Correspondence 0001193125-23-290267 from Bilibili Inc. (BILI)
Bilibili Inc.
Date: Dec. 7, 2023 · CIK: 0001723690 · Accession: 0001193125-23-290267
AI Filing Summary & Sentiment
File numbers found in text: 001-38429
Referenced dates: November 22, 2023
Letter
VIA EDGAR Division of Corporation Finance Office of Technology Securities and Exchange Commission Washington, D.C. 20549 Re: Bilibili Inc. (the “Company”) Form 20-F for the Fiscal Year Ended December 31, 2022 Filed April 27, 2023 (File No. 001-38429)
Dear Ms. Veator and Mr. Krikorian,
This letter sets forth the Company’s responses to the comments contained in the letter dated November 22, 2023 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2022 filed with the Commission on April 27, 2023 (the “2022 Form 20-F”). The Staff’s comments are repeated below in bold and are followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2022 Form 20-F.
Form 20-F for the Fiscal Year Ended December 31, 2022
Item 3. Key Information, page 5
1. The Company’s response to prior comment 3 shows that a significant portion of the Company’s total present assets on a consolidated basis consisted of investment securities as of June 30, 2023.
•
Please provide a detailed legal analysis as to whether the Company is primarily engaged in the business of investing, reinvesting or trading in securities under Section 3(a)(1)(A) of the Investment Company Act of 1940 (the “Act”) when considering the fifth factor under Tonopah, “the nature of the issuer’s present assets.” Please also advise as to the percentage of the Company’s consolidated assets that consist of investment securities as of the fiscal quarter ending September 30, 2023.
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
December 7, 2023
Page
Section 3(a)(1)(A) of the Investment Company Act defines the term “investment company” to include any issuer which “is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities” (emphasis added). The determination of an issuer’s primary business engagement requires a fact-specific inquiry. Over the years, the SEC and the courts have developed a number of criteria to be used in determining whether a company is engaged primarily in a non-investment business. The criteria applicable to nearly every situation are: (i) the company’s historical development; (ii) its public representations of policy; (iii) the activities of its officers and directors; (iv) the sources of its present income; and (v) the nature of its present assets (the “Tonopah Factors”).1
Because the Company does not hold itself out to be an investment company, the relevant consideration is whether the Company is “primarily” engaged in the investment business. The following sections analyze the application of the five Tonopah Factors to the Company’s business.
Historical Development
The Company first launched its website in June 2009, and the Company commenced commercial operations in 2011 as an online video sharing platform. The Company established Shanghai Hode Information Technology Co., Ltd. (“Hode Information Technology”) to expand its operations in May 2013. In December 2013, Bilibili Inc. was incorporated in the Cayman Islands to serve as the Company group’s ultimate holding company. In February 2014, the Company established Hode HK Limited (“Hode HK”), a wholly-owned Hong Kong subsidiary, and in September 2014, Hode HK established a wholly-owned PRC subsidiary, Hode Shanghai Limited (“Hode Shanghai”). Hode Shanghai then entered into a series of contractual arrangements with each of its variable interest entities (“VIEs”), Hode Information Technology and Shanghai Kuanyu Digital Technology Co., Ltd. (“Shanghai Kuanyu”), and their respective shareholders. Chaodian HK Limited (“Chaodian HK”), a wholly-owned subsidiary of Bilibili Inc., was established in 2019. Chaodian HK’s wholly-owned subsidiary, Chaodian Shanghai Technology Co., Ltd. (“Chaodian Technology”), subsequently entered into a series of contractual arrangements with Shanghai Chaodian Culture Communication Co., Ltd. (“Chaodian Culture”) and its shareholders pursuant to which Chaodian Technology became the sole beneficiary of, and gained control of, Chaodian Culture. American Depositary Shares (“ADS”) representing the Company’s Class Z ordinary shares commenced trading on the Nasdaq Global Select Market under the symbol “BILI” on March 28, 2018.
