To The Moon

Shares in $Bilibili Inc.(BILI)$ $BILIBILI-W(09626)$ plunged 12.4% yesterday after the company reported earnings.

Such a drop, I was expecting a disastrous earnings report, it seems not too bad ah?

Revenue

Specifically, Bilibili revenue was RMB5.665 billion in Q1, up 11.7% year-on-year. Although it's partly due to the low base from last year, the growth trend is recovering, slightly exceeding analysts' expectations of RMB5.6 billion.

By business, Bilibili's core businesses are back on track.

Advertising revenue hit RMB1.67 billion, a 31.2% increase year-on-year, exceeding analysts' estimate of RMB1.62 billion;

Value-added services revenue was RMB2.53 billion, up 17.3% and also surpassing the expected RMB2.48 billion;

E-commerce & Others revenues were RMB480 million, down 5% and missing the expected RMB500 million;

Gaming revenue was RMB980 million, down 13% and below the forecast of RMB1 billion, marking a sixth consecutive quarterly decline.

It seems that Bilibili's Advertising and Value-added services have resumed growth, but Gaming and E-commerce were struggling. Gaming, especially, faces stiff competition from giants like $TENCENT(00700)$ $Tencent Holding Ltd.(TCEHY)$ and $NetEase(NTES)$ $NTES-S(09999)$ . Bilibili didn't start out as a gaming company, so it feels like no future in this space.

E-commerce is a similar story. Long-form video with goods is far less than short video, it is estimated that the envy of Tiktok and $KUAISHOU-W(01024)$ $KUAISHOU TECHNOLOGY(KUASF)$ , high probability is not the future main business.

Now, value-added services and advertising are Bilibili's cores. In terms of user numbers, monthly active users hit 340 million, up 8.3% year-on-year, but it's pretty much stagnant.

Therefore, the focus for Bilibili now is to convert more users into paying subscribers, like how $Tencent Music(TME)$ did after reaching its user ceiling. Another priority is to optimize ad placement and increase ROI to boost advertising revenue.

Profit and Cost

Despite the recovery in Value-added and Advertising businesses, Bilibili's gross margin hit a new high of 28.3%.

And they're still controlling costs, with Sales, Admin, and R&D expenses all down. This helped reduce the operating loss to RMB820 million, a significant 40% reduction year-on-year.

But Bilibili was still in the red. With a gross margin under 30% and expenses totaling 42.8%, profitability seems like a distant dream.

And a big chunk of Bilibili's costs goes to content creators. They shared RMB2.2 billion in the first quarter, accounting for 39.5% of total revenue. While this percentage is down from before, it's going to be tough to reduce it further.

Outlook

In summary, Bilibili was in a bit of a pickle. They're losing ground in growth with Gaming and E-commerce struggling, and relying heavily on Memberships and Advertising. But they're also reluctant to let advertising go wild to make money.

With growth slowing down, other Chinese stocks can turn to improving profits, like Tencent and Kuaishou, which have seen skyrocketing net profits even with declining revenue growth. They also boost shareholder returns through buybacks and dividends, supporting their stock prices.

Such a tricky situation! That's why investors are losing patience.