Crazy sell-off! What did Bilibili do wrong again?

The first quarter report of $Barnes(B.US)ilibili.US basically meets expectations when looking at Q1 performance alone, but the recent rise in stock price implies that the market has higher expectations for the company's reduced losses in the upcoming games, advertising, and group operations. The significant drop after the financial report may be due to the conference call not being "better than expected," leading some funds to choose to take profits.

In simple terms, Bilibili is still mainly questioned in the medium to long term, and the first quarter report itself does not dispel these doubts. The significant fluctuations in stock price before and after the financial report, unrelated to Q1 performance, are more likely due to some funds trading around short-term valuations, causing price volatility. Funds skeptical of Bilibili's long-term profitability will not buy in based on this short-term performance, and likewise, funds willing to hold Bilibili for long-term value investment do not have enough reasons to sell based on the first quarter report.

Specifically:

1. Stable User Ecosystem: After steadily reaching 300 million users, Bilibili's user growth rate began to gradually slow down. In the first quarter, during the peak season for user acquisition, MAU increased by 5.5 million compared to the previous period, and the DAU of 102 million may no longer be as good as Xiaohongshu.

Overall user stickiness has slightly improved. DAU/MAU ratio has slightly increased, with daily user engagement reaching a new high of 108 minutes/day, and the penetration rate of official members has further increased.

2. Loss reduction slightly exceeds expectations, expected to break even in the third quarter: Overall revenue in the first quarter basically met expectations, but there were discrepancies within the business segments, with advertising performing well and games continuing to lag. The reduction in losses was mainly driven by high-margin advertising, slightly exceeding expectations. However, this slight improvement is not significant enough to be considered a strong positive.

During the conference call, Bilibili provided guidance on the profit and loss situation for Q2 and Q3, indicating that the Non-GAAP operating margin loss in the second quarter will decrease to 5-6%, slightly worse than market expectations, mainly due to higher marketing expenses, while revenue, gross margin, and other operating expenses are relatively stable.

The expectation is for a break-even in the third quarter, but the key question is what ideal profit margin can be achieved in the medium to long term. There are still voices of skepticism in the market. Through model analysis, regardless of the break-even in the third quarter or the subsequent improvement in profit margins, Bilibili will still rely more on Topline expansion, with limited room for cost reduction. In the absence of a sudden hit game, the expected profit margin in the medium to long term is around 12% to 15%, lower than other social platforms but higher than current levels of long video platforms like iQiyi.

With the early growth dividend of live streaming coming to an end and the pressure of declining trends in IP e-commerce, the growth in games and advertising becomes particularly important. In the short term, Dolphin Jun is not worried about advertising but will pay more attention to the game situation. 3. Accelerated Commercialization of the Platform: Advertising revenue in the first quarter increased by 31%, with both volume and price seeing improvements. The increase in volume (inventory/loading rate) was the main driving force. This is something that regular users of Bilibili can actually perceive. Whether it's the homepage splash screen, the fill-in positions on the recommendation page, the short video ads on Storymode, or the frequency of Up main hosts accepting ads, there has been a noticeable improvement.

The second quarter is the peak season for e-commerce, and with a cluster of summer games, the company expects Q2 advertising revenue to maintain a growth of 25%-30% on a high base, slightly higher than market expectations. Dolphin believes that the short-term strong commercialization of Bilibili, or the reason why ad inventory with relatively low conversion rates can still attract advertisers, is due to the platform's unique positioning and the "fisherman" dividend in the fiercely competitive gaming and e-commerce industries.

4. Gaming Performance in Q3 is Crucial: Gaming revenue in the first quarter was not good, declining by 13% year-on-year, weaker than market expectations. Bilibili did not release many new games in the first quarter, mainly relying on the old game FGO. In April of the second quarter, a self-published card game was released, but overall gaming revenue is still expected to be mainly driven by FGO during the 7th anniversary event in May, with the company forecasting a slight recovery in gaming revenue of 0-5% in the second quarter, relatively better than the market's expectation of a low single-digit decline.