The Company is a holding company that currently conducts its business in China mainly through (i) Hode HK and its subsidiaries, Shanghai Bilibili Technology Co., Ltd. (“Bilibili Technology”) and Hode Shanghai, and the VIEs, Shanghai Kuanyu and Hode Information Technology, and its subsidiaries and (ii) Chaodian HK and its subsidiary, Chaodian Technology, and the VIE, Chaodian Culture. Through its subsidiaries, the VIEs and their subsidiaries (“Consolidated Operating Entities”), the Company offers a leading online video platform as well as mobile games and anime, comic and audio platforms.
Tonopah Mining Co. of Nev., 26 S.E.C. 426, 427 (1947); Certain Prima Facie Inv. Cos., Investment Company Act Release No. IC-10937, 18 S.E.C. Docket 948 (1979).
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
December 7, 2023
Page
The Company and the Consolidated Operating Entities maintain significant intellectual property with respect to its primary business of providing internet cultural activities and information services related to the distribution of online games. For example, as of September 30, 2023, the Company and the Consolidated Operating Entities have registered approximately 1,203 patents, 2,639 copyrights, 355 domain names including www.bilibili.com and 8,564 trademarks. The Company and the Consolidated Operating Entities have submitted approximately 2,116 additional patent applications and 409 trademark applications as of September 30, 2023. While such internally developed intellectual property is not reflected on the Company’s balance sheet in accordance with GAAP, the Company believes such intellectual property has significant value.
The Company’s and the Consolidated Operating Entities’ devotion to their business of providing internet cultural activities and information services related to the distribution of online games is demonstrated by the fact that substantially all of their revenue is derived from their offerings of value added services (the “VAS”) such as premium subscriptions, live broadcasting, anime and comics and audio drama content; mobile games; advertising and e-commerce through the Consolidated Operating Entities, and not from investment securities. Similarly, substantially all of the expenses the Company and the Consolidated Operating Entities incur in the ordinary course of their business are incurred in connection with the operation of its online video, media and e-commerce platforms, and not in connection with investment securities. For the period ended September 30, 2023, the Company and the Consolidated Operating Entities neither derived significant revenue nor incurred significant expenses in connection with investment securities.
Public Representations
The Company has never held itself or any of the Consolidated Operating Entities out to the public (or to investors) as an investment company. The Company and the Consolidated Operating Entities were organized for the purpose of, and since the Company became a public reporting company in the United States in 2018 have always stated that their business purpose is, providing internet cultural activities and information services related to the distribution of online games through subsidiaries and relevant Consolidated Operating Entities. The Company believes that the price of the Company’s ADSs may be affected by a number of factors, including, but not limited to, the following: (i) the Company’s results of operations and financial conditions; (ii) the Company’s strategies and future business development; (iii) the Company’s ability to retain and increase the number of users, members and advertising customers; provide quality content, products and services; and expand its product and service offerings; (iv) competition in the online entertainment industry; (v) the Company’s ability to maintain its culture and brand image within its addressable user communities; (vi) the Company’s ability to manage its costs and expenses; (vii) PRC governmental policies and regulations relating to the online entertainment industry; (viii) general economic and business conditions globally and in China; and (ix) assumptions underlying or related to any of the foregoing. Further information regarding these and other factors that could affect the price of the Company’s ADSs is disclosed in the 2022 Form 20-F. The Company does not believe the price of the Company’s ADSs will move in response to changes in its investment income or the composition of its investment holdings. Moreover, neither the Company nor any of the Consolidated Operating Entities devote any attention to nor has the Company disclosed its or the Consolidated Operating Entities’ financial management or securities activities on its website or in its public documents except as required by law.
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
December 7, 2023
Page
Directors, Officers and Employees
The business activities of the Company’s and the Consolidated Operating Entities’ directors, officers and employees historically have been devoted almost exclusively to its business of providing internet cultural activities and information services related to the distribution of online games in China, including the governance and operational activities involved in supporting that business. As of September 30, 2023, the Company and the Consolidated Operating Entities had approximately 10,000 employees, only 5 of whom were actively involved in managing the Company’s investments. It is estimated that none of these persons devote more than 50% of his or her time to managing the Company’s investments. The other officers and employees, who represented more than 99% of the Company’s total officers and employees as of September 30, 2023, devote substantially all of their time and business efforts at the Company to the Company’s online media and e-commerce businesses and to functions that support those businesses and not to managing investments owned by the Company. These employees were actively engaged in growing the Company’s business and were utilizing the Company’s cash to fund the Company’s business operations.
