How to Invest in the GenZ Mobile ‘YouTube of China’
China is the center of innovation as its consumer introduces a more competitive marketplace for digital innovation. I think Bilibili is a fair example of this. In China mobile video, live-streaming and GenZ apps are so much more sophisticated than in the U.S. and Europe, it’s really night and day.
You may never heard of Bilibili, but at the Last Futurist we’ve been watching Chinese companies for years. ByteDance, Bilibili and Kuaishou are really the trinity of GenZ brands and apps. ByteDance is in another league but Bilibili has gone from a niche channel to a major app in the 2018-2021 period.
Their Hong Kong listing raised another $2.6 Billion and so with ticker $BILI you have to realize what you are getting. This is nothing short of the mobile YouTube of China tailored to the preferences of GenZ, the generation that comes after Millennials. It’s optimized for them.
Analysts have a target price for the stock of $162, however with the Cold Tech wars and a weird macro environment, this stock has come down to $97. The stock is up 340% in the last year and it grew very well during the pandemic. Bilibili’s offerings have only become more popular amid the COVID-19 pandemic, as evidenced by its record breaking third-quarter performance in 2020.
Why get in now? It’s not mature, it’s not even profitable yet but is showing signs of growth at scale in a very big total addressable market. You could argue with earnings it should be lower. Its net loss widened from 195.6 million yuan to 538.6 million yuan ($76.1 million), or $0.23 per ADS — which missed expectations by $0.09. But its ability to tailor its content to its audience is very sophisticated.
Bilibili started out in 2009 as a website specialized in sharing anime’s picture and videos. However it’s come a long ways and is the cooler version of online videos in China, beating out Youku (owned by Alibaba), iQiyi (owned by Baidu) and QQ Video (owned by Tencent). It’s the indie newcomer.
Unlike other major video platforms like iQiyi and Tencent video, Bilibili has a unique content positioning, focusing on ACG (anime, comic, and games), in particular Japanese anime, manga and video games. It’s evolving this niche into a mainstream audience and has its special charm.
Similar to Google’s YouTube, Bilibili has grown up with its users, becoming a place for content creators of all types. Of the major video players it has the greatest chance of becoming the “YouTube of China”. While American companies operate in a practical vacuum where monopolies dominate, China’s ecosystem is much more innovative due to real competition taking place. Bilibili is perhaps the shining star of this space, in our opinion at the Last futurist.
The company’s cash and cash equivalent amounted to $2 billion as of December 31, 2020. It now has a market cap of over $34 Billion. As GenZ grows up, so is this platform. Most users are students or young graduates. According to the investor presentation of Bilibili for Q1 2019, the focus is on the Gen Z (people born from 1990 to 2009).
The anime centric content is really popular with China’s youth. However, the company shifted its positioning to target a wider audience by including more popular TV shows since its IPO in March 2018. This has been a tremendous success so far.
As Bilibili prepares for its secondary listing in Hong Kong, three years after going public on the Nasdaq, the platform is taking video content to new places, just as TikTok (Douyin in China) did for short videos. The point China understands is optimization for mobile and tailoring content to a person’s preferences.
China does this so much better than the West. The company is also a mobile games player now. It could eventually be acquired by ByteDance and that would be epic.
Bilibili Is a Buy at $70
Nevertheless, the valuation is likely overdone at $90. We think the true stock price of the company is likely closer to $70. When it reaches that target price it’s a buy due to its long-term potential and tremendous growth. It’s still relatively small. Bilibili’s digital platform serves ACG (anime, comics, and gaming) content to China’s Gen Z users.
Its average monthly active users (MAUs) grew 70% annually to 172.4 million during the quarter, as its mobile MAUs rose 77% to 156.4 million. Its daily active users (DAUs) climbed 69% to 50.8 million. This suggests the platform is very sticky for users. Customer retention in these platforms is one of the most important metrics.
With the delisting pressure on Chinese stocks the stock price could come down to more realistic levels. The GenZ ecosystem is really advanced. Bilibili prides itself on being an exclusive club for ACG enthusiasts, and promotes basic members to “official” members if they pass a 100-question exam. Those members are granted exclusive perks, and are generally easier to retain and convert to paid users. Isn’t that crazy?
Being able to raise more money in a Hong Kong listing enables this company to really invest in growth. The company’s combination of popular content, niche content and now UGI content will enable it to out-compete many of its rivals, we believe, in the next five years.
On one end, it’s putting significant effort into growing the amount of professional user-generated video (PUGV) available on its platform — which generally doesn’t cost much to the company — by attracting content creators and also helping them succeed.
It’s creating new ecosystems for GenZ professional creators along with ByteDance and Kuaishou at a rate other countries simply aren’t seeing and can’t imitate in scale and innovation. This means China is easily the leader in mobile video content. Eventually this movement dwarfs YouTube, and this is the platform most likely to succeed given the data we have in mid 2021.
The is a stock you hold for 10 years type deal. This is a company and ecosystem you have to monitor very closely. Bilibili is also investing heavily in paid content. For example, it produced anime content that generated 260 million views in three months, acquired a 9.9% stake in Hong Kong-listed Huanxi Media (giving it access to exclusive content), and created its first music variety show (which got 410 million views). China’s mobile entertainment arena is just so dynamic in the early 2020s.
Betting on Bilibili is also betting on 5G in China. Bilibili is pinning its hopes on consumers’ love affair with videos continuing. Consultancy iResearch predicts that the video-based industry will generate 1.8 trillion yuan (US$276.4 billion) in revenues by 2025, up from 583 billion yuan in 2019.
Even with de-listing fears, China will be able to attract more investors simply because its tech companies are forced to innovate more due to the real competition taking place there. It’s not YouTube, it doesn’t grow just with time and eyeballs. It actually has to invest in its content and please GenZ. It’s not an advertising monopoly.
In the bubble market momentum of 2020, it reached a stock price of $156 in February 2021. So if you can grab this at half that price then do so. Do so because the Chinese GenZ consumers will have incredible power in the future of consumerism. This is not a generation that’s planning on having many children. That means more discretionary spending on hobbies, entertainment and passions.
The China government has put so-called platform companies on notice that it is investigating their activities. As Chinese regulators focus on the dominance of Tencent, Alibaba and Baidu, companies like Bilibili have a unique opportunity to be the newcomers on the stage. They have a 35% chance of becoming the YouTube of China by 2030. When your MAUs are growing this fast, that becomes a company that, once it becomes profitable, will be pretty incredible.
Investing in Bilibili is supporting a generation in China that’s stuck between a population crisis and an era of digital transformation that’s changing how they relate to content. Investing in this company is supporting anime, niche content, and a movement that spurs new forms of content that mix commentary with viewing in an era of mobile social watching of content. If YouTube takes you down a rabbit hole of algorithms, Bilibili takes you into a colorful world of social interaction while viewing content.