Three months ago, B stood a “military order” to break even. With a report card of high growth and widening losses, achieving breakeven by 2024 will require maintaining growth while narrowing losses.

But in the next quarter, Station B failed to come close to this goal. In the first quarter of 2022, Station B achieved a total net revenue of 5.054 billion yuan, a year-on-year increase of 30%. The net loss was as high as 2.284 billion yuan, a year-on-year increase of 152.4%. The adjusted non-GAAP net loss was also as high as 1.655 billion yuan, an increase of 86% year-on-year.

Station B failed to narrow its losses, and the market responded with two double kills. On June 9, after station B released its financial report, US stocks plummeted by more than 14%, and Hong Kong stocks fell by less than 2%.

Today, the capital market is no longer keen on the model of high losses for high growth, and even iQiyi achieved profitability for the first time in the first quarter. After giving a breakeven target, Station B failed to narrow its losses this quarter, and even the loss expanded faster than the revenue growth rate.

Although he failed to get off to a good start, Chen Rui still showed great confidence. He emphasized on the conference call that it was the epidemic that hindered the progress of financial indicators to breakeven, but “the epidemic will not have any impact on the fundamentals of station B. Yes, for example, video will still be an unstoppable trend.”

01 Advertising, e-commerce dragged down, losses expanded

In the current environment where the revenue growth rate of Internet companies has generally dropped to single digits, it is not bad for Station B to maintain a revenue growth of 30%, but compared with the past, this is the slowest since the establishment of Station B. moment.

Even compared with the fourth quarter of last year, the revenue of station B did not rise but fell. As shown in the figure above, the revenue of station B in the fourth quarter of last year was 5.78 billion yuan, and the revenue in the first quarter of this year decreased by 730 million yuan.

From the perspective of specific businesses, the revenue of the two businesses of games and value-added services increased year-on-year and month-on-month. Although the two businesses of advertising and e-commerce achieved positive growth year-on-year, they decreased significantly month-on-month.

When it was first listed, the game revenue of station B accounted for more than 70%, and it gradually declined in the following years. After 2020, it was successively surpassed by value-added services and advertisements, and now it accounts for less than 30% of the total revenue.

There are active and passive reasons for this phenomenon. After the listing, Station B has been pursuing the diversification of income. The development of e-commerce, advertising, large membership and live broadcasting has reduced its dependence on game income to a certain extent.

But what cannot be ignored is that after “FGO”, it has not been able to release a phenomenal blockbuster, and the channel has not been able to break through the relatively niche category of the second element. It is difficult to convert the traffic growth of station B in the past two years into game revenue. main reason.

In addition, the birth of “Yuan Shen” turned out to be mixed for station B today. On the one hand, as the only channel server outside the official server of “Yuanshen”, station B got a share of the success of “Yuanshen”; but on the other hand, “Yuanshen” took away a large piece of the cake in the two-dimensional market, and also broke the The “tradition” of monopolizing the right to speak in the domestic game market channel has not only impacted Tencent, but also has a great impact on Station B.

The games released by Bilibili in 2021 are not very successful. In this regard, Bilibili has been increasing its investment in game teams. In the first half of this year, when the game industry “version number winter”, station B invested in nearly ten game companies. After the version number was re-issued in April, station B has now obtained 3 new game version numbers.

Compared with games, the situation of value-added services business is slightly better. In the first quarter, the value-added service revenue of station B reached 2.052 billion yuan, a year-on-year increase of 37%, accounting for more than 40% of the revenue, and became the leader of station B’s revenue for the sixth consecutive quarter.

The value-added services of station B mainly include large membership, live broadcast and other services, among which the large membership with an annual fee of 168 yuan is the most important. In the first quarter of this year, the monthly active users (MAU) of station B reached 293.6 million, a year-on-year increase of 31%; the average monthly paying users was 27.2 million, a year-on-year increase of 33%.

The performance of games and value-added services is still normal, but the high-speed growth of advertising and e-commerce in the past few years has slowed down significantly, and even experienced negative quarter-on-quarter growth. Revenue in the first quarter fell by 35% and 40% quarter-on-quarter, respectively.

At the earnings conference call, Chen Rui explained that the decline in these two businesses was mainly due to the temporary impact of the epidemic on short-term business. The e-commerce business has also been hit by the epidemic, and Shanghai has not been able to ship since March.

This also magnified the loss of station B in the first quarter, from 905 million yuan in the same period last year to 2.284 billion yuan; the gross profit margin also declined, the gross profit margin in the first quarter was 16%, and the gross profit margins in the first to fourth quarters of last year were 24% and 22% respectively. %, 19.6% and 19%.

This is significantly lower than the previous forecast of station B. Fan Xin once said on the conference call last quarter: “It is expected that the gross profit margin for the whole year of 2022 will be around 19-20%, showing a trend of low before and high throughout the year. In the next three years, With the improvement of liquidity, the overall gross profit margin will improve towards 30%.”

