Bilibili Inc. Q4 FY2022 Earnings Call

Good day, and welcome to Bilibili Fourth Quarter and Fiscal Year 2022 Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please, go ahead.

Thank you, operator. During this call, we'll discuss our 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 filing with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measures we provide are for comparison purposes only. Definitions of these measures and a reconciliation table are available in the news release we issued earlier today. As a reminder, this conference call 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 senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Li, Vice Chairwoman of the Board and Chief Operating Officer; and Mr. Sam 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.

Thank you, Juliet. And thank you, everyone, for participating in our 2022 fourth quarter and fiscal year financial and operating results conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In 2022, we proactively adjusted our strategies and reprioritized our goals to better align ourselves with the new industry paradigm. Specifically, we placed our focus on DAU growth and how to reach profitability, beginning our progress on these two fronts. First, our users and their engagement with our community remain the foundation of our business. By focusing on DAU growth, we are bringing higher-quality users to our platform, which ties in more closely to monetization potential. In Q4, our DAUs increased to 93 million, up 29% year-on-year. This brought our DAU to MAU ratio to 28%, a meaningful improvement from 26% in the same period last year. The average daily time spent per user on our platform reached 96 minutes, driving the total time spent on our platform up by 51% year-on-year. We will continue to accumulate our DAUs with optimized product offerings and algorithms and further support our commercial prospects with controlled sales and marketing spending. Second, we improved our commercialization efficiency and elevated cost reduction measures to bring us closer to our goal of profitability. Our total net revenues for 2022 were RMB21.9 billion, and the total net revenues for Q4 were RMB6.1 billion, up 6% year-on-year. Our gross margin improved to 20% in Q4 compared with 18% in the previous quarter. We continue to take measures to control our expenses and improve organizational efficiency. Specifically, in the first quarter, we cut sales and marketing expenses by 28% year-on-year. Sales and marketing expenses as a percentage of total net revenues reduced from 30% in the same period last year to 21% in the fourth quarter. We have also streamlined our personnel and trimmed our non-core and underperforming business. As a result, our non-GAAP net loss in the first quarter narrowed by 21% year-on-year and 26% quarter-on-quarter. As we move through 2023, our operational goal is to become a more efficient company. We will centralize our resources to focus on less, but more important tasks. Specifically, we plan to continue to grow our DAUs, improve our gross margin, and tighten our expenses. We believe we are on the right track to achieve our breakeven target by 2024. With that overview of our strategic approach and the progress, I'd now like to provide a brief update on our three core pillars of content, community, and commercialization. Starting with content. Our ever-growing content ecosystem is our most valuable asset. In the fourth quarter, our platform hosted 3.8 million content creators, 25% more than the same period a year ago. Creators submitted 17.6 million videos, up 62% year-on-year, both on a monthly basis. To encourage more users to turn their ideas into creation, we will provide them with more easy-to-use tools to get what the creator started. At the same time, more traffic will be led towards mid and long-tail creators. Our goal is to turn more users into creators, driving both our content offerings and user engagement. Expanded content scenarios are also attracting more traffic to Bilibili. For the fourth quarter, total daily video views were up 77% year-on-year to 3.9 billion. In particular, streaming more daily video views increased by 175% year-on-year, while PUGV daily video views increased by 56% in the first quarter. Story mode has allowed us to expand into the vertical video market, broadening our DAUs, increasing user time spent on our platform, and opening more commercial opportunities for us to pursue. To unlock our commercial potential, in 2022, we further integrated our commercial channels within our content ecosystem. The combination has created more immersive advertising opportunities and various monetization channels for content creators. Over 1.3 million content creators earned income through multiple channels on Bilibili in Q4, up 64% year-over-year. Looking at our community, our inclusive community environment and the robust interaction tools are creating a tighter bond between our users and our platform. In the fourth quarter, users' average daily time spent on Bilibili reached 96 minutes. Monthly interactions also increased by 35% year-on-year to 13.6 billion. And for the core members of our community, the number of official members reached 195 million in the fourth quarter, up 34% year-on-year, and their 12-month retention rate continued to exceed 80%. Now, let's review our commercialization progress and how we think about it moving forward. For the fourth quarter, our total net revenues reached RMB6.1 billion, up 6% year-over-year, and our full year revenue grew by 13% to RMB21.9 billion. We are now more focused on improving our commercialization efficiency and specifically on improving our gross margin at the company level. Now, I'd like to share more color on each of our commercial business lines. First, our VAS business. Revenues from VAS were RMB2.3 billion for the fourth quarter and RMB8.7 billion for the year, up 24% and 26% year-on-year, respectively. Live broadcasting, in particular, has shown solid growth. For 2022, revenues from live broadcasting increased by over 30%. Our strategy to integrate live broadcasting within our video ecosystem has prompted more creators to tap into the live broadcasting universe. This has helped to penetrate more video users, convert paying users, and optimize our revenue sharing structure organically. In the fourth quarter, the number of monthly active live broadcasting hosts increased by over 17%, and MPUs for live broadcasting grew by over 40%, both on a year-on-year basis. Looking ahead, live broadcasting will continue to be one of our primary revenue growth drivers. We expect to optimize our revenue sharing ratio