by Unexpectedly, station B handed in an unsatisfactory transcript in the second quarter.
According to the financial report released last night, the revenue of station B in the second quarter was 4.909 billion yuan, an increase of 9% year-on-year, and the first time in four quarters fell below the 5 billion yuan mark. Net loss reached 2.01 billion yuan, a substantial increase of nearly 80% year-on-year. User growth is one of the few bright spots, with MAU of 306 million,DAU reached 84 million, an increase of 29% and 33% year-on-year, respectively.
Data from: Bilibili Financial Report
After the U.S. stock market opened, the stock price of Station B plunged rapidly. It fell below the $20 mark during the session, and then recovered, and finally closed at $20.07, down 15.03% on the day. As of the close of U.S. stocks on September 8, the total market value of Station B is currently US$7.84 billion, which has dropped by more than US$50 billion from the high point in March 2021.
In fact, the slowdown in revenue growth is not entirely unexpected. Except for value-added services, the other three of the four revenue segments of station B are affected by the macro environment.The release of the version number has been suspended for nearly 8 months, and the game publishing business has long been out of stock; advertising and e-commerce, two previously high-growth businesses, have both been dragged down by the epidemic, and the growth rate has slowed down significantly.
But what worries the outside world is that the results of cost reduction and efficiency increase have not been shown in this quarter’s financial report. In this regard, the management of station B gave its own explanation.CEO Chen Rui said on the conference call that with the rapid growth of users, the overall cost has not increased too much, which means that the acquisition cost of a unit user is less than that of each user. VV(Number of video plays) bandwidth costs have decreased.
Station B CFO Fan Xin said that the second quarter reflects the impact of the epidemic on the business of station B. It is expected that after the increase in revenue growth in the second half of the year, the gross profit margin will also improve significantly. It is expected to reach about 20% in Q4. The loss ratio will also narrow, from 40% in Q2 to about 30% in Q4.
Revenue growth has slowed, and losses are still increasing sharply. This is the most difficult time for Station B in the past two years.
01 Growth does not increase income
In terms of user growth, under the background of low growth or even negative growth of Internet companies, there are still many remarkable places in Station B.
From: Bilibili 2022Q2 Investor Presentation
As shown in the figure above, in the second quarter of this year, on the occasion of the 13th anniversary of the establishment of Station B, the monthly active users exceeded the 300 million mark for the first time, a year-on-year increase of 29%, and an increase of 12 million from the previous quarter; the daily active users reached 84 million, a quarter-on-quarter increase. An increase of 5 million in the first quarter. The number of users who became full members through community quizzes increased by 41% year-on-year to 170 million.
The increase in the basic user base drives the continued growth of the value-added service business income of Station B. According to the financial report, the value-added service revenue of station B in the second quarter of this year reached 2.103 billion yuan, a year-on-year increase of 29%. Monthly paying users (MPU) increased to 27.5 million, up 32% year-on-year.
But it is worth noting that the growth rate of the three indicators of monthly active, value-added service income and paying users is around 30%.It means that the growth of value-added service revenue is mainly due to the growth of the number of users, the penetration rate of paying users and the ARPU values did not increase significantly.
The revenue of value-added services at Station B mainly depends on subscriptions and live broadcast rewards. Station B has not announced the specific revenue composition of value-added services. The performance of the two can only be judged from the number of paying users.
The live broadcast situation is relatively good. Station B disclosed in this quarter’s financial report that due to the promotion of the integration of live broadcast and PUGV ecology, that is, to allow more UP masters to become anchors, the number of active anchors in the second quarter increased by 107% year-on-year, and the live broadcast penetration rate also increased. With continuous improvement, live streaming paying users increased by 70% year-on-year.
In contrast, the growth rate of large members is lower than that of paying users. According to the data released by Station B, the total number of large members reached 21 million in the second quarter, a year-on-year increase of 19%, and the growth rate was lower than the growth rate of monthly active members and regular members.
