Bilibili Inc. (NASDAQ:BILI) Q4 2023 Earnings Call Transcript

Bilibili Inc. (NASDAQ:BILI) Q4 2023 Earnings Call Transcript March 7, 2024

Bilibili Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Bilibili’s 2023 Fourth Quarter and Fiscal Year Financial Results and Business Update Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please go ahead.

Juliet Yang: Thank you, operator. During this call, we’ll discuss business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today’s news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purpose only. Definition of these measures and a reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili IR website at ir.bilibili.com.

Joining us today from Bilibili’s senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Lee, Vice Chairwoman of the Board and Chief Operating Officer; and Mr. Xin Fan, Chief Financial Officer. And I will now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Xin Fan: Thank you, Juliet, and thank you, everyone, for participating in our 2023 year-end conference call to discuss our financial and operating results. I’m pleased to deliver today’s opening remarks on behalf of Mr. Chen. In 2023, we navigated a landscape of challenges and opportunities and achieved a number of important milestones on community growth, commercialization efficiency improvement, margin expansion and loss cutting. Let’s review these achievements in more detail. To begin with, we exited the year with over 100 million BAUs, 336 million MAUs and other healthy community metrics across the board. Daily user time spend remained robust at over 95 minutes on average in the fourth quarter. We continue to emphasize and dedicate resources to reinforce our content ecosystem, support our creators and foster an inspiring community.

In 2023, over 3 million content creators earned income on our platform, up 30% year-over-year. Further enabling talented content creators to expand their fan base and make money will be one of our most important tasks for 2024. Another highlight for the year was our progress in improving our commercialization efficiency. We stepped up our efforts to incorporate advertising and VAS business in a way that native to our content ecosystem. Driven by strong performance-based ads, our ad revenue grew by 28% in the fourth quarter and 27% for the full year. VAS revenues grew by 22% in the fourth quarter and 14% for the full year or on year-over-year basis. With this growth, our total revenues for the full year came in at RMB 22.5 billion, among which as revenue made a higher contribution, rising from 23% in 2022 to 28% in 2023.

Increased revenue contribution from our high-margin advertising business and effective cost control drove our gross profit up by 33% year-over-year, and our gross profit margin reached 26.1% in the fourth quarter, marking the sixth consecutive quarter of margin improvement. For the full year, our gross profit grew by 41%, and our gross profit margin increased to 24.2% from 17.6% in 2022. Consequently, we significantly narrowed our adjusted net loss by 58% year-over-year in the fourth quarter and by 49% for the full year. Notably, we generated RMB 640 million in positive operating cash flow in the fourth quarter, and our full year operating cash flow also turned positive in 2023. This cash place us a solid footing to reach our profitability growth.

2023 has shown the effectiveness of our strategy and provided a solid foundation for our success in 2024. As we approach profitability, we are keeping our fundamental goal in mind to create value for our users. We do this by expanding our content offerings, supporting our creator and fostering a vibrant and growing community that people love. Our industry is still benefiting from the wave of visualization with the fast-evolving generative AI and a tailwind. This leaves us with a long runway for growth. We remain confident that our virtuous growth cycle of user expansion and the commercial capabilities will create increasing value for our users, creators and shareholders. With that overview, I’d like to discuss our core pillars of content, community and commercialization in more detail, beginning with content and community.

An ever-growing content ecosystem is vital for our community’s health and vibrancy. For the fourth quarter, daily active content creators grew by 16% and the monthly new content submission rose by 31%, both year-over-year, as we continue to facilitate connections between high-quality content and creators with VAS. Content creators with over 10,000 followers were up 30% year-over-year in the fourth quarter. In January 2024, we honored top 100 content creators, our sixth and new Bilibili Power Up 2023 Award ceremony to recognize their creations and contributions to our community, among which 39 content creators received the award for the first time. These top 100 content creators excelled on our platform, successfully accumulating a total of over 400 million followers.

