Bilibili - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good day, and thank you and welcome to the Bilibili's First Quarter 2025 Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please go ahead.

Juliet Yang (Executive Director of Investor Relations)

Thank you, Operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measure we provide is for comparison purposes only. The definition of this measure and the reconciliation table are available in the news release we 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 the Bilibili IR website at ir.bilibili.com. Joining us today from Bilibili 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. I will now turn the call to Mr. Chen.

Rui Chen (Chairman of the Board and CEO)

Thank you, Juliet, and thank you, everyone, for joining us today to discuss our 2025 first quarter results. We started 2025 on promising ground, delivering solid financial results and healthy community development in the first quarter. Our total revenues accelerated year-over-year, increasing by 24% to RMB 7 billion, driven by strong performances in our high-margin advertising and game businesses. Advertising revenues were up 20% year-over-year to RMB 2 billion, supported by our ongoing product enhancements and infrastructure upgrades, fueled by the sustained popularity of our SLG title San Mou. Our games revenues also rose 76% year-over-year to RMB 1.73 billion. The continued top-line expansion in these high-margin businesses, combined with operating efficiency, provided us with greater operating leverage.

In the first quarter, our gross profit increased by 58% year-over-year, with gross profit margin expanding to 36.3%, up from 28.3% in the same period last year. As a result, we sustained a positive adjusted net profit of RMB 362 million and narrowed our GAAP net loss by 99% year-over-year in the first quarter. While further strengthening our financial performance, we continue to grow our community and enhance user engagement. The successful collaboration with CCTV's Chinese New Year Gala also helped bring the Bilibili name to a broader audience. In the first quarter, DAUs reached 107 million, and MAUs climbed to a new high of 368 million. Meanwhile, our compelling and diverse content drove users' average daily time spent to a record 108 minutes. Next month, Bilibili will turn 16. Looking back, it has been an incredible journey, one that is truly unique.

Over the years, our community has grown tremendously. What is most remarkable is that the sense of connection between users and creators, and the welcoming, inspiring vibe that defines Bilibili has stayed the same. Over this time, our users have grown with us too. Today, the average age of our active users is 26, a life stage where consumption needs and purchasing power are both on the rise. As the go-to platform for Gen Z+ to discover high-quality, creative video content in China, we are in a great position to meet their evolving needs and unlock even more monetization opportunities. With that overview, let's take a closer look at our core pillars of content, community, and commercialization. Beginning with content and community, as we look at today's video landscape, it's clear that people have more content than ever, especially with the explosion of short videos.

What really stands out is that people are craving and spending more time on high-quality content. At Bilibili, that has always been our focus. We have built a community known for the best content out there, and we will keep prioritizing and promoting quality above all else. This commitment is showing up in our numbers. In the first quarter, users spent an average of 108 minutes on our platform every day, compared to 105 minutes in the same period last year, marking a new record. Our monthly paying users also reached an all-time high of 32 million, as our users discover and connect with more quality content they love. Monthly interactions were nearly 16.7 billion in the first quarter, and our official member count reached 264 million by the end of Q1, up 12% from last year.

On top of that, their 12-month retention rate stayed strong at around 80%. The quality of our content is also showing up in our content categories. Our core ACG content continues to thrive, and our game content is a great example. In the first quarter, game-related watch time increased 14% year-over-year, drawing in both long-time fans and new gamers who come to Bilibili for reviews, walkthroughs, and game IP content. As Gen Z+ users mature and their spending power increases, many are turning to Bilibili with real purchase intent, looking for trusted, unbiased recommendations. That's reflected in our travel and lodging and home appliance-related content, with watch time growing by over 20% year-over-year in Q1. Additionally, being the hub for curious minds and the best-knowledge video library, we saw a big surge in our AI-related content.

More young people are coming to Bilibili to explore and learn about AI, and AI-related watch time more than doubled from Q1 last year, along with a 400% increase in advertiser demand. Behind all of this is our amazing creator community. By the end of Q1, the number of creators with over 1,000, 10,000, 100,000, and 1 million followers all grew by more than 20% year-over-year. About 1.5 million creators made money on Bilibili during the quarter, not just through ads or live streaming, but also by using our e-commerce tools and various fan support programs. In fact, creators' total income from our fan charging program was up over 200% in Q1, showing how users truly appreciate and are willing to pay for quality content. Lastly, our partnership with CCTV for the Chinese New Year Gala gave us a big boost in brand awareness.

