Bilibili (BILI), which made its IPO debut in March 2018, trades lower today (-5%) after reporting Q1 results late last night. Bilibili is a Chinese entertainment company that focuses on delivering content and experiences representing a spectrum of genres and media formats, such as videos, games, and live broadcasting, to young people in China via its online platform.
Turning to the Q1 results, BILI is not yet profitable, but it reported a narrower loss than expected at CNY(0.44). Also, BILI's revenue growth has been quite impressive, with revenues in the quarter growing 58.2% yr/yr to US$204.7 mln. Breaking down the quarterly revenue number a bit, revenue growth in mobile games, BILI's largest segment, rose 27% yr/yr to US$130.2 mln, primarily driven by the increasing popularity of mobile game Fate/Grand Order, for which major content update Chapter 2.0 was released in February.
Its next biggest segment is live broadcasting and value-added services (VAS). Revenues from this segment jumped 205% yr/yr to US$43.5 mln, fueled by increases in the number of paying users. Advertising is a smaller segment for BILI, but it saw good growth in Q1, up 60% yr/yr to US$16.8 mln. Finally, BILI's E-commerce and other segment saw revenue jump 621% yr/yr to US$14.3 mln.
Other metrics that investors watch closely are average monthly active users (MAUs) and average monthly paying users. On the former, MAUs reached 101.3 mln while mobile MAUs were 88.6 mln, representing yr/yr increases of 31% and 39%, respectively. Average monthly paying users jumped 132% yr/yr to 5.7 mln while average monthly paying users for mobile games rose 23% yr/yr to 1.0 mln.
So, why is the stock trading lower despite what looks to have been a good quarter? It's not entirely clear, but we think the ongoing trade tensions between the US and China are souring investor sentiment on all Chinese stocks. Also, the company's Q2 guidance for revenue of CNY1.45-1.49 bln was just in-line with market expectations, whereas last quarter, BILI guided for upside revenue. This guidance, then, is likely being viewed as a bit of a disappointment.
BILI has had its ups and downs since making its IPO debut in March 2018. It priced its 42 mln ADS IPO at $11.50, in the middle of its expected range of $10.50-12.50. However, it opened poorly at $9.80. It struggled for a while before trading sharply higher to $22.70 by mid-June 2018. However, it has been pretty lackluster since then, trading mostly in the high teens for the past nine months. Of note, BILI recently completed a public offering of 14.17 mln ADS, which seems to have weighed on the stock to some degree recently.
On the positive side, Bilibili got a boost of investor confidence last October when Tencent Holdings (TCEHY) announced that it would make a substantial equity investment in the company. Not only did it add a boost of cash, but just as importantly, the backing told the investment community that Tencent sees value here. Clearly, Tencent likes BILI's growth potential. Also, large stake buying from Tencent often leads to speculation that Tencent may just buy the whole company at some point. Time will tell.
Despite some good growth numbers and the Tencent investment, we caution investors to be careful with names like BILI. There are so many Chinese social media platforms, most of which are posting big growth numbers. It can be hard for a US audience to distinguish which companies are good investments, as most people in the US have never used these platforms and are unfamiliar with them on a firsthand basis.