BILI: Sell-Down Scare, Margin Erosion? Games to the Rescue!

After the Hong Kong close on May 19 Beijing time, $Bilibili(BILI.US) reported Q1 2026 results. Ads again did the heavy lifting across segments, with the print broadly in line with expectations.

In detail:

1. Ads remain in a clear upswing: Q1 ad revenue rose 30% YoY, a small beat even against a weak industry backdrop. Benefiting from strength in AI and gaming verticals and robust competition, Bilibili captured notable tailwinds.

This high-growth phase should persist for a while as sector momentum and competition stay elevated. At the same time, the platform still has room to raise ad load.

2. User growth slowed but engagement improved: MAUs rose by 10 mn QoQ to 376 mn, basically back to last year's Q3 level rather than setting a new seasonal high, which is a blemish. The timing of the Lunar New Year and winter break may have played a role, to be clarified on the call.

Engagement kept edging higher YoY, with DAU/MAU at 30.6% and avg. daily time hitting a record 119 minutes. QM data suggest total time spent growth in Jan. rebounded slightly vs. Q4, albeit off a not-high base last year, pointing to steady momentum overall.

Compared with social and long-form video peers, Bilibili looks decent aside from Douyin's relentless growth and a mild rebound at WeChat. Xiaohongshu has notably slowed, and Kuaishou has deteriorated slightly.

2. New game cycle drawing near: Q1 was still under tough comps, with game revenue down 12% YoY. The quarter mainly saw the Hong Kong/Macau/Taiwan rollout of '三谋', a smaller market with stable performance.

Deferred revenue was up 19% YoY at Q1-end but dipped slightly QoQ, likely due to last quarter's boost from '逃离鸦科夫'. As '三国：百将牌' targets a late-Q2 launch and two more titles are slated for 2H, the new game cycle is approaching.

3. Live streaming under pressure; long-form video also weakened: VAS growth slowed further to +3.7% YoY in Q1, with both live-streaming and premium memberships softer, and members down by nearly 5 mn.

QM data show total time on iQIYI/Youku/Tencent Video continued to fall in Q1. Beyond long-form drama losing share to AI comic-dramas, short live-action series and short video, the Spring Festival box office was also bleak.

That said, Bilibili's premium content logic differs from iQIYI/Youku/Tencent Video. Supply is primarily sustained by creators, while licensed films/TV focus on global classics where user comments and bullet chats help surface preferences, enabling lower-cost acquisitions of older hits.

4. Heavier AI spend starts to show: OP came in at RMB 170 mn with a 2.2% margin. Q1 typically sees lower margins QoQ due to ad seasonality from e-commerce, higher marketing, and annual bonuses, but the QoQ decline was steeper than in prior years.

The key difference is stepped-up AI investment flagged last quarter, reflected in R&D reversing three years of tightening (mainly from game R&D cuts) to +9% YoY this quarter. Adj. net profit was RMB 590 mn (adding back SBC at 4% of revenue), a 7.8% margin, down nearly 3ppt QoQ.

Management previously guided that incremental AI spend this year, partially offset by cost controls elsewhere, would still reduce profit by RMB 500 mn–1 bn. Q1 trends appear consistent with that framework.

5. Buyback finished; watching for a new plan: In Q1 the company repurchased 2.5 mn shares for $60 mn, at an avg. price of $24. The two-year $200 mn authorization approved in 2024 is now completed.

Net cash stood at RMB 19.3 bn (~$2.8 bn), providing capacity for further buybacks. Investors will watch the call for plans on shareholder returns.

Tencent's recent comments about selling high-valuation investment assets to fund its own buybacks spooked the market, hitting Bilibili given Tencent's ~10% stake. The stock fell notably.

6. KPI snapshot

Dolphin Research view

Ads were again the standout in Q1, but profit is feeling the bite from AI spend before the new game cycle arrives. Management guided last quarter that this year's incremental AI investment would cut profit by RMB 500 mn–1 bn. Based on Q1 trajectory, we estimate a roughly RMB 50–100 mn impact, broadly tracking guidance.

While management also said they would invest with discipline and calibrate as they go, the market still de-risked first, which is understandable. At an equity value near $11 bn at the time, the stock traded at ~25x on previously expected adjusted profit (adding back SBC), well above many China internet peers.

Investors had been pricing to a 15%–20% long-term OP margin guide over the next three years. New AI spend disrupts that path since it is not a one-off, and its revenue lift is not as visible as cloud or model subscriptions.

That raises questions about ROI, and near-term profit drag inevitably extends the timeline to target margins. Risk premia have to be adjusted.

From today's vantage point, we see some changes to how AI spend pressures profit, and further near-term pullbacks could present opportunities:

(1) New game cycle approaching: Top-line acceleration is the best antidote to concerns about investment pressure on earnings. Bilibili currently relies on games to drive growth.

The timeline is drawing closer for '三国：百将牌' around mid-year, '闪耀吧噜咪' in Q3, and '三国志：王道天下' possibly by year-end. While these may lack the breakout potential of '三谋', the lower 2H base and incremental launches should ease AI spend pressure on profitability.

(2) Some valuation premium partly digested: On Tencent's earnings call last week, management said higher capex and shareholder returns would be balanced by portfolio adjustments, i.e., monetizing certain investments to fund buybacks. They noted they would compare asset valuations with Tencent's own (ex-investments, core PE ~10x) and sell where valuations are significantly higher.

