A paradise for young people, commercialization has accelerated across the board. For the first time, Bilibili, which gave a “buy” rating, started with an ACG vertical video site, built a Z+ generation park, and gradually broke through the dimensional barrier and transformed into a diverse cultural community. We are optimistic that the company will continue to attract users with high-quality content, retain users with a community atmosphere, and fully monetize through games, value-added services (membership), advertising, IP monetization, etc. As the Z+ generation group of core users ages, increases in income, and the rise of spiritual consumption that pursues emotional value, it has great potential for monetization, commercialization or acceleration, and space can be expected. We predict that the company's net profit for 2024-2026 will be -1.379/0.029/0.743 billion yuan respectively, EPS corresponding to current share capital will be -3.3/0.1/1.8 yuan, respectively, and the current stock price corresponding to 2026 PE will be 66.2 times. First coverage, giving a “buy” rating.
Approach: Attracting users with high-quality content and retaining user PUGV with a community atmosphere as the core of Bilibili's content ecosystem. 2024Q1 PUGV and Story Mode contributed more than 95% of the platform's video playback volume. As the needs of Gen Z+ users changed, the content of the platform continued to expand, gradually expanding from the original four zones of animation, music, games, and entertainment to more than 30 major divisions, covering all aspects of Gen Z+'s life, while also attracting users of other age groups and sinking markets, and continuously expanding user coverage. The platform establishes a virtuous “UP master-user” cycle, creates a young cultural community through circle social networking, barrage mechanisms, etc., and enhances user stickiness. We believe that there is a bilateral network effect on the growth of Bilibili's UP subscribers and users, which can bring positive externalities to community building and help the platform build strong competitive barriers.
Traffic is still growing. With the rise of games, membership, advertising, and IP monetization, the commercial space can be expected to be 25-35 year old users or still the core user group of Bilibili. At the same time, with the expansion of diversified content, the platform is expected to continue to attract more older and younger users. The expansion of multiple platforms and multiple scenarios will also help increase platform penetration. Story Mode developed rapidly, and the platform moved from video to full-length coverage, or continued to seize users' time and open up traffic monetization space. The company has a strong foundation in the Z+ generation. As core users age and consumption capacity increase, it may enter a “golden period” of commercialization after 3-5 years. In terms of games, “Three Kingdoms: Determining the World” released by the company performed brilliantly. After launch on June 13, it remains in the top 5 iOS bestsellers, and is expected to contribute considerable performance growth, expand new categories or further open up room for growth; in terms of advertising, as platform resources are opened up, infrastructure is continuously improved, integrated marketing or increased single-user advertising value, driving the continuous growth of the advertising business; in terms of value-added services (membership), the payment rate and ARPU value may further increase, and IP monetization or continue to expand incremental space.
Risk warning: User growth falls short of expectations; game revenue falls short of expectations; advertising revenue falls short of expectations, etc.