You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F. 125 Table of Contents A. Operating Results Key Factors Affecting Our Results of Operations User growth and engagement Our ability to grow our user base and maintain and increase user engagement is critical to our success. We have experienced solid user growth in the past two years. The following table sets forth our average DAUs and MAUs for each of the quarters indicated: For the Three Months Ended March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 March 31, 2025 June 30, 2025 September 30, 2025 December 31, 2025 (In millions) Average DAUs(1)(3) 102.4 102.3 107.3 103.0 106.7 109.4 117.3 113.0 Average MAUs(2)(3) 341.5 335.8 347.8 339.6 367.6 362.8 376.2 366.2 Note: (1) Average DAU is calculated by dividing the sum of DAU during the specified period by the number of days in such period. (2) Average MAU is calculated by dividing the sum of MAU during the specified period by the number of months in such period. (3) We count our active users as the sum of active users on mobile apps and on PC during a given period. Active users on mobile apps refer to the number of mobile devices (including smart TV and other smart devices) that have launched our mobile apps during a given period. Active users on PC refer to the sum of valid logged-in users who visit our website at www.bilibili.com on PC and who engage in PC application during a given period, after eliminating duplicates. Our active users generally view and consume a multitude of content offered on our platform, including videos, live broadcasting, mobile games and other content. The number of our users and the level of their engagement on our platform affect our revenues. We had solid growth in the revenues generated from VAS mainly due to the increasing numbers of active viewers of our live broadcasting and subscribers of our premium membership program and our other value-added services. Our advertising revenue is driven by the size of our user base, the engagement of our users and our brand equity. Mobile game user base growth and engagement are primarily driven by the launch of new games and the release of content updates of our existing games. We believe DAU reflects the quality and sustainability of our community, which is also directly linked to our commercial prospects. We will continue to drive DAU growth and expand our reach across Generation Z+ and wider demographics by discovering and promoting more high-quality PUGV content. To that end, We will continue to support our content creators, enrich video content, strengthen our brand recognition and invest in content-driven user acquisition. Our provision and commercialization of diversified product and service offerings Our revenues and results of operations depend on our ability to convert more users to paying users and to increase their spending on our platform, which is driven by our provision of diversified product and service offerings appealing to our users. 126 Table of Contents The following table sets forth our average monthly paying users, and average monthly revenue per paying user for each of the quarters indicated: For the Three Months Ended March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 March 31, 2025 June 30, 2025 September 30, 2025 December 31, 2025 (In millions) Average monthly paying users(1) 29.1 28.8 30.1 29.5 32.2 31.3 35.1 35.7 (In RMB) Average monthly revenue per paying user(2) 40.2 41.3 51.5 55.2 47.0 47.3 43.1 44.9 Note: (1) Average monthly paying users is calculated by dividing the sum of monthly paying users during the specified period by the number of months in such period. Paying users on our platform refer to users who make payments for various products and services on our platform, including purchases in games and payments for VAS (excluding purchases on our e-commerce platform). A user who makes payments across different products and services offered on our platform using the same registered account is counted as one paying user and we add the number of paying users of Maoer and the number of paying users of smart TVs toward our total paying users without eliminating duplicates. (2) Average monthly revenue per paying user is calculated by dividing the sum of revenues from mobile games and VAS during the specified period by the total number of monthly paying users during such period. We are striving to refine our commercialization avenues without compromising user experience. We will continue our efforts to enrich our content library and product offerings, including PUGV, VAS and mobile games, to convert more users to paying users. We plan to launch more high-quality games to satisfy our users’ evolving needs. We will also continue to develop our VAS to increase the number of our paying users. In addition, we expect to see increased revenues from advertising, as advertisers across different industries are turning to Bilibili to tap into the coveted Generation Z+ demographic in China. Our revenue growth will be affected by our ability to effectively execute our commercialization strategies and expand our paying user base. Our brand recognition and market leadership Our brand recognition as a leading video community among the Generation Z+ in China is crucial for us to attract and retain users, content creators and our business partners, and increase our revenues. We will continue to promote our brand name among broader young generations and increase our appeal to mass market. Our ability to manage our costs and expenses Our results of operations depend on our ability to manage our costs and expenses. Our cost of revenues consists primarily of revenue-sharing costs, content costs, server and bandwidth service costs, staff costs and IP derivatives and other costs. We expect our revenue-sharing costs to increase in absolute amount due to our business expansion in advertising, mobile games and VAS. We will remain disciplined in managing costs and operating expenses, including controlling content investment and staff costs, while optimizing resource efficiency related to server and bandwidth expenses. We intend to implement a more selective approach to content investment, which we believe will enable us to manage the volatility of content costs. In addition, we will control our sales and marketing expense, further streamline our personnel and improve our research and development efficiency. Investment in technology and talents Our technology is critical for us to better understand our users, improve user experience, maintain a vibrant community, and execute our commercialization strategy. Our current research and development efforts in technology are primarily focused on enhancing our artificial intelligence technology, big data analytics capabilities, cloud technology and game development capability, which we believe are crucial for us to develop user insights so as to provide more relevant and engaging content to our users and to improve our operating efficiency. In addition, there is a strong demand in China’s internet industry for talented and experienced personnel. We must recruit, retain and motivate talented employees while controlling our personnel-related expenses, including share-based compensation expenses. 