Bilibili: HSBC sees better outlook and valuation, upgrades to buy

HSBC upgraded Bilibili (BILI) to Buy with a price target of $22.50, citing a stronger outlook in gaming, advertising, and profitability, coupled with an attractive valuation. The upgrade follows Q1 results that exceeded expectations, driven by better-than-expected revenue and lower expenses, leading HSBC to increase revenue forecasts by 2% and project a 20% revenue increase in Q2. HSBC anticipates continued growth in high-margin game and ad businesses, supported by new game launches, improved ad tech, and the company's development of AI capabilities.

Analysis

HSBC has upgraded Bilibili (NASDAQ:BILI) to Buy from Hold, raising its price target to $22.50, implying approximately 25% potential upside, driven by an enhanced outlook for its gaming and advertising segments, improved profitability, and an attractive valuation. The bank's optimism is partially fueled by the outperformance of "Sanmou Season 7" and a constructive stance on the upcoming "Sanmou Season 8," slated for a late May debut with substantial updates. This has led HSBC to revise its game revenue forecasts upward by 6-8% for 2025-2027 and increase overall topline projections by 2%. Bilibili's first-quarter results surpassed expectations, with non-GAAP net profit beating HSBC's estimates by 25% and consensus by 40%, attributed to lower-than-expected R&D and G&A expenses. For the second quarter, HSBC anticipates a 20% overall revenue increase, supported by a projected 61% year-over-year growth in games, 19% in advertising, and 10% in value-added services (VAS), the latter also benefiting from better-than-expected quality user growth. Advertising revenue growth is expected to be sustained by improved ad load, higher eCPM, growing user traffic, and further enhancements in ad technology. Additionally, Bilibili is advancing its AI capabilities, with plans to fine-tune open-source models and launch a text-to-video tool for content creators by the end of 2025. HSBC views Bilibili's valuation as compelling, trading at 22 times 2025 earnings with a forecasted 48% non-GAAP EPS growth for 2026, supporting the thesis for stronger earnings prospects from its high-margin game and ad businesses.

Key Decisions for Investors

• Given HSBC's upgraded Buy rating, positive earnings revisions, and a 25% implied upside to the $22.50 price target, investors may consider Bilibili an attractive investment opportunity, particularly considering its renewed momentum in gaming and advertising.
• Key catalysts to monitor include the performance of the upcoming 'Sanmou Season 8' game launch in late May and continued execution in the high-margin advertising segment, which are crucial for achieving projected revenue and earnings growth.
• With Bilibili trading at 22 times 2025 earnings and a forecasted 48% non-GAAP EPS growth for 2026, the valuation appears compelling and warrants consideration for investors seeking growth within the Chinese technology and entertainment sectors, while also noting the company's progress in AI development.