Bilibili Inc (BILI) 2019 Q4 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Bilibili 2019 Fourth Quarter and Full Year Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Juliet Yang, Senior Director of Investor Relations.

Please go ahead.

Thank you, operator.

Please note that discussion today will contain forward-looking statements relating to the company's future performance and are intended to qualify for the safe harbor from liability as established by the U.S. Private Security Litigation Reform Act.

Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors.

Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion.

A general discussion of the risk factors that could affect Bilibili's business and financial results is included in certain filings of the company with the Securities and Exchange Commission.

The company does not undertake any obligation to update forward-looking information except as required by law.

During today's call, management will discuss certain non-GAAP financial measures for comparison purpose only.

For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2019 fourth quarter and full year financial results news release 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 Bilibili Investor Relations website at ir.bilibili.com.

Joining us today on the call from Bilibili senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Li, Chairwoman of the Board and Chief Operating Officer; and Mr. Sam Fan, Chief Financial Officer.

And I will now turn the call over to Mr. Fan who will read prepared remarks on behalf of Mr. Chen.

Thank you, Juliet.

And thank you, everyone, for participating in our fourth quarter and full year 2019 earnings conference call.

I'm pleased to deliver today's opening remarks on behalf of Mr. Chen.

2019 was a transformational year for Bilibili, with remarkable and diverse growth to our content and user base.

We significantly enhanced our entertainment ecosystem and expanded our platform's offerings beyond ACGs.

While we remain the leader in online entertainment for Generation Z users, our platform is also beginning to be recognized as a mass market product with offerings that appeal to people across different generations.

Meanwhile, we continue to foster friendly, active and sticky community with high engagement levels and retention rates, making Bilibili an extremely unique and a competitive player in China's fast-growing entertainment industry.

During 2019, we affirmed user growth as our key strategic focus and raised our MAU target for the next 2 years to 220 million by 2021.

I'm pleased to say we are on the right track to meet this exciting goal.

We closed the year on a high note with our fourth quarter results forming a solid foundation for our 2-year growth plan.

MAUs grew by 40% year-over-year, reaching a record 130 million users compared with 93 million in the fourth quarter 2018.

Mobile MAUs grew at an even faster pace of 46% year-over-year, reaching 116 million users by the end of Q4.

At the same time, community engagement is at all-time high.

Our DAUs increased by 41% year-over-year to 38 million, higher than our MAU growth rate.

And the users are spending an average of 77 minutes on our platform per day, excluding game play time.

These statistics once again demonstrate the high-quality growth we always aim to deliver.

As part of our growth strategy and brand campaign, we rolled out our first ever New Year's Gala, The Most Beautiful Night of 2019 to mark December 31 the turn of the decade.

The 4-hour entertainment showcase celebrated the coming of age for China's Gen Z, who are entering their 20s and 30s, deeply influencing our society and mainstream ideals.

The event was an immediate hit and quickly became the most talked about New Year's gala in China.

The playbacks have been viewed over 90 million times, generating nearly 3 million bullet chats as well as massive media coverage.

The success of gala not only exemplified our profound understanding of young people's interests but also impressed older generation born in the 70s and 80s, opening Bilibili to a much wider audience group.

With this far-reaching brand awareness of our company, 2020 is off to a good start, especially as we work to grow our brand on broader scale.

With our platform increasing influences among multiple generations and mass media, we take our social responsibility very seriously, especially during the recent coronavirus outbreak.

Following the outbreak, we took immediate action to support and defend against the pandemic, including a donation of RMB 10 million and the medical supplies to Wuhan, Hubei province.

We also believe that disseminating timely and accurate information is crucial.

As such, we partnered with official media outlet CCTV News to provide 24/7 virus-related news and information.

In addition, we have partnered with over 60 top universities and education groups, including Peking University, Tsinghua University and TAL Group to launch live and recorded open courses to support continued education for students who are unable to leave their homes.

We are also the designated live broadcasting channel appointed by Shanghai Municipal Education Commission for K-12 students to continue their schooling.

As the event progresses, we will continue to evaluate ways we can support our users during this time.

With the extension of the Chinese New Year holiday, hundreds of millions of people have stayed at home, spending more time on the Internet.

Bilibili has become many people's first choice for online entertainment.

At the same time, we are seeing an elevation in content supply as people now have more time to create content.

Based on the increased time spent on our platform and user momentum we have seen so far, Q1 is shaping up to be one of the strongest first quarters in our corporate history.

