Incident: Bilibili announced 24Q2 results. In addition, the company achieved operating income of 6.127 billion yuan, a year-on-year increase of 16%; achieved gross profit of 1.833 billion yuan, a year-on-year increase of 49%; achieved a net loss of 0.608 billion yuan, a year-on-year narrowing of 61%; achieved an adjusted net loss of 0.271 billion yuan, a year-on-year decrease of 72%; in addition, the company achieved operating cash flow of 1.751 billion yuan in the same period last year. yuan.
Platform traffic is rising steadily, driving the steady growth of the company's value-added business revenue. In 24Q2, Bilibili DAU was 0.1023 billion people, up 6% year on year; MAU was 0.336 billion, up about 4% year on year; the average daily usage time of a single user increased from 94 minutes in the same period last year to 99 minutes. Overall, the company's 24Q2 user stickiness continued to rise, driving an increase in the number of paying users for conference members, live streaming, and other value-added services. The company achieved value-added service revenue of 2.566 billion yuan in 24Q2, an increase of 11% over the previous year. Looking backwards, benefiting from a steady increase in platform traffic, the company's value-added business revenue is expected to maintain a low double-digit year-on-year growth rate.
The external environment improved the optimization of superimposed advertising products, and the advertising business maintained strong growth. The company's 24Q2 advertising business achieved revenue of 2.037 billion yuan, an increase of 30% over the previous year. We believe that the main reasons for maintaining strong growth in the advertising business include (1) the gradual improvement of the external environment, such as the game industry, which is the company's main advertiser, and the distribution of game versions drives an increase in advertising investment; (2) continuous improvement of advertising infrastructure construction, including link data after connecting with platforms such as JD and Taobao to help advertisers measure delivery results, optimize ad matching algorithms, and launch and optimize automated advertising products. We believe that as the company's advertising infrastructure continues to improve the differentiated traffic structure of superimposed platforms, the company is expected to continue to seize the online advertising market share.
Furthermore, the number of KA advertisers for the company's performance advertising increased by 50% year-on-year in the first half of the year. We believe that as the share of high-margin performance advertising revenue continues to increase, the company's gross margin will also rise accordingly.
The launch of “Three Tricks” has boosted the growth of the game business, and attention is being paid to the long-term operation of games. The company's 24Q2 game business achieved revenue of 1.007 billion yuan, an increase of 13% over the previous year. We believe it was mainly driven by the company's launch of the new exclusively licensed game “Three Kingdoms: Seek the World”. In addition, the flow of the old games “FGO” and “Blue Line” remained stable. We believe that by reducing liver krypton and optimizing gameplay, the game lowers players' card withdrawal and development thresholds, thereby increasing player stickiness while attracting young users. According to Qimai's data, we estimate the game's first-month omni-channel revenue of about 0.8 billion yuan. Currently, “Three Tricks” has begun the S2 season, adding generals and tactics. At the same time, changes to the “hegemonic” rules will increase the level of competition between “alliances”, which we believe will increase the stickiness and flow of the game. Since the beginning of the S2 season, the “Three Masters” iOS game has basically remained in the top ten ranking, and remained in the top five best sellers from August 17 to August 22. Considering the SLG game deferral cycle, we expect that most of this game's revenue will be included in Q3, driving the year-on-year growth rate of game revenue to continue to increase. We believe “Three Tricks” has verified the company's ability to operate outside of ACG games, and it is recommended to pay attention to its subsequent operations, such as bestseller rankings, player retention, etc.
Investment advice: We expect the company's gross margin and adjusted net interest rate to continue to increase as the share of high-margin advertising and game business revenue increases and the share of value-added business decreases, compounded by corporate expense control. Furthermore, with the healthy development of the company's various businesses and the release of game revenue, we expect that Bilibili may achieve a positive adjusted net profit in 24Q3. We expect the company to achieve revenue of 27/30.9/34 billion yuan in 2024-2026; adjusted net profit of 0.17/2.253/4.146 billion yuan; corresponding to 25/26 PE, 18.2/9.9 times, respectively, to maintain a “buy” rating.
Risk warning: Competition in the video industry intensifies; macroeconomic fluctuations; user growth falls short of expectations; commercialization falls short of expectations.