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1. Nature of the Enterprise#

State-owned, privately held, or foreign-owned, the nature of a company determines its governance, decision-making style, and affects the flexibility of equity incentives and capital operations, reflecting differences in managerial motivation. It also influences the company's resource advantages and its ability to secure bank credit loans. Bilibili (B Station) is a Chinese online video platform founded in 2009 by Chen Rui, Xu Yi, Yang Ming, and others, headquartered in Shanghai. The company can be described as an internet company providing online video content and community services, covering various functions such as video sharing, bullet comments, and live interaction, aiming to provide users with a rich digital content and communication platform.

2. Business Model and Customer Base#

Business models vary widely, and with the development of information interconnection technology, new ecological and upgraded business models are emerging. Hiroshi Mitsutake summarizes profit models, sales methods, production methods, and settlement and capital flow methods in "The Complete History of Business Models." Customer groups can be categorized as toB, toC, toG, or mixed. Bilibili primarily serves the digital content and online video industry. Its customer base mainly consists of young people and technology enthusiasts, including but not limited to the following categories:

1. Anime enthusiasts: Bilibili attracts a large number of anime fans with its rich anime resources and community atmosphere, where they watch, comment, and share various anime works on the platform.
2. Gamers: The platform has a wealth of game-related content, including live game broadcasts, game strategies, and game commentary, attracting a large number of gamers and gaming enthusiasts.
3. Technology and culture enthusiasts: Bilibili is also an important gathering place for technology, culture, and creative content, attracting users interested in these fields, who watch and discuss videos related to these areas on the platform.
4. UGC creators: The platform allows users to upload and share their creative content, thus attracting a large number of UGC creators, including video producers, secondary creators (such as video editing, funny dubbing, etc.), illustrators, and music creators.
5. Pop culture and social users: Bilibili's community features and bullet comments allow users to interact and socialize while watching videos, thus attracting many users who enjoy sharing and discussing pop culture topics. Overall, Bilibili's customer base is very diverse, but it is primarily characterized by young people and users interested in digital content and online interactive communities.

3. Equity Structure#

Whether there is an actual controller and controlling shareholder, and how many star institutional investors are among the top ten shareholders, determines the stability and attractiveness of the company's control. If a company has no actual controller and controlling shareholder, it is generally controlled by managers, with relatively dispersed equity, such as Vanke, which faces the threat of external investors competing for control of the company. Of course, A-share listed companies mainly have concentrated equity, with companies having dispersed equity being a minority, accounting for less than 5% by the end of the first half of 2022. However, among listed companies with relatively concentrated equity, there are also many controlling shareholders holding less than 20%, which poses a risk of control being challenged. If equity is overly concentrated, such as exceeding 70%, the liquidity of company shares is low, leading to insufficient market capital attraction, which may affect the company's market value.

Equity Structure
Shanghai Bilibili Technology Co., Ltd. is wholly owned by Hong Kong Huan Dian Limited, with a shareholding ratio of 100%. The specific shareholding ratio and identity of another shareholder have not been clarified.

1. Bilibili Inc.

As the protagonist of this IPO, it is none other than Bilibili Inc. Bilibili Inc. is registered in the Cayman Islands (often used by multinational companies for legal tax avoidance and international business expansion).

According to the prospectus,

We incorporated Bilibili Inc. under the laws of the Cayman Islands as our offshore holding company in December 2013.

Therefore, this company can be said to be the headquarters of B Station, fully controlling several subsidiaries located in Hong Kong and Japan, and further implementing its business globally.

This also explains why the valuation and financing of B Station are often calculated in US dollars. The "B Station" that investors invest in is actually the parent company Bilibili Inc., not the well-known Huan Dian in China. In fact, the reason why large internet companies are valued in US dollars is largely the same. Why are there so few technology and internet companies registered in mainland China that conduct valuations and financing? This point will be discussed later.

A brief look at its equity structure:

Why can B Station obtain broadcasting and television program production and operation licenses and information network dissemination audiovisual program licenses? Apart from the associated companies of Chen and Xu, the highest shareholding ratio is state-owned background funds.

2. Bilibili HK Limited & Bilibili Co., Ltd.

The former is a wholly-owned subsidiary of Bilibili Inc. in Hong Kong, while the latter is a wholly-owned subsidiary in Japan. Since the prospectus does not provide detailed explanations, it is speculated that they are responsible for business in Hong Kong, Macau, Taiwan, and Japan, but the business scale should not be large.

3. Hode HK Limited

Traditional Chinese name: Hong Kong Huan Dian Limited. This can be said to be where B Station's core business lies. This Hong Kong subsidiary fully controls subsidiaries located in mainland China. Interested parties can check the Hong Kong company information inquiry official website https://www.icris.cr.gov.hk/csci/ for more detailed information.

4. Shanghai Bilibili Technology Co., Ltd.

That is "Shanghai Bilibili Technology Co., Ltd." It is a wholly-owned subsidiary of the aforementioned "Hong Kong Huan Dian Limited." Generally speaking, foreign-controlled companies engaged in cultural and entertainment businesses face many restrictions. Based on its corporate credit information, its main business includes:

Engaging in technology development, technology transfer, technology consulting, and technology services in the fields of information technology, computer software and hardware, and network technology; sales of electronic products, communication equipment (excluding satellite television broadcast ground receiving facilities), toys, crafts (excluding cultural relics), clothing, shoes and hats, bags, home decorations, communication equipment and accessories; commission agency (excluding auctions) and other related supporting services; business information consulting, enterprise management consulting, marketing consulting, corporate image planning, exhibition services, animation design, construction engineering professional construction (level three), special design for construction decoration engineering, operating lease of stage equipment, photography services (excluding aerial photography and special effects photography), etiquette services, ticketing agency, operating performance and brokerage business, designing and producing various advertisements, using self-owned media to publish advertisements, intellectual property agency (excluding patent agency), and engaging in import and export business of goods and technology. [Projects that require approval according to law can only be carried out after approval by relevant departments.]

Those with insight may notice that the most critical "broadcasting and television program production" business is not included. It is speculated that this subsidiary is mainly responsible for non-sensitive business. It may belong to the technology support business group of B Station's main business?

Reference:

http://www.sgs.gov.cn/notice/notice/view?uuid=nfc_corvFBwLppjtWCGsyBHFwB0zD30z

5. Hode Shanghai Limited

Also known as "Hode Technology," its Chinese name is "Huan Dian Technology (Shanghai) Co., Ltd." (abbreviated as Huan Dian Technology). For the reasons mentioned above, this company is likely unable to directly operate "broadcasting and television program production" in mainland China. Even if it can temporarily obtain it, there is still a significant policy risk. Therefore, it is necessary to have a mainland-registered company act as an "agent" to execute the main business.

Here, a little trick unique to our country is needed.

In February 2014, we established Hode HK Limited, or Hode HK, a wholly-owned Hong Kong subsidiary. In September 2014, Hode HK established a wholly-owned PRC subsidiary, Hode Shanghai Limited, which we refer to as Hode Technology or our WFOE in this prospectus.

WFOE, or Wholly Foreign-Owned Enterprise, does not have a suitable Chinese translation, so we will make do with it. Note that Hong Kong is also considered foreign relative to mainland China. Therefore, Huan Dian Technology is undoubtedly a WFOE. Next, we need a mainland-registered company controlled by natural persons or legal entities from mainland China.

Due to restrictions imposed by PRC laws and regulations on foreign ownership of companies that engage in internet and other related business, our WFOE later entered into a series of contractual arrangements with Shanghai Hode and Shanghai Kuanyu, which two entities we collectively refer to as our VIEs in this prospectus, and their respective shareholders.

VIE stands for Variable Interest Entity, referring to subsidiaries controlled by agreements. For detailed explanations, see https://en.wikipedia.org/wiki/Variable_interest_entity. Then, this company will enter into contractual arrangements with Huan Dian Technology, with the following content:

These contractual arrangements enable us to (i) exercise effective control over our VIEs; (ii) receive substantially all of the economic benefits of our VIEs; and (iii) have an exclusive option to purchase all or part of the equity interests in and assets of them when and to the extent permitted by PRC law.

The legal final result is

As a result of our direct ownership in our WFOE and the variable interest entity contractual arrangements, we are regarded as the primary beneficiary of our VIEs.

