Bilibili Q4 2023 Earnings Call Transcript

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March 7, 2024

There are 4 speakers on the call.

Operator

Good day, and welcome to the Bilibili's 2023 4th Quarter and Fiscal Year Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. During this call, we'll discuss business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties, including those mentioned in our most recent filing with the SEC and Hong Kong Stock Exchange. The non GAAP financial measures we provide are for comparison purpose only.

Speaker 1

Definition of these measures and a reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili IR website at ir. Billability.com. Joining us today from Bilibili's senior management are Mr.

Speaker 1

Ray Chen, Chairman of the Board and Chief Executive Officer Ms. Carly Li, Vice Chairwoman of the Board and Chief Operating Officer and Mr. Zhen Fan, Chief Financial Officer. And I will now turn the call over to Mr. Fan, who will read the prepared remarks on behalf of Mr.

Speaker 1

Chen.

Speaker 2

Thank you, Juliet, and thank you, everyone, for participating in our 2023 year end conference call to discuss our financial and operating results. I'm pleased to deliver today's opening remarks on behalf of Mr. Chen. In 2023, we navigated a landscape of challenges and opportunities and achieved a number of important milestones on community growth, commercialization efficiency improvement, margin expansion and loss cutting. Let's review these achievements in more detail.

Speaker 2

To begin with, we exist a year with over 100,000,000 DAUs, 336,000,000 MAUs and other healthy community metrics across the board. Daily user time spent remained robust at over 95 minutes on average in the Q4. We continue to emphasize and dedicate resources to reinforce our content ecosystem, support our creators and foster an inspiring community. In 2023, over 3,000,000 content creators earned income on our platform, up 30% year over year, Further enabling talented content creators to expand their fan base and make money will be one of our most important tasks for 2024. Another highlight for the year was our progress in improving our commercialization efficiency.

Speaker 2

We stepped up our efforts to incorporate advertising and VAS business in a way that native to our content ecosystem. Driven by strong performance based ads, our ad revenue grew by 28% in the 4th quarter and 27% for the full year. VAS revenues grew by 22% in the 4th quarter and 14% for the full year or on year over year basis. With this growth, our total revenues for the full year can mean at RMB22 point 5,000,000,000 among which ad revenue made a higher contribution, rising from 23% in 2022 to 28% in 2023. Increased revenue contribution from our high margin advertising business and effective cost controls drove our gross profit up by 33% year over year and our gross profit margin reached 26.1% in the 4th quarter, marking the 6th consecutive quarter of margin improvement.

Speaker 2

For the full year, our gross profit grew by 41% and our gross profit margin increased to 24.2% from 17.6% in 2022. Consequently, we significantly narrowed our adjusted net loss by 58% year over year in the 4th quarter and by 49% for the full year. Notably, we generated RMB640 1,000,000 in positive operating cash flow in the Q4. And our full year operating cash flow also turned positive in 2023. These gains place us on solid footing to reach our profitability growth.

Speaker 2

2023 has shown the effectiveness of our strategy and provided a solid foundation for our success in 2024. As we approach profitability, we are keeping our fundamental goal in mind to create value for our users. We do this by expanding our content offerings, supporting our creators and fostering a vibrant and growing community that people love. Our industry is still benefiting from the wave of visualization with the fast involving generative AI and the tailwind. This leave us with a long runway for growth.

Speaker 2

We remain confident that our virtuous growth cycle of user expansion and commercial capabilities will create increasing value for our users, creators and shareholders. With that overview, I'd like to discuss our core pillars of content, community and commercialization in more detail. Beginning with content and community, an ever growing content ecosystem is vital for our community's health and the vibrancy. For the Q4, daily active content creators grew by 16% and the monthly new content submission rose by 31% both year over year. As we continue to facilitate connections between high quality content and equators with fans, equators with over 10,000 followers were up 30% year over year in the Q4.