Sources of Income
The Company’s filings indicate that the results of the Company and the Consolidated Operating Entities are driven by their position as a leading video community for young generations in China, with a rich offering of content, including video services, mobile games and VAS. Substantially all of the Company’s and the Consolidated Operating Entities’ revenue is derived from their offerings of VAS, advertising, mobile games, and intellectual property (“IP”) and other derivative products through its e-commerce platform. Users of the Company’s and the Consolidated Operating Entities’ platforms are charged for certain features and functions, such as live broadcasting, premium membership subscriptions allowing access to premium content, comics and audio content. The Company and the Consolidated Operating Entities also generate revenue from advertising on their platforms. The Company and the Consolidated Operating Entities also generate considerable revenue from the sale of in-game virtual items in its exclusively licensed and jointly published mobile games. Additionally, the Company and the Consolidated Operating Entities generate revenue from the sales of IP and derivative products through its e-commerce platform.
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
December 7, 2023
Page
More than 98 % of the Company’s and each Consolidated Operating Entities’ total revenue for the nine months ended September 30, 2023 was derived from their mobile games, services offered through their video and digital media platforms, advertising on their platforms, sublicensing licensed content and e-commerce sales, and not from investment securities. Similarly, more than 99% of the Company’s and each Consolidated Operating Entities’ expenses for the nine months ended September 30, 2023 were incurred in connection with the provision of products through the Company’s e-commerce platform and the provision of services and virtual items through their online media platforms and mobile games, including through revenue sharing arrangements with mobile game developers, distribution payment channel partners, hosts and content creators; content licensing and production costs; bandwidth costs and employee salaries, benefits and share-based compensation, and not in connection with investment securities.
As detailed in response to comment 2 of the prior letter, the Company’s and the Company Group’s investment securities do not produce a significant percentage of such entities’ income, particularly in light of the current interest rate and market environments and in comparison, to the Company’s operating businesses. For the twelve months ended December 31, 2022 and the nine months ended September 30, 2023, the Company and the Consolidated Operating Entities derived more than 98% of their total income from sources unrelated to investment securities, and more than 99% of their total expenses were incurred from sources unrelated to investment securities.
Nature of Present Assets
The Company’s assets consist of cash, demand deposits, time deposits, receivables, including interest receivables from loans and other intercompany receivables, prepayments, inventories, short-term investments in non-U.S. money market funds and financial products with variable interest rates referenced to performance of underlying assets issued by commercial banks or other financial institutions, equity interests in subsidiaries, strategic investments in publicly traded and private companies and certain pooled investment funds, property and equipment, net production costs, intangible assets such as intellectual property, deferred tax assets, right-to-use assets and goodwill.
As of December 31, 2022, on a consolidated basis, the Company had total assets, exclusive of cash, cash items and government securities, of approximately RMB31,643,183,000 and held investment securities totaling approximately RMB15,146,130,000. Accordingly, on a consolidated basis, investment securities comprised approximately 47.9% of the Company’s total assets, exclusive of cash, cash items and government securities. As of September 30, 2023, the Company had total assets, exclusive of cash, cash items and government securities, of approximately RMB26,087,534,000 and held investment securities totaling approximately RMB11,509,283,000. Accordingly, on a consolidated basis, investment securities comprised approximately 44.1% of the Company’s total assets, exclusive of cash, cash items and government securities.
Division of Corporation Finance
Office of Technology
Securities and Exchange Commission
December 7, 2023
Page
As noted in the Company’s prior response letters, Section 3(a)(1)(C) is calculated on an unconsolidated basis, and on an unconsolidated basis, less than 40% of the Company’s total assets, exclusive of cash, cash items and government securities, consist of investment securities, as of June 30, 2023.
