IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

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<a href="https://www.smartkarma.com/entities/26793" target="_blank" data-smartkarma-citation="entities:26793:1">Bilibili Inc (BILI US)</a> filed for an NYSE IPO to raise $400 million on 2 March. It is a Chinese online video platform themed around anime, manga, and game fandom backed by <a href="https://www.smartkarma.com/entities/26" target="_blank" data-smartkarma-citation="entities:26:1">Tencent Holdings Ltd (700 HK)</a>, a 5.2% shareholder.Bilibili seems to be the ideal way for investors to gain exposure to Generation Z’s (82% of bilibili’s users) increasing spend on the online entertainment industry in China. A common view is that Generation Z is more accustomed to paying for content and premium services as they grow up, compared to previous generations. However, as a play on Generation Z spends, bilibili does not have an attractive risk/reward profile. We are bearish on bilibili on a fundamental basis due to the following factors:<ol><li>Bilibili has a disproportionately large revenue risk from a single mobile game, Fate/Grand Order, an exclusively distributed game based on the Fate anime series. Fate/Grand Order accounted for 60% of total revenue in 2017 vs 13% in 2016. While the Fate/Grand Order success story is commendable, bilibili’s earnings quality is poor due to the heavy reliance on Fate/Grand Order. It is unclear if bilibili has an upcoming mobile game which can replicate Fate/Grand Order’s success.</li><li>Due to the launch of Fate/Grand Order at the end of 3Q16, mobile games' monthly paying users (MPUs) exponentially grew on average 260% in the each of first three quarters of 2017. However, due to tougher comparable, mobile games’ MPUs growth slowed to a relatively pedestrian 25% in 4Q17. It is likely mobile games' MPUs growth will continue to decelerate in the absence of a compelling alternative to Fate/Grand Order.</li><li>The SEC F-1 filing provides a deluge of facts to suggest that bilibili has many engaged users. However, monetising non-mobile games users seems to be an entirely different matter. While Bilibili’s non-mobile games paying ratio increased from 0.3% in 2016 to 0.7% in 2017, it is marginal compared to live streaming peer <a href="https://www.smartkarma.com/entities/285" target="_blank" data-smartkarma-citation="entities:285:1">YY Inc ADR (YY US)</a>'s paying ratio of 8.5% in 4Q17. Also, bilibili’s advertising revenue per monthly active user (MAU) is low at RMB3 in 2017 vs an average RMB16 for major Chinese internet companies.</li></ol>We will provide a view of valuation once the IPO price range is announced.

Bilibili Inc (BILI US) filed for an NYSE IPO to raise $400 million on 2 March. It is a Chinese online video platform themed around anime, manga, and game fandom backed by Tencent Holdings Ltd (700 HK), a 5.2% shareholder.Bilibili seems to be the ideal way for investors to gain exposure to Generation Z’s (82% of bilibili’s users) increasing spend on the online entertainment industry in China. A common view is that Generation Z is more accustomed to paying for content and premium services as they grow up, compared to previous generations. However, as a play on Generation Z spends, bilibili does not have an attractive risk/reward profile. We are bearish on bilibili on a fundamental basis due to the following factors:Bilibili has a disproportionately large revenue risk from a single mobile game, Fate/Grand Order, an exclusively distributed game based on the Fate anime series. Fate/Grand Order accounted for 60% of total revenue in 2017 vs 13% in 2016. While the Fate/Grand Order success story is commendable, bilibili’s earnings quality is poor due to the heavy reliance on Fate/Grand Order. It is unclear if bilibili has an upcoming mobile game which can replicate Fate/Grand Order’s success.Due to the launch of Fate/Grand Order at the end of 3Q16, mobile games' monthly paying users (MPUs) exponentially grew on average 260% in the each of first three quarters of 2017. However, due to tougher comparable, mobile games’ MPUs growth slowed to a relatively pedestrian 25% in 4Q17. It is likely mobile games' MPUs growth will continue to decelerate in the absence of a compelling alternative to Fate/Grand Order.The SEC F-1 filing provides a deluge of facts to suggest that bilibili has many engaged users. However, monetising non-mobile games users seems to be an entirely different matter. While Bilibili’s non-mobile games paying ratio increased from 0.3% in 2016 to 0.7% in 2017, it is marginal compared to live streaming peer YY Inc ADR (YY US)'s paying ratio of 8.5% in 4Q17. Also, bilibili’s advertising revenue per monthly active user (MAU) is low at RMB3 in 2017 vs an average RMB16 for major Chinese internet companies.We will provide a view of valuation once the IPO price range is announced.

Bilibili IPO Preview: Myths About Generation Z

China

Bilibili Inc. provides online entertainment services. The Company offers a platform that covers a wide array of genres and media formats, including videos, live broadcasting, mobile games, animation, and comics. Bilibili serves customers in China.

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Bilibili (BILI US)

Bilibili IPO Preview: Myths About Generation Z

Bilibili Inc (BILI US) filed for an NYSE IPO to raise $400 million on 2 March. It is a Chinese online video platform themed around anime, manga,...

Arun George

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