Speaker 2

In January 2024, we honored top 100 content creators, our 6th and new Bilibili Power Up 2023 award ceremony to recognize their creations and contributions to our community. Among which 39 content creators received the award for the first time. These top 100 content creators excelled on our platform successfully accumulating a total of over 400,000,000 followers. With a thriving content ecosystem, Bilibili has become a favorite platform across different age groups and genders. In the Q4, the average age of our active user base was 24.

Speaker 2

As our existing users gradually mature, their interest involved and consumption increases. In 2023, baby and maternity, automotive, traveling, fashion and clothing categories demonstrated the highest growth in the video views. Each of these categories carry significant commercial value. The boundary between interest based and commercial content has also blurred. In 2023, the number of commercial related content with over 1,000,000 video views more than doubled year over year.

Speaker 2

Meanwhile, over 3,000,000 content creators made money through our various channels in 2023, among which the number of content creators who earn income via video and live commerce was up 133% year over year. With more content creators and a better content ecosystem, our users remain highly engaged and the community continue to survive. For the full year 2023, our average daily video views increased by 25% year over year to 4,300,000,000. Our users spent 97 minutes daily on the platform during the same period. Monthly average interactions also grew by 14% year over year to over RMB15 1,000,000,000 in 2023.

Speaker 2

By the end of 2023, we had 230,000,000 official members, 18% more than in the prior year and their 12 months retention rate remains strong at around 80%. Additionally, we closed the year with our 5th New Year's Eve Gala, the most beautiful night of 2023, emerging as the youth must watch on the New Year celebration. The event garnered 100,000,000 playbacks within 24 hours and received the most industry sponsored participation ever in its history. Lastly, I'd like to talk about commercialization and dive into each of our business lines. Our surviving interactive community is the cornerstone of our commercialization model.

Speaker 2

In the 4th quarter, our VAS revenue were up 22% year over year to RMB2.9 billion and up 14% to RMB9.9 billion for the full year. These increases were primarily driven by robust growth in our live broadcasting revenues. Our live broadcasting universe continued to be more diverse as we convert more host talent from our video content creator pool. In 2024, we will continue to integrate live broadcasting into our video ecosystem. By introducing more high quality host and enhancing various tools and recommendation algorithms, we aim to convert more paying users on our platform.

Speaker 2

At the same time, our featured live broadcasting content and products like VTuber and the celebration system will continue to elevate payment activities and offer more monetization opportunities for us. In terms of memberships, by the end of 2023, we had 21,900,000 premium members. Our members continue to demonstrate high brand royalty and trust with over 80% subscribing annual or auto renew packages. Additionally, users continue to exert increasing spending power on other featured products and experiences. Turning to our advertising business, we made some exciting progress.

Speaker 2

In 2023, our total advertising revenues increased by 28% to RMB1.9 billion for the 4th quarter and were up by 27% to RMB6.4 billion for the full year, both on a year over year basis. Robust revenue growth in our performance based ads was the most significant contributor, increasing over 60% year over year for the quarter and over 50% for the full year. We also achieved positive year on year growth in brand and the native ad revenues throughout the year. We credit our solid ad revenue growth to our unique position at the most densely populated community of the young generation and our ability to connect with them in their own language. In the meantime, we continue to enhance ad infrastructure including product optimization and algorithms improvement.

Speaker 2

This enables advertisers not only to improve their brand equity and influence user purchasing conditions, but also direct convert sales on Bilibili. In the Q4, our top 5 advertising verticals were games, e commerce, digital products and home appliance, automotive and skincare and cosmetics. Among these verticals, the e commerce and game sectors stood out with impressive results. Over the course of 2023, we deepened our collaboration with e commerce advertisers. We further integrated direct sales conversion tools into our video and live commerce ad products.

Speaker 2

This enabled our users to seamlessly transition from viewing content to making relevant purchase, enhancing our ad conversion efficiency and the user experience. Meanwhile, our deeper data collaboration with key e commerce platforms further improved accuracy and efficiency of our ad recommendation algorithms. In 2023, the number of users engaging in consumption related behaviors increased by over 200% year over year. Meanwhile, we successfully gained more marketing budgets from key game developers during the Q4 as they launch new games and promoted existing game updates. We maintained our position as an effective channel to convert gamers and a must invest in community to build game IP.