However, the current focus of the market is on "Three Kingdoms: Fate Determined." This is a decent quality Three Kingdoms SLG mobile game with its own IP and pay-to-win attributes. Looking at the performance of previous Three Kingdoms SLG mobile games in the industry, regardless of the product lifecycle, short-term revenue is not bad. For example, "Edge of the Land" and "Three Kingdoms Strategic Edition" both achieved annual revenue of 5-10 billion in the early stages of launch. Even after many years of operation, they still generate 3-5 billion. Slightly lower, the "Three Kingdoms 2017" which has been in operation for 7 years now also generates an annual revenue of 500 million to 1 billion.

The target players of Three Kingdoms SLG mobile games happen to highly overlap with Bilibili users. Therefore, in addition to "Blazing Empyrean," Dolphin predicts that after a slight recovery in the second quarter, gaming revenue in the third quarter is expected to see a growth of over 30%. As for whether this game can become a major contributor to Bilibili's gaming revenue in the medium to long term, this still needs further observation. At least past experience indicates that Bilibili does not have an advantage in the long-term operation of self-developed games.

5. Stable Value-added Payments: Live broadcast + premium membership subscription revenue increased by 17% year-on-year in the first quarter, basically maintaining a stable growth trend. However, due to the gradual end of the early growth dividend in live broadcasting, the growth rate has slowed compared to the previous quarter. Premium membership revenue remains stable, mainly because the number of members has basically stopped increasing, a common issue in the long video industry. However, compared to the gradual loss of subscribers in iQIYI, Bilibili, which originally had an advantage in the secondary anime category, has also seen a gradual slowdown to stagnation in value-added payments after adjusting its rules for Japanese anime updates 6. Convertible bonds redemption cost $400 million: As of the end of the first quarter, Bilibili had RMB 12.9 billion in cash, deposits, and short-term investments on its books, short-term debt of RMB 4.9 billion, and net cash of RMB 8 billion. The company spent $430 million to repurchase convertible bond notes due in April 2026, with the remaining unredeemed amount of $430 million. Currently, the cash on hand can meet the redemption pressure.

Although Bilibili has not been profitable, a significant portion of its cost expenses are non-cash outflows such as depreciation and amortization expenses. From a cash flow perspective, operating cash flow remains positive and does not pose a burden on cash flow.

7. Performance indicators overview

Dolphin's Viewpoint

Bilibili's profitability depends on monetization. Further absolute reduction in cost expenses has limited significance, at least for medium to long-term profit improvement. As shown in the chart below, defined by Dolphin in a previous article on Bilibili vs Kuaishou, the user maintenance cost (sales expenses, excluding game revenue sharing costs, content costs) and direct monetization (advertising and value-added service revenue) are two key indicators. In recent years, Bilibili's platform maintenance costs have not seen much optimization, and the effect of reducing losses is more dependent on increased direct monetization.

Regarding management execution issues, Dolphin has discussed this extensively in the past, and this time there will be no further evaluation. However, we also know that this is precisely a key reason why many investors cannot see Bilibili's long-term profitability clearly.

Although Bilibili's stock price has been very volatile recently, whether it is the Q1 performance or the expected release of "Three-Body Problem," it is driven by short-term market sentiment and marginal expectations, rather than a change in the underlying long-term logic. Especially in terms of Bilibili's monetization capabilities, skeptics will continue to question, while optimists will remain optimistic.

Therefore, short-term trading based on valuation may be the best strategy. Based on a 25-year performance expectation, the current market value of $5.6 billion implies a forward P/Non-GAAP NP of around 25x, as the full-year profit just turned positive in 2025, making this valuation relatively neutral in the short term If we calculate based on a mid- to long-term non-GAAP net profit margin of 12-15%, implying around 15x, the horizontal comparison is also within a reasonable range. If it falls too much later, you can speculate on a rebound, and if it rises too much, it is advisable to avoid it in time.

