Bilibili: Is the Little Broken Station Going to Develop Again?

On November 14th, after the Hong Kong stock market closed, $Bilibili(BILI.US) released its Q3 2025 financial report, which slightly exceeded expectations overall. The highlights were in advertising revenue, profits, and user metrics, while gaming and live streaming were relatively underwhelming. The market reaction on the day of the report was muted, mainly due to the broader market impact, and some funds might have been concerned about the lack of short-term guidance surprises.

Specifically:

1. Healthy Expansion of User Ecosystem: This is considered the biggest highlight of the financial report by Dolphin Research. Q3 is the peak season during the summer holidays, with Bilibili's monthly active users (MAU) increasing by 13 million quarter-on-quarter, and the DAU/MAU ratio rising to 31.2%. The re-expansion of Bilibili's ecosystem began at the start of the year. Last year, due to a slowdown in MAU growth, the company temporarily stopped listing MAU metrics and guided the market to focus on DAU. However, starting with the benefits from the Spring Festival Gala broadcast rights this year, the ecosystem has experienced a new wave of healthy recovery—while expanding the ecosystem, stickiness (DAU/MAU, average daily user time) is also improving.

2. Advertising Still Has Room: Advertising slightly exceeded market expectations and previous guidance, with a year-on-year growth rate of 22%. Although Bilibili's advertising has maintained a high growth rate of over 20% for more than two years, due to its platform's unique attributes and the efficiency improvement of the original recommendation algorithm by AI, there is still some commercialization space to maintain stable growth. The company stated that the current 6-7% ad load rate is significantly lower than peers. In the future, it can be released by 1 percentage point annually until it reaches 10% (the user perception threshold).

2. Gaming Still Under Pressure in the Short Term: Due to the lack of new games of the same level after "Three Strategies," the second half of the year began to enter a period of pressure brought by a high base. This quarter saw a 17% decline, with actual pressure slightly exceeding expectations. From the deferred revenue perspective (significant slowdown in year-on-year growth, calculated revenue decline), it is clear that the fourth quarter and the first quarter of next year will still face the same pressure. The company expects a relatively rich pipeline in the second half of next year.

However, the gaming sector is not completely silent in the short term. After the launch of the PC game "Escape from Tarkov" in October, it became a hit, maintaining a daily online player count in the global TOP10 on the Steam platform within half a month, and sales exceeded 3 million in less than a month. The game's success is not only due to its fun and easy gameplay but also the platform's synergy (Bilibili's internal promotion, influencer videos, live streaming promotion), showcasing the unique gaming ecosystem of Bilibili. Development for the console and mobile versions has started, but there is no specific timeline yet.

Another Three Kingdoms IP game, "Three Kingdoms: Hundred Generals," is gearing up for release, planned for the end of Q1 next year, but its main revenue contribution is not expected in Q1. Current test feedback is positive, and the company plans to operate it as a long-term DAU game without setting short-term commercialization goals, aligning with the mainstream preferences of today's youth by not forcing players to spend excessively.

3. Live Streaming May Have Completed Its Bonus Period: In Q3, VAS value-added services performed generally, with growth slowing to 7%. However, the increase in premium memberships was quite good, benefiting from several exclusive Chinese animation series and documentaries, with a net increase of 1.7 million in Q3, far exceeding previous quarters, and subscriptions growing by 16% year-on-year. Meanwhile, value-added services in the fan economy, such as charging and paid video categories, are still growing at a high rate year-on-year, so the final drag may come from live streaming.

Bilibili's push for live streaming began in the second half of 2023, and it has already gone through a period of rapid development, but the overall industry trend is not favorable, so future value-added growth may further slow down.

4. Profit Exceeds Expectations: Q3 profits once again exceeded expectations, with an adjusted operating profit margin of 9%, up 1.2 percentage points from the previous quarter. The company guides further improvement to 10% next quarter. The optimization of operating expenses has been elevated to a core operating goal since the end of 2023, with strict control over content costs, bandwidth costs, and operating expenses (promotional expenses, R&D/management personnel salaries, etc.) while opening up game and advertising monetization, driving rapid improvement in profit margins. The company's long-term target for operating profit margin remains 15%-20%, indicating significant room for improvement from the current level.

5. Cash Flow Improvement: In Q3, Bilibili's cash, deposits, and short-term investments on the books, after deducting short-term debt, resulted in net cash of 21.9 billion yuan, an increase of 1.3 billion compared to Q2, mainly from core business operations. The two-year $200 million buyback plan approved at the end of last year currently has $84 million remaining, with the buyback progress faster than expected. Since there is now money on the books, the buyback budget may be increased after the current one is exhausted.

6. Overview of Performance Indicators

Dolphin Research's View

Although Q3 was another overall inline performance, including guidance, it was not surprising, especially in gaming. Considering the lack of clarity in the short-term commercialization goals for "Three Kingdoms: Hundred Generals" and the delay in the pipeline cycle, a real recovery will need to wait until the second half of the year. However, if the operational aspect can continue to improve steadily, even if short-term funds leave due to disappointment, leading to a market value adjustment, it can still attract more long-term funds.

Looking beyond short-term expectation differences, as with the previous quarter, Dolphin Research is still pleasantly surprised by the user ecosystem metrics, which are a more core growth driver from a long-term perspective. A healthy user ecosystem means a return to growth, and the trend of commercialization and monetization can continue, with room to expand further.

In terms of monetization, besides the aforementioned gaming ecosystem operations, AI's boost to Bilibili is very significant. One is the optimization of the advertising recommendation algorithm (with a greater marginal effect on Bilibili), and the other is more AI tools to help influencers create richer and higher-quality content, continuing to engage users. The platform's commercial value is thus enhanced, and influencers can benefit from real monetization, forming a positive cycle.