In other words, through the VIE trick, complete control over the subsidiary is achieved while allowing the subsidiary to avoid local policy risks. Note that this company should be 100% undisputedly controlled by mainland shareholders to avoid potential tightening of policies in the future—the best candidates are naturally the management team of Chairman Chen. This mechanism does not achieve control through shareholding, so although it complies with the legal framework, its control strength is relatively weaker and depends more on the personal credit of the agreement signers. Since Chairman Chen and his team also hold shares in Bilibili Inc. and control the mainland subsidiary, it is actually Chairman Chen and his team who jointly provide credit endorsement for this agreement.

Reference:

http://www.sgs.gov.cn/notice/notice/view?uuid=Db4Dh06YKFRLWEBT8ldA42VqDdr6uYl8

6. Shanghai Kuanyu Digital Technology Co., Ltd.

Shanghai Kuanyu Digital Technology Co., Ltd. was registered as early as 2005, and it should just be a shell company borrowed by Chairman Chen. This is his wholly-owned company, and the company displayed at the bottom of the B Station webpage is this one.

Reference:

http://www.sgs.gov.cn/notice/notice/view?uuid=zfvJFezgAjgQUDC100YYW59yYoTbd7xK

7. Shanghai Hode Information Technology Co., Ltd.

Shanghai Huan Dian Information Technology Co., Ltd., which is the Huan Dian we often mention. It is the main operating company of B Station. Of course, it also has many wholly-owned subsidiaries and invested holding secondary dimension entrepreneurial companies, which belong to specific business divisions and will not be elaborated here.

Reference:

http://www.sgs.gov.cn/notice/notice/view?uuid=9DfasM8QpxlbO64xBJFzPnv.Qn1Cx_5t

Shanghai Huan Dian Information Technology Co., Ltd. is a subsidiary of Shanghai Kuanyu. Its main purpose is merely to manage B Station. All online platforms require an "Information Network Dissemination Audiovisual Program License," which is currently held by the major company Kuanyu. This means that even if CXK's lawyer casually targets Huan Dian, B Station will not be harmed because it is not the backbone. CXK's lawyer is actually looking for Kuanyu, which is the main entity, and there is no mistake.
To put it simply, Bilibili Inc. is the biggest boss, but he is overseas and needs to find someone domestically to manage it, right? At this time, he calls out his two sons, one named Kuanyu and the other named Huan Dian. Kuanyu holds all the operating licenses in China as the head of the family, while Huan Dian is the housekeeper managing the daily operations of this store. If Huan Dian is taken down, someone else can just replace him, but because the license and Kuanyu, the head of the family, are soul-bound, if the head of the family is stolen or taken down, then the domestic business will basically be paralyzed.

8. Sharejoy Network Technology Co., Ltd.

Lastly, let's mention this. Why is this subsidiary responsible for gaming business under Huan Dian mentioned separately? Because B Station's current main revenue source is gaming, while other businesses such as live streaming and advertising account for single digits. This company can be said to be the cash flow source for B Station and is also the biggest contributor to B Station's courage to submit a listing application (no wonder it has millions of monthly chefs). Of course, B Station's valuation is more believed to be based on its future development space, relying on high stickiness and distinctive users in the vertical field of secondary dimension.

The equity relationships mentioned in this article are only structured for financial and policy reasons related to investment, control, and business operations. If we consider Bilibili, Kuanyu, and Huan Dian in our general context, we can regard these three as the same entity without the need for differentiation, as the actual controllers are consistent. Bilibili Inc. is the foreign parent company registered in the Cayman Islands for tax and financing reasons, controlling Hong Kong Huan Dian, which in turn controls Huan Dian Technology (a subsidiary in mainland China for a 5% tax benefit). Huan Dian Technology has subsidiaries Kuanyu and Huan Dian Information. Kuanyu is just a shell, and the actual management is still Huan Dian Information.

I can't claim to have knowledge; I'm just a transporter. The main content of the article is simply a simple explanation of the prospectus (https://www.sec.gov/Archives/edgar/data/1723690/000104746918001244/a2234546zf-1.htm). You can also directly access the official information from the above URL.

In December 2013, Bilibili Inc. (hereinafter referred to as "Bilibili Cayman") was established in the Cayman Islands, followed by the establishment of Hong Kong Huan Dian Limited (hereinafter referred to as "Hong Kong Huan Dian") in Hong Kong in 2014. On September 11, 2014, a wholly foreign-owned enterprise, Huan Dian Technology (Shanghai) Co., Ltd. (hereinafter referred to as "Huan Dian Technology"), was established without delay. Subsequently, Huan Dian Technology signed VIE agreements with Cheng Rui, Xu Yi, and others, as well as Shanghai Huan Dian and Shanghai Kuanyu, to achieve contractual control.

VIE Agreement Applicability#

Due to restrictions on foreign investment in internet businesses in China, according to the "Regulations on the Administration of Foreign Investment in Telecommunications Enterprises," foreign investors can only invest in the establishment of enterprises engaged in value-added telecommunications business through joint ventures with Chinese investors, with a maximum investment ratio of 50%. B's main business, unfortunately, is the so-called value-added telecommunications business, so foreign investors cannot directly acquire equity but must rely on VIE agreements.

The VIE structure is a requirement under US accounting standards for "Variable Interest Entities" (VIE), which establishes wholly foreign-owned enterprises in the domestic market through offshore holding companies, acquiring part of the assets of domestic enterprises through a series of legal agreements to provide monopolistic consulting for domestic enterprises. Therefore, the listed entity of B Station needs to achieve contractual control through the VIE structure.

B Station stated that from 2018 to 2020, the prohibited and restricted businesses of the VIE accounted for approximately 87%, 80%, and 76% of the group's net operating revenue, respectively; while the businesses not subject to foreign investment restrictions (i.e., membership purchase mall business and ACG-related merchandise business) accounted for only about 3%, 9%, and 4% of the group's net operating revenue.

VIE Structure Exposure#

According to the offering materials, B Station's actual business in China is conducted by "Shanghai Kuanyu" and "Huan Dian Information Technology." Among them, Huan Dian Information Technology mainly operates related businesses through Wuhu Xiangyou Network, Shanghai Hehe, Shanghai Donghun, and Shanghai Zhonger.

The aforementioned entities hold relevant business licenses in China, while the overseas registered B Station mainly reaches VIE agreements with "Shanghai Huan Dian," which is wholly controlled by its subsidiary "Hong Kong Huan Dian Limited," and the aforementioned two companies.

The agreements are divided into two groups: one group is signed between Shanghai Kuanyu, Shanghai Huan Dian, and the sole shareholder of Shanghai Kuanyu (Chen Rui); the other group is signed between Huan Dian Information Technology, Shanghai Huan Dian, and the shareholders of Huan Dian Information Technology (Chen Rui, Xu Yi, and Li Ni). Accordingly, B Station obtained operational control and all economic benefits of the main VIEs since 2014.

In the above VIE structure, Shanghai Kuanyu is 100% owned by Chen Rui, who is also the controlling shareholder, chairman of the board, and CEO of B Station. Huan Dian Information Technology is jointly held by Chen Rui, Xu Yi, and Li Ni, with respective shareholdings of 52.3%, 44.3%, and 3.4%. Xu is also a founder, director, and president of B Station; Li Ni is the vice chairman of the board and COO.

Behind the VIE Agreement#

The aforementioned VIE structure of B Station is mainly related to the negative list of foreign investment in the business involved. B Station's business mainly involves the following aspects:

1. Providing network audiovisual program services;
2. Broadcasting and television program production and operation;
3. Internet cultural activities;
4. Production of audio-visual products and/or electronic publications;
5. Value-added telecommunications services.

Many of the above industries are included in the negative list (2020), and the corresponding relationships with B Station's entities are as follows:

1. Network audiovisual program services: According to the negative list (2020), foreign investors are prohibited from holding any equity in enterprises engaged in network audiovisual program services. The main business of Shanghai Kuanyu in the VIE structure involves video and audio content operations, which fall under the category of network audiovisual program services as defined by the "Audiovisual Regulations."

2. Broadcasting and television program production and operation: According to the negative list (2020), foreign investors are prohibited from holding any equity in enterprises engaged in broadcasting and television program production and operation.

