Bilibili Inc

NASDAQ:BILI

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and welcome to Bilibili First Quarter 2024 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.

[Juliet Yang, executive]

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 the Hong Kong Stock Exchange.

The non-GAAP financial measure we provide are for comparison purpose only. The definition of these measures and our 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's 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 over to Mr. Fan, who will read the prepared remarks on behalf of Mr. Chen.

[Xin Fan, executive]

Thank you, Julie, and thank you, everyone, for participating in our first quarter 2020 conference call to discuss our financial and operating results. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen.

2024 will be a turning point in our journey towards profitability. We are already steadily on this path, advancing both our financial profile and [ community ] growth in the first quarter. Total revenues for the quarter came in at RMB 5.7 billion, up 12% year-over-year. Growth in advertising and VAS revenues, in particular, accelerated at 31% and 17% year-over-year, respectively.

With increasing revenue contribution from the higher-margin ad business and our continued efficient operations, we achieved a notable 45% year-over-year increase in our gross profit, and our gross profit margin reached 28.3% in the first quarter compared with 21.8% in the same period last year, marking the seventh consecutive quarter of margin improvement.

As a result, in the first quarter, our adjusted operating loss and adjusted net loss meaningfully narrow by 52% and 56% year-over-year, respectively. Meanwhile, we generated RMB 638 million in operating cash flow in the first quarter. The solid progress we have made is placing us firmly on track to reach our profitability goal this year.

While we focus on improving our commercialization capabilities, we continue to attract more users and foster [ vibrate ] community. In the first quarter, our DAUs increased by 9% year-over-year to 102 million, and our MAUs grew by 8% year-over-year to a new high of 341.5 million. User engagement in the first quarter was also strong. Users are spending more time with us than ever, bringing our DAUs average daily time spend to a record 105 minutes. As a result, user total time spend on our platform increased by 19% year-over-year.

As we advance through the year, we will continue to dedicate our resources to enhancing our commercialization capabilities, particularly in our high-margin revenue streams. First, we are working to advance our advertising infrastructure and efficiency to sustain the positive momentum of our ad business. Second, we will bring more high-quality [ games ] to our users. Our highly anticipated license game, [ Sanga Molding Changsha ] is scheduled for launch on June 13. This is the first SLG game that caters to our expanding gamer base. In addition, we will continue to increase and diversify our VAS content offering to convert more paying users and improve margins. We believe that these initiatives, together with our ongoing efficient operating leverage, will naturally lead to improved financial results. As we approach profitability, we remain committed to our core mission, building a stage for content creators to shy fostering a healthy vibrate community for users to enjoy and bringing value to our shareholders and partners over the long term.

With that overview, let's discuss in details our core pillars of content, community and commercialization, beginning with content and community. In the first quarter, our leading top content keeps thriving, with video [indiscernible] games, entertainment and attach and knowledge categories are increasing by over 20% year-over-year. Among these leading verticals, we have emerged as a go-to platform for AI-related content and the discussion in China. In the first quarter, daily active content creators and the video views of AI-related content grew by over 60% and over 80% year-over-year, respectively, driving a surge in AI-related apps and making it 1 of our fastest-growing ad verticals.

Also, we continuously bolstered our support to emerging content categories, providing customized operational and traffic assistance for high-quality content creation. During the quarter, video views in automotive, home appliance and the decoration, fashion and the baby and maternity grow rapidly, all up by over 40% year-over-year. These categories meet our users' evolving content needs and they enter new life stages while also inherently processing strong consumer appeal.

In many cases, good content can also be a good commercial, attracting more advertisers and incentivizing more creators to join our platform. For instance, ad revenues from home appliance and decoration increased notably by over 70% year-over-year in Q1 and the daily active content creators in this category grew by 30% year-over-year. As such, our community matrix in the first quarter are encouraging. Our average daily video views increased by 22% year-over-year to nearly 5 billion. Our user spend are record setting 105 minutes on platform daily in the first quarter compared with 96 minutes in the same period last year. Meanwhile, monthly interactions exceeded 16.4 billion, up 15% year-over-year.

At the end of the quarter, we had over 236 million official members, which increased by 15% year-over-year, and their 12-month retention rate remain around 80%.

In terms of recent community events, our sponsored eSports team, BLG, won their further championship of League of Legend [indiscernible] 2024 spring season and the second place on mid-season invitation node 2024, joining more eSports enthusiasm to our platform. What's more, our extensive content library and the user base gives us a natural advantage to pioneer AI exploration. We are launching various AI-related applications to benefit all stakeholders in our community, including our users, content creators and advertisers.

