BiliBili Overview And Differentiation

Summary

• Introduction of the platform.
• Numbers and growth.
• Differentiation from the competition.
• Future prospects.

BilliBili ($BILI) is often described as the chinese Youtube alternative. In fact, Bilibili is different in many aspects which should be considered before investing in it. I have invested in BiliBili last year and I have gradually closed my position during Q4/2020 with profit. However, I am now thinking about further prospects of the company and possibly opening a new position.

Introduction of the platform

BiliBili is a platform including video on demand, live streaming, games and educational content. 

The video part of BiliBili platform started with content relating to anime, gaming streams and other content targeting gen Z (generation born approx. 1996-2010). Although the amount of content keeps growing rapidly and videos which might interest older people are included (like documentaries), the average user age is still 21. Nevertheless, this demographic group in China is large and will soon represent the majority of China’s online entertainment market. The content is user generated, licensed and also created by BiliBili itself. Many popular anime series and games are produced by BiliBili as their original content.

Many of you know Twitch as the live streaming platform. Bilibili’s live streaming part of the platform is very similar. Live streaming content is mainly gaming and live chatting with popular streamers.

Games are a big differentiator of BiliBili platform from youtube. BiliBili develops games in house and distributes games of other developers on its platform. Gaming is the biggest revenue source amounting to 40% of BiliBili’s revenue.

Numbers and growth

In Q3/2020 BiliBili reported 197 million monthly active users and 53 million daily active users (number of users growing at 54%, 42% respectively) and 25 million monthly paying users (up 89% per year. The growth rate seems very healthy and the numbers are even more impressive if we consider that the average user spends 81 minutes a day on the platform. This implies that the platform is very sticky and has good recommendation algorithms.

Monetization

• games 40%

• premium membership and live streaming 23%

• advertising 13%

• e-commerce and other 12%

The portion of revenue from advertising is significantly lower compared to Youtube which generates over 50% of revenue from advertising. BiliBili faces more competition than Youtube which has a strong dominant position in western countries. This might be a factor limiting BiliBili’s ability to force ads on users who might then switch to another platform. However, if BiliBili manages to differentiate and engage the users enough to be able to advertise to the same extent Youtube is advertising the economics of the platform would be excellent.

Competition

Tencent video owned by Tencent ($TCEHY) is closer to Netflix with professional series and movies being the most popular content. Tencent video monetizes the content by advertising or by paid subscription which enables users to remove all ads.

Youku is very similar to Tencent video and it is owned by the chinese e-commerce giant Alibaba ($BABA).Also iQiyi owned by Baidu ($BIDU) is a subscription based original content streaming platform.

There are also a number of short format video platforms like Douyin (chinese version of TikTok) and Kuaishou who might partially compete for the same users as BiliBili.

Prospects

The company is showing consistent execution of growth strategy offering diversified entertainment content. The platform seems to be differentiated enough to thrive despite strong competition in video streaming. If BiliBili is able to maintain this growth for some time and then achieve more organic growth and lower marketing expenses, the economic outlook seems very promising.

Risks

Big part of the expenses of the company is for advertising of the platform. That is natural as growing the user base is a priority. The spending however doubled in Q3/2020. One thing to keep in mind is that if BiliBili is paying high customer acquisition costs while the demographic profile of users is rather narrow (average age 21) the users might not stay on the platform as they get older and therefore the return on the acquisition cost might be low. Hopefully Bilibili is aware of this and has a plan how to keep those users engaged as they grow older.

Valuation

The current market cap of 42 bn is roughly 14 times sales if we take sales from Q3/2020. That does not seem too much in the current environment of high multiples. However the revenue of 3.2 bn in Q3/2020 resulted in loss of 1.1 bn sowe must keep that in mind.

Let's try to make a somewhat conservative projection of revenue growth. During the past 4 years revenue grew at roughly 90% compounded annual growth rate (OTC:CAGR). From Q3/2019 to Q3/2020 it grew by little over 70%. As the company is getting bigger, the law of big numbers will likely make the growth slower. If we take 40% as CAGR for the next 3 years, we can project sales in Q3/2023 to be equivalent of 35 bn a year. That would make current market cap 1.2 times those sales which does not seem expensive.

This is not financial advice nor a recommendation. Do your own research.