It both attracted new users and strengthened engagement with our existing community. What's more, viewers can now revisit all the past Chinese New Year Galas right here on Bilibili. It's another great example of how we curate the quality content and deliver value through our unique community. Meanwhile, our self-produced Chinese anime, The Tales of Herding Gods, Mù Shén Jì, was well received. It's garnered over 560 million views so far and is showing strong potential to become Bilibili's next long-lasting anime IP. We also released our self-produced title, TO BE HERO X, Tú Biàn Yīng Xióng Xī, worldwide in April. It quickly gained traction, ranking number one on MyAnimeList for Best Spring Title 2025. Now, let's talk about our commercial businesses and their progress. Our advertising business continued to deliver solid results in the first quarter, with revenues growing 20% year-over-year to RMB 2 billion.

As our users mature and have more spending power, they increasingly look to Bilibili for content that informs their lifestyle and consumption choices. This trust within our community and the influence of our quality content have become powerful drivers for advertisers. In the first quarter, the number of advertisers placing orders on our platform increased by more than 35% year-over-year. Meanwhile, we have been integrating a large language model to help us better understand users' interests and commercial intent, enabling more accurate ad targeting and smarter ad delivery. We also upgraded our AIGC ad content tools to help advertisers generate more tailored and effective ad titles and covers at scale, allowing them to reach users more efficiently through compelling and user-friendly storytelling.

These enhancements have fueled the growth of our performance-based advertising, which grew by over 30% year-over-year in Q1, while brand and native ads continued to show steady momentum. Industry-wise, we strengthened our position in core verticals while attracting more advertisers from emerging sectors. In the first quarter, our top five ad verticals were games, Internet services, e-commerce, digital products and home appliances, and automotive. Powered by our vibrant and highly engaged gaming community, gaming ads continue to contribute a strong share of our ad revenues, with new formats like Bilibili Mini Games driving additional growth. Moreover, we saw a notable increase from sectors targeting younger consumers as they enter new life stages with evolving needs. In the first quarter, ad revenues from home appliances and decorations grew by nearly 40% year-over-year.

Similarly, AI-related ad revenues surged by 400% year-over-year, reflecting Bilibili's growing appeal to emerging industries looking to engage our young, high-value user base through innovative ad formats. Turning to our game business, game revenues rose by 76% year-over-year to RMB 1.73 billion, attributed to the continued strong performance of our SLG title, San Guo: (三国: 谋定天下). Meanwhile, our legacy ACG titles, FGO and Azure Lane, continued to deliver stable revenues and demonstrated impressive longevity in the first quarter. We are encouraged to see that San Mou is evolving into a long-cycle title with enduring appeal. With our expanded game development capabilities and upgraded gameplay, San Mou's active users and engagement in Season seven improved from previous seasons, demonstrating the game's continued draw for core SLG players. On May 31, we will kick off Season eight, marking the game's biggest update since its initial launch.

This highly anticipated anniversary edition will include a refreshed map, new characters, and special in-game events. These updates enhance the gaming experience and are designed to attract more younger players to the SLG genre. We expect this launch to mark a meaningful milestone in San Mou's continued growth and long-term success. The momentum behind San Mou also highlights our gaming community's strength and our ability to build differentiated experiences that resonate with diverse player groups. In addition to San Mou's international launch later this year, we have several new games in our pipeline awaiting approval. As we expand our game portfolio, we are focused on creating titles with lasting value by leveraging our leadership in the gaming space to reimagine gameplay for the next generation of gamers. Finally, let's look at our VAS business. Revenues from our VAS business increased by 11% year-over-year to RMB 2.81 billion.

Our live broadcasting business regained momentum during the first quarter, fueled by the supply of more quality content and more paying users. We also further refined our operations and incentive plan, which led to a meaningful improvement in the business's margin profile. We are also unlocking more value from our broader VAS portfolio. Gen Z+ users show a strong willingness to pay for content they care about. By the end of the quarter, premium memberships exceeded 23.5 million, with over 80% on annual or auto-renew plans, a clear sign of user loyalty. In addition, revenues from our fan charging program surged by over 200% year-over-year, highlighting the potential of our direct-to-creator monetization tools. Lastly, while we are making solid progress on our commercialization efforts, we are also staying true to our role as a responsible cultural brand and corporate citizen.

In April, we published our 2024 ESG report, sharing the steps we are taking to create social value and build a more sustainable business. We are proud to have received an "A" rating from MSCI for our ESG performance. While we keep growing our ecosystem with high-quality content, we are also committed to pushing the industry forward through innovation, both in technology and storytelling, while continuing to spread positive energy and making a real difference in society. As we move through the year, we will focus on advancing our commercialization capabilities with more enhanced and efficient commercial offerings. At the same time, we will continue promoting high-quality content that defines our vibrant community. In addition, we are actively embracing Gen AI to optimize user experience, monetization efficiency, and unlock new growth opportunities. With that, I will turn the call over to Sam to share more financial details.

