Bilibili Inc (BILI) 2020 Q3 法說會逐字稿

Good day, and welcome to the Bilibili 2020 Third Quarter 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 the 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 also 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 2020 third quarter 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's investor relations website at ir.bilibili.com.

Joining us today on the call from Bilibili's senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Li, Vice 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 the prepared remarks on behalf of Mr. Chen.

Thank you, Juliet, and thank you, everyone, for participating in our 2020 third quarter conference call. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen.

We see a golden opportunity to expand our reach in today's market. To seize this window, we stepped up our approach to user growth with a focus on further growing our content, expanding our brand awareness and targeted channel acquisition. This was especially fruitful in our third quarter peak season. As a result, our user base hit a record high. In August, our MAUs exceeded 200 million milestone, marking a new monthly record. Total MAUs for the third quarter were up 54% to 197 million, and DAUs were up 42% to 53 million, both on a year-over-year basis.

Mobile users also continued to grow at a faster pace. Mobile MAUs were up 61% year-over-year to 184 million in the third quarter. Our users are highly engaged, spending an average of 81 minutes per day on our platform, making Bilibili one of the stickiest video communities in China.

The quality growth of our users is not only reflected in the high engagement levels, but also in the paying user conversions. MPUs were up 89% year-over-year, reaching 15 million in the third quarter. And our paying ratio improved to 6 point -- sorry, 7.6% from 6.2% in the same period last year. These increase drove our top line expansion. And in the third quarter, revenue reached another record high of RMB 3.2 billion, up 74% year-over-year.

While we grew our top line, we also improved our gross margin. Gross margin was 23.6% in the third quarter, up from 18.9% in Q3 last year, and we are gaining even more operating leverage.

While Bilibili has become a household name among young generations, there are large groups of potential users who are just beginning to learn about us. The Gen Z community acts as our anchor as we begin to cast an even wider net. Today, we are gaining traction with more diverse demographics than ever before. Marketing campaigns, such as our newly introduced slogan, Bilibili - All The Videos You Like, has helped us to define and promote our appeal to mass audiences. During the third quarter, we launched a series of online and offline campaigns to promote our brand proposition to an even broader audience across different demographics. This strategy is working, and we are carrying these efforts into the fourth quarter.

Our industry partnerships are also strengthening our content offerings and brand. In August, we entered into a 5-year business cooperation agreement with Huanxi Media through a strategic equity investment, in which we gain exclusive broadcasting rights to Huanxi's existing and upcoming high-quality movies and TV drama series.

We have also entered into a 3-year exclusive partnership with Riot Games for exclusive live broadcasting rights of League of Legends World Championship. This has significantly enhanced our position and brand in the important e-sports genre, especially during the S10 this year.

And in October, we deepened our partnership with Sony by signing a strategic agreement with its subsidiary, Aniplex, to bring more premium anime content and mobile games to our users. These expanding alliances not only enrich our content offering, but also demonstrate that both domestic and international industrial leaders have common recognition for our unique value in China's entertainment market.

While we are working to build our brand and attract more users, increasing demand for high-quality video content bodes us well for capitalizing on growth prospects. China represents the largest online video population in the world. According to the CNNIC report, by the end of first half of 2020, near 890 million users in China consumed online content in video format. Faster networks and smarter hardware enable more accessible content creation and consumption. Our experience over the past decade has made us a pioneer of video-lization movement. We are committed to capturing this market opportunity by further executing our growth strategy, which we believe will yield considerable return in the long run.

With that overview, I would now like to provide some more color on our content, community and commercialization activities. I will begin with a review of our content. Our PUGV content ecosystem is the cornerstone of our business and the main engine that powers our growth vehicle. For the third quarter, we had approximately 1.7 million content creators uploading 5.6 million videos per month, representing increases of 51% and 79%, respectively, both year-over-year. We continue to cultivate a nourishing soil to allow content creators to grow and flourish. By promoting originality and ingenuity, our algorithm enables the highest quality of original content to quickly gain traction and expand the fan base. In the third quarter, the number of videos that achieved 1 million video views increased 73%, and the number of content creators with over 10,000 followers grew 75%, both year-over-year.

Meanwhile, we continue to help our content creators earn better monetary rewards through our cash incentive program and our newly launched advertising platform, Sparkle. The match-making platform is designed to better connect advertisers and content creators and bring more commercial opportunities to our creators by providing a safe and scalable product for native ads. Each of these components help us maintain and grow this important PUGV ecosystem.

