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Expect Short-Term Headwind: Bilibili

Aug. 06, 2018 2:34 PM ETBilibili Inc. (BILI)6 Comments
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  • Simply Investor has written a great long piece on Bilibili. Although we agree with the thesis, investors should be wary of short-term headwind.
  • Rumor on Chinese regulators might suspend game approvals is concerning. As a result, we expect gaming revenue to slow down in the coming quarter.
  • Expect MAU growth to slow down due to impact of deletion from app store.
  • Other platforms that do not need game revenue pose threats.

Simply Investor has presented a robust long thesis on Bilibili (NASDAQ:BILI), addressing both user growth (MAU up 36% YoY) and monetization (revenue up 105% YoY) in 1Q 18. We believe Bilibili is one of those companies that is well positioned as a community-oriented video content/gaming platform targeting Generation Z. Even though Bilibili is trading at a discount (<$2 Rev/MAU) to Tencent (TCEHY) ($10+ Rev/MAU) and Facebook (FB) ($5+ Rev/MAU) (Rev/MAU & Price/Sales), our view is that this valuation is justifiable.

We believe that the short-term underperformance was attributable to i) potential Q2 and 2H18 gaming revenue comes below expectation, ii) lower near-term MAU growth, and iii) short-term and long-term competition from other platforms that are not dependent upon game revenue. While we believe the first two reasons could be short-lived, the third factor poses a long-term threat as the government tightens mobile gaming approval or consumers change taste over time.

Potential of gaming revenue might come below expectation

Bilibili has three exclusive licensed games (Untouchable Palm/BanG Dream!/A3!) scheduled to launch in 2H18. However, visibility in the launch time of these new games remains low. We are hoping that Bilibili will provide some guidance on the next earnings call.

Below are some excerpts about a rumor news release regarding game suspension:

“The Ministry of Culture and Tourism has halted the registration of domestically developed gaming products following an institutional restructuring plan of the State Council, China's cabinet, domestic news site ce.cn reported on Thursday.”

“If the channel stayed closed forever, it would have a huge impact on the industry, which is very unlikely," Guo Chengjie, an industry analyst at Beijing-based industry consultancy iResearch, told the Global Times. However, in the past two years, regulations covering the content of online games have been further tightened, Guo noted.”

Even though the validity

This article was written by

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