The main businesses of Shanghai Kuanyu and Huan Dian Information Technology in the VIE structure involve video and audio content operations, which belong to the category of broadcasting and television program production and operation as defined by the "Broadcasting and Television Program Regulations." Both companies currently hold broadcasting and television program production and operation licenses.

3. Internet cultural activities: According to the negative list (2020), foreign investors are prohibited from holding any equity in enterprises engaged in internet cultural activities (excluding music).

In the VIE structure, the main businesses of Shanghai Kuanyu, Huan Dian Information Technology, Shanghai Donghun, Wuhu Xiangyou Network, and Shanghai Hehe involve video and audio content distribution and/or comic distribution and/or online game distribution, which fall under the category of internet cultural activities as defined by the "Internet Culture Regulations." Currently, all five companies hold network culture operation licenses.

4. Production of audio-visual products and/or electronic publications: According to the negative list (2020), foreign investors are prohibited from holding any equity in enterprises engaged in the production of audio-visual products and/or electronic publications.

In the VIE structure, the main business of Shanghai Zhonger involves the production of audio-visual products and/or electronic publications, which falls under the category of audio-visual product and/or electronic publication production. Shanghai Zhonger holds an audio-visual product production license.

5. Value-added telecommunications service business. B Station stated that the video and audio content operations of Shanghai Kuanyu, Huan Dian Information Technology, Wuhu Xiangyou Network, and Shanghai Hehe involve internet information services, which fall under the category of "value-added telecommunications services" as defined by the "Telecommunications Regulations."

According to Chinese laws and regulations, foreign investors are not allowed to hold more than 50% equity in any enterprise engaged in such businesses (excluding e-commerce, domestic multi-party communication, storage and forwarding, and call centers).

Considering the above, a series of contractual arrangements were established between Shanghai Kuanyu, Shanghai Huan Dian, and the sole shareholder of Shanghai Kuanyu, Chen Rui. Another series of arrangements were established between Huan Dian Information Technology, Shanghai Huan Dian, and the shareholders of Huan Dian Information Technology, Chen Rui, Xu Yi, and Li Ni.

4. Management Situation#

Whether the equity is concentrated or dispersed, the senior executives and core management teams at all levels, as well as equity incentive measures, are very important. Therefore, it is necessary to look at the frequency of implementing equity incentives and employee stock ownership plans since the company went public, as well as project co-investment arrangements. For example, if Moutai and the management team do not hold shares, this is a characteristic of state-owned holdings. The State-owned Assets Supervision and Administration Commission is now increasing the promotion of equity incentives for state-owned listed companies.

Dual-class share structure: B Station adopts a dual-class share structure, namely the AB share structure. In this structure, Class Z common shares have one vote per share, while Class Y common shares have more than one vote per share, giving management a larger voting power. For example, as of February 28, 2023, Chen Rui held 49,299,006 Class Y shares and 13,300,000 Class Z shares, with a total shareholding ratio of 12.6%, but his voting power reached 42%.

B Station is similar to typical listed companies in some aspects (such as management control), but its dual-class share structure and lower voting rights for external shareholders make its equity structure unique.

At this point, it probably took about 5 minutes, and you probably have a basic understanding of this company's governance structure. If the controlling shareholder holds a dominant position, the actual controller, chairman, and general manager, as well as family involvement in management, if the entrepreneur is very capable, then attention should be paid to the supervision of control, including whether there is a large proportion of equity pledges, and potential risks that may harm the interests of the listed company, such as related party transactions and guarantees. If the controlling shareholder holds a dominant position but does not participate in operations, professional managers are responsible for operations, then it is necessary to incentivize and supervise the management team. If there is no controlling shareholder and actual controller, it is necessary to see whether the managers hold shares in the company, as this company should be wary of control disputes and the issue of managers having unchecked power.

Regarding control, you should also look at the composition of the board of directors, as controlling the board is also an important form of company control.

Then look at the management team, which is very streamlined, with the CFO also serving as the secretary of the board. The former is a risk position, while the latter is a market relations position. Although many companies have this configuration now to save costs, there are conflicts of responsibility. The CFO's responsibilities are conservative, while the secretary of the board requires more openness, which poses some issues compared to other listed companies.

5. Company Scale: Assets, Revenue, Profit, Market Value#

Looking at the company's assets, net asset scale, revenue, and net profit, one can check the changes in data over the past five years, pulling it up on Tonghuashun. The specific asset data of Bilibili. However, it can be inferred that with the expansion of the company's business and user growth, its total assets are also continuously increasing.

Bilibili Revenue
According to multiple pieces of evidence, Bilibili's revenue situation in recent years is as follows:

• The total revenue for the year 2021 was 19.38 billion yuan.
• The total revenue for the year 2022 was 21.9 billion yuan, a year-on-year increase of 13%.
• The total revenue for the year 2023 was 22.53 billion yuan, a year-on-year increase of approximately 3%.
• The total revenue for the first quarter of 2024 was 5.665 billion yuan, a year-on-year increase of 12%.

Profit
Bilibili's net profit situation is relatively complex and influenced by multiple factors:

• In 2021, the net loss expanded to 119%.
• In the fourth quarter of 2022, the net loss was 1.3 billion yuan, a year-on-year narrowing of 13%.
• In the fourth quarter of 2023, the gross profit was 1.7 billion yuan, with a gross profit margin of 26.1%.
• The expected Non-GAAP net profits for 2022-2024 are -3.001 billion, -529 million, and 568 million yuan, respectively.

Market Value
Bilibili's market value has fluctuated at different points in time:

• In November 2023, the market value exceeded 20 billion USD.
• In April 2024, the market value was 5.087 billion USD.
• In January 2024, the market value was 4.116 billion USD.

In summary, Bilibili has shown excellent performance in revenue and user activity, but its net profit remains in a state of loss. The market value has also seen significant changes due to market fluctuations, indicating relatively high financial risk.

For the company's market performance, there is also a clever way to look at the coverage of the company's brokerage research reports. Some listed companies may only have one research report in several years, and if no brokerage institution writes about the company, the market attention is very low, and naturally, the market value cannot be high.

6. Company Dividend Returns and Financing Levels#

Looking at the company's historical cash dividend ratio, one can also look at the overall market's TSR (Total Shareholder Return) level, that is, TSR = (end stock price - beginning stock price + dividends) ÷ beginning stock price, reflecting the company's attractiveness to shareholder investments.

Bilibili's financing history is relatively complex and frequent. Since its establishment, the company has gone through multiple financing activities and received investment support from well-known companies such as Tencent, Alibaba, and Sony at different stages. Specifically:

1. IPO Financing:

• In 2018, it was listed on NASDAQ in the United States, raising a total of 483 million USD.
• On March 29, 2021, it was listed for a second time in Hong Kong, raising approximately 20.2 billion HKD.

2. Cumulative Financing Amount:

• By 2021, Bilibili's cumulative financing amount exceeded 500 million yuan.
• Since its establishment, the cumulative financing amount has exceeded 30 billion yuan.

3. External Investment:

• In the past three years, Bilibili has invested 636 million yuan in startups in the fields of animation, game development, and e-commerce.
• The company has extensively laid out the upstream and downstream of the animation industry chain, with content creation still being the core.

4. Convertible Bond Issuance:

• After a loss in the third quarter of 2021, B Station announced bond financing of 1.4 billion USD.

Profit and Loss Statement#

Balance Sheet#

Cash Flow Statement#

7. Public Opinion, Penalties, and Risk Matters#

By searching key announcement keywords and online platforms, one can see recent hot topics and whether there are any risk matters.

Appendix: Analysis Process of Listed Company Financial Reports
Based on the above analysis, if you are interested in further analyzing listed companies, you can also look at the company's mergers and acquisitions, planning of industrial layout, ESG performance and evaluation, board of directors and management personnel arrangements, the proportion of professional managers, and the company's position in the industry (comparing relevant information and performance indicators of listed companies in the same industry), especially detailed analysis of the listed company's periodic financial reports.

I. Interpretation of the Four Financial Statements#

Financial reports are comprehensive materials for understanding the annual financial status and operating results of listed companies. It is essential to read and study them with focus and historical continuity, and being adept at reading annual reports and their financial statements is crucial for accurately judging a listed company's financial health and operating conditions.

