Bilibili Inc. (BILI) Q2 2022 Earnings Call Transcript

Bilibili Inc. (NASDAQ: BILI) Q2 2022 earnings call dated Sep. 08, 2022

Corporate Participants:

Juliet Yang — Executive Director, Investor Relations

Xin Fan — Chief Financial Officer

Rui Chen — Chairman of the Board of Directors and Chief Executive Officer

Analysts:

Lei Zhang — Bank of America Merrill Lynch — Analyst

Daniel Chen — JPMorgan — Analyst

Brian Gong — Citi — Analyst

Xueqing Zhang — CICC — Analyst

Presentation:

Operator

Good day and welcome to Bilibili’s Second Quarter 2022 Financial Results and Business Update Conference Call. Today’s conference is being recorded.

At this time, I’d like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Thank you. Please go ahead.

Juliet Yang — Executive Director, 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 are for comparison purpose only. Definition of these measures and a 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 Bilibili IR website at ir.bilibili.com.

Joining us today 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. Xin Fan, Chief Financial Officer.

And I’ll now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

Xin Fan — Chief Financial Officer

Thank you, Juliet. And thank you, everyone, for participating in our 2022 second quarter results conference call. I’m pleased to deliver today’s opening remarks on behalf of Mr. Chen.

We confronted immense headwinds in the second quarter. During the period, we started our company by bringing users improve the product, expanding our content and implementing further cost-control measures. With lockdowns in Shanghai lifted in June, we believe the worst impact is behind us. Importantly, we expected to recover our operating margin in the second half of the year, while continuing to grow our users and narrowing our net loss.

Our total MAUs reached a new record of 306 million in the second quarter, up 29% year-over-year, representing another exciting milestone. While we remain committed to our MAU target, we are putting additional focus on the quality of users. Looking at metrics such as DAUs and engagement levels in Q2, our DAUs grew by 33% year-over-year to 84 million, outpacing the growth rate of our MAUs. This brought our D/M ratio to 27.3%, up from 26.4% in the same period last year.

Daily average time spent was 89 minutes, a nine-minute increase compared with the same period last year. Longer user time spent and high user activity increase our total user traffic, which grew by 48% year-over-year. We believe our growing matrix of products, spending content library and the quality-driven growth strategy will strategically position us to continue our growth momentum.

Impacted by the challenging micro environment, our total net revenues were RMB4.9 billion, up 9% year-over-year in the second quarter. NPUs increased by 32% year-over-year to RMB27.5 million and our paying ratio was 9%. Followed by a slower April and May, our advertising business rebounded nicely when the lockdowns lifted in June. With increasingly popular advertising products such as ads in Story Mode, we grow our ad revenue by 10% year-over-year. We compared [Phonetic] to continue gaining market share in the second half of the year.

During the second quarter, we also put further cost control initiatives into effect, specifically we cut sales and marketing expenses by 16% year-over-year. Sales and marketing expenses as a total percentage of revenue decreased to 24% from 31% in the same period last year. Server and bandwidth cost per video views also declined by 37% year-over-year. The adjustment we made to improve our organizational efficiency included canceling underperforming projects and reallocating resources to cope in this. We expect positive impact our P&L will start to show in the second half of the year.

In July, we also made some provincial adjustments to our optimization. Our goal was to be more congruent to our long-term sustainable growth. We have integrated the operations of live broadcasting with our video platform and made organizational changes that integrate our commercialization efforts across our content ecosystem, create synergies and improve efficiency.

With that overview, I’d like to go through some details of our second quarter operations across our content, community and commercialization. We have seen many integrations of the online video space. [Indecipherable] is the one that has remained expensive and [Indecipherable]. The introduction of our difference formats such as Story Mode, PUGV, Live Broadcasting and Smart TV significantly boost our signal of audio videos like anytime, anywhere.