127 Table of Contents Key Components of Results of Operations Net revenues The following table sets forth the components of our net revenues by amounts and percentages of our total net revenues for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Net revenues: VAS 9,910,080 44.0 % 10,999,137 41.0 % 11,928,286 1,705,722 39.3 % Advertising 6,412,040 28.5 % 8,189,175 30.5 % 10,058,430 1,438,336 33.1 % Mobile games 4,021,137 17.8 % 5,610,323 20.9 % 6,394,638 914,421 21.1 % IP derivatives and others 2,184,730 9.7 % 2,032,890 7.6 % 1,966,412 281,194 6.5 % Total net revenues 22,527,987 100.0 % 26,831,525 100.0 % 30,347,766 4,339,673 100.0 % VAS. We primarily generate VAS revenues from (i) sales of in-channel virtual items for use in our live broadcasting so that users can send them to hosts to show their support, which comprise either consumable items, such as gifts and items that create special visual effects, or time-based items, such as privileges and titles, and (ii) subscription fees of our premium membership program, which offers paying members benefits including exclusive or advance access to certain high-quality OGV content. We also generate revenues from other VAS including sales of paid content and virtual items on our video, audio and comic platforms. In addition, we generate revenues from our fan charging program and premium courses, where users pay for access to creators’ premium PUGV content and video courses. We expect revenues from VAS to continue to grow in the foreseeable future, driven by the further expansion of high-quality content and product offerings. Advertising. We generate advertising revenues primarily from performance-based, brand, and native advertisements. Performance-based advertisements appear in various formats, such as video or picture feeds alongside organic feeds, a banner underneath the video-playing frame, a link, banner or pop-up in the Story Mode, and a link in the comment section appearing below our videos. Brand advertisements primarily appear on the app opening page, the top banner, the website home page banner and the inline video feed alongside organic feeds. Brand advertisements can also be customized according to advertisers’ needs and appear in Bilibili-produced OGV or events. Native advertisings are customized according to advertisers’ needs, produced by our content creators and embedded naturally in their video creations. We expect our advertising revenues to increase in the foreseeable future as we continue to integrate advertising products into our content ecosystem, improve our advertising infrastructure, and attract more advertisers by optimizing advertising efficiency. Mobile games. We primarily offer exclusively distributed mobile games and jointly operated mobile games developed by third-party game developers. For exclusively distributed mobile games, we are responsible for game launch, hosting and maintenance of game servers, game promotions and customer services. We also develop localized versions for games licensed from overseas developers. For jointly operated mobile game services, we provide our mobile game platform for mobile games developed by third-party developers. We earn game distribution service revenue within the applicable contract periods by providing payment solutions and game promotion services, while game developers are responsible for providing game products, hosting and maintaining game servers and determining the pricing of in-game virtual items. As of December 31, 2025, we operated multiple exclusively distributed mobile games and hundreds of jointly operated mobile games. Our revenues from mobile games depend on the number of paying users, and ultimately are determined by our ability to develop, select, procure and offer engaging games tailored to our platform and our user preferences. We plan to continue introducing new mobile games and enhancing our existing portfolio, which we believe will stabilize revenues from mobile games and contribute to their sustainable growth in the foreseeable future amid evolving market dynamics beyond our control. IP derivatives and others. Our IP derivatives and others primarily consist of sales of derivative merchandise of ACG IPs on our e-commerce platform. We expect revenues from IP derivatives and others to fluctuate in the foreseeable future but remain as a decent stream of revenues. 128 Table of Contents Cost of revenues The following table sets forth the components of our cost of revenues by amounts and percentages of cost of revenues for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Cost of revenues: Revenue-sharing costs 9,507,483 55.6 % 10,803,944 59.8 % 12,091,094 1,729,003 62.9 % Content costs 3,195,620 18.7 % 2,729,520 15.1 % 2,441,575 349,141 12.7 % Server and bandwidth costs 1,477,116 8.7 % 1,643,678 9.1 % 1,868,364 267,172 9.7 % IP derivatives and others 2,905,903 17.0 % 2,880,420 16.0 % 2,832,621 405,060 14.7 % Total cost of revenues 17,086,122 100.0 % 18,057,562 100.0 % 19,233,654 2,750,376 100.0 % Revenue-sharing costs consist of fees paid to game developers, distribution channels (app stores) and payment channels, and fees we share with hosts of our live broadcasting and content creators in accordance with our revenue-sharing arrangements. Content costs mainly consist of amortized costs of purchased licensed content from copyright owners or content distributors and our production costs. Server and bandwidth costs are the fees we pay to telecommunication carriers and other service providers for telecommunication services, hosting our servers at their internet data centers, and providing content delivery network and application services. IP derivatives and others consist of cost of goods sold associated with our e-commerce business, staff cost, depreciation and others. Operating expenses The following table sets forth the components of our operating expenses by amounts and percentages of operating expenses for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Operating expenses: Sales and marketing expenses 3,916,150 37.3 % 4,401,655 43.5 % 4,394,107 628,348 44.0 % General and administrative expenses 2,122,432 20.2 % 2,031,063 20.1 % 2,062,066 294,872 20.6 % Research and development expenses 4,467,470 42.5 % 3,685,214 36.4 % 3,533,488 505,282 35.4 % Total operating expenses 10,506,052 100.0 % 10,117,932 100.0 % 9,989,661 1,428,502 100.0 % Sales and marketing expenses. Sales and marketing expenses consist primarily of marketing and promotional expenses, salaries and other compensation-related expenses for our sales and marketing personnel. We will keep implementing our cost control strategy to further discipline our sales and marketing expenses, including rationalizing our promotional expense and improving our expense efficiency. General and administrative expenses. General and administrative expenses consist primarily of salaries and other compensation-related expenses for our general and administrative personnel, professional fees, rental expenses and allowance for expected credit losses. We will keep implementing our cost control strategy, including improving our workforce efficiency. Research and development expenses. Research and development expenses consist primarily of salaries and benefits, including share-based compensation expenses, for research and development personnel dedicated to the development and enhancement of our app/websites and development of online games. We will continue to invest in our research and development, enhance our artificial intelligence technology, big data analytics capabilities, cloud technology and game development capacity, and develop new features and functionalities on our platform. 