Incident: In 2024Q2, Bilibili achieved operating income of 6.127 billion yuan, a year-on-year increase of +16%, and an adjusted net loss of 0.271 billion yuan, a year-on-year narrowing of 72%. The adjusted net loss rate fell to 4% from 18% in the same period last year.

Comment: “Three Tricks” performed well, and game revenue improved year over year. 2024Q2's game revenue was 1.007 billion yuan, +13% year over year, mainly driven by “Three Kingdoms: Seek the World” and “Tomorrow's Ark”. Among them, “Three Kingdoms: Seek the World” became the company's fastest game to reach 1 billion yuan in revenue, and after S2 was released in August, it once again broke into the top three iOS game bestsellers. As an SLG game with a long life cycle, it is expected to achieve long-term operation in the future. In addition, other old games also contributed to steady performance, and “Fate/Grand Order” returned to the top ten iOS game revenue rankings during the 8th anniversary event in July. “Blue Line” monthly active users also reached a new high when celebrating its 7th anniversary in June.

Advertising has maintained strong performance, and e-commerce for video and live streaming has sufficient growth momentum. 2024Q2 achieved advertising revenue of 2.037 billion yuan, +30% over the same period. The company continued to improve advertising products and infrastructure to improve advertising efficiency, including upgrading the advertising system, introducing new delivery tools, and improving advertising modeling capabilities, etc., to attract and retain more advertisers. At the same time, more native video-style ad content was introduced to enhance the user experience. Looking ahead, the company still has a lot of room for growth in video and live e-commerce, and it is expected that it will continue to provide advertising growth momentum in the future.

The number of users is growing steadily, and we continue to explore value-added business opportunities. 2024Q2's DAU was 0.102 billion, +6% year over year, MAU was 0.336 billion, +4% year over year, average daily usage time was 99 minutes, +5% year over year, and users maintained a steady growth trend. User-based value-added services also continue to be enriched. The company achieved revenue of 2.57 billion yuan in 2024Q2, +11% over the same period, added more content products to the live streaming business, and continued to explore other value-added business opportunities. The number of company members reached 22.3 million, +9% over the same period last year. More than 80% were users with annual fees or automatic renewal, and the retention performance was good.

Gross profit margins continued to increase, and operating expenses were further optimized. The company's gross margin reached 29.9% in 2024Q2, +6.8pcts year-on-year, mainly due to the high margin gaming and advertising business maintaining a good momentum, and is expected to further increase gross margin through improved revenue structure in the future. On the other hand, the company's sales/management/R&D expense ratio was optimized by 0.4 pcts/2.2 pcts/5.1 pcts year-on-year, and operating efficiency continued to improve.

Investment advice: The company is expected to achieve revenue of 26.704/30.12/32.767 billion yuan in 2024-2026, +19%/13%/9% year over year, adjusted net profit of -0.116/1.62/2.411 billion yuan in 2024-2026, -97%/-1501%/+49% YoY, and the corresponding PE for 2025-2026 is 27x/18x, maintaining a “buy” rating.

Risk warning: game flow is declining, platform competition is intensifying, advertising growth is slowing