Bilibili (NASDAQ: BILI) shares have skyrocketed of late following the tech giant’s solid quarterly results. The mobile game maker’s revenue increased 76% to more than $155 million, surpassing Wall Street estimates by a considerable margin.
Though Bilibili has a net loss of $10.6 million, which represents about a 20% larger loss than the year prior, the company’s net loss still beat the Street’s estimates. All in all, Bilibili is trading at about 15% higher than its initial public offering price of $11.50. The company was privately held up until March. The question looms: can Bilibili return to the $20 mark it was trading at in June?
The vast majority of Bilibili revenue stems from mobile games sales. Bilibili’s hit titles include the shooter mobile game known as Azur Lane and the uber-popular role playing game called Fate/Grande Order. Bilibili’s mobile gaming revenue spiked more than 60% this past year alone. The company’s mobile gaming revenue made up more than three-quarters of its top line in the most recent quarter.
Aside from mobile games, Bilibili is also generating money through live video streams, a growing advertising business and value-added services ranging from music to comics. The company’s video streaming revenue increased 186% across the past year, representing about 12% of Bilibili sales. Bilibili advertising revenue jumped 132%. The remainder of the company’s revenue stems from its ancillary businesses including content sales tied to products and content sold on a declining e-commerce platform.
If Bilibili is to continue growing, the company will likely have to branch out beyond its gaming business. The mobile gaming sector is insanely competitive thanks to the tenacity of market powerhouses such as Tencent. Furthermore, government regulations pertaining to the industry are on the upswing. Bilibili needs to find a way to generate stable revenue streams from its video unit and advertising services.
It is particularly interesting to note the company’s CFO, Sam Fan, reported to Barron’s that Bilibili’s percentage of revenue stemming from games could decrease upwards of 83%, dropping to 50%in the next half-decade. Bilibili active users increased nearly one-third this year to a whopping 85 million. Users of the company’s mobile games increased nearly 40% to more than 71 million. The number of users who pay each month increased threefold to 3 million. Those who pay to use Bilibili’s mobile games increased a robust 40%.
Though Bilibili’s numbers are healthy, there is no shortage of competition. Competitors are popping up across Chinese gaming, live streaming and advertising industries. The question is whether Bilibili can maintain its superb yearly growth. Furthermore, some investors wonder if Chinese regulators will make business increasingly difficult for those entrenched in the live streaming and video game markets. Regulators have temporarily suspended new approvals for video game licenses. Even if this hurdle can be overcome, there is also the matter of regulators targeting platforms for live video streams that do not have government-provided licenses. Bilibili certainly has some hurdles to clear in the coming months.
The best thing to do if you bought stock with Bilibili is hold it for now. It is quite concerning that the Bilibili mobile app was taken down across an array of Chinese app stores for nearly an entire month this summer. Though Bilibili can certainly bounce back from the one-month hiatus, the company is mired in an incredibly competitive business environment. Bilibili growth is not accelerating at its previous pace. Operating expenses are likely to continue rising as competitors strive for even more market share. There is also the issue of overvaluation: Bilibili is currently priced at about six times 2018’s sales. Furthermore, the company is not turning a profit.
It is awfully risky to put your hard-earned money on the line to invest in a game maker insistent on diversifying across other industries. Stay away from Bilibili until the company is rumored to be a takeover target or develops an insanely popular gaming series. Hold or sell Bilibili for the time being.
Regards,
Ethan Warrick
Editor
Wealth Authority
