Bilibili Inc-class Z Stock

Good day, and welcome to the Bilibili's Second Quarter 2026 Financial Results and Business Update Conference Call. Today's conference is being recorded.

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

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 filings with the SEC and Hong Kong Stock Exchange.

The non-GAAP financial measure will provide are for comparison purpose only. The definition of this measure and the 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 the Bilibili IR website at ir.bilibili.com.

Joining us today from Bilibili 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. Sam Fan, Chief Financial Officer.

I will now turn the call to Mr. Chen.

Thank you, Juliet, and thank you to everyone joining us today. Our strong momentum carried into the second quarter, and we delivered another set of solid results. Both our community and top line growth remained healthy and profitability continued to expand. As users increasingly seek substance over noise, our high-quality content and authentic community experience keep attracting new users and driving deeper engagement.

In Q2, DAUs increased by 7% year-over-year to 117 million, while MAUs grew to 371 million. Average daily time spend rose to 113 minutes from 105 minutes a year ago, which drove total time spent of over 14%. That engagement is translating into stronger commercial results. Advertising revenue grew 28% year-over-year, marking another quarter of industry-leading growth. Meanwhile, MPUs increased 7% year-over-year to 33.4 million, reflecting users increasing willingness to pay for the content and community experiences they truly value.

You can also see that momentum in our financial results. Total revenues for Q2 rose 8% to RMB 7.9 billion, and gross profit grew 10% year-over-year. Gross margin expanded to 37.2%, marking our 16th consecutive quarter of margin improvement. Our top line growth and increased operating leverage drove our net profit up 55% year-over-year, and our adjusted net profit reached RMB 704 million, with our adjusted net profit margin expanding to 8.9%.

In the AI era, we see two major tailwinds. First, AI tools help our creators produce great content much faster, while AI and powered content understanding is making our recommendation far more efficient. Second, and perhaps more importantly, in a world full of passive algorithmic content, rail human connection becomes a rare commodity. People choose Bilibili because they want meaningful content, share interest and genuine interaction, and that makes our community even more attractive. That is why we remain committed to our AI strategy while staying highly disciplined in how we invest.

We'll use AI to improve content and efficiency without losing sight of our community routes, and unique advantage. Strengthening this flywheel of community and monetization will continue to build lasting, compounding value for our users, our creators and our shareholders.

With that, let me walk you through our core pillars of content, community and commercialization. Let's start with our content. Across our 17-year history, various content formats have come and gone, but Bilibili's distinct blend of quality content and vibrant interest-driven communities continues to capture users' intentional high-value time. In Q2, total time spent on our platform expanded by 14% year-over-year. Notably, watch time from videos over 5 minutes grew by 18% year-over-year, demonstrating users growing demand for meaningful and high-quality content.

Turning to our interest-based content categories. We're seeing steady growth across both core and emerging hub. Total watch time for game-related content and general entertainment content increased by 20% and 35% year-over-year, respectively. Baby and maternity also grew by 36% year-over-year, as more of our users step into parenthood. At the same time, AI tools are expanding creative boundaries across our platform.

For instance, watch time for music content grew 24% year-over-year, catalyzed by AIGC-driven creation. Beyond content consumption, AI is also supercharging creator output. In Q2, daily video submissions jumped by 28% compared to the same period last year. Video podcasts offer another compelling example of our users embracing immersive content.

Last month, average daily watch time for video podcast exceeded 100 million minutes. This remarkable engagement shows that even in today's world of fast-paced content, there is still a huge and growing appetite for in-depth storytelling. Behind these figures, empowering creators remains a top priority. Through refined algorithms, we now match quality content with interested users much earlier.

In Q2, the number of creators with over 1,000 followers grew by 30% year-over-year. The diverse monetization channels we provide also helped average creator income increased by 21% year-over-year in the second quarter.

Turning to our community. As we touched on earlier, authentic human connection has become rare and valuable in the era of automated bite-size content. That is why Bilibili's interactive community feels like a true oasis in today's digital world. Here, hundreds of millions of users connect over shared passions, expressing their feelings through comments and bullet chats to find a genuine sense of belonging.

In Q2, monthly interactions grew 9% year-over-year to $17.4 billion, while deeper connections like long comments jumped over 67%. Meanwhile, by processing these rich user interactions, our algorithms can spot and elevate high-quality content much faster, driving healthy, steady growth in both our user base and time spent. This level of engagement and interaction naturally keeps users coming back and expands our network of trust.

In Q2, the average active user followed 96 creators, up 11% from a year ago. By the end of Q2, our official members reached 299 million with 12-month retention remaining solid at around 80%. Ultimately, our community doesn't just surface the best content, it builds lasting user loyalty and drives enduring platform value. This summer, we brought our community off-line once again through our signature events, Bilibili World and Bilibili Macro Link. Over the 3-day event, more than 400,000 fans gathered in person in Shanghai, making it one of the largest off-line ACG expos in China and a vibrant new cultural landmark for the city.

Seeing so many young people come together to share their passion was a powerful reminder of what community means. This is what Bilibili looks like offscreen, authentic, energetic and deeply connected. Now let's turn to our commercial businesses, beginning with advertising.

In Q2, advertising revenue increased by 28% year-over-year to RMB 3.1 billion, marking our 14th straight quarter of 20% year-over-year growth. This industry-leading growth reflects our high-value, deeply engaged user base, alongside ongoing enhancements to our ad products and technical infrastructure. Growth was broad-based across industries, games, digital products and home appliances, Internet services, e-commerce and automotive were our 5 largest advertising verticals in Q2, while our core gaming vertical maintained healthy growth new verticals are also flourishing as our users mature into new life stages with expanding consumption needs.

Ad revenues from home decoration, footwear and apparel and automotive each grew more than 60% year-over-year. We also captured incremental budget from emerging industries. AI advertisers continue to scale and revenues from this vertical more than doubled year-over-year, driving sustained growth in Internet services. Our ads are also becoming more efficient by deepening our understanding of product information, creative assets, user interest and conversion goals, AI helps us deliver more relevant ads and drive better conversion.

Our CTCVR continued to improve, increasing 19% year-over-year in Q2. Beyond matching, we are extending AI across creative production and campaign operations, from AIGC tools to ad placement AI agents, making advertising easier and more efficient for a broader range of clients. We are also extending monetization into deeper high-intent user scenarios.

Take search, for example, a high-value scenario sitting right at the moment of decision making -- revenue doubled year-over-year in Q2. At the same time, we are unlocking growth across additional scenarios, including PC, smart TV and the watch page. As monetization expands across the entire user journey, we see vast commercial potential ahead.

Turning to our games business. Game revenues for the quarter were RMB 1.4 billion, down 14% year-over-year, mainly due to the [indiscernible set last year. latest second anniversary season 15 went well with players, ranking #2 on China's iOS top grossing chart. We'll keep focusing on the game's long-term life cycle by delivering fresh content and carefully balancing user experience with monetization.

Meanwhile, our legacy titles, including SGO and Azure Land continued to deliver stable performance during the quarter. In July, we officially launched our casual card game [indiscernible] We continue to refine the game and enrich its gameplay while approaching user acquisition with a long-term focus on ROI and retention.

Looking at the second half of 2026, our self-developed simulation game, Lumi Master, Lumi, was well received by global players in recent tests. Building on this encouraging reception, we plan to launch the game on September 17 globally. [indiscernible] our new licensed SLG title, is scheduled to roll out in Q4, complementing Sonmol with a differentiated gameplay experience.

Beyond Lumi and San Guo, we also introduced three new titles at Bilibili World, including two licensed games, Online 3, [indiscernible] and MMORPG based on a globally recognized IP that has already secured its publication license; and misfound card game, he got a Hayes, which is adapted from another well-known IP.

We also announced a new self-developed tactical RPG, the ravages of time, all three titles will be released next year. Together, these titles expand our pipeline across genres and development models while attracting new player segments.

Turning to our VAS business. In Q2, VAS revenues grew 5% year-over-year to RMB 3.0 billion. Our live broadcasting business maintained its steady performance, and we continue to refine our operations to ensure stable and sustainable growth with better margins.

At the end of Q2, premium members reached 25.7 million up 9% year-over-year with around 80% on annual or auto renewal plans. Fan charging also kept its momentum with revenue up nearly 50% year-over-year. Band charging turns audience appreciation into direct financial support to creators across a wide range of categories can do what they love and produce quality content over the long term.

Beyond the numbers, we remain deeply committed to shaping a healthy culture and community for China's young generation. principles are central to that mission.

This year, MSCI ESG upgraded Bilibili to an AA rating from an A rating, recognizing our ongoing progress in using technology and culture to create meaningful social impact. At the end of the day, we found that across every technological shift, one thing remains constant, people create rich, meaningful content and real human connection. Bilibili is uniquely built at the intersection of both. As AI enables us to fulfill this mission with greater precision and scale, I couldn't be more confident in our path ahead.

With that, I will turn the call over to Sam to walk through our financials in more detail. Sam?

Thank you, Mr. Chen, and hello, everyone. In the interest of time on today's call, I will focus on our second quarter financial highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. Total revenues for the second quarter were RMB 7.9 billion, up 8% year-over-year. The breakdown of total revenues by revenue stream was approximately 39% advertising, 37% VAS, 18% mobile games and 6% from our IP derivatives and other businesses.

Cost of revenues increased by 7% year-over-year to RMB 5.0 billion. Gross profit increased around 10% year-over-year to RMB 3.0 billion, while gross margin expanded to 37.2% from 36.5% in the same period last year, marking our 16th consecutive quarter of margin improvement.

Our total operating expenses were up 7% year-over-year to RMB 2.6 billion. Sales and marketing expenses increased by 1% year-over-year. G&A expenses were flat and R&D expenses increased by 16%, primarily due to continued investment in our AI capabilities.

Operating profit increased 48% year-over-year to RMB 373 million, while adjusted operating profit increased 21% to RMB 696 million, lifting adjusted operating profit margin to 8.8% from 7.8% in the same period last year.

Net profit increased by 55% year-over-year to RMB 339 million, while adjusted net profit increased 25% to RMB 704 million and adjusted net profit margin reached 8.9%. As of June 30, 2026, we had cash and cash equivalents time deposits and short-term investments of RMB 24.3 billion or USD 3.6 billion.

In June, our Board approved a new 2-year USD 300 million share repurchase program. Under this new program, a total of 1.9 million shares have been purchased for a total cost of USD 31 million as of June 30, 2026. From the beginning of the year through today, a total of 5.8 million shares have been purchased for a total cost of USD 118 million.

Moving forward, we will continue to evaluate market conditions and execute our repurchase program accordingly to enhance long-term shareholder value.

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

[Operator Instructions] And now we're going to take our first question, and the question comes from line of Lincoln Kong from Goldman Sachs.

[Foreign Language] Congrats a very solid quarter. So looking back over the past few years, short form content has surged, while the average length of the long-form video has also steadily decreased. But B2B has sustained a very healthy growth throughout this dynamic period. So what's driving this resilience? And looking ahead to the AI era, how do we expect the user preference and the consumption habits to evolve over time?

[Foreign Language]

[Interpreted] Actually, over the past few years, you see explosive growth for both short-form content and long-form content. And the shorter form content grow much faster. And looking at Bilibili, we're not choosing the lens of the content to be focused on, but rather, we are focusing on good content, high-quality content. And naturally, for those high-quality content, they are generally more inclined to be in a format of long form -- mid- to long-form.

Well, we believe whether it's -- whether the length of the content on the device of the consumption scenario, the ultimate go from users as everyone wants to watch good content.

Well, over the past year, we do see exponential supply growth for short video content. Over time, as people are used to have watched enough low-quality in content, they naturally develop a taste for high-quality content. They are no longer satisfied with the content that just grab their attention for one second. They care more and more about with the time they spend on the content is actually worth it. And that is exactly why Bilibili has been able to keep growing in the past few years.

We have been focusing on providing a high-quality content that is interesting in depth and really connect with user emotionally. And that's why users are willing to slow down and spend there about intentional time on Bilibili.

The reason why Bilibili are able to cause some -- create high quality content for a few reasons. One is we have amassed a very talented group of content creator who believes in the community, who believes in the Bilibili platform. Secondly, as over the past decade, we have viewed a very engaging community with a lot of user who truly appreciate high-quality content, they have the view of what is good, high-quality content and forms a community to appreciate and also can select and define the quality, what is the good quality content. They can choose and promote among millions of daily video submissions and allow this high quality content and talented content creator to emerge from our platform. .

In the second quarter, our monthly user interaction were over 70 billion, up 9% year-over-year. Long comments that over 100 captures grew even faster by 67%. This high level of real human interaction help us to better identify high-quality content.

And regarding -- in the AI era, how the video landscape is going to change, we believe that the AI tools will exponentially unleash the supply of video content. And over time, the high-quality content is the only solution or the only answer among those oversupply of video content. We believe over time, only high-quality content will have viewership. Those low-quality content will have no...

In the AI era, I will be very focused on two aspects. One is on video creation, content creation. Second is on content distribution. First of all, on the content creation, I will pay very close attention to those content creator with high intelligence and high creative power. How they are leveraging AI to create content to realize their creation into actual work.

We believe that repetitive low-quality content will have no room for survival. But those talented content creators will be extremely beneficial from this evolution of creation tools. And in the past, half year, we have been paying very close attention on this aspect, and it's generating very positive results. As a matter of fact, in the second quarter, our monthly content submission increased by 28%. This is a hard evidence to support the AI tool is enlarging enhancing uplifting our creators' creative output.