(I) Key Points of the Reports#

For the four financial statements, the most important are the "Balance Sheet, Profit and Loss Statement, and Cash Flow Statement," while the Statement of Changes in Equity can serve as supplementary reading. The key point of concern for these three statements is to look for any abnormal items, significant year-on-year increases or decreases, and to find the reasons behind them. Often, "strange occurrences must have strange reasons."

The balance sheet reflects the financial status of the enterprise at the end of the reporting period and must be viewed from both "sources of money" and "uses of money." The right side of the table shows the sources of money, including the lower half sourced from shareholders' money and the upper half from creditors' money. The left side shows the uses of money, whether it is held in the bank, used for production to become inventory and goods, or paid for goods or invested externally, all of which are reflected.

The profit and loss statement, also known as the "income statement," reflects the operating results of the enterprise during the reporting period, which is what everyone likes to look at. Stock traders focus on net profit, but this is actually the easiest to manipulate. Even without manipulation, one must be able to see how the quality of profit is. Here, it is essential to understand that the root of manipulation lies in the accrual basis of accounting, where unreceived money is counted as income, unspent money is recorded as costs, or received money is not counted as income, and spent money is not recorded as costs. These adjustments are mainly made through amortization and the timing of financial entries, with different accounting policies leading to vastly different results. A simplified example: Xiao Ming's monthly living expenses are 15,000 yuan, and his salary income is 30,000 yuan, received at the beginning of the next month. If it is on a cash basis, then in that month, Xiao Ming's cash flow out is 15,000 yuan, with no income, resulting in a loss. However, under the accrual basis, that month counts the salary income of 30,000 yuan, minus the expenses of 15,000 yuan, resulting in a net gain of 15,000 yuan. Ignoring taxes, the profit and loss situation for that month is reversed, with a difference of 30,000 yuan. However, it should be noted that regardless of the accounting method used, what is not reflected in that month will still be reflected in subsequent months, so the difficulty or risk of profit manipulation lies in how to fill this gap later. Moreover, operating profit is the core profit of a company, reflecting its sustainable competitiveness. It is best to look at this after subtracting investment income and asset impairment losses, and particularly focus on historical data and industry peer data.

The cash flow statement records the cash inflows and outflows of the company, reflecting the enterprise's ability to raise and control funds. Its beginning and ending cash and cash equivalents balances are actual recorded data (including records in the bank), which are relatively difficult to manipulate. Therefore, the cash flow statement should be given special attention, and the comparison of the ending cash and cash equivalents balance with the net profit in the profit and loss statement is also a key point. If the profit is much higher than the cash data, there may be manipulation or at least insufficient collection capability, posing significant risks. A technique for examining the cash flow statement is to focus on the positive and negative situations of "net cash flow from operating activities, net cash flow from investing activities, and net cash flow from financing activities," as shown in the table below:

In the table above, the cow type is the best, where operating cash flow can cover investment and financing needs, but sustainability is required. Without sustainability, external financing needs to be increased, becoming a bull type. The bull type has positive net operating cash flow, normally invests, and has positive financing situations, indicating good credit, making it a relatively healthy company, but it needs to pay more financing costs and should pay attention to fund safety. Often misunderstood is type 1, called the fairy type. In fact, this type of company has income from operations, but investment is recovering funds without continuing to expand production while also borrowing. The company has accumulated a lot of money, possibly preparing for significant investments in new directions, or may transfer the collected funds to interested parties, no longer used for production and operation, which must be particularly noted. Additionally, analyzing a company based on the above table cannot focus on just one year; long-term tracking is necessary to make judgments.

(II) The Relationship Between the Three Statements#

First, it should be noted that the three statements are not isolated; the data can mutually verify each other.

1. Profit and Loss Statement and Balance Sheet
   Net profit in the profit and loss statement = "ending surplus reserve + ending undistributed profit - beginning surplus reserve - beginning undistributed profit + dividends implemented during the period" in the balance sheet. This means that the net profit for the year ultimately increases the retained earnings in the company's net assets, including surplus reserves and undistributed profits.
   Assets = Liabilities + Equity + Income - Expenses. From this formula, it can be seen that if a listed company wants to inflate profits, it must inflate assets or deflate liabilities. Since deflating liabilities involves cooperation from creditors, it is relatively difficult, so generally, listed companies manipulate profits in relation to assets.

2. Cash Flow Statement and Profit and Loss Statement, Balance Sheet
   If a company's expenditure is accounted for within a year, it is recorded in the profit and loss statement as current expenses; if it is used for more than a year, it is recorded in the balance sheet as an asset. An interesting conclusion is that both assets and expenses are expenditures; assets are long-term expenditures, while expenses are short-term expenditures.
   On the other hand, the company's income, whether from borrowing, assets, or operating income, will be recorded in the cash flow statement as cash inflow, which then transforms into assets and expenses through expenditures.
   Thus, the liabilities and equity in the balance sheet, through the cash flow statement, convert into assets in the balance sheet or expenses in the profit and loss statement.
   Moreover, in the cash flow statement, apart from the beginning and ending balances of cash and cash equivalents, the other items are derived from the profit and loss statement and balance sheet, showcasing the changes in the "cash and cash equivalents" item in the balance sheet, which can verify the two statements, but it is unreliable to disprove the two statements through the cash flow statement.

3. Profit and Loss Statement and Cash Flow Statement, Balance Sheet
   Every income item incentivized in the profit and loss statement can generate cash or receivables, corresponding to the cash flow statement and balance sheet; a further connection is that: operating income (profit and loss statement) * VAT rate ≈ cash received from sales of goods and services (cash flow statement) + increase in accounts receivable and notes receivable (balance sheet). This means that the profit and loss statement does not include VAT, and when converting to the cash flow statement, VAT must be added. (The VAT rate was reduced from 17% to 13% after the tax reform in 2019, with different industries applying different rates of 13%, 9%, 6%, etc.)

II. Identifying Financial Report Manipulation#

Here, we still see the accounting identity "Assets = Liabilities + Equity + Income - Expenses." Manipulating profits is nothing more than manipulating income and expenses, leading to changes in assets and liabilities, while beautifying the cash flow statement mainly involves adjusting operating cash flow.

1. Manipulating Income
   Methods include fictitious income, exaggerating income through one-time actions, and recognizing income prematurely. Fictitious income involves making some false transactions, inflating transaction amounts, recognizing non-profit transactions as income, and unfair related party transactions. Exaggerating income through one-time actions, such as converting proceeds from selling business units or assets into operating income, or packaging losses into a company or department and then selling it off to cover losses, etc. Recognizing income prematurely involves confirming income for products or services not yet provided, recognizing income before the buyer explicitly acknowledges the payment obligation, and confirming income exceeding the completion percentage (as the subjective operational space for engineering construction or equipment assembly progress is large).

2. Manipulating Expenses
   The core is to fictitiously reduce and inflate expenses. Fictitiously reducing expenses means postponing current expenses, covering costs (e.g., not recognizing inventory depreciation, especially for fresh and technology product companies where inventory depreciates quickly, while liquor and other products are not easily depreciated), or losses to enhance current profits. Inflating expenses, commonly known as "washing the big bath," involves writing off assets or inventory, large provisions for impairment losses, or categorizing regular expenses as one-time expenses, etc. This operation fully accounts for the expenses of that year, incurring a significant loss to pave the way for better profits in the following year.

For example, if a company's purchaser goes to finance to withdraw cash for procurement payments, after making the payment, they receive an invoice from the other party and bring it to the company's finance department, but the finance department locks it in a drawer and does not record it yet, or the purchaser simply keeps the invoice to themselves. In this way, in the financial report, this amount is still "accounts receivable - some cash withdrawal," which is still an asset. If recorded, it would convert to procurement costs, reducing current profits.

3. Manipulating Cash Flow
   (1) Increasing cash inflows from operating activities
   Transforming cash inflows from investment or financing activities into cash inflows from operating activities, such as acquiring a company and obtaining the operating cash inflows of the acquired entity, especially before the acquisition is completed, intentionally making the acquired entity pay off its payables and delaying customer payments, forming accounts receivable. After the acquisition is completed, the acquired company's accounts receivable can be collected again, turning into cash inflows from operating activities.

