Bilibili Quarterly Report: Gathering Scarce Targets for Generation Z

Looking around the entire Chinese Internet, Bilibili is the most scarce target:

It has over 100 million daily activities, a steady stream of highly engaged and continuous young users, and has yet to dive deep into the e-commerce business. As an independent “third party” traffic pool, to this day, no platform or brand chamber of commerce doesn't pay attention to the traffic here; this special position makes Station B the only video platform that can achieve a large open loop, and can import its own traffic into any e-commerce platform.

Earnings summary:

One core that has plagued the market value of Station B for a long time is the company's ability to commercialize. In the fourth quarter and throughout 2023, Station B has achieved a return in operating cash flow and officially has continuous hematopoietic capacity. According to CEO Chen Rui's disclosure during the conference call, with the support of good operating data, Station B advanced its profit forecast from the previous 2024Q4 to 2024Q3.

Station B received far more advertising revenue growth than its peers, proving the financial content of independent third-party traffic pools in today's Chinese-language Internet world. As a typical business model for technology companies, the advertising business will lay the foundation for Station B's future growth.

In the game business over the past year, Station B has adopted very effective cost control and strategic focus. The test data for SLG's “Three Kingdoms Plan the World”, which is currently being launched in May, is very good. As long as this game can achieve the expected performance, it can reverse the market's negative view of the company's game business. The biggest difference in expectations also comes from here.

Here is Station B's financial data for the fourth quarter and full year of 2023. Although profit has not been achieved yet, it has made great progress. In the fourth quarter of 2023 and the full year, Station B achieved net revenue of 6.3 billion yuan and 22.5 billion yuan respectively, up 3% year on year; net loss was 1.3 billion yuan and 4.8 billion yuan, respectively, down 13% and 36% year on year, respectively; and adjusted net loss was 560 million yuan and 3.4 billion yuan, down 58% and 49% year on year, respectively.

Among the various financial data, what is very noteworthy is operating cash flow. As an indicator for measuring a company's ability to continue operating its main business, net inflows of 640 million yuan and 270 million yuan were respectively in the fourth quarter of 2023, while net outflows of 710 million yuan and 3.9 billion yuan were net outflows for the same period in 2022. This also means that Station B already has the capacity for sustainable hematopoiesis, and another highlight of the financial report is excellent cost control in 2023.

In 2023, Station B's operating costs were 17.1 billion yuan, down 5% year on year, and total operating expenses were 10.5 billion yuan, down 14% year on year. Among the three fees, apart from the 6% drop in R&D expenses, sales and administrative expenses all fell by more than double digits.

What's more worth mentioning is that the company's long-term debt plummeted from 8.6 billion in 2022 to 650,000 in 2023, while the decline in cash and cash equivalents was only 3 billion dollars. The remaining debt repayment of about 5 billion dollars may come from the company's healthy operating cash flow. From this conceptual point of view, Station B is no different from a company that has already made a profit.

As we all know, Station B's profit problem can be said to be the biggest concern about the company's market capitalization. No matter how much good news the company has released to the market, there are people who talk about this. However, with the current hematopoietic capacity and cost control capabilities of Station B, achieving profit in 2024Q3 is not a problem.

On the business side, we've always believed that advertising is the cornerstone of this company. As a unique independent traffic pool, the hundreds of millions of highly sticky young users on Station B are what all big platforms and big brands are experiencing bottlenecks in growth today. In 2023, in the maternal and child category, the new customer rate of users brought by Station B to brands and e-commerce platforms was as high as 90%, which is enough to show their scarcity and appeal to advertisers.

In the fourth quarter and full year of 2023, Station B's advertising revenue reached 1.9 billion yuan and 6.4 billion yuan, up 28% and 27%, respectively, the fastest growing rate among all of Station B's businesses. At the same time, the advertising growth rate far exceeded the GDP growth rate during the same period, which is also much higher than that of other tech giants that mainly focus on advertising revenue. Among them, performance advertising increased 50% year-on-year throughout the year, and more than 3 million app owners received revenue, making it a win-win situation.

The content of Station B depends on these multi-talented UPs. To put it bluntly, only if they can make money can Station B go further and be better. Therefore, there is no need to worry about whether Station B is a patch advertisement. Performance advertising is an increasingly important means of brand and product communication. Its growth potential far exceeds that of simple sticker advertising, and it will bring better growth momentum to Station B in the future.

Finally, let's talk about games. The game business is the key to the successful listing of Station B, but now it is one of the worst performing sectors within Station B as a whole, with annual revenue falling 20% year over year. However, with Chen Rui's rethinking and layout of the game business strategy over the past year, it will also be more efficient after further contraction, and its reversal will completely change the market's unfavorable expectations for Station B.

The SLG game “The Three Kingdoms Plan the World”, which was recently closed and tested, is a great experiment for Station B after adjusting the game business. Whether it's positioning or content, this game targets the shortcomings of similar games currently appearing in the market. The data during the testing period was quite good. If they can perform the same way after the official launch, it will have a great stimulating effect on their stock price.

Therefore, the basis for growth is advertising, which is a benefit that has already been priced in the market; the explosive power comes from games, which is a difference in expectations that have not yet been captured by the market. Combined with the current stock price of Station B, their future performance may surprise you.$Bilibili (BILI.US)$$BILIBILI-W (09626.HK)$$iQIYI (IQ.US)$

Disclaimer: This article is for learning and communication only and does not constitute investment advice.

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