With the thriving content ecosystem, Bilibili has become a favorite platform across different age groups and genders. In the fourth quarter, the average age of our active user base was 24. As our existing users gradually mature, their interest involved and consumption increases. In 2023, baby and maternity, automotive, traveling, fashion and clothing categories demonstrated the highest growth in the video views. Each of these categories carry significant commercial value. The boundary between interest base and commercial content has also blurred. In 2023, the number of commercial-related content with over 1 million video views more than doubled year-over-year. Meanwhile, over 3 million content creators made money through our various channels in 2023, among which the number of content creators who earned income via video and live commerce was up 133% year-over-year.

With more content creators and a better content ecosystem, our users remain highly engaged and the community continues to survive. For the full-year 2023, our average daily video views increased by 25% year-over-year to 4.3 billion. Our users spent 97 minutes daily on the platform during the same period. Monthly average interactions also grew by 14% year-over-year to over 15 billion in 2023. By the end of 2023, we had 230 million official members, 18% more than in the prior year, and the 12-month retention rate remains strong at around 80%. Additionally, we closed the year with our fifth New Year’s Eve Gala, the most beautiful night of 2023, emerging as a youth’s must watch online New Year celebration. The event garnered 100 million playbacks within 24 hours and received the most industry sponsored participation ever in its history.

Lastly, I’d like to talk about commercialization and dive into each of our business lines. Our surviving interactive community is the cornerstone of our commercialization model. In the fourth quarter, our VAS revenue were up 22% year-over-year to RMB 2.9 billion and up 14% to RMB 9.9 billion for the full year. These increases were primarily driven by robust growth in our live broadcasting revenues. Our live broadcasting universe continue to be more diverse as we convert more host talents from our video content creator pool. In 2024, we will continue to integrate live broadcasting into our video ecosystem. By introducing more high quality hosts and enhancing various tools and recommendation algorithms, we aim to convert more paying users on our platform.

At the same time, our featured live broadcasting content and products, like VTuber, a celebration system, will continue to elevate payment activities and offer more monetization opportunity for us. In terms of memberships. By the end of 2023, we had 21.9 million premium members. Our members continue to demonstrate high brand loyalty and trust with over 80% subscribing annual or auto renew packages. Additionally, users continue to exert increasing spending power on other featured products and experiences. Turning to our advertising business. We made some exciting progress. In 2023, our total advertising revenues increased by 28% to RMB 1.9 billion for the fourth quarter and were up by 27% to RMB 6.4 billion for the full year, both on a year-over-year basis.

Robust revenue growth in our performance-based ads was the most significant contributor, increasing over 60% year-over-year for the quarter and over 50% for the full year. We also achieved positive year-on-year growth in brand and in native ad revenues throughout the year. We credit our solid ad revenue growth to our unique position at the most densely populated community of the young generation and our ability to connect with them in their own language. In the meantime, we continue to enhance our ad infrastructure including product optimization and algorithm improvement. This enables advertisers not only to improve their brand equity and influence user purchasing decisions, but also direct convert sales on Bilibili. In the fourth quarter, our top five advertising verticals were game, e-commerce, digital products and home appliance, automotive and skin care and cosmetics.

Among these verticals, the e-commerce and game sectors stood out with impressive results. Over the course of 2023, we deepened our collaboration with e-commerce advertisers. We further integrated direct sales conversion tools into our video and live commerce ad products. This enabled our users to seamlessly transition from viewing content to making relevant purchase, enhancing our ad conversion efficiency and the user experience. Meanwhile, our deeper data collaboration with key e-commerce platforms further improved accuracy and efficiency of our ad recommendation algorithms. In 2023, the number of users engaging in consumption-related behaviors increased by over 200% year-over-year. Meanwhile, we successfully gained more marketing budgets from key game developers during the fourth quarter as they launch new games and promoted the existing game updates.

We maintained our position as an effective channel to convert gamers and must invest in community to view games IP, thanks to our integrated advertising strategy and extensive resources within our gaming ecosystem. While we are encouraged by the progress we made in our advertising business in 2023, we believe there is still great potential and ample room for growth. In 2024, we will further integrate ads with our content ecosystem in a more native, natural and seamless way. We will prioritize our resources to improve ads infrastructure, including upgrading and refining our ad products, further optimizing the accuracy and efficiency of ad algorithms. We will also actively explore generative AI for ad material creation supporting productivity for advertisers.

