Sony (SONY -0.99%) recently bought a 5% stake in Chinese tech company Bilibili (BILI -3.41%) for about $400 million. The two companies also launched a new partnership to "pursue collaboration opportunities in the entertainment field in China, including animation and mobile game apps."
This isn't the first time the two companies have worked together. Sony's subsidiary Aniplex already licenses its top mobile game, Fate/Grand Order, to Bilibili in China. Fate/Grand Order was the world's highest-grossing mobile game last year, according to App Annie, but its growth has gradually decelerated over the past year. Sony's Funimation unit also partnered with Bilibili to acquire anime licenses last year, while Sony Music recently licensed music videos to Bilibili.
Image source: Aniplex.
The massive investment will make Sony one of Bilibili's top stakeholders alongside Tencent (TCEHY -1.73%) and Alibaba's (BABA 0.08%) Taobao. It's also a major vote of confidence for Bilibili, which mainly serves online ACG (anime, comics, and gaming) content to China's Gen Z users (born between 1990 and 2009).
Bilibili's stock rallied roughly 50% over the past 12 months since its core business is well-insulated from the COVID-19 crisis, but Sony's big investment suggests it could still head much higher over the long term.
Understanding Bilibili's appeal
Bilibili once generated most of its revenue from mobile games, and Aniplex's Fate/Grand Order was its flagship title. However, its gaming business only generated 43% of its revenue last quarter, down from 83% in fiscal 2017.
Bilibili intentionally reduced the weight of its gaming business by expanding its live broadcasting and value-added services (VAS) on its streaming video platform, which generated 28% of its revenue last quarter.
Online ads accounted for another 14% of its revenue, while its e-commerce marketplace -- which was expanded via a partnership with Taobao -- accounted for the remaining 14%. Here's how quickly those four core businesses grew over the past year.
|
Revenue Growth (YOY) |
Q4 2018 |
Q1 2019 |
Q2 2019 |
Q3 2019 |
Q4 2019 |
|---|---|---|---|---|---|
|
Mobile games |
15% |
27% |
16% |
25% |
22% |
|
Live broadcasting & VAS |
276% |
205% |
175% |
167% |
183% |
|
Online advertising |
302% |
60% |
75% |
80% |
81% |
|
E-commerce and others |
254% |
621% |
489% |
703% |
241% |
|
Total |
57% |
58% |
50% |
72% |
74% |
YOY = Year-over-year. Source: Bilibili quarterly reports.
Bilibili's monthly active users (MAUs) rose 40% annually to 130.3 million last quarter, as its daily active users (DAUs) climbed 41% to 37.9 million. Its number of monthly paying users doubled to 8.8 million.
Gen Z users account for over 80% of Bilibili's audience, and hardcore fans can take a 100-question "entrance exam" to be promoted to "official" members with exclusive perks. Its number of official members rose 50% annually to 68 million last quarter.
Those robust growth rates convinced many investors to overlook Bilibili's widening losses. Many big investors, including Tencent and Alibaba, are also backing Bilibili to challenge ByteDance, the Gen Z darling that owns the popular short video app TikTok.
Why does Sony need Bilibili?
Sony claims its $400 million investment in Bilibili won't have a "material impact" on its results in fiscal 2020, which ends next March.
That isn't surprising, since Sony expects to generate 8.5 trillion yen ($79.4 billion) in revenue in fiscal 2019. Aniplex is tucked away in the Visual Media and Platform division of Sony Music, a small unit that generated less than 2% of Sony's total revenue last quarter.
However, a tighter relationship with Bilibili could streamline the process for localizing Aniplex's other mobile games for Chinese gamers, launching Bilibili's own games back to Japan, and licensing its vast library of anime content to Bilibili's streaming media platform. All those moves could offset the gradual decline of the five-year-old Fate/Grand Order, which Aniplex is trying to resuscitate with a new anime series.
Sony could also sell tie-in merchandise through Bilibili's ACG-oriented e-commerce platform, and even use Bilibili's media and advertising channels to promote the upcoming launch of the PS5 -- which is expected to revive its sluggish gaming business next year.
What does this mean for investors?
Bilibili has been one of the most resilient growth stocks in China, and its heavy support from Tencent, Alibaba, and Sony indicate that brighter days are ahead. The investment will likely help Bilibili more than Sony, but it could significantly expand Sony's reach into the Chinese market and strengthen its mobile gaming and media businesses over the long term.