Additionally, in terms of the company's own operational goals, since a quantitative target for profit margin has been set, the issue of inefficient operations in the past will at least be more controlled from the management's subjective willingness.

In summary, Dolphin Research holds a relatively positive outlook for Bilibili in the medium to long term. Although in the short term, the gaming pressure has led to a valuation higher than peers, with a current market value of 10.8 billion corresponding to the 2026 performance expectations, the valuation is about 22x Non-GAAP P/E, while peers in the internet social entertainment platform sector are generally below 20x. However, Bilibili still has some high growth at the profit inflection point next year, so this is still reasonable.

If we are more optimistic, assuming the company's long-term target is achieved, raising the current 7-8% operating profit margin to 15%-20%, combined with a 10% revenue growth rate in 2026 and a relative valuation of 15x P/E, the neutral to optimistic valuation range is between 10.5-14 billion, so there is an opportunity to participate in the short-term market adjustment.

Below is a detailed analysis

I. Ecosystem: Healthy Expansion, Laying the Foundation for Long-term Growth

In the peak season of Q3, users increased by 13 million quarter-on-quarter. Since the rapid expansion brought by the Spring Festival Gala broadcast at the beginning of the year, benefiting from the richness of exclusive content (Chinese animation, self-produced variety shows, self-produced documentaries, self-produced short dramas, etc.), user metrics have performed well for three consecutive quarters.

Stickiness metrics are also improving, with the DAU/MAU ratio rising to 31% quarter-on-quarter, and user time reaching a record 112 minutes, an increase of 6 minutes year-on-year.

Looking at the social platform industry, according to Questmobile's tracked platform user total time growth data, in Q3, Bilibili and Douyin's growth trends are upward, Xiaohongshu's growth has begun to slow significantly, and Kuaishou's decline has increased.

II. Advertising: Slightly Exceeds Expectations, Still Room for Long-term Growth

In Q3, Bilibili's advertising revenue exceeded 2.57 billion yuan, growing 22% year-on-year, higher than guidance and expectations. The growth in advertising was mainly driven by the increase in user time within the ecosystem (+16% yoy), as well as the company's upgrades to advertising algorithms, delivery systems, and AIGC creative tools. More than 50% of advertising materials are now automatically generated by AIGC, significantly improving production efficiency and conversion effectiveness.

III. Gaming: Below Expectations, Recovery in the Second Half of Next Year

In Q3, gaming revenue began to be affected by a high base, declining 17% year-on-year, worse than the market expected.

From the deferred revenue perspective, this issue will continue. In Q3, deferred revenue increased by 5% quarter-on-quarter, with a year-on-year growth rate of 8%, significantly slowing down, and calculated revenue declined by 23% year-on-year. It is expected that Q4 revenue will also decline by about 15%.

Although the PC game "Escape from Tarkov" became a hit after its launch in October, maintaining a daily online player count in the global TOP10 on the Steam platform within half a month, and sales exceeded 3 million in less than a month. However, "Escape from Tarkov" mainly relies on buyout sales, with skin purchases contributing little in the short term.

Regarding the future pipeline, the main plans currently include the overseas release of "Three Strategies" (expected by the end of the year in Hong Kong, Macau, and Taiwan, and Q2 next year in Japan and South Korea), the anime mobile game "Trick RE:VIVE" (global release in the second half of the year), and "Three Kingdoms: Hundred Generals" in Q1 next year. The mobile and console versions of "Escape from Tarkov" have just restarted development, with no launch timeline yet.

IV. Value-added Payment: Live Streaming May Have Completed Its Bonus Period

VAS value-added service revenue, mainly from live streaming and premium membership subscriptions, grew 7% year-on-year in Q3, with a significant slowdown in quarter-on-quarter growth.

In Q3, the premium membership scale increased to 25.4 million, with a net increase of 1.7 million, far exceeding previous quarters, and subscriptions growing by 16% year-on-year, with the payment rate reaching a new high. Meanwhile, value-added services in the fan economy, such as charging and paid video categories, are still growing at a high rate year-on-year, so the final drag may come from live streaming.

Although Bilibili does not have an advantage in time spent compared to social platforms, it still outperforms traditional long video platforms. In Q3, besides its own anime content, Bilibili's self-produced variety show "Can I Have Dinner at Your Place?" Season 3, the documentary "Guarding Liberation West 6," and the costume revenge drama "Golden Zhao Yu Drunk," which launched at the end of September, attracted many new subscriptions. Therefore, long video platforms other than Bilibili in the industry are still hovering "underwater."

V. Profit Margin Continues to Improve

In Q3, Bilibili's profit continued to expand, with core business operating profit (gross profit - operating expenses) reaching 350 million yuan, and adjusted to 680 million yuan, with both cost and expense parts optimized.

1. Gross Margin Slowly Increases

The increase in gross margin is mainly driven by the continued high growth of high-margin games and advertising.

In terms of specific cost structure, revenue-sharing costs are the main component, mainly related to games, live streaming, and Huohua advertising. In Q3, revenue-sharing costs continued to grow to 3.04 billion yuan, with the growth rate significantly slowing to 4% as games declined.

2. Expenses Remain Restrained

In terms of operating expenses, there were no major new games during the period, so sales expenses declined significantly, with the expense ratio decreasing by 3 percentage points year-on-year. R&D expenses and management expenses remained flat, but with revenue growth, the expense ratio slightly contracted.

From the "traffic monetization/cost relationship" that Dolphin Research has been observing, in Q3, due to gaming pressure, the direct revenue from traffic monetization per user slightly decreased in terms of covering customer acquisition and maintenance costs. This also reflects that further improvement in profit margins is related to the control of other operating expenses such as R&D and management.