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Bilibili Inc. (BILI) Q3 2020 Earnings Call Transcript

BILI Earnings Call - Final Transcript

Bilibili Inc. (NASDAQ: BILI) Q3 2020 earnings call dated Nov. 18, 2020

Corporate Participants:

Juliet Yang — Senior Director of Investor Relations

Xin Fan — Chief Financial Officer

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

Ni Li — Vice Chairman of the Board of Directors and Chief Operating Officer

Analysts:

Alex Yao — JPMorgan Chase & Co. — Analyst

Yiwen Zhang — Citigroup — Analyst

Binnie Wong — HSBC — Analyst

Alex Poon — Morgan Stanley — Analyst

Lei Zhang — Bank of America Merrill Lynch — Analyst

Presentation:

Operator

Good day and welcome to the Bilibili 2020 Third Quarter Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Juliet Yang, Senior Director of Investor Relations. Please go ahead.

Juliet Yang — Senior Director of Investor Relations

Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the company’s future performance and are intended to qualify for the Safe Harbor from liability as established by the US Private Security Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company’s control and could cause actual results to differ materially from those mentioned in today’s press release and this discussion. A general discussion of the risk factors that could affect Bilibili’s business and financial results is included in certain filings of the company with the Security and Exchange Commission. The company does not undertake any obligation to update forward-looking information except as required by law.

During today’s call management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2020 third quarter financial results news release 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 Investor Relations website at ir.bilibili.com.

Joining us today on the call from Bilibili’s senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Lee, Vice Chairwoman of the Board and Chief Operating Officer; and Mr. Sam Fan, Chief Financial Officer.

And I will 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 2020 third quarter conference call. I’m pleased to deliver today’s opening remarks on behalf of Mr. Chen. We see a golden opportunity to expand our reach in today’s market. To seize this window, we stepped up our approach to user growth, with a focus on further growing our content, expanding our brand awareness and targeted channel acquisition. This was especially fruitful in our third quarter peak season. As a result, our user base hit a record high. In August, our MAUs exceeded 200 million milestone, marking a new monthly record. Total MAUs for the third quarter were up 54% to 197 million, and DAUs were up 42% to 53 million, both on a year-over-year basis. Mobile users also continued to grow at a faster pace. Mobile MAUs were up 61% year-over-year to 184 million in the third quarter. Our users are highly engaged, spending an average of 81 minutes per day on our platform, making Bilibili one of the stickiest video communities in China.

The quality growth of our users is not only reflecting the high engagement levels, but also in the paying user conversions. MPUs were up 89% year-over-year, reaching 15 million in the third quarter, and our paying ratio improved to 7.6% from 6.2% in the same period last year. These increases drove our top line expansion in the third quarter, revenues reached another record high of RMB3.2 billion, up 74% year-over-year. While we grew our top line, we also improved our gross margin. Gross margin was 23.6% in the third quarter, up from 18.9% in Q3 last year, and we are gaining even more operating leverage.

While Bilibili have become a household name among young generations, there are large groups of potential users who are just beginning to learn about us. The Gen Z community acts as our anchor as we begin to cast an even wider net. Today we are gaining traction with more diverse demographics than ever before. Marketing campaigns such as our newly introduced slogan Bilibili – All the Videos You Like has helped us to define and promote our appeal to mass audiences. During the third quarter, we launched a series of online and offline campaigns to promote our brand proposition to an even broader audience across different demographics. This strategy is working, and we’re carrying these efforts into the fourth quarter.

Our industry partnerships are also strengthening our content offerings and brand. In August, we entered into a five-year business cooperation agreement with Huanxi Media through a strategic equity investment, in which we gain exclusive broadcasting rights to Huanxi’s existing and upcoming high quality movies and TV drama series. We’ve also entered into a three-year exclusive partnership with Riot Games for exclusive live broadcasting rights of the League of Legends World Championship. This has significantly enhanced our position and brand in the important e-sports genre, especially during the S10 this year. And, in October we deepened our partnership with Sony by signing a strategic agreement with its subsidiary Aniplex to bring more premium anime content and mobile games to our users. These expanding alliances not only enrich our content offering, but also demonstrate that both domestic and international industrial leaders have common recognition for our unique value in China’s entertainment market.

