Financial analysis of Bilibili

徐驭依 1210027477

施宇涵 1210030324

颜 续 1210028367
 Catalogue
1.Analysis of the financial situation
1.1 operational capacity analysis

1.2 profitability analysis

1.3 corporate solvency analysis

2.Analysis of reasons for losses

2.1 The State of the Video Industry

2.2 Current status of company

2.3 Company development direction and suggestions

2.3.1 Opening source
2.3.2 Controlling flow

3.Future development and forecast of Bilibili

4.Conclusion
1. Analysis of the financial situation
1.1 Operational capacity analysis

The table above shows the performance of Bilibili in terms of consolidated operating capacity
for the years ranging from 2018 to 2021.
The first is the total asset turnover ratio, which in detail is a highly summarised and
comprehensive reflection of a company's assets as a whole and its consolidated operations. This
indicator has a positive attribute, with an increase in the figure implying a better return on
revenue for the current fixed asset investment of the business. It can be seen that the
performance of this indicator for Bilibili is erratic and mainly on a downward trend.
In terms of accounts receivable turnover, the overall trend shows a steady increase and reaches
its highest value in 2021. Conversely, the development of accounts receivable turnover days
tends to show a downward trend, indicating that Bilibili's turnover ratio is getting higher, which
means that the collection of cash continues to improve and funds are taken up less and less by
other external stakeholders.
Finally, we find that Bilibili's ROC, ROIC and ROE, which are negative, are not absolutely
indicative of the business situation, but we can tell that the company has been in a state of
expansion in recent years and that investment has outweighed returns.

1.2 Profitability analysis

 By analysing the table comparing annual revenue to net profit and the table measuring changes
in the company's profitability, we believe that although the overall profitability of Bilibili has
improved in recent years, it is still in a loss-making position.
In terms of annual revenue, Bilibili's annual revenue in 2021 increased by nearly $7.4 Billion
compared to FY2020, with YoY growth figures topping 38.1%, indicating a good performance in
terms of revenue and a very significant advantage in terms of Bilibili's choice of profit model.
However, along with the increase in revenue, Bilibili's costs have also started to rise sharply,
resulting in huge losses. This is reflected in the fact that its gross profit, operating margin and net
profit margin are all basically negative between 2018 and 2021.
Between 2018 and 2020, Bilibili's operating margin increases each year, but remains negative,
indicating that Bilibili's ability to generate profits from productive operations over this period is
increasing but still insufficient to turn a loss into a profit. And in 2021, this ratio actually drops by
33.167% compared to 2020, adding to the already loss-making Bilibili's woes.
The only positive value appears in Bilibili's gross profit margin for 2020, suggesting that in that
year, B launched a highly competitive product that was far more profitable than other years and
had a high competitive market position.
1.3 Corporate solvency analysis

The table above shows that Long-term debt to equity ratio rose and then fell between 2019
and 2021, which meant that the liability pressure taken by the company decreased by 25.34% in
2021.
Generally for large companies, the Long-term debt to equity ratio should be at least greater
than 40% to better utilize long-term debt to develop more business. Bilibili is typically that
doesn’t skimp on using debt to create more revenue possibilities.
Bilibili 's financial leverage in 2021 is likewise reduced 23.62% from last year, breaking a
significant upward trend. User scale is generally the best leverage for Internet firms, which
means that Bilibili is lowering the user threshold, increasing revenue and reducing financial risk
in the process of operating in debt.
The current ratio of Bilibili had increased from 1.9855 in 2018 to 3.0194 in 2021, which
meant that even if a portion of current assets wouldn’t be liquidated in the short term, it
could ensure the ability to repay all current liabilities.Bilibili 's quick ratio rose from 1.7188 in
2018 to 2.7934 in 2021, meaning that the company's current assets are sufficient to pay off its
current liabilities.
Bilibili is still expanding its business and increasing its foreign investment in recent
years. Although the situation is beneficial to its future development, but the continuous loss
status coupled with the continuous financing will certainly take up a large amount of cash flow
leading to a decline in debt paying capacity.

2. Analysis of reasons for losses

2.1 The State of the Video Industry

From a comprehensive point of view, domestic online video sites have started to enter a
mature period since 2013, followed by the gradual formation of a huge market size but the
increment has basically been explored and completed. Therefore, instead of the high growth rate
of the past, the video industry is now showing a deeper market segmentation and a more stable
market pattern. The basic pattern of the current video market has not changed significantly, and
some of the above characteristics continue to this day, while some new turning points have also
emerged.

Turning points:
① Videography is still a big trend and wave in society.
② Some companies in the industry are starting to reach the break-even point, with IQIYI
achieving profitability in the first quarter of 2020, and entering break-even in the fourth quarter
of this year, while Bilibili will be the one expected to break-even in 2024.
③ Industries across all sectors are streamlining costs.
④ Video industry will look for new growth areas after reaching break-even.