Dolphin Jun roughly calculated that institutional expectations for "Three Plans" annual revenue are estimated to be around 10-15 billion. This revenue expectation may not be particularly exaggerated. If "Three Plans" exceeds expectations, for example, by an additional 500 million, due to the low marginal cost, it is expected to stimulate short-term valuation by around 5-10%. It is recommended to pay attention to the initial performance of "Three Plans" online to make some simple predictions.

In addition, from a mid- to long-term perspective, Dolphin Jun believes that there is still room for Bilibili's commercialization. Xiaohongshu achieved a total revenue of 3.7 billion U.S. dollars in 2023, surpassing Bilibili, with the vast majority likely coming from advertising revenue. In comparison, Bilibili's advertising revenue is only one-third of Xiaohongshu's. As a platform with a similar user base, this indeed indicates that Bilibili's commercialization has been quite poor. Although Bilibili lags behind Xiaohongshu in terms of female user proportion, community operations, and management execution, Bilibili has not lost its user mindset and platform style—PUGC mid- to long-form videos, which are expected to hold their ground in a stage where there is no longer a traffic dividend.

In conclusion, despite the lack of management capabilities, Bilibili is not a completely hopeless platform, so when the valuation gives up more safety margin, you can also try to go long, rather than a platform that is completely unattractive for investment.

Detailed Analysis Below

I. Steady Customer Acquisition, Slight Improvement in User Stickiness

The number of monthly active users increased seasonally quarter-on-quarter in the first quarter, and user stickiness DAU/MAU slightly increased. In addition to being the peak season for winter vacation, there may also be factors related to marketing and customer acquisition (Q1 sales expenses returning to growth).

Specific user data:

1. In the first quarter, Bilibili's overall monthly active users (App, PC, TV, etc.) reached 342 million, an 8% year-on-year increase, with a seasonal quarter-on-quarter return of 5.5 million.

1. The stickiness of existing users also saw a certain improvement, with DAU/MAU increasing to 30%. The average daily user duration reached 105 minutes, hitting a historical high. DAU in the first quarter was 102.4 million, an increase of 2.3 million quarter-on-quarter.

II. Accelerated Platform Commercialization

In the first quarter, Bilibili's advertising revenue was 1.67 billion, a 31% year-on-year increase, accelerating quarter-on-quarter, slightly exceeding market expectations. Mainly benefiting from the increase in the loading rate of performance ads, with games, digital electronics, e-commerce platforms, automobiles, and beauty being the top five verticals. **

Currently, Bilibili's commercialization is still in the early to middle stage, so its growth rate is significantly higher than the industry average. The second quarter is the peak season for e-commerce, and with a cluster of summer games, the company expects Q2 advertising revenue to maintain a growth of 25% to 30% over a high base, slightly higher than market expectations. The Dolphin believes that the short-term strength of Bilibili's commercialization, or the reason why advertising inventory with relatively low conversion rates can still attract advertisers, is due to the platform's unique positioning and the "fisherman" dividend in the fiercely competitive gaming and e-commerce industries.

As we enter this year, the low base dividend will gradually diminish, but the loading rate is still not high compared to similar platforms (excluding content marketing ads placed by up-and-coming creators on fireworks). The company believes that future growth will mainly rely on continuing to improve platform loading rates and the overall eCPM enhancement from StoryMode ads.

In addition, the company also believes that there will still be competition among e-commerce platforms this year, so the demand for external traffic acquisition remains. For example, the cooperation between Pinduoduo and Bilibili is relatively deep. On the Bilibili homepage, the 3rd/4th fixed video positions are occupied by Pinduoduo ads.