and further improve live broadcasting gross margin. By the end of the fourth quarter, we had added nearly 1 million premium members from the prior period, reaching a total of 21.4 million premium memberships. We launched multiple Chinese anime titles during the period, including the highly anticipated title. In January 2023, our co-produced traditional Chinese style graphic anime became a smart hit, generating over 200 million video views on our platform. As for our advertising arm, we continue to gain market share in 2022. Advertising revenues were up by 12%, reaching RMB5.1 billion in 2022 and RMB1.5 billion in Q4. Our top-performing verticals in the first quarter were mobile games, e-commerce, digital products, home appliances, automotive, and skin care and cosmetics. In 2022, we further opened up our ecosystem to embrace more advertising opportunities across various video viewing scenarios. The new scenarios we introduced in story mode and improved sales conversion modules have proven our success in performance-based ads and carry higher ROIs. In the fourth quarter, our performance-based ad revenue grew by over 50% year-on-year. In addition, as our users mature and enter new life stages, the new consumption needs such as automotive and home appliances also attract more advertisers, and their ad budgets have been allocated to our platform. Moving into 2023, we will continue to invest in and improve our ad infrastructure and further integrate our capabilities within our content ecosystem. Turning to GaN, revenues for the year were RMB5 billion and RMB1.1 billion for the fourth quarter. We are committed to the strategy of developing in-house distributed globally. In Q4, we restructured our game development to effectively align with this goal. Specifically, we eliminated underperforming self-development projects and centralized our resources to focus on genres where we are already experts. In 2022, our self-development games contributed 5% of our total game revenues. We expect this ratio will continue to expand in 2023 as we roll out more self-development games. Looking at our pipeline, we are planning to launch two self-development games as well as six exclusively licensed titles in the second quarter of this year. As game license approvals have gradually resumed in China, we expect to engage in more opportunities in the domestic market. In summary, the new industry dynamics call for more efficient operations. In 2023, we will continue to centralize our resources to grow our DAUs, increase our gross margin and narrow our losses. Throughout this process, we will continue to strengthen our execution and tighten our spending while selectively investing in R&D to improve our commercialization efficiency. With these measures in place, we believe we are on the right track to reach our financial goals and become a stronger, more resilient and efficient organization. This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the fourth quarter of 2022 and outlook for the fiscal year of 2023. For a review of our fiscal year 2022 results, please see our press release issued earlier today. Total net revenues for the fourth quarter were RMB6.1 billion, up 6% from the same period in 2021. Our total net revenues breakdown by revenue streams were approximately 38% VAS, 25% advertising, 19% mobile games, and 18% for our e-commerce and other business. Cost of revenues increased by 4% year-over-year to RMB4.9 billion. Our gross profit in the first quarter was RMB1.2 billion, and our gross margin was 20.3%, up 2.1 percentage points sequentially. With our tightly controlled cost structure, we expect to show continued margin improvement throughout 2023. Total operating expenses were RMB3.6 billion, up 15% from the same period in 2021. As we work on increasing our commercial prospects, we are also keeping a lean cost structure, because we cut sales and marketing expenses in Q4 by 28% year-on-year to RMB1.3 billion, while DAU grew by 29% year-over-year. Sales and marketing expenses as a percentage of total revenues was also down to 21% compared to 30% in the same period last year. We will continue to control our sales and marketing expenses while delivering solid DAU growth in 2023. G&A expenses were RMB870 million, up 52% year-over-year. The increase was primarily due to a one-off surveillance paid of RMB252 million related to our organizational restructuring. R&D expenses were RMB1.5 billion, representing an 87% increase year-over-year, which was primarily due to increased R&D personnel and a one-off consolidation cost of RMB470 million related to certain game projects. As we move through 2023, we will take additional actions to reduce our operational expenses. We think our overall operating expenses peaked in 2022 and will start to decline in 2023. Net loss and adjusted net loss were RMB1.5 billion and RMB1.3 billion, narrowing by 29% and 21% year-over-year, respectively. Our net loss ratio in the fourth quarter was 24%, a very notable improvement from 36% for the same period a year ago. We expect to continue to narrow our losses in 2023. Turning to our capital allocation and liability management, we are keenly aware of our cash reserves and have taken steps to improve our balance sheet, which gives us the flexibility we need to reach our breakeven target by 2024. We are actively managing our liabilities and to improve our balance sheet. In the fourth quarter, we repurchased and retained a total principal amount of US$547 million notes for a total cash consideration of US$420 million. As part of our liability management plan in January 2023, we completed US$409 million equity offerings and note exchange program. We retained a principal amount of US$385 million of convertible notes for a consideration of US$331 million cash funded by this offering. The remaining US$69 million in proceeds were used to replenish our cash reserves. After these transactions, we currently have three outstanding convertible bonds that totaled US$1.6 billion. As of December 31, 2022, we had cash and cash equivalents, time deposits, and short-term investments of RMB19.6 billion or US$2.8 billion. We believe this amount is sufficient to cover all of our remaining convertible bonds and fund our future operations while we take further action to narrow our losses and reach non-GAAP breakeven by 2024. With that in mind, we are currently projecting net revenues for the full year of 2023 to be between RMB24 billion and RMB26 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Thank you. We will now begin the question-and-answer session. Our first question comes from Daniel Chen from JPMorgan. Please ask your question, Daniel.

