Earnings Call Transcript - BILI Q4 2023

Operator, Operator

Good day, and welcome to 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, Executive Director of Investor Relations

Thank you, operator. During this call, we'll discuss the 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 purposes only. The 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. I will now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Xin Fan, Chief Financial Officer

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 spent 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 is 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, year-over-year. With this growth, our total revenues for the full year came in at RMB 22.5 billion, among which ad 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 places us on 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 creators, 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 tailwinds. This leaves us with a long runway for growth. We remain confident that our virtuous growth cycle of user expansion and 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 our top 100 content creators at the sixth 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 interests evolve, and consumption increases. In 2023, baby and maternity, automotive, traveling, fashion, and clothing categories demonstrated the highest growth in video views. Each of these categories carries significant commercial value. The boundary between interest-based content 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 thrive. 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 must-watch online New Year celebration for youth. The event garnered 100 million playback views 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 thriving interactive community is the cornerstone of our commercialization model. In the fourth quarter, our VAS revenue was 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 continues 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 VTubers, and a celebration system, will continue to elevate payment activities and offer more monetization opportunities 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 to 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 native ad revenues throughout the year. We credit our solid ad revenue growth to our unique position within 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 directly convert sales on Bilibili. In the fourth quarter, our top five advertising verticals were gaming, e-commerce, digital products, home appliances, 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 purchases, enhancing our ad conversion efficiency and user experience. Meanwhile, our deeper data collaboration with key e-commerce platforms further improved the 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 launched new games and promoted existing game updates. We maintained our position as an effective channel to convert gamers and must invest in community views on games. 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 ad 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 to support productivity for advertisers. Industry-wise, we'll continue to expand our shares in our leading gaming and e-commerce sectors and gain more presence in digital products, home appliances, 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 has been approved, one domestic SLG game has been approved, and another domestic card game, Artifactory, has been approved. In addition, we are able to create value for our broader game partners by increasingly integrating our advertising products with our game distribution capabilities. As for our self-developed game, we are streamlining our resources and adopting a more selective game development strategy in 2023. This refined strategy will enable us to reduce our R&D expenses in 2024 while keeping us 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 operational efficiency with a tight and targeted expense structure. Overall, we are dedicated to developing our 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 have 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 breakdown 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 exceeded 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 were RMB 512 million, down 37% year-over-year. R&D expenses were 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 in 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.

Operator, Operator

Our first question comes from Thomas Chong of Jefferies.

Thomas Chong, Analyst

My question is about our 2024 outlook. Can management share thoughts and strategies on our product offerings, user growth, and commercialization?

Rui Chen, CEO

My question is about our 2024 outlook. Can management share thoughts and strategies on our product offerings, user growth, and commercialization?

Juliet Yang, Executive Director of Investor Relations

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

Rui Chen, CEO

My question is about our 2024 outlook. Can management share thoughts and strategies on our product offerings, user growth, and commercialization? Before I answer the question for 2024, I would like to take a moment to review our work done in 2023, where we have made decent progress in both community development and commercialization.

Juliet Yang, Executive Director of Investor Relations

First of all, our DAU surpassed 100 million, demonstrating our continuous healthy development of our community. Secondly, our advertising started to accelerate, achieving a 27% year-over-year growth, marking among our peers as one of the highest advertising revenue growth rates.

Rui Chen, CEO

To take a moment to review our work done in 2023, where we have made decent progress in both community development and commercialization. First of all, our daily active users surpassed 100 million, demonstrating our continuous healthy development of our community. Secondly, our advertising started to accelerate, achieving a 27% year-over-year growth, marking among our peers as one of the highest advertising revenue growth rates.

Juliet Yang, Executive Director of Investor Relations

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. Our adjusted net loss narrowed by almost half, 49% year-over-year for the full year of 2023. Notably, we've also achieved positive operating cash flow for the full year.

Rui Chen, CEO

Juliet Yang, Executive Director of Investor Relations

We are very delighted to see our community ecosystem has become more aligned with our commercial value. The commercial effort does not hurt our community development; on the contrary, it helps our community content ecosystem become even stronger in 2023. Over 3 million content creators earned income on Bilibili, reinforcing the development of our content creators.