However, the revenue contribution from fireworks ads (content marketing videos) taken by up-and-coming creators is limited as Bilibili only takes 5% of them. The effect ads in the public domain recommendation pool, fixed fill-in brand ads, event sponsorships, etc., are the main pillars of Bilibili's advertising revenue. Currently, Bilibili's public domain recommendation pool ad loading rate is around 7-8%, with room for improvement compared to other platforms that often exceed 10% loading rates.

For users themselves, both public domain ads and up-and-coming creators' private domain ads are traces of platform commercialization. If simply benchmarked against the 10% or more public domain loading rates of other platforms, user experience will inevitably be affected. Moreover, TikTok, which has always had heavy commercialization traces, has faced many complaints and resistance from ordinary users after increasing content marketing private domain ads for bloggers.

Therefore, simply increasing advertising inventory is not a long-term solution. Improving ROI through more accurate recommendation algorithms to enhance advertising conversion and achieve more effective pricing is the key. This is an area where Bilibili has consistently been relatively lacking, and whether AI can make up for this deficiency is worth further attention.

III. Gaming underperforms, focus on Q3

The drag on the full-year 2023 gaming performance continues in the first quarter, with a continued year-on-year decline of 13%, mainly due to no new games released in Q1. Among existing products, games launched last year ("Slude", "Lightshake Record: Princess of Chaos", "Millennium Journey") did not perform well, while the old game FGO saw a significant recovery in revenue due to its 7th anniversary event This provides some support for the second-quarter games, coupled with the company's self-published card game "Wu Hua Mi Xin", the company expects Q2 game revenue to return to low single-digit growth.

Deferred revenue increased by 1.1% on a quarter-on-quarter basis and grew by 9.4% year-on-year, showing a certain acceleration compared to Q4, mainly driven by the pre-sales revenue brought by FGO's anniversary celebration according to third-party revenue monitoring data.

Specifically looking at the pipeline, the main focus in the third quarter will be on two self-published games "Three Kingdoms: The World Conquest" (with over 2 million reservations), "Blazing Domains", and a collaborative game "Zero Zone" (miHoYo).

Fourth, stable value-added services

In the first quarter, value-added services grew by 17% year-on-year, but the growth rate has slowed compared to the previous quarter. In detail:

The penetration rate of live streaming continues to rise, deepening the linkage with normal PUGC content.

The impact previously faced by the Bilibili VIP business due to Japanese anime quotas, update pace, and content restrictions has gradually been digested, passing through the base period. In the first quarter, Bilibili VIP membership reached 21.9 million, flat quarter-on-quarter, with a payment rate of 6.4%, and the renewal rate of annual members reached 80%, maintaining stability but showing a trend of difficulty in further growth.

Fifth, the loss reduction slightly exceeded expectations, and the profit and loss in the third quarter can break even

In the first quarter, Bilibili's operating loss was 820 million, with a loss rate of 14.5%, showing a significant improvement compared to the previous quarter (due to a one-time short-term deterioration in compensation for layoffs) in line with the optimization trend of the previous four quarters.

Adjusted SBC and some depreciation expenses' Non-GAAP OPM continued to reduce losses to -9.8% quarter-on-quarter, slightly better than market expectations, with the expectation difference mainly coming from gross profit margin The gross profit margin in the first quarter increased by 2 percentage points compared to the previous quarter, reaching 28.3%. Apart from the increase in revenue sharing costs, other costs such as bandwidth and content costs saw a significant year-on-year decrease. At the same time, there was a 12% year-on-year growth in revenue, leading to a substantial improvement in gross profit margin (+6.5 percentage points).

The increase in revenue sharing costs is mainly related to the growth in live streaming rewards income. The revenue sharing costs increased by 13% year-on-year in the first quarter.

In terms of operating expenses, marketing expenses increased significantly in the first quarter, while administrative expenses and research and development expenses declined as expected. As mentioned in the previous quarter's review, excessive compression of marketing expenses had an impact on customer acquisition. Therefore, the increase in user numbers in the first quarter is also related to the year-on-year growth in current sales expenses.