129 Table of Contents Results of Operations The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our revenues for the periods presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of our future trends. For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Net revenues 22,527,987 100 % 26,831,525 100 % 30,347,766 4,339,673 100.0 % Cost of revenues(1) (17,086,122 ) (75.8 )% (18,057,562 ) (67.3 )% (19,233,654 ) (2,750,376 ) (63.4 )% Gross profit 5,441,865 24.2 % 8,773,963 32.7 % 11,114,112 1,589,297 36.6 % Operating expenses: Sales and marketing expenses(1) (3,916,150 ) (17.4 )% (4,401,655 ) (16.4 )% (4,394,107 ) (628,348 ) (14.5 )% General and administrative expenses(1) (2,122,432 ) (9.4 )% (2,031,063 ) (7.6 )% (2,062,066 ) (294,872 ) (6.8 )% Research and development expenses(1) (4,467,470 ) (19.9 )% (3,685,214 ) (13.7 )% (3,533,488 ) (505,282 ) (11.6 )% Total operating expenses (10,506,052 ) (46.7 )% (10,117,932 ) (37.7 )% (9,989,661 ) (1,428,502 ) (32.9 )% (Loss)/Profit from operations (5,064,187 ) (22.5 )% (1,343,969 ) (5.0 )% 1,124,451 160,795 3.7 % Other expenses: Investment loss, net (including impairments) (435,644 ) (1.9 )% (470,081 ) (1.8 )% (242,288 ) (34,647 ) (0.8 %) Interest income 542,472 2.4 % 434,980 1.6 % 431,847 61,753 1.4 % Interest expense (164,927 ) (0.7 )% (89,193 ) (0.3 )% (150,572 ) (21,532 ) (0.5 )% Exchange losses (35,575 ) (0.2 )% (68,715 ) (0.3 )% (80,172 ) (11,464 ) (0.3 )% Debt extinguishment gain/(loss) 292,213 1.3 % (38,629 ) (0.1 )% (2 ) * 0.0 % Others, net 132,640 0.6 % 175,412 0.7 % 124,822 17,850 0.5 % (Loss)/Profit before income tax expenses (4,733,008 ) (21.0 )% (1,400,195 ) (5.2 )% 1,208,086 172,755 4.0 % Income tax (expense)/benefit (78,705 ) (0.4 )% 36,544 0.1 % (17,145 ) (2,452 ) (0.1 )% Net (loss)/profit (4,811,713 ) (21.4 )% (1,363,651 ) (5.1 )% 1,190,941 170,303 3.9 % * Less than 1. Note: (1) Share-based compensation expenses were allocated as follows: For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (In thousands) Cost of revenues 63,724 84,178 104,684 14,970 Sales and marketing expenses 56,649 60,460 76,605 10,954 General and administrative expenses 596,950 568,194 561,330 80,269 Research and development expenses 415,321 403,380 427,916 61,191 Total 1,132,644 1,116,212 1,170,535 167,384 Year ended December 31, 2025 compared to year ended December 31, 2024 Net revenues Our net revenues increased by 13.1% from RMB26.8 billion in 2024 to RMB30.3 billion (US$4.3 billion) in 2025. VAS. Our net revenues from VAS increased by 8.4% from RMB11.0 billion in 2024 to RMB11.9 billion (US$1.7 billion) in 2025, mainly attributable to increased revenues from other value-added services and premium memberships. 130 Table of Contents Advertising. Our net revenues from advertising increased by 22.8% from RMB8.2 billion in 2024 to RMB10.1 billion (US$1.4 billion) in 2025, mainly attributable to our improved advertising product offerings and enhanced advertising efficiency. Mobile games. Our net revenues from mobile games increased by 14.0% from RMB5.6 billion in 2024 to RMB6.4 billion (US$914.4 million) in 2025, primarily driven by the full-year contribution of our exclusively licensed game, San Guo: Mou Ding Tian Xia, in 2025, and the launch of our in-house developed game, Escape from Duckov, in the fourth quarter of 2025. IP derivatives and others. Our net revenues from IP derivatives and others decreased by 3.3% from RMB2.0 billion in 2024 to RMB2.0 billion (US$281.2 million) in 2025. Cost of revenues Our cost of revenues increased by 6.5% from RMB18.1 billion in 2024 to RMB19.2 billion (US$2.8 billion) in 2025. The increase was mainly attributable to higher revenue-sharing costs, partially offset by lower content costs. Revenue-sharing costs increased by 11.9% from RMB10.8 billion in 2024 to RMB12.1 billion (US$1.7 billion) in 2025, primarily due to higher cost of fees paid to distribution channels and game developers and an increase in cost to content creators on our platform. Content costs decreased by 10.5% from RMB2.7 billion in 2024 to RMB2.4 billion (US$349.1 million) in 2025, as we continued to implement a more selective strategy in content investment while maintaining the quality of content provided to our users. Server and bandwidth costs increased by 13.7% from RMB1.6 billion in 2024 to RMB1.9 billion (US$267.2 million) in 2025, primarily due to an increased investment in server and bandwidth capacity to better serve our evolving community. IP derivatives and others related costs decreased by 1.7% from RMB2.9 billion in 2024 to RMB2.8 billion (US$405.1 million) in 2025. Gross profit As a result of the foregoing, our gross profit increased by 26.7% from RMB8.8 billion in 2024 to RMB11.1 billion (US$1.6 billion) in 2025. Operating expenses Our total operating expenses decreased by 1.3% from RMB10.1 billion in 2024 to RMB10.0 billion (US$1.4 billion) in 2025. Sales and marketing expenses. Our sales and marketing expenses decreased by 0.2% from RMB4.4 billion in 2024 to RMB4.4 billion (US$628.3 million) in 2025. General and administrative expenses. Our general and administrative expenses increased by 1.5% from RMB2.0 billion in 2024 to RMB2.1 billion (US$294.9 million) in 2025. Research and development expenses. Our research and development expenses decreased by 4.1% from RMB3.7 billion in 2024 to RMB3.5 billion (US$505.3 million) in 2025. 131 Table of Contents Profit/(Loss) from operations As a result of the foregoing, we generated profit from operations of RMB1.1 billion (US$160.8 million) in 2025, compared to loss from operations of RMB1.3 billion in 2024. Other income/(expenses) Investment loss, net (including impairments). Net investment loss, net (including impairments) primarily includes return earned on financial products issued by banks and other financial institutions and the fair value change of investments. We had net investment loss of RMB470.1 million and RMB242.3 million (US$34.6 million) in 2024 and 2025, respectively. Interest income. Interest income primarily represents interest earned on cash and cash equivalents and time deposits. We had interest income of RMB435.0 million and RMB431.8 million (US$61.8 million) in 2024 and 2025, respectively. Interest expense. Interest expense primarily represents interest payment related to our long-term bank loans. We had interest expense of RMB89.2 million and RMB150.6 million (US$21.5 million) in 2024 and 2025, respectively. The increase was primarily attributable to the full-year impact of our long-term bank loans in 2025. Debt extinguishment loss. We recorded debt extinguishment loss of RMB38.6 million and RMB 2.0 thousand (US$0.3 thousand) in 2024 and 2025, respectively. The difference between the purchase price and the net carrying amount of the repurchased notes was accounted for under “Debt extinguishment loss” in the consolidated statements of operations. Income tax (expense)/benefit We recorded income tax expense of RMB17.1 million (US$2.5 million) in 2025, compared to income tax benefit of RMB36.5 million in 2024. Net profit/(loss) As a result of the foregoing, we generated net profit of RMB1.2 billion (US$170.3 million) in 2025, compared to net loss of RMB1.4 billion in 2024. Year ended December 31, 2024 compared to year ended December 31, 2023 Net revenues Our net revenues increased by 19.1% from RMB22.5 billion in 2023 to RMB26.8 billion in 2024. VAS. Our net revenues from VAS increased by 11.0% from RMB9.9 billion in 2023 to RMB11.0 billion in 2024, mainly attributable to increases in revenues from live broadcasting and other value-added services. Advertising. Our net revenues from advertising increased by 27.7% from RMB6.4 billion in 2023 to RMB8.2 billion in 2024, mainly attributable to our improved advertising product offerings and enhanced advertising efficiency. Mobile games. Our net revenues from mobile games increased by 39.5% from RMB4.0 billion in 2023 to RMB5.6 billion in 2024. The increase was mainly attributable to the strong performance of our exclusively licensed game, San Guo: Mou Ding Tian Xia launched in June 2024. IP derivatives and others. Our net revenues from IP derivatives and others decreased by 6.9% from RMB2.2 billion in 2023 to RMB2.0 billion in 2024. Cost of revenues Our cost of revenues increased by 5.7% from RMB17.1 billion in 2023 to RMB18.1 billion in 2024. The increase was mainly attributable to higher revenue-sharing costs, partially offset by lower content costs. 