Our top 5 verticals in terms of video views in the third quarter were lifestyle, game, entertainment, anime and tech and knowledge. Among these, tech and knowledge is emerging as one of the fastest-growing sectors. Learning on Bilibili is also attracting so -- many curious minds are attracted to our platform looking for informative and educational content. In the past 12 months, there were nearly 100 million users across different age groups with knowledge-related videos on Bilibili, making us one of the top learning platforms in China.

While we enhanced our content offerings in our leading verticals, we are actively expanding our content reach in new categories. The automotive sector was one of them. In Q3, video views in this genre grew rapidly 177% year-over-year. This reflects our longevity and staying power with users as they mature. In this case, our core Gen Z users have come to a life-stage for auto consumption. This transition also helps us attract wide demographics and open new advertising opportunities across broader industry groups.

Turning to our OGV. Our investment in IP content is paying off. With our strong hold in this genre, Bilibili-produced Chinese anime not only attracted massive new users, but also became the most effective driver of premium memberships. This is especially true of our self-produced Chinese anime, Carp Reborn, Yuan Long, generating 260 million views in just 3 months since its launch.

In September, we were excited to welcome the thrilling TV drama Run For Young, Feng Quan Shao Nian De Tian Kong, to our platform, marking the first TV drama to follow our collaboration with Huanxi Media. This show was an immediate hit at the release and trended #1 on Bilibili's most searched list for weeks. This show has generated [380 million] (corrected by company after the call) video views, setting a new record in this category.

We are also reaching new heights for documentary and variety shows department. Our very first self-produced musical variety show, Rap for Youth, (foreign language), received outstanding reviews beyond our typical community, generating approximately 410 million video views and 8.2 million bullet chats. This success will not only enrich our music category, but also attracted and inspired a great number of musicians and music lovers.

Looking at documentary, we believe our recent agreement with BBC Studios is a strong endorsement of our documentary quality and will further enhance our content library. Also, building on the success of last year's Gala, we will be aring another smashing New Year's Eve Gala event. We expect this year will bring our community more excitement and joy.

Turning to our community. While our user growth continued to rise, we set a number of new records across our key community metrics. In the third quarter, our daily video views reached 1.3 billion, up 77% year-over-year. Our users generated 5.5 billion monthly interactions through bullet chats, comments, likes and Bilibili Moment posts, up 117% year-over-year. The number of our official members is also on the rise. At the end of third quarter, we had 97 million official members who passed our 100-questions exam, up 56% year-over-year. Retention levels also remain strong, well above 80%.

With a decade of experience under our belt, we believe our community remains one of our biggest competitive advantages and moats in the evolving online entertainment industry.

Turning to our commercialization progress. The growing traffic on our platform fuels each of our business line as well -- as we roll out more premium content and services to meet our users' diverse entertainment needs.

Our game business. Revenue from our mobile game business were RMB 1.3 billion, up 37% year-over-year, accounting for 40% of our total revenues. Building our massive game lovers base, we continue to expand our game offering in diverse genres as we maintain the commonality of our existing titles. Our new blockbuster game, Princess Connect (foreign language), continued to resonate with our fans and attract new users. It was another strong testament that -- our robust distribution and operating capabilities in the ACG genre. In October, we renewed our exclusive FGO license with Aniplex and celebrated the game's 4th anniversary. Additionally, we launched a few new titles during the third quarter, which included Animistic (foreign language), Zhan Yao Xing and Ash Arms, all of which have been well received by our users.

And for our game pipeline, we have 10 titles in diverse genres that have acquired approvals and are ready to be released in the coming quarters. Next in queue is Sword Art Onlinee: Integral Factor (foreign language), an exciting MMORPG, planned for launch at the beginning of 2021.

Looking at our jointly-operated games, we continue to work with the leading games developers to bring our users premium titles. Our solid reputation, strong game operation capabilities and high-density gamer demographic have made Bilibili the go-to platform for jointly operating partners. In September, as the main Android partner in China, we began jointly operating the highly anticipated Genshin Impact. The massive success of Genshin and our operation is another feather in our cap. Other near-term joint titles include the plan to distribute NetEase's Harry Potter.

Turning to our VAS business. Revenues from VAS increased by 116% year-over-year, reaching RMB 980 million in the third quarter. Our growth was mainly driven by increased contribution from premium memberships, live broadcasting and other value-added services. As our brand name continue to spread, we are attracting business partners and live-broadcasting hosts and adding new and diverse content to our growing library.