Rui Chen, CEO

Juliet Yang, Executive Director of Investor Relations

Over 1.8 million creators earned income on Bilibili through our live broadcasting services, and the number of creators earning income from advertising services almost doubled year-over-year.

Rui Chen, CEO

Our community development helps strengthen our content ecosystem in 2023. Over 3 million content creators earned income on Bilibili, reinforcing the development of our creators. Over 1.8 million creators earned income on Bilibili through our live broadcasting services, and the number of creators earning income from advertising services almost doubled year-over-year.

Juliet Yang, Executive Director of Investor Relations

Looking ahead into 2024, our focus remains consistent with 2023, with two main tasks. First of all is focusing 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 costs. We expect our non-GAAP operating profit to turn positive in Q3 2024.

Rui Chen, CEO

Juliet Yang, Executive Director of Investor Relations

While keeping our financial goals intact, we will continue to strengthen our content ecosystem by expanding our content richness and fostering specific content categories to ensure Bilibili remains the go-to place for the highest quality content.

Rui Chen, CEO

We expect our non-GAAP operating profit to turn positive in Q3 2024. While keeping our financial goals intact, we will continue to strengthen our content ecosystem by expanding our content richness and fostering specific content categories to ensure Bilibili remains the go-to place for the highest quality content.

Juliet Yang, Executive Director of Investor Relations

In 2024, we'll focus on discovering top content creator development and supporting them to make more money.

Rui Chen, CEO

In 2024, we'll focus on discovering top content creator development and supporting them to make more money.

Juliet Yang, Executive Director of Investor Relations

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 changes in user consumption demand, such as baby and maternity, travel, automotive, and home decoration.

Rui Chen, CEO

Juliet Yang, Executive Director of Investor Relations

We believe that with these efforts and after achieving profitability, we’ll further enhance the virtuous cycle of our community ecosystem and ensure sustainable growth in both our community and profitability.

Operator, Operator

Our next question comes from Yiwen Zhang from China Renaissance.

Yiwen Zhang, Analyst

My question is regarding value-added services. Can you provide an update on our development strategy for this business segment in 2024, including live broadcasting, premium membership, and other value-added services?

Rui Chen, CEO

My question is regarding value-added services. Can you provide an update on our development strategy for this business segment in '24, including live broadcasting, premium membership, and other value-added services?

Juliet Yang, Executive Director of Investor Relations

On Bilibili, we have gathered a massive amount of high-quality content creators, and there's also a welcoming home for diverse interests. Our users feel a strong sense of belonging on Bilibili. All of this combined results in users being very willing to spend for content that they like and for content creators that they adore.

Rui Chen, CEO

In '24, including live broadcasting, premium membership, and other value-added services? On Bilibili, we have gathered a massive amount of high-quality content creators, and there's also a welcoming home for diverse interests. Our users feel a strong sense of belonging on Bilibili. All of this combined results in users being very willing to spend for content that they like and for content creators that they adore.

Juliet Yang, Executive Director of Investor Relations

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 are happy with that experience, and they feel good about participating. For our content creators, when they earn income through this type of service, they will find even stronger value and appreciation, motivating them to continue creating on Bilibili.

Rui Chen, CEO

Users on Bilibili pay for the content and services they enjoy, which aligns perfectly with our business model. As they invest in what they love, their overall experience improves, and they feel positive about their involvement. Moreover, when our content creators generate income from these services, they gain a deeper sense of value and recognition, encouraging them to keep producing content on Bilibili.

Juliet Yang, Executive Director of Investor Relations

Based on the service model or the connections within our community, we have developed our value-added services combining live broadcasting, premium membership, comics, audio drama premium courses, fan charging, etc. 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, CEO

In the fourth quarter, our overall value-added services revenue grew by 22% compared to the same period last year.

Juliet Yang, Executive Director of Investor Relations

Among all those services, we believe live broadcasting has 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 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, CEO

Among all those services, we believe live broadcasting has the biggest potential and could grow the fastest because it is more universal. Anyone can be a live broadcasting host. Last year, 1.8 million content creators earned income on Bilibili through live broadcasting, making it a universal and accessible monetization model for all content creators.

