Incidents:

Bilibili 24Q3 achieved revenue of 7.3 billion yuan, up 26% year on year, and accelerated for four consecutive quarters, mainly driven by gaming and advertising business; adjusted net profit of 0.24 billion yuan, corresponding to a profit margin of 3.2%, achieved profit for the first time; basically in line with market expectations. Net cash flow from operating activities was $2.2 billion.

Announcing the buyback plan. The plan is to repurchase no more than $0.2 billion of shares within the next 2 years.

Key points of investment:

The number and length of users reached record highs. According to the company's financial report, the Q3 MAU was 0.348 billion, up 2% year on year and 4% month on month; DAU was 0.107 billion, up 4% year on year, and DAU/MAU increased to 30.7%; the average daily usage time per person was 106 minutes, up 6 minutes year on year and 7 minutes month on month.

“Three Kingdoms: Designing the World” contributed to strong growth in the game business. According to the company's financial report, the game's Q3 revenue was 1.8 billion yuan, up 84% year on year, and 0.8 billion yuan month-on-month; the increase contributed to “Three Kingdoms: Designing the World” (beta on June 13).

According to point data, as of November 17, the total iOS turnover of “Sanmou” was close to 1.2 billion yuan, and it is estimated that omni-channel sales exceeded 2 billion yuan (the company's game business revenue for 23 years was 4 billion yuan). The success of “Three Traces” proved B's ability to stand in a non-two-dimensional game category and focus on subsequent product performance.

The advertising business continues to soar. According to the company's financial report, advertising Q3 revenue was 2.1 billion yuan, a record high in absolute terms, with a year-on-year increase of 28%, showing outstanding performance among Internet companies. Looking ahead to Q4, GMV for Double Eleven video and live streaming increased by more than 150% year over year (over 140% during the 618 period), and the certainty of advertising growth is still high. We are optimistic about the growth potential of Station B advertising. The current high growth rate mainly reflects infrastructure optimization effects (opening up e-commerce platforms, etc.), and the commercial value for users has yet to be unleashed.

The growth rate of value-added services continues to slow. According to the company's financial report, Q3 revenue from value-added services was 2.8 billion yuan, up 9% year on year, and the growth rate declined for three consecutive quarters. Considering the base, the growth rate may move further downward. IP derivatives and others performed smoothly. According to the company's financial report, Q3 revenue was 0.57 billion yuan, down 2% year on year; non-key businesses are expected to be stable.

Make a profit. According to the company's financial report, Q3 gross margin was 35%, YOY+10pct, and QoQ+5pct, which has achieved nine consecutive quarterly increases; high-margin business games and advertising continue to grow, and fixed costs such as bandwidth and content have been diluted, and gross margin will continue to rise. Expenses are still effectively controlled. The total absolute value of the Q3 fees increased slightly compared to the same period. S&M increased in absolute value due to new game promotion, but G&A and R&D were effectively controlled.

Maintain a buy rating. Considering that Q4 still requires new travel promotion, we lowered the 24-year adjusted net profit forecast to -0.087 billion yuan (the original forecast was -0.045 billion yuan); the profit margin increase due to revenue structure optimization after next year was even more obvious. The adjusted net profit forecast for 25-26 years was 1.71/3.088 billion yuan (the original forecast was 1.512/3.067 billion yuan).

Station B users are still growing and remain highly sticky. They are optimistic that advertising potential will continue to be unleashed, and games are looking forward to new products; the company reversed losses in Q3, profits entered the release period, and medium- to long-term flexibility was high, and the purchase rating was maintained.

Risk warning: Game traffic falls short of expectations, and advertising growth falls short of expectations.