Looking at Story Mode, that’s an excellent example. Story Mode is one of our newest vehicles covering users on the go entertainment need. It is more efficient in distributing video in shorter length of time. While video views from PUGV grew 53% year-over-year, video views of our Story Mode increased by over 400% year-over-year, bringing incremental traffic to our platform. This is an ongoing trend that we are seeing throughout the second half of the year. Moreover, Story Mode presents unparalleled commercial prospect as the gateway to different monetization opportunities such as advertising and live broadcasting.

MAU penetration in live broadcasting continues to grow across our user base. In July, we began to fully integrate our live broadcasting and PUGV ecosystems. Over time, we expected the combination of these two ecosystems to result in more efficient traffic execution and allocation, and inspires more content creators to become live broadcasting hosts.

During the second quarter, our users primarily gravitated to lifestyle, games, entertainment, ACG and knowledge categories. We continue to accumulate a massive amount of content through our growing pool of talented creators. In the second quarter, we had 13.2 million total monthly average content submissions, up 56% year-over-year.

Our growth stems from our 3.6 million monthly active content creators, an increase of 50% year-over-year. In the second quarter, the number of creators with 10,000 followers grew by 46% year-over-year and creators with over 1 million followers grew even faster at 58% year-over-year. Notably, over 60% of the content creators with 1 million followers during Q2 was benefited from the fast-growing Story Mode traffic.

We continue to expand avenues to unleash content creators’ monetization potential. In the second quarter, over 1.1 million creators received the monetary reward through live broadcasting advertising programs or cash incentive programs, up 97% from same period last year.

Turning to our community. We continue to feature robust content that resonate with our users, along with a well-coming community environment. We saw this across our user matrix in the second quarter with impressive year-over-year gains. Daily video views grew by 83% to 3.1 billion and the monthly interactions grew by 73% to 12.5 billion. As I previously mentioned, the average daily time spent also increased by nine minutes year-over-year to 89 minutes.

Now, let’s take a look at our commercialization efforts. Advancing our commercial prospect is one of our leading goals this year. In the second quarter, we continue to convert paying users and improved our advertising efficiency to gain more market share, maximizing our high-quality user base. Looking first at VAS revenues. Revenues from VAS was RMB2.1 billion, an increase of 29% year-over-year. We converted more traffic to paying users in the second quarter, driven primarily by live broadcasting, where we hold unique advantages give this natural extension of our video universe.

Despite the challenges of strict regulations, our live broadcasting conversion rate remained strong in the second quarter. By integrating our PUGV ecosystem with live broadcasting, we have created a win-win solution. The number of active live broadcasters increased by 107% year-over-year in the second quarter. Our live broadcasting MAUs penetration rate continued to grow and NPUs for live broadcasting increased by nearly 70% year-over-year. At the same time, we improve the live broadcasting’s gross margin by optimizing revenue sharing plans. Premium membership for the second quarter reached 21 million, up 19% year-over-year. The majority of our users continue to be annual are auto-renewal subscribers.

Looking at our advertising services. Revenues from this segment reached RMB1.16 billion, an increase of 10% year-over-year. Despite the macro headwinds, our top five verticals in the second quarter were games, digital and 3C products, skincare and cosmetics, e-commerce, and food and privilege. Optimizing our product offerings and the conversion efficiency remain our strategy for our ad business.

In the second quarter, we continue to dedicate our resources to expand our advertising scenarios with diverse products and improved conversion modules. We also executed our integrated marketing campaigns as selling strategy to realize more cost-saving opportunities. The Story Mode ads we launch in April have also been welcomed by our advertisers.

Lastly, on games business, net revenues was RMB1.05 billion in the second quarter. The lack of supply for new-gen content in the domestic market was the main challenge in the first half of the year. As the domestic games approval process returned to normal, we look forward to seeing the approval for imported titles. Nevertheless, our game strategy remains focused on in-house development and bringing exciting high-quality games for both domestic and international markets.