While we are working to build our brand and attract more users, increasing demand for high quality video content bode us well to capitalize on the growth prospects. China represents the largest online video population in the world. According to the CNNIC report, by the end of the first half of 2020, near 890 million users in China consumed online content in video format. Faster networks and smarter hardware enable more accessible content creation and consumption. Our experience over the past decade has made us the pioneer of video-lization movement. We are committed to capturing this market opportunity by further executing our growth strategy, which we believe will yield considerable return in the long run.

With that overview, I would now like to provide some more color on our content, community and commercialization activities. I will begin with a review of our content. Our PUGV content ecosystem is the cornerstone of our business and the main engine that powers our growth vehicle. For the third quarter, we had approximately 1.7 million content creators uploading 5.6 million videos per month, representing increases of 51% and 79%, respectively, both year-over-year. We continue to cultivate a nourishing soil to allow content creators to grow and flourish. By promoting originality and ingenuity, our algorithm enabled the highest quality of original content to quickly gain traction and expand its fan base. In the third quarter, the number of videos that achieved 1 million video views increased 73%, and the number of content creators with over 10,000 followers grew 75%, both year-over-year.

Meanwhile, we continue to help our content creators earn better monetary rewards through our cash incentive program and our newly launched advertising platform, Sparkle. The match-making platform is designed to better connect advertisers and content creators and bring more commercial opportunities to our creators by providing a safe and a scalable product for native-ads. Each of these components help us maintain and grow this important PUGV ecosystem.

Our top five verticals in terms of video views in the third quarter were Lifestyle, Game, Entertainment, Anime and Tech & Knowledge. Among those, Tech & Knowledge is emerging as one of the fastest growing sectors. Learning on Bilibili is also trending, so as many curious minds are attracted to our platform looking for informative and educational content. In the past 12 months, there were near 100 million users across different age groups watched knowledge-related videos on Bilibili, making us one of the top learning platforms in China.

While we enhance our content offerings in our leading verticals, we are actively expanding our content reach in new categories. The automotive sector was one of them. In Q3, video views in this genre grew rapidly at 177% year-over-year. This reflects our longevity and staying power with users as they mature. In this case, our core Gen Z users have come to a life-stage for auto consumption. This transition also helped us attract wide demographics and opened new advertising opportunities across broader industry groups.

Turning to our OGV. Our investment in IP content is paying off. With our strong hold in this genre, Bilibili-produced Chinese anime not only attracted massive new users, but also became the most effective driver of premium memberships. This is especially true for our self-produced Chinese anime Carp Reborn Yuan Long, generating 260 million views in just three months since its launch. In September, we were excited to welcome the thrilling TV drama Run for Young [Foreign Speech] to our platform, marking the first TV drama to fall under our collaboration with Huanxi Media. This show was an immediate hit after the release and trended number one on Bilibili’s most searched list for weeks. This show has generated 410 million video views, setting a new record in this category.

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We are also reaching new heights for our documentary and variety shows department. Our very first self-produced music variety show Rap for Youth [Foreign Speech] received outstanding reviews beyond our typical community, generating approximately 410 million video views and 8.2 million bullet chats. The success not only enriched our music category, but also attracted and inspired a great number of musicians and music lovers. Looking at documentaries, we believe our recent agreement with BBC Studios is a strong endorsement of our documentary quality, and will further enhance our content library. Also, building on the success of last year’s gala, we’ll be airing another smashing New Year’s Eve Gala event. We expect this year will bring our community more excitement and joy.

Turning to our community. While our user growth continued to rise, we set a number of new records across our key community metrics. In the third quarter, our daily video views reached 1.3 billion, up 77% year-over-year. Our users generated 5.5 billion monthly interactions through bullet chats, comments, likes and Bilibili moment posts, up 117% year-over year. The number of our official members is also on the rise. At the end of the third quarter, we had 97 million official members who passed our 100-questions exam, up 56% year-over-year. Retention levels also remained strong, well above 80%. With a decade of experience under our belt, we believe our community remain one of our biggest competitive advantages and moats in the evolving online entertainment industry.