Industry-wise, we’ll continue to expand our shares in our leading games and e-commerce sectors and gain more presence in digital products and home appliance, skin care and cosmetics and automotive verticals. Turning to our game business. Total game revenues increased 2% quarter-over-quarter to RMB 1 billion in the fourth quarter, coming in at RMB 4 billion for the full year. Currently, three titles in our top line have been approved for release in the domestic market in the coming quarters. One Japanese card game have brand [indiscernible], one domestic SLG game [indiscernible], and other domestic card game, Artifactory [indiscernible]. In addition, we are able to create value for our broader game partners by increasing integrating our advertising products with our game distribution capabilities.

As for our self-developed game, we stimulize our resources and adapt a more selective game development strategy in 2023. The refined strategy will enable us to reduce our R&D expenses in 2024 while keeping us lean and focused on top-quality projects. Looking forward, our priorities in 2024 are consistent with 2023. We will further improve our commercialization capabilities by strengthening our technology infrastructure and improving our product offerings, particularly for our advertising and live broadcasting business. Company-wide, we aim to further improve our operation efficiency with a tight and targeted expense structure. Overall, we are dedicated to developing content ecosystem, enabling our content creators to earn more money and further expanding our user base.

We believe these endeavors will lead us to reach our goal of profitability and set the stage for sustainable growth for many years ahead. This concludes Mr. Chen’s remarks. I will now provide a brief overview of our financial results for the fourth quarter of 2023. In the interest of time, on today’s call, I will be reviewing our fourth quarter highlights as Mr. Chen’s remarks has touched on our full year results at a high level. We encourage you to refer to our press release issued earlier today for a closer look at our full year results. Throughout 2023, our financial profile improved significantly alongside our community growth and ecosystem expansion. Of particular importance are the gains we made in our revenues, gross profit and the reduction in adjusted net loss, which we narrowed for the sixth consecutive quarter.

Total net revenues for the fourth quarter was RMB 6.3 billion, up 3% year-over-year. Our total net revenues break down by the revenue stream for the fourth quarter was approximately 45% VAS, 30% advertising, 16% mobile games and 9% from our IP directives and other businesses. Our cost of revenues decreased by 4% year-over-year to RMB 4.7 billion in the fourth quarter, driving our gross profit to RMB 1.7 billion, up 33% year-over-year. Our gross profit margin exceed 26% in the fourth quarter, up from 20% in the same period last year. We expect our gross profit margin to continue to improve in 2024. Our total operating expenses were down 17% year-over-year to RMB 3 billion in the fourth quarter. We cut our sales and marketing expenses by 11% year-over-year to RMB 1.1 billion.

Sales and marketing expenses were 18% of total revenues compared with 21% in the same period last year. G&A expenses was RMB 512 million, down 37% year-over-year. R&D expenses was RMB 1.3 billion, down 11% year-over-year. As a result, we narrowed our adjusted operating loss and adjusted net loss by 53% and 58% year-over-year in the fourth quarter, respectively. Our adjusted net loss ratio for the fourth quarter was 9%, improving from 21% for the same period a year ago. Notably, for the fourth quarter, we also generated RMB 640 million positive operating cash flow, demonstrating that our business is entering a healthy path for sustainable development. We expect to reach positive non-GAAP operating profit in Q3 2024 through our sustained top line growth and gross margin improvement.

As of December 31, 2023, we had cash and cash equivalents, time deposits and short-term investments of RMB 15 billion or US$2.1 billion. As of December 31, 2023, the aggregate outstanding principal amount of our convertible bonds was US$852 million. We believe our cash position is sufficient to cover all of our remaining capital bonds. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Thomas Chong of Jefferies.

Thomas Chong: [Foreign Language] My question is about our 2024 outlook. Can management share about your thoughts and strategies on our product offerings, user growth and commercialization?