Sam, please go ahead.

Sam Fan (CFO)

Thank you, Mr. Chen. Hello everyone, this is Sam. In the interest of time on today's call, I will review our first quarter highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. In the first quarter, we accelerated revenue growth and further expanded our margins, fueled by the strong performance of our high-margin games and advertising businesses while sustaining positive non-GAAP net profit. Total net revenues for the first quarter were RMB 7 billion, up 24% year-over-year. Our revenue breakdown by revenue stream for Q1 was approximately 40% VAS, 29% advertising, 25% mobile games, and 6% from our IP derivatives and other businesses.

Our cost of revenues increased by 10% year-over-year to RMB 4.46 billion in the first quarter, while our gross profit rose 58% year-over-year to RMB 2.54 billion. Our gross profit margin reached 36.3% in Q1, compared with 28.3% in the same period last year. Our expanding gross profit and margin show how well our model adapts and scales as the business grows. Our total operating expenses increased 4% year-over-year to RMB 2.52 billion. Sales and marketing expenses increased 26% year-over-year to RMB 1.17 billion. The increase was mainly due to a one-off marketing expense related to our partnership with CCTV for the 2025 Chinese New Year Gala and higher year-over-year promotion expenses for our SLG game San Mou. G&A expenses were RMB 516 million, down 3% year-over-year.

R&D expenses were RMB 841 million, down 13% year- over-year, mainly related to R&D efficiency improvements. These efforts allowed us to maintain positive operating results. Our operating profit was RMB 50 million, and our adjusted operating profit was RMB 342 million, both compared with losses in Q1 2024. We also maintained a positive adjusted net profit of RMB 362 million versus a loss in the prior year period, and we narrowed our GAAP net loss by 99% year-over-year to RMB 11 million. Our adjusted net profit ratio in the first quarter was 5%, compared with an adjusted net loss ratio of 8% in the same period a year ago. Cash flow-wise, we generated over RMB 1.3 billion in operating cash flow in the first quarter.

As of March 31, 2025, we had cash and cash equivalents, time deposits, and short-term investments of RMB 17.4 billion or $2.4 billion. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your questions in English. The company will provide consecutive interpretations for management statements during the Q&A session. Please note that English interpretations are for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. One moment for the first question.

Our first question comes from Lincoln Kong from Goldman Sachs. Please go ahead.

Lincoln Kong (Executive Director)

谢谢管理层接受我提问。那也恭喜公司一季度取得啊比较强劲的这个业绩啊。呃，那我的问题是关于内容这块。呃，这就是上个季度的话，其实电话会议上瑞总也提到，就咱们要加强优质内容的建设嘛。那想问今年咱们的计划啊，怎么样进去进一步去加强这个优质内容的这个心智，然后有没有一些具体的一些计划。那关于AI的应用这块的话呢，啊后续还有什么进展可以去期待。呃，那我翻译一下啊。[Foreign language] Thank you, Management, for taking my question. So congrats on a very solid first quarter result. So my question is about the content. I think last quarter, Rui Chen, you mentioned about to enhance building our quality contents. So what's our specific plan this year to increase the user mindset or quality contents? And in terms of the AI applications, is there any progress or specific rollout we should expect? Thank you.

Rui Chen (Chairman of the Board and CEO)

嗯，其实现在互联网应该是已经进入了一个到处都是视频的一个时代了嘛。我觉得视频内容现在的供给其实是过剩的。呃，现在大家用拼多多都可以在拼多多上刷短视频跟刷短剧，所以就是视频是哪都可以看的。然后我觉得现在大家用户的痛点不是缺视频看，而是缺优质的内容去看。所以的话就是那个，我认为接下来用户的一个倾向是，他们希望在优质的内容上会花越来越多的一个时间。我觉得这个消费的一个趋势跟实体消费是一样的，就是所谓的这个消费升级，人们总是倾向于去呃消费更好的和更这个优的一个东西。 [Foreign language]

I think we're in the era where there is too much content, especially where the short video content is becoming increasingly abundant. Especially, for example, you can even watch short video content on shopping apps. And what we have observed is that users are not lacking in content to watch; rather, they are seeking high-quality content.