We are also improving our ability to monetize our growing user traffic.

In the fourth quarter, the number of paying users doubled year-over-year, reaching 8.8 million.

Our paying ratio also increased to 6.8% compared with 1.6% for the same quarter 2 years ago.

Revenue per MAU was RMB 15.4 and the non-game revenue per MAU was RMB 8.7, marking 24% and 83% increases from the same period in 2018, respectively.

We continue to see considerable potential to convert more traffic to paying users, bringing them into the fold of our active, sticky community.

Total revenue for the fourth quarter was also strong, once again beating the top end of our guidance.

Total net revenue for the fourth quarter were up 74% year-on-year, reaching RMB 2 billion, largely driven by our non-game business.

Through our increased monetization and the diversified revenue streams, our gross profit margin has also come a long way from 13.8% in Q1 to 19.8% in Q4.

As we move through 2020, we expect to continue expanding our top line and gross margin.

With that overview of our improvement across our primary business metrics, I'd like to review some of our activities and upcoming initiatives designed to further grow our content, community and commercialization capabilities in 2020 and beyond.

First, we will look at our content.

PUGV is the root and the foundation of our business.

It's also the most effective way to generate high-quality content at a relatively low cost.

In the fourth quarter, PUGV continued to be our primary source for our growing content library, accounting for 91% of our total video views.

Our increasing brand awareness, friendly community environment and improved platform services continue to attract more content creators to Bilibili.

In the fourth quarter, about 1 million active content creators uploaded 2.8 million videos monthly, up 80% and 66% year-over-year, respectively.

With the development of mobile devices and adaption of 5G technology, we believe the video industry will be one of the biggest beneficiaries across all sectors.

Bilibili in particular is poised to be benefited with 5G potential to revolutionize the various ways of how people produce and consume content.

In 2019, we saw a very clear trend of more diversity around content and content creators, helping us to attract more mass audience with varying tastes.

While we remain the clear leader in games and anime-related content, we continue to grow our lifestyle and entertainment offerings.

Along with this, we had witnessed many new star content creators rising in those verticals.

Vlog, foodie and technology continued to gain popularity in the fourth quarter.

We are also proactively expanding into other pan-entertainment verticals.

Music is one of them.

With its universal appeal, music is welcomed by all generations of all different backgrounds.

To further inspire our content creators and enrich our music content offerings, we have partnered with Tencent Music and most recently with renowned record label Sony Music, to bring new experiences to our growing viewership of music lovers.

We are also looking into other universally attractive categories, such as celebrity, fashion, study and information to reach even broader audience.

Our smart content distribution continues to play a vital role in our content ecosystem, bringing discover high-quality content and talented content creators in a speedy fashion.

As our algorithm and operational capabilities improve, the number of videos that achieved 10 million views grew nearly 8-fold in 2019 compared with 2018.

The motivation to showcase their work and attract loyal fans make Bilibili the ideal platform for content creators.

We continue to support and encourage our content creators on multiple levels.

In January 2020, we hosted Bilibili Top 100 Content Creators Award Ceremony in Shanghai, where we celebrated outstanding achievements of leading content creators in various categories.

Our cash incentive program continues to motivate our middle layer content creators.

By the end of December 2019, over 220,000 content creators joined our program, where high quality and original content creation have been rewarded with cash bonuses based on the positive feedback from our users.

We also provide an increased number of online and off-line tutoring sessions as well as fair access to our traffic to help newer content creators grow and flourish.

Turning to our occupationally generated video, OGVs.

Our OGV strategy has a dual focus: first, to form IP assets and second, to convert visitors to paying users.

In 2019, our MAUs for Chinese anime surpassed Japanese anime for the first time, making Chinese anime the largest OGV vertical on Bilibili.

With a growing viewership and an audience group hungry for new content, we are excited to bring new titles and series to our community.

In November, we hosted our annual Made By Bilibili event, highlighting our updates and the new launch plan for 40 Chinese anime titles throughout 2020 and 2021.

This includes 13 project updates, such as the world renowned sci-fi thriller, The Three-Body Problem, and 27 new titles including Heaven Official's Blessing (Foreign language), Legend of Mortal Ascension (foreign language) and The Daily Life of the Immortal King (foreign language).

In addition, we see considerable synergy between anime and our comic business.

Many of the popular anime titles are also the top selling e-books on our comic platform.

