leaf

1. Nature of the Enterprise#

State-owned, privately-held, or foreign-invested, the nature of a company determines its governance, decision-making style, and influences the flexibility of equity incentives and capital operations, reflecting differences in managerial motivation. It also affects the company's resource advantages and bank credit loan capabilities. 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 interconnectivity technology, new ecosystems and upgraded business models continue to emerge. Hiroshi Mitsutake summarizes profit models, sales methods, production methods, settlement, and capital flow methods in "The Complete History of Business Models." Customer groups can be categorized as to B, to C, or to G, or a mix. 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 editors, 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 rights. If the company has no actual controller and controlling shareholder, it is generally controlled by managers, with relatively dispersed equity, as in the case of Vanke, where there is a 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 in the minority, accounting for less than 5% at 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 the company's 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. was incorporated 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 Bilibili, fully controlling several subsidiaries located in Hong Kong and Japan, and further implementing its business globally.
   This also explains why the valuations and financing of Bilibili are often calculated in US dollars. The "Bilibili" 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 will be discussed later.
   A brief look at its equity structure:
   Why can Bilibili obtain broadcasting and television program production and operation licenses and information network dissemination audiovisual program licenses? The shareholding ratio, apart from the related companies of Chen and Xu, is mostly state-owned background funds.

2. Bilibili HK Limited & Bilibili Co., Ltd.
   The former is a wholly-owned subsidiary of Bilibili Inc. in Hong Kong, and 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 the core business of Bilibili. This Hong Kong subsidiary fully controls subsidiaries located in mainland China. Interested parties can refer to 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.
   This is "Shanghai Bilibili Technology Co., Ltd." It is a wholly-owned subsidiary of "Hong Kong Huan Dian Limited" mentioned above. Generally speaking, foreign-controlled companies operating in cultural and entertainment businesses face many restrictions. Based on its corporate credit information, its main business is:
   Engaged in technology development, technology transfer, technology consulting, technology services in the fields of information technology, computer software and hardware, and network technology, sales of electronic products, communication equipment (excluding satellite television broadcasting 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, operational leasing of stage equipment, photography services (excluding aerial photography and special effects photography), etiquette services, ticketing agency, operating performances 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 requiring approval according to law can only be carried out after approval by relevant departments.]

It can be noted 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 Bilibili'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 very 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 carry out 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, has no 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 businesses, 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 agreement. For a detailed explanation, 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 must be 100% undisputedly controlled by shareholders from mainland China to avoid potential tightening of policies in the future—the best candidates are naturally the management team led by Chairman Chen. This mechanism does not achieve control through shareholding; therefore, although it complies with the legal framework, its control strength is relatively weaker and largely depends 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 essentially Chairman Chen and his team jointly providing 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 should only be a shell company borrowed by Chairman Chen. This is his wholly-owned company, and the company displayed at the bottom of the Bilibili 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 Bilibili. Of course, it has many wholly-owned subsidiaries and invested holding secondary dimension entrepreneurial companies, which belong to specific business divisions and will not be detailed 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 operate and manage Bilibili. All online platforms require an "Information Network Dissemination Audiovisual Program License," which is currently held by the major shareholder Kuanyu. This indicates that even if CXK's lawyer casually targets Huan Dian, Bilibili will not be harmed because it is not the backbone. CXK's lawyer is looking for Kuanyu, which is actually the main entity, and there is no mistake.
To put it simply, Bilibili Inc. is the largest boss, but is overseas, needing to find domestic personnel for management, right? At this time, two sons are called out, one named Kuanyu and the other named Huan Dian, with Kuanyu holding all the operating licenses in China as the head of the family, while Huan Dian is the housekeeper managing the daily operations. If Huan Dian is taken down, someone else can take over, but because the licenses and Kuanyu, the head of the family, are soul-bound, if the head is stolen, the domestic business will basically be paralyzed.