What we observe is that users are dedicating more time to engage with premium quality content. The growing demand for quality content mirrors the changes in consumer habits. People are willing to pay more for content that brings them a sense of fulfillment and quality.

对，其实这个也是B站一直坚持的一个方向吧。呃，其实在用户的心目中，B站肯定它代表的是优质的一个内容。我认为呃，B站肯定是在中国叫优质内容心智最完善的一个平台。而且呢，就是呃，我们也可以看到，就是用户在B站上面消费的东西，它代表的是一种长期的获得感和一种呃精神的一个反馈。它不是短期的这种猎奇或者是短期的那种那种寻求刺激。所以就是这个也能够就是让B站在呃下一个时代，就是在视频并不缺的这个这个时代，我们能够更好的去让用户长期的留在我们的平台上。[Foreign language]

Quality content is what we have been focused on and stand for. I think Bilibili is probably one of the biggest content platforms that holds the high-quality content standards. When people come to Bilibili, what they are consuming stands for a long-term sense of fulfillment, not for a short-term stimulation or a hormone-driven type of satisfaction. This will help Bilibili to stand and thrive in the next era of video competition.

对，我们看Q1的数据也证明了这一点。我们Q1的日均用户使用时长是108分钟，这个应该是呃有史以来的一个新高吧。而且呢，就是呃用户不仅呃更愿意在B站花时间，他也更愿意在B站为优质的内容付钱。呃，我们Q1的月均付费用户是创下了3,200万的这个新高，而且我们充电的这个相关的收入的同比增加是超过200%的。呃，我认为就是用户为自己喜欢的内容付费，他会成为就是视频领域的一个呃新的一个增量。[Foreign language]

This is showing in our Q1 data. For example, in Q1, the average daily user time span reached a historical high of 108 minutes.

Additionally, users are increasingly willing to pay for premium content. Our average monthly paying user hit a new record of 32 million, and revenue from our fan charging feature grew over 200% year-over-year. This is all highlighting the potential substantial revenue in video platform, which is people directly paying for content that they love and care about.

所以我判断就是我们过去一直坚持的优质内容的这个战略，它对于现在和未来甚至是更重要的，就甚至是更有竞争力的一个点。我们呃今年应该会更加强这一块吧，就是让用户更多的在B站上看到的是优质的内容，以及让优质的UP主在B站能够获得更多的流量和钱。[Foreign language]

Quality will stand for a place an even bigger and more important role in our strategy. In 2025. We will continue to position high-quality content as one of Bilibili's most important attributes. We'll also help our content creator, the talented content creator, to gain fans more quickly and also receive better monetary rewards.

然后我这也说一下，就是我们内容的一个品类，呃就是在我们坚持内容质量的这么一个大前提下，我们会发现就是B站的内容的品类，它其实是越来越开枝散叶和百花齐放吧。就是我们原有的ACG以及知识和各种兴趣类这个内容，它是越做越好。同时的话，我们会发现B站上面与生活和消费相关的优质内容也越来越多。[Foreing language]

Upholding high quality as the standard, we can see the strategy working from the content category development.

First of all, on the core ACG content, the pen knowledge content, and it's gradually evolving into lifestyle related, consumption related. All of these content categories are thriving and expanding on Bilibili.

就比如说从我个人来说的话，就是怎么习羽绒服这样的一个知识，我就是在B站上看到最完整的一个说明。啊，比如说再举个例子，怎么挑选一个好的沙发。啊，对于像我这样的叫叫两耳裤纹窗外视的这个男人，然后我在B站上看到的，就是一下子我就知道怎么挑选一个很好的沙发。他就是我觉得就是多元化的优质内容，呃在B站上越来越多。[Foreign language]

For me personally, I learned great knowledge and consumption-related advice on Bilibili, such as how to wash a duvet cover and how to pick a right sofa. This is very easy and transparent. I find the content on Bilibili super helpful and fulfilling.

而且我们不仅内容多元化吧，其实UP主的这个收入在我们这也非常的多元化。那个呃我们我看到就是上个季度有一个不到100万粉的一个UP主，然后在B站的这个充电的收入是超过了 RMB 1 million，然后他就是讲知识。啊，像这种认真讲知识的这个UP主，他比较难就是把他的观众下沉到一个很大的群体，但是他在一个垂直的一个呃赛道上做的足够深，他是能够获得这个赛道用户的非常深度的喜爱。[Foreign language]

In addition to the content category involvement, we also seeing we are also providing various monetization avenues to help our quality content creators to make more money. For example, last month I discovered this content creator with less than one million followers made over RMB 1 million in a month through fan charging program, and he's a knowledge sector content creator.