Speaker 2

Thanks to our integrated advertising strategy and extensive resources within our gaming ecosystem. While we are encouraged by the progress we made in our advertising business in 2023, we believe there are still great potential and ample room for growth. In 2024, we will further integrate ads with our content ecosystem in a more native, natural and a seamless way. We will prioritize our resources to improve ad infrastructure, including upgrading and refining our ad products for optimizing the accuracy and efficiency of ad acquisitions. We will also actively explore generative AI for ad material creation, supporting productivity for advertisers.

Speaker 2

Industry wise, we'll continue to expand our shares in our leading games and e commerce sectors and gain more presence in digital products and home appliance, skincare and cosmetics and automotive verticals. Turning to our game business. Total game revenues increased 2% quarter over quarter to RMB1 1,000,000,000 in the 4th quarter, coming in at RMB4 1,000,000,000 for the full year. Currently, 3 titles in our pipeline have been approved for release in the domestic market in the coming quarters. 1 Japanese card game, Heaven Burn Red, 1 domestic SLG game, and other domestic card game, Artifractors.

Speaker 2

In addition, we are able to create value for our broader game partners by increasing integrating our advertising products with our game distribution capabilities. As for our self development game, we stimulate our resources and adapt a more selective game development strategy in 2023. The refined strategy will enable us to reduce our R and D expenses in 2024, while keeping us lean and focused on top quality projects. Looking forward, our priorities in 2024 are consistent with 2023. We will further improve our commercialization capabilities by strengthening our technology infrastructure and improving our product offerings, particularly for our advertising and live broadcasting business.

Speaker 2

Companywide, we aim to further improve our operation efficiency with a tight and targeted expense structure. Overall, we are dedicated to developing content ecosystem, enabling our content creators to earn more money and further expanding our user base. We believe these endeavors will lead us to reach our goal of profitability and set the stage for sustainable growth for many years ahead. This concludes Mr. Chen's remarks.

Speaker 2

I will now provide a brief overview of our financial results for the Q4 of 2023. In the interest of time, on today's call, I will be reviewing our Q4 highlights as Mr. Chen's remarks have touched on our full year results at a high level. We encourage you to refer to our press release issued earlier today for a closing look as our full year results. Throughout 2023, our financial profile improved significantly alongside our committed growth and ecosystem expansion.

Speaker 2

Of particular importance are the gains we made in our revenues, gross profit and the reduction in adjusted net loss, which we narrowed for the 5th consecutive quarter. Total net revenues for the Q4 was RMB6.3 billion, up 3% year over year. Our total net revenues breakdown by the revenue stream for the Q4 was approximately 45% VAS, 30% advertising, 16% mobile games and 9% from IP Directives and other businesses. Our cost of revenues decreased by 4% year over year to RMB4.7 billion in the 4th quarter, driving our gross profit to RMB1.7 billion, up 33% year over year. Our gross profit margin exceeds 26% in the 4th quarter, up from 20% in the same period last year.

Speaker 2

We expect our gross profit margin to continue to improve in 2024. Our total operating expenses were down 17% year over year to RMB3 1,000,000,000 in the 4th quarter. We cut our sales and marketing expenses by 11% year over year to RMB1.1 billion. Sales and marketing expenses were 18% of total revenues, compared with 21% in the same period last year. G and A expenses were RMB512 1,000,000, down 37% year over year.

Speaker 2

R and D expenses were RMB1.3 billion, down 11% year over year. As a result, we narrowed our adjusted operating loss and adjusted net loss by 53% 58% year over year in the 4th quarter, respectively. Our adjusted net loss ratio for the 4th quarter was 9%, improving from 21% for the same period a year ago. Notably, for the Q4, we also generated RMB640 1,000,000 positive operating cash flow, demonstrating that our business has entered a healthy path for sustainable development. We expect to reach positive non GAAP operating profit in Q3 2024 through our sustained top line growth and the gross margin improvement.