The research and development expenses are in line with expectations and show continued optimization. Looking at the stock incentive expenses in Q4, the stock incentives for R&D personnel decreased by 8% compared to the previous quarter, corresponding to the layoffs in the self-developed team in Guangzhou at the beginning of the year. Therefore, this optimization trend will continue to be reflected throughout the year.

Dolphin Research on "Bilibili" Historical Articles:

Earnings Season (Showing the past year)

March 8, 2024 Conference Call "Bilibili: Confident in High Growth in Advertising (4Q23 Conference Call Summary)"

March 7, 2024 Earnings Review "Bilibili: Facing Reality, Self-developed for Survival"2023 年 11 月 30 日电话会《Game Execution Differentiation Strategy (Bilibili 3Q23 Conference Call Summary)》

2023 年 11 月 29 日财报点评《Bilibili: Confidence in King of Mediocrity, Confidence is Being Worn Out》

2023 年 8 月 17 日电话会《Confident in Continued High Growth in Live Streaming and Advertising (B Station 2Q23 Performance Conference Call)》

2023 年 8 月 17 日财报点评《Bilibili: Can Advertising Save the Small Broken Station? Not That Easy!》

2023 年 6 月 1 日电话会《B Station Management: Many Misunderstandings from the Market (1Q23 Conference Call Summary)》

2023 年 6 月 1 日财报点评《Bilibili: The "Stunted Growth" Small Broken Station》

2023 年 3 月 3 日电话会《Costs Decrease Absolutely, New Games to be Launched Intensively in the Second Quarter (B Station Conference Call Summary)》

2023 年 3 月 3 日财报点评《B Station Needs a "iQIYI-style" Blood Transfusion》

2022 年 11 月 29 日电话会《B Station: Will Not Easily Do Patch Ads, Firmly Focus on Gaming as the Company's Main Business (3Q22 Conference Call Summary)》

2022 年 11 月 29 日财报点评《B Station's Turning Point in Operations Approaching? Still Need to Take "Strong Medicine" to Break Doubts》2022 September 9th Conference Call "Importance of Commercialization in Alignment with Ecological Community Development (2Q22 Conference Call Summary)" on Longbridge App"

2022 September 8th Financial Report Review "Internal worries plus external difficulties, B Station is suffering from an 'illness' that is hard to cure" on Longbridge App"

2022 June 9th Conference Call "B Station: Ecological Operation in Good Condition, Turning Point in Loss Reduction Expected in the Third Quarter (Conference Call Summary)" on Longbridge App"

2022 June 9th Financial Report Review "Is the festive B Station going back to its original state?" on Longbridge App"

2022 March 4th Conference Call "B Station's 'Want, Need, and Must': Wanting advertisements, generating revenue, increasing users, while also reducing costs" on Longbridge App"

2022 March 3rd Financial Report Review "Answering questions calmly leads to a rise? B Station's faith comes from Ruidi" on Longbridge App"

In-depth

2023 January 6th "Entertainment 'Opening Red', Tencent, B Station, whose rebound is more sustainable?" on Longport App"

2022 June 15th "Both suffering from 'blood loss' giant baby syndrome, can Kuaishou and B Station recover?" on Longbridge App"

2021 March 22nd "Falling in value while remarrying, is B Station a trap or an opportunity?" on Longbridge App"

2021 March 12th "Dolphin Research | B Station Series II: Regarding making a living, can B Station really avoid ad inserts forever?" on Longbridge App"

2021 March 9th "Dolphin Research | How far is B Station from Ruidi's four hundred million user pie?" on Longbridge App"

Hot Topics

2021 December 14th "The carnival is over, back to being a small broken station? B Station needs 'ad inserts'!" on Longbridge App" July 27, 2021 "B Station, Z Era User Social Platform, Still Scarce"

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