(2) Reducing cash outflows from operating activities
Transforming certain cash outflows from operating activities into cash outflows from investment or financing activities, such as purchasing film and television program copyrights or renting internet bandwidth, which may be manipulated to be classified as cash expenditures for investment activities.

(3) One-time actions beautifying net cash flow from operating activities
For example, through bank factoring, selling receivables at a discount, offering high discounts to encourage customers to pay off receivables early, or delaying payments to suppliers and reducing normal procurement, thus increasing the net cash flow from operating activities for that period.

4. Other Manipulation Methods
   There are actually many other manipulation methods, such as a company making a large provision for bad debts in one year (the company itself determines it as bad debt), reducing the current profit, and then recovering the bad debts in the following year, leading to a significant increase in profit. This is particularly used by some companies to achieve two years of losses and one year of profit to avoid being classified as ST, but in fact, it has been continuously losing money, just that one or two years had larger losses, spreading the loss amount of the profitable year. Additionally, one should pay special attention to companies suddenly changing accounting policies, which may indicate operational issues or intentions to manipulate finances, such as tightening the standards for recognizing impairment provisions, which may mean wanting to report less impairment this year to increase profits, or loosening them suddenly, possibly intending to "wash the big bath" and incur a significant loss at once.

III. Internationalization Strategy#

1. Internationalization Process
   Bilibili's international strategy mainly revolves around the following aspects:
   Bilibili is expanding internationally by leveraging its rich content library to meet the diverse content needs of international users. For example, they have partnered with Fuji TV in Japan to establish the "B8station" channel, specifically airing animation works from China, and plan to collaborate on a Japanese drama adaptation of the domestic game "Time Agent." Additionally, Bilibili has launched localized services in Thailand and Malaysia, primarily as anime viewing websites, to enhance its competitiveness in the anime field.

Bilibili chose Southeast Asia as its first overseas destination because users in this region have a consumption habit for secondary dimension content, and there are no platforms in the market that are completely homogeneous with Bilibili's secondary dimension positioning. Since entering Southeast Asia at the end of 2020, Bilibili has not only launched an overseas official website and comic products but has also actively recruited local employees to expand its business. Bilibili's differentiated content and high-quality traffic strategy have also helped it achieve significant growth in the Southeast Asian market.

Bilibili is increasing its visibility and influence overseas by participating in international exhibitions and events. At the same time, Bilibili announced a strategic cooperation with Sony's Funimation in the field of animation content to further expand into the European and American markets.

In terms of commercialization, Bilibili faces the challenge of achieving a virtuous cycle of traffic monetization. To this end, they need to build a more mature monetization model for creators while also addressing efficiency issues. Furthermore, Bilibili plans to ensure maximum distribution of content by increasing international talent, investing in localized content, and signing new licensing agreements.

Bilibili is also deeply involved in co-producing documentaries and developing IP derivatives, such as collaborating with BBC Studios to co-produce the natural history epic "Green Planet." This not only enhances Bilibili's brand image internationally but also promotes the global dissemination of Chinese culture.

Overall, Bilibili's international strategy is multifaceted, including content diversification and localization, focusing on expanding into the Southeast Asian market, actively promoting its brand, exploring commercialization paths, and deeply participating in cultural output. These initiatives collectively contribute to Bilibili's greater success in the global market.

2. Motivations for Internationalization#

Bilibili's motivations for advancing internationalization mainly include the following aspects:

1. Advantage of Secondary Dimension Culture: Bilibili started with secondary dimension content in China, possessing a strong user base and brand recognition. In the Southeast Asian market, secondary dimension content has a high acceptance and consumption habit, allowing Bilibili to quickly attract local users by leveraging its secondary dimension content advantages.

2. Localization Strategy: When entering the Southeast Asian market, Bilibili adopted a localized service strategy, launching the Thai version of Bilibili and planning to enhance differentiation from Tencent and iQIYI through localized services. This localization strategy not only helps improve user experience but also better adapts to the cultural needs of different markets.

3. Sino-French Cultural Exchange: As one of China's largest youth cultural communities, Bilibili actively promotes Sino-French cultural exchange, facilitating interaction and dissemination of culture between the two countries through its platform. This cultural exchange not only enhances Bilibili's brand image but also provides new growth points for its internationalization strategy.

4. Content Diversification: As Bilibili evolves from a secondary dimension bullet screen video website to a diversified PUGC community, its content types have gradually expanded to include animation, games, music, and lifestyle. This content diversification strategy not only enriches the platform's content ecosystem but also lays a solid foundation for its internationalization.

5. Supporting Local Original Content: Bilibili is committed to supporting local original content and promoting the output of Chinese culture. For example, Bilibili has invested over 1 billion yuan in the production of domestic original animation and launched several domestic standalone/console games. This support for local original content not only enhances the platform's cultural depth but also provides strong support for its internationalization.

6. Global Layout: Bilibili continuously promotes its global layout, gradually attempting global distribution of domestic creations and collaborating with overseas MCN institutions to further expand into international markets. This global layout not only helps enhance Bilibili's international influence but also provides a guarantee for its long-term sustainable development.

3. Internationalization Strategy#

(1) Business Level - Differentiation Strategy
At the business level, several differentiation strategies have been adopted to stand out in a competitive market:

1. Content Ecosystem Construction: Bilibili is committed to building a unique content ecosystem that includes various types of content such as animation, games, film and television, and original music. By introducing and incubating high-quality original content and IP, it attracts users to stay and interact on the platform for the long term.

2. User Community and Interactive Experience: Bilibili emphasizes user community and interactive experience, highlighting features such as bullet comments, video sharing, and live interaction. This community-driven platform characteristic allows users to participate more deeply in content creation, communication, and sharing, enhancing user stickiness and platform activity.

3. Technological Innovation and User Experience: Bilibili continuously invests in technological innovation, including bullet screen technology, AI recommendation systems, and live streaming technology, to enhance personalized recommendations and viewing experiences for users. The platform actively explores the application of new technologies such as VR and AR to enrich content presentation and enhance user engagement.

4. Cross-Platform and Multi-Device Coverage: Bilibili provides seamless cross-platform experiences through multi-device coverage, including PCs, mobile devices, and smart TVs. Users can access platform content anytime and anywhere, increasing convenience and accessibility.

5. Social Responsibility and Cultural Influence: Bilibili emphasizes social responsibility and cultural influence, actively promoting the development and innovation of the digital cultural industry, supporting original authors and the healthy development of content creation ecology, while also participating in social welfare activities and cultural heritage protection.

Through these differentiation strategies, Bilibili continuously strengthens its advantages in content, technology, and user experience, as well as its leadership position in the digital cultural field.

(2) Company Level - Localization Strategy#

At the company level, various measures have been taken to adapt to and attract users in the Chinese market. Here are some main localization strategies:

1. Content Localization: Bilibili introduces a large amount of localized content, including Chinese animation, variety shows, and movies, to meet the needs of Chinese users for local culture and entertainment content. The company also actively supports and promotes domestic original content, such as animation, music, and short videos, to strengthen the local content ecosystem.

2. User Community and Cultural Resonance: Bilibili focuses on establishing and maintaining user communities, promoting communication and a sense of community among users through bullet comments, user interactions, and the culture of Bilibili UP owners. The platform's community culture and user interactions are important factors for user stickiness.

3. Technical and Product Localization: Bilibili adjusts and optimizes its technology and products based on the characteristics and user habits of the Chinese market. For example, the design and functional layout of the mobile application and the optimization of content recommendation algorithms take into account the usage habits and preferences of Chinese users.

4. Market Marketing and Brand Promotion: Bilibili emphasizes localization strategies in market marketing and brand promotion, enhancing brand awareness and influence in the Chinese market through collaborations with well-known domestic IPs, celebrity endorsements, and offline activities.

4. International Entry Methods#

1. Southeast Asian Market: Bilibili has prioritized Southeast Asia as its key international market. By analyzing local users' preferences for secondary dimension video elements, it seizes market opportunities where there are no other platforms with the same secondary dimension positioning as Bilibili. The Star Project Department is Bilibili's main international business department, established in 2020, aimed at creating "truly localized and globalized video community products."

