According to the research report released by First Shanghai, Bilibili-W (09626) has a "buy" rating and is expected to have revenues of 26.4/29.1/30.9 billion yuan from 2024 to 2026, with a three-year CAGR of 11.2%, and a target price of HKD 156.23. The company's Q1 revenue was 5.66 billion yuan, up 11.7% year-on-year, slightly higher than market expectations; gross margin was 28.3%, up 6.5pcts year-on-year. The revenue in the next quarter is expected to achieve double-digit growth, with a slight increase in gross margin, and it is expected to achieve Non-GAAP operating profit breakeven in Q3.

First Shanghai's main points are as follows:

Advertising and live broadcasting businesses have strong growth momentum, actively exploring more advertising scenarios:

Q1 advertising revenue increased 31.2% year-on-year to 1.67 billion yuan, among which the revenue of performance advertising increased by 50%. The continuing synergy effect of Huohua platform on the advertising system continues to boost the growth of advertising business, which includes various advertising scenarios such as search, content, and commercial advertising. Q1 value-added service revenue increased by 17.3% year-on-year to 2.53 billion yuan, mainly due to the company's exploration of content payment models such as virtual anchors and charging modes. During the 618 period, the company's GMV for live broadcasting increased by 146% year-on-year, and advertising revenue increased by 93% year-on-year, mainly due to advertising placement on e-commerce platforms. In the subsequent quarters, the company will continue to explore more advertising scenarios, and the bank expects the annual advertising revenue growth rate to be 24%.

User scale steadily grows, reducing costs and increasing efficiency to improve gross margin:

In Q1, the company's DAU increased by 9.0% year-on-year to 0.1 billion; MAU increased by 8.3% year-on-year to 0.34 billion; official memberships increased by 15.1% year-on-year to 0.24 billion, among which the number of paying members reached 21.9 million; the average daily usage time per user was 105 minutes. This quarter, gross margin increased by 6.6/2.2pcts year-on-year and quarter-on-quarter respectively, while marketing/administrative/research and development expenses decreased by 1.0/3.2/1.9pcts year-on-year, respectively.

"Three Kingdoms: Strategy for the World" is expected to drive the recovery of the gaming business in the second half of the year:

After the SLG game "Three Kingdoms: Strategy for the World" was launched in June, it ranked in the top three of the iOS bestseller list, with expected revenue of 3 billion yuan in 2024. According to the proportion of revenue sharing of the agency game, the company can obtain 70% of the game revenue. Based on the long-term revenue situation of SLG games, it is expected that the revenue of "Three Kingdoms: Strategy for the World" in 2025 will reach 5 billion yuan, contributing 3.5 billion yuan to the company's revenue.