In the documentary and variety show department, we're delighted to see our self-produced and IP-owned titles gaining traction.

In the fourth quarter, we partnered with Shanghai Media Group and co-produced Police Stories - Shanghai Guardians.

This documentary about local police in Shanghai quickly gained popularity among young people.

The Hidden Kingdoms of China, a phenomenal documentary that we co-produced with National Geographic was also released in the fourth quarter and received positive [reviews] (corrected by company after the call).

As we welcome more diversified OGV titles in our community, we are accumulating a library of valuable IP assets, while simultaneously [helping] (corrected by company after the call) us convert our growing traffic to paying users.

Our premium [memberships] (corrected by company after the call), which offer additional exclusive and advanced content to paid users, continued to flourish in the fourth quarter.

By the end of December, we had 7.6 million valid premium members, up 111% year-on-year.

While user grows at a tremendously high rate, our community density has not been diluted.

As a matter of fact, it continues to thrive with high engagement, high retention and tight bonds.

In the fourth quarter, we had 710 million daily video views, up 63% year-on-year.

In Q4, our users generated 2.4 billion monthly interactions through bullet chats, comments, likes and the Bilibili moment posts, up 141% year-on-year.

Each user, on average, follow 34 content creators compared with 26 for the same period last year.

The unparalleled level of engagement and the connection among our users are making Bilibili the most unique and competitive video community in China.

Our official membership program is also on the rise.

At the end of the fourth quarter, we had 68 million loyal official members who passed our 100-question exam, up 50% year-over-year.

This group of users' 12th-month retention rate remains high as well, at above 80%.

This continued to be an excellent indicator of the quality of our user growth.

Turning to our commercialization progresses, let's first look at our games.

In the fourth quarter, revenue from mobile games were up 22% year-on-year to RMB 871 million, accounting for 43% of our total revenues.

We continued to expand our reach in games, covering different genres and gameplays.

On the exclusively licensed games, Fate/Grand Order, or FGO, continued its popularity during its fourth year of operating in China.

In November, we also began operating the exclusively licensed title Girl Cafe Gun II, making a big splash in China's mobile game market.

The newly launched domestic ACG game the Furious Yama was also a hit among anime fans following its release in January this year.

As part of game business strategy, our jointly operated games also made meaningful progress in 2019.

With increasing density of game lovers gathering on our platform, Bilibili has become a top channel to distribute ACG-themed or other high-quality games.

During this year, we had multiple success with our jointly operated game projects, including Arknights, Gray Raven, Fox Spirit Matchmaker and Onmyoji: The Card Game.

Revenue generated by our jointly operated games now account for more than 25% of our total game revenue.

Looking at our game pipeline, we have over 30 exclusively licensed games lined up for releases, 8 of which have already gained regulatory approvals.

This includes 2 exciting Japanese role-playing games, Princess Connect (foreign language) and Animistic (foreign language), which we plan to roll out in the second quarter.

On the jointly operated game front, we will continue to work with leading game developers to bring our users premium games, such as MiHoYo's Genshin [Impact] (added by company after the call), Youzu's Shan Hai Jing Hua.

Additionally, leveraging our expertise and understanding of the ACG culture, we plan to expand our game distribution outside of Mainland China, further growing our revenue streams and increasing our global reach.

Turning to our live broadcasting and VAS business.

We have seen excellent growth from this segment, and we believe there's a great deal of potential to broaden our offerings and attract new users, particularly in live broadcasting, where there is a natural crossover with our video business platform and our user base.

Revenues from live broadcasting and VAS increased by 183% year-over-year reaching RMB 571 million in the fourth quarter.

Our growth was driven by increased contribution from live broadcasting, premium members, Maoer and the comic business.

We continue to build our games and entertainment content for live broadcasting where we see considerable room for growth in 2020.

China is the world's largest game market and e-sports is gaining more and more traction among young generations.

Viewers' demand for premium e-sports content is high, and we are poised to deliver.

Our 3-year exclusive license for live broadcasting rights for the world-renowned League of Legends World Championship places us in the center of the e-sports world.

With the S10 game being hosted in our home base, Shanghai, we believe we can maximize the impact of the game even further.

On the pan-entertainment front, we have secured a contract with one of the China's top entertainment hosts, Feng Timo, who has quickly won over Bilibili's users.

With top-level content and our new host additions, we have now completed our new live broadcasting pyramid and are working to grow this part of our business.