Even though what he's talking about is quite niche and professional, probably won't bring him a lot of followers, but if you do something really good in the segment category, you can also earn a lot of love and appreciation and even monetary rewards on Bilibili through our monetization avenues.

我认为随着视频成为叫叫老百姓的叫日常精神消费的一个必需品，呃我觉得这个业态它也会越来越回归到呃长期健康的一个一个程度。比如说对于短期来说，啊很多人没看过视频来说，啊那种就是猎奇的上瘾性的这种呃一些内容，可能短期的会获得他一些的注意力，但是假如他三年五年的这个尺度去消费视频，他一定会挑选对他自己的成长和精神健康，然后更有益的这个视频。啊我相信他会是一个这样的一个趋势。所以我认为优质内容在未来会越来越多的成为用户选择的一个理由，他也会证明他的商业价值。[Foreign language]

As video content becomes a necessity in terms of spiritual consumption, we discover that the quality video in the longer term will gradually pick up its potential and showing great value. Probably for people who just access have the access to a short video content or to to do the video content, he might be attracted to those very short stimulative content in a short period of time, but over a longer time horizon, let's say five years, people will naturally choose content that brings them a sense of fulfillment and those quality content.

That's why we have been focused and will continue to focus on promoting quality content, fulfilling content.

最后我说一下就是优质内容跟AI的这么一个关系。啊因为我曾经说过，我说优质内容它是可以穿越周期的嘛，就是从这个2000年前到现在，啊一直是只有优质内容能够经过时间的沉淀流传下来。呃接下来我的一个预测的话就是我认为优质内容也是AI时代的一个入场券。呃为什么呢？因为我们可以发现就是现在B站事实上已经是全球最大的中文视频的一个语料库了。啊它也是全球最高质量的一个中文视频的一个语料库吧。在目前我觉得AI的一个进步，优质的这种数据对于AI体验的一个价值是越来越重要的。[Foreign language]

Lastly, I wanted to touch upon on the high quality content combined with the AI can bring great potential to our business. First of all is that the quality content can transcend times. From early 2000 till now, we can easily see that only the quality content can live and continue to produce value. Currently, with the evolution of AI models, hinges on the access to high quality training data. Bilibili happens to own the world's largest repository of Chinese video content. The high quality video content data will provide us a very unique and advantageous position in the time of AI related opportunities.

我其实现在觉得现在模型本身的这种呃计算能力已经是足够好了，但是呢就是正因为它太强了吧，所以的话就是过去可能人类积累了两两千年的这种语言，啊这种呃文字类的东西已经被它消化得七七八八了。然后这个时候你如果和它进行深度的这种交互的话，它如果要去给你提供一些新的东西，啊其实现在是每一个这个AI的这种厂商，啊都在解决的一个问题。但是B站的一个优势的话就是我们都是大量的真实的高质量的一个视频呢，然后这种高质量的视频它所携带的这种呃内容的一个信息量，它是不是就是几句文字去可以去衡量的。比如说我就去问它，哎这个A手机跟B手机谁去拍人像的质量好，AI直接可以看到我们视频评测里的这种样片，它就可以直接得出一些这种建议给用户。啊像这样的一些场景，我认为就是属于B站这样的平台独有的场景。[Foreign language]

Currently I would say the model itself has great computing power and inferencing power and all the historical text-based, the text-based data corpus has already been provided to the various different models. But can they generate something new and provide creative and additional information is what all the video manufacturing is trying to resort. From that aspect, Bilibili stands a great advantage because our video content carries a much more dense set of information. For example, when I asked our own AI model which mobile phone can take a better human portrait and our AI model can analyze the historical video and video data and summarize and subtract the right information to provide me with that solution. This is something Bilibili, only Bilibili, can do.

[Foreign language] Probably AI can take a lot of text-based messages online as of now, but it's still a long way for AI to produce a high-quality, reliable, trustworthy video content. From that perspective, Bilibili holds a very valuable data asset on that. Let me give another example. Bilibili in some categories, its content competitiveness is globally leading, for example, animation, gaming, and some knowledge-related areas. I think in the AI era, it is very easy for us to diversify this high-quality content. That means the value of this content can [Foreign language] be multiplied several times, and it can be consumed by more users. Bilibili holds a unique and leading offering in certain content categories such as animation, gaming, and knowledge. With the help of AI translation, we can easily multiply those values into multiple languages and unleash much greater potential and value of those content categories. Of course, [Foreign language] AI on the Bilibili platform can also play a big role in the commercial deep conversion aspect. If there are any commercial-related questions coming up, I can continue to elaborate on that. That concludes Mr. Chen's answer. I will proceed to our next question, please.

