Bilibili : Quarterly Earnings Documents

2023 ANNUAL REPORT

BILIBILI INC. HKEX: 9626 NASDAQ: BILI

(A company controlled through weighted voting rights and incorporated in the Cayman Islands with limited liability)

Bilibili Inc. 2023 Annual Report

Contents

Company Information	2
Financial Highlights	3
Business Review and Outlook	6
Management Discussion and Analysis	10
Directors' Report	15
Directors and Senior Management	37
Corporate Governance Report	41
Other Information	58
Independent Auditor's Report	72
Consolidated Balance Sheets	77
Consolidated Statements of Operations and Comprehensive Loss	80
Consolidated Statements of Changes in Shareholders' Equity	82
Consolidated Statements of Cash Flows	85
Notes to the Consolidated Financial Statements	88
Five Year Financial Summary	169
Definitions	170

Bilibili Inc. 2023 Annual Report

Company Information

BOARD OF DIRECTORS

Directors

Mr. Rui Chen (Chairman and Chief Executive Officer) Ms. Ni Li

Mr. Yi Xu

Independent Directors

Mr. JP Gan

Mr. Eric He

Mr. Feng Li

Mr. Guoqi Ding

AUDIT COMMITTEE

Mr. Eric He (Chairman)

Mr. JP Gan

Mr. Feng Li

COMPENSATION COMMITTEE

Mr. JP Gan (Chairman)

Mr. Eric He

Mr. Feng Li

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

Mr. JP Gan (Chairman)

Mr. Eric He

Mr. Feng Li

JOINT COMPANY SECRETARIES

Mr. Xin Fan

Ms. Chau Hing Ling Anita (FCG, HKFCG)

AUTHORIZED REPRESENTATIVES

Mr. Yi Xu

Mr. Xin Fan

Ms. Chau Hing Ling Anita

PRINCIPAL EXECUTIVE OFFICES OF MAIN OPERATIONS

Building 3, Guozheng Center

No. 485 Zhengli Road

Yangpu District

Shanghai

People's Republic of China

ADDRESS IN HONG KONG

Suite 603, 6/F, Laws Commercial Plaza 788 Cheung Sha Wan Road Kowloon

Hong Kong

REGISTERED OFFICE

Walkers Corporate Limited

190 Elgin Avenue

George Town

Grand Cayman KY1-9008

Cayman Islands

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR

Walkers Corporate Limited

190 Elgin Avenue

George Town

Grand Cayman KY1-9008

Cayman Islands

HONG KONG SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited

Shops 1712-1716, 17th Floor

Hopewell Centre

183 Queen's Road East

Wanchai

Hong Kong

COMPLIANCE ADVISOR

Somerley Capital Limited

20th Floor, China Building

29 Queen's Road Central

Hong Kong

PRINCIPAL BANK

China Merchants Bank Shanghai Branch

STOCK CODE

HKEX: 9626

NASDAQ: BILI

AUDITOR

PricewaterhouseCoopers

Certified Public Accountants and Registered Public

• Interest Entity Auditor 22/F, Prince's Building Central
  Hong Kong

COMPANY WEBSITE

https://www.bilibili.com/

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Bilibili Inc. 2023 Annual Report

Financial Highlights

For the Year Ended December 31,

		2022	2023		Change (%)
		RMB	RMB
		(in thousands, except percentages)
	Net revenues	21,899,167	22,527,987		2.9%
	Gross profit	3,849,295	5,441,865		41.4%
	Loss before income tax	(7,403,508)	(4,733,008)		(36.1%)
	Net loss	(7,507,653)	(4,811,713)		(35.9%)
Net loss attributable to the Bilibili Inc's shareholders	(7,497,013)	(4,822,321)		(35.7%)
Non-GAAP Financial Measures:
	Adjusted loss from operations	(6,257,476)	(3,384,962)		(45.9%)
	Adjusted net loss	(6,702,373)	(3,414,113)		(49.1%)
Adjusted net loss attributable to the Bilibili Inc's
	shareholders	(6,691,733)	(3,424,721)		(48.8%)
		As of December 31,
		2022	2023		Change (%)
		RMB	RMB
		(in thousands, except percentages)
Total current assets	24,452,888	18,727,039		(23.4%)
Total non-current assets	17,377,682	14,432,028		(17.0%)
Total assets	41,830,570	33,159,067		(20.7%)
Total liabilities	26,590,983	18,754,800		(29.5%)
Total shareholders' equity	15,239,587	14,404,267		(5.5%)
Total liabilities and shareholders' equity	41,830,570	33,159,067		(20.7%)

