1/ $BILI reported 3Q21 earnings today ended the day down 9% to $81-- almost half the price it traded at in February. Was this reaction warranted? A quick business update on Bilibili is below.
2/ Net revenues were +61% y/y to $800mn, a slight deceleration from last Q’s +72% and <1% miss vs. consensus. We will walk through their 4 segments: mobile games, VAS, advertising, and Ecom. & other.
But first on platform health...
But first on platform health...
3/ MAUs grew to 267mn, representing q/q user growth of 30mn. This is the largest growth since 1Q20 (in the crux of covid) and more than 2x as many users as they added last q. Their DAU/MAU ratio remains below peer social media though at ~27%, +50bps sequentially.
4/ With 86% of their user base born 1985-2009, they now have reached over half of all <35 year olds across all of China. A highly sought after audience for advertisers. Time spent on the platform reached 88 minutes daily, a new high, +7 mins q/q.
5/ The creator side of the platform is healthy too with monthly video submissions reaching a record >10 million. Active content creators are +61% y/y to 2.7mn. Given the competition between Douyin, Kuaishou & Tencent it is encouraging to see this strength. 
6/ On Advertising, revenues are +110% y/y and +12% q/q. While these are strong results, it is likely the regulatory environment weighed on this quarter, notably with private education companies ad spend being eliminated and mobile gaming curtailed.
7/ This quarter they rolled out improved video ads that are 2x more efficient, further integrated advertising across devices, improved targeting to increase CTRs by 30%, and expanded ad inventory beyond the traditional gaming and F&B category.
8/ Despite management’s reluctance to utilize pre- and mid-roll ads, they are experimenting with new ad formats for smart TV-based usage, which they disclosed now surpasses web-based usage and has limited (20%) overlap with web/app usage.
9/ VAS services were +95% y/y, with them adding 3.1mn paying users (MPU) to reach 24mn or an 8.9% paid penetration rate (+10bps q/q). Management credits this in part to a better content discovery algorithm.
10/ Compelling content, including the League of Legends World Championship helped. Their content pipeline remains strong with multiple animes, documentaries, and variety shows.
11/ Mobile games were a drag, only +9% y/y. However, they are becoming less reliant on their main gaming franchise (FGO) as revenues diversify with gaming just 26% of revenues this Q vs >80% just ~3 years ago.
12/ Gross margins fell 2.5 points to 19.5% as they continue to invest in more content and their revenue payout (RSA) increased. If you recall, content costs and the ultimate gross margin structure was one of the key debates in our original piece (free, link at bottom).
13/ Nevertheless, operating leverage still showed through with incremental operating margins of ~50%, but in absolute they still remain deeply negative with a total 1.8bn RMB loss for the quarter. S&M remains one of the biggest line items at ~31% of revenues…
14/ Seeing more operating leverage here will be key for them to achieve profitability in addition to holding content costs flat. RSA’s scale linearly though so they have to step into more owned content to take advantage of growing scale.
15/ Overall, there is nothing that suggests the thesis is broken from this quarter. Guidance slightly disappointed at RMB 5.7-5.8bn vs cons. 1% higher, but not game changing. Watching the margin structure and ad pricing will be critical though to success.
16/ As a bread crumb, they teased investors with some metaverse positioning. Noting a tool dubbed Virtual Uploader that leverages motion capture to turn the creator into a character in another world… metaverse anyone?
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