Author | Wu Kunyan

Editor | Wu Xianzhi

On August 22, Bilibili released its second-quarter and half-year financial results for 2024.

The importance of these financial results for Bilibili is self-evident, given that less than three months remain until the profitability milestone set by Bilibili's Chairman and CEO Chen Rui. We can even consider these results as a 'performance guideline' indicating whether Bilibili can achieve its goal of turning around its losses.

The financial report showed that Bilibili's revenue in the second quarter of this year increased by 16% year-on-year to 6.13 billion yuan, with adjusted net losses narrowing by 72% year-on-year to 270 million yuan. This performance was still impressive on a quarter-on-quarter basis, with revenue growing 8.3% and adjusted net losses narrowing by 40.6%.

Specifically, in terms of business, the boom in brand effectiveness advertising driven by AI-led technological newcomers and the successful launch of games like "Three Kingdoms: Strategy" both significantly contributed to the positive results in the second quarter.

Recently, rumors spread that Kimi pushed Bilibili's CPA (Cost Per Acquisition) for user acquisition to 30 yuan. While much industry attention focused on AIGC startups struggling with user acquisition bidding, it cannot be denied that Bilibili's community genes have been effectively validated in terms of distributing long-tail content. The financial report mentioned that Bilibili's online marketing service revenue increased by 30% year-on-year to 2.04 billion yuan in this quarter.

On the other hand, the successful launch of "Three Kingdoms: Strategy" (hereinafter referred to as "TKS") also provided a significant boost to Bilibili's performance, entering the top three of iOS game revenue rankings on its launch day. Morgan Stanley even upgraded Bilibili's rating due to this success.

Revenue growth and loss reduction are tangible indicators of performance release. With "TKS" still ranking in the top 10 best-selling games, there seems to be little doubt that Bilibili will turn around its losses in the next quarter. The question is, after revenue has been fully released or even exploded, can Bilibili sustain this growth and ultimately establish revenue pillars beyond member subscriptions?

'Accidental' Success?

What would happen if a player with 'large DAU' (Daily Active Users) potential suddenly entered a sector characterized by high ARPU (Average Revenue Per User) and low DAU?

The launch of "TKS" is a vivid illustration of this scenario.

As early as during its promotional period in May, "TKS" capitalized on two key selling points—'reduced burden' and 'free-to-play'—that set it apart from its predecessors in the genre, attracting significant attention from competitors. It is reported that during May, when "TKS" was being hyped up, two established games in the genre, "Rate of Kingdoms" and "Three Kingdoms: Strategy Edition," continually gifted players with in-game items to prevent them from switching to "TKS."

According to Diandian Data, "TKS" secured over half of the domestic iOS channel's new game revenue in June upon its initial launch, with estimated revenue exceeding 800 million yuan when combined with Android channels. The financial report showed that Bilibili's game business revenue reached 1.01 billion yuan in this quarter, up 13.1% year-on-year. It is worth noting that due to the deferred recognition of mobile game revenue, the full extent of "TKS"'s revenue contribution may not be reflected in the financial report.

It can even be argued that "TKS" had a side effect on this quarter's financial report—the report mentioned that Bilibili's Q2 sales expenses of 1.04 billion yuan "were primarily due to increased marketing expenses related to the launch of new games."

Multiple third-party data sources indicate that while "TKS"'s revenue has declined somewhat, it remains at a high level. Considering the season-based payment model of rate-based like games, Bilibili could not have imagined three years ago that "TKS," which has nothing to do with ACG, would be crucial to its turnaround.

There are clear signs that Bilibili is letting go of its obsession with secondary games, as the domestic secondary game market has become fiercely competitive. During the earnings call, Bilibili also mentioned that "their (users') strong interest in history, military affairs, social sciences, and other content aligns well with the audience of SLG games."

In fact, transforming into a publisher and exploring new game genres has been the main theme of Bilibili's game business since 2022. At the end of 2022, Chen Rui publicly stated that the underperformance of Bilibili's game business over the previous two years was due to detours in self-development. Of the six in-house game studios established in 2021, only AceThinker Games remains, with a team size of less than a hundred people.

