2023-06-05 11:25:09 ET
Summary
- Bilibili's Q1 2023 financial performance was mixed, considering both its revenue miss and narrower-than-expected net loss.
- Bilibili stuck to its earlier FY 2023 topline guidance, which represents a substantial moderation in its revenue growth as compared to previous years.
- The company's mixed Q1 2023 results and underwhelming full-year guidance imply that a Hold rating for Bilibili stock is fair.
Elevator Pitch
I assign a Hold investment rating to Bilibili Inc. ( BILI , BLBLF ) (9626:HK) stock. BILI's shares have declined in the two-day period following its Q1 2023 results release , as Bilibili's forward-looking financial guidance and most recent quarterly results have failed to impress the market. In my opinion, a Hold rating for Bilibili is justified. I will only consider upgrading the stock to a Buy if either BILI's revenue growth prospects improve, or the company can turn profitable in a shorter-than-expected period of time.
Business Overview
Bilibili Inc. describes itself as "a leading video community for young generations in China" in the company's media releases .
Bilibili's User Base
BILI's March 2023 Investor Presentation
How Bilibili Monetizes Its User Base
BILI's March 2023 Investor Presentation
As indicated in the company's fiscal 2022 20-F filing , Bilibili Inc. earned 40%, 23%, 23%, and 14% of its topline from value-added services or VAS, advertising, mobile games, and e-commerce & others, respectively, last year.
The Analysts' Consensus Q1 2023 Financial Forecasts For BILI
Prior to the company's actual results announcement , the sell-side saw Bilibili reporting revenue growth deceleration and a narrower net loss for the first quarter of this year.
BILI's topline expansion in local currency terms had slowed from +11.3% YoY in Q3 2022 to +6.3% YoY for Q4 2022, and the analysts expected that Bilibili's revenue will only increase slightly by +1.7% YoY to RMB5,138 million in Q1 2023 as per S&P Capital IQ data. This also implies that BILI's first quarter sales were projected to contract by -16.3% in QoQ terms.
Separately, the market predicted that Bilibili's normalized net loss could potentially narrow from -RMB1,653 million in Q1 2022 and -RMB1,312 million in Q4 2022 to -RMB1,134 million (source: S&P Capital IQ ) for the first quarter of the current year.
In the next section, I explain why Q1 2023 was a mixed quarter for BILI.
Bilibili's First Quarter Financial Performance Was Mixed
BILI issued a press release announcing its Q1 2023 financial results on Thursday, June 1 before the market opened.
Revenue for Bilibili rose marginally by +0.3% YoY to RMB5,070 million for the first quarter of 2023, which was also equivalent to a -17.5% QoQ drop. More importantly, BILI's Q1 topline came in -1.3% lower than the sell-side analysts' consensus sales forecast.
The mobile games business was the weak spot for Bilibili, as BILI's revenue generated from mobile games fell by -16.7% YoY to RMB1,132 million for Q1 2023 due to a lack of new game launches. The number of licenses granted for new domestic games in Mainland China decreased from 679 in 2021 to 468 in 2022, and the unfavorable regulatory environment for the Chinese gaming industry had made it tough for BILI to introduce new games in Q1.
Separately, Bilibili's topline growth for the most recent quarter was also negatively affected by the company's change in its strategy relating to user base expansion. At its Q1 2023 earnings call on June 1, 2023, BILI stressed that it has "adopted a more quality oriented approach to user growth" with a greater emphasis on "user engagement and commercialization potential." As a result, Bilibili's YoY Monthly Active Users or MAU growth slowed from +20% YoY in the fourth quarter of last year to +7% YoY in the first quarter of this year. In QoQ terms, BILI's MAU contracted by -3% QoQ.
On the other hand, BILI's actual Q1 2023 adjusted net loss of -RMB1,031 million beat the market's consensus bottom line estimate of -RMB1,134 million. Bilibili's above-expectations bottom line for the most recent quarter was attributable to both gross profit margin expansion and operating cost optimization.
Gross profit margin expanded by +140 basis points QoQ and +580 basis points YoY to 21.8% in Q1 2023, thanks to a more favorable sales mix and a decline in revenue-sharing costs. Bilibili's most profitable and highest margin business, advertising, saw its topline grow by +22.2% YoY to RMB1,272 million for Q1 2023, and the advertising business accounted for as much as 42.5% of BILI's first quarter sales. BILI's revenue-sharing costs also declined by -8% YoY to RMB2.0 billion in the most recent quarter.
As per financial data sourced from S&P Capital IQ , Bilibili's selling, general & administrative costs as a percentage of revenue decreased by -6.8 percentage points YoY from 35.4% in Q1 2022 to 28.6% in Q1 2023. Bilibili highlighted at its first quarter earnings briefing that "we continue to take measures to strengthen the execution of our expense controls." The results speak for themselves, as BILI's cost optimization efforts have clearly paid off.
In summary, although Bilibili's Q1 2023 net loss was narrower than expected, the company achieved modest YoY revenue growth.
Unchanged Topline Guidance Didn't Impress The Market
Bilbili's post-results announcement share price performance suggested that investors weren't satisfied with BILI's results and outlook.
BILI's stock price went up slightly by +1.3% from $15.66 as of May 31, 2023 to $15.87 as of June 1, before pulling back by -3.5% to close at $15.32 as of June 2. In other words, Bilibili's shares have ended up -2.2% lower than where they were before the company released its Q1 2023 results and full-year FY 2023 guidance.
In the preceding section, I had mentioned why I view Bilibili's Q1 2023 results as mixed. Looking ahead, it is disappointing that BILI didn't raise the company's full-year revenue guidance, which was initiated in March . Specifically, Bilibili expects its topline to grow by +14.2% to RMB25 billion in FY 2023 based on the mid-point of its guidance.
Even though BILI's expected +14.2% revenue growth for FY 2023 is superior to the company's actual FY 2022 topline expansion of +13.0%, this is significantly lower than Bilibili's +67.4% topline CAGR for the FY 2018-2021 period.
Concluding Thoughts
The market didn't respond favorably to Bilibili Inc.'s most recent quarterly financial results, and I think this is justified. While BILI's losses are gradually narrowing, the company isn't expected to turn profitable until FY 2026 . Furthermore, Bilibili's FY 2023 topline growth guidance in the low-teens percentage range is unimpressive, especially compared to what the company had delivered in prior years. As such, I am of the view that Bilibili warrants a Hold rating.
For further details see:
Bilibili: Mixed Quarter And Unimpressive Guidance