Esports is a prime example. Our League of Legends World Championship live broadcasting rights, has secured an important place for Bilibili, including the esports genre. As we showcase our capabilities, more esports hosts and lovers are turning to Bilibili's immersive live broadcasting experience. For the entire S10 championship season, total live-broadcasting page views related to the game increased by over 300% compared with S9 last year.

We are pleased to see our users' growing willingness to pay for advanced or exclusive access to our OGV content. By the end of the third quarter, we had 12.8 million premium members, up 110% year-over-year. As we roll out more exciting content, we are confident we can continue converting more premium subscribers.

Finally, our advertising business. Despite challenging macro economic and the environment, we delivered another accelerated growth in our advertising business. Revenues from the segment reached RMB 558 million, up 126% year-over-year. Our efforts to spread our brand name not only attracted wider user group, but also impressed many new business partners. Advertisers across different industries are turning to Bilibili to tap into the coveted young demographic. Our top 5 leading verticals in the third quarter were e-commerce, food and beverage, games, 3C products and automotive.

In summary, we are on an excellent growth trajectory. With solid execution of our user growth initiatives, we continue to improve our brand equity and reach new heights across key user matrics. The industry's trend toward video-lization is working strongly in our favor as we provide the most unique community experience to both content creators and users.

Capitalizing on this momentum, we aim to further grow our brand, enrich our content offerings and unleash the great potential of our expanding online entertainment ecosystem.

This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the third quarter of 2020.

Our total net revenues increased by 74% year-over-year to RMB 3.2 billion, exceeding the high end of our guidance. With our non-games accounting for 60% of the revenues, we are pleased with the commercialization progress of our non-game offerings and our ability to convert our online traffic into paying users.

The average number of monthly paying users increased by 89% year-over-year, reaching 15 million in the third quarter. Cost of revenue increased by 63% year-over-year to RMB 2.5 billion. Revenue-sharing cost, a key component of cost of revenues, was RMB 1.2 billion, a 77% increase from same period in 2019. Gross profit increased by 117% year-over-year to RMB 762 million. We are seeing more operating leverage from our diversified revenue streams. With more revenue contribution from our higher-margin business as well as additional income from paying users, our gross profit margin continued to improve, reaching 23.6% in the third quarter. Total operating expenses increased to RMB 1.8 billion, up 138% from the same period of 2019.

Sales and marketing expenses were RMB 1.2 billion, representing a 227% increase year-over-year. The increase was mainly attributable to the increased channel and marketing expenses associated with our app and brand as well as increased expenses for our mobile games and sales and marketing personnel.

Building our brand appeal among a broader audience is one of the key initiatives in 2020. This strategy is affording us far-reaching market gains that we think have long-term effects. We plan to continue to build on this momentum to further strengthen and expand our virtuous growth cycle.

G&A expenses were RMB 253 million, representing a 55% increase year-over-year. The increase was primarily due to increased headcount in general and administrative personnel and increased share-based compensation expenses. R&D expenses were RMB 401 million, representing a 62% increase year-over-year. The increase was primarily due to increased headcount in research and development personnel. Net loss were RMB 1.1 billion for the third quarter of 2020 compared to RMB 406 million in the same period of 2019.

Adjusted net loss, which is a non-GAAP measure that excludes the share-based compensation and amortization expenses related to intangible assets acquired through business acquisitions, was RMB 990 million compared to RMB 343 million in the same period of 2019.

Basic and diluted net loss per share were RMB 3.08. Adjusted basic and diluted net loss per share were RMB 2.76. As of September 30, 2020, we had cash and cash equivalents, time deposits as well as short-term investments of RMB 14.1 billion or USD 2.1 billion compared to RMB 8.1 billion as of December 31, 2019.

Our monetization capabilities continue to improve as we leverage our growing traffic base of users across an increasingly broad spectrum of demographics. We will also continue to roll out more premium content and services to convert more paying users. We believe that over the longer term, these monetization efforts, high-paying user conversion rates and scale will yield an improved bottom line.

With that in mind, we are currently projecting net revenues for the fourth quarter of 2020 to be between RMB 3.6 billion and RMB 3.7 billion.

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 on queue comes from the line of [Alex Yao] (corrected by company after the call) from JPMorgan.