Turning to our commercialization progress. The growing traffic on our platform fuels each of our business line as we roll-out more premium content and services to meet our users’ diverse entertainment needs. Our games business; revenue from our mobile games business were RMB1.3 billion, up 37% year-over-year, accounting for 40% of our total revenues. Building on our massive game lovers base, we continued to expand our game offering in diverse genres as we maintained the popularity of our existing titles. Our new blockbuster game Princess Connect [Foreign Speech] continued to resonate with our fans and attract new users. It was another strong testament that our robust distribution and operating capabilities in the ACG genre. In October, we renewed our exclusive FGO license with Aniplex and celebrated the game’s fourth anniversary. Additionally, we launched a few new titles during the third quarter, which included Animistic [Foreign Speech], Zhan Yao Xing [Foreign Speech], and Ash Arms [Foreign Speech], all of which have been well received by our users.

As for our game pipeline, we have 10 titles in diverse genres that have acquired approvals and are ready to be released in the coming quarters. Next in queue is Sword Art Online: Integral Factor [Foreign Speech], an exciting MMORPG, planned for launch at the beginning of 2021.

Looking at our jointly-operated games, we continue to work with leading game developers to bring our users premium titles. Our solid reputation, strong game operation capabilities and high-density gamer demographic have made Bilibili the goto platform for joint operating partners. In September, as its main Android partner in China, we began jointly operating the highly anticipated Genshin Impact [Foreign Speech]. The massive success of Genshin Impact under our operations is another feather in our cap. Other near-term joint titles include a plan to distribute NetEase’s Harry Potter.

Turning to our VAS business. Revenue from VAS increased by 116% year-over-year reaching RMB980 million in the third quarter. Our growth was mainly driven by increased contribution from premium memberships, live broadcasting and other value-added services. As our brand name continue to spread, we are attracting business partners and livebroadcasting hosts, and adding new and diverse content to our growing library. Esports is a prime example. Our League of Legends World Championship live broadcasting right has secured an important place for Bilibili in the thriving esports genre. As we showcase our capabilities, more esports hosts and lovers are turning to Bilibili’s immersive live broadcasting experience. For the entire S10 Championship season, total live-broadcasting page views related to the game increased by over 300% compared with S9 last year.

We are pleased to see our users’ growing willingness to pay for advance or exclusive access to our OGV content. By the end of the third quarter, we had 12.8 million premium members, up 110% year-over-year. As we roll-out more exciting content, we are confident we can continue converting more paying subscribers.

Finally, our advertising business. Despite challenging macro environment, we delivered another accelerated growth in our adverting business. Revenues from the segment reached RMB558 million, up 126% year-over-year. Our efforts to spread our brand name not only attracted wider user groups but also impressed many new business partners. Advertisers across different industries are turning to Bilibili to tap into the coveted young demographic. Our top five leading verticals in the third quarter were e-commerce, food & beverage, games, 3C products, and automotive.

In summary, we are on an excellent growth trajectory. With solid execution of our user growth initiatives, we continue to improve our brand equity and reach new heights across key user metrics. The industry’s trend toward video-lization is working strongly in our favor as we provide the most unique community experience to both content creators and users. Capitalizing on this momentum, we aim to further grow our brand, enrich our content offerings and unleash the great potential of our expanding online entertainment ecosystem.

This concludes Mr. Chen’s remarks. I will now provide a brief overview of our financial results for the third quarter of 2020.

Our total net revenues increased by 74% year-over-year to RMB3.2 billion, exceeding the high end of our guidance. With our non-games accounting for 60% of the revenues, we are pleased with the commercialization progress of our non-game offerings and our ability to convert our online traffic into paying users. The average number of monthly paying users increased by 89% year-over-year, reaching 15 million in the third quarter.

Cost of revenues increased by 63% year-over-year to RMB2.5 billion. Revenuesharing cost, a key component of cost of revenues were RMB1.2 billion, a 77% increase from the same period in 2019. Gross profit increased by 117% year-over year to RMB762 million.

