Bilibili Earnings: Management Maintains 2023 Guidance and Reaffirms Margin Expansion Initiative

No-moat Bilibili’s BILI first-quarter earnings mildly exceeded our and Refinitiv’s consensus expectations, and management maintained its 2023 revenue guidance and reaffirmed its margin expansion plan. Overall, we are maintaining our $38.20 fair value estimate, and we continue to believe shares are undervalued. We believe the current market valuation (price to 2023 sales multiple of 2 times) indicates that the market underestimates 1) long-term ad revenue contribution from the video-sharing platform and 2) more operating leverage as the top line grows.

In the first quarter of 2013, user time spent on Bilibili increased 19% year over year, underscoring the stickiness of its video platform. Total revenue came in flat year over year, as strong advertising revenue was offset by weak sales at mobile games and e-commerce segments. We remain optimistic about the near-term outlook of Bilibili’s advertising business amid the reopening of the Chinese economy coupled with low base effects. This segment grew 22% year over year in the first quarter, and management expects growth to accelerate in the second quarter.

The mobile games segment saw a 17% sales decline in the first quarter, resulting from a lack of game releases and the declining popularity of legacy games. But with 13 titles (eight domestic and five overseas) set to launch, segment revenue should rebound starting in the third quarter of this year.

The value-added services segment saw just 5% growth in revenue, driven primarily by the increased popularity of Bilibili’s live-streaming services. Since these features are built into Bilibili’s video platform, they piggyback off the platform network effect. As long as more people spend time on Bilibili’s platform, the revenue from this segment should continue to increase.

Revenue from e-commerce and others was down 15% as the company continued to cut down low-margin businesses, such as e-sports content sublicensing revenue business and certain low-margin e-commerce businesses.