In the second quarter, our self-development game revenues contributed around 5% of total game revenue, mainly thanks to our successful launch of Ark Order [Phonetic] in many countries and regions. And for our pipeline, domestically we are actively applying for game licenses and have four titles approved for release. Six games in our pipeline, including two self-development titles, are ready to hit overseas market in the second half of the year. As a 13-year-old company, our user numbers and the revenues are still seeing robust growth and we foresee a long runway of growth in this future.

Our attention and resources are focused on improving both our top line and bottom line. With this in mind, we plan to further enhance our operational efficiency, pattern [Phonetic] spending and strengthen our execution. We are committed to improving our gross margin and narrowing our operating loss in the second half of the year.

This concludes Mr. Chen’s remarks. I will now provide a brief overview of our financial results for second quarter of 2022 and outlook for the third quarter of 2022.

Total net revenues for the second quarter was RMB4.91 billion, up 9% from the same period of 2021. Our total net revenue broke down by revenue stream was approximately 21% mobile games, 43% VAS, 24% advertising and 12% e-commerce and other business. Cost of revenues increased by 19% year-over-year to RMB4.2 billion.

Revenue-sharing cost, a key component of cost revenues, was RMB 2.1 billion, representing an 18% increase from the same period in 2021. Server and bandwidth costs, as part of a relatively fixed cost component, decreased 9% quarter-over-quarter. Server and bandwidth cost per video views decreased 37% year-over-year, demonstrating the impact of ongoing efforts and progress in cost savings.

Our gross profit in the second quarter was RMB738 million and our gross profit margin was 15%. We are actively tightening our cost control measures and improving our operating efficiency. We expect our gross profit margin will start to recover beginning this quarter. Total operating expenses was RMB2.9 billion, up 17% from the same period in 2021.

Sales and marketing expenses was RMB1.2 billion, representing a 16% decrease year-over-year. Sales and marketing expenses as a percentage of total revenue was 24%, down from 31% in the same period last year. The year-over-year decrease was primarily attributed to decreased promotional expenses for our mobile games as well as lower user acquisition costs.

G&A expenses was RMB626 million, representing a 44% increase year-over-year. The increase was primarily due to increased head count in general personnel, higher rental expenses and non-recurring expenses related to optimizing our organizational structure.

R&D expenses was RMB1.1 billion, representing a 68% increase year-over-year. The increase was primarily due to increased headcount in research and development, increased share-based compensation expenses and non-recurring expenses related to adjustment of certain game projects. Net loss and adjusted net loss was RMB2.0 billion and RMB1.96 billion for the second quarter of 2022 respectively.

Turning to our capital allocation and the liability management. In aggregate, we repurchased a total of 2.6 million ADS for a total cost of USD53.6 million at the end of June 30, 2022. In addition, we repurchased a total of USD275 million 2026 notes for a total cost of USD198 million with total future cash savings of USD84 million at the end of June 30, 2022.

And as of June 30, 2022, we had cash and cash equivalents, time deposits and short-term investments of RMB24.9 billion compared with RMB13.2 billion as of December 31, 2021. As for our intent to convert to a due primary listing on the main board of Hong Kong Stock Exchange, with respect to the proposed conversion, we successfully obtained all necessary shareholders’ approval at our company’s Annual General Meeting, which was held on June 30, 2022.

The Hong Kong Exchange has also acknowledged our application, setting October 3, 2022 as the proposed effective day. Our endeavor will expand our access to a wider investor base and we expect to concurrently maintain our listing status on NASDAQ. With that in mind, we are currently projecting net revenues for the third quarter of 2022 to between RMB5.6 billion and RMB5.8 billion.

Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Lei Zhang from Bank of America Merrill Lynch. Please ask your question, Lei.

Lei Zhang — Bank of America Merrill Lynch — Analyst

[Foreign Speech] Thanks, management, for taking my question. My question is mainly on the margin profile. We noticed that we have taken some cost control measures in the first half, especially on sales and marketing expenses. So, do we see any room in other cost items? And how should we see our gross margin and net profit margin trend in second half? Thank you.

