Shulou(Shulou.com)06/01 Report--

Bilibili (hereinafter referred to as "bilibili") was successfully listed in the United States on March 28th, 2018. By the time the Q1 financial report was released this year, it had been on the market for two years.

The latest financial report shows that bilibili's revenue in the first quarter of 2020 reached 2.32 billion yuan, an increase of 69% over the same period last year. Even if the revenue is enviable, the net loss is as usual, with a net loss of 539 million yuan during the reporting period. This is the ninth consecutive quarterly net loss since bilibili went public.

Chen Rui, chairman of bilibili and CEO, once told the outside world that 2019 is a year of great significance for bilibili.

The significance of what he said is that bilibili strives to break through his own limitations, is no longer satisfied with the two-dimensional niche position, and slowly enters the mainstream field of vision, which is also the so-called bilibili "broken circle".

The 2020 New year's party was the key point for bilibili to break the circle, and also allowed bilibili to break the circle and age limit.

After the promotional film "Hou Lang" brushed the screen-level highlights, more and more people began to pay attention to this "small broken station". A year later, bilibili's broken circle seems to be quite effective.

However, in contrast to the above high volume, bilibili's profits seem pitifully low.

In the two years since its listing, bilibili's net loss has reached an astonishing 2.381 billion yuan, while bilibili, who has been established for ten years, has been plagued by the problem of "making money."

Has been losing money and has never been surpassed.

In the ten years since its establishment, losses have been accompanied by bilibili.

Data show that as of March 31, 2020, bilibili held cash, cash equivalents, term deposits and short-term investments totaling 7.9 billion yuan. Excluding employee equity incentive costs and amortization costs related to intangible assets formed by mergers and acquisitions, bilibili's adjusted net loss of non-American General Accounting Standards (Non-GAAP) in the first quarter was 470 million yuan.

Looking at the financial reports of recent years, bilibili's net losses in the past three years in 2016, 2017 and 2018 were 910 million, 572 million and 616 million respectively.

Bilibili's total net revenue in 2019 was 6.778 billion yuan, up 64 per cent from a year earlier, according to the 2019 annual report. But the net loss for the period was 1.289 billion yuan, an increase of nearly 130 per cent from the previous year's loss.

Source: bilibili Financial report

It can only be said that although bilibili ran all the way through the circle, the fact of loss could not be concealed.

Behind the loss is the single revenue structure that bilibili has been questioned.

If you open bilibili's home page, you will find that the positioning of "bilibili is a well-known video bullet screen website" is written in the most conspicuous position. From the perspective of revenue composition, bilibili is more like a "video website supported by games."

Although Chen Rui stressed to the outside world that bilibili is not a game company and that games are only a model of bilibili's commercialization, games have always been the main business in bilibili's revenue structure. Apart from this, there are advertising, live broadcasting, value-added and e-commerce services.

According to the latest financial report, in the first quarter of 2020:

The revenue of the company's game business reached 1.151 billion yuan, an increase of 32% over the same period last year, accounting for 49.7% of the revenue.

The revenue from live broadcast and value-added services was 794 million yuan, an increase of 172% over the same period last year, accounting for 34.3% of the revenue.

The advertising business realized 214 million yuan in revenue, an increase of 90% over the same period last year, accounting for 9.3% of the revenue.

E-commerce and other realized income of 157 million yuan, an increase of 64% over the same period last year, accounting for about 6.8% of the revenue.

Source: bilibili Financial report

It is also because the game business accounts for nearly half, in terms of cost, the huge marketing and promotion costs have become the root cause of bilibili's living beyond his means.

According to bilibili CFO Fan Xin on the conference call, the main components of market fees are channel delivery (such as App Store channel promotion), brand promotion activities, game distribution and promotion, salaries and bonuses of sales staff, and so on. Compared with the fourth quarter of last year, the new fees mainly come from channel launch and brand promotion activities.

First quarter of 2020:

Bilibili's income cost was RMB 1.7815 billion, an increase of 51 per cent over the same period in 2019.

Of this total, marketing expenditure increased by 234% over the same period last year to 606 million yuan.

Operating expenses increased by 117% to 1.0747 billion yuan.

Bilibili previously claimed to be "China's most YouTube-like company", and the market also calls it "China's YouTube". Indeed, the similarity between bilibili and YouTube is that they are mainly based on UGC (user-generated content), while there are PUGC (professional user-produced content) content.

But what is more different, YouTube has a mature advertising mechanism for content creators, forming a complete commercial closed loop. The creator gets 55% of the money and YouTube gets 45% of it.

George Stromboros, one of the founders of YouTube Partner, said: "YouTube wants to make sure that they can become a home for new creators, where they can not only attract public attention, but also have a chance to get some income, and YouTube can even support them to devote themselves to creation full-time."