2. Japanese Market: Bilibili has partnered with Fuji TV in Japan to establish a dedicated channel for domestic creations called "B8station," specifically airing animation works from China, and plans to collaborate on a Japanese drama adaptation of the domestic game "Time Agent." This marks the establishment of Bilibili's original content in the global market from the production stage.

3. International Client: Bilibili has launched an international client for overseas markets, removing ads and pop-ups to provide a cleaner viewing experience. This version supports multiple languages, including Chinese and English, to meet the needs of users in different countries and regions.

4. Comic and Game Business: In addition to video content, Bilibili is also actively expanding its comic and game business. For example, after launching the overseas official website Bilibili at the end of 2020, it quickly launched comic products Bilibili Comics within six months. Meanwhile, several of Bilibili's games have successfully been exported back to the Japanese and Korean markets.

5. Collaboration with Other International Institutions: Bilibili has also participated in the Asian Youth Film Project and attended the Tokyo Documentary Proposal Conference (Tokyo Docs) to discover and promote documentaries with unique Japanese social and cultural themes.

(4) Strategic Advancement#

Bilibili has gradually expanded from an ACG community to a broader secondary dimension cultural community, attracting more young people and users from different interest groups. This strategy has not only enhanced the platform's user scale but also strengthened its market influence. For example, Bilibili held several brand events in 2020, such as the "BILIBILI Gala 2019 Most Beautiful Night," significantly enhancing brand awareness and successfully attracting a large number of new users.

In terms of commercialization, Bilibili continuously strengthens its advertising, live streaming, and e-commerce business segments. For instance, the company launched the Huohuo commercial order system, opened enterprise accounts, and collaborated with MCNs to further improve advertising effectiveness. Additionally, Bilibili supports UP owners through various monetization models, promoting revenue growth for content creators. In the live streaming business, Bilibili adopts a point-to-point integration strategy to drive the growth of the number of streamers and enrich content supply.

Bilibili continues to invest in its content ecosystem, not only increasing the supply of PUGV (Professional User Generated Video) materials but also increasing investment in domestic animation, documentaries, and variety shows. At the same time, Bilibili is also laying out upstream in the industry chain, purchasing classic film copyrights and launching online broadcasts of cinema films to further improve its content ecosystem.

Facing the challenge of continuous losses, Bilibili has implemented a series of cost control measures, such as optimizing personnel allocation and streamlining R&D investments. Additionally, the company has shifted to a high-quality user growth strategy, enhancing user stickiness and advertising value. These measures have shown initial results, with both gross margin and operating profit margin improving.

The gaming business is one of Bilibili's important sources of revenue. Although it has not maintained a leading position in the secondary dimension gaming market, Bilibili has adjusted its strategic focus to further strengthen the development of value-added services, advertising business, and e-commerce business. The company has also performed well in terms of game reserves, with multiple new games expected to be launched in the second half of the year.

Bilibili is also actively applying artificial intelligence (AI) technology, such as AIGC (Artificial Intelligence Generated Content), to enhance the richness of community content and strengthen user social interactions. This technological innovation not only improves user experience but also brings new growth points to the platform.

8. Business Level Strategy Analysis#

I) Strategic Development History
Startup Phase (2009-2012)
Bilibili was founded on June 26, 2009, by Xu Yi, Chen Rui, and others, initially named Mikufans, as a bullet screen video website themed around ACG (Animation, Comics, Games). The main characteristic of this phase was that users interacted by uploading and sharing secondary dimension-related content, and the platform mainly relied on user-generated content, without a complete commercial operation model.

Standardized Operation and Commercial Exploration Phase (2013-2017)
During this phase, Bilibili began to gradually standardize operations and explore commercial development. In 2014, Chen Rui joined Bilibili as chairman, marking a significant shift in Bilibili's content and business model. During this period, Bilibili not only expanded its coverage in gaming and esports but also attracted potential users through offline events, gradually surpassing its competitor A Station.

Breaking the Circle and Diversification Development Phase (2018-Present)
In 2018, Bilibili successfully went public on NASDAQ, further consolidating its market position. From this year onward, Bilibili began implementing a "breaking the circle" strategy, expanding its user base from core secondary dimension enthusiasts to a broader secondary dimension community. Additionally, Bilibili actively expanded into various fields such as technology and lifestyle, gradually evolving into a diversified PUGC (Professional User Generated Content) community.

Commercialization and Ecological Construction
As the user scale continues to expand, Bilibili also continuously strengthens its commercialization layout. Through advertising, live streaming, mobile games, and other means, Bilibili has diversified its revenue sources. At the same time, Bilibili deepens its penetration in various fields through strategic investments, such as collaborations with Tencent and Sony, further enhancing its independence and competitiveness.

(II) Current Strategic Development Status#

Born from worries, die from comfort, an unchanging truth.
Bilibili has achieved high-quality user growth through its "user breaking the circle strategy," evolving from an initial ACG circle to a broader secondary dimension community. This strategy has not only expanded the user base but also enhanced the platform's diversity and inclusivity. As of the first quarter of 2024, Bilibili's daily active users have exceeded 100 million, with monthly active users and average daily usage time reaching new highs.

Commercialization and Revenue Growth#

Bilibili has also made significant progress in commercialization. In the first quarter of 2024, Bilibili's total revenue grew by 12% year-on-year, reaching 5.66 billion yuan, with advertising revenue growing by 31% year-on-year. Additionally, the value-added service business and live streaming business have also performed well, with gross margins increasing for seven consecutive quarters to 28.3%.

Content Ecosystem and Diversified Development#

Bilibili focuses on the cultural interests of young people, horizontally expanding content categories and vertically delving into professional knowledge, supporting local original content, and reviving traditional culture, committed to the output of Chinese cultural content. Its content ecosystem includes various forms such as videos, live streaming, games, and films, and it continuously explores new consumption scenarios to meet the needs of different users.

Investment Layout and Industry Chain Deepening#

Bilibili has also made multi-faceted investments in industry chain layout, building an online entertainment world for Generation Z. Currently, Bilibili has invested in over 60 companies in the upstream and downstream of the animation industry chain, deepening its layout for Generation Z users. Additionally, Bilibili has further strengthened its penetration into community scenarios and upgraded its traffic strategy through measures such as upgrading the Huohuo platform and launching the Spark Plan.

3. Summary#

In summary, in objective fact, the current situation of the film and television industry is worrying, with fierce competition; in terms of subjective capability, Bilibili has significant advantages in financial, organizational, physical, human, and reputational resources.
In several major sub-markets, the main areas and specific user groups involved are as follows:

1. Anime and Comic Market:

• Bilibili, as China's leading anime platform, focuses on promoting and developing anime and comic content. The platform covers a large number of Japanese anime, domestic anime, and comic works, attracting a wide range of anime enthusiasts and comic fans.

2. Game Live Streaming and Competitive Events:

• Bilibili, as one of the major platforms for game live streaming, attracts a large number of gamers and viewers. Through live streaming and event broadcasts, the platform promotes interaction and competitive atmosphere within the gaming community, while also providing a platform for game developers and esports players to showcase and communicate.

3. Original Video and Short Video Community:

• Bilibili is a community platform primarily focused on original video and short video content. UP owners upload various types of original videos, including life records, popular science knowledge, and skill demonstrations, sharing and interacting with viewers, forming a unique creator community.

4. Knowledge Sharing and Academic Field:

• Bilibili has gradually become an important platform for knowledge sharing and academic fields, attracting many researchers, academic institutions, and popular science enthusiasts. The platform features a large number of popular science videos and academic lectures on technology, culture, history, and other fields, promoting knowledge dissemination and exchange.

5. Secondary Dimension Culture and Peripheral Market:

• As an important promoter of secondary dimension culture, Bilibili has also ventured into the peripheral market of secondary dimension culture. The platform sells various peripheral products related to secondary dimension culture, such as anime peripherals, figurines, and clothing, meeting fans' needs for collecting and pursuing secondary dimension culture.

Through the exploration and deepening of these sub-markets, Bilibili not only expands its user base and market coverage but also strengthens its influence and market competitiveness in various fields.