132 Table of Contents Revenue-sharing costs increased by 13.6% from RMB9.5 billion in 2023 to RMB10.8 billion in 2024, primarily due to higher fees paid to distribution channels and game developers and an increase in payments made to hosts of live broadcasting programs and content creators on our platform. Content costs decreased by 14.6% from RMB3.2 billion in 2023 to RMB2.7 billion in 2024, as we continued to implement a more selective strategy in content investment while maintaining the quality of content provided to our users. Server and bandwidth costs increased by 11.3% from RMB1.5 billion in 2023 to RMB1.6 billion in 2024, primarily due to increased server and bandwidth capacity to keep pace with the increasing volume of data and video watch time on our platform. IP derivatives and others related costs slightly decreased by 0.9% from RMB2.9 billion in 2023 to RMB2.9 billion in 2024. Gross profit As a result of the foregoing, our gross profit increased by 61.2% from RMB5.4 billion in 2023 to RMB8.8 billion in 2024. Operating expenses Our total operating expenses decreased by 3.7% from RMB10.5 billion in 2023 to RMB10.1 billion in 2024, primarily as a result of our reduced expenses related to platform operations, as we improved our expenses efficiency. Sales and marketing expenses. Our sales and marketing expenses increased by 12.4% from RMB3.9 billion in 2023 to RMB4.4 billion in 2024. The increase was primarily attributable to increased marketing expenses for our exclusively licensed games. General and administrative expenses. Our general and administrative expenses decreased by 4.3% from RMB2.2 billion in 2023 to RMB2.0 billion in 2024. The decrease was primarily attributable to the workforce efficiency optimization in 2024. Research and development expenses. Our research and development expenses decreased by 17.5% from RMB4.5 billion in 2023 to RMB3.7 billion in 2024. The decrease was mainly attributable to a decrease in research and development personnel headcount in 2024 and the one-off termination expenses of certain game projects that occurred in the fourth quarter of 2023. Loss from operations As a result of the foregoing, we narrowed loss from operations by 73.5% from RMB5.1 billion in 2023 to RMB1.3 billion in 2024. Other income/(expenses) Investment loss, net (including impairments). Net investment loss, net (including impairments) primarily includes return earned on financial products issued by banks and other financial institutions and the fair value change of investments. We had net investment loss of RMB435.6 million and RMB470.1 million in 2023 and 2024, respectively. Interest income. Interest income primarily represents interest earned on cash and cash equivalents and time deposits. We had interest income of RMB542.5 million and RMB435.0 million in 2023 and 2024, respectively. The decrease was primarily driven by the decrease in time deposits held in 2024 compared to 2023. 133 Table of Contents Interest expense. Interest expense primarily represents interest payment and amortized issuance costs related to our convertible senior notes. We had interest expense of RMB164.9 million and RMB89.2 million in 2023 and 2024, respectively. The decrease was primarily attributable to a decrease in interest expense related to our convertible senior notes from RMB110.2 million in 2023 to RMB35.5 million in 2024. Debt extinguishment (loss)/gain. We recorded debt extinguishment loss of RMB38.6 million in 2024, compared to debt extinguishment gain of RMB292.2 million in 2023. The difference between the purchase price and the net carrying amount of the repurchased notes was accounted for under “Debt extinguishment gain/(loss)” in the consolidated statements of operations. Income tax benefit/(expense) We recorded income tax benefit of RMB36.5 million in 2024, compared to income tax expense of RMB78.7 million in 2023. Net loss As a result of the foregoing, we narrowed net loss by 71.7% from RMB4.8 billion in 2023 to RMB1.4 billion in 2024. Seasonality Our results of operations are subject to seasonal fluctuations. For example, the growth of active users tends to accelerate during school holidays, such as summer and winter breaks, which typically fall in the middle of the third and first quarters of each year, and slow down at the beginning and during certain parts of the school year. We usually experience increase in video watch time and hence the number of active users following the release of phenomenally popular content. Seasonal fluctuations have not thus far posed material operational and financial challenges to us, as such periods tend to be brief and predictable, allowing us to re-allocate resources and improve efficiency ahead of time. Taxation Cayman Islands The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands, or produced before a court. In addition, the Cayman Islands does not impose withholding tax on dividend payments. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not a party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands. Hong Kong The majority of our subsidiaries incorporated in Hong Kong, such as Hode HK and Bilibili HK Limited, are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong. The first HK$2 million of profits earned by one of our subsidiaries incorporated in Hong Kong could be taxed at half the current tax rate (i.e., 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax. PRC Our PRC subsidiaries are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. 