Why Bilibili Is Delivering Scorching Growth

Chinese social media SEO link company Bilibili (BILI -2.13%) is coming off a quarter with 72% revenue growth, even as it saw flat year-over-year growth in its mobile gaming segment.

In this Backstage Pass segment, recorded on Aug. 23, Fool contributors Jeremy Bowman and Brian Withers look at Bilibili's second-quarter performance and discuss the company's growth path in China's tightening regulatory environment.

Jeremy Bowman: Sure. We're going to switch gears a little bit, moving to the social media sphere. So Bilibili, I think they are about a 12-year-old company, and they're a social media and video sharing site that's comparable to YouTube. They market themselves as the home for anime, comics, and games. They have competitors such as Alibaba's Youku, Tencent Video, and iQiyi, which is publicly traded, but I think it's mostly or partly owned by Baidu.

So they've been growing really fast, like a lot of the tech sector there. Social media revenue in the second quarter was up 72% to $696.2 million. That topped estimates. Its user base is growing well. Also, monthly active users are up 38% to 237 million, and mobile monthly users were up 44%. We're seeing the same shift there to mobile that we have here as well. Daily active users were up 24% to 62.7 million. Monthly paying users were up 62% as well. So that's a good sign for monetization. They have about 21 million monthly paying users.

Most of the user base is still free, but they're building that out. They make money from a mix of mobile games, value-added services like membership and live streaming, and also advertising. Advertising really grew like a rocket in the second quarter, more than tripled, and now makes up 23% of total revenue, so close to $200 million in the quarter. Mobile gaming revenue was flat. The company didn't address that. But my guess is that's maybe lapping the worst of the pandemic a year ago. I think gaming usage spiked a year ago.

Withers: Gaming in general is one of those things that, it's not popular with the central government as far as they don't want you [laughs] wasting your mindshare on video games.

Bowman: That's a good point. Yeah. Then another company, I can't remember which one, but they did say their video gaming was down because of the impact from government interests. You're probably right there. So I think that shows what the rest of the business is doing. And then value-added services revenue was doubled. Good sign there. The company said that the average user on the platform was on Bilibili for 81 minutes a day. So I think that's a good sign for the stickiness, which is an important thing in social media and video streaming. Makes me think of the Netflix CEO, Reed Hastings, who said that ultimately they're competing with sleep.

Withers: [laughs] That's awesome.

Bowman: Yeah. Most of these platforms, I think their goal is to get you to spend as much time with them as possible, so I'd say close to an hour and a half is pretty good a day.

Bilibili isn't profitable. Like a lot of high-growth Chinese tech companies, they spend a lot of their revenue on marketing. So they haven't been profitable, but I think for a quarter with 70% revenue growth, that's pretty good. So I think you can excuse the lack of profitability there.

And I also think the growth in advertising is a good sign, because we've seen from companies like Google and Facebook that digital advertising is a great business once it reaches scale. Then the company did give guidance as well. For the third quarter, they see revenue up about 60% to $787 million to $802 million. So I'd say, overall, it's growing fast and they're doing pretty well aside from the mobile gaming.

Withers: Yeah, that's pretty impressive -- 72% top-line growth on top of last Q2, which was also 70% growth, and sequentially, the growth looks tremendous, too.

My son was interested in investing in Bilibili because he liked the fact that, in order to become this inside member, you had to answer these 100 questions and you sort of got vetted to get in on the platform. They're very much focused on creating a nice social environment behind their paywall.

Bowman: Right. Yeah, I know. One of the things they do, it's funny how these are little ideas, but they mean a lot with these companies, like their version of YouTube -- you can make comments as a video is playing and they will pop up on the screen, so you have one of those community-building things as well. I thought that was a cool way to make it unique.