1. Operating conditions: User traffic on the 2024Q1 platform is expected to maintain healthy growth. MAU will increase 7% year over year to 336 million, DAU will increase 9% year over year to 102 million, DAU ratio will increase, and user stickiness and activity indicators will improve.
2. Main financial indicators: Bilibili is expected to achieve operating income of 5.6 billion yuan (YoY +10%, QoQ -12%) in 2024Q1, gross margin is expected to increase to 26% year on year (yoy+4pct, qoq+ remains flat), operating expenses ratio 44% (yoy-5pct, qoq-3pct), various expense ratios continue to improve year on year, with adjusted operating loss of 60 billion yuan, and adjusted net loss of 490 million yuan, all narrowing significantly year-on-year.
3. Business breakdown: 1) The mobile game business is expected to decline 10% year-on-year in 2024Q1. Short-term pressure is mainly affected by factors such as the decline in the flow of old products and the lack of new game launches in the quarter. The quarterly mobile game growth rate is expected to show a low and high trend throughout the year. The 2024 game strategy will focus more on core high-quality products. Currently, the three new games, “Something New,” “Three Kingdoms: Designing the World,” and “Blazing Sky”, have all received edition numbers. They are expected to be launched in the next few quarters, which is expected to bring more growth to the game business in the second half of the year. 2) The advertising business is expected to grow 28% year-on-year in 2024Q1, showing strong growth resilience. We believe it is mainly driven by games, FMCG, e-commerce and other categories. With the deepening of the commercialization process, Station B's advertising system continues to be improved, further improving advertising efficiency. In March 2024, Station B launched a new marketing tool, “Hot Promotion”, on the mobile terminal. The product integrates personal services from “Takeoff Promotion”, is systematically upgraded based on the original tool, and adds marketing and management services in addition to optimizing functions such as content heating, live streaming, and account growth. 3) The value-added business is expected to increase 15% year-on-year in 2024Q1, the live streaming business will maintain healthy growth, and the membership business will be relatively stable. Station B continues to develop diversified live streaming formats. Different categories such as game live streaming, entertainment live streaming, virtual live streaming, and knowledge live streaming are booming, complementing each other with the video ecosystem.
The profit forecast and investment rating take into account the short-term pressure on the company's game business. We adjusted the company's profit forecast. The company's revenue for FY2024-2026 is 259/299/33.9 billion yuan, respectively, NON-GAAP net profit of -9.8/8.4/17.01 billion yuan, and the corresponding PS is 1.3x/1.1x/1.0x, respectively. The company's platform content ecosystem has deep barriers, and user participation and retention rates have been steadily improving. We have given it a 2024 target MAU valuation of 120 yuan corresponding to a market value of 42.5 billion yuan, a target PS 1.8X corresponding to a target market value of 46.7 billion yuan, a SOTP valuation of 46.1 billion yuan, corresponding to a compromise target market value of 45.1 billion yuan, and a target price of 107 yuan/118 HK$118 in 2024, maintaining a “buy” rating.
Risks suggest that macroeconomic growth falls short of expectations, game version acquisition, game development and launch falls short of expected risks, increased competition risks, risk of loss of users, risk of Internet valuation adjustments, policy supervision risks, etc.