Bilibili Inc. Annual Report - How They Did This Year

I’ve put together this guide to help you understand Bilibili’s performance. Think of this as a cheat sheet to help you decide if the company fits your portfolio.

1. What does this company do?

Bilibili is the "YouTube of China," focusing on gaming, anime, and community content. In 2023, the company brought in RMB 22.5 billion (about $3.17 billion) in total revenue. They make money through:

• Mobile Games: Publishing games, which made up 18% of revenue.
• Value-Added Services: Live streaming, premium memberships, and virtual gifts, accounting for 44% of revenue.
• Advertising: Selling ad space, contributing 28% of revenue.
• Merchandise and Projects: Creative projects and goods, generating 10% of revenue.

The platform relies on videos created by users for over 90% of its views. To join the community and comment, users must pass a 100-question exam, which helps maintain a high-quality user base. By the end of 2023, they had 336 million monthly active users.

2. How are they structured?

Bilibili uses a "Variable Interest Entity" (VIE) structure. Because China restricts foreign ownership in internet businesses, you aren't buying the Chinese operating companies directly. Instead, you own a Cayman Islands holding company that uses contracts to control the Chinese business and collect its profits. This is a common legal workaround for Chinese tech stocks, though it is important to note that this structure has not been fully tested in Chinese courts.

3. Financial Health & Operations

• Debt: The company holds "Convertible Senior Notes"—loans that can turn into company stock. They owe about RMB 10.4 billion, with due dates ranging from 2026 to 2030. This provides a runway for growth before the principal is due.
• Cash Flow: They have invested in various companies, earning interest at rates between 4.35% and 4.75%. Additionally, management authorized a $500 million share buyback, signaling confidence in the company's long-term value.
• Costs: Their primary expenses include server and bandwidth costs (RMB 1.7 billion) and royalties paid to game developers and live streamers (RMB 9.5 billion).

4. Key Risks to Watch

• The "China Factor": The government strictly regulates gaming and online content. New rules, such as those aimed at curbing gaming spending, can impact revenue streams.
• Contractual Risks: Because the VIE structure relies on contracts rather than direct ownership, changes in government policy could affect the enforceability of these agreements. Furthermore, there is the ongoing risk of potential delisting from U.S. exchanges if audit papers cannot be inspected by regulators.
• Platform Dependence: Bilibili relies on third-party app stores, such as Apple’s, which typically take a 30% to 50% commission on in-app purchases. Changes to these commission rates or access to these stores could impact profit margins.

5. The Bottom Line

Bilibili balances a creative hub with the high costs of running a video platform. They narrowed their loss to RMB 4.8 billion in 2023, down from RMB 7.5 billion in 2022. While they remain unprofitable, the company is showing progress in narrowing its losses. When considering an investment, weigh their loyal user base and growth potential against the regulatory environment and the complexities of the VIE structure.