As for our advertising business, our community presents a considerably attractive audience for advertisers.

Our brand awareness is on the rise, and we continue to be the go-to platform for the golden Gen Z consumer cohort.

With these significant advantages, we are confident that Bilibili will remain as a top choice as our advertising partners look to allocate their budgets for the year.

For the fourth quarter, we saw increased sales in advertising despite the challenged macro environment.

Revenues from advertising increased by 81% year-over-year to RMB 290 million, driven by our heightened brand awareness and efficient ad offerings.

The top 3 industry verticals for brand advertising in the fourth quarter were games, e-commerce and food and beverages, and the top 3 verticals for performance-based advertising were games, education and e-commerce.

On the heels of our successful integrated marketing program with Taobao and T-mall for 2019 Double 11 and Double 12 shopping events, we continued to deepen our partnership with Alibaba.

In the year-end, Taobao Juhuasuan sponsored Bilibili's New Year's Gala event.

The Gala's wild success far exceeded Taobao's expectations, highlighting our deep understanding of our users and increasing awareness of Bilibili brand as a primary platform for advertisers.

We look forward to further collaborating with BABA and other industry leaders that showcase the strength of our far-reaching platform.

In summary, we have reached an exciting inflection point.

We have moved into the realm of mass market appeal.

For 2020, our strategy relies on key expansion initiatives that broaden our content offerings, grow our user base and improve our commercialization capabilities.

At the same time, we are dedicated to putting our community first by [respecting] (corrected by company after the call) and valuing our users and content creators.

We will continue on this trajectory with goals of creating sustainable growth and long-term value for our community and our shareholders.

That concludes Mr. Chen's remarks, and I will now provide a brief overview of our financial results for the 2019 fourth quarter and full year.

Our total net revenue increased by 74% year-over-year to RMB 2 billion, exceeding the high end of our guidance.

Our non-game revenue made up nearly 57% of our total revenues in the fourth quarter, up from 38% in the same period of 2018.

With more than half of our revenues coming from multiple sources, we are pleased with our commercialization progress and the implications of this diversity.

We are also converting more and more online traffic to paying users.

The average number of monthly paying users increased by 100% year-over-year, reaching 8.8 million in the fourth quarter.

Cost of revenue increased by 68% year-over-year to RMB 1.6 billion.

Revenue sharing cost, a key component of cost of revenues, was RMB 705 million, a 63% increase from the same period in 2018.

Gross profit increased by 102% year-over-year to RMB 398 million.

We are also starting to see operating leverage from our diversified revenue streams.

With more revenue contribution from our higher-margin businesses, including advertising and co-operated games as well as additional income from premium users, our gross profit margin steadily improved throughout 2019, reaching 19.8% in the fourth quarter.

Total operating expenses increased to RMB 818 million, up 68% from the same period in 2018.

Selling and marketing expenses were RMB 413 million, representing a 127% increase year-over-year.

The increase was primarily attributable to the increased channel and marketing expenses associated with Bilibili apps and brand, including promotional activities for off-line events, the 2020 New Year's Eve Gala event, for example, as well as promotional expenses for our mobile games.

The increase was also attributed to the increased headcount in sales and marketing personnel and the increase in fulfillment costs associated with our e-commerce program.

G&A expenses were RMB 160 million, representing a 6% increase year-over-year.

R&D expenses were RMB 245 million, representing a 60% increase year-over-year.

The increase was primarily due to increased headcount in R&D personnel and increased share-based competition costs.

Net loss was RMB 387 million for the fourth quarter of 2019 compared with RMB 191 million in the same period of 2018.

Adjusted net loss, which is a non-GAAP measure that excludes share-based compensation expenses and amortization expenses related to intangible assets acquired through business acquisitions, was RMB 337 million compared with RMB 152 million in the same period of 2018.

Basic and diluted net loss per share were RMB 1.17.

Adjusted basic and diluted net loss per share were RMB 1.01.

For the full year of 2019, total revenue increased by 64% to RMB 6.8 billion.

Revenue from mobile games increased 23% to RMB 3.6 billion.

Revenue from live broadcasting and VAS increased 180% to RMB 1.6 billion.

Revenues from advertising increased 76% to RMB 817 million.

Revenue from e-commerce and other increased 403% to RMB 722 million.

Gross profit increased 39% to RMB 1.2 billion.

Net loss for 2019 was RMB 1.3 billion compared to RMB 565 million in 2018.