Secondly, on content distribution, compared with the short videos that only have the factor for longer-form video -- much cotenant information and structures. Traditional recommendation algorithm often struggle to fully understand and recommend this type of content. And also user generally have more complex intent when they come to choose not to longer-form content. That's why we are focusing on our AI on helping our content distribution become more efficient. And we think this new generation of AI tool is helping us to comprehend understand the content, the meaning of the content and better understand our user intention. And here's a few numbers to support our progress.

In second quarter, DAU grew by 7% year-over-year, and our total user time spend increased by 14% year-over-year. And the number of creators with over 1,000 followers grew by 30% year-over-year. A lot of the driver behind those numbers are from using AI to make our algorithm working better.

That concludes the first question's answer. Operator, next question, please.

Now we're going to take our next question. And the question comes from the line of Yang Liu from Morgan Stanley.

[Foreign Language] Let me translate my question. My question is about the advertisement business. Since 2Q, we started to see weakening macro and consumption data in China. How to think about the future second half advertisement business growth? And also, what is the marginal change for the advertisement from the AI industry? And also, could management help to break down the 2Q and the second half advertisement growth driver. And also in the second half, we start to have a little bit higher base, which verticals can support the advertisement business to sustain a relatively high growth?

[Foreign Language]

[Interpreted] The second quarter despite macroeconomic pressure on consumer spending. Our ad business over a very strong performance with revenue reaching RMB 3.1 billion, up 28% year-over-year. This resilient growth reflects strong recognition of our user base and our community value, more and more advertiser realize. It's a must-invest platform for them to gain access to the young generation. We also achieved early success in our vertical industry strategies and our ad scenario expansion.

Our content ecosystem, users' time spent on AI-related knowledge content surged by 72% year-over-year. Bilibili has become the largest AR learning video community across the Internet as users actively come to our platform to track and learn about large language models and AI tools.

At the same time, -- from AI factor grew by over 100% year-over-year in the second quarter, benefiting from the strong match between AI target audiences and our user base. As AI as a major long-term trend, we expect continuous demand from various clients across different stages, and we remain very optimistic about this incremental opportunity.

As for the second part outlook, we're seeing more advertisers and higher conversion efficiency in the short term. But at the same time, they also want channels that deliver sustained long-term impacts rather just one-off impressions to help them to build lasting brand value. They are also prioritizing their limited budget on high-value users with genuine purchasing power. All of these demands precisely match with Bilibili's unique strength.

The average age of Bilibili user now is 26.5 years old, making them the primary driver or the main consumption force in the current Chinese society. Over the past 2 years, they also have established a strong purchasing mindset on Bilibili, demonstrating clear willingness to buy products recommended by the platform or by the content creators. In the second quarter, our top 5 ad verticals were gaining consumer electronics, Internet services, e-commerce and automotive, while our total advertiser base expanded by 14% year-over-year.

Unlike other platform, we have a multi-tree multi-scenarios strategy that allows Bilibili to accompany users seamlessly throughout their day, whether it's listening or watching Bilibili during commute or casting deliver content on TV screen and home with their family or using our apps or iPad doing fair time for learning.

Across these different streams, user can watch and upload video interact to bullet chats commentary, search their favorite content creators during live stream, watch anime or documentaries and play games. And ads naturally follow users you have their daily such in the first half of this year -- watch page, Smart TV portal, PC and program have all unlocked valuable new ad inventories with revenue from this multi scenario placement grew by 50% year-over-year in the first half.

-- AI is also empowering our efficiency from several angles, including improving our user comprehension, including user profiling, content matching, ad creative generation and algorithm efficiency to continue to lift our monetization. And also, we have launched our automated ad placement system that also has made it much easier for new advertisers to join us. This is driving a double-digit growth for our new advertisers client base.

And as we mentioned, it is indeed a very challenging macro environment, and there will be a lot of changes across different industry players. However, given what we just mentioned, we still remain quite confident about our continuous growth for our ad business. Thank you.

Operator, next question, please.

And now we're going to take our next question. And the question comes from the line of Daniel Chen from JPMorgan.

[Foreign Language] So my question is on the online game. So the company just shared quite a lot of information on the game pipeline. I was wondering which one is the most anticipated ones. And also, what's the expectation for the launch timing? And on -- and besides this -- the Three Kingdoms strategy game has been launched for 2 years. So how should we look at the future performance of this game?

[Foreign Language]

[Interpreted] On the second half to next year, it will be our harvesting fees and -- We do have several exciting titles lined up for launch.

The first title in our pipeline is Lumi Master. Lumi Master is self -- Bilibili's self-developed light casual game that evolves pac catching and simulation game play. It received a lot of positive feedback during its global test in May and also recent testing feedback has been very well. We are planning for a global launch in September 17, next month. And we have -- we have developed a very innovative gameplay and artistic profit design to cater to young generation needs. We believe with this lighter game play and appeal to younger players. We hope this game can catch a broader casual gaming audiences on a global base, especially for young gamers.

And the second title in our platform is San Guo, which is a strategy game especially licensed from the classic Three Kingdom San Guo Kingdom IP. We expect to launch this game towards end of this year compared to it targets a more mature audience with a strong interest in San Guo IP. And both of the visual style and gameplay have been significantly upgraded from the classic IP. And why we are launching another 3 Kingdom night title, we think he really complements some in both gameplay and target audiences, and it can further strengthen our presence and strategy in We also gained a lot of valuable feedback from the second beta testing we just finished, and we will continue to fine-tune this game. We hope our goal is to build another strategy gain that can be lasting and a popular for our audiences.

And beyond that, we have also introduced several new pipeline items we can do the Bilibili world and will be launched next year. The first one is Three Kingdoms: The Ravages of time, San Guo -- This is another self-developed title that is focused on tactical RPG This title is based on a classic IP with a history of over 20 years. And Bilibili platform has also produced published the enemy that based on this IP. Our goal is to make this classic IP, revitalize this classic IP and make it a great technical RPG for younger generation. .

And the second title for next year is RO3. Needless to say, this is a very classic IP with the large audiences that last over 20 years. It's a very classic MMORPG. And we received a lot of users on the for bringing this title back to them. That is why we have signed and licensed this IP and hopefully, to bring this classic IP back to its fan base. Currently, the scheme has already secured its license. And we -- actually, we started to launch technical testing today with a mainland currently, the user feedback has been quite positive, and we are targeting to launch this in next year.

And to answer your question on our classic game, this game has just celebrated second year anniversary with a major update in June. And the new content has been well received by our players. As a matter of fact, from season 8, our first anniversary season last year, throughout season 15, our second anniversary season in this year, has ranked among the top 5 on the ILS top-grossing charts. Every game season, which is quite impressive. And for this game, our goal has remained unchanged. Our target to be as a lasting strategy being back, hence company gamers for life. And our goal or strategy for our being business remains to focus on the vertical to either do become the best or first in its own segment and make sure every title has a long life cycle. That is the strategy we'll continue to be focusing on.

And when I mentioned based on the end caring, which was recently launched initially, we've noticed that the LTV or July version has doubled compared to the April version, and we also plan to launch the game Season 2 in October with a focus on improving long-term retention and adding more interactive long game play. We would notice that recently, we have launched many different Three Kingdoms IP titles, including the light casual poker game and also we have immersive hard core strategy game like The reason why we are exploring this IP in a such dynamic way, is first of all, we think that there's a lot of overlap for users who are interested in this IP, and they can cross-sell from each other.

And secondly is we have a very -- and very high quality video community that with a lot of gamers who can share their experience and promote the game and also provides a very good platform for us to engage with users and continue to improve our games. That is why we are hoping to achieve long-term operations across different IPs and different titles and continues to provide good gaming experience for our gamers.

That concludes this question. Operator, next question, please.

Now we'll go and take our next question. And the question comes line of Xueqing Zhang from CICC.

[Foreign Language] Congratulations on the solid quarter. My question about the AI. Company discussed how AI has improved its advertising and help increase user time at the Investor Day. Could management elaborate a little more on how AI is enhancing the communicate -- community ecosystem, user engagement and different baselines. In addition, how much of the previously announced CNY 1 billion in AI-related CapEx has been deployed so far? And expect our pace of spending going forward?

[Foreign Language]

[Interpreted] So we believe AI is already consistent for the next era. And -- for us, it's not -- not to think about how important AI is for us is to think about how we will use AI in our own business. As a matter of fact, there are a lot of things in the AI chain. We will be engage with. The things where we invest will be very closely tied to our core business, which is video. And to be more specific on three areas: video understanding, video distribution and video creation. All of our investments will be strictly focused on those three areas.

First of all, AI is helping us to better understand both content and users. Bilibili has a huge amount of video library. And this video carries much more information, and our user has a very diverse interest to be able to better understand the value of our content, the meaning of the content and what users want is a key component in both improving user experience and our commercialization efficiency. With AI, we're improving our video understanding search and recommendation capability. It is helping users to find content they are interested, the more efficiently matter while helping our ad system to better match ads with users' needs. And for us, this investment not only is working on our user growth, it is also working on our commercialization results.

And secondly, as AI is helping creating new types of content and unleashing productivity on Bilibili. As I mentioned, we are very focused on seeing those high-quality content creator, talented content creator, how they are using leveraging AI to produce good content. And in the past 2 quarters, we've seen so many good examples of how AI tools is unleashing those talented brains to bring good content on our platform. We're seeing some animation of film content that is to require a whole professional team or even a company to create, now can be created by individual content creators that the quality is so premium that they achieved tens of millions of video views. We are also seeing AI inspire new types of content across animation film, music, auto-tune remix categories, it is truly unleashing their -- the creators' talent, their talent, their creativity. We've seen a surge in content submission and the number of high-quality content videos are emerging on our platform. Here's a very vivid example for your reference. In May, we launched our Creator animation campaign on our platform just in 3 months, this video in this campaign has generated 270 minutes of watch time and over 180 million views and 6 series, each surpassing 10 million views. Those are the perfect example of how AI tools is helping Bilibili to unleashing creators' output and unleashing the supply of high-quality content.

[Foreign Language]

Yes. This is Sam. As Mr. Chen mentioned, our AI investment we highly focus. Regarding our previous target of 1-day R&D, which is well on track. We have already achieved 70% to 80% of sales in the first half of the year, primarily on the procurement of server computing hole deposits. This was expected to have R&D expenses for the whole year -- RMB 500 million, which remained unchanged.

operator, next question, please.

And now we're going to take our last question for today, and the question comes from line of Thomas Chong from Jefferies.

[Foreign Language] Congratulations on a very solid set of result. My question is, how does management view the margin upside across different business line? On AI, how should we think about AI empowerment to fixed cost leverage and room for the lowering in OpEx ratio? And any color about the AI spending over the next couple half years? On the other hand, how do management view the potential upside or downside to margin in second half and 2027? And lastly, what are management thoughts on capital allocations?

Thank you. This is Sam. I will come to your questions. In Q2, our financial performance continued its strong momentum. Both revenue and gross profit grew nicely with our gross profit margin expanding -- sorry, 37.2%, marking the 60 consecutive quarter of sequential improvement. Meanwhile, our operating leverage continued to expand. Net profit grew by 55% year-over-year, and our adjusted net profit margin increased to 8.9%.

Looking at the mid- to long term, we believe there's still significant room for Bilibili's commercialization, driven by the sustained and healthy development of our business lines. More efficient operation gains in powered by AI, we are highly confident in our future profitability improvement.

First, our high-margin advertising business continue to grow and become our largest revenue contributor, accounting for 39% of total revenue. Despite some macroeconomic pressure, we expect our advertising revenue to maintain a sustainable and healthy growth trajectory going forward.

On Games, we have a robust pipeline of 5 new titles set to launch in Q4 of this year and into next year. We are confident that our gaming revenue will resume a year-over-year growth trend starting in the fourth quarter. We remain confident in our future profit expansion and our mid- to long-term target remains unchanged. Our gross profit margin of 40% to 45% and an operating margin around 15% to 20%.

We are confident in maintaining healthy revenue growth while continuously improving our operating efficiency. Also to drive the profit realization we will carefully balance our AI investment with commercial monetization, and we firmly believe that today's investment will play a vital role in Bilibili's standard development in the future.

Regarding to the shareholder return, delivering shareholder return is also a priority for us. From the beginning of this year to date, we have accumulated USD 118 million in share repurchase. In June of this year, our Board of Directors approved a new USD 300 million share repurchase program. As of the end of June, we already repurchased 1.9 million shares for over USD 31 million, under this new program. Going forward, we will continue to execute repurchases we are approximately market windows or cut long-term sustainable value for our shareholders.

Thank you, operator, that concludes our question and answer session for today.

And that concludes the question-and-answer session. Thank you once again for joining Bilibili's Second Quarter 2020 Financial Results and Business Update Conference Call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director or Piacente Financial Communications. Contact information for IR in both China and the U.S. can be found on today's press release. Thank you, and have a great day.

Good day, and welcome to Bilibili's First Quarter 2026 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. Please go ahead.

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 and including those mentioned in our most recent filings with the SEC and Hong Kong Stock Exchange.

The non-GAAP financial measure will provide are for comparison purpose only. The definition of this measure and the 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 the Bilibili IR website at ir.bilibili.com.

Joining us today from Bilibili 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.

I will now turn the call to Mr. Chen.

Thank you, Juliet, and thank you to everyone joining us today. 2026 is off to a great start for Bilibili. In the first quarter, we kept up the momentum from last year, delivering solid growth across our community, commercialization and profitability. Let's start with the community. High-quality content and authentic experience continued to drive organic growth and deepen user engagement. In Q1, DAUs grew 8% year-over-year to 115 million and MAUs increased to 376 million. Average daily time spent reached a new high of 119 minutes up 11 minutes year-over-year, which led to a 19% surge in total user time spent.