Rui Chen: [Foreign Language]

Juliet Yang: Before I answer the question for 2024, I would like to take a moment to review our work done in 2023, which we have made decent progress in both community development and commercialization.

Rui Chen: [Foreign Language]

Juliet Yang: So first of all, our DAU surpassed 100 million, demonstrating our continuous healthy development of our community. Secondly is our advertising started to accelerate, achieved a 27% year-over-year growth. And this marks even for the — among our peers should be the one of the highest advertising revenue growth rate.

Rui Chen: [Foreign Language]

Juliet Yang: Our gross profit margin continued to increase over the past six quarters, reaching 26% in the fourth quarter, up 6 percentage points year-over-year. And our adjusted net loss narrowed by almost half, 49% year-over-year for the full year of 2023. And notably, we’ve also achieved positive operating cash flow for the full year.

Rui Chen: [Foreign Language]

Juliet Yang: Actually, we are very delighted to see that our community ecosystem has become more aligned with our commercial value. The commercial effort does not hurt our community development. But in contrary, it’s helping our community content ecosystem to be even stronger in 2023. Over 3 million of content creator earned income on Bilibili. This is reinforcing the development of our content creator.

Rui Chen: [Foreign Language]

Juliet Yang: And also, over 1.8 million creators earned income on Bilibili through our live broadcasting services, and the number of creator earning income over the advertising services almost doubled year-over-year.

Rui Chen: [Foreign Language]

Juliet Yang: Looking ahead into 2024, our focus remains consistent with 2023 with two main tasks. First of all is focus on our profitability. We’ll continue to strengthen our commercial capabilities and improve our commercialization efficiency at the same time to improve our gross margin and manage our cost. We expect to achieve non-GAAP operating profit — our non-GAAP operating profit will turn positive in Q3 2024.

Rui Chen: [Foreign Language]

Juliet Yang: While keeping our financial goal intact, we will continue to strengthen our content ecosystem by expanding our content richness and fostering very specific content categories to ensure the mindset of Bilibili being the go-to place for highest quality content.

Rui Chen: [Foreign Language]

Juliet Yang: And in 2024, we’ll focus on the discovering top content creator development and supporting them to make more money.

Rui Chen: [Foreign Language]

Juliet Yang: In terms of content categories, we’ll continue to solidify our existing advantages in ACG, gaming, tech knowledge and other categories while providing more support and assistance to new categories that have grown in response to change — users change of consumption demand, such as baby and maternity, travel, automotive and home decoration.

Rui Chen: [Foreign Language]

Juliet Yang: We believe with this effort and after achieving profitability, we’ll further achieve and enhance the virtuous cycle of our community ecosystem and to ensure sustainable growth in our both community and our profitability.

Operator: Our next question comes from Yiwen Zhang from China Renaissance.

Yiwen Zhang: [Foreign Language] My question is regarding about value-added service. So can you give us an update on why our development strategy for this business segment in ’24 and then including business now, including live broadcasting, premium membership and other value-added service.

Rui Chen: [Foreign Language]

Juliet Yang: On Bilibili, we have gathered a massive amount of high-quality content creator. And there’s also a welcoming home for diverse interest. Our users feel a strong sense of belonging in on Bilibili. All of this combined results in users very much willing to spend for content that they like, spend for content creator that they adore.

Rui Chen: [Foreign Language]

Juliet Yang: On Bilibili, users pay for content and services that they love. It’s the most natural business model for us. As people pay for the content and services they love, they actually — they are happy for that experience and they feel good about that experience. As for content creator, when they earn the income through this kind of services, they will have an even stronger sense of value and appreciation. And for our content creators, they will be even more motivated to continue to create content on Bilibili. For example, if our content creators are earning more income on Bilibili through selling his proprietary premium classes, this money will represent a much more sense of value over what he could have made in advertising.

Rui Chen: [Foreign Language]

Juliet Yang: Based on the service model or the connection within our community, we have developed our value-added services combining live broadcasting premium membership, comic, audio drama premium cores, fan charging, et cetera. And all of that is closely related to the current community and our content. In the fourth quarter, our overall VAS revenue grew by 22% year-over-year.

