Nomura: Bilibili should not be the "next Red" of Xiaohongshu

On Thursday, August 22, Nomura Group released a report stating that due to the increasingly strong gaming and advertising businesses, they believe that Bilibili's financial prospects are brighter than Xiaohongshu, and Bilibili should not be a "replacement" for Xiaohongshu.

As the top two choices for young people in China, both Bilibili and Xiaohongshu (unlisted) are vibrant and have high user loyalty. According to Nikkei News, Xiaohongshu is currently valued at $17 billion, Nomura Group estimates that this means a valuation of $147 per daily active user (DAU) for Xiaohongshu, while Bilibili's valuation per daily active user is $61.

However, Nomura Group believes that the situation where Bilibili's valuation per daily active user is significantly lower than Xiaohongshu's is no longer reasonable, as Bilibili's gaming and advertising businesses are thriving. Currently, Nomura Group has raised Bilibili's target price based on the discounted cash flow (DCF) model from $14 to $18, and upgraded its rating from "Neutral" to "Buy".

Bilibili's New Game "Three Kingdoms: Strategy to Rule the World" May Continue to be Popular

In mid-June, Bilibili launched the strategy mobile game "Three Kingdoms: Strategy to Rule the World". According to SensorTower's data, "Three Kingdoms: Strategy to Rule the World" had a strong debut, with monthly gross profit potentially exceeding 1 billion RMB. According to QuestMobile's data, "Three Kingdoms: Strategy to Rule the World" continued to perform well two months after its release.

This has led Nomura Group to believe that the popularity of "Three Kingdoms: Strategy to Rule the World" may continue for a long time. Nomura Group stated:

The success of "Three Kingdoms: Strategy to Rule the World" has boosted the prospects of Bilibili's gaming business. We have raised our expected game revenue for Bilibili's fiscal years 2024 and 2025 by 25% and 14%, compared to the previous expectations of -2% and 0%.

Great Potential in Bilibili's Advertising Business

Since last year, Bilibili's advertising business has been growing, outperforming its peers, with year-on-year growth rates of 20%-30% in the past few quarters. Its large and highly engaged young user base has helped Bilibili make money in gaming, e-commerce, and fast-moving consumer goods, with advertising currently accounting for one-third of Bilibili's revenue.

According to Nomura Group's estimates, the advertising revenue per daily active user for Bilibili in fiscal year 2024 is 79 RMB, while for Kuaishou it is 181 RMB per daily active user

As Bilibili has also entered the live e-commerce field since last year, Nomura Group believes that the gap between Bilibili and Kuaishou is likely to narrow. Nomura Group stated:

We have raised our revenue forecasts for Bilibili for the fiscal years 2024 and 2025 by 4% and 6% respectively, mainly due to our higher expectations for Bilibili's online gaming business, leading us to expect that Bilibili's non-GAAP operating profit margin will increase by 1 and 2.5 percentage points