Speaker 2

As of December 31, 2023, we had cash and cash equivalents, time deposits and short term investments of RMB15 1,000,000,000 or US2.1 billion dollars As of December 31, 2023, the aggregate outstanding principal amount of our convertible bonds was US862 million dollars We believe our cash position is sufficient to cover all of our remaining capital bonds. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session. The company will provide consecutive interpretations for management statements during the Q and A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management's statements in their original language will prevail.

Operator

Please limit your questions to 1 at a time. If you wish to have a follow-up question, please join the queue. One moment for the first question. Our first question comes from Thomas Chong of Jefferies. Please ask your question.

Speaker 2

Hi, good evening. Thanks management for taking my question. My question is about our 2024 outlook. Can management share about your thoughts and strategies on our product offerings, user growth and commercialization? Thank you.

Speaker 1

Before I answer the question for 2020 4, I would like to take a moment to review our work done in 2023, which we have made decent progress in both community development and commercialization. So first of all, our DAU surpassed $100,000,000 demonstrating our continuous healthy development of our community. Secondly, as our advertising started to accelerate, achieved a 27% year over year growth. And this marks even for the among our peers should be the one of the highest advertising revenue growth rate. Our gross profit margin continued to increase over the past 6 quarters, reaching 26% in the 4th quarter, up 6 percentage points year over year.

Speaker 1

And our adjusted net loss narrowed by almost half, forty nine percent year over year for the full year of 2023. And notably, we've also achieved positive operating cash flow for the full year. Actually, we're very delighted to see that our community our community ecosystem has become more aligned with our commercial value. The commercial efforts does not hurt our community development, but in contrary, it's helping our community content ecosystem to be even stronger. In 2023, over 3,000,000 of content creator earned income on billability.

Speaker 1

This is reinforcing the development of our content creator. And also over 1,800,000 creators earned income on Bilibili through our live broadcasting services and the number of creator earned income over via advertising services almost doubled year over year. Looking ahead into 2024, our focus remains consistent with 2023 with 2 main tasks. 1st of all, as focused on our profitability, we'll continue to strengthen our commercial capabilities and improve our commercialization efficiency, at the same time to improve our gross margin and manage our cost. We expect to achieve non GAAP operating profit.

Speaker 1

Our non GAAP operating profit will turn positive in Q3, 2024. While keeping our financial goal intact, we will continue to strengthen our content ecosystem by expanding our content richness and fostering very specific content categories to ensure the mindset of Bilibili being the go to place for highest quality content. And in 2024, we'll focus on the discovering top content creator's development and supporting them to make more money. In terms of content categories, we'll continue to solidify our existing advantages in ACG gaming, technology and other categories, while providing more support and assistance to new categories that has grown in response to change users' change of consumption demands, such as baby and maternity, travel, automotive and home decorations. We believe with this effort and after achieving profitability, I will further achieve and enhance the virtuous cycle of our community ecosystem and to ensure sustainable growth in our both community and our profitability.

Operator

Thank you for the questions. Our next question comes from Yewen Zhang from China Renaissance. Please ask your question. So thanks for taking my question. My question is regarding our value added service.

Operator

So can you give us update on our development strategy for this business segment in 2024 and then including business line including live broadcasting, premium membership and other vibrator service? Thank you.

Speaker 1

On Bilibili, we have gathered a massive amount of high quality content creator and is also a welcoming home for diverse interests. Our users feel strong sense of belonging on Bilibili. All of this combined results in user very much willing to spend for content that they like, spend for content creators that they adore. On Bilibili, users pay for content and services that they love. It's a most natural business model for us.