Juliet Yang, Executive Director of Investor Relations

Even though many platforms are doing live broadcasting business, Bilibili's unique approach makes it quite different. For example, regarding our live broadcasting revenue, close to one-third of our revenue actually comes from a monthly subscription model tied to fan devotion and appreciation for our content creators. Many of our paid users are actually subscribing for several months in advance, and their renewal rates are very high. This example distinguishes us from traditional live broadcasting platforms because our connection with our content creators, the hosts, and users is quite unique and lasting.

Rui Chen, CEO

Regarding our live broadcasting revenue, close to one-third of our revenue actually comes from a monthly subscription model tied to fan devotion and appreciation for our content creators. Many of our paid users are subscribing for several months in advance, and their renewal rates are very high. This example distinguishes us from traditional live broadcasting platforms because our connection with our content creators, the hosts, and users is quite unique and lasting.

Juliet Yang, Executive Director of Investor Relations

As for content suppliers, which are the hosts, if we look at the fourth quarter, nearly 1 million hosts were active on Bilibili. Only a small portion of them came from professional guilds. Most of them are actually native content creators from our PUGV ecosystem. This also sets us apart from traditional live broadcasting platforms because we are cultivating our own supply and demand within our PUGV ecosystem.

Rui Chen, CEO

Juliet Yang, Executive Director of Investor Relations

Similarly, in terms of content categories, the categories of our PUGV can also be our live broadcasting categories, especially those where Bilibili has unique advantages, such as virtual content creators. We are considered to be, if not the leading platform in China. Additionally, knowledge-based content, such as legal-related live broadcasting, is hard to imagine as a top vertical on other platforms but is very popular on Bilibili.

Rui Chen, CEO

Juliet Yang, Executive Director of Investor Relations, mentioned that in terms of content categories, the categories of our PUGV can also include our live broadcasting categories, particularly where Bilibili has distinct advantages, like with virtual content creators. We are seen as one of the leading platforms in China. Furthermore, knowledge-based content, such as legal-related live broadcasting, is difficult to envision as a top vertical on other platforms but has gained significant popularity on Bilibili.

Juliet Yang, Executive Director of Investor Relations

For our priorities in the live broadcasting business in 2024, we'll prioritize the quality of our revenues, focusing on gross profit and gross profit margin within this business. We hope to achieve sustainable and high-quality revenue growth in live broadcasting in 2024.

Operator, Operator

Our next question comes from Felix Liu from UBS.

Felix Liu, Analyst

Let me translate myself. My question is about the advertisement business. I observed that your fourth quarter advertisement saw strong growth momentum. I looked into the reasons behind this positive performance. What is your outlook for the advertisement business in 2024? What will be the key growth drivers moving forward?

Carly Lee, Chief Operating Officer

Let me translate myself. My question is on the advertisement business. I noticed that your fourth quarter advertisement delivered strong growth momentum. So I checked the reason behind this good performance. What is your outlook for the advertisement business in 2024? What will be the key growth drivers from here?

Juliet Yang, Executive Director of Investor Relations

Our advertising revenue in 2023 totaled about RMB 6.4 billion, marking a 27% year-on-year growth. In the 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 revenue and its proportion is directly a result of improving our gross margin and gross profit.

Carly Lee, Chief Operating Officer

Juliet Yang, Executive Director of Investor Relations

Please allow me to recap what we have done in 2023 and in the fourth quarter, along with the growth drivers. Actually, at the beginning of 2023, we put forward a strategy while paying close attention to the opportunities 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 data power development. 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.

Carly Lee, Chief Operating Officer

We are focusing on the opportunities presented by the ongoing commerce activities within our community. E-Home encompasses our commercialization capabilities, including traffic strategies, algorithm development, and data power enhancements. E-Zone pertains to our strategies for various vertical industries. Our primary objective is to enhance the advertisement placement experience for customers and increase their return on investment, which has led us to develop 10 distinct strategies tailored to different industry sectors.

