Bilibili hits profitability milestone but faces big questions about its staying power

Bilibili, the platform synonymous with China’s Generation Z and anime fans, has finally reached a financial milestone. The company posted an adjusted net profit of RMB 240 million (USD 33.6 million) in the third quarter, a dramatic turnaround from the RMB 863 million (USD 120.8 million) loss it suffered a year ago. But behind the celebratory headlines, the achievement raises as many questions as it answers.

Revenues flowed in from four pillars: value-added services (38%), advertising (29%), gaming (25%), and IP derivatives and other businesses (8%). Two segments stood out: gaming, with an 84% year-on-year growth spurt, and advertising, which maintained a solid 27.8% increase. These drivers helped tip the scales into profitability, but their durability remains uncertain.

CEO Chen Rui had long pledged to break even by the end of 2023. While the Q3 results fulfilled that promise, much of the credit goes to the phenomenal success of Three Kingdoms: Conquer the World, a new release that powered gaming revenue. Without it, the picture might have looked much grimmer, as older games continued their decline. This heavy reliance on a single title has left investors jittery, reflected in a 12% drop in Bilibili’s stock price post-earnings.

The question now is simple: Can Bilibili keep this momentum alive?

Advertising has emerged as a resilient lifeline for Bilibili, standing as the company’s second largest and fastest-growing revenue stream. Even during a lackluster quarter for the industry and amid unfavorable macroeconomic conditions, Bilibili’s advertising revenue grew steadily, thanks to targeted innovations.

COO Li Ni outlined three key drivers during the Q3 earnings call:

Li shared intriguing insights into shifting ad trends. Performance-based ads, which deliver measurable results, grew by nearly 50% YoY, significantly outpacing traditional brand advertising. Sponsored orders through the Huahuo platform now account for nearly 60% of deals, solidifying performance-based ads as a dominant format.

This transformation has been propelled by the integration of Huahuo and Qifei—dubbed “Huafei” in industry circles. Advertisers typically allocate 70% of budgets to Huahuo for creator-driven ads and 30% to Qifei for broader platform promotions. Historically, Huahuo’s 5% commission was considered industry-friendly, but its limited revenue potential has been offset by Qifei’s introduction, allowing Bilibili to grow ad income without alienating content creators.

Looking ahead, Q4 is poised for a boost from Singles’ Day, the annual shopping extravaganza. Li revealed that Bilibili’s gross merchandise value (GMV) rose by over 150% during the event, with advertising revenue surging nearly 50% YoY. Notably, the number of content creators who participated as hosts increased by nearly 80%, and categories like electronics, home goods, and beauty saw more than half of their customers coming from first-time buyers.

For once, Bilibili’s gaming division didn’t drag down the company’s performance. Instead, it delivered a rare highlight, with Three Kingdoms: Conquer the World dominating the scene. The strategy game generated an estimated RMB 1.5 billion (USD 210 million) in gross revenue during Q3, with RMB 1 billion (USD 140 million) recognized for the quarter. Without this blockbuster, gaming revenue would likely have continued to decline.

But the future of Bilibili’s gaming success hinges on two critical questions: How long can Three Kingdoms sustain its momentum? And when will the next hit emerge?

Chen addressed the first point, underscoring the importance of longevity: “I’ve instructed the team to prioritize Three Kingdoms: Conquer the World as a long-term project. Our goal is a five-year lifecycle.”

The game’s fourth season, launched in mid-November, introduced new maps, characters, and storylines, while plans for an international rollout with a traditional Chinese version are set for late 2024. Chen called the title “one of the most critical pillars for next year.”

As for new blockbusters, Chen hinted at exploring a gaming genre outside Bilibili’s usual focus on anime and strategy genres, though details remain scarce. For now, hopes rest on Jujutsu Kaisen, a recently launched anime-inspired title that topped download charts in over 70 countries.

Deferred revenue from Three Kingdoms suggests a stable Q4, but its ability to carry Bilibili’s gaming division beyond 2024 remains uncertain. Without a clear successor, the pipeline appears thin.

Bilibili’s Q3 profit is a commendable achievement, but sustainability is the real test. While advertising innovations and gaming hits like Three Kingdoms have propelled the company forward, cracks remain visible. Gaming revenue is heavily reliant on a single title, and the next big hit is nowhere in sight. Meanwhile, the advertising business, though robust, faces the perennial challenge of balancing innovation with profitability.

For investors, the big question lingers: Can Bilibili deliver consistent wins, or is this quarter’s profit just a fleeting moment of triumph?

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Wang Yuchan for 36Kr.