We see this level of engagement as a powerful engine for our commercial business. In the first quarter, we delivered robust advertising revenue growth of 30% year-over-year, further accelerating from 2025. Meanwhile, MPUs increased by 7% year-over-year to 34.4 million as more users directly pay for content and services they truly care about on our platform. This commercial momentum led to a strong financial performance.

Total revenues grew 7% year-over-year to RMB 7.5 billion. Gross profit was up 9% year-over-year and gross margin reached 37.1%, marking our 15th consecutive quarter of margin expansion, thanks to our top line growth and increased operating leverage. Our operating profit was over 10x what it was a year ago. On a non-GAAP basis, net profit grew by 62% year-over-year with our adjusted net profit margin expanding to 7.8%.

To us, this set of results confirms the fundamental shift in user behavior. In a world full of quick hits, more users are choosing to spend more time on quality content. That is exactly what Bilibili stands for, and it will continue to drive our growth. With our average user now around 26.5 years old, our cohort is starting to spend more and spend better. As their needs evolve, we are staying close to them, offering the products and experiences they care about most.

The content ecosystem we have built remains our most durable asset. Today, we are using AI to make this ecosystem even more powerful. We are focusing our investments on 3 key areas: how we understand videos, how we recommend them and how we help creators build them. Ultimately, we are not just evolving with AI, we are using it to reinforce the very thing that makes Bilibili unique. Having said that, we remain very disciplined with our capital. Although AI requires an upfront investment, the returns in engagement and monetization are already tangible.

At the same time, AI is driving meaningful efficiencies across our operations, which is directly supporting our margin expansion. By combining the heart of our community with the power of our technology, we are creating lasting value for our users and shareholders.

With that, let me walk you through our core pillars of content, community and commercialization. Starting with content and community. As content options multiply, users are becoming even more selective. They are coming to Bilibili for high-quality PUGV content and a unique community experience that they cannot find anywhere else. Across our content categories, ACG remains our cultural anchor. In the first quarter, watch time for games in Chinese anime grew 27% and 20% year-over-year, respectively, proving our enduring appeal to the younger generation.

Beyond our ACG legacy, knowledge-based content, including AI-related information, grew 20% year-over-year as users turn to us for deeper insights. Music categories also saw robust growth with a 25% year-over-year increase in time spent, largely driven by AIGC music. Consumption-related categories kept rising with watch time for parenting and early education and outdoor-related categories surging by more than 50% year-over-year. The breadth of our content library is only 1 part of the story. Our deeper competitive moat lies in the humanity of the community. Every month, our users generate over 17 billion real human interaction. In an AI-driven world, they are the most authentic human signals available.

While high-quality data is becoming a global scarcity or hundreds of billions of organic interactions provide us with the gold standard for understanding true human preferences. This profound insight is what fuels our engagement and loyalty. In the first quarter, total user time spent rose 19% year-over-year and 291 million official members maintained an 80% 12-month retention rate. Meanwhile, we continue to see AI as an amplifier for our ecosystem's flywheel. On the supply side, the unique creative spirit of our community has found new momentum through the AI-powered tools that scale creativity across the platform. By lowering the barriers to entry and boosting productivity, we have seen a significant influx of creators and content.

In Q1, the number of daily active creators in daily submissions grew by 6% and 19% year-over-year, respectively. But this isn't just a game of volume. With AI assisting the creative process, more talent is producing high-quality breakout content right out of the gate. Our recent AI creation contest is a perfect example. We attracted the most talented creators to join our platform, creating nearly 150 breakout works with over 1 million views each -- by deepening our comprehension of both content and user behavior, we've made content discovery more efficient, directly accelerating growth for our creators.

In the first quarter, the number of creators with over 1,000 followers grew by more than 30% year-over-year and those with 10, 000; 100,000 and 1 million or more followers each grew over 20%. Naturally, as their audiences grow, earnings follow, average income per creator rose 24% this quarter, creating a powerful virtuous cycle. Now let us take a closer look at our commercial businesses and their progress. First, our advertising business once again delivered standout results in Q1. Revenues grew 30% year-over-year, reaching RMB 2.6 billion. This ongoing acceleration reflects the value of our community that we continue to unlock and how we are turning user engagement into real results for advertisers. In Q1, our top 5 ad verticals were games, Internet services digital products and home appliances, e-commerce and automotive.

Game Apps delivered strong incremental revenue growth this quarter. In the Internet services sector, AI advertisers kept scaling with ad budgets surging over 170% year-over-year. At the same time, our maturing user base is also capturing more advertisers' budgets. Ad revenues from digital products and home appliances and automotive both grew over 30% year-over-year in Q1. Home decoration was a particular standout with ad spending jumping more than 130% year-over-year. Using AI to improve efficiency and drive ad business is a core priority this year. By integrating AI more deeply into our algorithm, we've gained much sharper insights into user interest and long-term patterns.

This clarity has meaningfully optimized how we match users with ads, resulting in a 25% year-over-year increase in CTCVR of performance-based ads this quarter. Furthermore, our AIGC tools are streamlining creative production and crafting ads that resonate with users, helping advertisers connect with our community more effectively and drive higher click-through rates. We are also unlocking growth across diverse platforms and touch points. In the first quarter, ad revenues from PC and OTT platforms grew by over 50% year-over-year. while new scenarios like search and mini programs more than doubled. We're exploring new integrated formats within video player, finding new ways to turn user time into commercial value.

With expanding traffic, diverse new scenarios and continuous efficiency gains, we remain confident in the sustained momentum of our ad business. Now turning to our games business. Game revenues were RMB 1.5 billion down 12% year-over-year and flat quarter-over-quarter. The year-over-year decline was mainly due to the high base set by San Guo: Mou Ding Tian Xia in the same period last year. While the latest seasons of San Guo performed steadily quarter-over-quarter. We're focused on the game's long-term life cycle, keeping the experience balanced and the IP strong. Meanwhile, our evergreen titles, FGO and Azure Lane remain stable and continue to provide a solid revenue base.

In 2026, we're building on San Guo success and expanding our presence in the 3 Kingdoms IP. In April, we soft launched NCard, San Guo: Bai Jiang Pai, a lighter casual card game that has received positive feedback on its core gameplay. We're iterating the product and optimizing user acquisition as we prepare for its official launch this July. Meanwhile, our new SLG title, San Guo: Mou Ding Tian began initial testing in late March built on the original San Yue Yu A Gou IP with enhanced 3D visuals, San Juan targets a differentiated group of SLG fans and complements San Mou, early user feedback was encouraging, and we plan to roll the game out late this year.

Beyond NCard and San Guo, our self-developed simulation game, Lumi Master, Caoba, Lumi entered its paid testing in May. It has been well received for its cozy art style, an accessible gameplay, and we plan to bring it to global gamers in Q4 this year. Our jointly operated pipeline for the coming quarters is also expanding into more genres giving us broader player coverage and a more balanced portfolio.

Turning to our VAS business. VAS revenue grew by 4% year-over-year to RMB 2.9 billion in Q1. We kept refining our live broadcasting operations delivering a stable performance with improved gross margin. Premium members reached 24.8 million by the end of the first quarter, up 5% year-over-year. Around 80% are on annual or auto renewal plan. Our fan charging program also kept growing at a healthy pace. Revenue was up over 50% year-over-year, driven by stronger creator user relationships and users growing willingness to directly support content they love. In April, we published our 2025 ESG report, outlining our continued focus on high-quality content, healthy community development and steady improvements in governance and operations.

Given our reach and influence among China's young generation, we take this responsibility very seriously, and we have maintained our key rating by MSCI, reflecting our consistent approach to long-term sustainable growth.

To close, we believe great content and a strong community bring people together. The value we have built is just beginning to show its potential with AI as the accelerator, our community and commercial ecosystems are reinforcing each other more than ever. We will stay focused on strengthening that flywheel and investing in areas that support long-term growth, taking Bilibili to the next level. we are excited about what is ahead.

With that, I will turn the call over to Sam to walk through our financials in more detail. Sam?

Thank you, Mr. Chen. Hello, everyone. This is Sam. In the interest of time on today's call, I will review our first quarter highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. Total revenues for the first quarter was RMB 7.5 billion, up 7% year-over-year. Our total revenues breakdown by revenue stream for Q1 was approximately 39% VAS. 35% advertising, 20% mobile games and 6% from our IP derivatives and other businesses.

Our cost of revenues increased by 5% year-over-year to RMB 4.7 billion in the first quarter. while our gross profit rose 9% year-over-year to RMB 2.8 billion. Our gross profit margin reached 37.1% in Q1, up from 36.3% in the same period last year, marking our 15th consecutive quarter of margin expansion. In the first quarter, we continued to improve monetization efficiency with disciplined spending. Our total operating expenses were up 3% year-over-year to RMB 2.6 billion. Sales and marketing expenses decreased by 1% year-over-year. G&A expenses increased by 3% and R&D expenses increased by 9%, primarily due to expanded AI investments and partially offset by efficient spending control.

Our operating profit was RMB 167 million, up over 10x year-over-year. Our adjusted operating profit reached RMB 524 million, and our adjusted operating profit margin reached 7.0% in the first quarter versus 4.9% in the same period a year ago. Net profit was RMB 202 million versus an RMB 11 million net loss in Q1 2025. Our adjusted net profit was RMB 585 million, up 62% year-over-year, and our adjusted net profit margin was 7.8%, improved from 5.2% in the same period a year ago.

As of March 31, 2026, we had cash and cash equivalents, time deposits and short-term investments of RMB 24.2 billion or USD 3.5 billion. In Q1, we repurchased 2.5 million shares for a total cost of USD 60.3 million under our USD 200 million share repurchase program. As of today, we have completed the share repurchase program. purchasing a total of 9.9 million shares. We remain committed to enhancing long-term shareholder return, and our Board is considering renewing the share repurchase program at an appropriate time.

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

[Operator Instructions]

And we will now take our first question from the line of Lincoln Kong of Goldman Sachs.

Congrats on a very solid first quarter results. My question is about the community. So we have seen our user metrics have continued to deliver our stellar performance. So how significant is this AI has been a driver in terms of the user acquisition and engagement duration. Also, what's our perspective on the strategic role that sort of this AI created assisted creation tools has played with the Bilibili's content ecosystem.

[Foreign Language]

[Interpreted] What's really driving our user growth and time spend as the Bilibili's reach supply as high-quality content and our very unique community experience. AI doesn't change that fundamental logic, if anything, it's making our strength even stronger.

So from a high-quality content supply perspective, as I mentioned last quarter, AI is bringing greater leverage [Audio Gap] pushing their expression boundaries and [indiscernible] more productive . That's why you're seeing during the first quarter that the average daily active content creator and the daily submission grew by 6% and 19% year-over-year, respectively.. It's not just about efficiency. AI is not only helping us to increase supply, but we are seeing is bringing so much quality into our content offering.

For example, in some category, AI is already fundamentally changing how content gets made. For example, in the film industry, [ a reparse of flu food ] to work on shooting in production and postproduction area. But now with the help of AI, we only need 1 or 2 very poor production and creativity people, and they can make the equivalent or even better content.

And another example would be music in the traditional music industry. It requires a full clean team to work on music production and now with the help of AI, just 1 talented content trader can make very high-quality music content. That's why we're very delighted to see the in the past, some categories that is very hard and expensive to make now with the help of AI of the [indiscernible] content creator can make this production very resilient.

In our most recent AI creation context, we're seeing that AIGC videos are very, very impressive in terms of the quality that over this context, we saw over 150 videos each surpassed 1 million views. In summary, we are seeing that AI bringing so much more quality and quantity into the PUGV side.

And another booster is that AI amplifies the power of Bilibili community, in a community like Bilibili, where user love content, know what they want to have high standards that have strong taste, high-quality content is naturally more likely to stand up.

We're seeing AIS making that effect even more stronger. Every month, our user generates more than 17 billion real human interactions on Bilibili. And in the AI era, this kind of human real human feedback and tagging has become even more valuable. And like I said, those tagging , those feedbacks are from people who know what they want, who has a strong taste and have high desire for high-quality content. .

So our internally developed model, we are spending a lot of time to making it understand what is high-quality content and identify those high-quality content in a much earlier stage. We are seeing this ability to directly translate on creators followers growth. In the first quarter, the number of content creators with more than 1,000 followers who buy over 30% year-over-year creators set with 10,000; 10,00,000 and 1 million followers also grew by more than 20% year-over-year. .

That's great. Again, more followers. They also make more money in Q1 average income per creator is up 24% year-over-year. To summarize, AI is making our great content creator, even more powerful. And Bilibili is the home to many of the most creative creators the 1 who really wanted to express themselves build lasting connection with users.

Over the years. We built a very strong creator ecosystem and community culture and AI is really amplifying that effect. And we believe this historical opportunity of AI can bring the opportunity that makes Bilibili 10x more valuable, and we will really invest and seize that opportunity for us.

We will now take our next question from Daniel Chen of JPMorgan.. .

So my question is on the advertising revenue. So we see that the ad revenue growth accelerate to 30% year-over-year in the first quarter, which is very strong. I mean we know which industry for the -- actually see your expectation? Also, how should we expect the outlook for the second quarter and the full year advertising revenue.

[Interpreted] Our advertising revenue reported RMB 2.6 billion in the first quarter, up 30% year-over-year, marking our 13th consecutive quarter of double-digit growth. At the very core, the biggest driver behind our advertising growth is to the value of Bilibili's community and our users. The average age of our user is about 26.5 years old, which means they are entering a stage of life where both personal spending power and house hold decision-making power arising rapidly. And that is at the kind of high-value user group advertiser are most eager to wait.