This is Alex from JPMorgan. I have a question regarding the user growth and the user profile of the newly added users. So you guys have been continuing delivering very strong user growth in the past several quarters. Can you talk about the typical new user profile that you guys have acquired in the recent quarters? And what exactly is the value that you offer to these guys to drive the user growth? Also lastly, what's the user growth outlook into the next 1 to 2 quarters? (foreign language)

(foreign language)

[Interpreted] Mr. Chen said the profile of the new users actually hasn't changed much compared to historical data. The average age of our users is about 21 years old, and the average age for the newcomers is about 20 years old. We see a very balanced geographic mix with about 50% of the user coming from third tier city and below. And notably, we've seen that the users above 30 is actually gradually increasing its contribution year-over-year.

(foreign language)

[Interpreted] We've always been attracting our users from our content. The reason why users come to Bilibili is that they can find what they like, what type of content they like on Bilibili. For example, animation, music, game, digital content, et cetera. So based on the data, we have been experiencing a very fast user growth. On the quality side, we've also maintained a very high quality of growth based on the user retention, their engagement, also the paying conversion rate. We are quite happy and satisfied with our high-quality growth.

(foreign language)

[Interpreted] Because we have a very healthy self-sustaining ecosystem, which is our massive content creators continuously creating high-quality content, we are quite optimistic about the user growth trend as we look into the future. And also, videolization is an inevitable trend that Bilibili, as a pioneer in the video community industry, we are quite confident we'll continue to deliver this high-quality growth.

(foreign language)

[Interpreted] Mid last year, we have set a new user target, which is to reach 180 million for 2020 and 220 million for 2021. As you can see, we have already achieved this year's user target. We are also confident to achieve next year's user target in advance. And we are likely to refresh our new user target at beginning of next year.

Your next question comes from the line of Yiwen Zhang from Citi.

(foreign language) So I have 2 questions regarding content ecosystem. Historically, BILI has been focused on documentary and drama series and movie. Now increasingly, we see some premium content coming out of, for example, the Rap for Youth variety show and also Run For Young, the drama series, also S10 for the esports content. Can you share your thoughts on premium OGV and nonmedia? And what role does premium OGV plan in our ecosystem?

And secondly, so if we take a step back and see the broad industry, for sure, video is 100% on PUGC, where the nonmedia, the TV are coming from licensed content. So how do you see the middle media if we expand our user base to a much bigger level? In terms of video, what ratio do you think it would be between PUGV and OGV? And what is the implication for content?

(foreign language)

[Interpreted] Before we get into the strategy of our OGV business, I want to reemphasize video as Bilibili's core business, which includes PUGV, OGV and live broadcasting. And the brand upgrade that we've been focusing on this year is proposing all the videos you like, which actually includes short-form video, long-form video and mid-form video, and we'll continue to cultivate and reinforce our content offering in video services based on users' needs, and we'll also continue to invest in our OGV content.

(foreign language)

[Interpreted] I would also like to emphasize that our PUGV content creator ecosystem remains the core of our business. And from the engagement level and our active content creator and content submission, all these key data continue to show that we have a very strong position in the PUGV ecosystem. And the PUGV component will be Bilibili's unique advantage in running our OGV business. As we look into the future, we will further integrate our OGV content ecosystem with our PUGV content position.

(foreign language)

[Interpreted] For the OGV strategy going forward, we'll continue to focus on self-produced, self-publishing and will be on quality-driven, IP-driven and will also serve our content ecosystem. We hope that Bilibili-produced will be a label for high-quality content. And at the same time, we'll be focusing on improving our ROI and paying conversion.

(foreign language)

[Interpreted] Bilibili started to get into the self-produced Chinese anime back in 2017. And in 2018, we started getting to the documentary self-production. In 2019, into variety show self-production. And for this year, we are making a few attempts into the real person TV and movies for the Internet users. And we have already formed a very integrated methodology to get into certain verticals. As for now, Bilibili has already become the go-to platform for animation and documentary. And users already have the perception that Bilibili has the best in those categories.

And for this year, our attempt in the TV, movie and variety shows, for example, Run for Young and Rap for Youth, have generated a very good feedback among our users and received very high ratings across all platforms. And this has been a show mark for our attempt in having new content categories. For those content, the revenue from the premium membership as well as the revenue from sponsorship and advertisement, actually has already exceeded our expectation. We are quite confident to continue to try out more new content offerings in those categories.

(foreign language)

[Interpreted] The value for OGV for Bilibili, I believe that there are several factors. One is premium memberships, advertising revenue, new user attraction and the add-on value for our PUGV ecosystem as well as IP generation. And in the short term, we think we have already formed a virtuous cycle, where the premium membership revenue and ad revenue have pretty much covered our OGV content cost. Operating cash flow for the first 3 quarters of this year is positive.