We’re seeing more operating leverage from our diversified revenue streams. With more revenue contribution from our higher margin businesses, as well as additional income from paying users, our gross profit margin continued to improve, reaching 23.6% in the third quarter.

Total operating expenses increased to RMB1.8 billion, up 138% from the same period of 2019. Selling and marketing expenses were RMB1.2 billion, representing a 227% increase year-over-year. The increase was primarily attributable to the increased channel and marketing expenses associated with our app and brand, as well as increased expenses for our mobile games and sales and marketing personnel. Building our brand and appeal among a broader audience is one of our key initiatives in 2020. This strategy is affording us far reaching market gains that we think will have long-term effects. We plan to continue building on this momentum to further strengthen and expand our virtuous growth cycle.

G&A expenses were RMB253 million, representing a 55% increase year-over-year. The increase was primarily due to increased headcount in general and administrative personnel and increased share-based compensation expenses. R&D expenses were RMB401 million, representing a 62% increase year-over-year. The increase was primarily due to increased headcount in research and development personnel.

Net loss was RMB1.1 billion for the third quarter of 2020, compared to RMB406 million in the same period of 2019. Adjusted net loss, which is a non-GAAP measure that excludes the share-based compensation expenses and amortization expense related to intangible assets acquired through business acquisitions was RMB990 million, compared to RMB343 million in the same period of 2019. Basic and diluted net loss per share were RMB3.08. Adjusted basic and diluted net loss per share were RMB2.76.

As of September 30, 2020, we had cash and cash equivalents, time deposits, as well as short-term investments of RMB14.1 billion or $2.1 billion, compared to RMB8.1 billion as of December 31, 2019. Our monetization capabilities continue to improve as we leverage our growing traffic base of users across an increasingly broad spectrum of demographics. We’ll also continue to roll-out more premium content and services to convert more paying users. We believe that over the longer term, these monetization efforts, high paying user conversion rates and scale will yield an improved bottom line.

With that in mind, we are currently projecting net revenues for the fourth quarter of 2020 to be between RMB3.6 billion and RMB3.7 billion.

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

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] For the benefit of all participants in today’s call, if you wish to ask your questions to management in Chinese, please immediately repeat your question in English. Your first question on queue comes from the line of Daniel Chen from JPMorgan. Daniel, please ask your question. Your line is now open.

Alex Yao — JPMorgan Chase & Co. — Analyst

Hi, this is Alex from JPMorgan. I have a question regarding the user growth and the user profile of the newly added users. So you guys have been continuing delivering very strong user growth in the past several quarters. Can you talk about the typical new user profile that you guys have acquired in the recent quarters and what exactly is the value that you offer to these guys to drive the user growth. Also lastly, what is the user growth outlook into the next one to two quarters. [Foreign Speech]

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

[Foreign Speech] So Mr. Rui Chen said the profile of the new users actually hasn’t changed much compared to historical data. The average age of our users is about 21 years old and the average age for the newcomers is about 20 years old. We see a very balanced geographic mix rate, about 50% of the user coming from third tier city and below. And notably we have seen that the users above 30 is actually gradually increasing its contribution year-over-year.

[Foreign Speech] With all these things attracting our users from our content, the reason why user come to Bilibili is that they can find what they like — the type of content they like on Bilibili. For example, animation needed to gain digital content, etc. So based on the datas, we have been experiencing very fast user growth. On the quality side, we’ve also maintained a very high quality of growth based on the user retention there, engagement, also the paying conversion rate. We are quite happy and satisfied with our high quality growth.

[Foreign Speech] So because we have a very healthy self sustaining ecosystem, which is our massive content, creator is continuously creating high quality content. We are quite optimistic about the user growth trend as we look into the future and also video-lization is an inevitable trend that Bilibili as a pioneer in the video community industry, we are quite confident we will continue to deliver good high quality growth.

[Foreign Speech] So mid last year, we have set a new user target, which is to reach 180 million for 2020 and 220 million for 2021, as we have already achieved this year’s user target and we are also confident to achieve next year’s user target in advance and we are likely to set-up a refresh our new user target beginning of next year.

