JPM downgrades NetEase and Bilibili saying recent rally leaves limited upside

JP Morgan downgraded NetEase and Bilibili to Neutral from Overweight, citing stretched valuations and diminished near-term risk-reward following significant year-to-date rallies (NetEase +57%, Bilibili +30%). The firm highlighted concerns over NetEase's rising marketing expenses and limited blockbuster game launches in 2H25, alongside Bilibili's decelerating revenue growth and lack of immediate catalysts. Consequently, JPM now favors Kuaishou within the sector, citing its more attractive valuation and stronger growth momentum.

Analysis

JP Morgan has downgraded NetEase (NTES) and Bilibili (BILI) to Neutral from Overweight, signaling that the recent rally in China's digital entertainment sector has diminished the near-term risk-reward proposition. The downgrade is predicated on stretched valuations following significant year-to-date gains of 57% for NetEase and 30% for Bilibili, both outpacing the Hang Seng Index's 27% rise. For NetEase, JP Morgan flags specific headwinds that could cap further upside, including rising marketing expenses and a limited pipeline of blockbuster game launches in the second half of 2025. The firm notes that NetEase trades at 16 times 2025 earnings with a projected profit growth of only 6% for 2026-27, which appears unfavorable when compared to competitor Tencent's 13% growth forecast at an 18x multiple. Similarly, Bilibili's outlook is clouded by an anticipated sharp deceleration in revenue growth in the latter half of the year as its mobile game "Sanmou" faces difficult year-over-year comparisons. Despite a strong advertising segment, its high valuation at 34 times 2025 earnings and a lack of immediate catalysts are seen as limiting the potential for another rerating. Consequently, JP Morgan has shifted its preference within the sector to Kuaishou, citing a more attractive combination of lower valuation, robust advertising momentum, and superior earnings growth expectations.

Key Decisions for Investors

• Given the significant year-to-date appreciation in NetEase (+57%) and Bilibili (+30%), investors may consider taking profits or re-evaluating their positions due to the stretched valuations and lack of near-term catalysts highlighted by JP Morgan.
• For NetEase, investors should critically assess its 16x 2025 P/E multiple against a forecasted 6% profit growth, a less favorable ratio compared to competitor Tencent's 13% growth at an 18x multiple.
• Investors looking for alternative exposure in the Chinese digital entertainment sector could explore Kuaishou, which JP Morgan favors for its lower valuation, strong advertising momentum, and faster expected earnings growth.