Bilibili Earnings: Management Cuts Revenue Outlook, but Maintains Breakeven Timeline

No-moat Bilibili’s BILI second-quarter earnings slightly exceeded our and Refinitiv’s consensus expectations, but management lowered its full-year revenue guidance by 8% due to a delay in the launch of Pretty Derby. That said, with the firm keeping its breakeven timeline unchanged, we see no reason to alter our long-term assumptions. Overall, we maintain our $38.20 fair value estimate. While Bilibili’s shares are undervalued, our preferred picks remain NetEase and Tencent, given their better visibility on long-term prospects.

In the second quarter, average daily time spent reached an all-time high of 94 minutes while total time spent increased by 22% year on year, underscoring the increasing stickiness of the video platform. But despite capturing an increasing share of user time spent, total revenue was sluggish, growing just 8%, as the mobile games recorded a 15% drop in sales. This was again due to the combination of a lack of new game releases and declining revenue from older titles. Management lowered full-year sales guidance by 8% following a delay in the launch of Pretty Derby, but we view it as a timing issue and expect revenue to catch up after the game launches on Aug. 30.

Bilibili’s advertising business continues to outperform in the second quarter, with revenue up 36% year over year. Management remained upbeat on near-term sales trends, and it is confident that it can grow revenue per user in the second half of 2023. In our view, advertising will be the primary growth driver for Bilibili going into the next five years. We believe that incremental growth will be backed by three main drivers: 1) increasing ad loads from the current 5% to the 20% that we see at Douyin and YouTube; 2) introducing pre-roll ads on user-generated content; and 3) rising advertising take rate from the current 5% to 30%-plus charged by peers. By 2027, we expect the firm to generate an annual advertising revenue of CNY 52 per monthly active user, more than triple that of the 2022 level.