And as for our membership, we have achieved outstanding results. At end of third quarter, we have 12.8 million premium membership, which grew 110% year-over-year, and the quality of those members are also high. About 80% of them have signed at the annual membership or automatic renewal membership.

As for the sponsorship and advertising revenue associated with our OGV business, grew 230% year-over-year. All of our key projects have become a very valuable advertising outlet source for all advertisers. So in summary, we believe that OGV has a very important strategic role in our business.

(foreign language)

[Interpreted] The OGV's high-quality content actually serves very well for our user growth. For example, the Carp Reborn, the Chinese anime, and Run for Young, or this latest high-quality OGV content, have been attracted a lot of new user coming onto Bilibili. And once they join Bilibili, the majority of them pay on Bilibili to consume more PUGV content. And actually, the new users that were attracted by those OGV, their retention is quite good.

(foreign language)

[Interpreted] As for the variety shows, Rap for Youth has been a quite successful attempt for Bilibili. Despite music variety show or specifically rap-related variety show have been around the industry and there's a few precedents, but we are still to make a new breakthrough in these verticals. And our PUGV content ecosystem continued to reinforce the effect and influence of this show. A lot of the derivative content were produced by our content creators. The overall video views related to the derivative content have reached a near 300 million, which also helped us to further expand into the music category by attracting a lot of music lovers or musicians to join Bilibili.

And also for this show, we also generated quite decent sponsorship revenue and advertising revenue. And because we have an integrated product chain on Bilibili, we continue to extend the IP value by launching new music label waves and launching a series of off-line concerts relating to the show. So on Bilibili, we are able to further extend and enhance the value of the IP.

(foreign language)

[Interpreted] To summarize, we believe the value of the IP can be further enlarged on Bilibili's ecosystem, which includes game, anime, TV, movies, merchandise and multiple off-line events. And going forward, we are looking to further integrate our PUGV and OGV content ecosystem.

Your next question in queue comes from the line of Binnie Wong from HSBC.

(foreign language) First of all, congrats on an amazing set of results, right, and also a strong outlook. I think the midpoint is ahead by 12%. Wondering if you can comment a bit on the competitive landscape. Very impressive to see your monetization, right, advertising, live streaming all continue triple-digit growth. And if you look at engagement here, it seems to retreat a bit, right? If you look at the time span, right, 3Q is a slight decline, but 3Q usually is the strongest in the past years. And DAU, MAU ratio also come down to 27%. So anything that we should be aware of structurally? And how do we see the competitive landscape among the different entertainment platform evolve? And especially as we see some of your short video and live streaming players are also very aggressive in growing the advertising business, in particular. So how do you see that evolve? I understand that we have a very strong ecosystem here, but I just want to hear a bit more into how you see as these players getting more aggressive, more capital, and then how will you see it? (foreign language)

(foreign language)

(foreign language)

(foreign language)

(foreign language)

(foreign language)

[Interpreted] As for the user engagement matrix, we actually see a quite positive metric from the time spent, which is 81 minutes in Q3 compared to 79 minutes in Q2 this year. And overall, community engagement increased to 5.4 billion times versus 5.2 billion in Q2. And also, the matrix from views per user per daily is also improving. So in general, we are still carrying out this high-quality user growth momentum in the third quarter.

As for the competitive landscape, in the video business, the competitive landscape has always been fierce, whether it's competition between A, B, C or D, E, F. Bilibili has been around for a lot of years. We have witnessed many players come and go. And most importantly, we believe the trend of utilization represents a huge market opportunity for the entire Internet services industry. And as a pioneer in this space, Bilibili is well positioned to capture this market opportunity.

(foreign language)

[Interpreted] As for the advertising business, we believe the advertising value for a certain platform actually is a reflection of the users' value. So on Bilibili, we have captured the best set of users in terms of time spent, in terms of user engagement as well as the user cohort. So that's been backing up our advertising revenue growth. And at the same time, we continue to improve our advertising efficiencies, launching innovative ad product. That's also helping to reaccelerate our ad revenue. And as our brand perception and brand power continue to increase, Bilibili has now become a must-invest platform across many advertisers.

Your next question comes from the line of Alex Poon from Morgan Stanley.

(foreign language) I'll translate my question. So my question is regarding advertising business. We have seen year-over-year acceleration for a couple of quarters already. Can you share with us the drivers behind the strong growth? And what's the outlook for Q4 and 2021?