134 Table of Contents Effective from January 1, 2008, the statutory corporate income tax rate is 25%, except for certain entities eligible for preferential tax rates. For example, Hode Information Technology has qualified as a High and New Technology Enterprise, which allowed it to enjoy a 15% preferential enterprise income tax rate for three years from 2023 to 2025, and we have applied for renewal of the High and New Technology Enterprise status. Shanghai Bilibili Technology Co., Ltd. has qualified as a High and New Technology Enterprise, which allowed it to enjoy a 15% preferential enterprise income tax rate for three years starting from 2024 to 2026. Our other major PRC subsidiaries are subject to enterprise income tax on their taxable income in mainland China at a statutory rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. We are subject to value-added tax mainly at a rate of 6% for services rendered and value-added tax mainly at a rate of 13% for goods sold, although the rate varies depending on their categories in different periods. We are subject to surcharges on value-added tax payments in accordance with PRC law. Our advertising and marketing revenues (valued-added tax included) are subject to culture business construction fee at a rate of 3%, which was reduced to 1.5% since July 1, 2019, valid until December 31, 2027. Dividends paid by our wholly foreign-owned subsidiaries in mainland China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective from November 1, 2015, the above-mentioned approval requirement has been abolished, but a Hong Kong entity is still required to file application package with the relevant tax authority, and settle the overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application package by the relevant tax authority. On October 14, 2019, Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties (SAT Announcement (2019) No. 35) was issued to simplify the procedures for claiming mainland China tax treaty benefits by non-resident taxpayers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our PRC subsidiaries to fund cash and financing requirements. Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to our shareholders and ADS holders.” If Bilibili, a holding company in the Cayman Islands or any of its subsidiaries outside of mainland China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.” B. Liquidity and Capital Resources The following table sets forth a summary of our cash flows for the periods presented: For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (in thousands) Summary of Consolidated Statements of Cash Flows Data: Net cash provided by operating activities 266,622 6,014,854 7,147,108 1,022,023 Net cash provided by/(used in) investing activities 1,762,148 (138,087 ) (9,340,614 ) (1,335,690 ) Net cash (used in)/provided by financing activities (5,074,685 ) (2,825,383 ) 4,087,283 584,474 Effect of exchange rate changes on cash and cash equivalents held in foreign currencies 100,349 6,177 41,179 5,888 Net (decrease)/increase in cash, cash equivalents and restricted cash (2,945,566 ) 3,057,561 1,934,956 276,695 Cash, cash equivalents and restricted cash at beginning of the year 10,187,387 7,241,821 10,299,382 1,472,792 Cash, cash equivalents and restricted cash at end of the year 7,241,821 10,299,382 12,234,338 1,749,487 135 Table of Contents As of December 31, 2023, 2024 and 2025, our cash, cash equivalents and restricted cash were RMB7.2 billion, RMB10.3 billion and RMB12.2 billion (US$1.7 billion), respectively. Our cash and cash equivalents primarily consist of cash on hand, demand deposits placed with large reputable banks in the United States of America and China, and highly liquid investments that are readily convertible to known amounts of cash and with original terms of three months or less. We entered into several one-year revolving loan facilities provided by certain financial institutions with an aggregate principal amount of RMB920.0 million (US$131.6 million) as of December 31, 2025. We have not utilized such facilities as of December 31, 2025. Our principal sources of liquidity have been the proceeds we received from our public offerings of ordinary shares and net cash provided by operating activities. In January 2023, we completed the offering of 15,344,000 ADSs at US$26.65 per ADS. The amount of net proceeds from this offering (after deducting all applicable costs and expenses including but not limited to selling commission) was approximately US$396.9 million. Shortly thereafter, we completed the repurchase of an aggregate principal amount of US$384.8 million of our convertible senior notes due December 2026 with an aggregate purchase price of US$331.2 million, which was funded by the net proceeds from this ADS offering. We have used the remaining proceeds of this ADS offering in the amount of US$68.8 million to replenish our cash reserve. Between 2019 and 2021, we issued three batches of convertible senior notes, with an aggregate principal amount of US$500 million, US$800 million and US$1,600 million, respectively, that are due in April 2026, 2027 and December 2026, respectively. Following a series of repurchases, including the repurchase of US$429.3 million of the convertible senior notes due April 2026 in 2024, the repurchase of US$419.1 million of the convertible senior notes due December 2026 in 2024 and the repurchase of US$66 thousand of the convertible senior notes due April 2027 in 2025, substantially all of the convertible senior notes that were originally issued between 2019 and 2021 have been repurchased. As of the date of this annual report, the convertible senior notes due April 2026 were fully paid at maturity. As of December 31, 2025, an aggregate principal amount of US$13.3 million of our convertible senior notes originally issued between 2019 and 2021 remained outstanding. In May 2025, we completed the offering of US$690 million in aggregate principal amount of 0.625% convertible senior notes due June 1, 2030, or the 2030 Notes. The 2030 Notes bear interest at a rate of 0.625% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2025. Holders of the 2030 Notes will have the right to require us to repurchase their notes on June 1, 2028, and upon the occurrence of a fundamental change, in each case, at a repurchase price equal to 100% of the principal amount of the 2030 Notes to be repurchased, plus accrued and unpaid interest, if any. The indenture governing the 2030 Notes defines a “fundamental change” to include, among others: (i) any person or group gaining control of Bilibili Inc., (ii) any recapitalization, reclassification or change of the ordinary shares or ADSs as a result of which these securities would be converted into, or exchanged for, stock, other securities, other property or assets; (iii) the shareholders of Bilibili Inc. approving any plan or proposal for the liquidation or dissolution of Bilibili Inc.; (iv) the Class Z ordinary shares cease to be listed or admitted to trading or are suspended for trading for a period equal to or exceeding 30 consecutive trading days on the Hong Kong Stock Exchange; or (v) any change in or amendment to the laws, regulations and rules of the PRC resulting in our company being legally prohibited from operating substantially all of the business operations conducted by our company and being unable to continue to derive substantially all of the economic benefits from the business operations conducted by these entities. As of December 31, 2025, there was no such event of default or fundamental change. We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet the cash requirements to fund our operations and other commitments for at least the next 12 months. However, we may enhance our liquidity position or increase our cash reserve for future investments through additional capital and finance funding. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. 