YouTube's advertising revenue in 2019 was $15.15 billion, according to Q4 earnings figures released by Alphabet, the parent company of Google.

But bilibili announced a long time ago that it would not place front-end ads, and even after its revenue structure has been optimized, advertising still accounts for less than 10% of its revenue (Q1 data for 2020).

From here alone, YouTube's core revenue depends on advertising, bilibili or games.

The dilemma of "broken circle"

In 2019, bilibili's broken circle is mainly reflected in two aspects.

First, bilibili from the beginning of the second dimension and animation content out of the circle, to include all the UGC content of the video service.

Second, bilibili adjusts the business structure, from relying solely on game revenue to diversified revenue, increasing the proportion of live broadcast, advertising and e-commerce business. The ultimate goal is to achieve substantial growth in performance.

However, judging from bilibili's three core businesses, they all seem to have encountered a lot of challenges. Below we have an in-depth discussion on the three main business sectors: games, live broadcast and value-added services, and advertising.

"FGO", photo source: bilibili's official website

First of all, let's look at the game.

According to the data, bilibili's representative games include Destiny-Crown designation (FGO), Blue Route, Princess Link and so on. In the past three years, "FGO" accounted for more than 50% of the company's mobile game business revenue, but the game has been online for nearly four years, and its downloads and money-absorbing capacity are not as good as before.

At the beginning of 2017, "FGO" ranked in the top 100 on the best-selling list of iOS games most of the time, and mostly in the range of 100-150 in 2020.

In 2019, bilibili successively launched the "Chiji Ma General" and "BanG Dream!" "Hero Legend: the track of the Stars", "heavy Warriors", "untouchable palms" and so on, strive to expand the revenue space of the game industry.

But the problem is that games that can take over "FGO" haven't appeared yet. Bilibili must develop the next "FGO" in order to go further in the field of mobile games.

Secondly, let's take a look at the live broadcast and value-added services section.

Generally speaking, bilibili's current live broadcast business is based on the natural extension of its own content ecology. But it is also a big challenge. Bilibili bought the exclusive rights to LPL for 800 million yuan in 2019. Before LPL's live broadcast was usually dominated by Douyu and Huya, bilibili made a big bet on the expensive content of the live broadcast industry.

In addition, bilibili signed an online celebrity Feng Timo at the end of last year, which is said to cost as much as 10 million yuan.

The above actions show that bilibili attaches great importance to the live broadcast business, but with reference to the current situation that several listed companies such as Douyu, Huya and YY, which are mainly in the live broadcast business, are still unprofitable, there is great uncertainty about bilibili's live broadcast business prospects.

Bilibili's value-added business income mainly comes from paid members and paid content, monthly renewal members account for the majority, members can watch high-quality dramas, documentaries, cartoons and so on.

From 2018 to now, bilibili has regularly carried out member promotion activities with a continuous annual amount of 98-148 yuan / year, and launched a TV major membership package.

In order to develop more members' favorite content, bilibili has been increasing content investment in recent years. In the past few years, bilibili has not only added more than 1680 animation works to his content library, but also actively participated in "Yan Fire Brigade", "Dororo" and "dry girls"! The production committee of 42 Japanese animations, including Xiaozu, has entered the upper reaches of the Japanese animation industry.

Since the end of last year, bilibili launched a plan to support media presence, which aims to attract in-depth text content and carry out video expression and dissemination.

However, at present, there is still a big gap between the number of paid members of bilibili and websites such as Aiyouteng. Bilibili had 13.4 million paying members in the first quarter of 2020, compared with about 117 million and 112 million paying users of iqiyi and Tencent Video in the same period.

Data source: public information

Finally, let's talk about advertising.

Compared with other websites, bilibili accounts for a relatively low proportion of advertising revenue, mainly because bilibili does not have patch advertising. Take iqiyi as an example, iqiyi's advertising revenue accounts for about 40%, of which patch advertising is the main, and if you want to skip advertising, you can only buy members, which further increases iqiyi's value-added service income.

Bilibili mainly adopts information flow advertising, that is, when users browse recommended videos, bilibili will insert a small amount of ads in the middle and indicate at the bottom of the ads, which are mainly based on animation, games, music, members and so on.

According to the 2019 China Internet Advertising Traffic report released by the second hand system, the advertising traffic in 2018 is basically the same as that in 2017, while the advertising traffic in 2019 is 10.6% lower than that in 2018, compared with 2018. The amount of advertising decreased in all quarters, especially Q3.

In addition, according to the financial reports of a number of Internet giants, advertising revenue has declined to varying degrees in the first quarter of the past. In the face of such a competitive environment, bilibili's advertising business, which is not dominated by traffic and popularity, is hardly optimistic.