8. Sharejoy Network Technology Co., Ltd.
   Lastly, this company is mentioned. Why is this subsidiary responsible for gaming business under Huan Dian specifically highlighted? Because Bilibili's current revenue source is mainly from games, while other segments such as live streaming and advertising account for single digits. This company can be said to be the cash flow source for Bilibili and is also the biggest contributor to Bilibili's courage to submit a listing application (no wonder it has a million monthly chefs). Of course, Bilibili's valuation is more believed to rely on its future development space, as the prospects of high stickiness and distinctive users in the secondary dimension vertical field are likely what various investment institutions value.

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 controller is 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 (to gradually bring from abroad to mainland China, with Huan Dian Technology being a middleman 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.

It is not knowledge; I am just a transporter. The main content of the article is simply to move the content from the prospectus (https://www.sec.gov/Archives/edgar/data/1723690/000104746918001244/a2234546zf-1.htm) over and provide a simple explanation. 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, the wholly foreign-owned enterprise Huan Dian Technology (Shanghai) Co., Ltd. (hereinafter referred to as "Huan Dian Technology") was established without pause. Subsequently, Huan Dian Technology signed a VIE agreement with Cheng Rui, Xu Yi, and others, as well as Shanghai Huan Dian and Shanghai Kuanyu, to achieve contractual control.
II. Application of VIE Agreement
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 engaging in value-added telecommunications services through joint ventures with Chinese investors, with a maximum investment ratio of 50%. B's main business, unfortunately, falls under the category of value-added telecommunications services, so foreign investors cannot directly acquire shares and must rely on the VIE agreement.
The VIE structure is a requirement under US accounting standards for "Variable Interest Entities" (VIE), which involves establishing a wholly foreign-owned enterprise in the domestic market through an offshore holding company to acquire part of the assets of domestic enterprises and provide monopolistic consulting through a series of legal agreements. Thus, the listed entity of Bilibili needs to achieve contractual control through the VIE structure.

Bilibili stated that from 2018 to 2020, prohibited and restricted businesses under the VIE accounted for approximately 87%, 80%, and 76% of the group's net operating revenue, respectively; while businesses not restricted by foreign investment (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 Exposed
According to the offering materials, Bilibili's actual business in China is conducted by "Shanghai Kuanyu" and "Huan Dian Information Technology." Among them, Huan Dian Information Technology mainly operates through Wuhu Xiangyou Network, Shanghai Hehehe, Shanghai Donghun, and Shanghai Zhonger.

These entities hold relevant business licenses in China, while the overseas registered Bilibili mainly reaches VIE agreements with "Shanghai Huan Dian Company," which is fully controlled by its wholly-owned subsidiary "Hong Kong Huan Dian Limited."

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), while 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, Bilibili has gained operational control and all economic benefits of the main VIE since 2014.

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

Behind the VIE Agreement
Bilibili's VIE structure is mainly related to the negative list of foreign investment involved in the company's business. Bilibili'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 Bilibili'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. In the VIE structure, Shanghai Kuanyu holds the Information Network Dissemination Audiovisual Program License, and its main business involves video and audio content operations, falling within the scope 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.
   In the VIE structure, the main businesses of Shanghai Kuanyu and Huan Dian Information Technology involve video and audio content operations, which fall within the scope 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 Hehehe involve video and audio content distribution and/or comic distribution and/or online game distribution, which fall within the scope 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 within the scope of audio-visual product and/or electronic publication production, and Shanghai Zhonger holds an audio-visual product production license.
5. Value-added telecommunications services. Bilibili states that the video and audio content operations of Shanghai Kuanyu, Huan Dian Information Technology, Wuhu Xiangyou Network, and Shanghai Hehehe, as well as online game operations, all involve internet information services, which fall within 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% of the equity in any enterprise engaged in such businesses (excluding e-commerce, domestic multi-party communication, storage and forwarding, and call centers).

Shanghai Kuanyu, Huan Dian Information Technology, Wuhu Xiangyou Network, and Shanghai Hehehe currently all hold ICP licenses for providing internet information services. However, based on the advice of Chinese legal advisors, since Shanghai Kuanyu, Huan Dian Information Technology, Wuhu Xiangyou Network, and Shanghai Hehehe are all engaged in one or more prohibited businesses, foreign investors are prohibited from holding equity in these enterprises.