And what set us apart from platform that's purely traffic to them is that the value of advertising on Bilibili has never one-off spending instead we run much deeper into users mindshare will help us brands to move from a single one-off impression to repeated continuous touch points and from a single isolated transaction to lasting Brent equity.

That is exactly why we saw a continuous growth of our advertising efficiency. During Q1, our brand app, performance app and [indiscernible] all delivered a strong double-digit growth. And for certain category even high double-digit growth. And for Q1, our top 5 advertising verticals were an Internet services, digital products and home appliances, e-commerce and automotive.

Well, looking ahead into Q2 and onwards, is that we do see a deeper integration of AI into our advertising system, we'll continue to improve our ad efficiency in the near term. But more importantly, we believe the bigger value will come from the long-term transformation that AI can bring to us.

This year, we continue to improve both distribution efficiency and recommendation algorithms. We have further leveled up our ability to understand user interest purchase intent and our content themselves. By plugging this into our recommendation models, we can now match user content and ads so much more precisely -- that's the reason why you see the strong growth in our advertising revenue in Q1 and this is driving a more accurate mashing capability deliver and a strong CPCVR growth for our performance app in the first quarter.

We are also providing advertisers with more automated campaign management and AI-powered creative tools. to help them to improve ad delivery efficiency. In Q1, penetration of our automated ad spending increased to about 85%. And and we will continue to see this penetration to further increase into Q1 and for the rest of the year.

On top of that, the AIGC tools are helping advertisers to create the material stuff perfectly by both Bilibili community style and the adoption of AIGC creative continue to increase. At the same time, this AIGC creators are delivering much better ad performances with improved click-through rate generally around double digit better.

That summarize how AI is helping us to improve our ad efficiency I will be sharing more information on next quarter and going forward, we believe there is so much more that I can bring into our ad system. And on top of that, we're also expanding ad inventory across different screens and more user scenarios from the mobile app to our PC, iPad, OTT and in-car streams, and we currently already cover a majority of fast scenarios. And on different products or ad scenarios, we are also trying new inventories from fleet to search comments and in player ads and mini programs with this covering Bilibili's user time spent across the major product touch points. This will bring an additional ad inventory and app volume for our business. .

Well, on top of that as inventory and scenario growth, our strategy across this and had industry is also very important, and we will continue to deepen our services into different industry verticals by aligning our sales operation, tech capabilities, we can now offer a full stack solution tailored to each specific industry looking into the second half of this year, we expect stronger growth momentum from those high-value categories such as AI technology, automotive, home decoration and appliances, which we believe will continue to lead a very strong growth.

Meanwhile, we will also continue to expand our market share in our core verticals such as games, e-commerce and education.

So to summarize, we remain confident in maintaining a very healthy advertising growth for the rest of the year.

We will now take our next question from Yang Liu of Morgan Stanley.

My question is about the game segment. Could management comment on the Three Kingdom NCard's soft launch performance and what is our expectation for this game? And also another self-developed game, Lumi Master started to pay test this month. What's the test result? And what is the expectation on launch timing? And another game, Three Kingdom [indiscernible], how to expect this game contribution and could the management comment if there's any other game pipeline, except for the 3 games I mentioned before.

[Foreign Language]

[Interpreted] The NCard soft launch performance is generally in line with expectation. We plan to officially launch this game in July this year. This game as one of a kind game and the first of its kind that features a very unique game places in that line hero skills with poker mechanism from the soft launch feedback, our user we find this game play has resonated with young user group quite nicely. Because the statements are very creative and innovative we take the approach to iterate the game as we launch as we collect more user feedback, we believe this is a more sustainable approach to make this game even better.

We believe this game has the potential to become a large DAU title that can last for a very long time in this casual category and we believe they have the right elements to get to that. So we are putting more -- a lot of resource and hoping this theme will continue to refine its game plan operation by the time it's ready, we will be launching it to a mass audience.

Well, as we mentioned, the NCard , Three Kingdom, I will briefly touch upon the San Guo title. So the San Guo title is a very unique SLG title based on the very authentic Three Kingdom IP by Kao. And this theme has [indiscernible] due to the original Three Kingdom IP experience while introducing so much refreshed 3D visual style. It's targeting a more mature SLG audiences and have higher taste towards the game's quality and visual experience.

We think San Guo and San Mou really complement each other, but with a differentiated target user group where San Guo is target to the IP fans, who has strong taste and preferences towards better visual quality, where San Guo targets a younger cohort that doesn't want to spend so much time and money into the SLG title. That is the reason why after launching San Mou, we choose another to license another title in the Three Kingdom IP. We think these 2 title has great synergies and really complement each other. .

We already completed the first round of beta test paid testing at the end of March for San Guo title. And we saw very positive user feedback and we are currently continuing refine and polishing the title and listening closely to user feedback, and we are planning to launch this title within this year. .

Next, I'll talk about our self-developed game Lumi Master. For Lumi Master, it is also 1 of its kind, the very first title that combines tech catching with casual game play. We started a global user testing in early May this year has and that we have received a very encouraging user feedback and we target to -- we are targeting a global launch for this title in Q4 this year.

Lastly, I wanted to briefly touch up on Escape from Duckov, which is Bilibili's self-development title. This year, we broke another record by selling over 4 million copies of this game.

As we continue to promote this game on the PC front, we are actually actively working on the console version and the mobile version. Our goal is to continue to enhance the IP and over time, make this game as make this IP Escape from Duckov IP become a well-known franchise for young gamers.

Over the past few years, I've been sharing our game strategy. I think it summarized 2, 3 points. 1 as long-term operations. We've seen that into our legacy title, FGO and Azur Lane which was celebrating its tenth year anniversary and ninth year anniversary, respectively, this year and San Mou is going to celebrate its second year anniversary very soon. And going forward for all Bilibili game title, we are targeting a very long-term operation even for consol one-off gains like Escape from Duckov we're hoping this game will have lasting impact when you continue to generate sales over time. So long-term operation is definitely 1 of the most most important strategy for our game business. .

And the second strategy is to become the leader in the segment genre. So first of all, our strategy into game genre is very, very focused we will be deciding a good direction. Our view will dig deep into the genre to be become either the best or the first in this genre, for example, the SLG, the Three Kingdom IP, we've launched one game. We have 2 in the pipeline. And we have more tests coming up potentially in the near future, we will do if we can do universe. Another example is the console game, the PC copy based game, this is also a direction we believe has very large opportunity and strong user demand and we will be focusing to produce the best or become the first in its own kind. This will be another important strategy for our game business. .

The last 1 is we're creating games for the young generation of gamers. We believe that for all game business that focusing on young user is a must -- and as non-generation community hub, we're the platform that is closest to this young cohort and understanding their desire inventing games to cater to their preference is that is Bilibili's bread and butter. And by staying close to the young generation, there will always be been opportunities. This is showing on our NCard and our Lumi Master titles.

Fundamentally, we are just creating a new type we are creating here reinventing this title to catering to this generation of gamers that fits their taste the best. So by staying close to the young gamers, we believe this brings us so much more opportunity.

So that concludes this question.

Our next question comes from Xueqing Zhang of CICC.

My question about financials. Last quarter, the company mentioned that it would this investment in [indiscernible] progress achieved so far, when should we expect to see meaningful returns from the AI investments. Also, could you provide some color on the outlook for OpEx and the CapEx related to AI as well as the margin outlook for the second quarter and the full year.

Thanks, Xueqing. I will take this question. First of all, about the direction of our AI investment. As mentioned by Mr. Chen, we are very focused primarily on key words of Bilibili. We are investing in 3 main areas: video understanding, video distribution and video creation. We believe this investment will significantly enhance the value of Bilibili content ecosystem and the community and directly benefit all monetization line. In Q1 we have already begun exploring and applying these efforts with the initiative results evidence in our view growth, user time spent growth and advertising revenue growth.

We expected positive feedback Lee has just begun and will continue to deliver greater efficiency. Regarding to the CapEx. In Q1, our CapEx increased about 80% year-over-year around RMB 200 million, mainly driven by higher investment in servers and computing resources to support AI improvements. For the full year, we expect our AI-related CapEx to increase by approximately RMB 1 billion with an impact on P&L of around RMB 500 million. Meanwhile, we will cut certain OpEx expenses to offset part of such impact using our Q1 results as a [indiscernible].

When we see R&D expenses increased by 9% year-over-year, while we still deliver solid bottom line results. Driven by revenue growth and continued operating leverage, our adjusted net profit increased by 62% year-over-year with adjusted net profit margin rising to 7.8%. We expect Q2 advertising revenue to maintain rapid growth with the contribution from our AI initiatives with gross margin steadily improving and the net profit margin has further room to increase. We also maintain our mid- to long-term gross margin target to 45% and operating profit ratio target of 15% to 20% unchanged. Thank you for this question.

And that concludes the question-and-answer session. Thank you once again for joining Bilibili's First Quarter 2026 Financial Results and Business Update Conference Call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director or Picante Financial Communications, contact information for IR in both China and the U.S. can be found on today's press release. Thank you, and have a great day.

Good day, and welcome to Bilibili Fourth Quarter and Fiscal Year 2025 Financial Results and Business Update Conference Call. Today's conference is being recorded.

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

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 mission in our loss reason filing with the SEC and Hong Kong Stock Exchange. The non-GAAP financial measure will provide are for comparison purpose only. The definition of this measure and the 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 the Bilibili IR website at ir.bilibili.com.

Joining us today from Bilibili 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. Sam Fan, Chief Financial Officer.

I will now turn the call to Mr. Chen.

Thank you, Juliet, and thank you to everyone for joining us today.

2025 was a marquee year for Bilibili. We delivered standout results across both our community growth and financial performance. Throughout the year, our user growth regained its momentum while engagement and stickiness consistently hit new record highs. We also made incredible strides on the commercial front and achieved our first ever full year of GAAP profitability.

Looking at our community, momentum really picked up speed toward year-end. DAU growth accelerated every single quarter year-over-year, up 4% in Q1, 7% in Q2, 9% in Q3 and 10% in Q4, hitting 130 million users. Q4 MAUs also grew by 8% year-over-year to 366 million.

While much of the Internet is still flooded with fast food content, more and more people are gravitating toward depth and quality. They're spending more time on high-quality PUGV content and the authentic community interactions that Bilibili is known for. In Q4, average daily time spend continued to rise, up 8% to 107 minutes. This strong momentum reinforces our conviction that users are elevating their content consumption, and we believe the shift gives us a massive long-term runway ahead.

As our users dive deeper into the content they love, their willingness to spend continues to rise. This is reflected in our MPUs, which surged 21% year-over-year to a record 36 million. Users growing spending power is also extending beyond direct payments. Bilibili has become a trusted destination for consumption decisions where users don't just watch but actively research and embrace new products. AI is a prime example. A growing number of AI advertisers now view Bilibili as the go-to platform to reach curious young minds.

By leveraging our interactive community, they can turn exposure into real user conversion and lasting influence. These strengths combined with our refined ad infrastructure, drove a 27% year-over-year increase in advertising revenue in Q4, once again exceeding expectations. The power of our community and commercialization engine and its potential is also showing up in our financial results.

2025 marked a major milestone as we reached our first full year of GAAP profitability alongside solid revenue growth. For the year, total revenues grew to RMB 30.3 billion, up 13% year-over-year and we reported a GAAP net profit of RMB 1.2 billion. In Q4, total revenues increased by 8% year-over-year to RMB 8.3 billion, gross profit grew 11% and gross profit margin rose to 37.0%, marking our 14th consecutive quarter of margin expansion.

With disciplined cost management and stronger operating leverage our adjusted net profit nearly doubled to RMB 878 million, and our adjusted net profit margin expanded to 10.6%.

By the start of 2026, the average age of our users reached 26.5. They are moving into higher income brackets with greater spending power and more diverse needs. As they move into new stages of life, we are growing with them, expanding our commercial opportunities and unlocking more value across every touch point in our ecosystem.

To better serve our evolving community, we are integrating AI into every corner of Bilibili. To us, AI isn't just a buzzword. It's a practical tool that expands human creativity increases connection and boost distribution efficiency. By leveraging from tier LLMs, we've made our content discovery and add targeting sharper than ever. We are also providing AIGC tools that help creators and advertisers get started more easily. While AI translation is helping our best content to reach a global audience. The more we invest in these capabilities, the more confident we are that AI will take our ecosystem and our business to the next level.

With that, let me walk you through our core pillars of content, community and commercialization. Starting with content and community. The biggest takeaway from our 2025 story is that, in a world full of short and disposable content, demand for high-quality content and authentic community connection is only getting stronger. We've leaned into this trend by deliberately allocating more resources to promoting high-quality content and fostering welcoming interest-driven communities. The results are clear. In Q4, average daily time spent reached 107 minutes, up 8% year-over-year, while watch time for videos longer than 5 minutes grew by more than 20%.

Our commitment to quality content across categories is driving higher user engagement and time spent. In Q4, watch time of lifestyle content grew by more than 30%, while Chinese anime and game-related content increased by 56% and 24% year-over-year, respectively. Notably, in July 2025, we officially launched video podcast initiative and quickly established an early lead in this impactful format. Our highly engaged community played a key role in driving its rapid adoption, sparking more meaningful discussions among users. In the second half of 2025, total watch time for video podcast exceeded 8 billion minutes.