The phrase 'took detours' implies two crucial pieces of information: secondary games are no longer viable, or relying solely on the secondary element is insufficient to open up the market, and in-house development is not progressing quickly enough.

Looking back, Bilibili aggressively acquired game assets on the back of its IPO and simultaneously embarked on multiple in-house development projects. Now, it is attempting to transform into a publisher while taking a more measured approach to in-house development. A similar development trajectory can be observed in ByteDance's games business. Former Bilibili game personnel have even complained about organizational challenges, such as overly decentralized flat management and difficulties in reporting upwards before adjustments were made.

'At the time, the project atmosphere was very free, and our ideas were highly valued. However, we encountered a licensing winter, which led to many projects failing to materialize beyond data. In the end, these projects were cut.'

In this light, "TKS" can also be seen as a symbol of Bilibili's game business transitioning through a period of transformation. However, this does not necessarily mean that games will become its primary revenue pillar.

Firstly, the ceiling for game publishing is quite limited given the lack of significant overall market growth. Many game companies have already integrated research and operations, and the diversification of user acquisition channels has compressed publishers' survival space. Furthermore, high user acquisition costs in an increasingly competitive market will further erode publishers' profit margins, as evidenced by the aforementioned 1.04 billion yuan in sales expenses.

On the other hand, we cannot conclusively state that the successful launch of "TKS" was not accidental. In terms of the genre, it represents a mutual attraction between Bilibili's users and the game type itself. In terms of publishing, while Bilibili's many UPs' marketing content and off-platform promotions helped expand the game's reach, broader user engagement relied more on the game's innovative gameplay.

In contrast, "Wu Hua Mi Xin," another game released by Bilibili in the second quarter, received little attention and has fallen out of the top 100 iOS best-sellers as of press time.

For games to become a pillar of Bilibili's business, the first step is to avoid relying solely on blockbusters. Whether through publishing or in-house development, which has yet to be fully revealed, Bilibili still has much to prove to the market.

Advertising as a Lifeline

Compared to the limited growth potential of the game business, advertising may represent Bilibili's second growth trajectory. A notable sign is that Bilibili's advertising revenue finally surpassed the 30% threshold in this quarter, outpacing other revenue streams in terms of growth.

We understand that in addition to the AI enterprises mentioned earlier, new energy vehicles, games, and e-commerce have been significant advertiser increments for Bilibili over the past year. Take new energy vehicles as an example; many users have reported that most of the digital reviewers they follow have 'switched to cars.'

From a demand perspective, Bilibili has always played a role in game user acquisition, which has become even more pronounced during this year's intense summer competition among game developers.

As for the AI and new energy vehicle sectors, they align well with Bilibili's user base, characterized by youth, high education levels, and a willingness to embrace new things. Additionally, Bilibili's content, which tends to be longer in duration, provides ample space for high-density marketing messages while benefiting from the long half-life of quality content, which encourages users to search multiple times, strengthening the long-tail effect.

Taking the keyword 'AI' as an example, we found that the first result when searching on Bilibili's web version was an AI tutorial posted by UP @GenJi in early 2021. As of press time, the video had received 3.792 million views, 166,000 likes, and 168,000 upvotes, highlighting its long-tail effect.

Fundamentally, extending the half-life of content to enhance the long-tail effect is a basic skill for content communities, built upon highly usable content. Apart from Douban, which has a weaker commercial focus, well-known content communities like Xiaohongshu (Little Red Book) and Zhihu operate similarly. While Zhihu may be constrained by the distribution efficiency of image-text content and single-column feeds, Xiaohongshu has already established itself as a representative platform for the 'grassroots economy.'

On the other hand, compared to Bilibili's more generalized content focused on tutorials and reviews, Xiaohongshu's notes seem to be more tailored to usage scenarios.

This is not only a key area that traditional internet search has long sought to emulate but also an excellent channel for rapid growth for startups in the AI application era. As we mentioned in 'The Alchemy of AI Application Traffic,' Xiaohongshu has become a marketing hub for large model companies and AI applications, with the primary goal of clarifying user personas and acquiring vertical domain data rather than driving traffic conversions.