Given Bilibili's premium valuation among China internet names, the stock dropped 15% over Thu–Fri on the concern it might be a candidate. Tencent's holdings fell from 13.5% to 10.5% during 2020–2022 and have been broadly stable since 2023.

Dolphin Research believes Bilibili is unlikely to be a key divestment target for Tencent:

First, Bilibili's market cap has mostly been in the $8–10 bn range over the past year. A neutral near-term valuation is just above $10 bn, with upside to $15 bn in a risk-on tape (cf. the valuation ranges we outlined last quarter).

Even selling the full ~10% stake would raise less than HKD 10 bn, which covers less than one month of Tencent's current buyback pace of ~HKD 500 mn/day.

Second, as a key pan-entertainment channel and now a primary channel for AI investment, strategic considerations argue against large-scale selling. From a partnership perspective, heavy reduction would be suboptimal.

We thus think near- to mid-term concerns are somewhat overdone. At the latest close, market cap was $8.1 bn.

Assuming RMB 800 mn profit impact from AI, Bilibili trades at ~21x 2026e adjusted PE (est. adj. net profit RMB 2.6 bn). While not cheap vs. peers, 2026 is a tough year for games, and a new game cycle in 2H with a growth rebound should help further digest the multiple.

Detailed analysis below

I. User growth slowed; engagement strengthened

Bilibili added 10 mn MAUs QoQ on seasonality in Q1 but did not set a new peak. Engagement kept improving, with DAU/MAU at 30.6% and avg. daily time at 119 minutes, up 11 minutes YoY, a new record.

QuestMobile data show Bilibili's time-spent growth ranked mid-to-high among social peers in Q1. The trend remains constructive.

II. Ads are the standout again

Q1 ad revenue was RMB 2.6 bn, +30% YoY, slightly ahead of the acceleration trend. Growth was driven by rising total user time on platform (+19% YoY, a touch faster than Q4's +18.6%) and higher ad load.

Ad load is still only ~7%–8%, leaving headroom vs. peers. In early Apr., the company added a 'pause ad' slot on the video playback page that auto-plays when users pause, though both users and creators can opt out.

III. New game cycle approaching

Game revenue remained under high comps and a thin pipeline in Q1, down 12% YoY, in line with expectations. The quarter was mainly the HMT launch of '三谋', a limited market, with steady performance.

Deferred revenue declined QoQ against the trend, likely reflecting softer VAS and a lackluster games slate. The pressure should ease as new titles come online.

On the forward pipeline: Beyond titles mentioned last quarter — '三国：百将牌' expected mid-year and '闪耀吧！噜哩' expected in 2H — a co-published title '三国志：王道天下' has been added, likely for Q4.

'三国志：王道天下' was first revealed on Mar 18 with all-platform reservations, and began the '桃园首测' on Mar 28. Positioned as a 3D sandbox SLG under the classic '三国志' IP that pioneered SLG gameplay, it is worth attention.

Beyond core strategy, the game emphasizes immersive role-play and development, skewing more single-player. It also follows a 'less grind, less pay-to-win' approach, simplifying interactions and focusing on core strategic depth.

Some institutions forecast first-12-month revenue of RMB 1.7 bn, about 40% of '三谋'. We think that may be a bit aggressive and cannibalization with '三谋' should be considered, but as new titles approach, the inflection for Bilibili's games is getting closer.

IV. VAS under heavy pressure

VAS revenue, driven by live streaming and premium memberships, grew 3.7% YoY in Q1, with growth slowing further. Premium members fell by 5 mn QoQ to 24.77 mn.

Given structural headwinds in long-form video, Bilibili is not immune. Outside of premium, fan economy and live streaming likely saw the bigger drag from live.

V. AI spend starts to surface

While profit grew strongly YoY, the impact of AI investment began to show in Q1. On core operations (GP minus opex), OP was RMB 170 mn with a 2.2% margin.

Adj. net profit was RMB 590 mn (primarily adding back SBC at 4% of revenue), a margin of 8%. The QoQ margin drop was notable.

1) GPM continued a slow grind higher

GPM expansion was driven by continued high growth in high-margin ads. By cost line, revenue-sharing remained the largest at 38% of revenue, tied to games, live streaming, and Huahuo ads.

Revenue-sharing costs rose to RMB 2.85 bn in Q1, +7% YoY. The mix shift supports margin over time.

2) R&D posted its first growth in three years

On opex, selling was flat and G&A ticked up slightly, so the increase was concentrated in R&D, which rose 9% YoY — the first clear positive growth since 2023, driven by AI investment.

While profits were somewhat diluted, monetization efficiency continued to improve in our long-tracked 'traffic monetization vs. cost' relationship, reflecting a stable ecosystem and endogenous monetization capacity.

Whether AI spend is justified will require management to deliver faster growth and better monetization efficiency. Execution will be key.

Dolphin Research 'Bilibili' archive:

Earnings season (recent)

Mar 5, 2026 call notes 'Bilibili (Trans): Reinvesting part of incremental profit into AI this year'

Mar 5, 2026 earnings take 'Bilibili: Ads resilient; a tough 'one-legged' stretch for the platform'

Nov 15, 2025 call notes 'Bilibili (Trans): Content paywalls as a key growth engine'

Nov 15, 2025 earnings take 'Bilibili: A second growth spurt?'

Aug 21, 2025 call notes 'Bilibili (Trans): Reaffirming 15%–20% long-term OP margin target'

Aug 21, 2025 earnings take 'Bilibili: After the '三谋' boom, what's next?'

Risk disclosure and statement for this article: Dolphin Research Disclaimer and General Disclosure