AI And Mobile Gaming Expansion Will Open New Revenue Opportunities

Key Takeaways

• Continued advertising growth and enhancements in ad infrastructure indicate potential for increased revenue in the upcoming year.
  
• Expansion into mobile games and AI-driven monetization strategies are expected to boost earnings and profitability.
  
• Heavy reliance on advertising and gaming revenues risks fluctuation, while substantial execution risks and high investment pressures could affect profitability and earnings.

Catalysts

Provides online entertainment services for the young generations in the People’s Republic of China.

• Bilibili's growing advertising business, with revenue increasing by 24% year-over-year in Q4 2024 and continued enhancements in ad infrastructure and efficiency, suggests further potential for revenue growth in 2025.
  
• The rapid increase in mobile games revenue, driven by successful new titles and expansions into strategic game genres, indicates a strong future revenue stream that will likely support earnings growth.
  
• The expansion and improved engagement of Bilibili's user base, particularly among China's Gen Z Plus, alongside their rising consumption demand, could significantly boost future revenue.
  
• The application of evolving AI technology, leveraging Bilibili's extensive high-quality content and interaction data, is expected to unlock new monetization opportunities, enhancing net margins and profitability.
  
• The introduction of innovative commercialization channels, such as significantly increasing creator income through programs like fan charging, indicates an opportunity to diversify revenue streams and enhance long-term earnings potential.

Bilibili Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bilibili's revenue will grow by 10.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -5.0% today to 7.4% in 3 years time.
• Analysts expect earnings to reach CN¥2.7 billion (and earnings per share of CN¥5.95) by about March 2028, up from CN¥-1.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥4.3 billion in earnings, and the most bearish expecting CN¥1.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.9x on those 2028 earnings, up from -50.8x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 17.6x.
• Analysts expect the number of shares outstanding to grow by 0.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Bilibili Future Earnings Per Share Growth

Risks

• Bilibili's growth relies heavily on its advertising and gaming revenues, which, although currently strong, could fluctuate significantly due to market saturation or regulatory changes, impacting overall revenue and earnings.
  
• The expansion into multiple game platforms and markets involves substantial execution risks, particularly in maintaining user engagement and monetization, potentially affecting net margins.
  
• Bilibili's focus on high-quality content and partnerships, such as with CCTV, while beneficial for brand recognition, may require increasing investment that could pressure short-term profitability.
  
• The company's reliance on AI advancements to leverage its data assets, while promising, presents uncertainties related to technological adaptation and potential cost implications, impacting long-term earnings potential.
  
• Despite strong user engagement, the growth of Bilibili's monetization options, like the fan charging program, must continue at a rapid pace to meet financial expectations, posing a risk to sustainable revenue streams.

Valuation

• The analysts have a consensus price target of $25.431 for Bilibili based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.93, and the most bearish reporting a price target of just $16.42.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥36.4 billion, earnings will come to CN¥2.7 billion, and it would be trading on a PE ratio of 36.9x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $22.77, the analyst price target of $25.43 is 10.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.