Adjusted net loss for 2019 was RMB 1.1 billion compared to RMB 377 million in 2018.

Basic and diluted net loss per share for 2019 were RMB 3.99 or USD 0.57 compared to RMB 2.64 in 2018.

Adjusted basic and diluted net loss per share were RMB 3.30 or USD 0.47 compared to RMB 1.84 in 2018.

As of December 31, 2019, we had cash and cash equivalents, term deposits as well as short-term investments of RMB 8.1 billion compared to RMB 5.2 billion as of December 31, 2018.

To further grow our business, we plan to improve our monetization by leveraging our considerable and growing traffic.

We also see benefit in further expanding our diverse revenue streams and continuing to improve revenue contribution per MAU.

Longer term, we believe our monetization efforts, high-paying user scale and the conversion rates will yield an improved bottom line.

With that in mind, we are currently projecting net revenues for the first quarter of 2020 to be between RMB 2.15 billion and RMB 2.20 billion.

The above outlook is based on the current market conditions and reflects the company's preliminary estimates, which are all subject to change, particularly in light of the uncertainties related to how coronavirus develops.

Thank you for your attention.

We would like now to open the call to your questions.

Operator, please go ahead.

(Operator Instructions) Your first question today comes from the line of Lei Zhang from Bank of America.

(foreign language) My first question is about recent coronavirus outbreak.

Wondering whether management could share your thoughts on how the outbreak may impact our business.

Related to that, can you give us more color on the user trend in the fourth quarter, especially after people are back to work and if any user slowing down?

And how should we look at our full year users target?

(foreign language)

[Interpreted] Okay.

So taking the virus situation under consideration, we are currently projecting our Q1 total net revenue to be between CNY 2.15 billion to CNY 2.2 billion and -- which has considerable growth quarter-over-quarter and year-over-year.

And given that we have multiple business lines -- different business lines, e-commerce, because due to the logistic delays, there will be some impact related to the -- how much we can book the e-commerce revenue in the first quarter.

However, compared to other business that's more related to our traffic growth such as live broadcasting and games, we do see some positive impacts of the extended traffic.

Overall, in general, we don't see much of an impact to our overall business.

(foreign language)

[Interpreted] So given the extended holiday, people are staying at home for over a month, and Bilibili has become many people's first choice for online entertainment consumption.

And we've seen so far that user traffic, user engagement as well as time spent has been beyond our expectation.

So overall, this trend is quite positive.

(foreign language)

[Interpreted] So regarding your question about whether we see a decline in users after people are now going back to work, the answer is that user growth is our primary business focus for 2020.

And we don't rely on incidents or occasions like the coronavirus outbreak.

We do have designated thorough plans throughout the years to help us to achieve a steady user growth.

(foreign language)

[Interpreted] So after people are going back to work, for sure that the growth rate won't be as high as when people are staying at home, but it won't be a drastic up and down.

Your next question comes from the line of Wendy Chen from Goldman Sachs.

(foreign language) My question is about user growth outlook.

As we have achieved the 130 million MAU target this year, I'm wondering what's management's updated view on our user growth target for the full year 2020.

And as we are targeting with mass market appeal this year, what is our outlook for our user growth addressable market for the longer term?

(foreign language)

[Interpreted] So as we communicated with the market before that we have set up our user growth goal for 2020 to be 180 million and 220 million for 2021.

And we have done a lot of -- we have conducted a lot of efforts and -- to help us to achieve this goal.

And so far, it all looks like the progress is well on track.

(foreign language)

[Interpreted] So while we are quite optimistic about our user growth plans, at the same time, we also really value the quality of that growth.

And the past historical data also suggests even though that we are on a very fast track of user growth, we have maintained a high quality of user growth as well as a very tight community environment.

Our users' time spent retention rate as well as the interaction levels have all been quite positive, sometime -- all faster than our MAU growth, indicating the high quality of our user growth.

So this is the standard we are hoping to continue to maintain throughout the year.

(foreign language)

[Interpreted] So at the same time, we are also focusing on improving our commercialization capabilities.

So there are several metrics that we've seen very positive trends from the paying user conversion rate as well as our traffic-related business such as our advertisement revenue growth.

They're all quite very positive.

Our paying user growth more than doubled.

Our advertisement revenue grew 81% year-on-year.

So all these metrics are suggesting we're also making a very good progress on improving our commercialization capabilities.