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CORRESP 1 filename1.htm CORRESP Bilibili Inc. Building 3, Guozheng Center, No. 485 Zhengli Road Yangpu District, Shanghai, 200433 People’s Republic of China December 7, 2023 VIA EDGAR Ms. Laura Veator Mr. Stephen Krikorian Division of Corporation Finance Office of Technology Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: Bilibili Inc. (the “Company”) Form 20-F for the Fiscal Year Ended December 31, 2022 Filed April 27, 2023 (File No. 001-38429) Dear Ms. Veator and Mr. Krikorian, This letter sets forth the Company’s responses to the comments contained in the letter dated November 22, 2023 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2022 filed with the Commission on April 27, 2023 (the “2022 Form 20-F”). The Staff’s comments are repeated below in bold and are followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2022 Form 20-F. Form 20-F for the Fiscal Year Ended December 31, 2022 Item 3. Key Information, page 5 1. The Company’s response to prior comment 3 shows that a significant portion of the Company’s total present assets on a consolidated basis consisted of investment securities as of June 30, 2023. • Please provide a detailed legal analysis as to whether the Company is primarily engaged in the business of investing, reinvesting or trading in securities under Section 3(a)(1)(A) of the Investment Company Act of 1940 (the “Act”) when considering the fifth factor under Tonopah, “the nature of the issuer’s present assets.” Please also advise as to the percentage of the Company’s consolidated assets that consist of investment securities as of the fiscal quarter ending September 30, 2023. Division of Corporation Finance Office of Technology Securities and Exchange Commission December 7, 2023 Page 2 Section 3(a)(1)(A) of the Investment Company Act defines the term “investment company” to include any issuer which “is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities” (emphasis added). The determination of an issuer’s primary business engagement requires a fact-specific inquiry. Over the years, the SEC and the courts have developed a number of criteria to be used in determining whether a company is engaged primarily in a non-investment business. The criteria applicable to nearly every situation are: (i) the company’s historical development; (ii) its public representations of policy; (iii) the activities of its officers and directors; (iv) the sources of its present income; and (v) the nature of its present assets (the “Tonopah Factors”).1 Because the Company does not hold itself out to be an investment company, the relevant consideration is whether the Company is “primarily” engaged in the investment business. The following sections analyze the application of the five Tonopah Factors to the Company’s business. Historical Development The Company first launched its website in June 2009, and the Company commenced commercial operations in 2011 as an online video sharing platform. The Company established Shanghai Hode Information Technology Co., Ltd. (“Hode Information Technology”) to expand its operations in May 2013. In December 2013, Bilibili Inc. was incorporated in the Cayman Islands to serve as the Company group’s ultimate holding company. In February 2014, the Company established Hode HK Limited (“Hode HK”), a wholly-owned Hong Kong subsidiary, and in September 2014, Hode HK established a wholly-owned PRC subsidiary, Hode Shanghai Limited (“Hode Shanghai”). Hode Shanghai then entered into a series of contractual arrangements with each of its variable interest entities (“VIEs”), Hode Information Technology and Shanghai Kuanyu Digital Technology Co., Ltd. (“Shanghai Kuanyu”), and their respective shareholders. Chaodian HK Limited (“Chaodian HK”), a wholly-owned subsidiary of Bilibili Inc., was established in 2019. Chaodian HK’s wholly-owned subsidiary, Chaodian Shanghai Technology Co., Ltd. (“Chaodian Technology”), subsequently entered into a series of contractual arrangements with Shanghai Chaodian Culture Communication Co., Ltd. (“Chaodian Culture”) and its shareholders pursuant to which Chaodian Technology became the sole beneficiary of, and gained control of, Chaodian Culture. American Depositary Shares (“ADS”) representing the Company’s Class Z ordinary shares commenced trading on the Nasdaq Global Select Market under the symbol “BILI” on March 28, 2018. The Company is a holding company that currently conducts its business in China mainly through (i) Hode HK and its subsidiaries, Shanghai Bilibili Technology Co., Ltd. (“Bilibili Technology”) and Hode Shanghai, and the VIEs, Shanghai Kuanyu and Hode Information Technology, and its subsidiaries and (ii) Chaodian HK and its subsidiary, Chaodian Technology, and the VIE, Chaodian Culture. Through its subsidiaries, the VIEs and their subsidiaries (“Consolidated Operating Entities”), the Company offers a leading online video platform as well as mobile games and anime, comic and audio platforms. 