In terms of monthly activities, the subscription rates of iQiyi and Tencent Video are both around 20%. Today, the subscription rate of station B is 7% and the payment rate is 9%. From this perspective, there is still a lot of room for growth. But from a practical point of view, there are several difficulties in increasing the subscription rate of station B.
The increase in subscription rate mainly relies on exclusive copyrighted content, and station B is late in laying out self-made content and exclusive copyrights. Although there are also works with good reputation and data such as “The Boy with the Wind Dog” and “A String of Life”, the number of exclusive content of online dramas and online dramas is less than that of You Aiteng. In today’s environment, station B It’s hard to keep investing in homemade content.
In addition, Guoman, which had advantages in the past, is facing more intense copyright competition, and it is also difficult to make breakthroughs in the short term.
In addition to the difficulty in increasing the supply of exclusive content, there is also a problem with the large members of station B: many users of domestic video platforms become members to skip advertisements, and because station B itself does not have patch advertisements, this right is no longer available. Existence, which also affects the membership payment rate of station B from the side.
If you want to improve the efficiency of commercialization, Bilibili still has to find a way in the business of games, advertising, and e-commerce, but in the face of the epidemic, the management of Bilibili can do very limited.
02 Weak e-commerce and games are all caused by the epidemic?
The value-added services, which account for nearly 40%, increased by 30%, but the overall revenue growth was only 9%. It is not difficult to imagine the bleakness of other business sectors of station B.
From: Bilibili 2022Q2 Investor Presentation
The first is the gaming business. As the revenue pillar of Station B in the past, the game business has gradually failed to keep up with the growth rate of Station B in recent years. As shown in the figure above, since Q2 2020, the game business of station B has basically been in a state of stagnant growth. The single-quarter revenue has been hovering around 1.2 billion yuan. In the second quarter of this year, it dropped to 1.046 billion yuan, a new low since 2020.
There are three reasons for the poor performance of the game business of Bilibili this quarter:
- First, the overall domestic game market was sluggish in the first half of this year. In the second quarter, even Tencent’s game revenue in the local market fell by 1% year-on-year;
- Second, in the game revenue of station B, the revenue of publishing and intermodal transportation accounts for 95%. Since the second half of last year, the release of the version number has been suspended for nearly 8 months, which has a huge impact on the game business of station B. Since the beginning of this year, the number of influential masterpieces in the games released by the channel of station B has decreased significantly.
- Third, the advantage of game publishing at station B is in the second dimension, and the rise of “Yuan Shen” has a huge impact on this category. At the beginning of the release of “Yuan Shen”, station B shared a certain bonus as the only channel server other than the official uniform, but as “Yuan Shen” gradually grew into a super IP comparable to “The King” and “Chicken Eater”, other two-dimensional The living space of the game has been compressed, which also affects the game business of station B.
The good news is that the game version numbers have been restored since May. At present, station B has obtained 4 new game version numbers, and 6 games will be launched in overseas markets, including 2 self-developed games. The game supply shortage is expected to be alleviated in the second half of the year.
But the bad news is that the approval for the introduction of overseas games into China is tightening, and the two-dimensional category is also facing greater censorship pressure. These are all challenges faced by the game business of station B, and it needs to be transformed into self-developed faster.
From: Bilibili 2022Q2 Investor Presentation
Compared with games, the advertising business performed slightly better, with revenue of 1.158 billion yuan in the second quarter, a year-on-year increase of 10%. Affected by the epidemic in the second quarter, the domestic Internet market was significantly weakened. Among the similar platforms listed, Tencent media advertising (including Tencent Video) fell by 25% year-on-year, while iQiyi fell by 35% year-on-year. Only the short video platform Kuaishou achieved positive growth. But the year-on-year growth rate was also 10.5%.
Station B COO Li Ni also emphasized on the conference call that global macroeconomic changes and the epidemic have repeatedly affected the advertising industry. Advertisers’ budgets have shrunk significantly during this period, and they have become more cautious. The development of emerging industries at this stage is also more difficult than ever.
