Market Overview - Chinese stocks are under scrutiny due to shifting global market dynamics, with higher interest rates expected to divert capital from riskier assets like Chinese stocks [1] - Recent military drills by China near Taiwan have added volatility to the Chinese stock markets amid U.S.-China tensions [1] - Investors are advised to be cautious when selecting Chinese stocks due to an unpredictable regulatory environment and complex geopolitical issues [1] Bilibili (BILI) - Bilibili, known as China's YouTube, has over 300 million monthly users and more than 100 million daily active users [2] - Despite a 20% year-to-date stock increase, the company faces modest growth with a year-over-year revenue growth of only 5.51%, significantly lower than its five-year average of 48% [2] - The company's financial metrics show negative year-over-year net income, EBITDA, and return on equity [2] Bilibili's Q1 Results - In its first-quarter results, Bilibili's mobile gaming segment experienced a 13.1% year-over-year revenue drop, significantly worse than analyst projections of a negative 2.8% [3] - The slowdown in the gaming segment raises concerns as the company aims to streamline operations and reduce less successful projects [3] Nio (NIO) - Nio is struggling in the competitive Chinese EV market, incurring significant losses each quarter without a clear path to profitability [4] - The stock has declined over 42% year-to-date and more than 34% last year, exacerbated by a broader market slowdown [4] - Nio's five-year average top-line growth is 899%, but its year-over-year growth is only 13%, with a negative 38% net income margin [5] iShares MSCI China ETF (MCHI) - The iShares MSCI China ETF is considered a stock to offload, as current bullishness appears to be unfounded in macroeconomic improvements [6] - MCHI is trading near its 52-week high of $44.97, with a year-to-date gain of almost 14%, but its long-term performance has been lackluster [6] - The ETF has an annualized volatility of 25%, significantly higher than the median for all ETFs, and an expense ratio of approximately 0.6%, which exceeds the median by 23% [6][7]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Insights - The company achieved revenue of 5.7 billion yuan in Q1 2024, representing a year-over-year increase of 12% and a quarter-over-quarter decrease of 11%, with adjusted net loss narrowing to 456 million yuan, a 56% improvement compared to the same period last year [2][3] - The advertising business continues to show strong growth, with Q1 2024 revenue of 1.669 billion yuan, up 31% year-over-year, driven by optimized advertising products and improved efficiency [3] - The gaming business faced temporary pressure with Q1 2024 revenue of 983 million yuan, down 13% year-over-year, primarily due to the absence of new game launches [3] - The gross margin improved to 28.3%, up 6.6 percentage points year-over-year, indicating ongoing cost reduction and efficiency enhancement efforts [3] Summary by Sections Revenue and Profitability - Total revenue for 2024 is projected to be 21.899 billion yuan, with a year-over-year growth of 12% [2] - Non-GAAP net profit is expected to improve significantly from a loss of 4.822 billion yuan in 2023 to a loss of 1.726 billion yuan in 2024, and turning positive in 2025 with a profit of 274 million yuan [2][4] Business Segments - Advertising revenue is expected to continue growing due to seasonal events and improved product integration [3] - The gaming segment is anticipated to recover with new game launches, including "物华弥新" and "三国：谋定天下" [3] Financial Metrics - The company maintains a target of turning adjusted operating profit positive by Q3 2024, supported by improved operational efficiency [3][4] - The projected price-to-sales ratio for 2024 is 1.68, indicating a favorable valuation relative to expected revenue growth [4]

