Bilibili’s video sharing site has a superior business model compared with most other streaming companies

Business Strategy and Outlook

Bilibili generates revenue through five major sources: 1) advertising; 2) mobile games; 3) live streaming; 4) subscriptions; and 5) e-commerce. The advertising business (as part of its YouTube-like video sharing website) is the most important asset for the company’s long-term success. Bilibili’s video sharing site has a superior business model compared with most other streaming companies. The company has appropriately decided to focus most of its resources on building a platform for UGC (user-generated content) instead of investing heavily into original content or paying huge up-front content licenses. By doing so, it avoids going head-to-head against Tencent Video and iQiyi, both of whom are spending hundreds of billions on content development and licensing, and have yet to generate operating profit.

More importantly, Bilibili has created a self-maintainable UGC ecosystem that allows the firm to acquire video content at significantly lower costs than traditional streaming players such as iQiyi and Tencent Video. In 2021, Bilibili recorded just CNY 11 in content cost per MAU, less than one-fourth of iQiyi’s, while delivering a comparable level of revenue per user. The fact that it has a lower cost structure demonstrates the superiority of Bilibili’s platform business model. Although Bilibili is ahead of the pack in the growing video sharing and streaming markets, it faces potential competition from behemoths such as Tencent and ByteDance. Unlike Bilibili, these firms don’t rely solely on a single app to drive profitability and can potentially run at break-even, or even as loss leaders, while monetizing users via other products and services. In addition to its core video platform, Bilibili also offers other services such as live streaming, mobile games, and e-commerce. While they offer some growth, which looks less confident of their outlook than the core video product due to weak competitive positioning, low barrier to entry, and numerous existing competitors.

Financial Strength

Bilibili might need to raise additional capital before it achieves breakeven cash flows in 2026. The firm was sitting on a net cash of CNY 11.2 billion at the end of 2021, but it is expected that another 17 billion of cash burn before Bilibili becomes net cash generative. In the past, Bilibili has used convertible debt and stock issuance to finance its operations. Its 2021 listing in Hong Kong alone provided CNY 19 billion of funds for the company. It is expected that Bilibili is to continue running its asset-light business model. The company will continue to focus its resources on building a platform for user-generated content, or UGC, instead of investing heavily into original content or paying huge up-front content licenses. Besides revenue-sharing, the bulk of cost is in people (R&D, sales and marketing). Over the next few years, the firm is to spend upward of 10 billion annually in these two categories in total. Bilibili is not expected to take part in major M&A deals as management remains focused on organic growth opportunities.

Bulls Say’s

Bilibili’s video sharing platform is in early stage of monetization with significant runway for growth.

Bilibili’s strong hold on younger users provide tremendous value to advertisers seeking to target such demographic group.

The firm still has room to attract a wider base of users, potentially increasing the platform’s appeal to advertiser

Company Profile

Bilibili is a Chinese online entertainment platform that is best known for its video-sharing site that resembles YouTube. The site was founded in 2009 and started as a long-form video platform for anime, comics, and gaming, or ACG, content that appealed to Gen Z users. Since then, it has expanded its content on the platform to include a broader range of interests that have attracted Chinese users outside of the Gen Z cohort. The firm generates revenue through five main areas: advertising, mobile games, live streaming, value-added services, and e-commerce.

(Source: MorningStar)

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