With our AI assistance in searching and video-watching scenarios, users can get information more efficiently and receive more personalized content recommendations. On the [indiscernible] front, we launched the AI content equation [indiscernible], and enabled content creators to customize their digital human and voice, improving creator efficiency. And for advertisers, we are launching a [ creative ] center, which will enable advertisers to easily generated headlines and added materials for their ads. More importantly, with our AI-enabled algorithms, our content and ads can be more effectively matched with our users' consumption needs.

Now I would like to talk about our commercialization progress and how we achieve margin expansion and reach profitability. For the first quarter, our total revenues increased by 12% year-over-year to RMB 5.7 billion, as our biggest top line growth driver revenues from our advertising business was up by 31% year-over-year to RMB 1.7 billion.

Performance-based adds continued to be the primary growth contributor, up over 50% year-over-year in the first quarter. We are encouraged by the results we achieved in Q1 and expected growth momentum to continue. For the first, quarter our top 5 advertising verticals for mobile games, digital products and home appliance, e-commerce, automotive and skin care and cosmetics.

As I mentioned in our last quarter's earnings call, we are allocating more resources to integrate ad products within our content ecosystem in a more native, natural and seamless way. We have made some remarkable progress in the first quarter. We integrated and upgraded our ad platform with [ visualized ] data analysis and more user-friendly teams empowering advertisers to build more efficiently. In addition, as we deepen our understanding of users' consumption profiles, we are further improving our ad matching [ algorithm ] to be more accurate and targeted.

Collectively, these enhancements in efficiency as well as our increasing traffic enabled us to secure more advertising budgets from our ad customers. In addition, our video and [ live commerce ] ad products with direct sales conversion tools continue to yield results. This transaction base ads enable advertisers to effectively transition users from product viewing to making purchases. As of last week, our total video and live commerce GMV in women's fashion and clothing has exceeded [ the responding ] total GMV for the entire year of 2023. In addition, our video and [ live commerce ] products provided a great way to unleash commercial value for our content creators. The number of content creators [indiscernible] by video and [indiscernible] more than doubled year-over-year in the first quarter. On top of the progress we made in the first quarter, we are working on more product upgrades, some of which are ready to be applied in the upcoming [ 618 ] shopping festival. We will unveil better ad placement and analysis tools, allow more flexible ad formats and expand additional scenarios. This empowers advertisers to achieve smarter, more creative and integrated advertisement across our content ecosystem, leading to better branding and conversion results.

Turning to our VAS business. Driven by the growth of our live broadcasting, revenues from our VAS business increased by 17% year-over-year to RMB 2.5 billion in the first quarter. We continue to strengthen the synergies between our live broadcasting content offerings and our PUGV ecosystem. Especially in our advantages, content categories like games, [ Youtubers ] and entertainment. Moreover, through refined operational measures, we are also improving our gross margin while increasing the supply of high-quality live broadcasting content. The number of premium membership remained steady at $21.9 million as of the end of quarter, with over 80% of premium members on annual subscription or auto renewal packages. Users are also showing a growing propensity for spending on our other VAS products, including our premium online courses, exclusive [indiscernible] charging video product and the virtual community [indiscernible]. We will continue to actively explore these unique community features to provide users with products and experiences they love.

Turning to our game business. Our revenues were RMB 983 million for the first quarter. In April, we launched an exclusive license game, [indiscernible] [indiscernible]. This creative card game was well received by game lovers. Looking at our game pipeline, we expect to release our highly anticipated SLG game, [indiscernible], on June 13. Over 2 million players had already pre-registered as of today. We also plan to launch a Japanese RPG title, [indiscernible], in the third quarter.

Last but not least, as we make progress on commercialization front, we are actively [indiscernible] our social responsibilities as a cultural enterprise. We published our 2023 annual ESG report last month outlining our efforts in creating and bringing value to young generations in China. Collaborating with content creators, employees and industry partners, we strive to explore more technological innovation and engage in social welfare activities to positively impact society at large.

This concludes Mr. Chen's remarks. I will now provide a brief overview of our financial results for the first quarter of 2024. I'd now like to review our first quarter financial highlights.