Bilibili has implemented a differentiation strategy through various means to stand out in a competitive market.#

Here are its main strategies:
Bilibili's core is the "UP owner & user community," which allows the platform to continuously generate high-quality content and form an active user interaction environment. This model not only attracts a large number of young users but also ensures content diversity and high quality through a combination of UGC (User Generated Content) and PGC (Professional Generated Content).

Bilibili initially focused on ACG (Animation, Comics, Games) bullet screen video sharing, gradually expanding into other areas such as learning resources, live streaming, and games. Its live streaming channel is also different from other platforms, leaning more towards secondary dimension-related areas such as dance, painting, figurine modeling, and cosplay, precisely targeting Bilibili's user group.

Bilibili's target market is the Z generation, specifically young people born after 1990. By providing content that meets the interests and cultural needs of this generation, such as anime, secondary dimension, and entertainment news, Bilibili has successfully attracted a large number of young users.

Bilibili has innovated in content formats, launching vertical video (Story-Mode) and other new formats to adapt to different devices and user viewing habits. Additionally, Bilibili has expanded user usage scenarios through multi-screen and multi-scene strategies, further enhancing user stickiness.

Bilibili continuously optimizes its recommendation algorithms to ensure that high-quality content is accurately recommended to the corresponding audience, thereby improving user experience and satisfaction. At the same time, Bilibili also emphasizes the supply of high-quality content, attracting and retaining users by building a good content ecosystem.

Bilibili actively seizes opportunities in the Southeast Asian market, leveraging its exclusive animation copyright content advantages to develop overseas business. This not only helps Bilibili establish a foothold in the international market but also brings new growth points.

Bilibili's Differentiation Strategy Implemented on the Value Chain#

This is mainly reflected in the following aspects:

1. Content Procurement and Development:

• Strategic Positioning: Bilibili collaborates with domestic and foreign animation production companies to procure and develop diverse animation content, including exclusive copyrights and original works.
• Advantages: By introducing high-quality animation content, it meets users' demands for fresh and excellent animation works, enhancing the platform's attractiveness and user loyalty.
• Challenges: High copyright costs and market competition pressure may increase content procurement costs, requiring a balance between investment and returns.

2. Content Distribution and User Experience:

• Strategic Positioning: Bilibili focuses on optimizing content distribution technology and user experience, including video playback stability and bullet comment interaction systems.
• Advantages: Providing smooth video playback and interactive experiences strengthens users' sense of participation and platform stickiness.
• Challenges: High technology investment and maintenance costs require continuous updates and optimizations of technical infrastructure to cope with user growth and new technology challenges.

3. User Community and Social Interaction:

• Strategic Positioning: Bilibili establishes an active user community and social interaction platform through bullet comments, UP owner culture, and user-generated content.
• Advantages: This creates a unique social culture and user participation model, increasing user stickiness and platform activity.
• Challenges: Managing a large-scale user community and content review may face issues such as inappropriate content and user disputes.

4. Technological Innovation and Service Expansion:

• Strategic Positioning: Bilibili enhances service quality and user experience through technological innovations, such as AI recommendation algorithms and the application of virtual reality technology.
• Advantages: Technological innovations bring personalized recommendations and enhanced interactive features, meeting users' demands for personalization and innovation.
• Challenges: Rapid technological updates require continuous R&D investment and talent support to maintain technological advantages and leadership.

5. Brand Building and Market Marketing:

• Strategic Positioning: Bilibili enhances brand awareness and market influence through collaborations with well-known IPs, sponsorship of large events, and social media marketing.
• Advantages: Effective brand marketing can attract more users and advertisers, enhancing brand loyalty.
• Challenges: Intense market competition and the need for long-term marketing investment are necessary conditions for sustainable development.

(2) Human Resource Management#

Bilibili (B Station) has adopted various measures in human resource management to ensure that the company can attract, retain, and motivate employees. Bilibili offers generous salary and benefits. The company provides five insurances and one fund for each employee, along with additional medical insurance, and employees' children can also enjoy these benefits, totaling six insurances and one fund. Additionally, Bilibili offers paid annual leave, with the number of leave days increasing with each year of service. Although there are no employee cafeterias and overtime pay, the company provides meals for overtime work, and there are Lawson stores and Costa Coffee in the headquarters building, all filled with Bilibili elements, providing convenience for employees.

Bilibili places great importance on corporate culture construction. The company's corporate culture emphasizes community first, closely related to Bilibili's origin as a fan community. The implementation of corporate culture is reflected in the design of office spaces, with corporate culture as the core content. Furthermore, Bilibili enhances employees' sense of identity and belonging to the company through various activities and ceremonies.

In terms of talent recruitment and training, Bilibili has also adopted proactive strategies. For example, Bilibili's vice president Zhu Haobo has stated that his team is providing talent and organizational support for the company's rapid development. Additionally, Bilibili attracts young talents to join the company through campus recruitment and other means.

Bilibili's Organizational Structure Differentiation#

Bilibili has divided the "Main Station Operation Center," which undertakes platform operation functions, into three parts:

• Departments related to platform ecology, such as the Creation Platform Department, Ecological Strategy Department, and Ecological Use Group, are integrated into the "Ecological Middle Platform," led by Xia Bin.
• Departments related to live streaming business, such as the Live Streaming Middle Platform Department, Virtual Anchor Operation Department, and Entertainment Anchor Operation Department, are integrated into the "Live Streaming Center," led by Yu Hexin.
• The remaining departments related to content vertical operation, such as Knowledge Content Department, Automotive Content Department, and Information Content Department, are integrated into the "Comprehensive Category Department," led by Wang Zhikai.

Additionally:

• Wu Yan has taken over as the head of the Game Business Ecology Department, while the Game Content Department has begun reporting to Wu Yan.
• The "UP Owner Management Service Center" has been established to strengthen commercial service capabilities for MCNs and UP owners, led by Wang Chao.
• Xia Bin, Yu Hexin, and Wang Zhikai report to Bilibili CEO Chen Rui. Wu Yan and Wang Chao report to COO Li Ni.

After this adjustment, the Main Station Operation Center no longer exists, replaced by five relatively independent category teams: Comprehensive Category (General Knowledge, General Life), Animation, Games, Music, and Film and Entertainment. Among them, the Animation and Film and Entertainment Content Centers were established in August last year, while the Game Content Department was split from the Main Station at the beginning of 2021. A person close to Bilibili stated that continuously splitting content operation teams into finer divisions indicates Bilibili's anxiety about maintaining content characteristics. Splitting is beneficial for each team to delve deeper into the relevant industry and strengthen connections with creators.

"People" refers to employees, while "Orders" literally refers to orders, but essentially refers to users, encompassing their needs and values. "People-Order Integration" aims to eliminate the distance between employees and users, allowing users to become the innovation resource of the enterprise and enabling employees to better identify user needs and create user-recognized value, while also obtaining their deserved returns from users.

② Management Mechanism Differentiation#

Bilibili's management mechanism exhibits differences from other video platforms in several aspects, mainly reflected in content creation, user interaction, and community management.

Content Creation and UP Owner Ecology
Bilibili places great importance on self-produced content and the development of UP owners. It has launched "Professional User Generated Content" (PUGV), which refers to high-quality videos created by UP owners, forming the core of its creation ecology. Bilibili achieves traffic monetization through operational methods such as "one-click three connections," exchanging high traffic for higher advertising revenue. Additionally, Bilibili provides full-time services for UP owners, especially small and medium-sized UP owners and new UP owners, demonstrating its emphasis on high-quality content creators.

However, Bilibili has shortcomings in UP owner incentives. Compared to other short video platforms, Bilibili's commercialization system is not mature enough, leading to slightly insufficient incentives for content producers. Nevertheless, Bilibili still insists on allowing high-quality content to gain more traffic and uses positive feedback from users, such as likes and coins, to determine whether the content is of high quality.

User Interaction and Community Management
Bilibili's user interaction mechanism includes bullet comments and "one-click three connections," which are likes, coins, and favorites. This interaction method not only increases user participation but also promotes the vibrancy of the community atmosphere. Additionally, Bilibili has introduced features such as the "Little Black Room" and the Discipline Committee to regulate and arbitrate violations. These measures help maintain a good community environment.

Technical Architecture and Monitoring#

Bilibili adopts a high-performance microservice architecture to enhance transcoding efficiency and accelerate the review process of submissions. However, due to all code being centralized in one repository, monitoring and positioning issues are prominent. Despite facing challenges, Bilibili continues to optimize its technical architecture to address these issues.