Juliet Yang, Executive Director of Investor Relations

Our advertising revenue has also exceeded expectations for the first three quarters of 2024. Now I will share some additional highlights in the fourth quarter. First, we were able to leverage our advantage in major events in specific verticals and catch the momentum of new product launches. In the gaming industry, we achieved record high growth during two new games' open beta testing stage, such as Dream Star and Girls Frontline 2.

Carly Lee, Chief Operating Officer

Juliet Yang, Executive Director of Investor Relations

Another example is what we've seen in the e-commerce sector. We 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 by over 100%. Additionally, in some interesting verticals, like baby and maternity, despite initially seeming too mature for our users, we were 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, Chief Operating Officer

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 on Bilibili also rose by more than 100%. Moreover, in certain verticals such as baby and maternity, we successfully attracted over 90% of new users to these clients through our video and live e-commerce campaigns, despite early perceptions that this market was too mature for our audience.

Juliet Yang, Executive Director of Investor Relations

Secondly, we have strengthened our advertisement placement capabilities. In the fourth quarter, our deep conversion capabilities, including providing ROI and order information within 24 hours, have gradually improved and matured. As a result, we're able to achieve the budget target for our customers more accurately, gaining more budget from them. Advertising with deep conversion pockets contributed over 30% of our total performance ad revenue in the fourth quarter.

Carly Lee, Chief Operating Officer

We have enhanced our advertisement placement capabilities. In the fourth quarter, our deep conversion capabilities, which include providing return on investment and order information within 24 hours, have gradually improved and matured. Consequently, we can meet our customers' budget targets more accurately, allowing us to secure larger budgets from them. Advertising with deep conversion pockets contributed over 30% of our total performance ad revenue in the fourth quarter.

Juliet Yang, Executive Director of Investor Relations

Thirdly, we have integrated multiple product lines in terms of organizational structure and product offerings. For example, by integrating our Sparkle ads platform with our other ad products, we have further expanded the quantity and quality of our native content, thereby enhancing and extending our customer's lifespan and investment cycles on our platform. These three reasons, combined with what we've said about the E-home strategy, are the key drivers for our fourth quarter advertising revenue growth.

Carly Lee, Chief Operating Officer

We have integrated multiple product lines in terms of organizational structure and product offerings. For example, by integrating our Sparkle ads platform with our other ad products, we have further expanded the quantity and quality of our native content, thereby enhancing and extending our customer's lifespan and investment cycles on our platform. These three reasons, combined with what we've said about the E-home strategy, are the key drivers for our fourth quarter advertising revenue growth.

Juliet Yang, Executive Director of Investor Relations

In regard to the video and live e-commerce business that many investors are interested in, I will share more detail. In 2023, we further integrated commercial scenarios into our content ecosystem, influencing our users from product seeding to transaction conversion. On average, over 26 million users viewed our video e-commerce related content daily, and the number of users watching live commerce-related videos and redirected to external platforms increased over 200%. Our 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 participated in video and live e-commerce-related activities daily. During 11/11, our home décor content creator, Mr. Medan, generated over RMB 1.6 billion GMV through Bilibili. This demonstrates Bilibili's unique advantage in comprehensive and in-depth long-form content, especially in durable consumer and retail sectors such as home décor and technologies and digital products.

Carly Lee, Chief Operating Officer

In the fourth quarter, over 60,000 content creators engaged in video and live e-commerce activities on a daily basis. On November 11th, our home décor content creator, Mr. Medan, achieved more than RMB 1.6 billion in gross merchandise volume through Bilibili. This highlights Bilibili's distinctive strength in providing comprehensive and in-depth long-form content, particularly in the durable consumer and retail markets, including home décor, technology, and digital products.

Juliet Yang, Executive Director of Investor Relations

Another example would be our female content creator. In December, the total GMV of her single live e-commerce session exceeded RMB 50 million. This highlights the significant consumption potential of Bilibili's female user base. With these two cases, we believe this illustrates our leading position compared to industry peers, showcasing the great commercialization potential of Bilibili's community. In 2023, the total GMV on Bilibili's video and live e-commerce exceeded RMB 10 billion. We believe that the commercial value of Bilibili's user base is just beginning to be realized, with vast opportunities for future growth.

