The first of two fast-growing Chinese streaming video companies going public this week hit the market on Wednesday, and it didn't go well. Bilibili (NASDAQ:BILI) priced at $11.50 -- the midpoint of its range -- only to open just shy of $10. The debutante would go on to make back most of those initial losses, but the first day's close of $11.24 officially makes it a broken IPO.
It's a rough week to go public. Many tech stocks are taking their lumps, and there's still fallout from last week's decline for Chinese growth stocks as fears of a trade war with the U.S. began to percolate when tariffs and retaliatory tariffs were introduced. With anime community Bilibili stumbling out of the gate, we now turn our attention to Baidu's (NASDAQ:BIDU) iQiyi. China's leading video streaming hub priced its IPO at $18 on Wednesday night, and it starts trading shortly after Thursday's market open.
Bilibili don't be a hero
There's a lot to like about Bilibili, and it could've been a hot IPO under better market conditions. Bilibili began as a content community for fans of anime, comics, and games. It has since evolved into an online entertainment hub for anime videos, live broadcasting, and (more importantly these days) mobile games. Monthly active users grew by 45% last year, going from 49.4 million to 71.8 million. Monthly active users averaged 76.4 million through the first two months of this year.
Bilibili users spend a lot of time on the platform, a good thing for a company that derives most its revenue from mobile games and online ads. The average active user spends a whopping 76 minutes a day on the platform, making it one of China's stickiest entertainment hubs. We're also talking about a young crowd, as 82% of its audience is 18 or younger.
There are some knocks on Bilibili. Just 1.1 million of its users were paying members at the end of last year, a mere 1.5% of its base of monthly active users. The silver lining there is that folks that are paying are shelling out more than twice as much per person as they were a year ago. Another knock is that it generated 83% of its revenue from mobile games, something that can be problematic since it relies on third-party developers for most of its diversions with one game in particular accounting for the lion's share of its revenue.
At the end of the day, it's hard to ignore growth. Revenue clocked in at $379.4 million in 2017, 372% higher than the $80.4 million it rang up a year earlier. Bilibili is still not profitable, but net losses narrowed substantially last year.
Heady top-line growth and bottom-line challenges are themes echoed at iQiyi, China's largest streaming video service in terms of total user time spent and monthly active users. iQiyi reaches 421.3 million monthly active users, and 50.8 million -- or 12% of them -- are paying accounts. Revenue rose 55% to $2.7 billion last year, though unlike Bilibili, we're seeing the streaming video giant's deficit widen.
Pricing on Wednesday night at $18, splitting the difference of its midpoint is another thing that both Bilibili and iQiyi have in common. There is more revenue balance at iQiyi, with 47% of its business coming from online advertising and 38% from membership services. It's also a larger company with a better-known brand, generating more than seven times the revenue of Bilibili. They are both dynamic companies, but the timing of their debuts is far from ideal.