Rui Chen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Let me share some of my thoughts about cost control and efficiency improvement. We believe this slogan is not just about cost control. It’s not about not to spend money, but spend our money more wisely, spend money on the right places.

[Foreign Speech] Under the current extremely challenging micro environment and the COVID impact that’s causing business everywhere, very challenging environment, and I have been telling our employees, our business under this environment needs to be more focused. Focus means that we need to allocate our best resource to our core business to be exceedingly good at our core. And if it’s non-core, we should put less effort and focus on what matters the most.

[Foreign Speech] What’s our core? Video and growth. And the growth is not just about user growth, but also our top line growth.

[Foreign Speech] So, in the first half of this year, we have been allocating all of our resource, including our capital, into the areas that is our core, that is our video business, user growth in areas that can help us to expand our top line.

[Foreign Speech] Even though it’s a challenging macro environment, but I’m still emphasizing the importance of growth within the company because growth, we believe, is the most important priority within our community.

[Foreign Speech] Bilibili runs a very typical Internet platform business. The value of our platform really comes from the value of our users.

[Foreign Speech] We value the user growth, but we are also emphasizing on improving the user growth efficiency and lowering the user growth cost.

[Foreign Speech] As you can see, we have achieved new user acquisition costs continue to decrease. And our sales and marketing expense decreased by 16% year-over-year in the second quarter. And sales and marketing expense as a percentage of revenue came down from 31% same period last year to 24% in the second quarter.

[Foreign Speech] And also at the same time, as our costs go down, our user engagement, our user retention has continued to improve.

[Foreign Speech] And improving the efficiency also goes with the technology side. In this quarter, we have optimized the allocation of our technical resources and unified the investment in technology, infrastructure and concentrated our resource on solving key problems.

[Foreign Speech] And for example, in the second quarter, our DAU grew 33% year-over-year. Our video views grew 83% year-over-year. As you may aware, the resolution of our videos has become more and more premier. And we are using everything we can and, on the technology side, are improving the algorithm resulted in the unit BV cost came down by 37% year-over-year.

[Foreign Speech] I’m expecting for this year as our DAU grew significantly and our time spent also grew simultaneously. Our total investment and the server and bandwidth cost, the overall expense will not be exceeding loss, what we spent last year. This is a perfect example of how we use technology to improve efficiency.

[Foreign Speech]

Xin Fan — Chief Financial Officer

Okay. I will take the question about gross profit trend. We believe our Q2 results has already reflected the impact of the COVID lockdown. And we estimate our revenue will regain a sequential growth momentum in the second half of this year in Q3 and Q4. So, our gross margin will gradually improve to around, let’s say, 20% in Q4. And we will continue to adopt strict expense control measures, as mentioned by Chairman Chen. At the same time, so we expect our non-GAAP net loss ratio will also narrow down from around like 40% in Q2 to around 30% in Q4.

Operator

Thank you. Our next question comes from the line of Daniel Chen from JPMorgan. Daniel, please ask your question.

Daniel Chen — JPMorgan — Analyst

[Foreign Speech] I will translate myself. So, my question is on the user side. BILI’s MAU have surplus over 300 million this quarter. And we also notice that in the second quarter, the DAU actually outgrows MAU and the average time spent per user also grew quite nicely. So, I was wondering what’s the driver behind. And also what’s management’s expectation for the DAU and MAU metrics for the second half and also in 2023? Thank you.

Rui Chen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] I’ll share three points. As you may all aware, there has been a significant change of macro environment globally. However, we think the fundamentals of Bilibili have remain unchanged. Here are three points that’s supporting our growth.

[Foreign Speech] Visualization for a start is a global phenomenon. And we think that visualization movement will continue for three years at least. And this will also support Bilibili’s growth, not for just one year to two years, three years, as this will continue to support us.

[Foreign Speech] The second thing is the young generation needs their own culture and entertainment content. We have half of our users are below 25 years old. Why they’re using Bilibili? Because we are providing their own cultural and content product.

