Biannews reports today

On the evening of August 22, Bilibili released its financial report for the second quarter of 2024.

The financial report shows that Bilibili achieved revenue of 6.13 billion yuan in the second quarter, up 16% year-on-year, far exceeding market expectations. At the same time, the results of cost reduction and efficiency improvement were significant, with the adjusted net loss for the second quarter narrowing significantly by 72%, and achieving a positive operating cash flow of 1.75 billion yuan, with a cumulative positive operating cash flow of 2.4 billion yuan in the first half of the year.

Bilibili's overall performance in the second quarter was very impressive, with its share price surging by 6% in pre-market trading after the financial report was released. The significant improvement in Bilibili's financial condition is inseparable from the strong growth of its advertising business, which contributed nearly one-third of the company's revenue in the quarter.

As a typical high-margin business, the growth of the advertising business has revitalized Bilibili's commercialization and enabled the company to achieve rapid revenue growth while controlling costs.

With half a year left before the end of 2024, Bilibili is expected to turn a profit by the end of the year, achieving a soft landing in its operational transformation without resorting to drastic measures, and ushering in a new period of development.

Advertising drives Bilibili's revenue growth by 30% year-on-year

Since the beginning of this year, benefiting from the application of AI technology and the rapid growth in demand for niche categories such as short dramas and e-commerce, there has been a noticeable recovery in the overall advertising revenue of internet platforms. However, there are notable differences in the business performance of various platforms. Tencent has seen significant growth in its advertising business due to the efficiency gains from its video account and AI technology, while Kuaishou has found revenue breakthroughs through search and short drama ads. However, some large platforms have seen their advertising businesses struggle and gradually fall out of the top tier of the market.

In this more competitive environment, Bilibili's advertising business has maintained growth rates exceeding the industry average. In the second quarter, Bilibili's advertising revenue reached 2.04 billion yuan, up 30% year-on-year, and its share of Bilibili's revenue also increased to 33.3%.

The cornerstone driving the growth of Bilibili's advertising business is the increase in platform traffic, i.e., the continuous growth of users, UP masters, content, and playback volume, which is the foundation for maintaining the sustained growth of Bilibili's commercial advertising.

In the second quarter, Bilibili's overall DAU reached 102 million, up 6%, with an average daily video playback volume of over 4.8 billion, up 18% year-on-year, and the average user age rose to 25.

As they age, Bilibili users enter into marriage and careers, acquiring an economic foundation and having strong content and consumption demands. Bilibili has become their preferred platform for seeking and learning relevant knowledge, as well as an important link in their consumption decisions.

In the second quarter, Bilibili grew rapidly in areas closely related to commercialization. According to financial report data, video playback volumes in Bilibili's home, real estate, automotive, fashion, and beauty categories increased by 30% year-on-year, while those in maternity and parenting categories increased by more than 80% year-on-year.

The steady growth in consumption-related content has stimulated user spending in Bilibili's home, real estate, and automotive sectors, driving an increase in advertising placements by related brand owners.

It is understood that Bilibili's female user spending potential is gradually being unleashed, with apparel category GMV growing fourfold year-on-year in Q2.

The "one horizontal, multiple verticals" strategy begins to bear fruit

The growth of traffic and user attention is the foundation of advertising. However, to attract advertisers to invest real money, platforms need to establish more efficient delivery tools and product systems to help brands more easily connect with users.

Bilibili has been continuously improving its commercial infrastructure. Bilibili has previously described its advertising strategy as "one horizontal, multiple verticals." The "one horizontal" refers to the infrastructure of the advertising business, while the "multiple verticals" refer to solutions for vertical industries.

Over the past few years, Bilibili has been "catching up" on its advertising infrastructure. For example, earlier this year, Bilibili upgraded its PC-based advertising platform "Sanlian," providing a one-stop professional advertising tool, resulting in a 50% year-on-year increase in the number of key account (KA) advertisers for performance advertising in the first half of the year.

Bilibili's newly launched creative materials center also utilizes the latest AIGC technology to help advertisers diagnose and optimize their materials. According to Chen Rui, Chairman and CEO of Bilibili, the upgraded creative materials center has achieved a more than 30% increase in click-through rate (CVR) for advertising materials.

In addition to improving infrastructure, another aspect of Bilibili's advertising strategy is to tap into the potential of niche industries. It is understood that the top five industries represented by Bilibili's advertisers are currently games, e-commerce, digital appliances, food and beverages, and automobiles, with e-commerce and digital appliances being the two biggest drivers of advertising growth in Q2.

Both of these industries are related to consumption, and Bilibili's rapid growth in these industries is closely related to its consistent "open-loop" strategy. The essence of this strategy is that Bilibili connects its community with more e-commerce platforms, directing users directly to these platforms to place orders and consume, creating a more convenient and higher-quality consumer service experience for them.

Although various internet platforms are currently exploring consumer space, they are becoming more closed off, pursuing closed-loop business models. This poses a greater challenge for e-commerce platforms and some major consumer brands.

In this context, Bilibili's "open-loop" strategy stands out. This also gives platforms such as Taobao, JD.com, and Pinduoduo greater incentive to advertise on Bilibili.

During this year's "618" shopping festival, e-commerce clients increased their advertising spending on Bilibili by 300% year-on-year, and the gross merchandise value (GMV) of products sold through these ads increased by more than 140% year-on-year. Bilibili also brought 50% of new customers to e-commerce merchants, with the maternity and parenting industries accounting for over 70% of new customers.

At the same time, Bilibili is replicating this experience in other industries to tap into the advertising growth potential of more vertical industries.

For example, the AI industry is one of the successful examples. With the rapid development of AI applications this year, emotional companion chatbots, efficiency tools for writing/thesis writing/PPT creation, and other AI products have sprung up like mushrooms after rain, and Bilibili has become the preferred advertising platform for AI application developers. Data shows that 90% of domestic AI vendors have established accounts on Bilibili for various exposures, and Bilibili's advertising revenue from the AI industry increased fivefold year-on-year in the first quarter of this year.

In fact, advertisers today are paying more attention to the integration of brand and performance, no longer relying solely on traffic and the effect of large platforms, but preferring to choose platforms that are more suitable for them and offer better value for money. Today, Bilibili remains a force that cannot be ignored in both public opinion and commerce, just like the recent popular game "Black Myth: Wukong," which gained attention after releasing a promotional video on Bilibili.

It is believed that with the further improvement of its commercial infrastructure and the tapping of more vertical business potential, Bilibili's advertising business still has significant room for growth.