(foreign language)

[Interpreted] So in summary, that we are quite confident that to -- while maintaining a fast user growth trend, we'll continue to maintain a high quality of that growth, maintain a very friendly and tight community environment while simultaneously improve our commercialization capability.

Your next question comes from the line of Alex Liu from China Renaissance.

(foreign language) My question is on advertising business.

We note that fourth quarter advertising growth is very robust and also the first quarter guidance is also very solid.

Could the management share some color on our advertising business performance in the first quarter?

And also for full year 2020, could you share some updates on advertising business' new initiative?

(foreign language)

[Interpreted] So historically, Bilibili has been very strong in terms of converting customer -- converting to the related business.

And we've seen a very strong conversion in terms of many consumptions, including our games, live broadcasting and advertisement business.

So we achieved very solid growth across all business lines in [2019] (corrected by company after the call), and we feel quite confident that we'll -- this business has great potential.

And during the fourth quarter, even under this challenging -- very challenging macro environment, we were still able to deliver 81% year-on-year advertisement growth.

(foreign language)

[Interpreted] So as our brand awareness continues to grow, we have made quite big impression among our advertisers from a vertical content platform to a must-invest, must-have channels to reach young audiences.

For example, this year, we've seen some very clear trends that Bilibili has become the first choice for a lot of new product launches, press -- online press conferences.

And all of that is -- we've seen that the advertisement -- advertisers' budget is shifting with the movement of our users.

(foreign language)

[Interpreted] So starting from Q1, we will adjust and continue to improve our advertisement overall strategy as well as pricing and efficiencies to achieve sustainable growth.

(foreign language)

[Interpreted] So third and quite importantly is on the technology front, we'll continue to invest to improve and revolutionize our algorithm's efficiencies to improve our performance-based advertisement effectiveness and improve our click-through ratio.

(foreign language)

[Interpreted] So your question regarding our collaboration with Alibaba.

So in 2019, we have established quite a lot of new projects and collaborations during Double 11, Double 12 shopping festivals and Taobao's Juhuasuan also exclusively sponsored Bilibili's New Year's Gala, which the overall effect has exceeded Juhuasuan's expectation.

So, so far, we think that partnership between Alibaba has met or even exceeded our previous expectations, and we really look forward to deepening our relationship with Alibaba's overall e-commerce ecosystem in 2020.

(foreign language)

[Interpreted] So we actually have developed a whole strategy of how we can better collaborate Bilibili's ecosystem with Alibaba's ecosystem in terms of integrated marketing campaign that includes the brand campaign, that increase the brand awareness and to influence users' purchasing decision through native ads and complete the transaction through performance-based ads.

And this strategy we can copy and paste and replicate that with many new advertisers in 2020.

And we believe we have a lot of potentials to further replicate the success stories between Alibaba and Bilibili to many others -- many other new advertisers.

(foreign language)

[Interpreted] So as Rui Chen mentioned earlier that 2020's primary focus of our business is to grow our users.

And while we do so, they will -- the increased traffic will also serve [as fuel] for our advertisement business.

So we are quite confident that in Q1 and 2020, our overall advertisement business will have a very good growth trajectory.

Your next question comes from the line of Thomas Chong from Jefferies.

(foreign language) I have 2 questions.

My first question is about the GP margin trend.

Given the solid GP margin over the past 3 quarters, can management comment about how we should think about the GP margin outlook in 2020?

And my second question is about the gala event that we hosted very successfully earlier this year.

Can management comment about the positive impact to our platform after the success?

Okay, Thomas.

I will take your first question and Rui then will take -- will comment on your second question.

Yes, you're right, our gross profit margin has recorded steady improvement throughout 2019 from like 13.8% in Q1 to like 19.8% in Q4.

In the future, we still see some room to further leverage between our high paying ratio and to increase the revenue per MAU to further improve the gross profit margin.

That leverage will come from the cost component like bandwidth cost as well as the revenue sharing cost.

So we will work on that, and we'll see that in the coming quarters.

(foreign language)

[Interpreted] So the success of the gala -- well, the gala itself is part of our user growth plan as well as part of our brand campaign.

And we don't think this is an isolated event that Bilibili New Year's gala is a success.

That it actually is a testimony of how Bilibili understand young people's interest.

And as we accumulated our understanding for the past 10 years, this has made a material impact in the mainstream ideals.

