Bilibili recently released its fourth-quarter and full-year financial report, revealing several key points: The company’s adjusted net loss for 2023 was 3.4 billion yuan, a decrease from the same period last year, with the loss narrowing by 49% year-over-year. The operating cash flow for the fourth quarter exceeded 600 million yuan, marking a positive operating cash flow for the year. Bilibili plans to achieve a positive adjusted operating profit by the third quarter of 2024, officially entering profitability.
Investment research institutions have complex views on this financial report: Although Bilibili’s overall financial condition seems to be improving, growth is mainly driven by strict cost control. For example, total net revenue for the fourth quarter was 6.3 billion yuan, only a 3% increase year-over-year, while sales and marketing expenses decreased by 20% compared to last year. The cost of revenue sharing in operating costs saw the lowest increase in years at just 4%, which is particularly noteworthy given the double-digit growth in the number of content creators (UP masters).
From the business segment analysis, despite strong revenue performance in advertising and value-added services, the performance of the gaming business and IP-related merchandise business did not show improvement, declining by 20% and 29%, respectively.
After the release of the financial report, a renowned investment bank has adjusted its revenue forecasts for Bilibili: increasing it by 0.4%, and predicting that the net profit margin will grow by 1.7 percentage points, reflecting the slowdown in gaming revenue growth, offset by cuts in R&D and control of administrative expenses. As a result, the bank lowered its target price from HK$121 to HK$105 and gave a neutral rating.
Regarding future plans, Bilibili’s CEO Chen Rui emphasized two major tasks during the earnings call: First, to achieve the profitability target by the third quarter of 2024, and second is to maintain the healthy development of the content ecosystem.
What the market is most concerned about is the gaming business, which was once the company’s support but has now become a drag on performance. Analysts did not mention any doubts related to the gaming business during the earnings call, and this area has transformed from being once vital to investors to a part that no longer receives attention.
Advertising and value-added services (including live streaming, content payment, and premium memberships) have demonstrated the potential to offset the impact of the decline in the gaming business. However, for these two businesses, Douyin has already encountered growth ceilings and will also face fierce competition in the new blue ocean of video number. That is to say, Bilibili will face intense competition from ByteDance and Tencent, two corporate giants.
The advertising business, in particular, is extremely important, with a 28% year-over-year growth in the fourth quarter and a 27% growth for the full year, becoming the fastest-growing part of the company’s revenue. Moreover, the share of advertising business in total revenue has climbed from 23% in 2022 to 28% in 2023. Among them, game advertising and e-commerce advertising have played significant roles in driving business development.
After experiencing the e-commerce events such as “Double Eleven,” “Double Twelve,” and the Chinese New Year Goods Festival: The GMV for product promotion during “Double Eleven” increased by more than 250% compared to the same period last year, and the number of live streaming sessions for product promotion also showed more than 100% year-over-year growth, reflecting the company’s great potential in the advertising and value-added service sectors.
In the area of digital marketing, certain industry data is particularly striking. For example, in the field of mother and baby care, despite many considering Bilibili’s audience to be rather young, this domain has already brought in nearly 90% new users for e-commerce platforms and brand customers. Looking ahead, it’s without a doubt that industries ranging from automobiles to digital products, as well as home furnishings, household appliances, internet services, finance, and education, are expected to achieve significant growth.
For Bilibili, the advertising business not only signifies the ability to increase profits but also provides a solution for content creators (that is, UP hosts) to secure their economic sources, which becomes particularly crucial as the platform commits to controlling the cost of revenue sharing. It is understood that in the fourth quarter, an average of over 60,000 UP hosts participated in product promotion every day.
Currently, Bilibili’s potential for advertising has not been fully tapped. The platform has just begun to educate its users on commerce, while still maintaining a relatively low rate of advertising load, but this situation is likely to change this year. With a focus on penetrating community scenarios and upgrading traffic strategies, Bilibili aims to seek growth in effective ad load rates across various scenarios including Story, PC, and OTT, and in 2024, it plans to focus on combining Bilibili’s high traffic scenarios such as dynamics, search, trending topics, and other natural community scenarios to cultivate new advertising models. Technical progress, such as the development of composite ranking algorithm strategies and native advertising, are expected to enhance the ability to monetize traffic and thus release more advertising inventory.
In the current buyer’s market, securing advertising revenue has become more challenging, with numerous advertising agencies entering the market, the gradual recovery of advertisers’ budgets, and fierce market competition. A single ad might have to face competition from the likes of Douyin, Kuaishou, Xiaohongshu, Video Accounts, and Bilibili, turning the advertising market into one that is typified by a supply that fails to meet demand. Even platforms like Douyin are seeking new growth points. In such a competitive environment, Bilibili has shown extraordinary competitiveness.
Bilibili’s core competitive advantage lies in its assembly of China’s youngest user base. These young individuals, with an average age of 24, are just entering society and are at a stage of increasing consumer power, making Bilibili an indispensable platform for brands to build consumer awareness, whether for short-term transaction conversion or for establishing long-term consumer cognition.
In terms of value-added services, which include live broadcasting, paid content, and VIP memberships, performance has been stable in maintaining platform profits and solving economic sources for UP hosts, also bringing some surprises. Although this business also faces fierce competition with other content platforms, it achieved a year-over-year increase of 22% in the fourth quarter, growing by 14% for the full year, second only to advertising. Last year, 1.8 million UP hosts earned income through live broadcasting, and in 2023, monthly subscriptions to the “Big Voyage” program have accounted for nearly one-third of the live broadcasting revenue. Notably, “Big Voyage” is Bilibili’s live premium membership system, whose membership fees far exceed those of Douyin’s, showcasing Bilibili’s strong competitive edge in this field.
Chen Rui believes that this data proves the uniqueness of Bilibili live streaming.“Many people think of live streaming as impulsive spending, but most of Bilibili’s live streams are actually the result of fans’ emotional investment over a long-term following of their favorite UP-hosts,” said Chen Rui. “The shortest duration for the ‘Big Sailor’ project is one month, and quite a lot of users actually subscribe to the UP-hosts continuously.”
Additionally, in the fourth quarter, the size of Bilibili’s premium membership reached 21.9 million, with an increase of 800,000 from the previous quarter, the pay rate is 6.5%, and the renewal rate for annual members has reached an astonishing 80%. The achievement was unexpected because the pace of new anime series updates was affected since the content review tightened. Series that are currently being serialized either couldn’t be released on time or had their update delayed by 2-3 weeks. This was a harsh blow to the seasoned viewers. However, the 80% renewal rate for annual members seems to indicate that Bilibili’s reliance on imported anime series wasn’t as significant as previously thought.
2024 is a crucial year for Bilibili to fulfill Chen Rui’s promise of “achieving Non-GAAP breakeven.” At present, Bilibili has taken a solid step on the path to profitability. Although the future of its gaming business is closely linked to the uncertain outlook of the entire industry, Bilibili has found a certain level of security in advertising and value-added services. “In 2024, we expect to see double-digit revenue growth, and the growth rate of advertising income will be even faster,” CFO Sam Fan revealed. “With the continuous improvement of gross margin and the rapid development of the high-gross-margin advertising business, we expect our gross profit to maintain rapid growth in 2024.” He also mentioned, “In terms of expenses, we will continue to improve operational efficiency, and we expect the adjusted operating profit to turn positive by the third quarter of 2024.”
Just before the doorstep of a profitable outlook, Bilibili is showing a robust pace and a bright future.
