Can Bilibili’s stock see a post-earnings bounce?

Bilibili’s [BILI] stock cratered on Friday, dropping over 7% as part of a wider rout in China tech sectors.

The catalyst was a report in a state-run Economic Daily publishing calling on tech companies to stop relying on ‘vulgar’ videos to boost traffic, reports Bloomberg. Bilibili and other video streaming services weren’t directly named in the opinion report, but it serves as a warning notice for China’s equivalent of YouTube which is dependent on increasing users to drive revenue.  

Online video platform Kuaishou Technology dropped almost 5% in Friday’s session after the lock-up on selling its shares expired. This only underscores the nervousness around state intervention as Beijing looks to rein in its powerful tech sector.

Bilibili’s stock might see a post-earnings bounce following this week’s quarterly numbers, but longer-term Beijing’s continued intervention is likely to rattle investors.

Why should investors care about Bilibili’s stock?

Zacks suggests that a solid line up of content and games, along with an increased online advertising presence has helped Bilibili grow its top line numbers. Investors will be looking for Bilibili to continue its growth story in the upcoming earnings.

In the first quarter, Bilibili’s revenue came in at RMB3,901.1 million (US$595.4 million), a 68% increase from the same period in 2020. Revenue from what Bilibili’s classes as ‘value add services’ increased 89% year-on-year during the quarter, surging to RMB1,496.5 million (US$228.4 million).

Bilibili said this was due to its monetization efforts, leading to an increase in the number of paying users for value-added services like its premium membership program and live broadcasting services. Average number of paying users hit 20.5 million in the first quarter, a 53% increase from the same period in 2020. Overall, monthly average users reached 223.3 million, and mobile users came in at 208.5m, up 30% and 33% respectively.

Investors will look out for advertising revenue growth. In the previous quarter ad revenue jumped a massive 234% year-on-year to come in at RMB714.7 million (US$109.1 million).

Bilibili backs China Telecom

Bilibili has invested RMB500 million in China Telecom, picking up 110.4m newly issued shares and sponsoring the telecom major ahead of its listing on the Shanghai Stock Exchange.

China Telecom is seeking to raise up to 54.2bn yuan ($8.4bn) for a listing in Shanghai after being delisted three years ago from the New York Stock Exchange following an executive order from President Trump.

For Bilibili, backing China’s biggest fixed line operator makes sense politically - other investors include big state firms - while opening up opportunities to grow its user base, raise brand awareness and cloud services. Bilibili’s stock purchase will be subject to a 36-week lock-up period. Huawei was the biggest investor, agreeing to buy 220.7m shares in the telecommunications provider.

When is Bilibili reporting Q2 earnings?

19 August

What is Wall Street expecting?

Eight analysts polled by Marketingsentinel.com expect Bilibili to post a loss of $0.41 per share, up from the $0.2 loss per share in the same period last year. Revenue is forecast at $663.97m, up 70% on the $389.91m seen last year.

For the full year, revenues are expected to increase 69.9% to come in at $3.01bn for the full year, rising to $4.34bn in 2022.

In July, CLSA analyst Elinor Leung downgraded Bilibili from ‘buy’ to ‘outperform’. The analyst said that while second-quarter revenue is likely to be in line with second-quarter guidance, game revenue and margins might disappoint. Leung trimmed her price target from $128 to $114 - a 54% upside on Friday’s close.

Analysts have pinned a $146.24 average price target on Bilibili’s stock, based on data from Yahoo finance. Of the 31 analysts offering recommendations in July, 13 rated Bilibili’s stock a ‘strong buy’ and 18 a ‘buy’.