Bernstein starts bullish on Kuaishou, Bilibili on rising video ad tide

Bernstein initiated Outperform coverage on Chinese online-video operators Kuaishou Technology and Bilibili Inc., with price targets of HK$75 and $28 respectively, citing the 'videolisation' of the internet as a key driver for increased digital advertising spend. The broker projects the sector's ad spending to grow by 1.5 percentage points annually, anticipating Kuaishou's impending EBITDA inflection and Bilibili's potential for over 20% annual earnings growth, both benefiting from a more stable competitive landscape and AI-driven ad targeting. While Kuaishou's near-term ad performance will test the thesis, Bilibili's shares may remain volatile until later in the year, yet both are seen as compelling plays on China's video-centric internet.

Analysis

Bernstein has initiated coverage on Kuaishou Technology and Bilibili Inc. with Outperform ratings, positing a strong secular growth narrative for China's online video sector. The core thesis rests on the "videolisation" of the internet, which is expected to drive a 1.5 percentage point annual increase in advertising spend for the industry. Bernstein notes a stabilizing competitive landscape, allowing distinct platforms to thrive. For Kuaishou, the analysis points to an imminent EBITDA inflection driven by new advertising formats, recovering e-commerce, and AI tools like its Kling engine, with ad revenue projected to grow approximately 14% in 2025 and 13% in 2026. Bilibili, while earlier in its growth cycle, is highlighted for its potential to deliver over 20% annual earnings growth and achieve an 18% net-profit margin, supported by its leadership in professionally user-generated video, a diverse mobile game pipeline, and AI-enhanced advertising products. While both companies are seen as compelling plays, their near-term catalysts differ; Kuaishou's thesis will be tested by its Q2 and Q3 advertising performance, whereas Bilibili's stock may see volatility until its game release schedule and 2025 ad-growth guidance provide more clarity later in the year.

Key Decisions for Investors

• Investors should consider the secular shift to video as a key tailwind for the Chinese internet sector, with both Kuaishou and Bilibili representing distinct exposures to this trend.
• For those focused on near-term profitability, Kuaishou's expected EBITDA inflection makes it a noteworthy candidate, but positions should be managed around its upcoming Q2 and Q3 advertising results which will serve as a critical validation point.
• Investors with a higher risk tolerance and a longer-term horizon could view Bilibili as a high-growth opportunity, but should anticipate potential share price volatility until key catalysts, such as game releases and 2025 guidance, materialize later in the year.
• The successful implementation of AI for ad targeting is a crucial performance driver for both companies, and progress on these technologies should be monitored as a leading indicator of future margin expansion.