In 2025, AI became a powerful amplifier of our content ecosystem, driving engagement unlocking creativity and accelerating the discovery of high-quality content. Total to watch time for AI-related topics surged 53% year-over-year in Q4, cementing Bilibili's position as the go-to platform for AI learning. Beyond consumption, AI is streamlining the creative process and even reshaping how content is made. A great example is AI music. Creators are now turning simple ideas into a professional great music videos with ease. In the fourth quarter, the number of AI music videos reaching the million view milestone, grew over fivefold year-over-year. At the same time, AI-driven distribution helps high-quality work find its audience much faster. This is especially beneficial for emerging creators. In Q4, the number of creators with over 1,000 followers increased by more than 30% year-over-year. As creators build larger audiences and stronger connections, that engagement is increasingly turning into monetization on Bilibili. In 2025, nearly 3 million creators earned income on our platform across advertising in VAS channels. And with improved commercialization efficiency, average income per creator grew 21% year-over-year. Just as importantly, users are demonstrating more and more willingness to pay for content they genuinely enjoy and creates they truly value. Last year, more than 10 million users supported high-quality PUGV content and creators through fan charging.

Turning to our core community metrics. In Q4, each active user followed over 90 creators on average, up from 81 a year ago, reflecting strengthening network effects within our community. By the end of 2025, we had over 284 million official members and their 12-month retention rate remained stable at around 80%. Our creator ecosystem also balances longevity with fresh energy. This is evident in the 2025 up 100 list, where creators have been active on Billy belief for 7 years on average, while nearly 40% were first-time honor is compared with the last year. Beyond daily activity, Bilibili continues to reinforce its role as a cultural home for young generation. Our Signature New Year's Eve Gala delivered its best commercial performance to date and has grown into an annual ritual for young audiences. During the recent Chinese New Year, we once again partnered with CCTV as the exclusive bullet chat platform, enabling young viewers to celebrate the festival together online. On the day of the broadcast, more than 133 million bullet chats were shared and DAUs reached a record high, up 16% compared with last year.

Now let's talk about our commercial businesses and their progress. First, we were very encouraged to see our advertising business deliver better-than-expected results in Q4. Advertising revenues accelerated to RMB 3.0 billion, up 27% year-over-year and full year advertising revenues increased by 23% to RMB 10.1 billion. This industry-leading growth reflects both the rising value of our user base and our continued progress in improving ad efficiency. As users spend more on the platform, Bilibili is becoming an even more compelling destination for advertisers. In Q4, the top 5 ad verticals were games, digital products and home appliances, Internet services, e-commerce and automotive. Home accretion was a standout with ad spend jumping over 80% year-over-year, another strong signal that our users are maturing and seeking more lifestyle-focused upgrades. AI advertisers also ramped up with AI-related ad budgets, climbing nearly 180% year-over-year in Q4, and that momentum has carried into 2026. In 2025, we pushed AI even deeper into our commercial algorithms, boosting traffic value without compromising the user experience. The precision paid off, ad spend aimed at deeper conversions grew by more than 40% year-over-year and negative user feedback was cut by over 50%. We also made the performance advertising faster and easier. Our smart ad delivery system and AI-powered creative tools, now streamlined campaign setups lifting cold start success rates by nearly 300% from last year. On top of these efficiency gains, we broadened our ad inventory across the ecosystem, new openings in search PC and OTT drove ad revenue in these scenarios, up by over 60% year-over-year. This rapid growth shows untapped potential we have across our multiscreen multi-scenario ecosystem and we still have plenty of runway to expand further.

Looking ahead to 2026, we are confident in the outlook for our advertising business. That confidence comes from rising user value and plenty of room to drive more efficiency, especially as we continue applying AI to strengthen monetization capabilities. At the same time, demand from gaming and AI advertisers remain strong, with both sectors eager to reach Bilibili's young high-value user base with stronger tools and the supportive market backdrop, we are set to capture even more of the opportunities ahead.

Turning to our game business. Game revenues were down 14% year-over-year to RMB 1.5 billion in Q4. The reflecting the high base set by San Mou, San Gou: Mou ding Tian Xia, in the same period of last year. Even so full year game revenues still grew 14% to RMB 6.4 billion. In Q4, Season 11 of San Mou held steady, and we're focused on extending the title's life cycle by elevating the user experience and maintaining balanced monetization. On the global front, we launched the traditional Chinese version in January and plan to roll out the game across more Asian markets later this year. Meanwhile, our Evergreen titles, FGO and Azur Lane, remain stable and continue to generate reliable revenues. Our biggest surprise of 2025 was Escape from Duckov, [Foreign Language]. This self-developed title was a real dark course. It sold over 3 million copies in the first 3 weeks of its October debut and went on to become the best-selling domestic single-player game of the year and now ranks among the top 3 of all time. This success is a clear example of how we spot unmet demand and turn it into breakout hits. As AI continues to reshape the digital landscape, strong IP is becoming even more valuable. It can migrate across platforms and sport new experiences. That is why Duckov is now moving to consoles and mobile, widening its reach and deepening its growth runway.

Looking ahead, our pipeline is strong, including our exclusive casual card game NCard, San Gou, [Foreign Language], and our self-developed simulation game, Lumi Master, [Foreign Language]. Our pipeline of jointly operated games for 2026 is also shaping up well, giving us a broad and diversified slate. Our strategy is straightforward, build and scale high quality genre defining games that have lasting appeal for the gamers of tomorrow. As for our VAS business, users are showing a stronger willingness to pay directly for the content and services they care about. That demand drove revenues up 6% year-over-year to RMB 3.3 billion in 4Q and up 8% to RMB 11.9 billion for the full year. In 2025, our live broadcasting business maintained steady growth and gross margin continued to expand. Premium memberships reached $25.3 million by year-end, up 12% year-over-year. supported by a strong performance from our Chinese anime slate led by our hip production, Mortal's Journey to Immortality, [Foreign Language], annual subscriptions and auto renewals remained around 80%. The highlighting the loyalty and long-term commitment of our core community. Other VAS products delivered strong momentum in 2025. Revenues from our fan charging program was particularly strong, doubling for the full year with more than 10 million users directly supporting creators and high-quality content throughout the year.

In closing, our progress this year underscores the strength of our content and community. Our flywheel is working. High-quality PUGV attracts and retains young users. Deeper engagement creates more value for creators and that energy is translating to a healthier and more sustainable commercialization. AI is also reshaping our industry, and we see it as a powerful accelerator of this cycle. We will continue investing in AI to reinforce our position as the platform of choice for China's most engaged young audience. with profitability achieved and momentum building, we will stay focused on what defines Bilibili, great content, a strong community and disciplined execution that creates lasting value.

With that, I will turn the call over to Sam to share more financial details. Sam, please go ahead.

Thank you, Mr. Chen. Hello, everyone. This is Sam. In the interest of time on today's call, I will review our fourth quarter highlights. As Mr. Chen's remarks have already covered our full year results at a high level. We encourage you to refer to our press release issued earlier today. for a closer look at our full year results.

In the fourth quarter, we continued to deliver solid top line growth while expanding margins and strengthening our profitability profile with gross margin improving for the 14th consecutive quarter and operating leverage continuing to build across the business. We entered 2026 with much greater financial resilience to build on. Total revenues for the fourth quarter were RMB 8.3 billion, up 8% year-over-year. Our total revenues breakdown by revenue stream was approximately 39% VAS, 37% advertising, 18% mobile games and 6% from our IP derivatives and other businesses. Our cost of revenues increased by 6% year-over-year to RMB 5.2 billion in the fourth quarter while our gross profit rose 11% year-over-year to RMB 3.1 billion, our gross profit margin reached 37.0% in Q4, up from 36.1% in the same period last year, showing the strength of our business model as we continue to scale. Our total operating expenses were down 3% year-over-year to RMB 2.6 billion in the fourth quarter. Sales and marketing expenses decreased by 9% year-over-year to RMB 1.1 billion, mainly due to decreased marketing expenses for our games. G&A expenses increased 4% to RMB 528 million, and R&D expenses were flat at RMB 921 million. Our operating profit was RMB 504 million, up 299% year-over-year. Our adjusted operating profit was RMB 838 million and our adjusted operating profit margin reached 10.1%, improving from 6.0% in the same period a year ago. Net profit was RMB 514 million versus RMB 89 million in Q4 2024. Our adjusted net profit was RMB 878 million, and our adjusted net profit margin expanded to 10.6% from 5.8% in the same period last year. Cash flow-wise, we generated about RMB 1.8 billion in operating cash flow in the fourth quarter and RMB 7.1 billion for the full year. As of the 31st of December 2025, we had cash and cash equivalents time deposits and short-term investments of RMB 24.2 billion or USD 3.5 billion. Under our USD 200 million share repurchase program approved by the Board in November 2024. We had repurchased a total of 0.6 million shares in Q4 and for a total cost of USD 14.7 million. As of the 31st of December 2025, we have repurchased a total of 7.0 million shares at a total cost of USD 131.2 million, leaving about USD 68.8 million available for future buybacks.

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

[Operator Instructions] And now we'll take our first question from the line of Lincoln Kong of Goldman Sachs.

[Foreign Language] Congrats on the very strong finish. My question is on the community. You're talking a seen growth of our user and [indiscernible]. Do you mention elaborate the [indiscernible] and how should we think about the future user and time spent growth potential. And when we're thinking about among all the competition, how would to maintain our creators and users what sort of strategies behind it?

[Interpreted] The core driver behind visibility growth is the continued increase in supply those high-quality content on our platform.

I've mentioned this before, in the content industry, the end game of competition is about quality. That to say, platform come -- that can consistently deliver great content will be the ultimate winner. This is especially true today where there is a clear oversupply of industrialized fast full content. In this environment, to high-quality content become even more precious and more powerful in shaping users' mind share.

The reason why Bilibili has the ability to unlock the supply of high-quality content is because we have both the soil and the seats to grow the high-quality content. First, our community is that very fertile soil. Bilibili has a large base of user who knows how to appreciate recognize and spread great content. They are the group of people who have the ability to identify high-quality content at their early stage and spread it across our community.

And that's because user, not just watch content, they actively provide feedback that defines a good content. And our content creator relies on their input, their feedback to create even better content. That's why content creators on Bilibili can create content not only for Bilibili's user to appreciate, come to the whole society, those are still the top quality content.

Well, this type of community essentially important to content creator. You might argue that for a very top content creator, their experience across multiple platforms may be similar. But for the much larger group of middle or emerging creators, they really truly relies on the community's feedback, telling them what is a good content. What direction they should be aiming for. And this is very, very important for creator community.

That's why you've seen that on Bilibili, there's continuous supply of new content creators that has grown and thrive on our platform every year when we publish our top hundred top content creators. About 1/3 of the content creator are the newly emerged content creator that was never nominated before. That is the power of our community. Soil -- the fertile soil that can cultivate and grow a very large number of new talented content creators.

And what we have done in the past is staying focused for the past 17 years cultivating and building this kind of community and this relies on every single real users contribution and feedback. And this is very -- we need patience, we need time to build this very tight community. And this is our biggest moat of this defensive mechanism of having this community of our back in our business. And when it comes to industrialized pure traffic-driven model, it's very hard for this type of model to build a community.

And the creator are the seeds on soil. At its core, we believe the high-quality content is the result of creators uniqueness. They're 1 of a kind soul combined with their strong production capabilities is because we have this unique creators and they entrust our platform, and they entrust us to witness their growth and unleash therapy activity. That's why we have a very unique ecosystem.

We are very confident about our future user growth. As we mentioned in the past, we've witnessed that there was a clear content consumption upgrade trend that is happening and this type of consumption upgrade is just a 1 way straight. Once people start to experience truly great content, it's very hard for them to go back. And we've seen that oversupply of short content as people start to consume more and more content, and it's just very natural for them to start to appreciate this high-quality content that is really has to offer. We also have that user mind share. So we are seeing that our high-quality content is attracting more and more users onto our platform. And then on top of that, our average age of our user ages come to 26 and 27, as they move into their next stage of life, their content will continue -- content consumption will continue to evolve, and their purchasing power will grow as well. for us, that represents a long-term structural opportunity for growth.

When it comes to competition, we'll focus on 2 things. First, we'll stay very clear about our positioning around high-quality content and make sure the platform continues to be the place for deeper expression and interest-based high-quality content community. And secondly is that we'll be focusing on our creators, make sure this is a platform for their long-term creation as well as improved monetization potentials. In terms of their creation period, we are quite happy with the results. What we have seen now. We have a large number of content creator who's been creating content on our platform for 5 to 10 years, and they continue to gain followers in creating lasting value on the platform. On the monetization-wise, we continue to cultivate more avenues for content creator to make more money in the last year in 2025. There are about million of content creator received income on our platform, and their average income also grew by 21% year-over-year. And on top of that, the number of content creators with 10,000 follower, 100,000 followers and 1 million followers, they all grew over 20% year-over-year. And those 2 factors combined will position us very well in this competitive landscape and continue to thrive.

We will now take our next question from Xueqing Zhang from CICC.

[Foreign Language] Congratulations on the strong advertising growth in the first quarter. My question is also about advertising. Could the management share which industries and products were the main drivers behind the strong performance in Q4. We have also noticed that many AI applications have been ramping up their marketing panel. How does management see this benefiting your advertising business. And could management also provide some color on the advertising growth outlook for the first quarter and the full year of 2026?

[Interpreted] The performance of our advertising business in fourth quarter and for the full year 2025 was in line with our internal expectations. Growth actually accelerated quarter-by-quarter throughout the year from 20% year-on-year growth in the first quarter to 27% year-on-year growth in the fourth quarter.