For a closer look at our financial results, we encourage you to refer to our press release issued earlier today. Our commercialization and operational efficiency enhancement initiative continued to yield great results in the first quarter. We improved the quality of our revenues, expanded our margin for the seventh consecutive quarter and significantly narrowed our losses based largely on our revenue growth and platform efficiency.

Total revenues for the first quarter were RMB 5.7 billion, up 12% year-over-year. Our total revenues breakdown by revenue stream for Q1 was approximately 45% VAS, 29% advertising, 17% mobile games and 9% of our IP directives and other businesses. Our cost of revenues increased by 2% year-over-year to RMB 4.1 billion in the first quarter, while our gross profit rose 45% year-over-year to RMB 1.6 billion. Our gross profit margin reached 28.3% in Q1, up from 21.8% in the same period last year.

Our total operating expenses were down 2% year-over-year to RMB 2.4 billion in the first quarter. Sales and marketing expenses increased by 5% year-over-year to RMB 927 million, mainly due to early promotion expenses related to the release of our upcoming SLG game. G&A expenses was RMB 532 million, down 7% year-over-year. R&D expenses were RMB 965 million, down 6% year-over-year. We cut our adjusted operating loss and adjusted net loss to RMB 512 million and RMB 456 million in the first quarter, narrowing these losses by 52% and 56% year-over-year, respectively.

Our adjusted net loss ratio in the first quarter improved to 8% from 20% in the same period a year ago. For the first quarter, we also generated RMB 638 million in positive operating cash flow, demonstrating our business ongoing [indiscernible] for sustainable development. We expect to reach positive [ non-GAAP ] operating profit in the third quarter of 2024 through our sustained top line growth as gross profit margin improvement. As of March 31, 2024, we had cash and cash equivalents, time deposits and short-term investments of RMB 12.9 billion or USD 1.8 billion. In March this year, we completed the repurchase right offer for our April 2026 notes. After completion of this transaction, the aggregate outstanding principal amount of April 2026 notes, 2027 notes and the December 2026 notes was USD 433 million.

We believe our cash position is sufficient to cover all of our remaining convertible bonds. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

[Operator]

[Operator Instructions] [indiscernible] Our first question comes from the line of Thomas Chong of Jefferies.

[Thomas Chong, analyst]

[Interpreted] My question is about our online advertising business. Given advertising growth exceed our expectation, can management comments about the key growth driver. One of the areas that we have strengthened in our ad product offerings and our ad technology upgrade. On the other hand, if we look into the Q2, in particular, for [indiscernible], can management comment about the advertising trend and how we should think about 2024 advertising outlook?

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] Our ad revenue in Q1 reached RMB 1.67 billion, up 31% year-over-year. Among them, performance-based advertising saw strong growth, exceeding [ 50% ] year-over-year. Speaking of the key driver, 1 of the driver is that, while maintaining a good user experience, which we care a lot, we increased our overall advertising inventory. We further expanded our ad scenarios such as [indiscernible] and search. And in addition, by mixing the natural and commercial traffic, high-quality advertising content can gain more organic traffic resulting in an increase in effective ad inventory.

Having said that, as we increase our effective ad inventory, our ad load is still low and have significant room to expand compared to other platforms.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] Second good growth driver is that we have integrated our Sparkle ads in our advertising system as well as to improve our ad placement tools. We have enabled and achieved smart ad placement in different app scenarios. In Q1, over 50% of the Sparkle ads also purchased our content promotional service, AKA project takeoff [indiscernible]. We also launched a creative center to enable bulk processing of ad materials. And also, we believe the continuous exploration of AIGC-related function can help us to improve our ad efficiency.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And secondly, on our content creator side, we've launched our content promotional tools for content creator. Project takeoff now has been officially upgraded to a new product called [indiscernible], which was made available to all content creators in Q1. The function allows content creator with one-stop service to promote their content through paid traffic amplification they can also increase [ fans ] and improve their monetization capabilities. The number of clients who purchased our content promotional service in Q1 increased by 190% year-over-year, while the repurchase rate and the satisfaction rate continues to improve.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And thirdly, we have optimized our marketing data infrastructure and improved our algorithm efficiency. We refined various commercial [ techs ] to provide advertisers with more comprehensive measurement and guidance on branding and marketing outcome. Currently, we have already launched a trial version of our B Data and Z Index for advertisers in games, mobile phones and cosmetics. We expect Q3 and Q2, we'll push it out to more industry verticals.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And the fourth growth driver is that we have deepened our vertical industry solutions. In Q1, games, digital products and home appliances and e-commerce platform are our top 3 growth factors, with [ grocery ] around high double digit year-over-year. In the gaming sector, we have focused on high-quality games covering all stages in their game operation from prelaunch to long-term operations. Notably, we have captured incremental shares in mini games market resulting in a 50% increase in daily ad spending. And on digital and coma fiances, we already took over about 10% of the market share in smartphone app market. And in the future, we believe there is still significant growth potential for other digital products and home appliances.

