Bilibili is an innovative and growing online entertainment platform in China. Bilibili is akin to YouTube in the US, but offers a wider variety of content including games and comics. Since its US IPO in 2018, the company's stock has returned nearly 200%. We spoke with Bilibili investor relations to find out more about the company's growth, challenges, and US listing.

1. It has been a dramatic two years since Bilibili went public in the United States in March of 2018. The stock will be added to MSCI indices. Would you provide some background on the company and the founder Yi Xu?

Bilibili's mission is to enrich the everyday life of young generations in China. A substantial portion of Bilibili users are Generation Z – individuals born from 1990 to 2009 in China.

We started as a content community inspired by anime, comics, and games, or ACG. Our website was first launched in 2009 as a personal interest site by a group of college friends who enjoyed anime. At the time, our founder Yi Xu was 20 years old. Since the inception of our company, Mr. Xu has been an opinion leader in our communities and led the prosperity of our community culture among users.

In 2011, our current Chairman and CEO Rui Chen, a serious anime fan, met Yi Xu and funded our first round of financing as an angel investor. Mr. Chen is a serial entrepreneur. He started his career at Kingsoft (HK: 3888), founded Beike Internet Security Co., Ltd., then joined Cheetah Mobile (NYSE: CMCM) as a co-founder and officially joined Bilibili after Cheetah Mobile listed on the New York Stock Exchange.

The rest is history. We have evolved into a full-spectrum online entertainment world covering a wide array of genres and media formats, including videos, live broadcasting, and mobile games.

2. Bilibili has several prestigious investors from the private equity space. What do you think attracted them to the company as a private company and has kept them as shareholders now that you are public?

We attract private equity investors because of the following three reasons: our unique content, our close-knit community environment, and our core users.

We have been in a unique position since the first day we launched Bilibili. We have a very healthy, user-generated content ecosystem where talented creators produce high-quality content, which we call professional user-generated content (PUGC). Our expanding content library and our enthusiastic community keep attracting new users and motivating creators.

We also have an incredibly engaged community that encourages users to interact with our distinctly innovative and interactive features. For example, we pioneered the bullet chat feature, a live commenting function that has transformed the viewing experience. This signature feature fosters a highly interactive and enjoyable viewing experience and allows our users to benefit from strong emotional bonds with other users who share similar aspirations and interests.

Third, we are an iconic brand amongst Chinese youth, the "golden cohort" for the future entertainment market. By capturing this group of users, we hope to capture the future of the online entertainment market.

3. We know that many internet platforms, such as Baidu, suffer from an over-supply of ad space in the market. Has this supply glut impacted Bilibili? What does the revenue contribution of ads currently look like compared to subscriptions?

Bilibili's premium membership runs on a subscription model, which allows premium members to enjoy exclusive content or view licensed content as well as original content in advance. As of March 31, 2020, we had 10.9 million valid premium members. Our premium member count has increased by 127% since March 31, 2019.

Bilibili's advertising business contributed RMB 214 million in the first quarter of 2020, a 90.5% increase compared to the same period last year. During the first quarter, coinciding with COVID-19, our advertising revenue experienced steady growth.

We are increasingly recognized as the go-to platform to communicate with young generations. In the future, our growing community and increased brand equity will make Bilibili a leading platform for advertisers.

4. We are well aware of the proliferation of live streaming, especially in esports. Do you see this as a growth area for Bilibili too?

Live broadcasting is a natural extension of our video platform. Game, music, dancing, and drawing shows have accounted for a substantial majority of the content offered on our live broadcasting program in 2019. We have also started several initiatives to expand our live broadcasting content, such as live streaming e-sports games, to cater to our game lover users, including top-level matches in League of Legends and the Overwatch League Championships. In December 2019, we entered into a letter of intent to purchase the three-year license for live broadcasting the League of Legends World Championship in China starting from 2020, the crown jewel of the e-sports world. Our investment in live-broadcasting IP continues to fuel our user growth and attract more live-broadcasting hosts. We are seeing more talent agencies and individuals turn to Bilibili to expand their influence through our platform.