Look at the drivers behind our stronger than market expectation performance in Q4. First, we credit that to the on top ad inventory. Within our multiscreen and multi-consumption products, we continue to release more ad inventories on top of the feed scenarios. Areas such as search, PC and OTD, they all grew more than 60% year-over-year. And for some certain scenarios, they even grow over 200% year-over-year in terms of ad consumption.

Secondly is that we continue to improve our ad efficiency. This was mainly driven by the integration of AIGC tool with ad creative campaign, deeper conversion penetration and our AI-backed smart delivery ad delivery system. And all combined together is helping us to improve the overall ad efficiency and recommendation efficiency.

Thirdly, looking at the industry contribution in addition to our strong verticals like Internet services, digital products and home appliances and e-commerce. We are benefiting from the AI application competition as well as the rapid growth of instant retail in the fourth quarter. And at the same time, we are also seeing strong growth from education sector, automotive sector and the home and furnishing sector, they all delivered a double-digit growth.

Whenever an industry goes through a boom or sees a intensified competition it usually leads to a search and advertising budget in the short term. And AI sector is no exception. But what we see different here is over long term, we also see opportunities when the industry goes through reshuffling and real allocation of budgets, but they're still very long way ahead in both short term and long term in terms of the budget gains for us in the AI industry.

Let's just focus on the short-term impact for the AI sector now. Well, for sure, the AI sector is bringing incremental ad budget to Bilibili. Companies in area like applications, large language models and AI tools are all significantly increasing their budget spending, and this is becoming a clear growth driver for advertising platforms, including Bilibili and other platform. But at the same time, Bilibili is a very natural fit for AI advertiser. This goes to our young and highly tax say young user base with a strong openness to embrace new AI applications, new AI knowledges and the platform itself is because it's an interest space coming may be centered around high-quality content. The advertising on Bilibili is more likely to translate from the spending into real user mind share. And also when it comes to the branding and performance outcome, is much strong -- delivers much stronger results compared to pure traffic play.

When it comes to the Q1 and to 2026 outlook, what we have witnesses that the overall market environment is still very much about competing for the existing market shares. And the advertisers are becoming more demanding when it comes to performance and efficiency. But at the same time, what we're seeing is that advertisers are paying more attention to the quality of conversion after the delivery, not just the scale of the number of exposures, that's where availability can deliver real value for our clients.

And our users are on average around 26 to 27 years. So which is the stage, both of their purchasing power and the decision-making influence as rising rapidly. So this is the exact kind of consumer bracket that all advertisers are eager to reach.

As our CEO mentioned, Bilibili is our community built around high-quality video content. And as AI technology continues to evolve, the line between get content and good advertisement will blur. That is to say, good ask can feel like a good content and good content can also function very well as effective ads. We believe this model can scale up very quickly on Bilibili.

And over the past 2 to 3 years, our advertising products and algorithm capabilities has already reached a very solid mid- to high upper level compared to the overall industry, and we still see quite significant room for further improvement going forward.

As for the growth outlook for Q1 and full year of 2026, we remain confident about continuous growth and further expansion in terms of market share.

Next question comes from Alex Liu of Bank of America.

[Foreign Language] I will translate myself. So the company's key game title San Mou has been operating steadily for 1.5 years. And we saw last year the self-developed game Escape from Duckov, has got a lot of traction among users, gamers last year. So can the management share some high-level strategic game business into 2026. And what will be the operational focus for San Mou and any recent colors on the -- any color on the recent growing trend for that game. And I game pipeline, can you share a little bit more about thoughts and expectations for, for example, 3 Kingdoms and Cars and Lumi Master.

[Interpreted] For San Mou, our goal and strategy is very clear. We're focusing on its long life cycle of this game. And secondly, as to make this game continue to be the top among the strategy game genre.

Naturally strategy game is very suitable for a long-term operation and that we have planned for this year for this game as to focus on the iteration of different game seasons and focus on the gameplay and different storylines of different seasons to make sure that our user, our gamers have brand new and interesting gaming experience when they are playing this game.

At the same time, we'll organize and organize a more structural brand and community activities, around the key moments to encourage players participation and the discussion to further strengthen the user mind share of a community sense by playing this game.

And while maintaining a robust Chinese fan base, we will continue to expand this IP influence on a global scale. In January, we already launched this game in the Hong Kong, Macau, Taiwan region. And we do plan to further push this IP into Korea and Japan market and other Asian markets. to further expand influence and the power of the IP.

As for Escape from Duckov, we are very encouraged by the results they deliver on the PC front, and we are already on the process of converting this game on a console version. And at the same time, we're exploring more possibility of this IP on the mobile devices. And we believe this IP has the potential to become a very influential game overall in the China's gamer market.

And in terms of the pipeline, in card, is designed to be a lightweight strategy competitive game. And it's very fun, it's very light. It's a 3 minutes per round type of poker game designed very well to bid into the short fragmented play session.

And the game as a result of our strategy of rate inventing gains for yarn generation. We have created this one-of-a-kind gameplay that combines casual poker with unique card hero system. And this fits this generation gain preferences and their demand for casual, but different game experience. As a result of our beta testing, we also have discovered this game has been widely accepted and welcomed by the young generation.

Because this is a very innovative game. Our team has spent a lot of time in focusing on polished game to its best quality. We've already conducted 2 rounds of beta testing we plan to conduct another round of paid beta testing in March this year, and we do plan to roll -- officially roll out this game around mid this year.

Our goal is to through long-term operation, make this game as large DAU as possible. And at the same time, we'll be very patient about the process.

Lumi Master is a self-development game. The game is very casual cozy style with semination game element and the PAT, nurturing and catching element of game.

This is another product of our game strategy of reinventing games for the new generation of gamers. So this game combines essential gameplay of both pet nurturing and as well as simulation. It's also very 1 of a kind and a unique game play.

And for this game, we were already obtained approval end of last year, and we do plan to launch our paid atop testing in the second quarter and to officially launch this game globally within this year.

And as we look into 2026, there are 2 areas we'll be focusing on. One is long-term operation. As I mentioned before, this is competition within the existing market. And the long-term operation will provide a solid foundation for our game business. Currently, we have about 70% of the game revenue comes from our long-term operating gains, including San Mou, FGL and Azur Lane. And this provides a very stable income inflow for the game business.

And on the other hand, we will continue to explore new projects with a giant defining potential and we are a principal as whether to be either to be #1 in this genre or be the first of its kind in this genre and this will be our incremental game revenue contribution source. And this is guiding the projects such as NCard, Lumi and many other games in our pipeline. And we are quite confident about this strategy will guide us to an even brighter future.

And the biggest advantage of Bilibili and game business is that we are the platform that is that is staying the closest to the young gamers in China. As at the same time, the company has the commitment and the gene and focusing around high-quality content. We have the content sensors and half the patients. Those 2 factors combined will eventually help us to find and develop the best gains that we can offer. That concludes this question.

We will now take our next question from Felix Liu of UBS.

[Foreign Language] Thank you management for taking my questions and congratulations on a strong result. My question is on AI. We noticed that we -- there is a continued development in Video Gen AI, which has made creating video content more and more easy. How do management see your opportunities and challenges from the recent developments in Video Gen AI? And what are looking ahead into 2026, what are your key investment priorities around AI?

[Interpreted] The essence of AI creation tools is about improving the productivity of high poly content compared with short-form vertical content which is already oversupply. The benefit of creating even more short content is limited. But on the contrary, where Bilibili is standing for as the long-form high-quality content, where AI is essentially helping a small number of high-quality talented content creator to create high-quality content at a much faster pace that essentially is increasing the supply of what is known for scarce of the quality content. So fundamentally benefit in our platform in terms of empowering talented content creator to create more high-quality content.

And we are already starting to see early signs of how AI creation tool is helping us to improve the supplier pipe content. A music is a perfect example, with the help of AI music tools, even music lover without formal training can turn good their good ideas into professional quality music works and the same thing goes with categories such as auto tune remix. In the past, it's very hard to produce a good auto tune remixed video. But now with a good sense of humor and creativity, this is helping our creators to produce high-quality content at a much faster pace. We've seen this on the video views and video watch time growth within the help of AI or contention tools, those contents watch time and video views is growing multiple folds year-over-year in the fourth quarter.

And I'll talk about a few points that will enhance our investment on the AI, how AI is helping our community. First of all, is leveraging the large language model to enhance our ability to understand the content and user intent especially for platforms like Bilibili that offers a very long-form high-quality content. In the past, it's very difficult to truly comprehend the full meaning of that content, match it with the right users. But now we're leveraging the AI capability, we can truly understand the meaning to compete and the high-quality content and better understand our user at the same time. This is also helping us to identify high-quality content at a much earlier stage and pushed it to more people. And if you look at the Q3 and Q4 user matrix, the AI comprehension of context is truly helping us to drive the user engagement, drive the user growth, that's the area we'll be focusing on. That's one.

And as Carly mentioned earlier, AI is also helping us to better match the advertisement with the right user. This has been done through the content comprehension at the same time, understand our users' needs and their desire and need on the platform to better match the right advertisement with the right users.

Secondly is on AIGC tools that help content creators to create content more efficiently, we have already launch a few products, but this year, we'll be upgrading that AI tools to really enhance the productivity of creating videos leveraging these tools. And we believe this will be a big efficiency stepping up for our content supply and for the overall content creation process.

And that AIGC tool also includes the translation function. It's not just pure soft title translation a very native translation of the context of the mini as well as lit thinking and also the creators voice. We believe we already master the ability to translate Bilibili content into all the mainstream languages across the world. This will help our canting creators to bring their high-quality content to a global stage.

And based on what we have done and observed we will be focusing on those 2 areas. One is improving the productivity of our content creator. And number 2 is improve the recommendation efficiency to better understanding our content and our users' needs. And our investment focus will be strictly aligned into those 2 areas that we believe in the longer term, generating much larger value for our overall ecosystem. That concludes this question.

Next question comes from the line of Yiwen Zhang of China Renaissance.

[Foreign Language] First, congrats on your whole year GAAP profitability. The question is regarding financials. We noted 4Q last year, adjusted operating margin has reached 10.1% a step closer to me near-term guidance of 15% to 20%. So how should we think about revenue and profit or profit. Additionally, do we have any update on the medium to long-term target?

Thank you. I will take this question. Looking ahead to 2026, we remain confident in the continued growth of our community. At the same time, we will keep improving our monetization efficiency and more effectively translate this growth in high-quality user to the commercial value. Among our business, advertising is where we see the clearest growth opportunity. Our operating leverage will also continue to come through. We expect gross profit will improve slightly quarter-over-quarter in the first quarter and our adjusted operating margin should continue to improve year-over-year in Q1. We are steadily progressing to our mid- to long-term target that 40% to 45% of gross profit margin and 15% to 20% of our jet operating margin. At the same time, in 2026, as mentioned by we will modestly increase our investment in AI and reinvest partial of our incremental profit into AI applications that are closely aligned with our core business. This investment will help us further improve the supply of high-quality content, drive the user growth and enhance monetization efficiency, ultimately, we're delivering strong returns over the long term. Thank you for your question.

Operator, that concludes all the Q&A session.

Thank you. And that concludes the question-and-answer session. Thank you once again for joining Bilibili's Fourth Quarter and Fiscal Year 2025 Financial Results and Business Update Conference Call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director of Piacente Financial Communications. Contact information for IR in both China and the U.S. can be found on today's press release. Well, thank you, and have a great day.

Good day, and welcome to Bilibili's Third Quarter 2025 Financial Results and Business Update Conference Call. Today's conference is being recorded.

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

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 filings with the SEC and Hong Kong Stock Exchange.

The non-GAAP financial measure will provide are for comparison purpose only. The definition of this measure and the 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 the Bilibili IR website at ir.bilibili.com.

Joining us today from Bilibili 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. Sam Fan, Chief Financial Officer. I will now turn the call to Mr. Chen.

Thank you, Julie, and thank you to everyone for joining us today to discuss our 2025 third quarter results. Our 2025 momentum carried through the third quarter as we delivered solid growth, improved profitability and attracted an even larger, more engaged community. As an influential hub of diverse interest, our high-quality content offerings and unique community experience, continue to fascinate the hearts and minds of young generation. We are increasingly seeing this in our key user metrics, which have resumed and accelerated growth trajectory since the beginning of the year.

In the third quarter, our DAUs rose 9% year-over-year to $117 million. MAUs grew 8% to $376 million, and average daily time spent per user increased to 112 minutes, up 6 minutes from the same period last year, each hit an all-time high. We are very proud of these numbers as they show users rising demand for quality content and the welcoming community spirit that makes Bilibili unique. We will keep building on the strong user momentum and reinforcing our leading user mind share as the best PUGV community in China.

This solid community growth is translating into increasing commercial value with even greater opportunities ahead. While enjoying engaging content, users are demonstrating a stronger willingness to spend on our platform, both directly and indirectly. Monthly paying users hit a record high of $35 million in the third quarter, up 17% year-over-year, with more users converting through our various games and VAS offerings.

We're also seeing deeper engagement around consumption as users increasingly turn to Bilibili for advice and inspiration with real purchasing intent. Our advertising business also accelerated and revenue grew 23% year-over-year in the third quarter, with an average user age of 26, a maturing cohort with stronger purchasing power and expanding consumption needs. We're capturing more commercial potential across the platform and realizing greater value from our users' evolving needs.

Building on these strong fundamentals, we delivered solid financial results in the third quarter. Total net revenues grew 5% year-over-year to RMB 7.7 billion as our revenue mix shifts toward high-margin business, gross profit increased 11% year-over-year with gross margin expanding to 36.7%, marking the 13th consecutive quarter of growth, supported by disciplined cost management and higher operating leverage, our non-GAAP operating and net profit surged 153% and 233%, respectively, year-over-year.