Rui Chen: [Foreign Language]

Juliet Yang: Among all that services, we believe within that, live broadcasting probably have moved the biggest potential and could grow the fastest because we believe live broadcasting is more universal. Anyone could be a live broadcasting host. Last year, 1.8 million of content creators earned income on Bilibili through live broadcasting, and this is a universal and very low entry barrier monetization model for all content creators.

Rui Chen: [Foreign Language]

Juliet Yang: Even though there are many platforms who’s doing live broadcasting business, but Bilibili’s live broadcasting is still very, very unique. That is because in terms of the content creators/host, as well as the content categories of our live broadcasting has very much similar offerings or mirrors what we have in the PUGV community.

Rui Chen: [Foreign Language]

Juliet Yang: I’ll make an example here. While many others might think live broadcasting is an impulse or hormone-driven payment. However, if you’re looking at Bilibili’s live broadcasting revenue component, close to one-third of our revenue actually generated from a monthly subscription model called the [indiscernible]. And for this particular payment is a reflection or representation of a fan devotion and appreciation for our content creator over at least a month. And many of our paid users are actually subscribing for several months ahead their renewal rate is very high. This example distinct us from the traditional live broadcasting platform because the connection with our content creators, the host and the user is quite unique and lasting.

Rui Chen: [Foreign Language]

Juliet Yang: As for the content supplier, which is the host. If we look at the fourth quarter, near 1 million hosts were active on Bilibili. Only a small portion of them were from professional guilds. Most of them are actually native content creator from our PUGV ecosystem. And this also sets us apart from other traditional live broadcasting platform is because that we’re cultivating our own supply and demand within our PUGV ecosystem.

Rui Chen: [Foreign Language]

Juliet Yang: Similarly, in terms of content categories, the content category in our PUGV can also be our live broadcasting categories, especially the categories where Bilibili has our own unique advantage, such as the virtual content creators. We are considered to be, if not the most leading platform in China. And also on knowledge-based content such as legal-related live broadcasting. It’s hard to imagine this category to be a top vertical on other platform, but it is very popular on Bilibili.

Rui Chen: [Foreign Language]

Juliet Yang: As for our priorities for live broadcasting business in 2024, we’ll be putting a lot of priorities in terms of the quality of our revenues as the gross profit and gross profit margin of this business. We hope to achieve sustainable and high-quality revenue growth in live broadcasting in 2024.

Operator: Our next question comes from Felix Liu from UBS.

Felix Liu: [Foreign Language] Let me translate myself. My question is on the advertisement business. I noticed that your fourth quarter advertisement delivered a strong growth momentum. So I check the reason behind this good performance. And what is your outlook for the advertisement business for 2024? What will be the key growth drivers from here?

Carly Lee: [Foreign Language]

Juliet Yang: Our advertising revenue in 2023 totaled about over RMB 6.4 billion, marking a 27% year-on-year growth. And in fourth quarter, advertising revenue grew by 28% year-over-year, contributing 30% of our total revenue, up from 25% in the same period last year. The increase in ad’s revenue and its proportion is directly a result of improving our gross margin and gross profit.

Carly Lee: [Foreign Language]

Juliet Yang: Please allow me to recap what we have done in 2023 and in the fourth quarter and the growth driver. Actually, in the beginning of 2023, we have put forward [indiscernible] strategy while paying close attention to the opportunity brought by the active commerce activities within our community. E-Home refers to the middle platform capabilities for commercialization, including our traffic strategy, algorithm capabilities and our data power development. And the e-zone refers to our vertical industry strategies. Our ultimate goal is to provide customers with a better ad placement experience and higher ROI, and then we have formed 10 vertical strategies for different industry verticals. We also believe in the revenue potential that bought from active commerce-related activities within our community. As we’re sticking to the open-loop strategy, we plan to connect Bilibili into a more broader ecosystem with our e-commerce partners.

Carly Lee: [Foreign Language]

Juliet Yang: As we have already shared a lot of information and cases about Bilibili’s strategy in previous calls, I will not dive into more detail here. However, because of that strategy, our advertising revenue has also exceeded expectations for the first three quarters of 2024. And now I will share some additional highlights in fourth quarter.