It is from this perspective that a series of contractual arrangements were established between Shanghai Kuanyu, Shanghai Huan Dian, and the sole shareholder of Shanghai Kuanyu, Chen Rui. Huan Dian Information Technology, Shanghai Huan Dian, and the shareholders of Huan Dian Information Technology, Chen Rui, Xu Yi, and Li Ni, established another series of arrangements.

4. Management Situation#

Whether concentrated or dispersed, the equity of listed companies, 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 equity incentives and employee stock ownership plans since the company went public, as well as project co-investment arrangements, etc. 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: Bilibili adopts a dual-class share structure, namely the AB share structure. In this structure, Class Z ordinary shares have one vote per share, while Class Y ordinary shares have more than one vote per share, giving management greater 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 holding ratio of 12.6%, but his voting power reached 42%.
Bilibili is similar to typical listed companies in certain aspects (such as management control), but its dual-class share structure and lower voting rights for external shareholders give it a unique equity structure.
By now, it has probably taken about five minutes, and you probably have a basic concept of this company's governance structure. If the controlling shareholder holds a dominant position, the actual controller is also the chairman and general manager, and the family participates in management, if the entrepreneur is very capable, then attention should be paid to the supervision of control rights, including whether there are large proportions of equity pledges, related party transactions, and guarantees that may harm the interests of the listed company; if the controlling shareholder holds a dominant position but does not participate in management, 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 problem of managers having unchecked power.
Regarding control rights, 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 being a risk position and the latter being a market relations position. Although many companies configure this way to save costs, there are conflicts of responsibility. The CFO's responsibilities are more conservative, while the secretary of the board requires more openness. Other listed companies have some issues with this.

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.
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:

• Total revenue for 2021 was 19.38 billion RMB.
• Total revenue for 2022 was 21.9 billion RMB, a year-on-year increase of 13%.
• Total revenue for 2023 was 22.53 billion RMB, a year-on-year increase of approximately 3%.
• Total revenue for the first quarter of 2024 was 5.665 billion RMB, a year-on-year increase of 12%.
  Profit
  Bilibili's net profit situation is relatively complex and affected by multiple factors:
• In 2021, net losses expanded to 119%.
• In the fourth quarter of 2022, net losses were 1.3 billion RMB, a year-on-year narrowing of 13%.
• In the fourth quarter of 2023, gross profit was 1.7 billion RMB, with a gross profit margin of 26.1%.
• The projected Non-GAAP net profits for 2022-2024 are -3 billion RMB, -529 million RMB, and 568 million RMB, 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 shows excellent performance in terms of revenue and user activity, but net profit remains in a loss state. The market value has also seen significant changes due to market fluctuations, posing relatively high financial risks.
  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 report in several years, and if no brokerage institution writes about the company, the market attention is very low, and the market value naturally 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 = (Ending 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 undergone multiple financing activities and received investment support from well-known companies including Tencent, Alibaba, and Sony at different stages. Specifically:

1. IPO Financing:

• In 2018, it was listed on NASDAQ in the United States, raising 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:

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

3. External Investment:

• In the past three years, Bilibili has invested 636 million RMB in start-up companies in animation, game development, and e-commerce.
• The company has made extensive layouts around the upstream and downstream of the animation industry chain, with content creation still being the core.

4. Convertible Bond Issuance:

• After reporting losses in the third quarter of 2021, Bilibili announced bond financing of 1.4 billion USD.

Profit and Loss Statement#

Balance Sheet#

Cash Flow Statement#

7. Public Opinion, Penalties, and Risk Issues#

By searching key announcement keywords and online platforms, check recent hotspots and whether there are any risk issues.
Appendix: Analysis Process of Listed Company Financial Reports
With the above analysis as a foundation, if you want to filter interesting listed companies for in-depth analysis, you can also look at the company's merger and acquisition situation, 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 listed companies' periodic financial reports.

I. Interpretation of the Four Financial Statements#

Financial reports are comprehensive materials for understanding the annual financial status and operational 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 the financial health and operational condition of a listed company.

(A) Focus Points of the Statements#

For the four financial statements, the most important are the "Balance Sheet, Income Statement, and Cash Flow Statement," while the Statement of Changes in Equity can serve as auxiliary reading. The key focus points for the three statements are to look for any abnormal items, significant year-on-year increases or decreases, and to find the reasons behind them. Often, "abnormal events must have unusual causes."