1 Tonopah Mining Co. of Nev., 26 S.E.C. 426, 427 (1947); Certain Prima Facie Inv. Cos., Investment Company Act Release No. IC-10937, 18 S.E.C. Docket 948 (1979). Division of Corporation Finance Office of Technology Securities and Exchange Commission December 7, 2023 Page 3 The Company and the Consolidated Operating Entities maintain significant intellectual property with respect to its primary business of providing internet cultural activities and information services related to the distribution of online games. For example, as of September 30, 2023, the Company and the Consolidated Operating Entities have registered approximately 1,203 patents, 2,639 copyrights, 355 domain names including www.bilibili.com and 8,564 trademarks. The Company and the Consolidated Operating Entities have submitted approximately 2,116 additional patent applications and 409 trademark applications as of September 30, 2023. While such internally developed intellectual property is not reflected on the Company’s balance sheet in accordance with GAAP, the Company believes such intellectual property has significant value. The Company’s and the Consolidated Operating Entities’ devotion to their business of providing internet cultural activities and information services related to the distribution of online games is demonstrated by the fact that substantially all of their revenue is derived from their offerings of value added services (the “VAS”) such as premium subscriptions, live broadcasting, anime and comics and audio drama content; mobile games; advertising and e-commerce through the Consolidated Operating Entities, and not from investment securities. Similarly, substantially all of the expenses the Company and the Consolidated Operating Entities incur in the ordinary course of their business are incurred in connection with the operation of its online video, media and e-commerce platforms, and not in connection with investment securities. For the period ended September 30, 2023, the Company and the Consolidated Operating Entities neither derived significant revenue nor incurred significant expenses in connection with investment securities. Public Representations The Company has never held itself or any of the Consolidated Operating Entities out to the public (or to investors) as an investment company. The Company and the Consolidated Operating Entities were organized for the purpose of, and since the Company became a public reporting company in the United States in 2018 have always stated that their business purpose is, providing internet cultural activities and information services related to the distribution of online games through subsidiaries and relevant Consolidated Operating Entities. The Company believes that the price of the Company’s ADSs may be affected by a number of factors, including, but not limited to, the following: (i) the Company’s results of operations and financial conditions; (ii) the Company’s strategies and future business development; (iii) the Company’s ability to retain and increase the number of users, members and advertising customers; provide quality content, products and services; and expand its product and service offerings; (iv) competition in the online entertainment industry; (v) the Company’s ability to maintain its culture and brand image within its addressable user communities; (vi) the Company’s ability to manage its costs and expenses; (vii) PRC governmental policies and regulations relating to the online entertainment industry; (viii) general economic and business conditions globally and in China; and (ix) assumptions underlying or related to any of the foregoing. Further information regarding these and other factors that could affect the price of the Company’s ADSs is disclosed in the 2022 Form 20-F. The Company does not believe the price of the Company’s ADSs will move in response to changes in its investment income or the composition of its investment holdings. Moreover, neither the Company nor any of the Consolidated Operating Entities devote any attention to nor has the Company disclosed its or the Consolidated Operating Entities’ financial management or securities activities on its website or in its public documents except as required by law. Division of Corporation Finance Office of Technology Securities and Exchange Commission December 7, 2023 Page 4 Directors, Officers and Employees The business activities of the Company’s and the Consolidated Operating Entities’ directors, officers and employees historically have been devoted almost exclusively to its business of providing internet cultural activities and information services related to the distribution of online games in China, including the governance and operational activities involved in supporting that business. As of September 30, 2023, the Company and the Consolidated Operating Entities had approximately 10,000 employees, only 5 of whom were actively involved in managing the Company’s investments. It is estimated that none of these persons devote more than 50% of his or her time to managing the Company’s investments. The other officers and employees, who represented more than 99% of the Company’s total officers and employees as of September 30, 2023, devote substantially all of their time and business efforts at the Company to the Company’s online media and e-commerce businesses and to functions that