And we move on to the e-commerce platforms, for this quarter, we have achieved diversified customer structure. Besides the traditional partner, Cava, Jingdong, [indiscernible] and [indiscernible], we have expanded our collaboration with [indiscernible], [indiscernible] and [indiscernible]. We improved our ARPU during our non-shopping festival period and introduced additional budget with key -- other key active merchants. And we do expect those advertising budget from merchants will continue to drive our advertising growth.

As to sum up, we do expect we can replicate that [indiscernible] solution and apply to more additional verticals, including automotive, Internet services, health care and education industries. Meanwhile, we will continue to expand to more clients with more industries.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And you asked about our June 18th performance, we do expect or we estimate the growth during June 18th shopping fatal this year will be around -- will be over 30% year-over-year. And we have further increased our shares of advertising budget at this significant shopping festival. This year, we'll continue to execute our open-loop strategy, establishing deep partnership with ali, JD, [indiscernible] and others. Additionally, we also have 2 upgrades in our strategy. First is that we will upgrade our partnership from pure profit collaboration to traffic plus content collaboration. Brand advertising revenue is expected to increase by 40% year-over-year during this period. This year, Taobao also introduced a new budgeting targeting total GMV from purchasing Sparkle plus content promotion. And JD is also actively engaging in our integrated marketing activities combining both traffic and content value strategies.

Secondly is that we will transition from platform to platform collaboration to platform plus merchant collaboration. Platform budget for [ 06/18 ] will be expected to increase by 30% year-over-year, while the merchant budget is expected to increase significantly over 250% year-over-year. We will strengthen the collaboration with more vertical industries that encourage more consumption-related behavior from product seeding to purchasing transition during the period.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] Speaking of the June 18th shopping festival, let me briefly touch on some of the data points that reflects the current situation on Bilibili. So first of all is that, we've noticed the consumption willingness among Bilibili users have further improved. In Q1, the number of users who watched transaction-related content has reached over 37 million, nearly doubling year-over-year. And we believe our users have more mindset and perception towards watching commercial or e-commerce-related content on our platform.

At the same time, our content creator are benefiting from this improvement. Content creator has received income or generate revenue through live and video [ commerce ] also increased over 100% year-over-year. And we believe there's a lot more potential for us to further get into. And for the transaction-related advertising sectors, the top 4 industries in terms of transaction volumes are digital products and home appliances, food and beverage, apparel and beauty and cosmetics.

And to sum up, we remain very confident to maintain a high growth rate for our advertising for the full year.

[Operator]

Next question comes from the line of Lei Zhang from Bank of America.

[Lei Zhang, analyst]

[Interpreted] Congrats on a strong advertising growth. My question is mainly about the game business. Can you give us some update on overall game outlook for this year? And also your expectation about the upcoming new game [indiscernible].