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

The Income Statement, also known as the "Profit and Loss Statement," reflects the operational 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 fraud, one must be able to see how the quality of profit is. The root of fraud here is the accrual basis, counting money not yet received as income and not recording money paid as costs, or counting received money as not income and not recording paid money as costs. These adjustments are mainly made through amortization and the timing of financial entries, and different accounting policies can lead to vastly different results. A simplified example: Xiao Ming has monthly living expenses of 15,000 RMB and salary income of 30,000 RMB, which he receives at the beginning of the next month. If it is cash basis, then Xiao Ming's cash outflow for that month is 15,000 RMB, with no income, resulting in a loss. However, under the accrual basis, he counts the salary income of 30,000 RMB that month, subtracts the expenses of 15,000 RMB, and ends up with a net gain of 15,000 RMB. Ignoring taxes, the profit and loss situation for that month is reversed, with a difference of 30,000 RMB. However, it should be noted that regardless of the accounting method used, anything not reflected in that month will still show up in future months, so the difficulty or risk of profit manipulation lies in how to fill that hole later. Furthermore, operating profit is the core profit of a company, reflecting its sustainable competitiveness. It is best to look at it after subtracting investment income and asset impairment losses, and to pay special attention to historical data and data from peers in the industry.

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 bank records), 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 Income Statement is also a key point. If profits are significantly higher than cash data, there may be manipulation or at least insufficient collection ability, posing a significant risk. There is a technique for looking at the Cash Flow Statement, which 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 following table:

In the table above, the cow type is the best, as 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, where the operating cash flow net amount is positive, normally investing, and the financing situation is positive, indicating good credit, making it a reasonably well-operated company. However, it needs to pay more financing costs and attention to fund safety. Type 1, often misunderstood, is called the fairy type. In fact, this type of company has income from operations but does not continue to expand production while accumulating a lot of money, possibly preparing for significant investments in new directions or transferring collected funds to benefit parties, no longer used for production operations, which must be particularly noted. Additionally, when analyzing a company according to the above table, one should not only focus on one year but track it over the long term to make a judgment.

(B) 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. The net profit in the Income Statement = the "ending surplus reserve + ending undistributed profits - beginning surplus reserve - beginning undistributed profits + 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 reduce liabilities. Since reducing liabilities involves the cooperation of creditors, it is relatively difficult, so generally, listed companies manipulate profits in relation to assets.

2. The Cash Flow Statement and the Income Statement, Balance Sheet
   The enterprise's expenditures, if accounted for within one year, are recorded in the Income Statement as current expenses; if used for more than one year, they are recorded in the Balance Sheet as assets. An interesting conclusion is that assets and expenses are both expenditures; assets are long-term expenditures, while expenses are short-term expenditures.
   The enterprise's income, whether from borrowing, assets, or operating income, will be recorded in the Cash Flow Statement as cash inflow, and then converted into assets and expenses through expenditures.
   Thus, the liabilities and equity in the Balance Sheet, through the Cash Flow Statement, are transformed into assets in the Balance Sheet or expenses in the Income Statement.
   Additionally, in the Cash Flow Statement, apart from the beginning and ending balances of cash and cash equivalents, the other items are derived from the Income Statement and Balance Sheet, showing 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. The Income Statement and the Cash Flow Statement, Balance Sheet
   Every income item incentivized in the Income Statement can generate cash or receivables, corresponding to the Cash Flow Statement and Balance Sheet; a further connection is: Operating income (Income 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 Income Statement does not include VAT, and when converting to the Cash Flow Statement, VAT must be added. (After the tax reform in 2019, the upper limit of the VAT rate was lowered from 17% to 13%, with different industries applying different rates of 13%, 9%, 6%, etc.)