support those businesses and not to managing investments owned by the Company. These employees were actively engaged in growing the Company’s business and were utilizing the Company’s cash to fund the Company’s business operations. Sources of Income The Company’s filings indicate that the results of the Company and the Consolidated Operating Entities are driven by their position as a leading video community for young generations in China, with a rich offering of content, including video services, mobile games and VAS. Substantially all of the Company’s and the Consolidated Operating Entities’ revenue is derived from their offerings of VAS, advertising, mobile games, and intellectual property (“IP”) and other derivative products through its e-commerce platform. Users of the Company’s and the Consolidated Operating Entities’ platforms are charged for certain features and functions, such as live broadcasting, premium membership subscriptions allowing access to premium content, comics and audio content. The Company and the Consolidated Operating Entities also generate revenue from advertising on their platforms. The Company and the Consolidated Operating Entities also generate considerable revenue from the sale of in-game virtual items in its exclusively licensed and jointly published mobile games. Additionally, the Company and the Consolidated Operating Entities generate revenue from the sales of IP and derivative products through its e-commerce platform. Division of Corporation Finance Office of Technology Securities and Exchange Commission December 7, 2023 Page 5 More than 98 % of the Company’s and each Consolidated Operating Entities’ total revenue for the nine months ended September 30, 2023 was derived from their mobile games, services offered through their video and digital media platforms, advertising on their platforms, sublicensing licensed content and e-commerce sales, and not from investment securities. Similarly, more than 99% of the Company’s and each Consolidated Operating Entities’ expenses for the nine months ended September 30, 2023 were incurred in connection with the provision of products through the Company’s e-commerce platform and the provision of services and virtual items through their online media platforms and mobile games, including through revenue sharing arrangements with mobile game developers, distribution payment channel partners, hosts and content creators; content licensing and production costs; bandwidth costs and employee salaries, benefits and share-based compensation, and not in connection with investment securities. As detailed in response to comment 2 of the prior letter, the Company’s and the Company Group’s investment securities do not produce a significant percentage of such entities’ income, particularly in light of the current interest rate and market environments and in comparison, to the Company’s operating businesses. For the twelve months ended December 31, 2022 and the nine months ended September 30, 2023, the Company and the Consolidated Operating Entities derived more than 98% of their total income from sources unrelated to investment securities, and more than 99% of their total expenses were incurred from sources unrelated to investment securities. Nature of Present Assets The Company’s assets consist of cash, demand deposits, time deposits, receivables, including interest receivables from loans and other intercompany receivables, prepayments, inventories, short-term investments in non-U.S. money market funds and financial products with variable interest rates referenced to performance of underlying assets issued by commercial banks or other financial institutions, equity interests in subsidiaries, strategic investments in publicly traded and private companies and certain pooled investment funds, property and equipment, net production costs, intangible assets such as intellectual property, deferred tax assets, right-to-use assets and goodwill. As of December 31, 2022, on a consolidated basis, the Company had total assets, exclusive of cash, cash items and government securities, of approximately RMB31,643,183,000 and held investment securities totaling approximately RMB15,146,130,000. Accordingly, on a consolidated basis, investment securities comprised approximately 47.9% of the Company’s total assets, exclusive of cash, cash items and government securities. As of September 30, 2023, the Company had total assets, exclusive of cash, cash items and government securities, of approximately RMB26,087,534,000 and held investment securities totaling approximately RMB11,509,283,000. Accordingly, on a consolidated basis, investment securities comprised approximately 44.1% of the Company’s total assets, exclusive of cash, cash items and government securities. Division of Corporation Finance Office of Technology Securities and Exchange Commission December 7, 2023 Page 6 As noted in the Company’s prior response letters, Section 3(a)(1)(C) is calculated on an unconsolidated basis, and on an unconsolidated basis, less than 40% of the Company’s total assets, exclusive of cash, cash items and government securities, consist of investment securities, as of June 30, 2023.