Alex Yao — JPMorgan Chase & Co. — Analyst

[Foreign Speech]

Operator

Your next question comes from the line of Yiwen Zhang from Citi. Yiwen, please ask your question. Your line is now open.

Yiwen Zhang — Citigroup — Analyst

[Foreign Speech] So thanks management for taking my questions. So I have two questions regarding content ecosystems. So, historically, Bilibili has a focus on documentary on access to genre series and the movie. Now increasingly, we see some premium content coming out, for example, [Indecipherable] variety show and also in [Indecipherable] the drama series, also F tournament for the E-sports contents. Can you share your thoughts on premium OGV and non-media under what law do they play into our ecosystem?

And secondly, so if we take a step back, let’s say the broad industry, for short video is 100% compute you see where [Indecipherable] media the majority productivity are coming from licensed content. So how do you see the middle media if we expand our user base to a much bigger level in terms of Bilibili, what ratio to think that would be between PUGV and OGV? And what are the implications for content? Thank you.

Ni Li — Vice Chairman of the Board of Directors and Chief Operating Officer

[Foreign Speech] So before we get into the strategy of our OGV business, I want to re-emphasize video as Bilibili’s core business, which includes PUGV, OGV, and live broadcasting. And the brand upgrade that we’ve been focusing on this year is proposing all the videos you like, which actually includes short-form video, long-form video and mid-form video, and will continue to cultivate and reinforce content offering new video services based on users’ needs and we’ll also continue to invest in our OGV content.

[Foreign Speech] So I would also like to emphasize that our PUGV content creator ecosystem remains the core of our business. And from the engagement level and our active content creator and content submission, all these key datas continues to show that we have a very strong position in the PUGV ecosystem. And the PUGV component will be Bilibili’s unique advantage in running our OGV business and as we look into the future more further to integrate our OGV content ecosystem with our PUGV content ecosystem.

[Foreign Speech] So for the OGV strategy, going forward, we’ll continue to focus on self-produced self-publishing and will be on quality-driven, IP-driven and will also serve our content ecosystem. We hope that Bilibili produced will be a label for high quality content. And at the same time, we’ll be focusing on improving our ROI and paying conversion.

[Foreign Speech] So Bilibili started to get into the self-produced Chinese anime back in 2017. And in 2018, we started getting to the documentary self-production, in 2019 into variety show self-production and for this year, we are making a few attempts into the real person TV and movies for the internet users. And we have already formed a very integrated methodology to how to get into certain verticals. As for now, Bilibili has already become the go-to platform for animation and documentary and user already have the perception that Bilibili has the best in these categories. And for this year our attempt in the TV, movie and variety shows for example, Run for Young and Rap for Youth has generated a very good feedback among our users and received very high ratings across all platforms. And this has been show marked for our attempt in tap into new content categories. For those content, the revenue from the premium membership as well as the revenue from sponsorship and advertisement and actually, the revenue has already exceeded our expectation. We are quite confident to continue to try out more new content offerings in those categories.

[Foreign Speech] The value for OGV for Bilibili, I believe that there are several factors. One is premium memberships, advertising revenue, new user attraction, and the add-on value for our PUGV ecosystem as well as IP generation. And in the short-term, we think we have already formed a virtuous cycle where the premium membership revenue and ad revenue has pretty much covered our OGV content cost. And our first three quarters this year, operating cash flow for the first three quarters for this year is positive. And as for our membership, we have achieved outstanding results. At the end of third quarter, we have 12.8 million paying member premium membership, which grow 110% year-over-year and the quality of those members are also high. About 80% of them have signed at the annual membership or automatic renewal membership. As for the sponsorship and advertising revenue associated with our OGV business grew 230% year-over-year. All of our key project has become a very valuable advertising outlet source for all advertisers. So in summary, we believe the OGV has very important strategic role in our business.

[Foreign Speech] So the OGV’s high quality content actually served very, very well for our user growth. And for example, the Carp Reborn the Chinese anime, and Run for Young of this latest high quality OGV content has been attracted a lot of new user coming on to Bilibili. And once they join Bilibili, the majority of them say on Bilibili to consume more PUGV content. And actually the new users that were attracted by those OGV their retention is quite good.