Thank you, management, for the chance to ask a question. My question is about the outlook for 2023. With the economy slowly improving, what is our main business strategy for this year? What are the key points of focus from management's perspective? Thank you.

Thank you, management, for allowing me to ask a question. My question is regarding the outlook for 2023. With the economy slowly improving, what is our main business strategy for 2023? What are the key areas of focus from a management perspective? Thank you.

Starting from last year, we've noticed that the Internet industry has entered into a new era. Every company is more focused on the quality of the growth, the quality of revenue as well as improving gross margin and focus on cash flow, not just Chinese Internet companies; we noticed many US companies are doing the same thing.

Starting from last year, we've noticed that the Internet industry has entered into a new era. Every company is more focused on the quality of the growth, the quality of revenue as well as improving gross margin and focus on cash flow, not just Chinese Internet companies; we noticed many US companies are doing the same thing.

As for us, our key objective for 2023 would be to grow our top line and narrow our losses while focusing on achieving higher quality user growth.

The industry has entered into a new era. Every company is now more focused on the quality of growth, the quality of revenue, as well as improving gross margin and cash flow, not just Chinese Internet companies; we have observed that many US companies are doing the same. As for us, our key objective for 2023 will be to grow our top line and reduce our losses while concentrating on achieving higher quality user growth.

Overall, our business will be more focused on two important tasks. One is to increase our top line and narrow our loss. Number two is to increase our DAU.

Our key objective for 2023 is to grow our top line and reduce our losses while prioritizing higher quality user growth. Overall, our business will focus on two main tasks: increasing our top line and narrowing our losses, as well as boosting our daily active users.

As for us, our key objective for 2023 would be to grow our top line and narrow our losses while focusing on achieving higher quality user growth. Overall, our business will be more focused on two important tasks. One is to increase our top line and narrow our loss. Number two is to increase our daily active users.

When I say increase our top line, I'm referring to the increase of top line as well as our gross profit. We'll be focusing on improving our gross margin and narrowing our losses. In the fourth quarter, we've achieved gross margin improvement on a year-over-year and quarter-over-quarter basis. We also narrowed our net loss by 29% year-over-year. We expect that in 2023, our overall net loss will narrow more meaningfully to achieve our breakeven target by 2024.

