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Why Bilibili Is Flying 18% Higher This Week

By Rich Duprey – Oct 22, 2021 at 1:17PM

Key Points

  • Closer scrutiny of the tech industry by Beijing seems to have bypassed Bilibili.
  • Wall Street is expecting the video-sharing platform to surpass the guidance it offered last quarter.

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The Chinese video-sharing site doesn't seem to have been affected by the regulatory crackdown on tech stocks.

What happened

Shares of Bilibili (BILI -0.86%) were up almost 18% in noontime trading since last Friday's close, according to data provided by S&P Global Market Intelligence, after Morgan Stanley (MS 0.37%) analyst Alex Poon said the Chinese video-sharing website would likely report results above the high end of management's guidance.

He noted that would put the figures in line with what Wall Street has been expecting.

Male smiling at glowing smartphone

Image source: Getty Images.

So what

Bilibili's stock has been hammered in 2021 as Chinese regulators attempt to make it impossible for a company in any sector of its economy to become too big and influential. Even with this week's gains, the entertainment stock has still lost almost half its value.

When the crackdown began in earnest last year, one of the first targets was Jack Ma from e-commerce giant Alibaba. He had the temerity to publicly call out Chinese regulators for stifling innovation, and the government's response was especially quick and dramatic. The planned IPO by Ma's Ant Financial was suddenly postponed (and subsequently withdrawn), and Alibaba itself was slapped with fines for engaging in monopolistic practices.

Ma ended up going into hiding, lying low until the storm had passed. That he recently resurfaced in Paris giving a speech has analysts believing the suffocating regulatory crackdown may be over so long as he remains on his best behavior. 

Bilibili itself hasn't come under investigation, but the broad-based scrutiny of the tech sector and other industries had the markets concerned about what might follow.

Now what

Bilibili has been a growth engine, especially last year, when revenue during the pandemic surged 77% from 2019. Over the first two quarters of this year, revenue is 72% higher, so whatever crackdown was occurring, it wasn't affecting the video-sharing platform.

In August, management forecast revenue would be between 5.1 million and 5.2 million yuan, or about $800 million to $810 million at current exchange rates. Poon, the Morgan Stanley analyst, is forecasting revenue to actually come in at 5.29 yuan, which is 18% above the second quarter and 64% ahead of the year-ago figure.

Because he sees Bilibili registering strong user growth and nongaming segment revenue, he reiterated his overweight rating on the stock and his $100-per-share price target. That represents a 21% gain over yesterday's closing price.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bilibili. The Motley Fool has a disclosure policy.

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