[Foreign Speech] As for the variety shows, Rap for Youth has been quite successful attempt for Bilibili, despite music variety shows or specifically Rap related variety show have been around the industry and there seem precedent, but we are still to make a new breakthrough in these verticals. And our PUGV content ecosystem continue to reinforce the effect and influences which show a lot of the derivative content were produced by our content creator. The overall video views related to the derivative content has reached a mere 300 million, which also helped us to further expand into the music category by attracting a lot of music lover or musician to join Bilibili. And also for this show, we also generated quite decent sponsorship revenue and advertising revenue. And because we have an integrated product chain on Bilibili, we continue to extend the IP’s value by launching new music label waves and long chain series of offline concerts relating to the show. So on Bilibili we’re able to further extend and enhance the value of the IP.

[Foreign Speech] So to summarize, we believe the value of the IP can be further enlarged on Bilibili’s ecosystem, which includes game, anime, TV movies, merchandise and multiple offline events. And going forward, we are looking to further integrate our PUGV and OGV content ecosystem.

Operator

Your next question in queue comes from the line of Binnie Wong from HSBC. Binnie, please ask your question. Your line is now open.

Binnie Wong — HSBC — Analyst

[Foreign Speech] First of all, congrats on the amazing set of result and also strong outlook. It was, I think the midpoint is ahead by 12%. Wondering, if you can comment a bit on the competitive landscape. Very impressive to see on amortization, advertising, live streaming or continue triple digit growth. And if we look at engagement here, it seems to retreat a bit, right. If you look at the time spent, 3Q is a slight decline, but videos usually is the strongest in the past years and DAU, MAU ratio also come down to 27%.

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So anything that we should be aware of structurally and how do we see the competitive landscape among the different entertainment platform evolves? And especially as we see some of your short video and live streaming players are also very aggressive in growing the advertising business in particular. So how do you see that evolve? I understand that we have a very strong ecosystem here, I just want to hear a bit more into how you see as these players getting more aggressive, more capital and then how will you see it? Thank you so much. [Foreign Speech]

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

[Foreign Speech] So for the user engagement metrics, we are actually seeing a quite positive metrics from the time spent, which is 81 minutes in Q3 compared to 79 minutes in Q2 this year and overall community engagement improved to 5.4 billion times versus 5.2 billion in Q2. And also the metrics from video use per user per daily is also improving. So, in general, we are still carrying out this high-quality user growth momentum in the third quarter.

As for the competitive landscape, in the video business, the competitive landscape has always been fierce, whether as competition between A, B, C or TV app. Bilibili has announced for many years we have witnessed many player come and go. And most importantly, we believe the trend of utilization represents a huge market opportunity for the entire Internet services industry. And as a pioneer in this space, Bilibili is well positioned to capturing this market opportunity.

[Foreign Speech] As for the advertising business, we believe the advertising value for certain platform actually is a reflection of the user’s value. So on Bilibili, we have captured the best set of users in terms of time spent in terms of user engagement, as well as the user cohort. So that’s been backing up our advertising revenue growth. At the same time, we continue to improve our advertising efficiencies, launching innovative ad product that’s also helping to re-accelerate our ad revenue. And as our brand perception and brand power continue to increase, Bilibili has now became a must invest platform across many advertisers.

Binnie Wong — HSBC — Analyst

[Foreign Speech]

Operator

Your next question comes from the line of Alex Poon from Morgan Stanley. Alex, please ask your question. Your line is now open.

Alex Poon — Morgan Stanley — Analyst

[Foreign Speech] I will translate my question. So my question is regarding advertising business. We have seen year-over-year acceleration for a couple of quarters already. Can you share the drivers behind the strong growth and what’s the outlook for Q4 and 2021? Thank you very much.

