Bilibili(NASDAQ: BILI) was one of China's hottest growth stocks. The Chinese gaming, streaming media, and e-commerce company's stock hit an all-time high of $156.37 on Feb. 10, 2021 -- marking a 1,260% gain from its initial public offering (IPO) price of $11.50 in 2018. At the time, the bulls were impressed by its rapid growth and popularity among China's Gen Z internet users as a destination for anime, comic, and gaming fans. That interest was amplified by the buying frenzy in growth and meme stocks.
But today, Bilibili trades at just $19. The stock fizzled out as China's economic slowdown, tighter regulations for online games, and intermittent COVID-19 lockdowns throttled its growth. Rising interest rates and the unresolved delisting threats for U.S.-listed Chinese stocks made it even less appealing to U.S. investors.
Image source: Getty Images.
So should investors buy Bilibili again while the bulls are looking the other way? Let's take a fresh look at its growth rates and valuations to see where its stock might land in a year.
When a growth stock stops growing
Bilibili ended the first quarter of 2023 with 315.2 million monthly active users (MAUs) and 93.7 million daily active users (DAUs). But its growth in MAUs, DAUs, and total revenue all decelerated significantly over the past three years.
Metric | 2020 | 2021 | 2022 | Q1 2023 |
|---|---|---|---|---|
MAU growth (YOY) | 55% | 35% | 20% | 7% |
DAU growth (YOY) | 42% | 34% | 29% | 18% |
Revenue growth | 77% | 62% | 13% | 0% |
Data source: Bilibili. Data in terms of RMB currency. YOY = Year over year.
Last year, Bilibili generated 40% of revenue from value-added services (VAS, which include subscriptions and virtual gifts on its streaming video platform), 23% from its mobile games, 23% from ads, and 14% from its e-commerce platform -- which mainly sells tie-in merchandise through data-sharing partnerships with Alibaba Group, JD.com, and Pinduoduo. However, all four of those growth engines have lost their momentum since 2020.
Metric | 2020 | 2021 | 2022 | Q1 2023 |
|---|---|---|---|---|
VAS revenue growth (YOY) | 134% | 80% | 26% | 5% |
Mobile gaming revenue growth (YOY) | 34% | 6% | (1%) | (17%) |
Ad revenue growth (YOY) | 126% | 145% | 12% | 22% |
E-commerce and others* revenue growth (YOY) | 109% | 88% | 9% | (15%) |
Data source: Bilibili. Data in terms of RMB terms currency. *Renamed "IP derivatives and others" in Q1 2023.
Bilibili's mobile gaming business was slammed by tighter playtime restrictions for minors and an intentional slowdown in new gaming approvals in 2021 and 2022. Its VAS business also struggled with a government crackdown on live streaming platforms and intense competition from ByteDance's Douyin (known as TikTok overseas).
Meanwhile, China's cooling economy and COVID-19 lockdowns disrupted the growth of its advertising and e-commerce businesses. The growth of its advertising business accelerated again in the first quarter of 2023, but its other three businesses are still struggling with a wide range of macro, regulatory, and competitive headwinds.
However, Bilibili's prospects could brighten this year as some of those headwinds dissipate and the Chinese economy finally experiences a recovery from pandemic lockdowns. That's why it expects its revenue to rise 10% to 19% for the full year. Analysts are less optimistic and expect its revenue to only grow 10% to 24.2 billion yuan ($3.4 billion).
Bilibili hasn't proven its business model is sustainable
Bilibili hasn't come close to breaking even on a generally accepted accounting principles (GAAP) basis since its IPO. Its net loss widened from 1.3 billion yuan in 2019 to 3.1 billion yuan in 2020, more than doubled to 6.8 billion yuan in 2021, then widened again to 7.5 billion yuan ($1.1 billion) in 2022. It's generally a bright red flag when a company keeps racking up steep losses as its revenue growth slows down.
Analysts believe Bilibili could narrow its net loss to 3.8 billion yuan ($530 million) this year, but they also expect it to stay unprofitable through at least 2025. Its elevated debt-to-equity ratio of 1.3 could also make it tough to raise more cash if its liquidity runs dry. But on the bright side, the company ended its latest quarter with 19.4 billion yuan ($2.8 billion) in cash and equivalents, so it won't need to raise fresh funds anytime soon.
Where will Bilibili's stock be in a year?
Bilibili might seem cheap at just 2 times this year's sales, but that discount valuation reflects its slowing growth and long-term challenges. That pressure might ease if Beijing adopts more business-friendly policies instead of cracking down on growing industries, or if Washington stops trying to delist U.S.-listed Chinese stocks.
But even if those macro headwinds wane, Bilibili will still face a lot of competition across the mobile gaming, advertising, and e-commerce markets within China. All of those challenges will likely discourage the bulls from rushing back to Bilibili -- especially when more balanced and profitable leaders like Alibaba, JD, and Pinduoduo are still on sale. So for now, I expect all of those issues to prevent Bilibili from generating any meaningful gains over the next 12 months.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Alibaba Group and Bilibili. The Motley Fool has a disclosure policy.