Our non-GAAP operating and net margins reached 9% and 10.2%, respectively, showing meaningful improvements from the same period last year. These metrics underscore the sustainability of our growth model reflected in our continued profitability expansion. Notably, we welcomed another blockbuster game, Escape from Duckov, [indiscernible] in October. This self-developed single-player extraction shooter game became an instant hit after its debut, selling over 3 million coffees globally and earning great user reviews.

The success illustrates our Sharp genre insights, in-house development capabilities and solid execution in reinventing games for new generations of gamers. There is still a lot of unmet demand in the market. and we are ready to tap into it with our upcoming pipeline and robust game content ecosystem. As we continue to strengthen our business fundamentals, AI is becoming a key enabler of our future growth.

Later this year, we plan to launch several AI-powered applications, including multilingual video accessibility features such as AI-enabled dubbing, subtitles and lip sinking -- we're also developing a new video generation tool tailored to video podcast production were compelling storytelling to find high-quality output. Beyond these initiatives, AI is consistently enhancing our operational efficiency, and there is so much more to explore. Looking ahead, our focus remains on empowering our unique PUGV community, strengthening our commercialization capabilities and sustaining profitability.

We will continue to scale our core businesses while exploring opportunities such as innovative games and AI-empowered solutions to enhance user experience and capture additional monetization potential. With that overview, let's take a closer look at our core pillars of content, community and commercialization, beginning with content and community.

Our ecosystems continue to grow stronger as quality content and community connections reinforce each other. This growing synergy is reflected in record engagement and increased commercialization demonstrating Bilibili's ability to turn cultural relevance into sustainable growth. Average daily time spent hit a new record high of 112 minutes in the third quarter. This is a 6-minute increase over the same period of last year. Mid- to long-form videos remain our hallmark.

Users continue to show high engagement with our more substantial informative content and watch time for videos over 5 minutes increased by 20% year-over-year in the third quarter. Our official members grew to $278 million with ongoing steady 12-month retention of around 80%, reflecting strong user loyalty. ACG remains the legacy category of our cultural ecosystem.

Chinese anime content watch time more than doubled this quarter, led by popular series made by Bilibili such as a Record of Mortal's Journey to immortality, [ Financing drag,] the tails of herding God, motions and linkage, Lingang. The success of these Chinese anime drove premium memberships to a record high of 25.4 million. In addition, game content grew solidly with watch time up 22% year-over-year. This momentum further reinforced games as our largest ad vertical with Bilibili continuing to provide the ideal community for developers to engage players and strengthen their IP influence.

Meanwhile, AI-related content remains one of our fastest-growing categories. Watch time was up nearly 50% year-over-year, and revenues from AI advertisers rose around 90% in the third quarter, highlighting Bilibili's position at the intersection of tech innovation, user interest and commercialization. Lifestyle and consumption-related content also grew as our audience matures and their interest diversify.

Our mid- to long form creator led storytelling content is keeping viewers engaged and drawing more interest from advertisers. For example, automobiles stood out in the third quarter, with watch time up nearly 20% and and ad spending rising 35%, demonstrating how our community continues to evolve with our users while expanding opportunities for brands.

Our creator ecosystem is the key force behind our progress and creators sit at the center of Bilibili. As a platform, our most important job is to help talented creators build their followers faster and earn more. In the first 9 months of 2025, the number of creators with 1,000, 10,000, 100,000, 1 million followers, each grew by over 20% year-over-year. Over the same period, nearly 2.5 million creators earned income on Bilibili through various advertising and VAS products and average income per creator increased by 22% year-over-year. These trends show how creators success and user engagement reinforce each other, strengthening the foundation of Bilibili's content ecosystem.

Now let's talk about our commercial businesses and their progress. Our commercial momentum continued in the third quarter as we tapped into more of the value behind our highly engaged and growing user base. Advertisers are increasingly recognizing the strength of Bilibili's influence and total advertising revenues grew 23% year-over-year to RMB 2.6 billion.

In Q3, we continued advancing our ad infrastructure on multiple fronts. By leveraging our Multimodal LLM, we gained a deeper understanding of video content, community interaction and their interconnection with user intent improving our ad targeting and recommendation efficiency.

Meanwhile, our upgraded Smart App placement system automates campaign routing and delivery, maximizing scale, speed and performance. This drove a 16% year-over-year increase in the number of advertisers seeking incremental value on Bilibili. Beyond ad algorithms and placement, our AIGC creative tools add another layer of ad efficiency.

Advertisers can automatically generate compelling titles and thumbnails, saving production time and cost while improving conversion rates. In the third quarter, over 50% of the performance ads materials had the help from our AIGC tools, assisting advertisers reach users more effectively with content that resonates with their intended audiences.

These infrastructure advancements go beyond efficiency, they're reshaping how advertisers connect with our community. By combining intelligent algorithms with authentic engagement, we're turning creativity into conversion and positioning Bilibili's ad business to capture higher value as we continue to scale.

This quarter, our top 5 advertising verticals were games, Internet services, digital products and home appliances, e-commerce and automobile. As our mid- to long-form PUGV deliver more informative content and more real usage scenarios for users, we have become an ideal platform for digital products and home appliance brands to reach and convert young users.

Add revenues from digital products and home appliances and home decoration both grew by over 60%. As more and more online merchants recognize the commercial value of our unique young user base. They are allocating larger advertising budgets to our platform. In addition to our anchor verticals, we continue to see incremental ad revenue from emerging verticals. In Q3, ad budgets from AI and education both increased meaningfully.

Turning to our games business. In the third quarter, game revenues came in at RMB 1.5 billion, down 17% year-over-year, mainly due to the high base from the same period last year when San Mou was initially launched. We continue to focus on building a diversified game portfolio. laying a stronger foundation for long-term growth in our gaming business.

In the third quarter, San Mou maintained its popularity. We further enhanced the user experience by streamlining gameplay and character progression to create a more balanced and enduring title. Building on our success in the domestic market, we plan to launch the traditional Chinese version of San Mou in Q1 2026 for Hong Kong, Macau and Taiwan.

With additional international versions planned for later next year, opening it up to strategy players worldwide. Besides San Mou, our legacy titles, SGO and Azure Lane continue to be welcomed by ACG lovers maintaining loyal fan communities and consistent engagement.

On the 16th of October, we launched Escape from Duckov, our first single-player extraction shooter game, developed in-house by a 5-man team. The Indy game won over millions of users with innovative gameplay and astute graphics. Over 3 million copies have been sold globally across various platforms making escape from Duckov, the #1 popular Indi game in China this year. This was an encouraging debut for us and a prime example of our expanding game development capabilities across genres and platforms.

Leveraging our leading game content platform and influential game creators. We are confident we can expand the IP and bring more franchise titles to players next year.

Looking at our pipeline, we are preparing to roll out [ NCard Sungai] [indiscernible] in early 2026, and asymmetric PVP card game inspired by the Three Kingdoms culture, designed for a broad audience of lightweight players. The game features fast-paced matches that lasts around 3 minutes per round, making it well suited to casual on the go play. As our first step into the casual gaming genre, the title is backed by Bilibili's vibrant gaming community which provides a strong foundation for player acquisition and long-term engagement.

Results from the beta test have been encouraging, and we will continue refining the game to deliver a creative, unique casual card game experience.

And finally, let's look at our VAS business. Revenues increased 7% year-over-year to RMB 3 billion. This quarter, more users joined our live broadcasting universe as we continued expanding content aligned with their interest.

Our focus remains on refining operations to ensure steady, sustainable growth while further improving margins. Driven by our popular Chinese anime titles, premium memberships also maintained solid growth, reaching a record high of $25.4 million by the end of the quarter. Around 80% of members are on annual or auto renewal plans, underscoring their loyalty and deep connection to our community.

Other VAS products continue to grow rapidly in the third quarter led by our fan charging program, which saw its revenue nearly double year-over-year. This momentum reflects users' willingness to directly support the creators and high-quality content they value most.

Beyond the numbers, we remain deeply committed to shaping a healthy culture and community for China's young generation. ESG principles are central to that mission. This year, MSCI ESG reaffirmed Bilibili's A rating, recognizing our ongoing progress in using technology and culture to create meaningful impact.

In conclusion, everything we've achieved today comes from more than a decade of staying focused on one thing, building great content in a vibrant community. This long-term focus has created a self-reinforcing cycle where high-quality content attracts younger users and engaged community as ongoing value and monetization follows organically.

As we become more profitable, this flywheel will become even more effective. We will stay firmly on this path and continue to create lasting value for all of our stakeholders.

With that, I will turn the call over to Sam to share more financial detail. Sam, please go ahead.

Thank you, Mr. Chen. Hello, everyone. This is Sam. In the interest of time on today's call, I will review our third quarter highlights. We encourage you to refer to our press release issued earlier today for a closer look at our results. In the third quarter, we continue to grow revenues and expand our margins and profitability, driven by growth across our commercial businesses, particularly in our high-margin advertising businesses.

Total net revenues for the third quarter were RMB 7.7 billion, up 5% year-over-year. Approximately 39% from VAS 33% from advertising, 20% from games and 8% from our IP derivatives and other businesses. Our cost of revenues increased by 2% year-over-year to RMB 4.9 billion in the third quarter, while our gross profit rose 11% year-over-year to RMB 2.8 billion.

Our gross profit margin reached 36.7% in Q3 compared with 34.9% in the same period last year. Our expanding gross profit and margin show that our model is built to scale. Our total operating expenses were RMB 2.5 billion, down 6% year-over-year. Sales and marketing expenses decreased 13% year-over-year to RMB 1.1 billion, mainly due to decreased marketing expenses for our games.

G&A and R&D expenses were RMB 509 million and RMB 905 million, respectively, both flat year-over-year. These efforts allowed us to maintain positive operating results. Our operating profit was RMB 354 million compared with a loss in Q3 2024. Our adjusted operating profit was RMB 688 million, and our adjusted operating profit margin reached 9% in the third quarter versus 3.7% in the same period a year ago.

Net profit was RMB 469 million, versus a loss in Q3 2024. Our adjusted net profit was RMB 786 million, and our adjusted net profit margin in the third quarter was 10.2% and compared with 3.2% in the same period a year ago. Cash flow-wise, we generated about RMB 2 billion in operating cash flow in the third quarter.

As of the 30th of September 2025, we had cash and cash equivalents time deposits and short-term investments of RMB 23.5 billion or USD 3.3 billion. Under our USD 200 million share repurchase program, approved by the Board in November 2024 and we've repurchased a total of 6.4 million shares so far at a total cost of USD 116.4 million, leaving about USD 83.6 million available for future buybacks as of the 30th of September 2025.

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

[Operator Instructions]. Our first question comes from [ Alex Lee ] of Bank of America.

[Interpreted]. Yes, management. I think it's a great quarter. And we see DAU and MAU and time spend are basically all at the historical high and it's growing, accelerating. So I was just wondering if management can share more about what's the really drivers behind this?

And in terms of the user in terms of future engagement, is there any medium-term target? And also for monthly paying users is also accelerating in terms of growth -- and what are the drivers behind? And how should we think about in the future, what are the latest new user paying for content trends?

[Interpreted]. The fundamental reason for our continuous user growth lies within our focus on high-quality content. -- and high-quality content is always a strong and sustainable growth driver.

Actually we think there has been a fundamental change of Videocon in supply. And currently, the video content supply is very much sufficient and in some way, even oversupplies, oversupplied. Every year, there's tens of billions of new videos being created and riding on the rapid adoption of AI tools, there are going to be tens of thousands billion trillions of new videos being made every year.

However, we think that the quantity of the video and the quality of the bid are 2 different things. the high-quality content is still in short of supply. And once someone started to enjoy or start watch high-quality content, it's very hard for them to go back. They got peak year.

They wouldn't go back to the low quality time killing type of videos. That's why Bilibili has a long runway for growth. is because the demand for high boy content will continue to rise and the population that will be interested in Bilibili content will grow.

Apart from our focus on high-quality content, our unique community aspect of our business also helped further strengthen our advantage. This is because our community can help to discover high-quality content and also help our talented content creator to continuously to focus on their content creation because content needs to be discovered with the eye of beauty. And we have that many, many users that they have the passion for high-quality content that they also have the taste to select and promote those high-quality content.

The good content creator needs good audience and Bilibili is where those 2 parties meet and resonate with each other, especially for content creators before they got how pillar and a reputation, there's a relatively long fair wait for them to grow and build this community and the users' encouragement will company them to go through that process. That's why you see those content creators on Bilibili. They have been creating content on our platform for 5 years, even 10 years long.

This -- let's look at the MPU trend. This quarter, our MPU reached a new record high of 35 million grew by 17% year-over-year. For third quarter, particularly as the premium membership business, which is the primary driver of that. But on a long-term horizon, we think the 2C business, the user paying for content type of business model will be a very big growth driver.

I'll talk about 3 reasons that will drive the content consumption related paying activity. First of all, as our users. The average age of our users is now at 26 years old, a cohort with increasing income and expanding consumption scenario, they are generating on both the advertising front as well as the 2 sets, the paying for content paying for services aspect.

And we believe that the second point is that we believe creator who consistently produce high-quality content over a long period of time. can foster their personal IP and drive a sustainable monetization. There's a very large group of content creator that has been producing content on visibility for a very long time. through the upper are their own personal brand, and they have their own reputation.