Speaker 1

As people pay for the content and services they love, they actually they are happy for that experience and they feel good about that experience. As for content creator, when they earn the income through this kind of services, they will have even stronger sense of value and appreciation. And for our content creators, they have even more they will be even more motivated to continue to create content on Bilibili. For example, if our content creator are earning more income on Bilibili through selling his proprietary premium classes, this money will represent a much more sense of value over what he could have made in advertising. Based on that service model or the connection within our community, we have developed our value added services combining live broadcasting, premium membership, common audio drama, premium course, fan charging, etcetera.

Speaker 1

And all of that is closely related to the current community and our content. In the Q4, our overall ad BaaS revenue grew by 22% year over year. Among all that services, we believe within that, live broadcasting probably has most the biggest potential and could grow the fastest because we believe live broadcasting is more universal. Anyone could be a live broadcasting host. Last year, 1,800,000 of content creators earned income on billability through live broadcasting.

Speaker 1

And this is it's a universal and very low entry barrier monetization model for all content creators. Even though there are many platforms who's doing live broadcasting business, but Bilibili's live broadcasting is still very, very unique. That is because in terms of the content creatorshost as well as the content categories of our live broadcasting has very much similar offerings or mirrors what we have in the PUGV communities. I'll make an example here. While many others might think, live broadcasting is an impulse or whole hormone driven payment.

Speaker 1

However, if you're looking at Bilibili's live broadcasting revenue component, close to 1 third of our revenue actually generated from a multi subscription model called the GrieveVayage. And for this particular payment, it's a reflection or representation of a fan's devotion and appreciation for our content creator over at least a month. And many of our paid users are actually subscribing for several months ahead. Their renewal rate is very high. This example distinct us from the traditional live broadcasting platform because the connection with our content creators, the host and the user is quite unique and lasting.

Speaker 1

As for the content supplier, which is the host, if we look at the 4th quarter, near a 1000000 hosts were active on Bilibili. Only a small portion of them were from professional guilds. Most of them are actually native content creator from our PUGV ecosystem. And this also sets us apart from other traditional live broadcasting platform is because that we are cultivating our own supply and demand within our PUGV ecosystem. Similarly, in terms of content categories, the content category in our PUGV ecosystem can also be our live broadcasting categories, especially the categories where Bilibili has our own unique advantage, such as the virtual content creators, we are considered to be, if not the most leading platform in China.

Speaker 1

And also knowledge based content, such as legal related live broadcasting. It's hard to imagine this category be a top vertical on other platforms, but it is very popular on busy building. As for our priorities for live broadcasting business in 2024, we'll be putting a lot of priorities in terms of the quality of our revenues as known as the gross profit and gross profit margin of this business. We hope to achieve sustainable and high quality revenue growth in live broadcasting in 2024.

Operator

Our next question comes from Felix Liu from UBS. Please go ahead.

Speaker 3

Let me translate myself. Thank you, management, for taking my question. My question is on the advertisement business. I noticed that your Q4 advertisement delivered a strong growth momentum. So may I check the reason behind this good performance?

Speaker 3

And what is your outlook for the advertisement business for 2024? What will be the key growth drivers from here? Thank you.

Speaker 1

Our advertising revenue in 2023 totaled about over RMB6.4 billion, marking 27% year on year growth. And in 4th quarter, advertising revenue grew by 28% year over year, contributing 30% of our total revenue, up from 25% the same period last year. The increase in ads revenue and its proportion has directly resulted in improving our gross margin and gross profit. And the first please allow me to recap what we have done in 2020 3 and in the Q4 and the growth driver. Actually, in the beginning of 2023, we have put forward Yihong Yizhou's strategy, while paying close attention to the opportunity brought by the active commerce activities within our community.

Speaker 1

Yiheng refers to the middle platform capabilities for commercialization, including our traffic strategy, algorithm capabilities and our data power development. And the Yi Zong refers to our vertical industry strategies. Our ultimate goal is to provide customers with a better app placement experience and higher ROI. And we have formed 10 vertical strategies for different industry verticals. We believe we also believe in the revenue potential that fall from active commerce related activities within our community.