Investment Rating - The report maintains a **Buy** rating for Bilibili (BILI US) with a target price of **$20.50** per ADS, implying a 49.2% upside from the current price [2][5] Core Views - Bilibili reported **Q1 revenue growth of 12% YoY** to RMB 5.67 billion, in line with expectations, while adjusted net loss narrowed by **56% YoY** to RMB 456 million, better than expected due to stronger-than-expected GPM expansion [2] - The company is on track to achieve **non-GAAP operating breakeven in Q3 2024**, supported by robust GPM expansion and efficiency improvements [2][3] - FY24 adjusted net loss forecast has been revised down to **RMB 710 million** from RMB 896 million, reflecting improved operating leverage and efficiency gains [2] Revenue Breakdown - **Advertising revenue** grew **31% YoY** to RMB 1.67 billion in Q1, driven by strong performance-based advertising growth (over 50% YoY). Q2 advertising revenue is expected to grow **27% YoY** [3] - **VAS revenue** increased **17% YoY** to RMB 2.53 billion in Q1, supported by resilient live streaming and innovative VAS services. Q2 VAS revenue is expected to grow **16% YoY** [3] - **Mobile gaming revenue** declined **13% YoY** to RMB 983 million in Q1 but is expected to grow **5% YoY** in Q2, driven by strong performance of legacy games and new game launches [3] User and Ecosystem Growth - Average DAU grew **9% YoY** to 102.4 million in Q1, with average daily time spent increasing **9% YoY** to 105 minutes [3] - Bilibili expanded collaborations with e-commerce platforms, with management expecting **over 30% YoY growth** in total e-commerce advertising budgets during the 618 shopping festival, which is expected to drive Q2 advertising revenue growth [3] Profitability and Margins - Gross margin expanded **6.6 ppts YoY** and **2.2 ppts QoQ** to **28.3%** in Q1, driven by favorable revenue mix shifts and effective cost control. Q2 gross margin is expected to further improve to **29.4%** [3] - Adjusted net loss margin improved **12.5 ppts YoY** to **-7.8%** in Q1, with the company on track to achieve non-GAAP operating breakeven in Q3 2024 [3] Financial Forecasts - FY24 revenue is forecasted at **RMB 25.49 billion**, with gross profit expected to reach **RMB 7.64 billion** (30.0% gross margin). Adjusted net loss is projected at **RMB 710 million** [9] - FY25 revenue is expected to grow to **RMB 27.66 billion**, with gross profit reaching **RMB 8.99 billion** (32.5% gross margin). Adjusted net profit is forecasted at **RMB 1.16 billion** [9] SOTP Valuation - The **SOTP-derived target price of $20.50** includes: - **Advertising business** valued at $8.5 (41.3% of total valuation), based on 15x 2024E PE [11] - **VAS business** valued at $7.5 (36.7% of total valuation), based on 2.0x 2024E PS [11] - **Mobile gaming business** valued at $4.3 (20.8% of total valuation), based on 15x 2024E PE [11] Peer Comparison - Bilibili's valuation multiples are compared to peers in online gaming and advertising, with average PE multiples of **18x** for online gaming and **15x** for online advertising [12] - In the online video segment, Bilibili's PS multiple is compared to peers like iQiyi and Mango Excellent Media, with average PS multiples of **2.0x** for FY24E and **1.8x** for FY25E [13]

Investment Rating - Maintain BUY rating with a target price of US$20.50, implying a 49.2% upside from the current price of US$13.74 [4][2]. Core Insights - Bilibili reported a 12% year-over-year increase in total revenue to RMB5.67 billion in 1Q24, aligning with estimates, while adjusted net loss narrowed by 56% year-over-year to RMB456 million, outperforming expectations [2]. - The company remains on track to achieve non-GAAP operating breakeven in 3Q24, supported by gross margin expansion and operational efficiency improvements [2]. - Advertising revenue surged by 31% year-over-year to RMB1.67 billion, driven by strong performance-based ads, with expectations for continued growth [2]. - Value-added services (VAS) revenue grew by 17% year-over-year to RMB2.53 billion, bolstered by live-streaming and innovative services [2]. - Mobile games revenue declined by 13% year-over-year to RMB983 million, but a recovery of 5% year-over-year is anticipated in 2Q24 due to new game launches [2]. Revenue and Profitability Forecasts - Revenue projections for FY24E are set at RMB25.49 billion, with adjusted net loss expected to narrow to RMB710 million [3][7]. - Gross margin is forecasted to improve to 30.0% in FY24E, with operating margin expected to reach -8.1% [7][12]. - Adjusted net profit is projected to turn positive by FY25E, reaching RMB1.16 billion [3][12]. User and Ecosystem Development - Average daily active users (DAUs) increased by 9% year-over-year to 102.4 million, with average daily time spent on the platform rising to 105 minutes [2]. - The e-commerce ecosystem is expanding, with management expecting a 30% year-over-year increase in total e-commerce ad budgets during the 618 shopping festival [2]. Valuation Breakdown - The target price of US$20.50 is derived from a sum-of-the-parts (SOTP) valuation, with contributions from advertising (US$8.5), VAS (US$7.5), and mobile games (US$4.3) [8][9].