(foreign language)

[Interpreted] So this gala is a landmark event as Bilibili moved into the realms of mass market appeal.

And the success of the gala actually -- the content of the gala actually attracts many users from different background and different generations and make them get to know Bilibili from their perspective, from what they have -- the perspective or content verticals that they are familiar with.

And this is a quite -- we would think this is a quite eventful campaign that made the Bilibili brand accessible -- much accessible to wider generations and audiences.

(foreign language)

[Interpreted] So far, the playback of the event has been viewed over 90 million times.

And we have accumulated 5 billion media exposures and that we think it has 4 major points that will impact our business.

(foreign language)

[Interpreted] So first of all it's definitely laid a very solid foundation for our 2020 overall user growth plans and second of all has further increased our brand awareness among users and make them to perceive a little bit more clear about what Bilibili is and what Bilibili has to offer.

And thirdly, as we mentioned earlier, on the advertisement front, it definitely also has a very positive impact.

Like we said, Juhuasuan's sponsorship, the overall effect has exceeded their expectations and also made a very good example of how Bilibili's events and campaigns can influence to -- and reach much wide audiences groups.

And last but not least is, once again, it's a strong testimony of how Bilibili has the determination and ability to produce high-quality content and will continue -- and we're committed to continue to produce more high-quality content.

The next question comes from the line of Jialong Shi from Nomura.

(foreign language) My question for management is about the competition landscape.

We saw some of Bilibili's peers, Chinese Internet peers talking about ramping up investments this year in either anime or PUGV content.

We understand these peers -- this move by peers may show the huge potential in this market, but the entry of these newcomers may also fewer the competition in this segment.

So my questions are 2. First of all, I just wonder how management think of the potential impacts it may have on the company's assets to retain talented content creators and the audience.

Will Bilibili, at certain point, be forced to pay more to some of the top content creators in order to retain them?

And secondly, what are the company's strategies to maintain fast user growth in a more competitive environment?

Is there any risk that Bilibili may have to spend more in marketing dollars to hit the user growth target?

(foreign language)

[Interpreted] So as regards the overall video industry, actually, it's fast growing and a very big market.

According to third-party research data, that the current video user has already reached 750 million in China.

And we think as the adoption of 5G technology and the revolution of hardware and infrastructures, I'm projecting the overall video users can grow to 800 million or 900 million in the next few years.

(foreign language)

[Interpreted] So as a matter of fact, video as an industry vertical on the Internet space is actually one of the largest verticals.

And for the past few years, you can -- you must have witnessed many new player -- many players in the video industry grow quite significantly, and that has also a very direct relation to the expansion of the market.

And we don't believe 1 or 2 new additional players entering this market will make a material impact or difference from this growth trajectory.

(foreign language)

[Interpreted] Okay.

So a lot of people have asked that for the past few years how those impact the overall industry.

But as a matter of fact, we are able to maintain our fast growth while doing -- gaining the market share.

Many people would probably argue that it's the different -- there's a different lens in terms of short video and long-form video, but we believe we are actually the player who gives definition of PUGVs, and we have the most experience in terms of PUGV.

(foreign language)

[Interpreted] So we are -- we have been putting PUGC as our primary business model for at least 5 years.

And for the past 5 years, we have gained a lot of experience.

And actually, we kind of feel alone in this track, and now we have more players starting to pay more attention on this business model.

We believe this is another -- a different perspective on another side of the story, which means this track has great potential to grow.

(foreign language)

[Interpreted] And this business model requires unique expertise in terms of operation as well as running a platform.

So for the newcomers, I think there's going to be a learning -- at least a learning curve for them and won't yield results in short terms.

(foreign language)

[Interpreted] So as for your question about the competitive cost related to more player joining in these verticals, we believe for this industry, we have long passed the phase that people have to burn cash to fight for content or KOLs.

This is -- we have already entered a phase that we compete with each other in terms of the overall industry layout, the business operation capabilities as well as whether content creators are able to achieve their career goals on [your] platform to be able to grow their traffic on your platform.

So it won't have a significant impact in terms of single costs, whether it's on content or sales and marketing.

And that concludes the question-and-answer session.

I would like to turn the conference back over to management for any additional or closing remarks.

Well, thank you, once again, for joining us today.

If you have any further questions, please contact myself, Juliet Yang, Bilibili's Senior IR Director or TPG Investor Relations.

Our contact information for IR in both China and U.S. can be found on today's press release.

Have a great day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]