Speaker 1

As we sticking to the open loop strategy, we plan to connect Bilibili into a more broader ecosystem with our e commerce partners. As we have already shared a lot of information in cases about Yifeng Yifeng strategy in previous calls, I will not dive into more detail here. However, because of that strategy, our advertising revenue has also exceeded expectations for the 1st 3 quarters of 2024. And now I will share some additional highlights in 4th quarter. First, we are able to leverage our advantage in the big events in specific verticals and to catch the momentum of the new product launch stage.

Speaker 1

I'll make 2 examples here. 1st of all, in the gaming industry, we have made record high grossing during few new games open beta testing stage, such as the Dream Star as well as the Girls' Frontline 2. Another example is what we've seen in the e commerce sector. So we actually hosted several e commerce promotion events during Double 11, Double 12 and our New Year Shopping Festival leveraging our video and live e commerce capabilities. Here are some interesting numbers to share.

Speaker 1

During Double 11, the total GMV generated from our live and videoecommerce increased over 2 50% year over year. The number of live e commerce sessions that happened on Bilibili also increased over 100%. And additionally, here are some interesting verticals, baby and maternities. It might sound a little bit too mature for our users. However, we're still able to bring over 90% of new users to the baby and maternity clients through our video and live e commerce campaigns.

Speaker 1

Secondly is that we have strengthened our advertisement placement capabilities. In the Q4, our deep conversion capabilities, including provide ROI and order information within 24 hours has gradually improved and matured. As a result, we are able to achieve the budget targets for our customers more accurately and therefore gain more budget from them. Advertising with deep conversion pocket contributed over 30% of our total performance ad revenue in the 4th quarter. And thirdly is that we have integrated our multiple product lines in terms of organizational structure as well as the product offerings.

Speaker 1

And for example, by integrating our Sparkle ads platform with our other ad products, We have further expanded the quantity and the quality of our native content. Therefore, it enhanced and expanded our customers' lifespan and investment cycles on our platform. Those three reasons combined with what we have said about the Yihong Yuzhong strategy is the key drivers for our Q4 advertising revenue growth. As for the video and live e commerce business that many investors were very interested about, I will share more detail on that. In 2023, we further integrated the commercial scenarios into our content ecosystem, influencing our users from product feeding to transaction conversions.

Speaker 1

In 2023, on daily average, over 26,000,000 users have viewed our video e commerce related content and the number of users click on the commerce related videos and redirect to external platforms increased over 200%. So actually on the other side, the video and live e commerce product also introduced new monetization and commercialization avenues for our content creators. In the Q4, over 60,000 content creators has participated in video and live e commerce related activities on a daily basis. During Double 11, our home decorate home and decoration content creator, Mr. Maiden, has generated over RMB1.6 billion GMV through Bilibili.

Speaker 1

This demonstrates Bilibili's unique advantage in that in comprehensive and in-depth long form content, especially in durable consumer and retail factors such as home and decoration and technologies and digital products. Another example would be our one of our female content creator, Ying Li. In December, the total GME of her single live e commerce session hosted by her were over RMB50 1,000,000. And this also represents the significant consumption potential of Bilibili's female user base. And with Mr.

Speaker 1

Miran and Ms. Ingui's two cases, we believe this is considered to be the leading showcase across our industry peers and also showed the great potential, commercialization potential of Bilibili's community. In 2023, the total GMV on Bilibili's video and live e commerce were over RMB10 1,000,000,000. We believe that the commercial value of visibility's user base has just started to be realized and they are enormous rooms for our future growth. We maintain a very positive outlook for our advertising business in 2024.

Speaker 1

And we are quite confident to achieve a high growth rate in terms of advertising revenue. So first of all, let's review Bilibili's core advantage in advertising, which will be our user base. Bilibili has the highest density of young populations in China And the value of our advertising platform lies within its own user base. With average age of our user being 24 years old, we believe our users' consuming power, buying power has just gradually is gradually increased. And Bilibili has now become the go to platform for advertisers to whether it's improve their brand equity in the longer term or influence users' purchasing decision and convert sales in the short term, Bilibili has become the must invest advertising platform.

