Focus changed to revenue growth and cost control
? Bilibili reported 4Q21 revenue of Rmb5.78bn, up 50.5% yoy, in line with our expectation, and a non-GAAP net loss of Rmb1,877m, higher than the loss of Rmb669m in 4Q20, slightly below our expectation, because of lower margins.
? Bilibili plans to gradually reduce the sales and marketing expenses ratio starting in FY22F and to improve its gross margin to 30%, with non-GAAP net profit expected to break even in FY24F.
? Reiterate Add with lower DCF-based TP of HK$373.
High costs remain an issue
4Q21 sales growth for the mobile game, value-added services (VAS, including live broadcasting), advertising and e-commerce segments was 14.7%, 51.9%, 119.8% and 35.4% yoy, respectively (3Q21: 9.1%, 94.9%, 110.2% and 77.5% yoy). VAS was the largest revenue contributor in FY21, accounting for 36% of total revenue, while the contribution from mobile games dropped to 26%. The gross margin dropped by 5.6% pts yoy to 19.0%, mainly because of an increase in revenue-sharing payments to hosts and content creators, and an increase in payments to distribution channels, as Bilibili expanded its mobile game and VAS offerings. The sales and marketing expenses ratio was up by 3.9% pts yoy, attributable primarily to brand building and promotional expenses for mobile games. The G&A and R&D expenses ratios increased 0.4% and 1.2% pts yoy, respectively, driven mainly by an increase in staff, share-based compensation and rent. In 1Q22F, management guided revenue of Rmb5.3–5.5bn, up 36–41% yoy, with mobile game and advertising revenue up 10% and 70% yoy, respectively. Bilibili plans to gradually reduce the sales and marketing expenses ratio starting in FY22F and to improve its gross margin to 30%, with non-GAAP net profit breaking even in FY24F.
Robust user base and user engagement growth
User growth maintained strong momentum in 4Q21, with DAU growing 33.7% yoy to 72.2m, MAU growing 34.5% yoy to 271.7m (3Q21: 267.2m), mobile MAU up 35.3% yoy to 252.4m, and MPU up 36.9% yoy to 24.5m. Bilibili’s user daily time spent reached 82min (a historical high for 4Q) and the average number of social interactions increased 116% yoy to 10.1bn in 4Q21, reflecting high user stickiness and engagement. In Jan 2022, Bilibili’s MAU reached 300m with a record-high time spent of over 90min. Management maintained its previous guidance of 400m MAU by the end of 2023.
Revenue outlook and cost-control measures
Bilibili will focus more on revenue growth than user growth in the next few years. In FY21, revenue growth from advertising and live broadcasting were both over 100%, and management expects the high growth trend to continue. In FY21, advertising revenue was 23% of total revenue; management expects it to be over 30% in FY24F. Mobile game revenue growth is expected to be flat yoy in FY22F, with the main contribution from overseas markets, given the continued suspension of new game licenses in China. Bilibili plans to strengthen cost control to improve profitability. It will improve revenue per MAU and enhance internal circulation between content creators and live broadcasting hosts to minimize its dependence on expensive external hosts, thus improving the gross margin. Revenue per MAU increased by 20% yoy in FY21, driven by more value-added services for users. In FY22F, Bilibili plans to gradually cut its selling and marketing expenses ratio by reducing unnecessary promotion spending in the unfavorable policy environment. But it will not reduce its R&D expenses, as it is focusing on self-developed mobile games and hopes to see some progress in this segment in FY23F. New staff recruitment will be low, as the self-developed game team is adequate for the next few years.