When I mention increasing our top line, I am talking about the growth of our revenue along with our gross profit. Our focus will be on enhancing our gross margin and reducing our losses. In the fourth quarter, we saw improvements in gross margin both year-over-year and quarter-over-quarter. Additionally, we reduced our net loss by 29% compared to the previous year. We anticipate that in 2023, our overall net loss will decrease significantly as we aim to reach our breakeven goal by 2024.

On the user aspect, we will no longer just pursue the absolute number of MAU, but rather focus on the growth of our DAU, as well as the sales conversion of each DAU that can bring to the company.

On a year-over-year and quarter-over-quarter basis, we narrowed our net loss by 29% year-over-year. We expect that in 2023, our overall net loss will narrow more significantly to achieve our breakeven target by 2024. Regarding the user aspect, we will no longer just pursue the absolute number of monthly active users, but will instead focus on the growth of our daily active users, as well as the sales conversion of each daily active user that can benefit the company.

In 2023, we are expecting our DAU to MAU ratio to continue to improve. Currently, we're at 28%. We expect to increase to the 30% level.

We will no longer just pursue the absolute number of monthly active users, but rather focus on the growth of our daily active users, as well as the sales conversion of each daily active user that can benefit the company. In 2023, we anticipate an ongoing improvement in our daily active users to monthly active users ratio. Currently, we're at 28% and we aim to increase this to 30%.

This will mean better engagement, better stickiness of our company, as well as higher commercialization potential.

In 2023, we are expecting our DAU to MAU ratio to continue to improve. Currently, we're at 28%. We expect to increase to the 30% level. This will mean better engagement, better stickiness of our company, as well as higher commercialization potential.

I still want to emphasize that our community and content ecosystem is the cornerstone of our business. No matter what kind of strategy we pursue, the community and the content ecosystem will remain the foundation of the business.

This will lead to improved engagement, greater loyalty to our company, and increased commercialization potential. I want to stress that our community and content ecosystem is fundamental to our business. Regardless of the strategies we implement, the community and content ecosystem will continue to be the backbone of the business.

In this year, we'll be celebrating our 14th anniversary. And in the past 14 years, we have experienced the industry cycle, which is the mobile PC era, mobile era, and as we're going through the AI-powered era. No matter how the technology industry is evolving, for Bilibili, the community and the PUGV content ecosystem aspect is what has kept us going while others come and go.

In this year, we'll be celebrating our 14th anniversary. And in the past 14 years, we have experienced the industry cycle, which is the mobile PC era, mobile era, and as we're going through the AI-powered era. No matter how the technology industry is evolving, for Bilibili, the community and the PUGV content ecosystem aspect is what has kept us going while others come and go.

We believe in the value of high-quality content. We also believe in the value that highly talented content creators can bring. That is the biggest moat for our business. It is also the biggest competitive advantage that we own in this ever-changing landscape.

The technology industry is evolving, and for Bilibili, the community and the PUGV content ecosystem are what have sustained us while others have come and gone. We believe in the value of high-quality content and the contributions that highly talented content creators can make. This is our strongest advantage and the most significant barrier we have in this continuously changing environment.

We believe that our unique content ecosystem can continuously generate high-quality content and talented content creators. The value of this content that brings to Bilibili is our core competitiveness. We'll continue to cultivate that and continue to build on that and bring high-quality growth to our company.

Thank you. Next question comes from the line of Xueqing Zhang from CICC. Please ask your question, Xueqing.

Thank you, management, for taking my question. My question is in regards to the financial outlook. As Rui mentioned before, we see the company's gross margin has continued to increase in the past few quarters. How does management think about the trend of margin in 2023? Since we used the full-year revenue guidance, what is the growth of each segment that it implies? And lastly, on the bottom line, what's the outlook for the loss narrowing in detail? Thank you.

