More time needed for mobile game segment to recover
? So far the government has not approved new mobile game version number, which is later than we expected and will affect Bilibili’s 4Q21 mobile game revenue growth.
? We now expect mobile game revenue to grow by 11% yoy in 4Q21, lower than management’s previous guidance of 20% yoy. But we expect advertising and value added services revenue to maintain strong momentum of 101% and 53% yoy in 4Q21.
? Reiterate Add with lower DCF-based TP of HK$697, since we believe Bilibili will benefit from the fast development of the metaverse, penetration into lower-tier cities and expansion in the global market.
More time needed for mobile game sector to recover
We expect mobile game revenue growth in 4Q21 to be slower than management’s previous guidance of 20% yoy, since the government delayed the approval of new mobile game version number, but advertising and value-added services to maintain strong growth momentum. We expect total revenue to grow by 48% yoy in 4Q21, still in line with management’s previous guidance. Management expects the government to start to approve new mobile game version number in FY22F. At the same time, Bilibili will continue to build up its own team to self-develop mobile games and expects to launch new self developed games in 2H22F. The Company will also look for opportunities to acquire or take a stake in good mobile game production studios.
Driving up advertising and value-added services growth
In FY22F, Bilibili will strengthen its efforts to drive the growth of content and effect advertising, so that it can improve the segment GPM. Bilibili will build up and offer more conversion tools for advertisers in FY22F, so that advertisers can improve the effect and ROE of their ads on the Bilibili platform. For example, Bilibili added a new “yellow cart” function; users can place orders directly through the “yellow cart” as they watch videos. Bilibili also started its live-broadcasting e-commerce business on a trial basis and will launch more live-broadcasting tools in FY22F.
Penetrating lower-tier cities and expanding in the global market
Bilibili maintained its target of achieving MAU of 400m in FY23F. It will continue to penetrate lower-tier cities to grab new users. Bilibili also started to cooperate with Sony and Netflix by offering them high-quality content, especially Chinese-style animation and comic-related content. Bilibili has made a great effort to build up its own IP, and management sees great potential for IP related to Chinese style animation and comics. The Company also started to promote virtual humans for its videos and live broadcasts a couple of years ago with advanced technology. We expect Bilibili to be an important
platform in China to develop the metaverse, given its young, valuable user base.
Reiterate Add with lower DCF-based TP of HK$697
We cut our FY21–23F non-GAAP net profit forecasts by 4.6%, 1.0% and 1.4%, respectively, to reflect Bilibili’s revenue mix change, since advertising and value-added services have lower margins than mobile games. But we reiterate our Add rating, since we expect Bilibili to drive up its mobile game revenue growth in FY22F and continue to attract more users by offering high-quality content. In the long term, we expect the Company to continue to build up its IP and expand in global markets, leveraging its valuable IP. Bilibili’s share price corrected by 55.2% in 2021. We recommend that investors revisit the stock, since the related policy risk will be limited in FY22F.