Carly Lee, Chief Operating Officer

This represents the significant consumption potential of Bilibili's female user base. With these two cases, we believe this demonstrates the leading showcase across our industry peers, highlighting the great commercialization potential of Bilibili's community. In 2023, the total GMV on Bilibili's video and live e-commerce exceeded RMB 10 billion. We believe that the commercial value of Bilibili's user base has just begun to be realized, with substantial room for our future growth.

Juliet Yang, Executive Director of Investor Relations

We maintain a very positive outlook for our advertising business in 2024, and we are quite confident about achieving a high growth rate in terms of advertising revenue. First, I'll review Bilibili's core advantage in advertising, which is 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 users being 24 years old, we believe our users' consuming power and buying power are gradually increasing. Bilibili has now become the go-to platform for advertisers looking to improve their brand equity in the longer term or influence users' purchasing decisions and convert in the short term.

Carly Lee, Chief Operating Officer

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 users being 24 years old, we believe our users' consuming power and buying power are gradually increasing. Bilibili has now become the go-to platform for advertisers looking to improve their brand equity in the longer term or influence users' purchasing decisions and convert in the short term.

Juliet Yang, Executive Director of Investor Relations

Additionally, for 2024, we plan to further upgrade our Ehang strategy. We aim to enhance our ad placement capabilities and improve their efficiency. This includes integrating our ad placement system while achieving intelligent and multi-terminal app placement experiences. We plan to achieve automatic placement for our advertisers at some point this year, and will further develop our data visualization tools, allowing clients to validate the results of their ad placements through multidimensional data placement. We'll also closely explore what AIGC can bring to help us improve ad efficiency. Secondly, we will penetrate more community scenarios and upgrade 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 moment page research functions and other community scenarios. Meanwhile, we will also look to enhance our monetization efficiency by arranging ad videos in a hybrid mode on the recommendation page and further promoting native ads. To summarize, we will effectively leverage and increase our ad inventory and outlook in 2024.

Carly Lee, Chief Operating Officer

We will focus on integrating scenarios like story mode, PC, and OTT, along with enhancing moment page research functions and other community scenarios. Additionally, we aim to improve our monetization efficiency by arranging ad videos in a hybrid mode on the recommendation page and promoting native ads. In summary, we will effectively leverage and increase our ad inventory and outlook in 2024.

Juliet Yang, Executive Director of Investor Relations

Lastly, we will 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 private domains for those advertisers and launch more interactive functions for them to engage with our users. Through these efforts, we aim to convert a single ad placement into long-term operations and increase our clients' brand equity.

Carly Lee, Chief Operating Officer

Lastly, we will 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. Additionally, we will release private domains for advertisers and launch more interactive functions to engage with our users. Through these efforts, we aim to convert a single ad placement into long-term operations and enhance our clients' brand equity.

Juliet Yang, Executive Director of Investor Relations

Thirdly, regarding our development strategy, we believe we can replicate the successful experiences we had in e-commerce and gaming last year and apply that model to other fast-growing sectors such as automotive, tech, home and decoration, online services, finance and education. We also believe we can achieve high-speed growth rates in those verticals as well. Lastly, to summarize, we believe the further forging of our e-commerce ecosystem will bring us more pleasant surprises in advertising revenue in 2024.

Operator, Operator

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

Lei Zhang, Analyst

Can you provide more details on your financial outlook for 2024, including the revenue breakeven path and our cash flow trend?

Xin Fan, Chief Financial Officer

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 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, with ad revenue growing even faster. We expect our gross profit to maintain high growth in 2024, as we further improve our gross profit margin, attributed to the higher contribution from the 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. Let me share more color on our cash flow and balance sheet side. We achieved positive operating cash flow in Q3 and Q4 of 2023. Especially in Q3, we generated over RMB 600 million in operating cash flow. That means our company has entered 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 as of December 31, 2023, we had approximately US$2.1 billion cash reserve on our balance sheet compared with outstanding CB of US$860 million. Our cash reserves are sufficient to cover all of our company debt. Thank you.

Operator, 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 in today's press release. Have a great day. That does conclude today's conference call. You may now disconnect your lines.