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] So Bilibili has always have the largest and the most high-quality game-related content library, at the same time, we have the highest density in terms of high-quality gamers. This gives us a great advantage in the gaming business.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] For the full year, when we think about game business, there's 2 words to sum up of our direction: one is stable; and two is we're looking for new things.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] [ This table ] is referring to that Bilibili is paying a lot of attention to our legacy classic games. We expect to achieve a very long-term operation, maintaining the stickiness of our gamers and also to see continuous innovation in terms of content. We have witnessed that for the gamers in our legacy games, their retention level and engagement level has increased continuously at the same time showing a very robust longevity.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] [indiscernible], 1 of our most popular [indiscernible] games, have entered -- has already launched for 8 years. And for this year, during its April content upgrade, this game has returned to the top iOS grossing chart. As for [indiscernible], it's also a 7-year-old game. And for the 7-year anniversary should happen just now in May, this game once again returning to the top 10 grossing charts on iOS as well.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And for -- from Bilibili perspective, to operate these tested gains by -- for a longer period of time, it's return for us, it's even better than thinking new games. So what we plan to do is continue to do -- refine our operation, maintain a long life cycle. As an [ FGL ] player myself, I can see that [ FGL ] has become part of my life, and I will continue to play it if the game is there. So we're confident we can continue to operate this came towards its 10 year anniversary or even longer.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And speaking of new games, we actually launched a new game in April called Arctic Crafter. It's Chinese style ACG game. The artistic style is close -- can be classified as a AIGC title. But the story and the plot and the game play is actually very traditional Chinese. It was based on cultural relics as its own persona, very creative. We've noticed this type of game has opened a new demographic to us, the traditional Chinese cultural lovers. So we'll continue to look for new opportunities with the ACG plus new categories to help us to expand to more gamer demographics. As for this game [indiscernible], we think this game's performing so far has met our expectations and will contribute to our game revenue in the second quarter.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] As for another game, I would like to make an example of [indiscernible] you were asking. For this game, we already set the launch date at June 13.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And for this game, who already has over 2 million [indiscernible] users, and we have done multiple rounds of paid, nonpaid beta testing as has received a very good feedback from the gamers.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] I will elaborate a little bit how we plan to explore into new fields. For this SLG [indiscernible] game, actually, we signed this -- we have signed this game the year before last year. The reason behind that is not -- it's not a [indiscernible] moment is that we have discovered on Bilibili. There's a big demographic who are interested in topics history, military political knowledge, as you know, that knowledge has been a very big content category on Bilibili. So to satisfy this group of users or potential gamers' needs, we have signed this SLG game. So far, the feedback has been very positive and showing that the strategy is working.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] So as we set up the target on SLG strategy, we have worked together with the game developer to conduct many innovations in the games. As you know, that we have a massive Gen-Z users. For this group of users, their preferences towards SLG has evolved compared to the older generation. They value a lot of the gameplay and the fund and the gameplay over the competition, the battle itself. And also, they care about whether it requires to top up a lot of money and spend a lot of time on the game. So on this field, we have -- we have targeted solutions and to improve this gameplay. So far, the user feedback has been very positive.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And those 2 examples shows our strategy and thinking in terms of the game business innovation and long-term strategy. As a matter of fact, Bilibili is the biggest game content community, has the largest [indiscernible] library. So we'll continue to focus on this track and aim to bring more high-quality games to our users.

[Operator]

Our next question comes from the line of Sachin Zhang from CICC.

[Xueqing Zhang, analyst]

[Interpreted] My question is about your engagement. The company's first quarter constant it high and the average daily really also achieved [indiscernible]. So what's the main driver behind that? And which content categories are expected to have great potential in the future?

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] so as a matter of fact, Bilibili has its own content categories that are very advantageous compared to other platforms and users have a strong mindset of looking for that type of content on Bilibili. This includes knowledge, ACG, tech and digital products and et cetera. And users -- and for this type of content categories, users have hardcore needs. They they naturally want to watch this type of content. As long as we stay competitive, they continue to enhance our leadership in this category, we will experience natural traffic growth. For example, this year, that we are looking at the technology, tech, knowledge and game sector for this sector [indiscernible] has increased 37%, 28% and 24%, respectively.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] As we enhance our leadership [indiscernible] categories, we're also actively [indiscernible] in new categories. For example, our average age -- the average age of Bilibili is already 24 years or so for some of the demographics, by theory, there their children could be around [ 1 ] year old. So we've seen naturally seeing those content consumption needs rises, including baby maturity, automotive and home appliances, et cetera. For example, in Q1, video views in baby and maternity grew by over 100%, and we're also seeing strong growth for automotive and home appliances, home decorations.

[Ni Li, executive]

[Foreign Language]

.

[Juliet Yang, executive]

[Interpreted] At the same time, for this emerging content categories, we are naturally attracting more content creators to join our platform, forming a virtuous cycle.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] So in the first quarter, our overall community has delivered a strong growth. Our DAU grew by 9%, and our video views grew by 22%. The daily average user time spend has reached our historical high of 105 minutes. This all demonstrating our strategy of content development and community operation is very effective, and we will continue to execute this strategy and to achieve sustainable growth going forward.

[Operator]

Our next question comes from FiFelix Liu from UBS.

[Felix Liu, analyst]

[Interpreted] Congratulations on the good GP margin performance in the first quarter. May I check what specific areas you did well in cost control? How do you see the mid- long-term margin outlook as well as the third quarter profitability target, if any, update to that?