5. Your COVID-19 pandemic user numbers are impressive. Did this happen organically, or was there a concerted marketing push at the onset of the quarantines in China? Do you think these numbers are sustainable post-COVID?

Our user growth is based on two key factors:

• Ten years of devotion to building a healthy content ecosystem and tight-knit community
• Our improved brand recognition and effective user acquisition method. We took an opportunistic approach to invest more in user acquisition during the first quarter.

Our user acquisition and engagement may fluctuate depending on factors beyond our control, such as the shelter-in-place restrictions due to the COVID-19 pandemic. We have experienced a significant increase in the size and engagement of our active user base during the first quarter of 2020. We cannot predict the user acquisition and engagement levels after various shelter-in-place restrictions are relaxed—the extent to which COVID-19 impacts our results will depend on future developments that are highly uncertain. Therefore, COVID merely accelerated user growth but was not the key reason behind it.

In the long term, we aim to achieve a user growth target of 180 million in 2020 and 220 million in 2021. We are confident we are on track to achieve this goal.

6. How do you feel about your US listing? Would you consider following in the footsteps of Alibaba, Baidu, and JD by listing in Hong Kong?

We are currently pleased with our existing Nasdaq listing, which has been a great success since our IPO in 2018. We are glad that listing in Hong Kong is an alternative that companies like us can explore. We will evaluate available options from time to time based on our growth strategy and financing plan.

7. Which is your largest competitor: iQiyi or someone else? What sets you apart?

We believe that we can compete effectively based on the following factors:

• The strength and reputation of our brand
• Our ability to provide creative and quality PUGC
• The demographic composition and engagement of our user base
• The performance and reliability of our platform.
• Our ability to develop new products and services and enhancements to existing products and services to keep up with user preferences and demands
• The fact that iQiyi's business model is different from ours. The majority of their content is original and professionally produced. The majority of the content on Bilibili, on the other hand, is generated by users.

8. While we know that the growth potential for Bilibili is enormous, it has not yet achieved profitability. What is your path to profitability?

First, there is an enormous market for Bilibili to grow and further penetrate. We are riding on the fast development of the online video market.

We have a proven track record in converting new users to paying subscribers. Our MAU increased by 70% year-over-year in the first quarter of 2020, while our average monthly paying users grew even faster by 134% year-over-year. We believe our top line will further grow along with our user base.

Second, as our top line expands, we have seen increasing operating leverage. Our gross margin jumped to 23% in the first quarter of 2020, up from 14% for the same period in 2019, marking the fourth consecutive quarter of margin improvement. As long as we continue to execute our user strategy, we are confident that we can continue to grow revenue and improve our operating leverage.

9. Your recent partnership with and equity investment from Sony has investors excited. Would you speak to this partnership? How does the latest arrangement go beyond your previous partnership on anime licenses?

Bilibili and Sony have been cooperating for some time now on various fronts, including both animation and games. In 2014, we began to procure Japanese anime from Sony, and in 2016 we exclusively distributed Sony's mobile game Fate/Grand Order. We have also recently started a partnership with Sony that allows our viewers to access Sony music videos and movies on our platform.

We are excited to bring our long-standing relationship with Sony to the next level via both their equity investment and future business collaboration plans. The equity investment will fuel our future growth and demonstrate Sony's strong confidence in our unique positioning and growth prospects

Under the business cooperation agreement with Sony, we plan to bring more world-class anime and mobile gaming content to China, further enhancing our advantage in these areas. Furthermore, we plan to extend our music and movie content, hoping to bring more world-class premium content to meet growing user needs.

10. Have you considered expanding your customer base beyond China?

The Chinese market is still our priority in the short term, as we believe there remains significant untapped potential in this market. However, we do constantly monitor international markets. Given the universal interests of Gen Z around the world, we periodically consider overseas expansion options.

*Bilibili represented 4.13% of KWEB's net assets as of June 25, 2020.