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Why Bilibili Shares Closed 10% Lower on Monday

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

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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.

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