Is Bilibili a buy now?

Bilibili was once a high-growth darling of the Chinese tech sector. The online gaming, digital media, and e-commerce company initially dazzled investors with its robust growth rates when it went public in March 2018, and its shares surged from its IPO price of $11.50 to an all-time high of $157.66 last February. But today, the stock trades below USD30 a share.

China's crackdown on its top tech companies, including Bilibili's big backers Alibaba and Tencent, spooked investors. Delisting fears in the US further made Chinese stocks even less appealing.

Bilibili trades at less than three times this year's sales. That's a low price-to-sales ratio for a company that grew its annual revenues at a whopping compound annual growth rate (CAGR) of 67.9% between 2018 and 2021.

Understanding Bilibili's business:

Bilibili provides anime, comics, and gaming (ACG) content to a Gen Z audience through its digital media, gaming, and e-commerce platforms.

Its streaming video platform was initially geared toward anime content, but it gradually evolved into a diversified platform for documentaries, variety shows, and user-created videos. It also expanded its library of digital comics by acquiring NetEase Comics in late 2018. Its video game division publishes popular online games like Fate/Grand Order.

However, its growth decelerated in 2021 as those tailwinds faded. The government's temporary suspension of new game approvals, which started last July as regulators introduced tighter playtime restrictions for minors, generated additional headwinds for its gaming business.

How fast are Bilibili's businesses growing?

Bilibili generated 36% of its revenue from its value-added services (VAS) segment -- which makes money from subscriptions, in-app purchases, and virtual gifts across its digital media platforms -- in 2021.

It generated 26% of its revenue from Mobile Games, 23% of its revenue from ads, and another 14% came from its E-Commerce and Others segment -- which mainly sells tie-in merchandise for its ACG content.

Its decelerating growth, widening losses, rising leverage, and ongoing dilution make it a dangerous stock to own in this challenging market. Therefore by observing Bilibili's current situation, it is recommended that investors should not touch Bilibili until it makes progress.

What do you guys think?

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