II. Identifying Financial Report Manipulation#

Here, we still see the accounting equation "Assets = Liabilities + Equity + Income - Expenses." Manipulating profits is nothing more than manipulating income and expenses, causing 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 prematurely recognizing income. Fictitious income involves making some false transactions, inflating transaction amounts, recognizing non-profit transactions as income, and unfair related transactions. Exaggerating income through one-time actions, such as converting the proceeds from selling a business unit or asset into operating income, or packaging losses into a company or department and then selling it off to cover up losses, etc. Prematurely recognizing income means recognizing income for products or services not yet provided, confirming income before the buyer explicitly acknowledges the obligation to pay, and recognizing income exceeding the completion percentage (as there is a large subjective operational space in engineering construction or equipment assembly progress).
2. Manipulating Expenses
   The core is to fictitiously reduce and inflate expenses. Fictitiously reducing expenses means delaying current expenses or covering costs (for example, not recognizing inventory depreciation, especially for fresh and technology-related companies, where inventory depreciation is rapid, while liquor and other products are not easily depreciated) or losses to enhance current profits; while inflating expenses, commonly known as "washing the big bath," involves writing off assets or inventory, large impairment losses, or categorizing regular expenses as one-time expenses, etc. This operation fully accounts for the expenses of that year, making 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, or the purchaser simply keeps the invoice to themselves. In this way, this amount in the financial report remains as "accounts receivable - some cash withdrawal," still an asset. If recorded, it would turn into 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, obtaining the operating cash inflows of the acquired entity, especially before the acquisition is completed, intentionally having the acquired entity pay off its payables and delaying customer payments, resulting in accounts receivable. After the acquisition is completed, the accounts receivable from the acquired company can be collected, 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 movie 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 to beautify 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 purchases, thus increasing the net cash flow from operating activities for that period.
   (4) Other manipulation methods are actually numerous, such as a company manipulating the income statement by significantly increasing bad debt provisions (the company itself identifies as bad debts), reducing current profits, and then recovering bad debts in the following period, resulting in a significant increase in profits. This is particularly used by some companies to achieve two years of losses and one year of profit to avoid ST status, but in fact, they have been continuously losing money, just that one or two years of losses are large, 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, possibly wanting to reduce provisions this year to increase profits, or suddenly loosening them, possibly wanting to "wash the big bath," making a significant loss at once.

III. Internationalization Strategy#

1. Internationalization Process
   Bilibili's international strategy mainly revolves around the following aspects:
   In the process of internationalization, Bilibili meets the diverse content needs of international users through a rich content library. For example, they have collaborated with Japan's Fuji TV to establish the "B8station" channel, specifically broadcasting animation works from China, and plan to cooperate on the 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 identical to 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 has increased 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, further expanding 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 balancing efficiency issues. Additionally, Bilibili plans to ensure maximum content distribution 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 the Southeast Asian market, actively promoting the brand, exploring commercialization paths, and deeply participating in cultural output. These initiatives collectively support Bilibili in achieving greater success in the global market.

2. Motivations for Internationalization#

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

1. Advantages 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 the 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 RMB 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 to globally distribute domestic original works 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, including various types of content such as anime, 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 Impact: 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#

In terms of localization strategy, multiple 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 anime, variety shows, and movies, to meet the demand of Chinese users for local culture and entertainment content. The company also actively supports and promotes domestic original content, such as anime, music, and short videos, to strengthen the local content ecosystem.
2. User Community and Cultural Resonance: Bilibili focuses on building and maintaining user communities, promoting user interaction and community feeling through bullet comments, user interactions, and Bilibili UP master culture. The platform's community culture and user interaction have become important factors for user stickiness.
3. Technology and Product Localization: Bilibili makes adjustments and optimizations for technology and product localization based on the characteristics and user habits of the Chinese market. For example, the design and functional layout of the mobile application, as well as 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 Market Entry Methods#