Non-GAAP Financial Measures

The Company uses non-GAAP measures, such as adjusted loss from operations, adjusted net loss and adjusted net loss attributable to the Bilibili Inc.'s Shareholders, in evaluating its operating results and for financial and operational decision- making purposes. The Company believes that the non-GAAP financial measures help identify underlying trends in its business by excluding the impact of share-based compensation expenses, amortization expense related to intangible assets acquired through business acquisitions, income tax related to intangible assets acquired through business acquisitions, gain/loss on fair value change in investments in publicly traded companies, gain/loss on repurchase of convertible senior notes, expenses related to organizational optimization, and termination expenses of certain game projects. The Company believes that the non-GAAP financial measures provide useful information about the Company's results of operations, enhance the overall understanding of the Company's past performance and future prospects and allow for greater visibility with respect to key metrics used by the Company's management in its financial and operational decision-making.

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Bilibili Inc. 2023 Annual Report

Financial Highlights

The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP and therefore may not be comparable to similar measures presented by other companies. The non-GAAP financial measures have limitations as analytical tools, and when assessing the Company's operating performance, cash flows or liquidity, investors should not consider them in isolation, or as a substitute for net loss, cash flows provided by operating activities or other consolidated statements of operations and cash flows data prepared in accordance with U.S. GAAP.

The Company mitigates these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measures, all of which should be considered when evaluating the Company's performance.

The following table sets forth unaudited reconciliation of GAAP and non-GAAP results for the periods indicated.

		For the Year Ended December 31,
		2022	2023
			RMB	RMB
			(in thousands)
Loss from operations	(8,357,944)	(5,064,187)
Add:
	Share-based compensation expenses	1,040,683	1,132,644
Amortization expense related to intangible assets acquired
	through business acquisitions	192,637	191,770
Expenses related to organizational optimization	341,386	-
Termination expenses of certain game projects		525,762	354,811
Adjusted loss from operations		(6,257,476)	(3,384,962)
Net loss	(7,507,653)	(4,811,713)
Add:
	Share-based compensation expenses	1,040,683	1,132,644
Amortization expense related to intangible assets acquired
	through business acquisitions	192,637	191,770
Income tax related to intangible assets acquired
	through business acquisitions	(29,259)	(22,376)
Loss on fair value change in investments in publicly
	traded companies	52,665	32,964
	Gain on repurchase of convertible senior notes	(1,318,594)	(292,213)
Expenses related to organizational optimization	341,386	-
Termination expenses of certain game projects		525,762	354,811
Adjusted net loss		(6,702,373)	(3,414,113)

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Bilibili Inc. 2023 Annual Report

Financial Highlights

		For the Year Ended December 31,
		2022	2023
		RMB	RMB
		(in thousands)
Net loss attributable to the Bilibili Inc.'s shareholders	(7,497,013)	(4,822,321)
Add:
	Share-based compensation expenses	1,040,683	1,132,644
Amortization expense related to intangible assets acquired
	through business acquisitions	192,637	191,770
Income tax related to intangible assets acquired
	through business acquisitions	(29,259)	(22,376)
Loss on fair value change in investments in publicly
	traded companies	52,665	32,964
	Gain on repurchase of convertible senior notes	(1,318,594)	(292,213)
Expenses related to organizational optimization	341,386	-
Termination expenses of certain game projects	525,762	354,811
Adjusted net loss attributable to the Bilibili Inc.'s shareholders	(6,691,733)	(3,424,721)

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Bilibili Inc. 2023 Annual Report

Business Review and Outlook

BUSINESS REVIEW AND OUTLOOK

In a year filled with both challenges and opportunities, we sharpened our focus on our core operations with an emphasis on boosting commercialization efficiency and reducing our losses. Throughout 2023, we made steady progress toward these objectives, achieving meaningful gross margin expansion and loss reduction alongside healthy community growth. Concurrently, the integration of video content into daily life has accelerated, propelled by rapidly evolving generative AI technologies. As a leading video platform with a large user base, engaging content and a vibrant community, we are well-positioned to capitalize on this industry trend. We believe our virtuous growth cycle between community expansion and commercialization will further increase value for our users, creators and shareholders.