136 Table of Contents As of December 31, 2025, 71.6% of our cash and cash equivalents were held in mainland China, including 16.5% of our cash and cash equivalents that were held by the VIEs and denominated in Renminbi. Although we consolidate the results of the VIEs and their subsidiaries, we only have access to the assets or earnings of the VIEs and their subsidiaries through our contractual arrangements with the VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.” In utilizing the proceeds we receive from our financing activities, we may make additional capital contributions to our PRC subsidiaries, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, make loans to our PRC subsidiaries, or acquire offshore entities with operations in mainland China in offshore transactions. However, most of these uses are subject to PRC regulations. We expect that a substantial majority of our future revenues will be denominated in Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. Operating activities Net cash provided by operating activities in 2025 was RMB7.1 billion (US$1.0 billion), as compared to net profit of RMB1.2 billion (US$170.3 million) in the same period. The difference was primarily due to an increase of RMB859.6 million in deferred revenue, an increase of RMB585.8 million in accounts payable, an increase of RMB568.4 million in accrued liabilities and other payables, and a decrease of RMB192.0 million in prepayments and other assets. The changes in working capital were attributable to our increased mobile games revenues and advertising revenues. The principal non-cash items affecting the difference between our net profit and our net cash provided by operating activities in 2025 were RMB2.0 billion (US$289.7 million) in depreciation and amortization of property and equipment and intangible assets, RMB1.2 billion (US$167.4 million) in share-based compensation expenses and RMB343.7 million (US$49.2 million) in impairments and loss of long-term investments. Net cash provided by operating activities in 2024 was RMB6.0 billion, as compared to net loss of RMB1.4 billion in the same period. The difference was primarily due to an increase of RMB848.2 million in deferred revenue, an increase of RMB779.3 million in accrued liabilities and other payables, an increase of RMB615.2 million in accounts payable, and a decrease of RMB251.2 million in accounts receivable. The changes in working capital were attributable to our increased mobile games revenues and advertising revenues. The principal non-cash items affecting the difference between our net loss and our net cash provided by operating activities in 2024 were RMB2.3 billion in depreciation and amortization of property and equipment and intangible assets, RMB1.1 billion in share-based compensation expenses and RMB486.5 million in impairments of long-term investments. Net cash provided by operating activities in 2023 was RMB266.6 million, as compared to net loss of RMB4.8 billion in the same period. The difference was primarily due to an increase of RMB341.1 million in accrued liabilities and other payables, a decrease of RMB342.5 million in prepayments and other assets and a decrease of RMB185.8 million in other long-term assets, partially offset by an increase of RMB262.2 million in accounts receivable, a decrease of RMB182.2 million in salary and welfare payable and a decrease of RMB141.6 million in other long-term liabilities. The changes in working capital were attributable to our business expansion, particularly, diversification of other value-added services offerings and increased advertising revenues. The principal non-cash items affecting the difference between our net loss and our net cash provided by operating activities in 2023 were RMB2.7 billion in depreciation and amortization of property and equipment and intangible assets, RMB1.1 billion in share-based compensation expenses and RMB354.8 million in termination of certain game projects. 137 Table of Contents Investing activities Net cash used in investing activities in 2025 was RMB9.3 billion (US$1.3 billion), primarily due to purchase of short-term investments of RMB85.6 billion (US$12.2 billion) and cash paid for placements of time deposits of RMB10.5 billion (US$1.5 billion), partially offset by maturities of short-term investment of RMB81.8 billion (US$11.7 billion) and maturities of time deposits of RMB8.4 billion (US$1.2 billion). Net cash used in investing activities in 2024 was RMB138.1 million, primarily due to purchase of short-term investments of RMB37.0 billion and cash paid for placements of time deposits of RMB5.8 billion, partially offset by proceeds from maturities of short-term investments of RMB37.0 billion and maturities of time deposits of RMB7.5 billion. Net cash provided by investing activities in 2023 was RMB1.8 billion, primarily due to proceeds from maturities of short-term investments of RMB16.3 billion and maturities of time deposits of RMB9.7 billion, partially offset by purchase of short-term investments of RMB13.5 billion and placements of time deposits of RMB10.0 billion. Financing activities Net cash provided by financing activities in 2025 was RMB4.1 billion (US$584.5 million), primarily attributable to proceeds from issuance of convertible notes of RMB4.9 billion (US$698.8 million), partially offset by repurchase of shares of RMB822.7 million (US$117.6 million). Net cash used in financing activities in 2024 was RMB2.8 billion, primarily attributable to the repurchase of convertible senior notes, net of issuance costs, of RMB6.0 billion, partially offset by proceeds of short-term and long-term loans of RMB5.1 billion. Net cash used in financing activities in 2023 was RMB5.1 billion, primarily attributable to the repurchase of convertible senior notes, net of issuance costs, of RMB7.7 billion and the repayment of short-term loan of RMB2.0 billion, partially offset by the proceeds from issuances of ordinary shares net of issuance costs of RMB2.7 billion and proceeds of short-term loans of RMB2.0 billion. Material cash requirements Our material cash requirements as of December 31, 2025 primarily include our long-term loans, capital expenditures and operating lease commitments. We intend to fund our existing and future material cash requirements with our existing cash balance, cash generated from operating activities, and other financing alternatives. We will continue to make cash commitments, including capital expenditures, to support the growth of our business. Convertible senior notes obligations Our convertible senior notes obligations mainly consist of the principal amount and cash interests in connection with our 2030 notes. Holders of the 2030 Notes will have the right to require us to repurchase their notes on June 1, 2028, and upon the occurrence of a fundamental change, in each case, at a repurchase price equal to 100% of the principal amount of the 2030 Notes to be repurchased, plus accrued and unpaid interest, if any. As of December 31, 2025, US$17.7 million, US$13.0 million and US$691.8 million in aggregate principal amount and interest expenses related to the above unsecured senior notes are expected to be repaid within one year, in 1-3 years and 3 years afterwards, respectively, unless earlier converted, redeemed or repurchased. 