Bilibili (NASDAQ:BILI) is sometimes described as China's Netflix. While both companies don't exactly have the same business models and target different markets, they both draw on original and new content to capture the hearts and eyeballs of stay-at-home viewers.

While Netflix has always focused on streaming movies and TV shows, Bilibili began as a place to share animations, comics, and game-related content. But by evolving into a diversified entertainment play with Netflix and Twitch-style businesses, Bilibili is now riding the explosion of video streaming in China.

Bilibili's also fast becoming an investor favorite, like Netflix is in the U.S. Shares of Bilibili rose sixfold in 2020, with the rally gathering pace after a record-breaking third quarter. The stock recently hit all-time highs within the last few days.

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Business is booming for Bilibili

For many companies, 2020 was a year to forget due to COVID-19 and rising U.S.-China tensions. 

But the pandemic also drove the stellar performance of a handful of technology companies, such as Zoom Video Communications, Amazon -- and Bilibili.

Bilibili's monthly active users (MAUs) surged in the early months of 2020 as statewide lockdowns forced millions of people to spend more time at home. By August, Bilibili had more than 200  million MAUs -- more than double the 85 million it had in the second quarter of 2018.

In the first nine months of 2020, Bilibili delivered mind-boggling revenue growth of 71%. Advertising, e-commerce, and value-added services such as livestreaming helped drive the strong performance, with an increasing number of users spending money on the Bilibili platform. 

One thing to note is that Bilibili has only monetized 7.6%  of its MAUs, giving it plenty of room to convert more non-paying users into paying ones. To achieve this, Bilibili is investing heavily into content and marketing to engage its users -- and also bring in new ones.

As Bilibili gets more MAUs and increasingly monetizes its user base, it looks all set for another year of growth. 

Why Bilibili is unlikely to repeat its 2020 stock performance

The first nine months of 2020 were great for Bilibili, and its fourth-quarter performance will likely be just as strong. The company's revenue growth of 71%, however, seriously lags the stock's whopping rally.

Take a step back, and you will see how shares of Bilibili were on an absolute tear throughout 2020 -- up a jaw-dropping 510% in the last 12 months, beating even the likes of Zoom Video Communications.

At current prices, Bilibili's trading nearly 30 times its trailing 12-month revenue. For perspective, Netflix trades at around 10 times its trailing 12-month revenue. 

To be clear, it's not unreasonable for Bilibili to trade at a higher valuation as compared to Netflix, given the Chinese company's smaller size and higher growth rate. But a premium of three times? That's probably too excessive.

Investors clearly have great expectations for Bilibili and are putting their money where their mouth is. But their grand hopes appear more than priced in, considering the risks Bilibili faces.

The company is still locked in a battle for eyeballs with other Chinese entertainment players, including Douyin, Kuaishou, and iQiyi. And should Bilibili fail to keep users engaged, or expand its user base fast enough, revenue growth might slow -- knocking down valuations. 

Bilibili is on a hot streak, but buying now might get you burned

Bilibili is a growth investor's dream. Thanks to the company's rising user base and improving ability to monetize its many services, revenue grew at an annualized 168% over the past four years.

As Bilibili continues doubling down on content and marketing investments, it's reasonable to expect revenue to grow at high double-digit rates over the next few years. While not as high as the company's historic triple-digit growth rate, this is still impressive.

Still, Bilibili's valuations make it too hot to handle. Paying a price of 30 times sales is a risky investment decision, even for a high-growth company. 

Warren Buffett is known for telling investors to be greedy when others are fearful and to be fearful when others are greedy. This is probably not the time to get greedy with Bilibili.

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.