Carly Lee: [Foreign Language]

Juliet Yang: First, we are able to leverage our advantage in the big events in specific verticals and to catch the momentum of the new product launch stage. I’ll make two examples here. First of all, in the gaming industry, we have made record high growth during two new games’ open beta testing stage, such as the Dream Star as well as the Girls Frontline 2.

Carly Lee: [Foreign Language]

Juliet Yang: Another example is what we’ve seen in the e-commerce sector. So we actually hosted several e-commerce promotion events during 11/11, 12/12 and our New Year Shopping Festival, leveraging our video and live e-commerce capabilities. Here are some interesting numbers to share. During 11/11, the total GMV generated from our live and video e-commerce increased over 250% year-over-year. The number of live e-commerce sessions that happened on Bilibili also increased over 100%. And additionally, here are some interesting verticals, baby and maternity, it might sounds a little bit too mature for our users. However, we’re still able to bring over 90% of new users to the baby and maternity clients through our video and live e-commerce campaigns.

Carly Lee: [Foreign Language]

Juliet Yang: Secondly is that we have strengthened our advertisement placement capabilities. In the fourth quarter, our deep conversion capabilities, including provide ROI and order information within 24 hours, has gradually improved and matured. As a result, we’re able to achieve the budget target for our customers more accurately and therefore, gain more budget from them. Advertising with deep conversion pocket contributed over 30% of our total performance ad revenue in the fourth quarter.

Carly Lee: [Foreign Language]

Juliet Yang: And thirdly is that we have integrated our multiple product lines in terms of organizational structure as well as the product offerings. And for example, by integrating our Sparkle ads platform with our other ad products, we have further expanded the quantity and the quality of our native content, therefore, enhanced and expanded our customer’s lifespan and investment cycles on our platform. Those three reasons, combined with what we have said about the [indiscernible] strategy, is the key drivers for our fourth quarter advertising revenue growth.

Carly Lee: [Foreign Language]

Juliet Yang: As for the video and live e-commerce business that many investors were very interested about, I will share more detail on that. In 2023, we further integrated the commercial scenarios into our content ecosystem, influencing our users from product seeding to transaction conversion. In 2023, on daily average, over 26 million users has viewed our video e-commerce related content, and the number of users who live on the commerce-related videos and redirect to external platforms increased over 200%.

Carly Lee: [Foreign Language]

Juliet Yang: So actually, on the other side, the video and live e-commerce product also introduced new monetization and commercialization avenues for our content creators. In the fourth quarter, over 60,000 content creators has participated in video and live e-commerce-related activities on a daily basis. During 11/11, our home decorate — home and decoration content creator, Mr. Medan, has generated over RMB 1.6 billion GMV through Bilibili. This demonstrates Bilibili’s unique advantage in that — in comprehensive and in-depth long-form content, especially in durable consumer and retail sectors such as home and decoration and technologies and digital products.

Carly Lee: [Foreign Language]

Juliet Yang: And another example would be our — one of our female content creator [indiscernible]. In December, the total GMV of her single live e-commerce session has by her were over RMB 50 million. And this also represents the significant consumption potential of Bilibili’s female user base. And with [indiscernible] and [indiscernible], these two cases, we believe this is considered to be the leading showcase across our industry peers and also showed the great potential, commercialization potential of Bilibili’s community.

Carly Lee: [Foreign Language]

Juliet Yang: In 2023, the total GMV on Bilibili’s video and live e-commerce were over RMB 10 billion. We believe that the commercial value of Bilibili’s user base has just started to be realized, and there are enormous rooms for our future growth.

Carly Lee: [Foreign Language]

Juliet Yang: We maintain a very positive outlook for our advertising business in 2024, and we are quite confident to achieve a high growth rate in terms of advertising revenue. So first of all, I’ll let review Bilibili’s core advantage in advertising, which will be our user base. Bilibili has the highest density of young populations in China, and the value of our advertising platform lies within its own user base. With the average age of our user being 24 years old, we believe our users consuming power, buying power has just gradually — is gradually. And Bilibili has now become the go-to platform for advertisers to whether it’s improve their brand equity in the longer term or influence users purchase decision and converses in the short term, Bilibili has become the most invest advertising platform.