(foreign language)

[Interpreted] As we've mentioned earlier, there are a lot of fundamental changes behind our advertising revenue. First of all, Bilibili's user continue to deliver a high-quality growth. On Bilibili, there are about half of the young generation in China has been active on Bilibili, which is the golden cohort for brand advertisers. And also, the brand advertisers are able to view their brand perception and influence user buying decision on Bilibili. And we have more and more high-quality content continue to reach mass market audiences, which allows Bilibili to become the must-invest and the go-to platform for advertisers. And we continue to improve our advertising efficiencies as we continue to enhance our data center platform to better support our commercialization efforts and will continue to roll out more innovative ad formats and ad products.

So despite the challenging macro environment, as more people think it's getting more and more tougher in the advertisement business, Bilibili is able to deliver accelerated advertisement revenue for 5 consecutive quarters.

(foreign language)

[Interpreted] As we look into 2021, we'll continue to improve our overall integrated marketing capability to launch standardized and scalable integrated marketing solutions. And we'll continue to improve our ad efficiency on single user and focusing on improving the ad efficiency for vertical players, continue to improve our service quality for different advertisement verticals. And we'll also continue to launch innovative, scenario-based commercialization methods, which include multi-scenario, multi-screen solutions.

As for the 2020, we believe our advertising value has been widely recognized by our advertisers. As we look into 2021, we're quite confident to continue to carry out this positive growth momentum.

Your next question comes from the line of Lei Zhang from Bank of America Securities.

(foreign language) Congrats on the strong results. Two questions. First, on sales and marketing. Can you give us breakdown for sales and marketing in Q3? And what are the trend in next 1 to 2 quarters?

And secondly, I want to follow up on the competitive landscape. Do you observe the short video platform actually allocate a relatively higher percent on mini radio part? And any update you can share with us?

Okay. Let me take your first question. First of all, we had RMB 14 billion cash reserve. And we also achieved like positive operating cash flow in the first 9 months of 2020. So we have very sufficient cash reserve that will support our investment in the different areas.

As we mentioned before, we pay close attention to our investment in selling and marketing in terms of the, for example, the cost per activation and their conversion and retention. When the targets will drive will keep bringing the investment. As in Q3, everyone knows that it's off season to acquire users. So we targeted to invest in user acquisition through different channels, including the app store, the video app channels and OTT channels. We also invested in brand advertisement to promote our new slogan, Bilibili - All The Videos You Like. And we also attend and organized some off-line ACG-related events in different cities during this summer.

As a result, you will recall that MAU grew like 25 million quarter-over-quarter and also, MAU surpassed 200 million. As mentioned by Carly, we see very good return on the membership conversion and advertising vendors when our users still grow. In Q4, generally it's a tough season for the MAU addition. But we will not spend that much. So in terms of the total selling and marketing and percentage of total revenues will be lower than -- compared with Q3 this year. And we will really focus on the user retention and paying user conversion in Q4.

(foreign language)

[Interpreted] So as for your second question, I wonder, the concept of mid-form video because we don't believe users choose to consume video content based on the length of the video, but rather on the quality of the video. It's very easy to change the length of the video, but it's very difficult to create the high-quality content that users like. So whether it's long form or short form, it's probably scenario-based, but it shouldn't be a format or a product concept.

(foreign language)

[Interpreted] So as for Bilibili, we offer video length range from a dozen seconds to a few hours, and each type of video has different audiences. And for different content categories, the length also varies. For example, the music categories, majority of the video is less than 10 minutes. And for games and lifestyle, it could up to hours. So we don't think it's the concept of the length. It's actually the concept of the content. And at Bilibili, we are a more comprehensive, general content platform.

(foreign language)

[Interpreted] So in the past couple of years, we've seen products that's focusing on providing majority short-form videos. And they've experienced quite a decent growth rate. But at the same time, Bilibili also continues to deliver high quality, fast growth. So we believe any product that provides the content that fits users' needs, that caters to users' interest and preferences can win over their time.

(foreign language)

[Interpreted] In the past 11 years, Bilibili has always been focused on the content ecosystem-driven business model and to satisfy users' interest and need for high-quality content, and this model has proven successful for us.

(foreign language)

[Interpreted] So as a comprehensive video community, Bilibili actually, we believe, represents the future of video product, which we believe will be omni-scenario and multiscreen.

And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

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 the 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.]