Financial Data and Key Metrics - Total revenues for Q1 2024 reached RMB5.7 billion, up 12% year-over-year [6] - Advertising revenue grew by 31% year-over-year to RMB1.7 billion, while VAS revenue increased by 17% to RMB2.5 billion [6][20] - Gross profit rose 45% year-over-year to RMB1.6 billion, with gross profit margin improving to 28.3% from 21.8% in Q1 2023 [6][24] - Adjusted operating loss and adjusted net loss narrowed by 52% and 56% year-over-year, respectively [7][24] - Operating cash flow for Q1 was RMB638 million, demonstrating strong financial health [7][25] Business Line Performance - Advertising business saw significant growth, driven by performance-based ads, which increased over 50% year-over-year [16][29] - VAS business growth was fueled by live broadcasting, with premium membership remaining steady at 21.9 million [20] - Game business generated RMB983 million in revenue, with new game launches like *San Guo: Mou Ding Tian Xia* expected to drive future growth [21][49] Market and User Engagement - DAUs increased by 9% year-over-year to 102 million, while MAUs grew by 8% to 341.5 million [8] - Average daily time spent on the platform reached a record 105 minutes, up from 96 minutes in Q1 2023 [8][13] - AI-related content saw significant growth, with daily active content creators and video views increasing by over 60% and 80% year-over-year, respectively [11] Strategic Direction and Industry Competition - The company is focusing on enhancing commercialization capabilities, particularly in high-margin revenue streams like advertising and VAS [9][16] - AI-driven tools are being developed to improve user experience, content creation, and ad targeting [14][15] - The company is expanding its game portfolio, with new titles like *San Guo: Mou Ding Tian Xia* and *Heaven Burns Red* expected to attract a broader gamer base [21][49] Management Commentary on Operating Environment and Future Outlook - Management expects to achieve positive non-GAAP operating profit in Q3 2024, driven by sustained revenue growth and margin improvement [25][63] - The company remains confident in maintaining high growth rates for its advertising business, with expectations of over 30% growth during the June 18th shopping festival [36][40] Other Important Information - The company completed a repurchase offer for its April 2026 notes, reducing its outstanding convertible bonds to $433 million [26] - ESG initiatives were highlighted, with the company publishing its 2023 annual ESG report, focusing on technological innovation and social welfare [22] Q&A Session Summary Question: Key drivers of advertising growth and outlook for Q2 2024 - Advertising growth was driven by increased ad inventory, improved ad placement tools, and AI-driven ad efficiency [29][30][31] - The company expects over 30% growth during the June 18th shopping festival, with brand advertising revenue projected to increase by 40% year-over-year [36][37] Question: Game business outlook and expectations for *San Guo: Mou Ding Tian Xia* - The company aims to stabilize legacy games while exploring new opportunities in the gaming market [43][44] - *San Guo: Mou Ding Tian Xia* has over 2 million pre-registrations and is expected to perform well upon its June 13th launch [49][50] Question: User engagement drivers and future content categories - Strong user engagement was driven by content categories like knowledge, ACG, and tech, with emerging categories like baby and maternity showing rapid growth [55][56] - The company plans to continue enhancing its content offerings to sustain user growth and engagement [58] Question: Cost control and margin outlook - Cost control efforts led to a 2% year-over-year increase in cost of revenue, while gross profit margin improved to 28.3% [24][61] - The company expects gross profit margin to reach 30% in Q3 2024, with non-GAAP operating breakeven anticipated [63] Question: Prospects of community-based content payment business - The company has nearly 22 million premium members, with 80% on long-term subscription plans [67] - Value-added services like premium courses and fan charging videos are growing rapidly, contributing close to RMB1 billion in revenue in Q1 [69][70]