Our solid community growth is a testament to the strength of our self-sustaining content ecosystem, which successfully attracts and retains a growing user base. Notably, our Daily Active Users (DAUs) surpassed the significant milestone of 100 million in the second half of 2023. For the full year, our DAUs averaged over 98 million, and our Monthly Active Users (MAUs) reached 329 million, reflecting a 14% and 5% year-on-year increase, respectively. Our users' continued appreciation for our diverse and evolving content is evident, with the average daily time spent per active user on our mobile apps reaching nearly 97 minutes in 2023, marking a 17% increase in users' total time spent on our platform compared to the previous year.

Our healthy user growth directly correlates with our monetization potential. In 2023, we stepped up our efforts to improve our commercialization efficiency, enabling us to convert our high-quality user traffic into continued revenue growth, particularly through our advertising and value-added service businesses. For the full year 2023, our advertising revenues increased by 27%, and our value-added services revenues grew by 14%, both on a year-over-year basis. With this growth, our total revenues for the full year increased to RMB22.5 billion, including a rising contribution from advertising revenues to 28% in 2023 from 23% in 2022. With increased revenue contribution from our high-margin advertising business and prudent cost expenditure, our gross profit increased by 41% year over year, driving our gross profit margin to 24.2% in 2023 from 17.6% in 2022.

Meanwhile, we strengthened our expense management, achieving a 14% year-on-year reduction in total annual operating expenses. These efforts narrowed our adjusted net loss by 49% year over year in 2023. Notably, we generated RMB640 million in positive operating cash flow in the fourth quarter, and our operating cash flow also turned positive for the full year of 2023.

Content

Our ever-growing content ecosystem is the cornerstone of our business. As a platform favored by young generations, our diverse content offerings have naturally expanded to cater to the evolving interests of our users. In 2023, categories such as baby and maternity, automotive, travel, fashion and clothing saw the highest growth in video views, reflecting the dynamic journey of our young users through different life stages. To address users' preferences, we diversified our content offerings across various video-watching scenarios, including professional user-generated videos (PUGVs), live broadcasting, Smart TV content and Story Mode, a short-form vertical video product designed for users' fragmented time. In 2023, Story Mode's daily video views increased by over 49% year on year, while PUGV content views grew by 18% year on year. These developments contributed to the overall growth of our total daily video views, which rose to 4.3 billion in 2023, a 25% year-on-year increase.

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Bilibili Inc. 2023 Annual Report

Business Review and Outlook

We remain committed to providing a supportive platform for a growing number of content creators to showcase their talent. Enhancing the visibility of our talented creators and their earning potential are among our top priorities. In 2023, we received an average of approximately 21.5 million new monthly video submissions, marking a 46% year-on-year increase. Average daily active content creators also grew by 24% year on year. Additionally, we have created more direct monetization opportunities for our creators. In 2023, over 3 million creators earned income through our various channels, a 30% year-on- year increase. The adoption of video and live commerce advertising has also opened up additional avenues for creators to realize their commercial value. The number of creators earning income from video and live commerce grew by 133% year on year in 2023.

Community

Our inspiring community vibe and interactive features have further deepened the connection between our users and our platform. The average daily time spent on our platform was 97 minutes in 2023. Users' average monthly interactions totaled approximately 15.1 billion, a 14% year-on-year increase. Our official member base grew to 230 million, rising 18% year-on-year as of the end of 2023, with a strong 12-month retention rate remaining at around 80%.

Additionally, we closed the year with our fifth New Year's Eve Gala, "The Most Beautiful Night of 2023." The event garnered 100 million playbacks within 24 hours and attracted the highest level of industry sponsorship in its history, underscoring our community's high engagement and our significant influence on China's young generation.

Commercialization

In 2023, our key objectives were to enhance commercialization efficiency, expand margins and narrow losses. To achieve these goals, we further integrated our VAS and advertising business into our content ecosystem. We also centralized resources in our core commercial businesses while trimming expenses in areas yielding lower returns. These measures have made us more agile as an organization, better aligning us with industry and macroeconomic conditions and setting the stage for our long-term success.