02 Learn Douyin to increase advertising efficiency

If you want to “increase efficiency” and increase revenue, Station B cannot put all its hopes on the game business of God’s food and value-added services that are highly dependent on content input. In addition to waiting for the general environment to improve, improving the efficiency of the advertising business is its current main attack. one of the directions.

In the last two quarters of earnings conference calls, Chen Rui repeatedly mentioned the Story Mode function. In 2021, Station B began to test a short video function called Story Mode. Some users can click on the user avatar in the upper left corner of the APP to jump to the short video waterfall and slide up and down to switch. Now click on any vertical video content to directly enter the video stream.

Chen Rui said that the penetration rate of daily active users of this function has exceeded 20%, and the proportion of user likes has reached 30%. “

This is regarded by the outside world as a signal of Douyin at station B, with a clear commercial purpose. The advertising revenue of station B mainly comes from two types, one is the investment promotion of its own film and television content and variety shows, and the other is product advertising space (such as app opening, web page banner). The former requires high content input costs, while the latter is limited by the past product form of Station B, and the ceiling is not high.

In contrast, the Douyin waterfall model is more favored by advertisers. In 2021, Douyin’s advertising revenue will be about 33.1 billion US dollars, equivalent to more than 221 billion yuan. The advertising revenue of station B in 2021 is 4.523 billion yuan, which is only 2% of Douyin’s advertising revenue.

The advertising model of station B in the past relies too much on brand advertising, and the lack of patch advertising has lowered the ceiling of this income. When the general environment deteriorates, business owners are more inclined to effect advertisements that can convert traffic into sales leads, which makes the advertising business of station B even worse in the first quarter. Story Mode is expected to solve the shortcomings of Bilibili’s effect advertising, which is one of the reasons why Bilibili vigorously promotes this mode.

But for a mature video content community like Station B, vigorously promoting new product models is not without risks. In fact, some users of station B have complained about the portrait mode, and there are a lot of submissions on the station that teach people to turn off the portrait mode.

Chen Rui is not worried. “When we were doing live broadcast a few years ago, some users worried that we would become a live broadcast product, but this is not the case. Live broadcast is integrated into our PUGV,” he said, “The same is true for Story Mode, station B will not become a short-lived product. Video products, but short videos will become part of the Bilibili ecosystem.

03 Has the cost been reduced?

The performance of iQIYI in the first quarter seems to prove that “cost reduction” is a faster shortcut to breakeven than “efficiency increase” in the short term.

In the first financial report after the breakeven target was proposed, the cost control of station B did not improve significantly, but it did not become too bad.

The most notable of these is that the cost growth rate of station B has significantly exceeded the revenue growth rate. In the first quarter of 2022, the cost of revenue increased by 43% year-on-year to 4.25 billion yuan, of which the revenue sharing cost for UP hosts and anchors was 2.15 billion yuan, a year-on-year increase of 53%, and the value-added service revenue in the same period was 2.05 billion yuan, an increase of 37% year-on-year. %, six percentage points lower than the cost growth rate.

The importance of shrinking spending is already on the table. Chen Rui said that cost reduction and efficiency enhancement will be an important task for the entire industry in the next few years. “Through the whole year, cost control and tightening of expenses will play a crucial role in our ability to overcome macroeconomic pressures.” Fan Xin also said that “more cost control measures will continue to be taken in the next few quarters.”

Fan Xin gave detailed cost-saving methods in the last quarter’s earnings conference call—actively managing operating expenses, reducing R&D expenses, focusing on return on investment, and controlling the number of employees, but the performance was not obvious in the first-quarter earnings report.

Splitting operating costs is good to see why it’s more difficult to cut costs aggressively, as half of that is a share paid to the UP owner. Including video playback incentives (3 yuan / 1000 times), fireworks advertisement share (95% up main share), live broadcast reward share (80-90% anchor share), etc.

However, the Up master is the precious “core asset” of Station B, and it is also the producer of a large amount of content and the creator of the community ecology. If the operation from here leads to a large loss of Up masters, it will be unbearable for Station B.

Station B is already testing the waters. In March of this year, the incentive rules for the creation of Up masters at Station B were changed. Many Up masters reported that the incentives they received had shrunk significantly, and some would consider reducing the update frequency.

Another way to reduce costs is to reduce personnel costs. Since April, there have been negative rumors such as “dismissal of the live broadcast team” and “layoff recording gate” successively at station B. Although the rumors of layoffs have not been confirmed by station B, the pressure has been somewhat reduced. on the staff.

Station B’s outlook for revenue in the second quarter of 2022 is expected to reach 4.85 billion to 4.95 billion yuan, and the growth rate will further decline. For Station B, break-even is a must, but there is still a long way to go.

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