Commercialization and Traffic Distribution#

Bilibili's commercialization strategy differs from other video platforms. It places greater emphasis on video quality and user interaction rather than solely relying on view counts. This strategy may lead to short-term difficulties in traffic monetization, but in the long run, it helps build a healthy commercialization ecosystem.

③ Platform Differentiation#

Bilibili exhibits significant characteristics in platform differentiation, primarily reflected in content ecology, user groups, community interaction, and business models across multiple dimensions.
From a content ecology perspective, Bilibili initially started as a secondary dimension bullet screen video website, but its content has expanded far beyond that. Currently, Bilibili's main content categories include lifestyle entertainment, gaming, and animation, and it continues to expand into both general entertainment and serious content. This diversified PUGC (Professional User Generated Content) community gives Bilibili a strong competitive edge in content supply. Additionally, Bilibili is actively laying out the upstream of the domestic creation industry chain, focusing on the production of high-quality domestic creations.

In terms of user groups, Bilibili's user profile is relatively young, with 86% of users aged 35 and under, most of whom are post-90s and post-00s. However, as the platform develops, more users born in the 1980s are also joining Bilibili's user ranks. This diversity in user groups not only enhances the platform's vitality but also drives its rapid breaking of circles.

Thirdly, in terms of community interaction, Bilibili has a unique bullet comment culture and a highly sticky user community. The bullet comment feature not only enhances user interaction experience but also creates a virtual real-time viewing atmosphere. Additionally, the UP owner system and the density of community relationships are also core competitive advantages, with high interaction rates between UP owners and users, bringing more loyal fans to the platform. Meanwhile, Bilibili's comment system also has high participation and interactivity, with the comment and appreciation rates of top UP owners' videos significantly higher than those on Douyin and Kuaishou.

In terms of business models, Bilibili monetizes through various means, including advertising, live streaming, and membership systems. Although the early commercialization efforts were insufficient, with the expansion of the user base and the increase in advertising and live streaming revenue, Bilibili is gradually forming a healthy commercialization ecosystem. Additionally, Bilibili has established strict community rules and penalties to ensure that every user participates in the supervision of the community environment, thereby creating a good community atmosphere.

In summary, Bilibili demonstrates unique differentiation characteristics in content ecology, user groups, community interaction, and business models. These characteristics not only enable it to stand out in fierce market competition but also lay a solid foundation for future development.

(IV) Risks of Implementing Differentiation#

Bilibili (B Station) faces several risks in implementing differentiation, mainly reflected in the following aspects:

1. User scale growth not meeting expectations: As the user penetration rate in the internet industry gradually peaks, competition becomes more intense. Bilibili needs to actively meet user needs to avoid user loss.

2. Additionally, if commercialization monetization does not meet expectations, it will directly impact the company's financial performance and market competitiveness.

3. Decline in content quality leading to user loss: Since anyone can upload videos, the quality of videos varies, and low-quality videos not only damage viewers' trust in the video platform but also affect the platform's long-term development. At the same time, the competition in the content community market is intensifying, and Bilibili needs to manage the relationship between new and old users to avoid diluting the community atmosphere due to a large influx of new users, affecting long-term user retention.

4. Risks of stricter regulation of entertainment content: This includes the risk of strict regulation of content uploaded by UP owners. This may limit the freedom of content creation and increase operational costs.

5. High proportion of young users, with monetization efficiency unable to improve: Although Bilibili has a large number of young users, its monetization efficiency has always been unable to improve, which may affect the company's overall profitability.

6. Risk of operational failure in the UP owner system, losing to Douyin and Kuaishou in competition: Compared to other community-based platforms like Kuaishou, Bilibili's user profile and product tone differ, resulting in a weaker direct competition relationship. However, facing products from the Byte system with strong media attributes, Bilibili needs to maintain its advantages in interactivity and UP owner incentive mechanisms.

7. Risk of rapidly increasing content costs due to large-scale procurement of long video content: As Bilibili expands its content ecology, it may face cost pressures from large-scale procurement of long video content, affecting the company's financial health.

9. Analysis of Strategic Implementation Status#

(I) Internal Control Evaluation Report Analysis

1. Overview of Internal Control
   The goal of the company's internal control is to reasonably ensure that management is legal and compliant, assets are secure, financial reports and related information are true and complete, and to improve operational efficiency and effectiveness, promoting the achievement of development strategies. The board of directors strictly establishes and effectively implements internal controls in accordance with the regulations of the internal control standard system, and truthfully discloses the internal control evaluation report. The supervisory board supervises the establishment and implementation of internal controls by the board of directors. The management is responsible for organizing and leading the daily operation of the company's internal control. Through the cooperation of the three parties, the health and stable operation of the internal control system is ensured, ensuring that the company's operations are always legal, compliant, and transparent.

2. Conclusion of Internal Control Evaluation
   (1) Internal Control of Financial Reporting
   ① Standards for Identifying Internal Control Deficiencies in Financial Reporting
   Table 13 Quantitative Standards
   

Table 14 Qualitative Standards

② Evaluation of Non-Financial Reporting Internal Control
According to the company's identification of significant deficiencies in non-financial reporting internal control, as of the baseline date of the internal control evaluation report, the company has not discovered significant deficiencies in non-financial reporting internal control.

(II) Social Responsibility Report Evaluation#

1. Environmental Responsibility
   In its 2021 Environmental, Social, and Governance report, Bilibili emphasized its commitment to environmental protection. The report covers information and data from Bilibili Co., Ltd. and all its subsidiaries from January 1, 2021, to December 31, 2021, sharing the company's concepts, initiatives, and achievements in environmental protection.

2. Social Responsibility
   As a symbolic brand of China's younger generation and a leading video community, Bilibili has been committed to providing a wide range of video content to meet users' diverse needs. For example, in Wenshan County, Dali City, Yunnan Province, Bilibili invested in building a beautiful primary school, which not only reflects the company's support for education but also showcases its proactive actions in social responsibility.

3. Corporate Governance and Community Autonomy
   Bilibili has implemented a series of measures in corporate governance, including the implementation of the "Little Black Room" and Discipline Committee systems to achieve community autonomy. This mechanism ensures the quality of community content and user experience while avoiding a simple model where traffic distribution relies solely on view counts. Bilibili believes that a good community atmosphere can allow high-quality UP owners and content to stand out through interaction data.

Service Policy#

Bilibili emphasizes user-generated content (PUGV) as the core, building a highly interactive and sticky community. This model not only encourages the creation of high-quality content but also enhances user experience through interactive mechanisms such as bullet comments and one-click three connections.

Bilibili's traffic distribution policy is based on users' likes, coins, and positive feedback to determine high-quality content, rather than solely considering click counts. This approach aims to encourage UP owners to create more high-quality content, with 70% of traffic allocated to small and even unknown UP owners, reflecting its long-termism and fairness.

"Community first" is the first sentence of Bilibili's corporate culture. Chen Rui has emphasized that Bilibili's primary mission is to build a community belonging to users. User experience does not come from the product itself but from the interactions and relationships between users.

Bilibili places great importance on nurturing and serving UP owners, especially small and medium-sized UP owners and new UP owners. As of June 2022, Bilibili has 2,964 employees serving UP owners full-time, indicating the company's strong support for UP owners.

The bullet comment culture is a significant feature of Bilibili. It is not only a form of video viewing but also part of community rules and rituals. This culture meets the spiritual needs of young users, enhancing their sense of companionship and belonging.

Bilibili achieves diversified monetization through various means, including mobile games, advertising, value-added services, and e-commerce. Additionally, Bilibili has launched a premium membership system and the Oasis Plan, aiming to share advertising revenue with UP owners and regulate advertising behavior.

Bilibili has introduced a vertical video feature called Story Mode to meet users' needs for fragmented scenarios and has placed emphasis on supporting the development of domestic animation. At the same time, Bilibili has strengthened knowledge sections and interactive features to enhance community attributes.

In summary, Bilibili's service policy mainly focuses on promoting user-generated content, establishing a fair content distribution mechanism, community autonomy and user interaction, supporting UP owners, and exploring diversified commercialization. These policies