Ni Li — Vice Chairman of the Board of Directors and Chief Operating Officer

[Foreign Speech] As Rui mentioned earlier, there are a lot of fundamental changes behind our advertising revenue. So first of all, Bilibili’s user continue to deliver a high-quality growth. On Bilibili, there are about half of the young generation in China has been active on Bilibili, which is the golden cohort for brand advertisers. And also the brand advertisers are able to be their brand production and influence user buying decision on Bilibili. And we have more and more high-quality content continue to reaching mass market audiences, which allows Bilibili to become the must invest the go-to-platform for advertisers. And we continue to improve our advertising efficiencies as we continue to enhance our data center platform to better support our commercialization efforts and we’ll continue to roll-out more innovative ad formats and ad products. So despite the challenging macro environment as more people think it’s getting more and more tougher in the advertisement business, Bilibili are able to deliver accelerated advertisement revenue for five consecutive quarters.

[Foreign Speech] As we look into 2021, we will continue to improve our overall integrated marketing capability to launch standardized and scalable integrated marketing solutions and we’ll continue to improve our ad efficiency on single users and focusing on improving the ad efficiencies for vertical players continue to improve our service quality for different advertisement verticals. And we’ll also continue to launch innovated scenario-based commercialization method, which includes multi-scenario multi-screen solution. So as for the 2020, we believe our advertising value has been widely recognized by our advertisers. As we look into 2021, we’re quite confident to continue to carry out this positive growth momentum.

Operator

Your next question comes from the line of Lei Zhang from Bank of America Securities. Lei, please go ahead and ask your question.

Lei Zhang — Bank of America Merrill Lynch — Analyst

[Foreign Speech] Thanks, management and congrats on strong results. Two questions, first on sales and marketing. Can you give us some breakdown for sales and marketing in Q3? And what are the trends in the next one to two quarters? And secondly, I want to follow-up on the competitive landscape. Do you observe the short-video platform actually allocate relatively higher percentage on mini video parts and any updates you can share with us? Thank you.

Xin Fan — Chief Financial Officer

Okay. Let me take your first question. First of all, we have RMB14 billion on the cash reserves and we also achieved like positive operating cash flow in the first nine months of 2020. So we have very sufficient cash reserves that will support our investment in the different areas. As we mentioned before, we pay close attention to the ROI, our investment in selling and marketing, in terms of the – for example, the cost per activation, and their conversion and retention. When the time is more ripe, we will keep doing investments. In Q3 everyone knows that the season to acquire users, so we targeted to invest in user acquisition through different channels including the App Store, the video app channel and the OTT channels. We are also investing in grand advertisement to promote our new Bilibili videos live. And we also attend and organize offline ACG related events in different cities during this summer.

As a result, you all recall that MAU grow like 25 million quarter-over-quarter and also MAUs surpassed 200 million. As mentioned by Carly, we see very good return on the membership conversion and advertising [Technical Issues], generally feeling for the MAU addition. But we will not spend that much. So in terms of the total selling and marketing percentage of total revenues will be lower than compared with [Indecipherable]. And we are really stay focused on user retention and the paying user conversion in Q4.

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

[Foreign Speech] So as for your second question, I wonder the concept of mid-form video because we don’t believe user choose to consume video content based on the content of the video, but rather on the quality of the video. It’s very easy to change the length of the video, but it’s very difficult to create the high-quality content that users like. So whether it’s long form or short form is probably a scenario base, but it shouldn’t be a format or product concept.

[Foreign Speech] So as for Bilibili, we offer video length range from dozen seconds to few hours and each type of video has different audiences. And for different content categories, the length also varies. For example, the music category majority of the video is less than 10 minutes. And for games and lifestyle, it could up to hours. So we don’t think it’s a concept of the length, it’s actually the concept of the content. And at Bilibili, we are a more comprehensive general content platform.

[Foreign Speech] So in the past couple of years, we’ve seen products that’s focusing on providing maturity short form videos. And they’ve experienced quite decent growth rates, but at the same time Bilibili is also continue to deliver high quality fast growth. So we believe any product that provides the content that fits users’ needs that caters to users’ interests, and preferences can win over their time.

[Foreign Speech] In the past 11 years, Bilibili has always been focused on the content ecosystem driven business model and to satisfy users’ interests and need for high quality content and this model is proven successful for us.

[Foreign Speech] So as a comprehensive video community, Bilibili, actually, we believe represents the future of video product, which we believe will be only scenario and multi-screen.

Operator

So that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

Juliet Yang — Senior Director of Investor Relations

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

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