Operator (participant)

Thank you. One moment for the next question.

Rui Chen (Chairman of the Board and CEO)

Our next question comes from Xueqing Zhang from CICC, please go ahead.

Xueqing Zhang (Analyst)

哎感谢管理层接受我提问，恭喜公司又一个季度稳健的业绩表现。那我的问题是关于游戏的，嗯管理层可以帮我们回顾一下三毛在S6和S7赛季的表现吗？啊然后在6月份的话，三毛也上线满一年了，我们对于周年庆的版本有什么展望？啊那么啊我们也如何看待下半年游戏业务的一个增速，以及后面的游戏pipeline是怎么样的？啊谢谢。 [Foreign language] Thanks management for taking my question, my question about your game business. Could management review the performance of San Mou in series six and seven? San Mou has been launched for one year in June, so what are your expectations for the anniversary version? How does management view the growth rate of the game business in the second half of the year and what's your game pipeline? Thank you.

Rui Chen (Chairman of the Board and CEO)

公司对三毛最重要的一个要求就是长线运营，啊然后我跟项目团队每次开会对的最多的也是呃用户的活跃和留存，以及忠实用户的一个长期的一个留存。啊然后所以的话就是那个我对这个项目提的要求就是至少五年的一个稳健的商业周期，而且是那个我希望能更长吧，因为我跟项目团队的原话是要做一款能够能够让用户玩到老的游戏。[Foreign language]

The most critical and important goal for San Mou operation team is to achieve a long-term healthy operation with at least a five year or longer life cycle, and user retention as it's something that I care most about. This is also the most important topic every time we have a staff meeting on this game operation.

My ultimate goal is to help San Mou to become a game that the gamer can play for a lifetime.

对所以赛季制应该是三毛很重要的一个长线运营的一个手段吧，我们也是非常重视每一个赛季的新内容，啊我们也非常重视在每一个赛季都去迭代和改进，啊过去用户提出的一些建议和意见。[Foreign language]

The season-based game system is one of the most important mechanism to help this game to sustain a long-term operation. Every game season we listen very carefully about users' feedback and adapt that into the next game's design and promotion.

就是4月份上线的S7的首日用户是达到了就今年用户的一个新高，所以就是这个数据大家可以看到，就是我们其实是把每一个赛季都作为一个就是改进我们和吸引新用户的一个手段。[Foreign language]

As a matter of fact, the first day of game season seven marks the highest daily record in the year of 2025 and also represents how we are incorporating each new season to optimize the game design and attract and retain users.

就在这个长线运营的过程中，呃B站作为中国最大的游戏内容平台之一，它也是对三毛的一个叫用户的一个呃新用户的传播以及老用户的留存是起到了一个很好的一个作用。比如说就是我们在前段时间做的那个就是PDD万人敌和这个三毛的一个呃联合的一个活动，它就是帮我们这个拉到了很多的新用户，同时也帮助老的用户去激活。[Foreign language]

As one of the largest gaming content community in China, the Bilibili community itself empowers the long-term operation of San Mou.

For example, we did a joint marketing campaign with San Mou with the leading game streamers PDD and YND, and the campaign was quite successful and helped us to attract a lot of new users and awaken a lot of the dormant users.

对我再比如说像我们的那个虚拟主播，啊大家可能觉得虚拟主播是很二次元的东西，但事实上我们的虚拟主播就是入驻到我们的这个三毛，然后和他的这个粉丝一起加入到三毛游戏里面，这个是成为我们一个非常有效的一个增量。啊所以的话就是呃二次元和 SLG 它很多是同时在一个用户身上并存的。[Foreign language]

Also another example is our virtual virtual streamers are actually attracting their followers to join Bilibili and do the live streaming sessions, and we find it quite interesting that one user probably has both ACG and SLG interest habits, and this is also bringing a lot of incremental new users to the game.

因为我们对用户留存的重视，啊也因为刚才我介绍的这一系列的积极的措施吧，呃三毛目前啊就是在同类游戏里面的用户活跃和付费肯定是排在行业前列的。[Foreign language]

Combined with those efforts and our operating strategy, we can see that San Mou the current DAU level and paying ratio and ARPU has ranked among the top level in the industry.

