Bilibili Gains Analyst Praise for Advertising Growth, Despite Gaming Sector Headwinds

Benchmark analyst Fawne Jiang maintained a Buy rating on Bilibili Inc BILI with a price target of $15, lowered from $21.

Jiang said Bilibili has executed solidly on advertising, with revenue growth accelerated to 28% Y/Y in the fourth quarter.  

He expects continued robust ad growth in fiscal 2024, underpinned by growing DAU/traffic, rising ad load via ad placement penetration, and ad tech-driven efficiency improvement.  

The analyst flagged the company’s encouraging headways in offering integrated marketing solutions in the e-commerce and gaming verticals. He said they replicate the model for other bourgeoning industries like FMCG, Auto, 3C, internet service, finance, and education.  

As per Jiang, the unique valuation of Bilibili’s core user base (young professionals) sets the platform apart for potential outperformance on ads in general.  

On the flip side, membership growth will likely remain muted while live streaming faces potentially rising competition as the industry growth is moderating.  

Furthermore, Jiang added that there is a lack of visibility on mobile game growth in the future. 

With recent resource reductions, the segment will remain challenging in the foreseeable future. Given a dampened growth outlook, he cut his fiscal 2024 revenue estimate. 

Jiang projected a first-quarter revenue of RMB 5.596 billion.

Mizuho analyst James Lee maintained Bilibili with a Buy and lowered the price target from $16 to $15.

Lee said that Bilibili reported in-line revenue and beat operating margin by ~600bps, driven by an acceleration in advertising and Value-added services (VAS) and continued cost-control efforts.

However, while its advertising business remains strong and continues gaining share into fiscal 2024, he expects live streaming to slow slightly due to revenue-sharing optimization. 

In addition, Lee applauded management’s decision to terminate additional game projects despite near-term revenue headwinds. 

Bilibili remains on track to transition from an ACG niche platform to a mass-market performance-based advertising powerhouse backed by its unique content ecosystem. 

He expects ad revenue growth to accelerate in the first quarter. For 2024, the analyst expects more product innovations such as automatic ad placement, improved ad inventory, ad load, and improved monetization from newer verticals, including auto, internet services, and more.

However, he expects VAS segment growth to slightly decelerate in the first quarter and fiscal 2024 due to its higher base and the ongoing management of revenue-sharing towards the breakeven target.

Lee expects Games segment revenue to remain flattish into the first quarter due to project terminations amid a government crackdown in the sector.

Lee projected first-quarter revenue of RMB 5.59 billion (prior RMB 5.83 billion).

Investors can gain exposure to the stock via Global X Video Games & Esports ETF HERO and Amplify ETF Trust Amplify Video Game Tech ETF GAMR.

Price Action: BILI shares traded higher by 4.20% at $11.04 on the last check Friday.

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