Perhaps it is precisely because Xiaohongshu is gradually 'fading away' that Bilibili is now embracing its own golden age.

As is well known, Xiaohongshu officially ventured into live e-commerce last year, with visible efforts in both in-app e-commerce infrastructure and traffic support for buyers and key opinion leaders. Given that total user time spent on the platform has not seen significant breakthroughs, this is bound to encroach upon the space previously occupied by Bilibili's 'open-loop' advertising business.

This was confirmed during this year's 618 shopping festival. As mentioned during the previous quarter's earnings call, Chen Rui revealed that Bilibili secured an additional 30% budget from external e-commerce platforms during the 618 period.

Furthermore, Bilibili's business model bears a striking resemblance to Xiaohongshu's. Bilibili's 'Spark' platform, in fact, follows in the footsteps of Xiaohongshu's 'Dandelion Plaza,' facilitating brand collaborations for creators.

Following Douyin and Kuaishou, Xiaohongshu has begun building a closed-loop ecosystem, effectively passing the baton to Bilibili in terms of fostering an open-loop platform. However, even without adding overlay ads, the conflict between marketing and community engagement may once again surface, raising several unresolved issues as Bilibili strives to achieve its profitability goals.

UP Monetization

As Bilibili's commercialization progresses, its user growth has begun to slow, and the space for monetization is reaching its limits.

The financial report showed that Bilibili's daily active users (DAUs) increased by 6% year-on-year to over 102 million, while monthly active users (MAUs) increased slightly by 2.4% year-on-year to 336 million. Viewed on a quarter-on-quarter basis, the growth rates are even lower. This suggests that if Bilibili does not expand its user base further, its commercialization potential will also be capped.

Of course, 102 million DAUs is already impressive for a mid-to-long-video platform. Judging from the rapid growth of its advertising business, Bilibili is overcoming last year's criticism that 'users are a curse' and accelerating user monetization. However, as a platform primarily featuring UGC and PUGC content, Bilibili's creators are facing the dilemma between community and commercialization even earlier than its users.

Last year, a popular science section UP on Bilibili, @Sailei, shared during a live stream on another platform that he received over 3,800 yuan in monthly video creation incentives. This was for a top account with over 2 million followers and corporate team support. This year, Bilibili launched its annual video creation incentive plan, further reducing the monthly incentive cap per account to 2,000 yuan.

For comparison, during Bilibili's sixth anniversary celebration in June 2023, Chen Rui announced that the platform had provided a total of 2.243 billion yuan in creator incentives since 2018, while Bilibili incurred 4.8 billion yuan in losses that same year.

To achieve profitability, Bilibili has continuously reduced creator incentives. Without commercial deals, UPs would essentially be 'creating for love.' We understand that some UPs have started approaching brands directly to bypass Bilibili's 'Spark' platform in protest.

'Two years ago, some friends and I foresaw this situation. Big UPs either became 'ad spaces' or used Bilibili solely as a platform for exposure. This is why Bilibili cannot become China's YouTube. Fortunately, I left early,' said a mid-tier UP in Bilibili's film and television section. 'UPs are nurtured here but then flow to other platforms. Bilibili is becoming a 'Huangpu Military Academy' for self-media.'" Today, this UP has amassed 460,000 followers on Douyin, earning around 10,000 yuan per month in 'minimum living allowance.'

Apart from Spark, Bilibili offers creators other earning opportunities, including live streaming, merchandise sales, the Charging Plan (where users pay for secondary subscriptions), and course sales. Except for the Charging Plan, each of these options constrains creators' content directions to some extent.

Last year, Bilibili faced a wave of UPs suspending updates due to significant cuts to creator incentives. Many UPs who could operate independently or sign contracts with other platforms have already left, as not everyone can adapt to the shift from 'earning money here' to 'helping you earn money here.'

As UPs are simplified into 'ad spaces' replacing overlay ads, how can Bilibili maintain its community character with a DAU base of 102 million? We'll find out once it crosses the profitability threshold.