We are bullish on Bilibili (“Bili”)’s strong topline growth and user expansion, backed by its vibrant & engaging community, unique PUGC content, strong user stickiness and enriched offerings. We forecast Bili to deliver 44% revenue CAGR during FY19-22E. With stepping-up monetization diversification, we see high visibility for Bili to expand its TAM with effective operating leverage. Initiate with BUY with DCF-based TP US$57 (8.1x FY21E P/S).
- A go-to social community for Gen Z. Initially as an online niche hub for China’s ACG fans, Bili has evolved into a highly interactive video community for Gen Z, with 172mn MAU in 2Q20. Backed by its sizable young users and unique PUGC content, we forecast Bili to deliver 26%/44% MAU/rev CAGR during FY19-22E, thanks to its user expansion and enhanced monetization.
- Tapping into pan-entertainment to unlock its user ceiling. Bili is well-positioned to capture Gen Z’s social booming, with a distinguished edge in PUGC content creation and bullet chat feature. On top of that, Bili taps into pan-entertainment beyond ACG initiatives, to unlock its user ceiling and connect mainstream culture. With initial fruits in category expansion (20+ types) and brand-building, we see further MAU upside and stronger user engagement ahead. We forecast its MAU to 238mn in FY22E, with 26% CAGR in FY19-22E. We expect 2H20E user metrics to perform well due to peak season, effective user acquisition and enriched content (e.g., Rap for Youth <说唱新世代>, Heaven Official’s Blessing <天官赐福 >).
- Stepping up monetization with enriched content. Powered by its content expansion, Bili stepped up its monetization diversification beyond mobile games. Apart from FGO, Princess Connect! Re:Dive <超异域公主连结> performed well in 2Q20, and became its largest grossing title. Looking ahead, we expect new titles to bring further upside, such as highly-anticipated Dead Cells <死亡细胞>. We are also bullish on its livestreaming & VAS/ ads potential, forecasting 64%/67% rev CAGR in FY19-22E, supported by: 1) LoL exclusive broadcasting rights and enhanced content; and 2) richer ads format and higher adaption of Huahuo platform <花火平台>.
- Initiate with BUY. We set our DCF-based TP at US$57 (implying 8.1x/6.3x FY21/22E P/S), slightly higher than the industry average. More catalysts to come: 1) potential strong 3Q20E for seasonality; 2) eye-catching user momentum; and 3) new games launch.
