China-based online entertainment specialist Bilibili (NASDAQ:BILI) reported third-quarter results Monday evening. The report showed Bilibili's usual combination of skyrocketing sales and deeper bottom-line losses -- all according to plan at this stage of the company's development.

Let's take a closer look at Bilibili's third quarter.

Bilibili's third-quarter results by the numbers

Metric

Q3 2019

Q3 2018

Change

Revenue

$260.1 million

$157.1 million

66%

Adjusted net income (loss)

($48 million)

($29.7 million)

(62%)

Adjusted earnings (loss) per diluted share

($0.15)

($0.10)

(50%)

Data source: Bilibili.

What's new with Bilibili?

  • The analyst consensus had called for a net loss of roughly $0.14 per share on revenues near $249 million. Bilibili's own revenue guidance for this period stopped at approximately $255 million. Thus, it fell short of the bottom-line target by a hair even though it delivered stronger sales than expected.
  • The company reported 127.9 million monthly active users (MAUs) in the third quarter. That's a 16% increase compared to the second quarter and a 38% year-over-year boost. 89% of these MAUs used Bilibili's services at least in part through mobile apps, up from 87% in the previous quarter and 86% in the year-ago period.
  • Monthly paying users clocked in at 7.9 million names, which works out to a 25% sequential gain and a 124% increase over the year-ago reading.
  • Bilibili's stated goal is to maximize its user counts and revenue base. Earnings will have to wait until the skyrocketing growth starts to slow down due to a saturated market. Therefore, management allowed operating expenses to increase by 71% year over year, outpacing the revenue gains and driving the bottom line deeper into the red ink.
  • Looking ahead, Bilibili's management offered fourth-quarter revenue guidance at approximately $273 million, assuming stable exchange rates until the end of the year. That would amount to a 74% year-over-year increase, not only maintaining the current growth rate but accelerating it. The current analyst view calls for roughly $268 million in fourth-quarter sales.
Four triangles presenting Bilibili's business strategy, titled Commercialization, Community and Content surrounding Gen Z.

Generation Z sits at the very heart of Bilibili's business plan. Image source: Bilibili.

Color commentary from Bilibili's executive offices

In the earnings call, CFO Xin Fan said that recent research has pegged China's online entertainment market as an annual revenue opportunity of at least $150 billion by the year 2023. The young population cohort known as Generation Z is at the heart of that massive target market, and that's exactly where Bilibili finds its own core demographic.

"As the driving force of this remarkable growth, Gen Z will contribute nearly 66% of the overall market and -- more so than any other generations -- paying for entertainment is the new norm in China," Fan said. "As China's leading online Gen Z entertainment platform and a leader in the ACG field, we are well-positioned to capitalize on this market boom and grow our [anime, comics, and games] position."