Yes, this is Sam. I will take your question. As Mr. Chen mentioned, the key objective of the company for this year is to improve our gross margin and narrow our loss. That's why for 2023 revenue guidance, we are cutting down low-margin business, such as e-sports content supplying revenue business and certain low-margin e-commerce business. As a result, we expect our e-commerce and other revenue lines for 2023 to decline by mid 20% to 30%. However, we expect the gross margin and the gross profit for e-commerce and other businesses to improve year-over-year. For the non-e-commerce business revenue, including our Game, VAS, and Advertising, if we combine these together, we still expect to grow by over 20% year-over-year in 2023. Regarding gross profit, overall, the increase of revenue will drive the increase of gross margin, especially for certain fixed costs such as server, bandwidth, staff costs, and content costs. In 2023, as I mentioned, we will be more selective and ROI-focused in terms of content investment. We also expect the percentage of the server and bandwidth costs and staff costs will decline. In terms of revenue sharing costs, we expect each business line's gross margin will improve year-over-year as high-margin businesses gradually increase their contribution. There will be more meaningful improvements on revenue sharing costs. For OpEx, total OpEx peaked in 2022. We expect OpEx to start declining in 2023. We cut sales and marketing expenses by 15% in 2022. We expect further cost cuts for sales and marketing in 2023. Meanwhile, G&A and R&D expenses in terms of the absolute dollar amount will also decline slightly in 2023. We expect our gross margin to gradually improve to mid 20% throughout 2023, and we also expect meaningfully narrowed non-GAAP operating loss in 2023.

Thank you. Operator, next question please.

Thank you. The next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.

So my question is about advertising. Can you discuss the outlook for the market in 2023 and the changes we've observed? Additionally, could you provide the latest update on the story mode and what developments we should anticipate in our product business? Thank you.

Firstly, regarding the story mode, our multi-screen and multi-scenario approach is a key strategy driving Bilibili's user growth. The 28% ratio of daily active users to monthly active users and 96 minutes of daily user engagement indicate that this strategy is effectively working. Story mode, a recently introduced feature, serves as an important addition to our existing broadcasting and big screen OTT scenarios. Since its launch, story mode has significantly increased user engagement, particularly among less active users. It has also enabled us to bring in new content creators from the video industry. Additionally, we have seen a greater than anticipated rise in video views and time spent by users. Story mode has essentially made it possible for users to access their favorite Bilibili content anytime and anywhere.

Bilibili has always put high-quality content and content creators at the top priority. Since inception, our PUGV ecosystem has maintained a very healthy growth; when we mention the Story Mode growth at a fast pace, don't forget that PUGV also grew by 50% year-on-year and maintained a very healthy growth rate.

Bilibili has always prioritized high-quality content and content creators. Since our inception, our PUGV ecosystem has seen strong growth. While we highlight the rapid growth of Story Mode, it's important to note that PUGV also experienced a 50% year-on-year increase and continues to grow at a healthy rate.

Whether as content creator or content consumer, their need for high-quality content will evolve, so will their sense of style. We think that Story Mode has served as a very good vessel to carry PUGV content to support our ever-growing ecosystem. In addition, the combination of Story Mode and our existing ecosystem has helped us to increase our ad efficiency, and this has also brought new commercial opportunities for live broadcasting and advertising.

The need for high-quality content will evolve for both content creators and consumers, as will their sense of style. We believe that Story Mode has effectively carried PUGV content to support our expanding ecosystem. Furthermore, the integration of Story Mode with our current ecosystem has enhanced our ad efficiency and created new commercial opportunities for live broadcasting and advertising.

As you may already be aware, it has been a very challenging market for advertising in 2022. The overall ad market only had low single-digit growth. Under this challenging market, we are continuing to gain market share. For Bilibili, its full year advertising revenue has reached RMB5 billion.

It has been a very challenging market for advertising in 2022. The overall ad market only had low single-digit growth. Under this challenging market, we are continuing to gain market share. For Bilibili, its full year advertising revenue has reached RMB5 billion.

As for 2023, we have seen a recovery of confidence from advertisers. The overall industry may achieve double-digit growth. However, we also noticed that advertisers will be more conscious and will be focusing more on the core value of their ad investment and their ad investment efficiency.

We are continuing to gain market share. For Bilibili, its full year advertising revenue has reached RMB5 billion. As for 2023, we have seen a recovery of confidence from advertisers. The overall industry may achieve double-digit growth. However, we also noticed that advertisers will be more conscious and will be focusing more on the core value of their ad investment and their ad investment efficiency.

The key reasons for advertisers to invest in ads, we have categorized into three main areas. One is new product launches, number two is brand rejuvenation, and number three is continuously increasing brand perception and driving sales conversions. The advantage for Bilibili advertising is that we can cover all of the above three core needs, and we are confident our growth rate will exceed the industry growth rate. In 2023, we will be looking to upgrade our sales model for different industry verticals. We believe integrated marketing will continue to be our long-term growth driver. For our leading industry verticals, we will continue to build high barriers and upgrade our ad product matrix for games, 3C, and digital products. Take games as an example. Bilibili has the largest gamer and game content community in China, with nearly 90 million unique users consuming game content on a monthly basis. We think the recent regularization of BanHao is also a favorable tailwind for us. In Q1, we have unified the three key game teams, including game distribution, game ads, and game content to provide a more comprehensive service to game companies and improve the efficiency for game distribution.