138 Table of Contents Long-term bank loans Our long-term bank loans were RMB3.1 billion (US$438.9 million) in aggregate. As of December 31, 2025, the entire balance of RMB3.1 billion, representing the current portion due within one year, was classified as short-term loans and the non-current portion was nil. Our long-term bank loans were substantially credit borrowing and the interest rates were 2.3% as of December 31, 2025. We were in compliance with all of the loan covenants as of December 31, 2025. For additional information, see “Notes to Consolidated Financial Statements—Note 12. Short-Term Loan and Current Portion of Long-Term Debt” and “—Note 14. Long-Term Debt” of our audited consolidated financial statements included elsewhere in this annual report. Capital expenditures Our capital expenditures are primarily incurred for purchases of intangible assets and property and equipment. Our capital expenditures were RMB1.3 billion, RMB1.8 billion and RMB1.8 billion (US$261.3 million) in 2023, 2024 and 2025, respectively. Purchases of intangible assets, which primarily consist of licensed copyrights of video content, accounted for 86.3%, 73.5% and 71.9% of our total capital expenditures in 2023, 2024 and 2025, respectively. Operating lease commitments Our operating lease commitments consist of the commitments under the lease agreements for our office premises. As of December 31, 2025, the amount of total future lease payments under operating leases, whose weighted average remaining lease term is 1.6 years, was RMB187.0 million (US$26.7 million), of which RMB150.7 million (US$21.5 million) was short term. Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2025. Holding Company Structure Bilibili Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries, the VIEs and their subsidiaries in mainland China. As a result, Bilibili Inc.’s ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in mainland China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and the VIEs in mainland China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, our wholly foreign-owned subsidiaries in mainland China may allocate a portion of their after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at their discretion, and the VIEs may allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of mainland China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. C. Research and Development, Patents and Licenses, Etc. Technology, Research and Development Our technology platform has been designed for reliability, scalability and flexibility and is administered by our in-house technology department. As of December 31, 2025, we had access to a nationwide network of over 59,000 servers that we own and over 6,000 servers we lease, with power supply and power generator backup. This structure, along with other features described below, contributes to the reliability, scalability and efficiency of our network. 139 Table of Contents AI and big data analytics. AI is particularly suitable for reviewing and screening content by recognizing and analyzing patterns and connections. As the varieties and quantity of content and user interactions continue to increase, AI capabilities are critical for us to control our operating costs and enhance user experience. We utilize big data analytics to create an interest profile for each user account based on user’s actions such as post, bullet chatting, comment, like and follow, and demographic data such as age, gender and geography. Empowered by our AI capabilities, our interest profile allows us to personalize user interface and push content to our users that they are more likely to find interesting and relevant. We also leverage AI technology in content management and review procedures to monitor the content uploaded to our platform to detect inappropriate or illegal content and to promptly remove any infringing content. Our proprietary AI-based screening system automatically flags and screens out newly uploaded videos that have privacy issues or contain illegal or inappropriate content by comparing them with copyrighted or objectionable videos stored in our own in-house “blacklist” databases and identifying those with similar codes, i.e., the key words in the video contents. Utilizing various technology models and samples gathered internally or based on regulatory requirements, we build, maintain and continuously update our databases to meet the changing regulatory requirements. Once the content is processed by this technology screening system, the system then extracts fingerprint trails (the technical features that identify and distinguish a video) from the content and sends them to our content screening team for the second-level review. All of the other content, primarily consisting of bullet chats posted by users, is also automatically filtered by our screening system, which utilizes an AI-based screening system to conduct semantic analysis on bullet chats to analyze, identify and screen out inappropriate bullet chats. Utilizing our proprietary technology, upon user’s instruction to block certain key words in the bullet chats, our platform can execute this instruction while still streaming the video on a real-time basis without re-loading the entire video. We employ our proprietary technology to conduct semantic analysis of each user’s favorites, blocks and comments settings, so as to understand each user’s unique preference and customarily filter the bullet chats, so that each user’s bullet chatting viewing experience is customized. We have developed a series of big data analytics technology and obtained a number of patents in relation to big data storage and computation, interactive query, real-time computation, and other infrastructure, so as to process and analyze a huge amount of data real time with accuracy and stability. For example, we invented a system and methodology to monitor real-time data stream in multi-link transmission which can accurately analyze big data real-time transmission, spot inconsistency in the system within minutes, and promptly react to and report such issues. This technology is applied in data integration, an infrastructure in the big data analytics field, to ensure the completeness of data integration and to facilitate the accuracy of big data analytics, as big data storage, calculation, visualization, application and other upper modules are all computed based on the data generated from the data integration. We also invented a methodology and middleware to access data by combining centralized database, centralized memory cache, local memory cache and local documents cache, so as to improve the stability of the system upon centralized access to data and the efficiency of the system upon large amount of data access, while preventing data inconsistency. Cloud. Due to the nature of the products and services we offer, we have a high demand for storage and computing capacities to enhance the functionalities of our video player, including running algorithms to produce content recommendations. We have developed an advanced cloud system that meets the operational needs of our platform while reducing operating costs. Content distribution network. Our web server technology focuses on reducing bandwidth use while enhancing user experience through utilizing our content distribution network, or CDN, system. Our CDN components are strategically deployed in the cities where our users concentrate, enabling users to access a copy of the content closest to them so that content loading time is minimized. Our proprietary CDN system enhances network efficiency by managing and optimizing the workload of the servers through real-time optimization and distribution. This technology allows users to upload content without compression and enables viewing of content in higher definition. Real-time monitoring and support. We have a network operation support team responsible for the stability and security of our network on a 24-hour, seven-days-a-week basis. The primary responsibilities of the team members consist of monitoring system performance, troubleshooting, detecting system error, random sample testing on servers, maintaining equipment, and testing, evaluating and installing hardware and software. Intellectual Property We seek to protect our technology, including our proprietary technology infrastructure and core software system, through a combination of patents, copyrights, trademarks, trade secrets and confidentiality agreements. As of December 31, 2025, we have registered approximately 2,548 patents, 3,238 registered copyrights, 360 registered domain names, including www.bilibili.com, and 9,064 registered trademarks, including “ .” In addition, we had submitted approximately 2,011 additional patent applications and 254 trademark applications. 