Speaker 1

Additionally, for 2024, we plan to further upgrade our Yihong strategy. First of all, we will enhance our ad placement capabilities and improve its efficiency. This includes integrating our app placement system, achieving intelligent and multi terminal app placement experience. And we plan to achieve automatic placement for our advertisers at some point this year. And we'll further develop our data visualization tools, allowing clients to validate the results of their app placement through multidimensional data placement.

Speaker 1

And we'll also be very paying close attention and looking to what AIGC can bring to help us to improve ad efficiency. Secondly is that we will penetrate more community scenarios and upgrading our traffic strategies to improve our ad load effectively. For example, building on our last year's expansion into multi scenarios like story mode, PC and OTT, we will focus on integrating those scenarios as well as the moment page, the search function and other community scenarios. Meanwhile, we are also looking to enhance our monetization efficiency by arranging ad videos in a hybrid mode in the recommendation page and further promote native ads. To summarize, we'll be effectively leveraging and increase our ad inventory and ad load in 2024.

Speaker 1

Lastly, we'll be actively for the client as content creator model to encourage our advertising clients to create native content and open their own brand accounts on Bilibili. On the other hand, we will also be releasing the private domains for those advertisers and launch more interactive functions for them to interact with our users. Through these efforts, we aim to convert a single ad placement into a long term operation and increase our clients' brand equity. Thirdly is on our YiZheng strategy. We believe we can replicate the success experience we had in e commerce and games last year and replicate that model into other fast growing sectors, such as automotive, tech, home and decoration, online services, finance and education, etcetera.

Speaker 1

And we do believe we can achieve high speed growth rate in those verticals as well. Lastly, to summarize, we believe the further flourishing of our e commerce ecosystem will bring us more pleasant surprises in advertising revenue in 2024. Thank you. Operator, next question please.

Operator

Thank you for the questions. Our next question comes from Lei Zhang from Bank of America Securities. Please go ahead.

Speaker 1

Thanks management for taking my question. Can you give us more color on your financial outlook for 2024, including revenue, breakeven pass and our cash flow trends? Thank you.

Speaker 2

Thank you. I will take this question. As Mr. Chen mentioned earlier, one of our most important tasks for 2024 is to improve our financials and achieve the profitability. The way we plan to achieve the target will be similar to what we have done in 2023, largely through the growth of the gross profit as well as expense management.

Speaker 2

Let me go through this in more detail. In 2023, our top line grew by 3% year over year. Our gross profit increased by over 40% year over year. In 2024, we expect our top line growth will accelerate and achieve double digit growth rate, with ad revenue grow at even faster rate. We expect our gross profit will also maintain high growth in 2024 as we further improve our gross profit margin, attributed by higher contribution from high margin ad business.

Speaker 2

Expense wise, we will keep improving our operational efficiency. We expect to reach non GAAP operating breakeven in Q3 this year. And let me share more color on our cash flow and balance sheet side. We have achieved positive operating cash flow in Q3 and Q4 2023. Especially in Q3, we have generated over RMB600 1,000,000 operating cash flow.

Speaker 2

That means our company has entered into a positive cycle for development. We expect to keep doing that and maintain positive operating cash flow throughout 2024. From the liability side, we have repurchased or repaid US1.2 billion dollars Cb last year. Now on December 31, 2023, we had approximately US2.1 billion dollars cash reserve on our balance sheet. Compared with outstanding CB of $850,000,000 our cash reserves are sufficient to cover all of our company debt.

Speaker 2

Thank you.

Operator

Thank you for the questions. And that concludes the question and answer session. Thank you once again for joining Bilibili's 4th quarter and fiscal year 2023 financial results and business update conference call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director of Piacente Financial Communications. Contact informations for IR in both China and the U.

Operator

S. Can be found on today's press release. Have a great day. That does conclude today's conference call. You may now disconnect your lines.

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