Asian Tech Press (Mar. 7) -- Bilibili Inc (BILI:NASDAQ GS), also nicknamed B Site, a cultural community and video platform for China's young generation, is one of the Internet players with the most powerful presence since the beginning of the year.
First a 25-year-old content reviewer at Bilibili died suddenly, then the company wandered on the brink of illegality by engaging in a blind box business, and then it announced its shocking 2021 earnings results: an annual net loss of 6.8 billion yuan ($1.1 billion), expanding 119% year-on-year.
Meanwhile, Bilibili's ADR has been falling for more than a year, and its Hong Kong shares have dropped significantly in the last six months. The video-sharing company closed Monday down anout 10% at HK$186.9 per share, while also hitting a new 52-week low of HK$185.4.
The latest price of B Site's U.S. shares has fallen to $25, only 16% lower than last year's high of $153.
Even so, Chen Rui, chairman and CEO of Bilibili, said that he is still optimistic about the future, and also let the chief financial officer give a timing for possible profitability, claiming that the company will be break-even in 2024.
Can Bilibili really break even after two more years?
Advertising gains, gaming loses
In the past year, China has entered the "winter" of the Internet industry amid the overhaul of the Internet model and global changes. Tencent, Baidu and other Chinese Internet giants have all experienced a downward trend, and B Site is no exception.
Reassuringly, Bilibili is not all loss-making, with revenue maintaining a high growth rate throughout last year.
The earnings results showed that Bilibili's total net revenues for fiscal year 2021 were 19.4 billion yuan ($3.0 billion), up 62% YoY, and the company reported total net revenues of 5.78 billion ($907.1 million) in Q4 2021, up 51% from the same period of 2020.
In the fourth quarter of 2021, Bilibili recorded revenues of about 1.3 billion yuan ($203.3 million) for mobile games, up 15% YoY, advertising revenue was 1.59 billion yuan ($249.1 million), up 120% YoY, and revenues from value-added services increased 52% from 2020 to 1.89 billion yuan ($297.3 million).
In terms of revenue structure, the video sharing comapny's advertising business is growing rapidly and has become the second largest source of revenue for B Site, accounting for over 27% of the overall revenue in Q4 2021.
However, it is worth noting that the growth rate of China's online advertising market has slowed down significantly since the third quarter of last year, and Chinese Internet giants were all affected by the weakening demand for advertising in the market, and the growth of their advertising business was sluggish last year.
Beyond a poor business environment last year, the growth prospects for Bilibili's advertising business is actually very limited compared to other platforms, because it does not offer video pre-movie adverts, which can please the users, but in turn dragged its leg.
Several well-known Chinese long-form video sharing websites, Youku, Tencent Video, and even short-form video platform Douyin also invariably rely on cinema advertising to maximize advertising revenue.
In terms of earnings performance, gaming business, which used to occupy half of Bilibili's net revenues, is in stark contrast to the advertising business.
Four years ago, when Bilibili went public on NASDAQ, it was teased as a gaming company, and at one time its gaming revenue accounted for about 80%.
Today, the presence of gaming business is significantly reduced in B Station. From 2019 to 2021, the proportion of gaming revenue to total revenue was 53%, 40% and 26%, respectively. The explanation given by the company is that, "The revenue structure is optimized and the proportion falls back normally after synergistic development of multiple businesses."
The fact is, Bilibili's gaming revenue so far mainly relies on exclusive agents, or living off its past gains from three games Fate/Grand Order, Princess Connect! Re:Dive, and Azur Lane, but unfortunately their popularity has declined seriously.
Bilibili has invested heavily in games, but its needle-in-a-haystack investment strategy has yielded little results. Last year, the company invested in more than 50 startups in total, at the pace of investing in an average of one company a week.
And the most invested among them are game companies, 22 in total. Last year alone, B Site launched 8 games, but shut down 10 in the same year, 8 of which have been operating for less than two years.
Crazy bets and the pain of auditing
Recently, a blind box called "Magic Reward" under Bilibili's e-commerce business has been questioned for being on the verge of breaking the law.
"Magic Reward" is a special method of purchase for B Site members, consumers first need to recharge for "magic stones", and then spend "magic stones" to draw prizes ranging from Apple phones to refrigerator stickers. It costs 169 "magic stones" (about 45 yuan) to draw a prize, similar to the blind box that has become a big hit in the last two years.
It is said that the "Magic Reward" has accounted for 80% of Bilibili's e-commerce revenue, and its internal positioning is a revenue tool, as well as for drawing new users.
However, a large number of consumers have complained that the "Magic Reward" has induced excessive spending and the probability of winning is a mystery, with some people spending tens of thousands of yuan but only getting a mask, and some people winning a product but having it shipped in 2029 and not being able to get a refund.
Professionals pointed out that the "Magic Reward" and other blind box marketing models are of a certain gambling nature, and there are certain risks. Once the regulation is tightened, it is likely to face extinction.
By then, with the collapse of the "Magic Reward"that contributes 80% of revenue to B Site's e-commerce business, in the absence of other innovations, its e-commerce business is bound to suffer a fatal blow.
In the face of questions from the blind box economy, Bilibili has not yet responded to them.
In addition, at the beginning of February this year, Bilibili suffered from a public pressure related to content review. A 25-year-old content reviewer at Bilibili died suddenly, and the company showed a very negative attitude towards the matter, and its first response was criticized as indifferent and confusing.
Seeing the scandal spreading and the corporate values being questioned, Bilibili responded again only a few days later on China's Twitter-like Weibo, and said it had launched two measures to ensure employees' physical health by expanding the number of reviewers and reinforcing staff medical checkups.
As of now, the furore over the death of the content reviewer at Bilibili came to a temporary end, but throughout the course, an apology from Chen Rui, as expected by the public, never materialized, and he appeared very quiet, leaving only the PR team to deal with it alone.
