Shares of Bilibili (BILI 3.82%) rallied after the Chinese tech company posted its third quarter earnings on Nov. 20. Its revenue rose 48% annually to 1.08 billion RMB ($157 million), clearing estimates by $9 million but representing a deceleration from its 76% growth in the second quarter.

On the bottom line, Bilibili reported an adjusted net loss of 203 million RMB ($30 million), compared to a loss of just 2.9 million RMB a year earlier, as its adjusted loss of $0.10 per ADS met analyst expectations. On a GAAP basis, its net loss widened from 14.6 million RMB to 246 million RMB ($36 million).

Bilibili's banner.

Image source: Bilibili.

Those numbers seemed mixed, but the stock rallied 11% on Nov. 21 and closed above $15 -- about 30% above its IPO price. Is it finally time for Bilibili's stock to take off?

An evolving business model

Bilibili's platform mainly caters to China's Gen Z users born between 1990 and 2000, who accounted for 82% of its monthly active users (MAUs) during the third quarter. Its total MAUs grew 26% annually (and 9% sequentially) to 93 million, as its average user spent 85 minutes per day on its platform (excluding mobile games).

Bilibili generated over 80% of its revenue from mobile games in 2017, with Fate/Grand Order and Azur Lane being its top titles. The company's steady dependence on these two older games insulates it from the recent freeze on new gaming approvals in China.

To reduce its dependence on two hit games, Bilibili is expanding its ecosystem into adjacent markets like streaming videos, online ads, and e-commerce. CFO Sam Fan believes that expansion will reduce mobile games as a percentage of Bilibili's revenues to 50% within three to five years. Its gaming revenues accounted for just 69% of its top line during the quarter, compared to 77% in the year ago quarter.

Live broadcasting revenues accounted for 16% of Bilibili's top line, advertising revenues accounted for 13%, and the remaining sliver came from its "other" businesses, which include a fledgling e-commerce platform that sells licensed and tie-in products. Three of the four businesses generated strong annual revenue growth during the quarter, but their sequential growth looks less dazzling.


YOY revenue growth

QOQ revenue growth

Mobile games



Live broadcasting



Online advertising









Source: Bilibili quarterly reports.

Most of Bilibili's growth comes from its paid subscribers for its video platform and its online advertising businesses. Its paid live broadcasting users jumped 175% annually to 2.5 million during the third quarter.

A young woman streams a live video broadcast.

Image source: Getty Images.

To expand its video ecosystem, Bilibili recently acquired a minority stake in Japanese animation studio Fun-Media to expand its streaming anime portfolio, and partnered with Tencent (TCEHY 0.94%) to launch more streaming anime shows and new mobile games. Tencent also invested $318 million in Bilibili to widen its moat against ByteDance's Gen Z-oriented apps like TikTok.

Bilibili also recently partnered with Japanese mobile game maker Gree to develop more games for Japanese gamers, many of whom already play Fate/Grand Order or Azur Lane. That move should further insulate its gaming business from the ongoing approval issues in China.

But here's the problem: Bilibili only expects to generate 1.04 to 1.08 billion RMB in revenue for the fourth quarter, which represents a 4% decline to flat growth from the third quarter. That sequential slowdown indicates that Bilibili could face tough year-over-year comparisons next year.

Surging expenses and widening losses

Meanwhile, Bilibili's operating expenses surged 120% annually to 454 million RMB ($66 million) during the quarter, which outpaced its revenue growth. Its selling and marketing expenses jumped 163% on higher costs for promotions and offline events; R&D expenses rose 96%, and general and administrative expenses climbed 93%.

During the conference call, Fan attributed those big increases to the company's "peak user acquisition time" during the third quarter. Fan claims that the company will "see better operational leverage" as those investments pay off, but it's unclear when the company's losses will stabilize.

Fierce competition from rival Gen Z platforms, like ByteDance's TikTok and Xigua, could force Bilibili to keep spending aggressively to keep pace. The company will also likely struggle as a depreciating RMB makes its stock less appealing to U.S. investors.

Not ready for blast off... yet

Due to all those headwinds, Bilibili's stock doesn't look cheap at 7 times this year's sales. Investors looking for more stable long-term plays on China's gaming or social media markets should stick with established market leaders like Tencent instead.