Bilibili has the largest gamer and game content community in China, with nearly 90 million unique users consuming game content on a monthly basis. We believe the recent regularization of BanHao is a favorable tailwind for us. In Q1, we unified the three key game teams: game distribution, game ads, and game content, to provide a more comprehensive service to game companies and improve the efficiency of game distribution.

Secondly, we expect to further gain market share and attract larger budgets from areas like e-commerce, automotive, and general FMCGs. For example, Bilibili is the only radio community that has opened up e-commerce collaboration. Last year, together with Alibaba, Panoro, we optimized our brand-leading conversion model on top of our traditional brand and performance ads. In 2022, over 1,000 new brands and over 10,000 SKUs debuted on Bilibili through our function, which also recorded better-than-expected performance-based revenue. We will continue to integrate video and e-commerce live broadcasting into the e-commerce system and explore Bilibili's unique open-loop transaction model. We also expect to quickly expand our market share in e-commerce ads and their budgets this year.

Our brand-leading conversion model, combined with our traditional brand and performance ads, saw over 1,000 new brands and over 10,000 SKUs launch on Bilibili in 2022, achieving better-than-expected revenue from performance-based metrics. We will keep integrating video and e-commerce live broadcasting into our e-commerce system while exploring Bilibili's unique open-loop transaction model. We also anticipate a rapid expansion of our market share in e-commerce ads and their budgets this year.

We are also focused on enhancing our algorithm infrastructure and investing in AI GC applications, while improving our data capacity to provide more scientific marketing insights for our customers. Our exploration of additional advertising scenarios in a supportive community setting will continue. These are the right steps to take, and we applied this approach in 2022, which we will carry forward into 2023.

Thank you. Our next question comes from the line of Lei Zhang from Bank of America Merrill Lynch. Please ask your question, Lei?

Thank you, management, for addressing my question. I would like to know more about your strategy and outlook for the game business. Are there any new games we can look forward to following the resumption of game licensing? Thank you.

We believe we have entered a new era for the game business last year. Banhao is one of the reasons. Another reason is the increasing penetration rate for mobile gamers in China. Gamers' evolving tastes and increasing demand for higher-quality games are also shaping the overall game industry as production costs rise, and the success rate for games is declining. In the era of lower gamer penetration, it was easier for game companies to make money if they had good quality titles. However, we believe that in this new era, there will only be two kinds of games that can succeed and make money. One is the super mega titles. The second would be the number one title in the segment genre, because it will have a longer life cycle. Only these two kinds of games will be able to gain market share and survive in this new era. The success rate for games is declining. In an era of lower gamer penetration, it was easier for game companies to generate revenue with high-quality titles. However, we believe that in this new era, only two types of games will succeed and be profitable. One category includes super mega titles, and the other consists of the top title within a genre segment, as these will have a longer life cycle. Only these two kinds of games will be able to capture market share and thrive in this new environment.

Bilibili's game strategy is designed to serve the market trend in the next few years. We will be firmly executing the strategy of developing in-house and distributing globally. This will be the mantra we use for the next industry cycles because only global distribution could cover the increase in production costs, and only the highest quality of games will have more operation cycles, hence, achieving higher ROI.

Bilibili's game strategy is designed to serve the market trend in the next few years. We will be firmly executing the strategy of developing in-house and distributing globally. This will be the mantra we use for the next industry cycles because only global distribution could cover the increase in production costs, and only the highest quality of games will have more operation cycles, hence, achieving higher ROI.

In terms of genres, we will be more focused; whether it's a done-operated game or our self-development game, we will focus our best resources on the unlimited plot.

We will be focused on global distribution as our guiding principle for the upcoming industry cycles, as it is essential to address rising production costs. Additionally, only the highest quality games will lead to extended operation cycles, resulting in greater returns on investment. In terms of genres, we will concentrate our best resources on both our managed games and self-developed games, emphasizing limitless storytelling.

