Bilibili (NASDAQ:BILI) is anything but a household name in this half of the world, having only been a publicly traded entity for a little over a year, and only doing business in China. But, BILI stock may well be a pick North American investors would be wise to add to their portfolios. It’s a growth machine like no other, striking a chord with a Chinese demographic that’s proven tough to excite.
Perhaps more important to current and prospective shareholders, analysts believe Bilibili is setting up to swing to a profit next year. And, given its habit of over delivering, that could happen even sooner than expected.
In that light, the modest weakness BILI stock has suffered since early March — down 7.6% vs. a 3% gain in the Nasdaq Composite index — may be a buying opportunity ahead of the earnings report on tap for May 13.
Bilibili is … difficult to explain to adults. But, China’s teens know it well. Bilibili is an entertainment website that lets users post messages about brief videos — including videos they’ve uploaded — in real time, effectively captioning those videos in real time. It’s more than a Twitter (NYSE:TWTR), and not quite a YouTube. It’s closer to a Weibo (NASDAQ:WB), but focused on the anime and comics young people love.
Oh yeah, video games. Bilibili offers access to a variety of mobile games.
Tong Chen, managing director of Beijing investment firm IDG Capital — which has a position in BILI stock — explains “In China, there isn’t any similar platform of this scale, and it is keeping users highly engaged.”
The appeal is challenging to pin down nonetheless. School-aged children, who make up more than 80% if Bililbili’s user base, live in their own secretive subculture. Given last quarter’s 29% increase in total monthly users and 37% growth in monthly mobile users, however, it’s clear that fickle teenagers are enjoying what they’re getting even if they themselves can’t define why its typical user is spending more than an hour per day at the site.
Like Twitter’s early days, and Weibo’s, and Facebook’s, Bilibili hasn’t cared that it’s in the red. Recently ramped-up efforts to push paid memberships appears to be paying off though, putting actual profits in sight.
Fiscal Turning Point
With just a quick glance, it would appear the company’s losses are growing as Bilibili beefs up its top line. And technically speaking, they are. For the quarter currently underway, BILI stock’s per-share losses are expected to swell from the penny per share it lost a year earlier to a dime now. For the current year, analysts are modeling a loss of 33 cents per share, versus a loss of 27 cents per share of Bilibili stock booked last year despite 2019’s forecast 55% revenue growth.
This year should mark a turning point for the company’s financials however. Next year, driven by a projected 45% increase in its top line, analysts are calling for a net profit of six cents per share. The year after that should deliver comparably-big earnings progress.
Paid memberships have proven a surprisingly potent piece of that growth.
The idea has been broached by the likes of Facebook (NASDAQ:FB) in the past, with mixed responses from users. Kids don’t have the same principles-based hang-ups, though. The number of paying users as of the end of last year was a healthy 4.4 million.
For users that aren’t paying anything, they’re still monetized via advertising. Ad revenue quadrupled last quarter, and while still a small piece of the revenue pie, Bilibili continues to refine the art and science of leveraging its brand in the tricky teen market.
The anticipated swing to a profit next year isn’t just wishful thinking.
Bottom Line for BILI Stock
It’s still not a holding for the faint of heart, or grandma’s portfolio. Aside from doing business in China behind a somewhat opaque wall, Bilibili operates in a fast-changing arena and caters to the most fickle of consumers.
Still, the story works more than well enough for the time being. It’s difficult for a would-be rival to replicate what can’t be defined, and much like Facebook before Facebook become overwhelmingly inclusive, the Bilibili platform is sticky because of the participants who are already there. Teens are unlikely to leave a well-populated group for a less-populated rival’s.
The next chapter of the story begins on Monday, with Bilibili’s first quarter numbers on tap. Analysts are calling for a loss of 11 cents per share on revenue of $188.3 million, down from the loss of 14 cents per share of BILI stock booked in the same quarter a year earlier.
As has been the case for a while, the rhetoric is likely to mean more than the numbers.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.