140 Table of Contents We intend to protect our technology and proprietary rights vigorously, but there can be no assurance that our efforts will be successful. Even if our efforts are successful, we may incur significant costs in defending our rights. From time to time, third parties may initiate litigation against us alleging infringement of their proprietary rights or declaring their non-infringement of our intellectual property rights. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may be subject to intellectual property infringement claims or other allegations, which could result in material damage to our reputation and brand, payment of substantial damages, penalties and fines, removal of relevant content from our platform or seeking license arrangements which may not be available on commercially reasonable terms” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may not be able to prevent others from engaging in unauthorized use of our intellectual property, unfair competition, defamation or other violations of our rights, which could harm our business and competitive position.” D. Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events since January 1, 2026 that are reasonably likely to have a material adverse effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. E. Critical Accounting Estimates We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Our critical accounting estimates require a higher degree of judgment than others in their application and involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. For a detailed discussion of our significant accounting policies and related judgments, see “Notes to Consolidated Financial Statements—Note 2. Significant Accounting Policies” of our audited consolidated financial statements included elsewhere in this annual report. Revenue recognition for in-game virtual items We recognize revenue from the sale of in-game virtual items in exclusively distributed mobile games over the estimated average playing period of paying players, starting from the point-in-time when related in-game virtual items are delivered to the paying players’ accounts. Nature of Estimates Required—average playing period of paying players. The average playing period of paying player is subjected to period assessment. Considering the events or circumstances may change that indicate the change of the estimate, we assessed the average playing period of paying player on a quarterly basis. We make a qualitative and quantitative assessment to determine the average playing period of paying players for each game. If a qualitative and quantitative assessment identifies the change of the average playing period of paying players based on newly available paying players information, we may prospectively apply the change of estimate. Assumptions Used. Changes in assumptions or estimates can materially affect average playing period of paying players and, therefore, can affect the test results. The following are key assumptions we use in making the average playing period of paying player for each game: Paying players’ churn rates. To compute the estimated average playing period for paying players, we consider the initial purchase date as the starting point of a paying player’s lifespan. We track the population of paying players who made their initial purchases during the interval period, or the Cohorts, and tracks each Cohort to understand the subsequent churn rate of the paying players of each Cohort, i.e. the number of paying players from each Cohort who left subsequent to their initial purchases, or the churn rate. To determine the ending point of a paying player’s lifespan beyond the date for which observable data are available, we extrapolate the historical churn rate to arrive at an average playing period for paying players of the selected games. 141 Table of Contents Similarities between newly launched games and existing games. We make assumption regarding similarities between newly launched games and existing games included in and affected our assumptions regarding playing patterns for paying players for other games with similar characteristics with the new games. If a new game is launched and only a limited period of paying player data is available, we consider the estimated average playing period of our other mobile games which have similar characteristics with the new game. When we believe that we can reasonably estimate average playing period of new games based on newly available paying players information, we may prospectively apply the change of estimate. In connection with our periodic reviews of the estimate, the assumptions are evaluated accordingly considering historical players’ churn rates, playing patterns for paying players and management judgment. Updates to these assumptions will impact the estimated average playing period of paying players and the revenue recognized accordingly. If the estimated average playing period of paying players is extended, the revenue will be recognized over a longer period and vice versa. See “Notes to Consolidated Financial Statements—Note 2. Significant Accounting Policies” of our audited consolidated financial statements included elsewhere in this annual report for additional information regarding the revenue recognition of mobile game services. Recent Accounting Pronouncements A list of recently issued accounting pronouncements that are relevant to us is included in “2. (ee)” of our audited consolidated financial statements included elsewhere in this annual report on Form 20-F. Safe Harbor This annual report on Form 20-F contains forward-looking statements. These statements are made under the “safe harbor” provisions of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “may,” “intend,” “is currently reviewing,” “it is possible,” “subject to” and similar statements. Among other things, the sections titled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” in this annual report on Form 20-F, as well as our strategic and operational plans, contain forward-looking statements. We may also make written or oral forward-looking statements in our filings with the SEC, in our annual report to shareholders, in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements and are subject to change, and such change may be material and may have a material and adverse effect on our financial condition and results of operations for one or more prior periods. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained, either expressly or impliedly, in any of the forward-looking statements in this annual report on Form 20-F. All information provided in this annual report on Form 20-F and in the exhibits is as of the date of this annual report on Form 20-F, and we do not undertake any obligation to update any such information, except as required under applicable law.