China's hotbed of young anime fans is drawing more attention on Wall Street. UBS analyst Angela Xu initiated coverage of Bilibili (NASDAQ:BILI) with a buy rating on Wednesday. She sees the fast-growing online community as uniquely positioned to cash in on the video content and games that are proving magnetic to its young users.

Xu feels that Bilibili is still in the early innings of the monetization process. She's not alone. Wall Street pros see revenue tripling in three years. Xu is slapping a $23 price target on the stock, offering more than 30% of upside form current levels. 

Bilibili artwork of anime characters floating into a cloud.

Image source: Bilibili.

Drawn to growth

Bilibili is growing at a heady pace. Revenue rose 57% to hit $168 million in its latest quarter. The red ink widened in the process, but analysts aren't expecting profitability anytime soon. Bilibili's community continues to grow; it closed out 2018's final quarter with 92.8 million average monthly users, a 29% ascent over the past year. Revenue is growing roughly twice as fast, a testament to Bilibili's stickiness as well as its improving skills at monetizing its traffic.

Revenue growth actually accelerated from the 48% gain it posted in the third quarter, and its user base gain also picked up the pace from its 26% showing in the prior period. Bilibili's guidance calls for top-line growth to decelerate to 45% for this year's first quarter, but it has already established itself as a serial low-baller with its quarterly outlooks. 

Bilibili has had a wild ride since going public at $11.50 13 months ago. The shares peaked at $22.70 in June, only to plummet to the single digits later in the summer as investor concerns about Chinese growth stocks in general and regulators cracking down on video games in the country in particular crushed the stock. Bilibili has been clawing its way back up ever since.

The stock has been recovering nicely this year, though it cooled off earlier this month after the company completed a convertible bond and secondary stock offering. The shares have slipped below the $18 price of Bilibili's follow-on offering. Xu at UBS is stepping up in the lull, and her $23 price target would be an all-time high for the shares. 

Bilibili isn't a household name even for Chinese growth investors, but it's an intriguingly positioned dot-com. Mobile gaming is its largest revenue generator, but it's also growing even faster in advertising, live broadcasting, and value-added services. Its young audience -- 82% of its users were 18 or younger at the time of last year's IPO -- is one that marketers struggle to reach these days. Bilibili is convincing more of its users to pay for premium access, and the bullish thesis here is that the regulars will stick with the platform even as they age into the workforce with more disposable income in their pockets. In short, the game is just getting started.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.