Bilibili Likely To Gain From New Game Launches, Auto, 3C And Recovery In Performance Based Ads, Analysts Say

Citigroup analyst Brian Gong upgrades Bilibili Inc BILI from Neutral to Buy with a $28 price target.

The firm models Q1 revenues to be roughly flat but expects top-line growth to pick up from Q2, reflecting new game launches and re-acceleration of VAS.

Benchmark analyst Fawne Jiang reiterates Bilibili with a Buy and raises the price target to $35.

BILI reported 4Q results on par with expectations and provided largely in-line FY23 guidance factoring in one-off revenue exits. 

The company has reconfirmed its strategic focus on quality growth and plans to cut back its loss in FY23 with a path to achieve profitability in FY24. 

The analyst attributes the strong FY23 Y/Y growth trend to the incremental penetration in selected industries (gaming, auto, and 3C (Computer, Communication and Consumer Electronics)) and the fast demand recovery on performance-based ads off a low base of last year. 

The analyst anticipates performance-based ads to recover more promptly as advertisers are sensitive to ROAS and sales conversion in the early stage of a macro upcycle. 

Story-mode's strong growth helps boost ad inventory in a highly sought-after ad category with premium ECMP. 

On the game side, growth was soft in 4Q due to a lack of new game launches. 

With license approval normalized in China, the company will likely launch two self-development games in 2Q, with five or six more titles to roll out in 3Q. 

While execution remains critical, the analyst sees an improving growth outlook on games and is positively surprised by the strength of ad growth in 1Q, admittedly from a small base, bolstered by fast recovery of performance-based ads and penetration into new verticals (auto, 3C). 

The analyst views the cost-saving move as a strategic positive, as it helps to enhance user engagement and consequently opens more commercialization opportunities. It could also leave the company more wiggle room to optimize its S&M spending.

The recent optimization of its capital structure mitigates liquidity concerns and reduces the company's overall risk profile. 

Price Action: BILI shares traded higher by 4.22% at $22.48 on the last check Friday.