[Foreign Speech] Third point is the consumption upgrade is still the largest driving force within the consumption sector. And the content consumption will be a major part of it. The Z generation, the Z cross-generation are more willing to spend their money into spiritual and cultural products, cultural consumption.

[Foreign Speech] I believe Bilibili is on the front line of this movement. That’s why this three points is supporting our continued sustainable growth in the future.

[Foreign Speech] As you mentioned indeed, for the past two quarters, our DAU growth rate has outpaced the MAU growth rate. That’s because we have keep emphasizing that we will focus on the quality of the growth, which means the DAU and engagement level time spent.

[Foreign Speech] And not only our DAU has surpassed the MAU growth rate, our daily user time spend has also improved sequentially year-over-year for many quarters. And our daily video views grew over 80% and our user engagement — multi-user engagement numbers has also grown significantly. So this is a very healthy model that the video views engagement outpaced the DAU and the DAU itself outpaced the MAU, means the community has become more sticky engaged.

[Foreign Speech] On top of spending our money more wisely, we believe that our business model, which is the content ecosystem-driven business model, is more healthy.

[Foreign Speech] As for our content categories, it has been very healthy across different verticals, our traditionally strong anime, music, food, it’s growing very healthily. We are also witnessing a lot of new category expansion, because we have such healthy ecosystem, you can continuously discover new content creator, very high-quality content, and we have many, many new titles went viral. For example, the phenomenal Second Uncle PUGV has been a perfect example of how Bilibili can continuously create high-quality content and you can discover very talented content creator on our community.

[Foreign Speech] And secondly is our multi scenario — multi-content category approach is also helping us to grow healthily. As you may see from our platform, the PUGV live broadcasting, OGV and even a newly emerged Story Mode, they are all growing very nicely. And we are actively supplementing those video scenarios that’s helping our user become more engaged.

[Foreign Speech] Here, I wanted to lastly to wanted to every advertise our MAU target, which 400 million by end of next year. And we won’t be achieving this number just for the sake of achieving a number, but we will be more focused on the quality of the user growth. As you can see, we’re putting more emphasis on the DAU growth. We wanted to achieve a healthy and sustainable growth going forward. Thank you.

Operator

Thank you. Next question comes from Brian Gong from Citi. Please ask your question, Brian.

Brian Gong — Citi — Analyst

[Foreign Speech] I will translate myself. My question is regarding the progress on Story Mode. The viewership has shown strong growth, [Indecipherable] give more colors on the positioning and strategy of the Story Mode and how is the progress on Story Mode, like its ecosystem and the commercialization? Thank you.

Rui Chen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] For the past two quarters, we’ve seen a lot of attention being placed on the Story Mode. Indeed, we have delivered a very outstanding result of how Story Mode expanding its traffic. And the reason why behind that is partially because this is from zero. We’re growing this from zero. However, I wanted to emphasize here is that, overall — our overall traffic is also growing very significantly, and Story Mode is the incremental traffic add on to our total traffic.

For example, if you look at the total view, we grew by 83% year-over-year. And the PUGV video views also grew over 50% year-over-year. Our Story Mode rose 400% from a very low base. But just wanted to emphasize, this is indeed a very nice incremental traffic growth to our ecosystem, but don’t forget, our overall traffic is also growing very nicely.

[Foreign Speech] Here, we always talked about the strategy of growing multi-scenario, multi-content category, and Story Mode is the representation of that strategy. And Bilibili’s video ecosystem is a comprehensive full body, well-rounded content ecosystem that centers around PUGV. And along with live broadcasting story and our smart TV application, all of that is a natural extension of our original PUGV ecosystem, whether it’s adding a new scenario for users fragmented time or allowing the original content creator to become live broadcasters, this comes from the original PUGV ecosystem..