1. Southeast Asian Market: Bilibili focuses on 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, aiming to create "truly localized and globalized video community products."
2. Japanese Market: Bilibili has reached a cooperation with Japan's Fuji TV to establish a dedicated channel for domestic original content, "B8station," specifically broadcasting animation works from China, and plans to collaborate on the Japanese drama adaptation of the domestic game "Time Agent." This marks that Bilibili's original content is based on the global market from the start of production.
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 launched comic products Bilibili Comics less than half a year later. At the same time, many of Bilibili's games have successfully been exported to the Japanese and Korean markets.
5. Cooperation with Other International Institutions: Bilibili also participates in the Asian Youth Imaging Project and attends 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 initial secondary dimension community to a broader secondary dimension cultural community, attracting more young people and users from different interest groups. This strategy not only enhances the platform's user scale but also strengthens its market influence. For example, Bilibili held multiple brand events in 2020, such as the "BILIBILI Gala 2019 Most Beautiful Night," greatly 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 example, the company launched the Huohuo commercial order system, opened enterprise accounts, and collaborated with MCNs to further improve advertising effectiveness. Additionally, Bilibili supports UP masters through various monetization models, promoting revenue growth for content creators. In the live streaming business, Bilibili adopts a point-to-direct 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 releases 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 investment. 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 gross profit margins and operating profit margins 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 is still adjusting 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 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 interaction. 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 sharing website themed around ACG (Animation, Comics, Games). The main feature of this phase was user interaction through uploading and sharing secondary dimension-related content, with the platform primarily relying on user-generated content and not yet forming a complete business 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 activities, gradually surpassing its competitor A Station.
Diversified 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 Status of Strategic Development#

Born in worry, die in comfort, an unchanging truth
Bilibili has achieved high-quality user growth through its "user breaking the circle strategy," evolving from an initial ACG niche community to a broader secondary dimension community. This strategy not only expands the user base but also enhances the platform's diversity and inclusiveness. As of the first quarter of 2024, Bilibili's daily active users have exceeded 100 million, with monthly active users and daily average 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 increased by 12% year-on-year, reaching 5.66 billion RMB, with advertising revenue increasing by 31% year-on-year. Additionally, the value-added service business and live streaming business also performed well, with gross profit margins increasing for seven consecutive quarters to 28.3%.

Content Ecosystem and Diversified Development#

Bilibili deeply cultivates the cultural interests of young people, horizontally expanding content categories and vertically delving into professional knowledge. It supports local original content and revives 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 Deepening of the Industry Chain#

Bilibili has also made multi-faceted investments in the 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.

III. Summary#

In summary, in objective fact, the current situation of the film and television industry is worrying, and competition is fierce; in 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 Manga Market:

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

2. Game Live Streaming and Competitive Events:

• Bilibili, as one of the main 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 masters 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 the academic field, attracting many researchers, academic institutions, and popular science enthusiasts. The platform features a wealth 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 related to 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 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 master & 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 but gradually expanded 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, drawing, 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 successfully attracts a large number of young users.
Bilibili has innovated in content formats, launching various new forms such as vertical videos (Story-Mode) to adapt to different devices and user viewing habits. Additionally, Bilibili has expanded user usage scenarios through multi-screen and multi-scene strategies, further increasing user stickiness.
Bilibili continuously optimizes its recommendation algorithms to ensure that high-quality content is accurately recommended to the corresponding audience, thus enhancing 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#

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' demand 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 user engagement and platform stickiness.
• Challenges: High technical 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 master culture, and user-generated content.
• Advantages: It forms 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: Market competition is fierce, and brand maintenance and long-term marketing investment are necessary 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 salaries and benefits. The company provides five insurances and one fund for each employee, along with additional medical insurance, which also extends to employees' children, totaling six insurances and one fund. Additionally, Bilibili offers paid annual leave, with the number of leave days increasing with each additional year of service. Although there are no employee cafeterias or overtime pay, the company provides meals for overtime work, and the headquarters building has a Lawson store and Costa Coffee, 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 being 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 talent to join the company through campus recruitment and other means.

Bilibili's Organizational Structure Differentiation#

(B Station) 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 the original Main Station Operation Center and content vertical operations, 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 Commercial Ecology Department, while the Game Content Department has begun reporting to Wu Yan;
• The "UP Master Management Service Center" has been established to strengthen commercial service capabilities for MCNs and UP masters, 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 Center was 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 the content operation team into smaller units indicates Bilibili's anxiety about maintaining content characteristics. Splitting is beneficial for each team to delve deeper into related industries and strengthen connections with creators.

"People" refers to employees, while "single" literally refers to orders, but essentially refers to users, encompassing their needs and values. "People-single integration" aims to bring employees and users together, eliminating the distance between them, allowing users to become the innovation resource of the enterprise, enabling employees to better identify user needs and create value recognized by users, while also obtaining their deserved benefits from users.