From results, the investment we made in self-development games is starting to bear fruit. In 2022, our self-development games revenue already contributed about 5% of total game revenue. We expect this ratio will continue to increase in 2023.

In terms of genres, we will be more focused; whether it's a done-operated game or our self-development game, we will concentrate our best resources on the unlimited plot. From the results, the investment we made in self-development games is starting to bear fruit. In 2022, our self-development games revenue already contributed about 5% of total game revenue. We expect this ratio will continue to increase in 2023.

As for the Banhao, we believe the release of Banhao has already been normalized. It has become quite regular for domestic Banhao to be released on a monthly basis. We've also been able to get imported titles; there has also been a batch that's been approved. We believe that this has been an industry tailwind favorable to Bilibili, not only for our self-developed games, it will also be favorable for our joint operations as well as for our game advertising business.

As for the Banhao, we believe its release has become regularized and now occurs monthly in the domestic market. We've also successfully obtained imported titles, with a batch recently approved. We see this development as a positive trend for the industry that benefits Bilibili, not just for our self-developed games but also for our joint operations and game advertising business.

Also, we are looking to launch two self-development titles in the second quarter of this year.

Please remain on the line; the conference will resume shortly.

Hello. Operator, next question, please.

Thank you. Our next question comes from Lincoln Kong from Goldman Sachs. Please ask your question, Lincoln.

Thank you for taking my question. My question is about AIGC. Can management provide more details on how Bilibili can engage with the AIGC space and the potential for product development and monetization? Thank you.

I believe that the opportunity AIGC presents is a significant event, not just for industry players but for society as a whole to take notice. We believe it will lead to a substantial increase in productivity regarding content generation. A good comparison would be the invention of the mobile phone camera, which has enabled everyone to record video anytime and anywhere. AIGC can boost content productivity while considerably reducing production costs. We see this as a major opportunity for Bilibili and many other players in this industry, particularly for us, as we are a large content platform. Secondly, as that would be on the search front, the ChatGPT-like experience will help users to find the video that they want more efficiently. For example, product reviews, let's say, people want to look for a new Airpod review. For Bilibili, who has our own data, we can easily accumulate, find and organize and structure the useful information and present it to the user, whether in the format of video clips or in a format of text. It will largely enhance the user experience when they use the search function. As for Bilibili, because we have a massive amount of knowledge-related content and knowledge content in a constructive way, it has more time value. Even after a few years back, we can still find that historical videos that continue to generate views and bring value to users, which ChatGPT-like search experience will help us to enlarge the value of our historical video content at the same time to improve the consumption efficiency for our users. In terms of content creation tools, we believe the AGC can bring revolutionary experience that allows more users to start creating content. For example, the same material can be presented in different formats in different videos and also allow many users who used to just be content consumers to now easily create content like a professional. Lastly, on virtual content creators, as you may know, Bilibili is already currently the largest virtual content creator platform in China. We have tens of thousands of virtual content creators and virtual live broadcasters on Bilibili. AIGC can bring more automatic efficiency and higher user experience to the virtual characters. For example, our virtual content host can be transformed into a real person. This will bring a revolutionary experience for fans. This has a massive imaginary space that we can explore. We believe AIGC will serve very positive effects in terms of virtual content creation, virtual live broadcasting hosts, and the virtual idols that Bilibili can offer. AIGC can enhance efficiency and improve user experience for virtual characters. For instance, our virtual content host can be made to resemble a real person, providing a groundbreaking experience for fans. This presents significant opportunities for exploration. We are confident that AIGC will have a highly beneficial impact on virtual content creation, live broadcasting hosts, and the virtual idols available on Bilibili.

As a platform that's connecting content creators with users, the evolution of production tools will lead to very positive changes for our platform. The change will probably be similar to the shift from PC to mobile eras, allowing more people to access the Internet, allowing more users to create content easily. That's why our user base has increased tenfold in the past few years. Personally, I am looking forward to the enhancements that AIGC tools will bring in terms of improving video production efficiency and allowing more people to create content more easily; that will definitely benefit Bilibili as a content platform the most.

Okay. I think that's the time we have for today. Operator, we can wrap up the call.

Well, thank you, everyone, for joining us today. If you have further questions, please feel free to contact our IR team or TPG Investor Relations. Our contact information was presented in the news release we issued earlier today. Thank you everyone. And have a great day. Bye-bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.