[Foreign Speech] As for the Story Mode load, we believe it’s a very important supplement to our original content ecosystem. This product satisfy users on the go entertainment needs for their fragmented time and satisfies users’ kill time need for a one or two-minute video. Probably, there’s 10 times of that need will come up during the day. And combined together, it would be a certain longer period of time..

[Foreign Speech] And more importantly, we believe the Story Mode has been very beneficiary for us to improve the engagement level of those users that are less active. Some of them might think some of the video on Bilibili is too long or is more difficult to comprehend. The launch of Story Mode is helping them to quickly adapt into the Bilibili community to help them understand, to give them a quick start to blend into our community.

[Foreign Speech] Additionally, Story Mode has been very beneficiary to the newly joined content creator or the content creator with fewer followers. In the past, for them to grow their followers, they have to spend a lot of time to create high quality, longer period of PUGV. Now, we are providing there a new option to create a lighter, shorter creation. And this smaller creation comes together, will help them to grow their followers more quickly..

[Foreign Speech] We are also noticing that this launch of Story Mode is helping those content creators who originally are good at creating short form videos or providing them additional opportunity to grow and expand their influence on Bilibili. In this second quarter, we’ve noticed that the number of content creators who achieved 1 million followers, 60% of them will benefit from the traffic growth of Story Mode.

[Foreign Speech] Lastly, I wanted to emphasize that even though it’s a shorter vertical video, but if you browse through the content, you can tell immediately this is Bilibili-featured high-quality video. The algorithm, the recommendation system behind the Story Mode is identical to the PUGV algorithms. We put same amount of waiting and emphasize on the content quality and users’ positive feedback towards the content.

[Foreign Speech] And additionally, our users are very inclined to engage within the Story Mode from — the data shows that the user who cast light in the Story Mode has been significantly higher than the Story Mode total percentage of revenue. That means, our users are recognizing the quality of the Story Mode videos. I believe in the future, they will be definitely very typical and very popular Story Mode video [Indecipherable] and went viral in the space, and there will also be original Bilibili Story Mode video content creator emerging. And we are already noticing that. For example, the content creator name is [Indecipherable] would be a perfect example for the Story Mode typical high-quality content creator.

The next question, please?

Operator

Thank you. Next question comes from Xueqing Zhang from CICC. Please ask your question, Xueqing.

Xueqing Zhang — CICC — Analyst

[Foreign Speech] And I will translate myself. Thanks, management, for taking my question. And my question related to advertising. Given the macro headwinds and the resurgence of COVID-19, what measures do we take to make the advertising business grow and how does management think about the trim of the advertising in the second half of the year? Also, a follow-up question on Story Mode. We have launched advertising, how much utilization Story Mode [Indecipherable] so could you share more details on it? Thank you.

Rui Chen — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] A combination of global macro economic challenges and repeated COVID outbreaks in China are not only causing significant impact on our advertising industry in the short-term, but also will be a lasting impact in the next one to two years. We’ve noticed that the ad budgeting and shrinking advertisers have become more conscious when thinking about investing in brand advertising. And emerging industries are also struggling. So, all of these factors are actually [Indecipherable]. At the same time, we’ve also noticed that the platform with high user value and high conversion efficiencies will stand out. However, it will still be tougher to do business, especially in ad business, if we are comparing to 2021 or prior years.

[Foreign Speech] Within this challenging macro environment for Bilibili’s ad business in the second quarter, we grew our business 10% year-over-year. We are one of very few names that achieved year-on-year growth in advertising sector and also achieved a market share gain.

[Foreign Speech] What we’ll do to cope with this change? We believe in every crisis lies great opportunity. In the case of [Phonetic] the current challenges and opportunities, we raised our strategy for the next three years, which is growth centered, community prioritized and content ecosystem plus commercialization dual-engine powered. This is the first time we’re putting commercialization and community ecosystem at an equally important position.

