, so the competition rules in the market have changed.
"When there is a new user dividend, the market is friendly to new products, as long as you do well in game quality, you can make money. However, in the stock stage, even if the game quality is good, it may not be useful. You either do the best or do it very differently from others." Chen Rui believes that this is the main reason why the performance of the vast majority of newly released games this year is lower than expected.
In Chen Rui's view, game project approval in the new market environment needs to meet three standards: first, long-term operation; Secondly, it should be at least one head, either the head of all categories (super head) or the head of vertical categories; The third is reasonable cost.
Following this standard, Bilibili has sorted out its internal self-developed projects this year and has also cut some projects. "If not adjusted, it will not meet the current market requirements and cannot make money when it goes online." Chen Rui said that currently Bilibili still retains some self-developed game projects and will focus resources on them in the future.
It is unclear whether the "contraction+concentration" strategy adopted by Bilibili for gaming business will be effective, but the company's emphasis on value-added service business is already evident.
In the past, games and advertisements respectively brought remarkable growth to Bilibili, but after 2020, value-added services mainly based on live streaming have become a cash cow. The value-added service revenue of Bilibili reached 2.6 billion yuan in the quarter, a year-on-year increase of 17%.
Live streaming business has the characteristic of high gross profit margin, which is a major advantage for Bilibili that is eager to stop losses. However, it must be pointed out that there are also concerns about weak growth in the value-added service business of Bilibili, and the year-on-year growth rate in the past few quarters has not been continuously increasing. In addition, the revenue from Bilibili's IP derivatives and other businesses in the third quarter also decreased by 23% year-on-year.
This means that Bilibili needs to compensate for the uncertainty of the other two businesses with the growth of its live streaming and advertising businesses, accelerating its profitability - this path seems to be more difficult than imagined. Due to lower than expected revenue from mobile games, the company expects its total net revenue for the entire year of 2023 to be at the low end of the range of 22.5 billion yuan to 23.5 billion yuan.
As of September 30, 2023, the total amount of cash and cash equivalents, fixed deposits, and short-term investments held by the company was RMB 14.5 billion.
After the financial report was released, the US stock market on Bilibili fell more than 6% before trading.