To sum up, although bilibili broke the circle at the beginning of success, but at present, several core business is mixed.

The game still depends on agents in the short term, the road of self-research has a long way to go, and the blockbuster products have passed their peak.

Live broadcast and value-added services have great potential, but the corresponding investment in copyright purchase is not low. At present, bilibili mainly focuses on PGC content and lacks the ability to produce popular dramas like iqiyi and Tencent Video.

Compared with other video websites, bilibili accounts for a very low proportion of advertising revenue, coupled with the current depressed situation in the advertising industry, the future is still unknown.

Hidden worries appear

Bilibili has been listed for two years, and the business pressure lies not only in the platform, but also in the content side that depends on it for a living.

On June 23 this year, the official Wechat account of China said that the State Cyber Information Office, together with relevant departments, recently conducted a comprehensive inspection of the content ecology of 31 major webcast platforms in China. Ten webcast platforms, including "bilibili", have problems such as spreading vulgar content and fail to effectively fulfill their corporate responsibilities.

The State Cyber Information Office instructs the Local Netcom Office to talk about the above-mentioned platform enterprises in accordance with the statute, and according to the circumstances of the violation, the relevant platforms shall respectively take measures such as stopping the updating of the contents of the main channels, suspending the registration of new users, rectifying within a time limit, and instructing the platform to deal with the relevant responsible persons, and some illegal network anchors will be included in the cross-platform ban blacklist.

Indeed, for some users, bilibili seems to have changed after "out of the circle".

In the farewell video of Wizarding Finance, they bluntly pointed out that they were deeply aware of the changes in bilibili's environment. There have also been experienced users who have been with bilibili for many years and said to the media: "now bilibili has everything and is no longer a simple two-dimensional community."

Some people even summed up the "Fortune password" of bilibili's video: get the videos that netizens pay attention to through deception. For example, the UP owner gets a large number of views by making videos such as "I'm suffering from depression", so as to "just bad money".

Source: bilibili Financial report

These perceptions of users are reflected in the financial data that the ARPU value of ARPU began to decline. Bilibili's ARPU value dropped from 15.4 yuan per person in Q4 in 2019 to 13.4 yuan per person in Q1 this year, down 12.8% from the previous month.

Not only that, in the face of "love Youteng", Douyin, Kuaishou and other platform competition, bilibili's position appears to be very awkward.

On the one hand, the long video platforms represented by "Aiyou Teng" are consciously "shortening" the length of video. Iqiyi launched iqiyi's super-fast version of App as early as May 2019, exploring the way to combine long and short videos, and shouted the slogan "look good in length and get what you want".

In January 2020, Youku issued a recruitment order for short dramas, which is open to the whole industry for short content cooperation within 15 minutes, without restricting the type of stories or horizontal and vertical screens. Tencent has many product lines that focus on short videos, such as Weishi, watch video, hot pot video, and so on.

Douyin and Kuaishou, on the other hand, are trying to grow. In early July 2019, Kuaishou began internal testing of short videos with more than 57 seconds and less than 10 minutes, while Tik Tok's duration was upgraded from 15 seconds to 1 minute, 5 minutes and 15 minutes.

Industry insiders expect that the distinction between long video and short video will be more obvious in the future, that is, the drama-based platform will launch longer and shorter duration products to meet the needs of different people, while the short-video-based platform will gradually expand the duration to obtain better user retention and advertising revenue.

This makes bilibili, sandwiched in the middle, look very embarrassed.

Source: bilibili Financial report

And in recent years, iqiyi and Tencent Video are interested in hoarding animation works IP, which makes bilibili's copyright costs and operating costs rising day by day. In turn, bilibili's net interest rate has been falling. Bilibili's net sales interest rate was-23.26% in the first quarter of 2020, down more than 9 percentage points from the same period last year.

This rise and fall further exposed bilibili's hidden worries about profits.

Summary

In order to cater to the taste of full-age users, station B needs to "break the circle" and emphasize popular culture, which may make the original ACG culture no longer mainstream; in order to attract more full-age users, bilibili has to dilute the original community atmosphere, repeatedly lower the threshold of content and interaction, and create more pan-entertainment content.

And this is also the realistic dilemma that bilibili has to face in the commercial circle, how to find a balance between "money" and "tonality".

It may not take long for everyone to find that the community is still that community, but bilibili is no longer the original bilibili.

At the celebration of bilibili's 11th anniversary held a week ago, Chen Rui, chairman and CEO of bilibili, stressed that if bilibili did not move forward, it would certainly decline until it perished, and would not stay in that medium-sized and very good state.

As he said, bilibili's halo seems to be disappearing, losing money for many years and intensifying competition in the industry. if he does not "think about change", it will be difficult to adapt to the present.

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