Please ensure Javascript is enabled for purposes of website accessibility

Why Bilibili Shares Closed 10% Lower on Monday

By Anders Bylund - Updated Feb 22, 2021 at 5:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

At first glance, there wasn't any real reason for this big price drop. It all makes sense from a slightly longer-term perspective, though.

What happened

Many Chinese companies saw their stocks fall on Monday, amplifying a generally weak market day due to high-level political pressure between China and European governments.

The price drops were particularly severe among high-flying technology stocks. Among these, video-sharing specialist Bilibili (BILI 3.10%) struck me as particularly noteworthy when it closed the day's trading 10.1% lower.

So what

Bilibili had no particular news of its own today, like most of the falling Chinese tickers. The Wall Street Journal reports that the European Union will join the U.S. government in pressuring Chinese and Russian leaders about their human rights policies.

That pressure will undoubtedly affect the prospects of many China-based companies, but Bilibili is not among them. The company's entire business model is focused on internet users in Greater China, and Bilibili's financial reports would hardly look different if both Europe and North America fell off the map entirely.

A red charting arrow crashes down, cracking the ground below it.

Image source: Getty Images.

Now what

The price drop does make sense from a valuation perspective. Bilibili's stock has gained 414% over the last year, and that figure includes Monday's sudden correction. The company is not profitable, but the active user base grew 42% year over year in the third quarter while revenue jumped 74%. Bilibili's next quarterly report is due on Wednesday. Taking a relatively small cut off the top of Bilibili's huge annual gains looks reasonable ahead of this important earnings report.

Again, Bilibili did nothing wrong today, but the large price drop still makes sense. Investors in skyrocketing growth stocks can get nervous on days like this.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bilibili Stock Quote
Bilibili
BILI
$19.27 (3.10%) $0.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.