接下来我们呃很重要的一个工作就是在这个月底5月31号我们会启动S8，而且呢在S8期间呢也是我们三模的周年庆，啊S8对于我们应该是个大赛季吧，就是它会启动全新的地图，然后有全新的角色，还有周年庆的限定的皮肤，还有一系列很有趣的这种游戏内的一个活动。所以的话就是我们也是期待这个S8能够成为就是三模在长线运营道路上的又一个里程碑。[Foreign language]

Later this month on May 31st we will launch season eight and also this marks the anniversary edition of San Mou and we will start the campaign to celebrate the anniversary with refreshed map, major new characters and limited anniversary skin features and a lot of interesting in-game events and we hope this anniversary edition will bring San Mou to a new level and a long-lasting life cycle.

呃一直有一些朋友就是问我们就是在SLG这条赛道上我们下一步的这个动作是什么，啊我对团队内部说的就是SLG的下一款新游戏就是三毛的下一个赛季，啊就是我们会呃非常专注的就是把三毛这一个盘子能够那个继续做大做强吧，然后同时的话就是在三毛这一块我们接下来也会有两个呃新的尝试吧，第一个的话就是那个我们会呃在今年底计划在今年底我们会推出这个呃三毛的这个繁体中文版，然后这个是主打这个呃港澳台的用户，啊第二个呢就是那个我们会呃逐步的去做三模的多端化，啊去年Q4呢我们是做了PC端的这个三模，啊其实是为我们赢得了呃一些就是以PC为主的用户的，然后接下来呢我们也会尝试就是三模的小游戏，啊就在我们夏天吧，啊就是暑期的话我们会上线这个也会是一个尝试。[Foreign language]

Many people ask me what's the next step after San Mou, my answer has always been we wanted to be super focused on making San Mou sustainable and even more successful, I often said the next San Mou will be the next game season, we'll be focusing on making a better season each time and bringing new experience to our user. On top of that we have two more initiatives with this game. One is in the end of this year we're looking to launch international version in traditional Chinese that this version is targeting for user are in Hong Kong, Taiwan, and Macau. The second initiative is that we are planning to bring San Mou into multiple devices. End of last Q4 we launched the PC version with which helped us to win over a lot of the PC user. The next step we're looking to bring this game on the mini game platform. This potentially will also open doors for us to attract new additional users.

除了三模以外的话我们的游戏业务还会关注在两个重点工作上一个是呃其他长线运营的游戏比如说呃这个月就是碧蓝航线的八周年庆典然后7月份FGO的九周年庆典啊碧蓝航线跟FGO大家都非常熟了就一直运营到现在都非常的稳健而且的话时不时还有增长我们看可以看到就是呃碧蓝的八周年跟FGO的九周年都会迎来一波叫用户的一个活跃高峰吧。[Foreign language]

On top of San Mou we will have two more important jobs to do. One is to sustain our legacy titles. One on our Azure Lane and FGO. We will be celebrating Azure Lane's eighth year anniversary this month and celebrating FGO's ninth anniversary at end of July. For both of the game people you might be very familiar with, with the long-term, a very sustainable and successful long-term operation, and from time to time we can witness a new incremental increase from those two games. We believe with the anniversary promotion we should be welcoming a new peak of DAUs and MAUs.

[Foreign language]Uh, the second strategy is on the new games. Currently, we have four to five games in line waiting for approval. We will also actively be exploring more, more opportunities in new genres, similar to what we have done with San Mou, to reinvent games catering to new generation of gamers' preferences. We do think there are a few opportunities there, and we will continue to invest and explore. Okay, that concludes Mr. Chen's answer. Next question, please.

Operator (participant)

Thank you. The next questions will come from Yuwen Jiang from China Renaissance. Please go ahead.

Yuan Zhang (Analyst)

[Foreign language] the question. First, congrats on the very solid print. My question is regarding our advertising business. In Q1, we maintained 20% in the revenue growth ahead of industry average. Can you elaborate what are the underlying drivers? Also, can you discuss how these drivers will play out in the future and what is our ultimate for ad growth? Thank you.

Rui Chen (Chairman of the Board and CEO)

[Foreign language]

In Q1, our advertising business continued to grow at a rate that is above industry average, reaching RMB 2 billion in revenue and up 20% year-over-year. Notably, our high margin performance-based ads grew by over 30% year-on-year and contributed significantly to our overall revenue growth and drove continued improvement in our gross margin. [Foreign language] The key driving factor behind that growth is the combination of high value user and our strong brand association with high quality content. This year, our average user age has come to 26. The year of 26, the audience represents an increasing disposable income and a diverse consumption scenario. On top of the spiritual consumption, they also come to various product consumption, and the professional in-depth nature of our content continued to foster deep connection with our users and content creators. All of that is leading to a continued growth in ad revenue per DAU.