[Xin Fan, executive]

Thanks Felix, this is Sam, I will take this question. In Q1, our total revenue grew by 12% when cost of revenue only increased by 2% year-over-year. So our gross profit increased by 45%. And thanks for the improved operational efficiency, our non-GAAP operating expenses decreased by 2% year-over-year and 8% quarter-over-quarter, which lead to further loss reduction. Our path to profitability is mainly driven by the revenue growth and the continuous growth profit improvement, which we believe is more sustainable. Specifically, the gross profit margin has increased, reaching like 28% in Q1. The main reason for this improvement contributed by the high-margin business, such kind of [indiscernible] ad revenue, which increased by 31% increase year-over-year. And now the sales mix has come to [indiscernible] 29%.

Based on the current business development trends, we expect that in Q2 and Q3, with the continuous rapid growth of the advertising business and the recovery of our game business, we's will resume year-over-year growth. Our gross profit margin will further improve quarter-over-quarter and to reach 30% gross profit margin in Q3, and [ we were ] achieving non-GAAP operating breakeven in Q3. We are quite confident to achieve that.

In the longer term, the gross profit margin will depend on the scale of the revenue and the mix of the each business line. We still believe there is great potential there. Meanwhile, achieving breakeven is just our first step, we will allocate more resources on enhancing our commercialization efficiency while continuing to refine the operational strategies to achieve sustained improvements in both of the gross profit margin and the net profit margin. Thanks for the question.

[Operator]

Our last question comes from the line of Lincoln Kong from Goldman Sachs.

[Lincoln Kong, analyst]

[Interpreted] So my question is about the the paying users business. So we see the company is now close to 30 million paying users. So on top of the traditional subscription membership, we have also successfully launched the value-added service such as content creator charging, paid courses or community [indiscernible]. So how does the company think about the prospects of this community-based content payment business?

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] So Bilibili has always been an interest-based video community and Bilibili user has 3 key characters, 1 high retention level, high engagement level and high ARPU. And because all the users have strong sense of belonging towards our community and also have a sense of belonging towards the community. It all makes content, pay [ for ] content is a natural monetization matter for Bilibili.

[Ni Li, executive]

[Interpreted]

[Juliet Yang, executive]

[Interpreted] And on our premium membership business, at end of first quarter, we have close to 22 million premium paid members. And this an interesting number is that 80% of them chose a long-term commitment payment, AKA, the monthly automated subscription or yearly subscription. This is what sets us apart from the regular content platforms.

[Ni Li, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] So on top of the traditional broadcast and premium membership, we have continuously explore more business model to better combine our community and content. This includes the premium courses, charging station for our content creators as well as the cosmetic custom business. And users generally will gain more experience and feel better after paying for this type of service. At the same time, they can also express their liking, appreciation towards their favorite content creator or their favorite IP. At the same time, our content creator can gain a new avenue of monetization. This is forming a virtuous growth cycle for our community.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] In Q1, the premium membership, premium courses, charging as well as the community [ costumes ], combined together, their total revenue is already close to RMB 1 billion. First is on the premium courses. On top of the traditional professional courses, our courses covers a wider category including [ live ] skill set, interest-based knowledge, even relationships is more diversified. And the premium courses has already become a primary and important avenues for our content creator and the knowledge sector to monetize.

In Q1, the number of content creators that gain revenue from the premium courses has grew by over 450%. And their -- the overall revenue also increased by 45% year-over-year.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] And secondly is that we have upgraded our charging program recently to extend into exclusive fan charging videos. In Q1, the number of content creators that received income from the charging project has increased 47% year-over-year. And the total GMV of the charging program has increased 125% year-over-year. An example would be 1 of our content creator name [indiscernible], over the past 6 months, he released [ 4 ] episode of high quality documentaries. And at end of the first half of May, his GMV has exceeded RMB 10 million. And from this case, we do think that, in many new areas, such as the short play, short documentaries and short movies actually has great potential, and we are quite excited about on Bilibili.

[Rui Chen, executive]

[Foreign Language]

[Juliet Yang, executive]

[Interpreted] in the second half of this year, we plan to systematically review and upgrade our value-added services, including those content services. We are quite confident for this part of the business will continue to bring additional revenue and help our content creator to gain more revenue. Thank you. Operator, that concludes this question.

[Operator]

And that concludes the question-and-answer session. Thank you once again for joining Bilibili's First Quarter 2024 Financial Results and Business Update Conference Call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director of [indiscernible] 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.]