Company Performance - Bilibili reported a quarterly loss of $0.15 per share, better than the Zacks Consensus Estimate of a loss of $0.17, and an improvement from a loss of $0.37 per share a year ago, indicating an earnings surprise of 11.76% [1] - The company generated revenues of $791.16 million for the quarter ended March 2024, surpassing the Zacks Consensus Estimate by 2.08% and showing an increase from $740.92 million in the same quarter last year [1] - Over the last four quarters, Bilibili has exceeded consensus EPS estimates two times and topped consensus revenue estimates three times [1] Future Outlook - The current consensus EPS estimate for the upcoming quarter is -$0.09 on revenues of $830 million, while for the current fiscal year, it is -$0.17 on revenues of $3.48 billion [4] - The estimate revisions trend for Bilibili is currently unfavorable, resulting in a Zacks Rank 4 (Sell), suggesting that the shares are expected to underperform the market in the near future [4] - The sustainability of the stock's price movement will largely depend on management's commentary during the earnings call [2] Industry Context - The Internet - Services industry, to which Bilibili belongs, is currently ranked in the top 27% of over 250 Zacks industries, indicating a favorable industry outlook [5] - Empirical research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1, suggesting potential for growth within the industry [5]

Operational Highlights - Bilibili's DAUs reached 102 million in 24Q1[4], a 2.0x increase compared to 20Q1[6] - Bilibili's MAUs reached 341 million in 24Q1[4] - Average daily time spent per user is 105 minutes[4] Financial Performance - Total net revenues reached RMB 5665 million in 24Q1, a 12% YoY increase[67] - Value-added services revenue was RMB 2529 million in 24Q1, a 17% YoY increase[67] - Advertising revenue was RMB 1669 million in 24Q1, a 31% YoY increase[67] - Mobile game revenue was RMB 983 million in 24Q1, a 13% YoY decrease[67] - Gross profit increased by 45% YoY to RMB 1605 million in 24Q1[67] - Net loss decreased by 21% YoY to RMB 765 million in 24Q1[67] - Adjusted net loss decreased by 56% YoY to RMB 456 million in 24Q1[67]

Financial Performance - Total net revenue reached RMB 5.665 billion (USD 785 million), an increase of 12% year-over-year[6] - Advertising revenue was RMB 1.669 billion (USD 231 million), up 31% year-over-year[6] - Value-added services revenue amounted to RMB 2.529 billion (USD 350 million), a 17% increase year-over-year[6] - Gross profit was RMB 1.605 billion (USD 222 million), representing a 45% year-over-year increase, with a gross margin of 28.3%, up from 21.8% in the same period last year[6] - Net loss was RMB 765 million (USD 106 million), compared to a net loss of RMB 630 million in the same period last year[6] - Adjusted net loss narrowed by 56% to RMB 456 million (USD 63.1 million) year-over-year[6] - Operating cash flow for Q1 2024 was RMB 638 million (USD 88.3 million), compared to an outflow of RMB 630 million in the same period last year[6] - The adjusted operating loss narrowed by 52% year-over-year to RMB 512 million (USD 70.9 million)[9] - The net loss for the three months ended March 31, 2024, was RMB 764,631 thousand, an improvement from a net loss of RMB 1,296,690 thousand for the same period in 2023[21] - Adjusted operating loss for the three months ended March 31, 2024, was RMB 512,234 thousand, compared to RMB 1,065,776 thousand for the same period in 2023, indicating a reduction of approximately 52.1%[21] User Engagement - Daily active users (DAUs) reached 102.4 million, a 9% increase year-over-year[6] - Monthly active users (MAUs) hit a record high of 341.5 million, up 8% year-over-year[6] - Average daily usage time per user reached 105 minutes, marking a historical high[6] Revenue Breakdown - Mobile games revenue decreased by 13% year-over-year to RMB 983 million (USD 136 million), primarily due to declining revenue from several older games[8] - Value-added services revenue reached RMB 2.529 billion (USD 350 million), up 17% year-over-year, driven by growth in live streaming and value-added services[8] - Advertising revenue increased by 31% year-over-year to RMB 1.669 billion (USD 231 million), attributed to improved advertising product optimization and efficiency[8] Operating Expenses and Cash Flow - Operating expenses totaled RMB 2.424 billion (USD 336 million), a decrease of 2% year-over-year[9] - Cash and cash equivalents, along with short-term investments, amounted to RMB 12.922 billion (USD 1.790 billion) as of March 31, 2024[9] - The total current assets increased to RMB 18,727,039 thousand as of March 31, 2024, compared to RMB 16,127,496 thousand as of December 31, 2023, reflecting a growth of about 16.2%[19] - The total liabilities increased to RMB 18,754,800 thousand as of March 31, 2024, from RMB 16,342,539 thousand as of December 31, 2023, marking an increase of about 14.8%[19] - The total assets rose to RMB 33,159,067 thousand as of March 31, 2024, compared to RMB 30,249,258 thousand as of December 