② Management Mechanism Differentiation#

Bilibili's management mechanism exhibits differences from other video platforms in several aspects, primarily reflected in content creation, user interaction, and community management.
Content Creation and UP Master Ecology
Bilibili places great importance on self-produced content and the development of UP masters. It has launched "Professional User Generated Content" (PUGV), which refers to high-quality videos created by UP masters, 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 masters, especially small and medium-sized UP masters and new UP masters, demonstrating its emphasis on high-quality content creators.
However, Bilibili has shortcomings in UP master 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 insists on allowing high-quality content to gain more traffic and uses user feedback such as likes and tips to determine content quality.
User Interaction and Community Management
Bilibili's user interaction mechanism includes bullet comments and "one-click three connections," which involve liking, tipping, and favoriting. 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 approval process of submissions. However, due to all code being centralized in one repository, the issue of inaccurate monitoring and positioning is 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 more 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 commercial 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 the perspective of content ecology, 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 anime, and it continues to expand into general entertainment and serious content. This diversified PUGC (Professional User Generated Content) community gives Bilibili strong competitiveness in content supply. Additionally, Bilibili is actively laying out upstream in the domestic original content industry chain, focusing on the production of high-quality domestic original content.
In terms of user groups, Bilibili's user profile is relatively young, with 86% of users aged under 35, most of whom are born in the 90s and 00s. However, as the platform develops, more users born in the 85s 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 but also creates a virtual real-time viewing atmosphere. Additionally, the UP master system and the density of community relationships are also core competitive advantages, with a high interaction rate between UP masters 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 masters' 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 commercial ecosystem. Additionally, Bilibili has established strict community rules and penalty regulations to ensure that every user participates in the supervision of the community environment, thereby creating a good community atmosphere.
In summary, Bilibili exhibits 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.

(III) 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 churn.
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 Churn: 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 well to avoid diluting the community atmosphere due to a large influx of new users, which affects long-term user retention.
4. Risk of Stricter Regulation of Entertainment Content: This includes the risk of strict regulation of content uploaded by UP masters. This may limit the freedom of content creation and increase operational costs.
5. High Proportion of Young Users, Difficulty in Improving Monetization Efficiency: Although Bilibili has a large number of young users, its monetization efficiency has always been difficult to improve, which may affect the company's overall profitability.
6. Risk of Operational Failure in the UP Master 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 master incentive mechanisms.
7. Risk of Rapidly Rising Content Costs Due to Large Purchases of Long Video Content: As Bilibili expands its content ecology, it may face cost pressures from large purchases 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 business 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 internal controls. Through the cooperation of the three parties, it ensures that the internal control system of the enterprise operates healthily and stably, ensuring that the enterprise'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 benchmark date of the internal control evaluation report, the company has not discovered any 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 emphasizes its commitment to environmental protection. The report covers information and data from Bilibili Co., Ltd. and all its subsidiaries during the period from January 1, 2021, to December 31, 2021, sharing the company's philosophy, initiatives, and achievements in environmental protection.
2. Social Responsibility
   As a symbolic brand of the younger generation in China and a leading video community, Bilibili has always 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 active actions in social responsibility.
3. Corporate Governance and Community Autonomy
   Bilibili has implemented a series of measures in corporate governance, including the establishment 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 solely relies on view counts. Bilibili believes that a good community atmosphere can allow quality UP masters 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 interaction mechanisms such as bullet comments and one-click three connections.
Bilibili's traffic distribution policy is based on users' likes, tips, and positive feedback to determine quality content, rather than solely considering click counts. This approach aims to encourage UP masters to create more high-quality content, with 70% of traffic allocated to small and even unknown UP masters, 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 masters, especially small and new UP masters. As of June 2022, Bilibili has 2,964 employees providing full-time services for UP masters, indicating the company's strong support for them.
The bullet comment culture is a significant feature of Bilibili, serving not only as a form of video viewing but also as 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 the Big Member system and Oasis Plan, aiming to share advertising revenue with UP masters and standardize advertising