People will follow their new creation. That's why the fan charging program the whenever they sell their own premium courses or even their personal IP derivatives, people their followers, their fans who pay for that content or services. That is also driving the overall NPE growth.

And the last point is that what we have discovered is for the younger generation consumption is mainly driven by sales gratification. People will pay for things that make them happy. They will pay for people that they love -- and this trend has become even more clear nowadays with our initiatives on the fan charging program, helping our content creator to monetize their own personal IP. So this will be another very important growth factor behind that continuous growth of our NPA.

That concludes the answer for this question.

Our next question comes from the line of Thomas Chong of Jefferies.

My question is about the payment business. We saw escape from that group received remarkable results. Can management share about its future business plan. Do we have any plan of developing a mobile game.

On the other hand, can management comment about San Bonca with regard to its monetization testing end of October, I mentioned, we expect it to be is -- on other hand, what are the games in the pipeline to be anticipated. For some months, is the performance in Q3 meet expectations? How should we think about the performance in the next 1 year?

[Interpreted]. I'll talk about the Escape from Duckov and truly, this game has been the dark horse of the year in the games market in less than 1 month after is debut. It has already sold over 3 million copies across various platform globally, and the peak concurrent user has reached over 300,000 and -- and based on the current momentum, it is safe to say, Escape from Duckov has the potential to become the #2 best-selling console game in the history of China. So this has been very encouraging.

And on top of that, besides the volume, the sales volume players have been giving the game extremely high ratings. On steam platform, there have been 10,000 comments and 96% of them are overwhelmingly positive.

And why it has been so successful? I think there are 2 main reasons as a player myself. I think, first of all, this game is a fun to play game. There's a lot of game launched every year, not every one of them is Fund II play. And we found this game is very carefully designed with different stages and the graphics, people will find as a really true fun game to play.

People will enjoy themselves. And secondly, is the game has very light mode when you play it, you don't build the stress of PVP. And it's just the simple pleasure to collect and -- so -- and also this game doesn't pressure people to spend a lot of time or spend a lot of money. It's just very easy breezy -- and at this time of the year it's very entertaining and Fund II play. So those 2 elements, fun to play and relaxing are the 2 main reasons for this game to success.

And the reason behind that is when we are thinking about setting up a project like this back in 2023, it was just simple a few young developer gather together who has been a true fan of escape from tools the type of game has traction the extraction game fans, they wanted to create something that's for the young generation, easy to play relaxing and with acute graphics. This is a very good example of how we are thinking about our game strategy, reinventing games for the new generation of gamers.

It is also an example of how we have been so taking niche genre in the game market and do make it to the best -- and we think that's the perfect example of how we are executing our game strategy, and this is one of many examples of our pipeline, how we are designing it.

And on the IP expansion question, we have -- because the game currently is only on PC, we have already kicked off the console project and the mobile adoption for Escape from Duckov because on console and on mobile projects, there's going to be a difference with the gameplay.

We will be spending a lot of time to fine-tune the project and while doing so, we'll also continue to listen closely to our gamer community, and we will share updates when the time is appropriate.

As for the end-car game, currently, the closed beta testing has been going very smooth and we will be focusing on fine-tuning and polishing the game and make it to its best and introduce to the market. It's currently expected to be released in Q1 next year.

And for the end-car game, it's designed to design to cater the need of casual car gain user at and it will be very short on the go play for 3 minutes per round. This is another attempt into catering the new generation of gamers. And there's a lot of innovation within the gameplay and hopefully, leveraging our very unique and best of visage gamer community as well as our talented content creators leveraging our PTV community as well as the live broadcasting community.

We can bring this innovative game to all of the Bilibili users because the game, there's a lot of aspects. Lots of the aspects has very great innovation, and we are putting a lot of effort trying to make it the best quality. And we will be spending time fine-tuning the game. And when the game is launched, the #1 go for this game is the DAU growth. And hopefully, this game will become billable is another great evergreen titles.

As for San Mou, it is one of the most important titles in our portfolio. And overall, the performance in the third quarter was in line with our expectations. And we will be focusing on fostering a very balanced and used character progression and we will be focusing on the user satisfaction. So the goal for the title, the most important goal for this title is longevity. We are hoping to make this game at least 5 years to operate over 5 years long.

And in the first quarter of next year, we plan to launch the traditional Chinese version of San Mou in Hong Kong and CalTaiwan. And in the second half of next year, we'll be rolling out additional international versions.

Thank you. That concludes this question answer.

The next question comes from Felix Liu of UBS.

Congratulations on the very strong results, especially on the advertisement part. How does management see the growth potential in your ad business from here? Does the management share more color on the potential of the improvement in recommendation algorithms and AI on your ad business from here?

And more on the near term, how does management see the advertisement demand for the recently concluded 11 shopping [indiscernible] as well as the overall Q4.

[Interpreted]. In Q3, our advertising revenue reached RMB 2.57 billion, up 23% year-over-year with our market share continuing to rise. On top of the steady growth for our performance-based ads, we're seeing both brand and sparkle apps grew much faster than overall market based on our complete industry data. the brand ad and sparkle ad growth rate are among the fastest-growing players in the industry.

And how should we think about the revenue growth going forward? I would like to firstly talk about the underlying growth -- the underlying logic of Bilibili's ad. As time go by, more clients are recognizing and tapping into the value availability ecosystem and its users, thanks to the uniqueness of our community, are as key advantage is that we can deeply shape and make a big impact on users' purchasing decisions.

To put it more simply, visibly advertising business can bring to our advertiser. Number one, it will not be a one-off value hit. Secondly, we'll bring more -- we are more effective at bringing new users, new customers. Thirdly is we're more likely to drive a sharp increase in repeat purchase from both new and existing users. In other words, we will help our clients to achieve both short-term conversion goals and long-term brand-building goals.

Yes, yet anything we haven't fully perfectionized, realize the underlying logic is a pure upside for the future. From a client perspective, our top 5 advertiser verticals in Q3 were gaming, Internet services, consumer electronics and home appliances, e-commerce and automotive.

And to better serve our clients, advertising clients, there is 3 main points: One is to enhance our strategy or service for our super key accounts, SKA, we will be serving our largest clients with a dedicated service team and a year-round integrated Bilibili marketing solutions. Our goal for this team is to achieve over 90% repurchase rate and keep increase our share of their spending on Bilibili.

Secondly is we're hopeful -- hope to replicate our successful model into multiple new verticals. We're using an always-on performance model to better serve our other verticals especially for those with big spending budget, such as FMCG categories like food and beverage, [ patenbaby,] beauty apparel, we expect a new wave of clients and budget to come on to our platform.

As the competitive landscape become more diversified in the second half of this year and even next year, we are still very confident that by 2026 there is still substantial growth potential in gaining our platform e-commerce and content consumption-related advertisers.

And third point is we are planning to expand our ad penetration across different community scenarios. And this will be another growth driver because Bilibili by itself, it has many consumption scenario within our products, unlike other platforms where most consumption happens in a single video feed.

Our users are spending a lot of time watching videos within the players within the commentary session and also in the bullet chats. And they also watch live streams, they also engage with live stream content. They do search the browse trendy topic and hot searches on our platform and also consuming content across multiple devices, including mobile, PC, OTT and et cetera. And in Q3, add revenue from these different scenarios all grew by more than 50% year-over-year. But the current penetration is still very behind, we would think it can be, which means there's still a lot of room to grow.

And the fourth point is about the -- your question on AI. We have been discussing intensively internally that AI as a topic that can be easily making people overly optimistic about the short-term burst to the advertising revenue, while overlooking as potential to fundamentally reshape the industry over the long term.

However, there's still a lot of positive changes we are seeing first of all is on the AIGC creatives now is account for 55% of the total creative volume in the performance-based fast, and it's continued to rise. We are providing generation tools to our clients in the Internet service sector, such as for online novels, we support text to video generation. And for sure, drop advertiser we supported the AI highlight everything. In these sectors, AI generated video creatives already account for over 60% of the creative consumption and this upgrade has freed up a lot of productivity.

And the second application for our AI is on the smart delivery system. Currently, the automated buy-in smart delivery at advertisement system is already accounting for 45% of the overall performance base as spent. And most clients have been seeing their spend scale up through this model.

Thirdly is on the recommendation efficiency by combining the multi model content understanding with the generative recommendation algorithms, we have been lifting our distribution efficiency by more than 10% in total. All of above are the tangible results and benefits that AI has been brought to us this quarter. However, we do think that AI has -- we do think AI with a long-term mindset, the real significant lives for the new opportunities and the structural change that will unlock over time. and we will be trying a lot of innovation with a long-term mindset, not just a short-term bump in a few matrix and revenue lines.

And lastly, on our 11 results. So first of all, looking at our users, especially the Gen Z consumers, their spending power is 2, 2, 3 times that of the previous generations. They are used to online consumption as their default shopping avenue and they buy when it makes them happy. It buys when they like something or they truly need something. They will longer chase the rock bottom prices in a single promotion time window in a mechanical way all of this observation is pointing to the huge commercial potential embedded in the Bilibili user profile and our ecosystem.

And given that, our 11 report card this year still exceeded our expectations during this year's Double 11 Bilibili's ad revenue grew 30% year-over-year. and the number of advertisers more than doubled over the 11 campaign period, Bilibili delivered on average of new customer rate of 55% and for all industries and in categories such as watches and jewelries, household daily goods, food and beverage and beauty, the new customer rate even exceeded 60%.

Lastly, the outlook for Q4 and next year, we remain upbeat about the advertising business. And more importantly, we're hoping to deliver something more meaningful and new breakthroughs and changes within our business.

Next question comes from the line of Sachin Zhang from CICC.

Congratulations on the great result. My question is regarding your financial outlook the company's profitability has continued to strengthen and looking ahead to Q4 and into 2026. How do we expect the gross margin and the net margin trends as we maintain a strong cash position, how do you plan to allocate cash in the future.

Yes, we continue to see strong operating leverage in our business. In Q3, our top line grew by 5%, and our gross profit grew by 11% year-over-year. Our gross profit margin has improved for 13 consecutive quarters. We expect this trend to continue this year and reaching 37% in Q4. We keep our midterm gross profit margin target that 40% to 45% unchanged.

Additionally, our adjusted operating profit has supported before the other income jumped over 150% year-over-year. with adjusted operating margin expanding from 3.7% to 9% year-over-year. We expect that number to further improve to around 10% in Q4 this year and keeping us on a steady path to our midterm target of 15% to 30% adjusted operating margin. We already saw the reliance of Bilibili business model and our strategy of focusing on healthy revenue growth and the leveraging scale of our sustainable part expansion.

We are confident enriching our mid- to long-term margin targets. Regarding to the cash usage, we will allocate our resources carefully. Currently, we already did over $1 billion free cash flow every quarter. So we -- first of all, we will support our high-quality revenue growth in July advertising business.

Secondly, we will invest in some new opportunities, for example, to expand our business foundries like reinventing some game for new generations just like Duckov, right? We already announced a plan to explore doctors opportunities to the console game and the mobile game. The least but not last, we will also capture some major industry opportunities.

For example, we are also seeking for the new talent for in areas like AI. But regarding to the shareholder returns, -- we have repurchased over USD 100 million worth of shares this year already. And we have a 2-year share buyback plan as approved by our Board. We still have around USD 83 million left we expect to fully utilize that amount in the remaining period of the [indiscernible].

Our next question comes from the line Ian Zhang from China Renaissance.

I have a question regarding AI application. You also discussed functions of products you have just launched. So what is your thinking the expectation of future application on Bilibili.

[Interpreted] Bilibili has the highest AI density among our -- both of our content creators and our users. Many of China's [indiscernible] AI themed content creator and the user who is most interested in AI talent, they are all active and gathered on Bilibili.

And in the third quarter, nearly 100,000 creator were active from visibility every month working on AI-related content. Some of them are doing the latest machine learning explanation explaining. Some of them are breaking down and teaching new applications or using AI for video creation. And the average daily number of AI-related video uploads in the third quarter increased over 80% year-over-year in the third quarter.

And there's lots of potential for us to further discover because we have gathered over 2/3 of young generation in China on Bilibili. That is the exact cohort who is eager to learn about AI or leverage AI technology to create things.

Well, will you ask me about the whether store will change how people grade or consume content. We think -- personally, I think [indiscernible] is new ammo on both content -- video content creation and also user interface. But as I said earlier on, there's already oversupply of short video content the adoption of AI tools will not -- will only increase of that video supply will not, it will not change how people consume the content.

However, on the high-quality video aspect there's still a scarcity in terms of the high-quality content supply and the adoption of these tools will help us to increase the supply and improve the talented content creators efficiency in producing such content. And we've seen this on many of those content categories that AI is becoming the new paradigm for example, in the auto to remix sector in the music sector or even the animation sector.

There's a lot of very good quality videos that were made with the help of AI tools. So to summarize, we do think that the AI will be a fundamental efficiency boost for high-quality video creation and Bilibili will be most benefited from that technology innovation.

And based on that observation, we'll be very focused on the video track of the AI applications. We wanted to make AI to be effective tools to home our current to produce higher quality videos. You probably already seen some of the functions where we have launched lately, for example, there will be a multilingual video accessibility features, including dubbing subtitles and even lead thinking.

We are also planning to launch an AI-enabled text to video tools tailored for video podcast type of content. We believe this product will help bring more high-quality content on Bilibili and to our users.

That concludes the question-and-answer session. Operator, back to you.

Thank you, once again for joining Bilibili's Third Quarter 2021 Financial Results and Business Update Conference Call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director or Person in Financial Communications. Contact information for IR in both China and the U.S. can be found on today's press release. Thank you, and have a great day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]