Bilibili reported 2Q19 net revenue of RMB 1537.7mn, up 50% YoY, of which livebroadcasting and VAS increased 175% YoY to RMB 326mn.

    2Q19 MAUs reached 110.4 million; mobile MAUs reached 96.2 million, representingan increase of 30% YoY and 35% YoY, respectively.

    Average MPUs reached 6.3 million, up 111% YoY.

    We are positive on Bilibili due to positive industry outlook, ever-growing supply ofPUGC, highly engaged and sticky communities, and improving monetisation ability.Bilibili currently trades at P/B of 4.6.

    Company Description:

    Bilibili Inc. provides online entertainment services. The Company offers a platform thatcovers a wide array of genres and media formats, including videos, live broadcasting,mobile games, animation, and comics. Bilibili serves customers in China.

    Why we like Bilibili:

    Generation Z to further boost positive Industry outlook. According to Bilibili’s research,Generation Z （who was born from 1990 to 2009） served as the key driving force of China’sonline entertainment market. Generation Z accounted for more than 48% of the totalonline population in China in 2018 and contributed 55% of China’s online entertainmentmarket revenue.

    Based on Bilibili’s forecast, China’s online entertainment market revenue is likely to reachRMB 678.7bn in 2020. With Generation Zs’ advantages in 1） deep user penetration 2）extensive time spent online and 3） strong willingness to pay in online entertainmentmarket; Generation Z will contributes for more than 60% of the total market size in 2020.

    Ever-growing supply of PUGC helps create a sticky and engaging community. Bilibili hasbecome a well-known online video website of diverse interests, especially in lifestyle andACG content. In 2Q19 number of MAACC increased 144% YoY to 854,000, creating morethan 2 million videos every month, representing an increase of 107% YoY.

    With the ever-growing supply of contents, Bilibili reached historical high daily averagevideo views of 586 million and 1.8 billion interactions in 2Q19, representing an 84% and180% YoY growth YoY respectively. Interactive features include bullet chat, commentaries,following, favourites, sharing, Bilibili moment posts, virtual gifting.

    Improving monetisation ability. Bilibili’s monetisation model is to convert its online videousers with certain characteristics to paying users in diversified online entertainmentverticals. As the users on Bilibili are mostly young people interested in ACG contents,mobile games, video membership fees and live streaming become major sources ofrevenue. Despite 2Q19 MAUs of 110.4 million （representing an increase of 30% YoY）average MPUs grew faster by 111% YoY, reaching 6.3 million. Also, with large and highlyengaged user traffic, advertising becomes another income stream. Revenues fromadvertising were RMB167.7 million, representing an increase of 75% YoY.

    Recommendation

    Overall, we are positive on Bilibili due to 1） positive industry outlook 2） ever-growingsupply of PUGC 3） highly engaged and sticky communities 4） improving monetisationability, Bilibili currently trades at 4.6 P/B.

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