Regarding the challenges of the macroeconomic situation to the advertising business, Li Ni said that there will be several countermeasures at station B, some of which have been discussed before, such as the adjustment of the organizational structure and the launch of the vertical screen product (StoryMode), which was reported later. Strengthen the construction of advertising infrastructure such as fireworks.
In addition, Li Ni also proposed a new plan: to further open up the ecology and seek cooperation with external platforms.She said that Station B has now reached preliminary cooperation with Taobao, Tmall, JD.com, and Pinduoduo e-commerce platforms, actively trying to carry out native advertising and UP main advertising on Station B, and provide products and models for transaction conversion, etc. try. And in the future, we will actively try to cooperate with all brands and platforms and partners of life consumption at different levels.
03 Station B, is it really bottomed out this time?
There are three questions in front of station B today:Growth, revenue and profit.
The revenue increase of Station B in the second quarter is not ideal, but objectively speaking, as analyzed above, the advertising, e-commerce and game business in the first half of the year, and even membership subscriptions in the value-added service business are all affected by the general environment. With the epidemic under control, theoretically it will start to improve in the third quarter of this year.
There are not too many problems with the growth of station B. Today, the MAU of station B has exceeded 300 million. Chen Rui also expressed his confidence in the conference call to achieve the “target of 400 million MAU in 2023”. Today, the user growth rate of domestic Internet platforms generally falls into single digits or even negative growth, and the speed of station B is already very fast.
The problem is that the external capital environment has changed.
The background of the first two years was the disappearance of mobile Internet dividends. The high growth rate of Station B was like an oasis found in the desert. Investors flocked to push the market value of Station B from $5 billion to $50 billion. However, with the arrival of the cold winter in the industry, investors’ attention has shifted from growth and income increase to profitability, which is also the root cause of the sharp decline in stock prices of companies such as Station B and Kuaishou since the second half of last year.
Under the changing environment, the commercialization and turnaround process of Station B is more urgent. Station B, which has always focused on growth in the past, also proposed at the beginning of the year to adjust the ratio of growth and commercialization from the previous seven to three to five to five, and plans to achieve overall non-GAAP profitability in 2024.
However, for station B, which is still pursuing growth, it is not easy to balance growth and profit, especially when the growth rate of users and content consumption is faster than that of revenue.This year’s Q2 B station DAU a year-on-year increase of 33%,VV(The number of video plays) increased by 83% year-on-year. Under the same customer acquisition efficiency and unit bandwidth cost, a 10% revenue growth rate means that the loss will be further enlarged.
Chen Rui also said on the conference call: The cost reduction and efficiency increase at Station B is more about improving the efficiency of these links and reducing unit costs.According to him, Q2 B station market expenses fell 16% year-on-year, and the proportion of revenue fell from 31% to 24%; each VVThe cost of bandwidth (video plays) dropped by 37%. Both are the embodiment of the cost reduction and efficiency increase of station B.
Chen Rui concluded: “One of my predictions is that in this year DAU With the sharp increase and the increase in user time, our technical investment in IT this year, such as bandwidth and servers, will not be more than last year. This is actually an example of using technology to optimize costs and reduce costs and increase efficiency. “
In addition to improving efficiency, some other cost reduction measures taken by Station B in the second quarter were also reflected in the second quarter report. In the second quarter, the general and administrative expenses and R&D and development of station B increased by 44% and 68% year-on-year respectively. When explaining the reasons for the increase in expenses, station B said that part of it was due to the expenses related to optimization of the organization and the termination of certain game projects.
Layoffs and curtailing non-essential projects, while increasing one-time expenses in the short term, will reduce expenses in the next few quarters in the long run.
But say a thousand words and ten thousand, these are long-term signals. To convince investors and stop today’s decline, Station B needs to give more and more convincing data indicators in the next one or two fiscal quarters , indicating that the cost reduction and efficiency increase of station B is moving in a truly effective direction.
If the capital market wants to regain its confidence in Station B, borrow the classic line from Mr. Liu Jianhong: The time left for Station B is running out.