Carly Lee: [Foreign Language]

Juliet Yang: Additionally, for 2024, we plan to further upgrade our Ehang strategy. First of all, we will enhance our ad placement capabilities and improve its efficiency. This includes integrating our ad placement system, achieving intelligent and multiterminal app placement experience. And we plan to achieve automatic placement for our advertisers at some point this year, and we’ll further develop our data visualization tools, allowing clients to validate the results of their ad placement through multidimensional data placement. And we’ll also be very paying close attention and looking to what AIGC can bring to help us to improve ad efficiency. Secondly is that we will penetrate more community scenarios and upgrading our traffic strategies to improve our ad load effectively.

For example, building on our last year’s expansion into multi scenarios like story mode, PC and OTT, we will focus on integrating those scenarios as well as the moment page research function and other community scenarios. Meanwhile, we will also looking to enhance our monetization efficiency by arranging ad videos in a hybrid mode in the recommendation page and further promote native ads. To summarize, we’ll be effectively leveraging and increase our ad inventory and outlook in 2024.

Carly Lee: [Foreign Language]

Juliet Yang: Lastly, we’ll actively explore the client ad content creator model to encourage our advertising clients to create native content and open their own brand accounts on Bilibili. On the other hand, we will also be releasing the private domains for those advertisers and launch more interactive functions for them to interact with our users. Through these efforts, we aim to convert a single ad placement into a long-term operation and increase our clients’ brand equity.

Carly Lee: [Foreign Language]

Juliet Yang: Thirdly is on our [indiscernible] strategy. We believe we can replicate the successful experience we had in e-commerce and games last year and replicate that model into other fast-growing sectors such as automotive, tech, home and decoration, online services, finance and education, et cetera. And we do believe we can achieve high speed growth rate in those verticals as well. But lastly, to summarize, we believe the further foraging of our e-commerce ecosystem will bring us more pleasant surprises in advertising revenue in 2024.

Operator: Our next question comes from Lei Zhang from Bank of America Securities.

Lei Zhang: [Foreign Language] Can you give us more color on your financial outlook for 2024, including revenue breakeven path and our cash flow trend?

Xin Fan: I will take this question. As Mr. Chen mentioned earlier, one of our most important tasks for 2024 is to improve our financials and achieve profitability. The way we plan to achieve the target will be similar to what we have done in 2023, largely through the growth of the gross profit as well as expense management. Let me go through this in more detail. In 2023, our top line grew by 3% year-over-year. Our gross profit increased by over 40% year-over-year. In 2024, we expect our top line growth will accelerate and achieve double-digit growth rate with ad revenue grow at even faster rates. We expect our gross profit will also maintain high growth in 2024 as we further improve our gross profit margin, attributed by higher contribution from high-margin ad business.

Expense-wise, we will keep improving our operational efficiency. We expect to reach non-GAAP operating breakeven in Q3 this year. And let me share more color on our cash flow and balance sheet side. We have achieved positive operating cash flow in Q3 and Q4 2023. Especially in Q3, we have generated over RMB 600 million operating cash flow. That means our company has entered into a positive cycle for development. We expect to keep doing that and maintain positive operating cash flow throughout 2024. From the liability side, we have repurchased or repaid US$1.2 billion last year. Now on December 31, 2023, we had approximate US$2.1 billion cash reserve on our balance sheet compared with outstanding CB of US$860 million, our cash reserves are significant to cover all of our company debt.

Thank you.

Operator: And that concludes the question-and-answer session. Thank you once again for joining Bilibili’s fourth quarter and fiscal year 2023 financial results and business update conference call today. If you have any further questions, please contact Juliet Yang, Bilibili’s Executive IR Director or Piacente Financial Communications. Contact information for IR in both China and the U.S. can be found on today’s press release. Have a great day. That does conclude today’s conference call. You may now disconnect your lines.