Bilibili: Profitability milestone achieved, core strengths yet to be fully unleashed

Introduction: Industry trends and competitive landscape still need to be viewed with caution.

Bilibili's Q4 and full-year 2025 performance reached a turning point in profitability, driven by AI-powered advertising growth and increased user activity, offsetting weakness in the traditional gaming business. AI-driven advertising tools propelled the company’s Q4 2025 ad revenue up 27% year-over-year, enabling Bilibili to achieve its first-ever full-year GAAP net profit of 1.2 billion yuan, with total annual revenue reaching 30.3 billion yuan, representing a 13% increase year-over-year.

However, the company still faces structural challenges: thin in-house game development pipelines leading to income volatility, intensifying competition from short-video platforms squeezing usage time for mid- and long-form content, and China’s declining birth rates posing risks to the future core user base.

In the short term, the company shows strong profitability and cash flow performance; however, for long-term sustainable growth, it needs to return to its core strength in content distribution, reducing heavy capital investments in gaming and AI self-research. If Bilibili fails to identify a clear and stable growth driver, it may face multi-year revenue fluctuations and stagnation in user growth.

Q4 2025 Key Performance Metrics

Bilibili released its Q4 2025 financial report on March 5, 2026. Key figures include:

- Total revenue of 8.3 billion yuan, an 8% year-over-year increase, including advertising at 3 billion yuan (+27%), value-added services at 3.3 billion yuan (+6%), gaming at 1.5 billion yuan (-14%), and IP-related and other businesses at 500 million yuan (+3%).

- Gross profit of 3.1 billion yuan, an 11% year-over-year increase, with a gross margin of 37%; non-GAAP operating profit of 800 million yuan, an 81% year-over-year increase.

- Full-year revenue of 30.3 billion yuan, up 13% year-over-year; GAAP net profit of 1.2 billion yuan (compared to a loss in 2024), adjusted net profit of 2.6 billion yuan.

- User data: daily active users at 113 million (+10%), monthly active users at 366 million (+8%), average daily usage time at 107 minutes (+8%).

– Full-year operating cash flow reached 7.2 billion yuan, with cash and short-term investments totaling 24.2 billion yuan.

Profitability milestones achieved

– Adjusted operating profit margin hit 10% in Q4 2025, with gross margin improving for 14 consecutive quarters to reach 37%, driven by cost control and advertising efficiency optimization;

– Advertising revenue in Q4 totaled 3 billion yuan, a year-over-year increase of 27%; AI-powered advertising tools boosted eCPM by over 10%, while AI-related ad budgets surged 180% year-over-year;

– Daily active users (DAU) reached 113 million, a 10% year-over-year increase; Monthly active users (MAU) grew to 366 million, up 8% year-over-year; Average daily usage time extended to 107 minutes, an 8% year-over-year rise;

– Monthly paying users amounted to 36 million, reflecting a 21% year-over-year increase, with notable stickiness among Gen Z users.

Long-term structural challenges

Despite management characterizing 2025 as a 'landmark year' for user growth and profitability breakthroughs, with AI positioned as the core growth driver, industry trends and competitive dynamics warrant caution. Key concerns are outlined below:

1. Gaming strategy: In-house development vs distribution

Bilibili is intensifying efforts in self-developed games (e.g., 'Duck Escape' sold over 3 million copies), diverging from its core strength as a content distribution platform. Platforms like YouTube and Meta avoid such high-risk investments. Self-development imposes significant capital pressures and revenue volatility. Even though gaming revenue for 2025 reached 6.4 billion yuan, a 14% year-over-year increase, R&D costs continue to weigh on profit margins.

Returning to the core of distribution, leveraging ACG community strengths in game agency and co-operation can bring more stable and high-margin revenue (such as long-term products like 'Fate/Grand Order' and 'Azur Lane'). Without a transformation, the gaming business, which accounts for about 21% of total revenue, may continue to weigh on overall performance instead of becoming a pillar of steady growth.

2. Gaps in the product pipeline and fluctuations in gaming revenue

The hit game 'Three Kingdoms Strategic Maneuver' drove gaming business growth in 2025, but gaming revenue in Q4 2025 was 1.5 billion USD, down 14% year-on-year, highlighting the volatility due to a high base effect. In 2026, the gaming pipeline ('Three Kingdoms Strategic Maneuver' going global, 'NCard' Q1 testing, 'Lumi Master' and 'Duck Escape' ported versions) will be diversified but lacks a guaranteed blockbuster; without major new releases, analysts expect gaming business growth to stabilize at around 5%.

The company mitigates volatility by extending product lifecycles (e.g., Season 11 of 'Three Kingdoms Strategic Maneuver') and adopting co-operation models, but it still needs to expand partnerships and reduce reliance on in-house R&D. Otherwise, fluctuations in the gaming business could offset advertising growth, capping overall revenue growth at 10%-12%.

3. User growth risks from short video competition and demographic shifts

Short video platforms like TikTok continue to divert time spent on mid- and long-form videos. Bilibili's CEO acknowledged a decline in daily and monthly active users in Q4 2025, despite a 20% year-on-year increase in mid- and long-form video plays over five minutes. The platform still faces industry-wide pressures.

Compounded by China's low birth rate (6.77‰ in 2024, slightly up but still at a low level), the scale of new additions to Bilibili’s core user group (90% under 35 years old) will continue to shrink, potentially leading to long-term user attrition. Without innovations like AI-driven recommendations to improve retention, monthly active user growth will further slow.

4. Profitability sustainability depends on the platform's core positioning

To consolidate 2025’s achievements of a 37% gross margin and 10% operating margin, Bilibili needs to focus on distribution, reducing heavy investments in self-developed games and AI (plans to ramp up model and tool R&D in 2026).

Adopting widely-used mature AI technologies can achieve similar efficiency improvements at lower costs. Leveraging the ecosystem for distribution is key to scalable and sustainable profit margin growth (medium-term target: gross margin 40%-45%, operating margin 15%-20%). Deviating from core investments might squeeze short-term profits and undermine profitability transformation outcomes.

Risk Factors

– Intensified competition in short video dilutes user attention and user growth is reaching its peak;

– Delays in game license approvals and content regulatory reviews impact the launch schedule of products;

– Declining birth rates exacerbate the contraction of the core user base;

– Continuous high R&D investment in self-developed games and AI fields suppresses profit margins;

– Risks associated with global expansion coupled with weak macroeconomic conditions;

Potential Opportunities

– Monetization acceleration through AI advertising and creator tools drives ad revenue growth by over 20%;

– Game pipeline and co-operation operations expected to bring significant income contribution by 2026;

– User fatigue with short videos; high-quality mid- to long-form content enhances user retention;

– Improvements in demographic structure and rising spending power of Gen Z (expected to reach $2.4 trillion by 2035) drive ARPU growth;

Investment logic and valuation

As of early March 2026, Bilibili's 2026 expected enterprise value-to-sales (EV/Sales) ratio is approximately 1.7x, lower than its industry peers, reflecting market concerns over gaming and user growth.

A sum-of-the-parts valuation (premium for advertising and user businesses, discount for gaming) suggests the company’s stock price has a potential upside of 15%-20% if medium-term profit margin targets are met; however, without stabilized growth, upside would remain limited. The stock fell about 10% post-earnings, reflecting short-term performance volatility, making it suitable for long-term investors who believe in the company’s return to core distribution strengths.

Long-term perspective

Maintain a cautious stance unless the core advantages in advertising and user segments can consistently offset fluctuations in gaming and demographic pressures, and the company clearly focuses on its platform distribution business, which would unlock long-term profitability potential.

17K Views