[Foreign Speech] We have completely integrated the live broadcasting and video community on organizational structure level and achieved live broadcasting plus video all in one structure. This helped us to create a closed loop ad in multi scenarios. At the same time, we further integrate our commercialization system with our content ecosystem, namely we created two middle platforms, plus two business center structures.

[Foreign Speech] Two middle platforms, two business centers, one is a large middle platform serving all commercialization efforts with the goal of improving traffic-linked monetization efficiency. This will be the infrastructure of our ad business and will also empower many income business segments. Another one is a smaller middle platform. Its main purpose is to serve and help our content creator to increase their earning power and improve their overall earning experience. And the two products will be, investors [Indecipherable] Sparkle ad platform and the live video e-commerce product.

And the above-mentioned adjustment will help our team found together on a strategic thinking and execution level to create a barrier-free self reinforcing and the positive cycle that stimulates our content ecosystem, user growth and business growth.

[Foreign Speech] Our advertising methods will be further [Indecipherable] in the second half of this year. But the two following things will remain unchanged, one is focus on the infrastructure. Strengthen this construction of our algorithm and data power, optimize the realization of different scenarios and help improve efficiency of our products. We’ll also look to build a scientific marketing system that’s based on data construction. And the second thing remain unchanged is to provide a well-rounded one-stop solutions for industry verticals such as games, e-commerce, FMCG and automotive industries and etc, so that’s the key accounts and industry, different industry budgets we can fully absorb.

[Foreign Speech] To see the trend for the second half revenue trajectories, we do expect that the overall app grossing will grow about 20% year-over-year in the third quarter, thanks to the ad efficiency improvement and the iteration of our integrated marketing solutions. And for the second half of this year, we do notice that the budget from brand advertisers remain largely uncertain due to the macro environment. However, our multi-scenario ad approaches, including the Story Mode ad, transaction-based ads will help us to gain new market share.

[Foreign Speech] In Q3, we are looking to further open our ecosystem with our industry partners. We have already established initial partnerships with e-commerce platforms like Taobao, Tmall, Jingdong and Pinduoduo, and we’ll make active trial in models like making sales recommendation in our native ads and transaction execution. Going forward, we’ll also conduct various collaboration with brand advertisers and consumer goods players.

In the short-term, we believe we can achieve revenue growth driven by products like Sparkle story and project takeoff. In the mid- to longer-term, the above-mentioned collaboration will help us to establish a commercial environment and build user consumption behavior we believe we wanted to. This can help us to create ever-growing commercialization environment within our ever-growing content ecosystem.

[Foreign Speech] From an industry perspective, we will remain our edge in leading verticals such as games, 3C and digital products for the beverage, skincare and cosmetics, among which we believe we have standout in the mobile games, automotive and digital products. We’ve seen that in the first half of this year, our mobile games — ad revenue from mobile games sector were near 90% year-over-year and ad revenue from automotive industry grew over 110% year-over-year.

[Foreign Speech] You mentioned about the Story Mode. Indeed, it’s a new ad scenario. And it’s incremental traffic growth for our company. And we’ve also witnessed that the eCPM for Story Mode ads is also much higher compared to the traditional text and picture-based ads. This will help us to grow our advertising revenue in the short-term. But if we look at a longer period of time from 2023 to 2024, ’25, the ad business growth will largely depend on our ability to build a well-rounded ecosystem that’s ecosystem-based, industrialized integrated marketing solution.

[Foreign Speech] Under the current challenging macro environment, we still hope and believe our ad revenue growth can be as healthy and as sustainable as our user and community growth. We are also confident to deliver and achieve win-win situation with our business partners. Thank you.

Operator

Thank you. And that concludes the question-and-answer session. I’d now like to turn the conference back to management for any additional or closing comments.

Juliet Yang — Executive Director, Investor Relations

Thank you once again for joining us today. If you have further questions, please contact me, Juliet Yang, Bilibili Executive IR Director, or TPG Investor Relations. Our contact information for IR both in China and in the US can be found in today’s press release. Thank you.

Operator

[Operator Closing Remarks]