Goldman recommends “buy” Bilibili with expectation of soaring 40%

Bilibili (9626) was rated ‘buy’ by Goldman Sachs on Thursday and with the stock expected to increase by 40% to HK$1,219 a share, compared to the current stock price of HK$870, due to its large and fast-growing user base and strong revenue. 

IPOs in the Hong Kong stock market often have potential first-day rallies, but Bilibili’s stock price dropped 3.6% from an HK$808 issue price to HK$780 at its trading debut on Monday. The recent global declines in technology stocks and China’s crackdown on the country’s technology conglomerates put heavy pressure on Bilibili.

Goldman Sachs said as the online video sharing and streaming platform with the most Generation Z users, Bilibili was expected to see its monthly active users to reach 400 million before 2023. 

Besides, Bilibili has high quality and abundant content which are the fundamental elements for expanding its users. Bilibili also adopts multiple liquidity strategies which can generate more revenues.

Bilibili’s revenues are mainly generated from mobile games, value-added services, advertising, and e-commerce and others. Its revenue in 2020 increased by 77% to 12 billion yuan (HK$ 14.3 billion) according to its prospectus. Monthly average users reached 202 million in the fourth quarter of 2020, up 55% over the same period in 2019.

Guosheng Securities also gave a buy recommendation to Bilibili, according to an analyst report released on March 29, expecting the company to continue expanding its commercialization.

Goldman Sachs affirms Bilibili’s community value and its understanding towards Generation Z in encouraging them to join the activities in Bilibili community in its report. The investment bank also said Bilibili has chosen a clear company development path and hopes it can keep thriving.

Bilibili is building a video content ecosystem by providing various video content in satisfying its audiences’ entertainment, cartoon, technology and life skills viewing demand. The company is increasing its investment in Occupationally Generated Video and expanding intellectual property.

Despite the future expectations,  Bilibili's net loss rose to 3 billion yuan (HK$ 3.58 billion) in 2020, up 134% over the same period in 2019, as sales and marketing expenses and research and development expenses surged. 

The company also asked its investors to be cautious in the prospectus that it might continue to experience losses in the future citing more investments in technology, talent, content, brand recognition, user base expansion, and other initiatives.