Value-Added Services

Our growing and engaging community is the foundation for commercialization. As users spend more time and engage in more community activities, they are more willing to pay for Bilibili's content and services. VAS revenues reached RMB9.9 billion in 2023, a 14% increase from 2022, primarily driven by the growth of our live broadcasting business. Our live broadcasting landscape is becoming more diverse as we convert more content creators into hosts by further integrating live broadcasting into our content ecosystem. Concurrently, our featured live broadcasting content and products, such as V-tubers and the celebration system, continue to boost payment activities and broaden our monetization opportunities.

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Bilibili Inc. 2023 Annual Report

Business Review and Outlook

We also continued to offer popular occupationally generated videos (OGVs) to our users and convert them to premium memberships. By the end of December, we had approximately 21.9 million premium members, comprising over 80% of annual or auto-renew subscribers, highlighting the trust and loyalty we have cultivated with our brand. Additionally, users are demonstrating increased spending on other premium products and experiences.

Advertising

As the most densely populated community of young generations and our ability to connect with them in their own language, we have become a must-invest platform for advertisers targeting the youth. Our advertising revenues reached RMB6.4 billion in 2023, a 27% increase from 2022. Our performance-based ads were a standout contributor to our robust revenue growth, with a full-year increase of over 50% year on year. Revenues from our brand advertising and Sparkle advertising offerings also grew year-on-year in 2023.

Throughout the year, we refined our advertising infrastructure, including product optimization and algorithm enhancement. Specifically, we further integrated direct sales conversion tools into our advertising products across various scenarios. We also continuously improved the precision and efficiency of our advertising algorithms based on our enhanced commercial database. In doing so, we empower advertisers not only to enhance their brand equity and influence users' purchasing decisions but also to convert sales on Bilibili directly.

In 2023, our top five advertising verticals were games, e-commerce, digital products & home appliances, skincare and cosmetics, and automotive. Our effective vertical advertising solutions have achieved remarkable results in the games and e-commerce sectors, and we aim to replicate this success in additional industries. As we further integrate advertising products with our content ecosystem in a more native, natural and seamless manner and prioritize resources to enhance our advertising infrastructure, we are confident in our ability to convert our high-quality traffic into advertising revenue growth in 2024.

Mobile Games Services

Our revenues from mobile games totaled RMB4.0 billion in 2023, a 20% decrease from 2022, primarily due to the lack of new game launches and lower revenue contribution from certain games. Revenues from top-performing legacy games like Azur Lane and Fate/Grand Order remained relatively stable in 2023. As a video community for young generations, we recognize our inherent advantages in the game industry. In 2023, we further leveraged our growing advertising capabilities to strengthen our game distribution capabilities. Meanwhile, we streamlined our resources and adopted a more selective strategy for our self-developed games. The refined strategy will keep us lean and focused on top-quality projects, bringing more high-quality games to our users and creating value for our business partners.

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Bilibili Inc. 2023 Annual Report

Business Review and Outlook

Inclusion of Class Z Ordinary Shares in the Shenzhen-Hong Kong Stock Connect and Shanghai Hong Kong Stock Connect Programs

Our Class Z Ordinary Shares traded on the Stock Exchange have been included in the Shenzhen-Hong Kong Stock Connect and Shanghai-Hong Kong Stock Connect programs, both effective March 13, 2023. Following the inclusion, eligible investors in Mainland China have direct access to trading the Company's Class Z Ordinary Shares.

RECENT DEVELOPMENTS AFTER THE REPORTING PERIOD

Save as disclosed in this annual report, there were no other significant events that might affect us since the end of the Reporting Period and up to the Latest Practicable Date.

BUSINESS OUTLOOK

In 2023, we proved the effectiveness of our strategy and approaches in improving margins, narrowing losses and maintaining growth. 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 VAS businesses. We will also further strengthen our operational efficiency with a tight, targeted expense structure. At the same time, we firmly believe in the power of good content and community. We will dedicate ourselves to further developing our content ecosystem, enabling our content creators to earn more money and further expanding our user base. As we continue to strengthen our execution of these measures, we expect to improve our financials further and ensure our community remains healthy and vibrant in 2024.

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