Insights

2021 Ended Strongly For “Youtube of China,” but Its Near Future Is Less Bright

If 2021 was a bad year for U.S.-listed Chinese companies, 2022 could be considered horrendous as investors continue to sell off all such stocks — no matter the perceived quality of the company. But it’s not hard to understand why investors made such a drastic move. When you combine the factors of ongoing tension between the U.S. and China, the threat of delisting companies noncompliant to accounting requirements, and the war in Ukraine, it is a time of great uncertainty.
Still, the stock sell-off didn’t stop Bilibili Inc-ADR (NASDAQ: BILI) — famously dubbed “the YouTube of China” — from delivering another strong growth for the fourth quarter of 2021. Revenue came in 51% higher at 5.8 billion yuan ($907 million) on the back of more monthly paying users. Digging further into the earnings result reveals a few other key takeaways.

Image source: Getty Images.

2021 was another year of expansion for Bilibili
Bilibili was a favorite stock of growth investors. Between 2017 and 2020, it grew revenue more than fourfold as young Chinese people spent time and money on its platform. The good news is that the entertainment company delivered yet another strong year in 2021.
To start, revenue surged 62% year over year to 19.4 billion yuan ($3 billion) thanks to strong growth in all major segments other than gaming. Similarly, operational metrics came in strong, with average monthly active users (MAU) and average daily active users (DAU) growing by 35% and 34%, respectively. By the end of 2021, the tech company had 272 million MAU and 72 million DAU.
One downside to Bilibili’s aggressive growth is its high cash burn, as net loss more than doubled to 6.8 billion yuan ($1.1 billion). However, while nobody likes a loss, the company has plenty of financial resources at its disposal — around 30.2 billion yuan ($4.7 billion). In other words, it can continue to invest aggressively for a while before running out of cash.
Bilibili is improving its monetization
There is no doubt that Bilibili has a knack for growing users and keeping them engaged — users spend on average 82 minutes per day on its platform. So far, its track record on both fronts is among the best in China.
Still, investors have concerns on whether Bilibili can accomplish the next step: monetizing these users. The company has never had a profitable year, and investors are starting to question whether the company can ever be profitable. After all, the tech company must make a profit to generate long-term shareholder value.
Fortunately, there are signs that Bilibili is moving in the right direction. For example, revenue excluding gaming grew in the high double to triple digits in 2021. In particular, advertising income surged 145% year over year to 4.5 billion yuan ($710 million). Revenue per MAU also improved by 20% year over year, indicating that the company is getting more dollars for each user.
Still, investors will complain about the huge losses despite Bilibili’s monetization efforts. To this end, management promised to improve its execution and operating efficiency in 2022. Investors can keep an eye on this in the coming months.
What to expect in the upcoming quarters
While 2021 was a growth year for Bilibili, it is unclear whether the company can sustain that momentum. The ongoing scrutiny by the Chinese government and the expected growth slowdown in China — thanks to higher oil prices and a resurgence of COVID cases — are some factors that could slow down the company’s plan.
To this end, Bilibili’s revenue guidance for the first quarter of 2022 was between 5.3 billion yuan to 5.5 billion yuan, up 38% year over year from the midpoint. A slowdown in revenue growth and a decline from 5.8 billion yuan was achieved in the fourth quarter of 2021.
On a slightly positive side, there are no signs that MAU and DAU growth is slowing down anytime soon. As long as Bilibili can continue to attract and retain users, it will have the opportunity to monetize them, albeit at a later stage.
Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool recommends Bilibili. The Motley Fool has a disclosure policy. –

If 2021 was a bad year for U.S.-listed Chinese companies, 2022 could be considered horrendous as investors continue to sell off all such stocks — no matter the perceived quality of the company. But it’s not hard to understand why investors made such a drastic move. When you combine the factors of ongoing tension between the U.S. and China, the threat of delisting companies noncompliant to accounting requirements, and the war in Ukraine, it is a time of great uncertainty.

Still, the stock sell-off didn’t stop Bilibili Inc-ADR (NASDAQ: BILI) — famously dubbed “the YouTube of China” — from delivering another strong growth for the fourth quarter of 2021. Revenue came in 51% higher at 5.8 billion yuan ($907 million) on the back of more monthly paying users. Digging further into the earnings result reveals a few other key takeaways.

Image source: Getty Images.

2021 was another year of expansion for Bilibili

Bilibili was a favorite stock of growth investors. Between 2017 and 2020, it grew revenue more than fourfold as young Chinese people spent time and money on its platform. The good news is that the entertainment company delivered yet another strong year in 2021.

To start, revenue surged 62% year over year to 19.4 billion yuan ($3 billion) thanks to strong growth in all major segments other than gaming. Similarly, operational metrics came in strong, with average monthly active users (MAU) and average daily active users (DAU) growing by 35% and 34%, respectively. By the end of 2021, the tech company had 272 million MAU and 72 million DAU.

One downside to Bilibili’s aggressive growth is its high cash burn, as net loss more than doubled to 6.8 billion yuan ($1.1 billion). However, while nobody likes a loss, the company has plenty of financial resources at its disposal — around 30.2 billion yuan ($4.7 billion). In other words, it can continue to invest aggressively for a while before running out of cash.

Bilibili is improving its monetization

There is no doubt that Bilibili has a knack for growing users and keeping them engaged — users spend on average 82 minutes per day on its platform. So far, its track record on both fronts is among the best in China.

Still, investors have concerns on whether Bilibili can accomplish the next step: monetizing these users. The company has never had a profitable year, and investors are starting to question whether the company can ever be profitable. After all, the tech company must make a profit to generate long-term shareholder value.

Fortunately, there are signs that Bilibili is moving in the right direction. For example, revenue excluding gaming grew in the high double to triple digits in 2021. In particular, advertising income surged 145% year over year to 4.5 billion yuan ($710 million). Revenue per MAU also improved by 20% year over year, indicating that the company is getting more dollars for each user.

Still, investors will complain about the huge losses despite Bilibili’s monetization efforts. To this end, management promised to improve its execution and operating efficiency in 2022. Investors can keep an eye on this in the coming months.

What to expect in the upcoming quarters

While 2021 was a growth year for Bilibili, it is unclear whether the company can sustain that momentum. The ongoing scrutiny by the Chinese government and the expected growth slowdown in China — thanks to higher oil prices and a resurgence of COVID cases — are some factors that could slow down the company’s plan.

To this end, Bilibili’s revenue guidance for the first quarter of 2022 was between 5.3 billion yuan to 5.5 billion yuan, up 38% year over year from the midpoint. A slowdown in revenue growth and a decline from 5.8 billion yuan was achieved in the fourth quarter of 2021.

On a slightly positive side, there are no signs that MAU and DAU growth is slowing down anytime soon. As long as Bilibili can continue to attract and retain users, it will have the opportunity to monetize them, albeit at a later stage.

Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool recommends Bilibili. The Motley Fool has a disclosure policy.

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