Can this Chinese tech share reclaim its heights?
In the past, Bilibili (NASDAQ: BILI) emerged as a star player in China’s stock market. This Chinese conglomerate, known for its gaming, streaming, and e-commerce services, reached its zenith at $156.37 on Feb. 10, 2021. This was an impressive surge of 1,260% from its IPO price of $11.50 in 2018. Its rapid ascent was attributed to its stronghold among the Chinese Gen Z, especially those keen on anime, comics, and games. This surge was further amplified during the growth and meme stock craze.
However, Bilibili’s present trading price is a mere $19. Factors such as China’s economic downturn, tighter gaming regulations, sporadic COVID-19 restrictions, and more have stunted its growth. Concerns around rising interest rates and possible delisting of U.S.-listed Chinese stocks further eroded its appeal among American investors.
Is it then time to consider Bilibili as a potential investment? Let’s dive deeper into its performance metrics to gauge its one-year trajectory.
When Growth Stagnates
As of Q1 2023, Bilibili reported 315.2 million MAUs and 93.7 million DAUs. However, these metrics and its overall revenue have seen a noticeable slowdown over recent years.
Breaking down its last year’s revenue: 40% was from value-added services like subscriptions and virtual gifts, 23% from mobile games, another 23% from advertisements, and 14% from its e-commerce platform, which collaborates closely with giants like Alibaba, JD.com, and Pinduoduo. All these sectors have, however, been lagging since 2020.
Tighter regulations on gaming and a deliberate slowdown in game approvals affected Bilibili’s mobile gaming segment in 2021 and 2022. Its VAS faced challenges due to increased scrutiny of live streaming platforms and stiff competition from platforms like ByteDance’s Douyin (TikTok globally).
The company’s advertising and e-commerce verticals suffered due to economic fluctuations and COVID-19 restrictions. While its advertising segment showed promising growth in Q1 2023, the other three sectors remain under pressure from various external challenges.
Yet, there’s a glimmer of hope. Bilibili anticipates its revenue to increase by 10%-19% this year, banking on a post-pandemic economic rebound. Analysts, however, predict a more conservative revenue growth at 24.2 billion yuan ($3.4 billion).
Sustainability Concerns
Despite its growth, Bilibili has operated in the red since its IPO. Its losses have been consistently increasing, a concerning trend, especially when revenue growth is tapering.
Analysts project Bilibili might trim its net loss to 3.8 billion yuan ($530 million) this year. However, they anticipate its unprofitable streak to continue until at least 2025. Its high debt-to-equity ratio of 1.3 is also a concern. Nevertheless, immediate fundraising isn’t a pressing issue with 19.4 billion yuan ($2.8 billion) in reserves.
Bilibili in 12 Months?
While Bilibili’s current valuation seems attractive at approximately two times this year’s sales, it mirrors its challenges. If Beijing adopts a pro-business stance and Washington eases off delisting threats, it could provide some relief. But with intense domestic competition in gaming, advertising, and e-commerce, it’s a tough road ahead. Given these circumstances, with giants like Alibaba, JD, and Pinduoduo available at discounted rates, Bilibili may not provide substantial returns in the coming year.
Bilibili’s journey reflects the intricate dance of rapid growth, regulatory hurdles, and intense competition in the ever-evolving landscape of Chinese tech stocks. While the company has shown moments of promise, its immediate future is shrouded in uncertainties that even seasoned investors might find challenging to navigate. For those considering diving into the Chinese tech sector, it’s crucial to weigh potential risks against rewards and perhaps cast a wider net, looking beyond just Bilibili to more stable and profitable leaders in the market.