[Foreign language]

In the past, we have taken on the strategy of one horizontal, multiple vertical strategy. The one horizontal refers to our product and infrastructure ability, and the multiple verticals refer to our integrated ad solution across different ad verticals. Let me elaborate on this a little bit. Within the one horizontal strategy, we have continuously built a stronger ad infrastructure and product capabilities. In Q1, what we have really improved is in the AI-related product improvement. We have continued to upgrade our marketing data infrastructure by using the multi-modal AI ability to better understand our users' purchase intent and on category level interest, boosting our overall ad efficiency. We have also improved our deep conversion capabilities, leading to a greater budget allocation towards deep conversion campaigns. The proportion of deep conversion aspect more than doubled in Q1 and led to an increase in our performance-based ad ECPM.

[Foreign language]

Another big improvement is in our Gen AI-assisted ad material creation. Because Bilibili's product nature covers and ad materials are quite important in terms of improving click-through rate and improving our ad efficiency, we have upgraded our eight commercial AIGC tools. Using those Gen AI models helps advertisers to auto-generate cover images and titles that really align with Bilibili's user language and also creative style. Currently, AIGC-created accounts for over 30% of the performance ads spend.

[Foreign language]

Let me talk about the multiple verticals. First of all, games continue to remain our largest advertiser segment, and we continue to improve our conversion path and tools and increase our market share in the game market. We also launched new formats such as Bilibili Mini-Games and also in-stream game live stream apps that help open up new ad inventories and new opportunities. Secondly, as our user matures and becomes age of 26, average age becomes 26, they have come to a life stage where they have to face a lot of choices in terms of consumption-related needs. We have helped them, and also our trustworthy content creators have done a lot of reviews and evaluations on those categories and established great connection between their followers. For example, in Q1, our home appliances related advertising revenue grew over 35%, and baby, maternity, and pets related advertisement revenue grew over 300% year-over-year.

[Foreign language]

Lastly, on AI, as everybody knows, Bilibili hosts the most curious minds who understand the AI-related knowledge, and Bilibili also hosts the largest AI-related knowledge type of video content. That's why almost all AI manufacturers and companies put a lot of efforts and budget trying to connect with Bilibili users and convert them to become their users. That's why we've seen a big surge in AI-related advertising spending, and also this helped us to drive the overall online services sector to become a top two ad vertical.

[Foreign language]

As for the guidance for the second half of this year, we're still quite confident to continue to grow at the pace that's above industry average. Combined with our key advantage of high quality premium content user mindset as well as the increasing user value, we remain very confident about our advertising business development and continue to expand our market share. Okay, next question please.

Operator (participant)

Thank you. One moment for the next questions. Next question comes from Felix Liu of UBS. Please go ahead.

Felix Liu (Analyst)

Thank you management for taking my question and congratulations on the very strong Q1 results, especially the record level of profitability on both GP margin and then profit margin. The question is first on the margin trend in rest of this year. Can management share your outlook on that? My second question is on your midterm GP margin and the profit margin target. Thank you.

Sam Fan (CFO)

Thank you, Felix. This is Sam. I will take your question. In Q1, our margin reached a record high of 33.3%, making 11 consecutive quarters of improvement. The key contributors to this improvement include the growing share of high margin gaming and advertising revenue, which account for, if you add that together, like [50%] of the total revenue compared with 47% in Q1 last year. Second is the relatively fixed cost, including content stock, server cost, remains stable in terms of the absolute dollar value. Third, the proportion of revenue from 25% last year to 20% this year, and gross margins of advertising and live broadcasting business have been improving in Q1. We are confident that both our gross margin and net margin will achieve gradual improvements throughout the year. In the mid to long term, we are confident that our gross profit margin will reach 40%-45%. In Q1, the proportion of operating expenses to revenue declined from 43% last year to 36% this year. Our objective operating margin improved from negative 9% in the same period last year to 5% in Q1 this year. For 2025, we expect R&D and G&A expenses to remain stable while marketing expenses will fluctuate with game promotion cycles. As a result, the operating expenses as a percentage of total revenues will continue to decline. Our long-term operation margin target remains the same, that will be 15%-20%. Thank you for your question.

Operator (participant)

Thank you, and that concludes the question and answer session. Thank you once again for joining Bilibili's First Quarter 2025 Financial Results and Business Update Conference Call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director, or PSMT Financial Communications. Contact information for IR in both China and the U.S. can be found on today's press release. Thank you and have a great day.