HomeEconomicBilibili's "debt-to-equity swap", fourth-quarter results arouse expectations

Bilibili’s “debt-to-equity swap”, fourth-quarter results arouse expectations

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Author Luo Xiaoqin, this article only represents personal views

Bilibili confirmed last Thursday morning that the underwriter Goldman Sachs had successfully placed 15.344 million ADSs to no less than six investors, raising US$409 million for the company. The placement price of each ADS was US$26.65. U.S. stocks all saw a 7% discount. Bilibili’s Hong Kong stocks fell 4.7% to 207.4 Hong Kong dollars that day, and its U.S. stocks also retreated 2% to close at 26.94 U.S. dollars, barely holding the placement price level.

With the recovery of Hong Kong stocks, Bilibili ushered in a retaliatory rebound from the historical low of 66.1 Hong Kong dollars in October, and recently broke through the 220 Hong Kong dollar mark; The $27 level, from the enthusiastic response of investors, or their expectations for the fourth quarter performance.

Bilibili stated that part of the proceeds from the allotment will be used to repay the total principal amount of US$269 million, the outstanding convertible senior notes due at the end of 2026, and supplement the company’s operating capital.

Early redemption of forward notes

In fact, the company has recently actively repurchased forward convertible senior notes, reflecting management’s confidence in future cash flow. According to its third-quarter performance disclosure, as of the end of September last year, Bilibili had spent US$198 million to repurchase notes with a total principal amount of US$275 million and due in December 2026, and repurchased them at US$49.3 million in October Notes due 2027 in the aggregate principal amount of US$54 million.

Bilibili also approved a share repurchase plan in March last year, allowing the company to buy back up to US$500 million in ADSs over the next two years, but only used US$53.6 million of that as of September last year.

As of the end of September last year, the company’s cash and cash equivalents, fixed deposits, and short-term investments were 23.9 billion yuan. Compared with 12.3 billion yuan in non-current long-term liabilities, the company’s finances are not ample. However, due to the increase in the company’s revenue and gross profit in the third quarter of last year, even though the quarterly results did not provide cash flow from operating activities, it is estimated that the company’s early redemption of forward notes is a sign of optimism about the business outlook.

Bilibili has successfully converted potential debt into usable capital, and the introduction of new shareholder funds has indeed strengthened its future financial strength. However, it should be noted that the company’s ability to control costs needs to be improved. The business has suffered losses for a long time, and the gross profit margin is far lower than that of its main competitor, Kuaishou (1024.HK). This is an old problem that cannot be eliminated.

Cutting costs still needs work

Looking at the quarterly gross profit margin, Kuaishou has been higher than 40% for a long time in recent years, and has reached 45% or above in the last two quarters. On the other hand, Bilibili’s gross profit margin in the past five quarters has been lower than 20%, and it was only 18.2% in the third quarter of last year. Far behind; in addition, in the first three quarters of last year, Bilibili’s operating expenses, including marketing, administrative and R&D costs, reached 8.63 billion yuan. In addition to a year-on-year increase of 17%, the proportion of overall revenue was as high as 54.8%, compared with a year earlier. The previous increase of 54.2% was recorded again, reflecting that efforts are still needed to control costs.

Bilibili also understands the importance of reducing costs. In December last year, it was rumored that the company would lay off 30% of its staff, involving departments such as live broadcast and comics. Among them, product testers were the hardest hit areas, while functional departments such as R&D, operations, and personnel Jobs are also affected. Bilibili denied large-scale layoffs, saying only that this was a normal business adjustment.

Although Bilibili has successfully positioned itself as a social media platform for China’s “Z+ generation” (born between 1985 and 2009) in recent years, it has certain advantages in seizing the young people’s market, and the number of active users has maintained a good growth; but as of last year At the end of September, there were only 332 million monthly active users, far lower than Kuaishou’s 604 million. In addition, the average monthly paying users were only 48% of the other party’s, reflecting that there is still a lot of room for its business performance to catch up.

It is worth mentioning that the business structure of Kuaishou and Bilibili is somewhat different. The former focuses on online marketing, with live broadcasting as a secondary, while the latter’s business covers mobile games, value-added services, advertising and e-commerce, with a more balanced revenue structure. In addition, Bilibili’s performance in the third quarter of last year has begun to improve. The revenue in the quarter was 5.79 billion yuan, an increase of 18% from the second quarter, and the gross profit rose by 42.8% to 1.054 billion yuan, helping the net loss to narrow by 14.6% from the previous quarter. % to 1.72 billion yuan, a year-on-year decrease of 36%.

After experiencing the rising momentum in recent months, Bilibili’s latest price-to-sales ratio (P/S ratio) is 3.5 times, slightly higher than Kuaishou’s 3.3 times, and even farther than iQiyi (IQ.US)’s 1.3 times level. This seems a bit unreasonable, but it may reflect that the market is looking forward to Bilibili’s fourth-quarter performance and is willing to give a higher premium. However, the patience of the market funds is limited, and the management still needs to hand over the turnaround schedule in the next few quarters in order to retain the investors who support them for a long time.

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