31, 2023, representing an increase of approximately 9.9%[19] Shareholder Information - The company repurchased convertible preferred notes totaling USD 429 million (RMB 3.046 billion) in March 2024[10] - Basic net loss per share for the quarter was RMB 1.80, an improvement from RMB 3.13 in the previous quarter[17] - The weighted average number of ordinary shares outstanding for the quarter was 415,274,340, slightly increasing from 414,793,013 in the previous quarter[17] - The weighted average number of ordinary shares (basic) for the three months ended March 31, 2024, was 415,274,340, slightly increasing from 410,564,084 in the same period of 2023[21] Future Outlook - The company plans to hold an earnings conference call on May 23, 2024, to discuss Q1 2024 results[11]

Core Viewpoint - Bilibili Inc. reported a solid financial performance for the first quarter of 2024, with significant growth in revenues and improvements in operational efficiency, despite a net loss that widened compared to the previous year [2][3][4]. Financial Performance - Total net revenues reached RMB5.66 billion (US$784.5 million), marking a 12% increase year over year [2][4]. - Advertising revenues increased by 31% year over year to RMB1.67 billion (US$231.1 million) [2][4]. - Value-added services (VAS) revenues grew by 17% year over year to RMB2.53 billion (US$350.3 million) [2][4]. - Gross profit was RMB1.61 billion (US$222.3 million), reflecting a 45% increase year over year, with a gross profit margin of 28.3%, up from 21.8% in the same period last year [2][4][5]. - Operating cash flow improved significantly to RMB637.7 million (US$88.3 million) from negative RMB630.0 million in the same period last year [2][3]. User Engagement - Average daily active users (DAUs) reached 102.4 million, a 9% increase year over year, while monthly active users (MAUs) hit a new high of 341.5 million, up 8% year over year [2][3]. - Users spent an average of 105 minutes daily on the platform, marking another operational record [3]. Cost Management - Total operating expenses decreased by 2% year over year to RMB2.42 billion (US$335.7 million) [6]. - General and administrative expenses fell by 7% year over year, primarily due to lower rental-related expenses [6]. Loss Metrics - The net loss for the first quarter was RMB764.6 million (US$105.9 million), compared to RMB629.6 million in the same period last year [2][7]. - Adjusted net loss narrowed by 56% year over year to RMB455.9 million (US$63.1 million) [2][8]. Future Outlook - The company aims to enhance its commercialization capabilities and continue its path toward profitability while maintaining a focus on community engagement and content creator support [3].

Core Viewpoint - Bilibili Inc. reported a solid financial performance for the first quarter of 2024, with significant growth in revenues and improvements in operational efficiency, despite a net loss that widened compared to the previous year [2][3][4]. Financial Performance - Total net revenues reached RMB5.66 billion (US$784.5 million), marking a 12% increase year over year [2][4]. - Advertising revenues increased by 31% year over year to RMB1.67 billion (US$231.1 million) [2][4]. - Value-added services (VAS) revenues grew by 17% year over year to RMB2.53 billion (US$350.3 million) [2][4]. - Gross profit was RMB1.61 billion (US$222.3 million), reflecting a 45% increase year over year, with a gross profit margin of 28.3%, up from 21.8% in the same period last year [2][4][5]. - Operating cash flow improved significantly to RMB637.7 million (US$88.3 million) from negative RMB630.0 million in the same period last year [2][3]. User Engagement - Average daily active users (DAUs) reached 102.4 million, a 9% increase year over year, while monthly active users (MAUs) hit a new high of 341.5 million, up 8% year over year [2][3]. - Users spent an average of 105 minutes daily on the platform, marking another operational record [3]. Cost Management - Total operating expenses decreased by 2% year over year to RMB2.42 billion (US$335.7 million) [6]. - General and administrative expenses fell by 7% year over year, primarily due to lower rental-related expenses [6]. Loss Metrics - The net loss for the first quarter was RMB764.6 million (US$105.9 million), compared to RMB629.6 million in the same period last year [2][7]. - Adjusted net loss narrowed by 56% year over year to RMB455.9 million (US$63.1 million) [2][8]. Future Outlook - The company aims to enhance its commercialization capabilities and continue its path toward profitability while maintaining a focus on community engagement and content creator support [3].