The main conditions for video companies to enter the profitability cycle:
the growth of monthly, daily and length of use of users is slowing down. When user growth
slows, companies scale back marketing and content and community investment, opting to enter
the profitability cycle.

2.2 Current status of the company

Bilibili is currently in a critical profit transition period.

With the increase in the number of members, the performance of the value-added service
business of Bilibili is also getting better, and its revenue has exceeded the revenue generated by
the game business for two consecutive quarters. It is easy to see from the data that the ratio
between the various businesses has gradually become more balanced, and that Bilibili is
attracting new users through a series of initiatives.This shows that with the advancement of
diversified businesses, Bilibili has found more ways to cash in and its business structure is
gradually becoming more reasonable.

Bilibili has also been experimenting with the "content e-commerce" mode of operation in
recent years. According to the financial statement of 2021, the revenue of e-commerce and
other business is 2.83 billion yuan, increases by 88% from 2020, which reflects e-commerce
development may be worth looking forward to.
However, in the current situation, Bilibili still doesn’t have the conditions to enter the
profit term. For one thing, the user base of Bilibili is very young, which means that a large
number of young users flock to Bilibili every year, making Bilibili 's MAU still maintain at a high
level of growth; for another, Bilibili 's own business model determines that it tends to start
making profits after its user stickiness reaches a certain level.

Nevertheless, although the revenue of Bilibili is growing, the large amount of cost investment
makes Bilibili unable to achieve balance in recent years, forming a continuous loss and the
amount of loss is increasing year after year. In the first quarter of this 2022, the net loss was
2.282 billion yuan, which is 152% higher than the previous year, but the growth rate of revenue
was declining.
Since November 2021, the share price of Bilibili has been falling, with its market value
evaporating by nearly 90%. In addition to the impact of domestic policies related to Internet
companies and the general environment of the global epidemic, the reason is
that Bilibili only increases revenue but not profit. Now that the global capital risk aversion
demand has risen, it is natural that the market can’t be patience for Bilibili for a long time.
2.3 Company development direction and suggestions

Core：opening source and controlling flow

2.3.1 Opening source: expanding paid subscribers through knowledge payment and live
streaming business
According to Bilibili's current operating business, profitability relies on value-added services, and
it can also be said that membership fees and live streaming are important sources of Bilibili's
revenue, so we believe that further revenue enhancement should also start from these two areas
and look for new growth points.
Knowledge payments have been one of the key content areas for internet platforms in recent
years, and the outbreak of online commerce that came with the severe impact of the covid-19 on
offline activities has affected the advancement of knowledge payments. The epidemic has caused
a certain amount of economic damage to all industries in China, increasing the mental stress of
those working in various sectors and creating a stronger demand for knowledge payment.
Therefore, we believe that Bilibili needs to take advantage of the current moment and make the
most of this episodic opportunity to increase the promotion of knowledge payments. For
example, by offering direct discounts on major member purchases or bundling major member
discounts with paid knowledge, and offering discounts on paid courses. This can be used to
increase the conversion rate of large members and the number of paying members, which can
create more benefits.

2.3.2 Controlling flow

(1) In-depth market research to reduce unnecessary content costs
 Bilibili does not do a selective job of investing in some areas and spends too much on
unnecessary costs. In order to generate more profits a business must keep its costs and other
expenses under control so that growth is always at a lower level than the annual revenue growth
of the business. As Bilibili is currently in a critical period of profitability transition, its costs are
high.

According to Bilibili's financial report, as Bilibili continues to expand and diversify their content
offerings this year, content costs increase by 43.7% from RMB1,875.5 million in 2020 to
RMB2,694.8 million in 2021. The reason behind such huge content costs is the large number of
users on Bilibili and the many scattered user interest levels, resulting in ineffective use of
copyright; coupled with the fact that Bilibili was heavily pirated resources within the platform due
to poor regulation and lack of awareness of copyright in the early years of its existence, which
were all taken down after Bilibili's business model became increasingly mature, in order to fill
such video gaps, Bilibili has been spending large amounts of money on acquiring high amounts of
copyright, one after another. At the same time, Bilibili has invested heavily in games, one of its
four major businesses, and has paid a disproportionate amount of game revenue for the
expensive game content rights. All of these are huge expenses for Bilibili, making it a long-term
loss-making business.
In response to such high content costs, our advice to Bilibili is to conduct in-depth market
research to find content that is favoured by most Bilibili users, such as anime series and variety
shows, and appropriately reduce the cost and purchase of rights for cold content, and consider
copyright distribution to expand revenue sources and channels, so that content purchase costs
can be controlled to some extent.

(2) Optimizing the structure of e-commerce platforms and saving costs

At the same time of high revenue in e-commerce,the cost of revenue is 3.35 billion yuan,
accounting for a large proportion of the total cost, and it isn’t balanced with the proportion of
revenue , which caused Bilibili’s loss status.
Moreover, from 109% growth in 2020 to 88% in 2021, the growth rate of e-commerce revenue
slowed down, the potential of Bilibili 's e-commerce operation is still to be examined by the
industry.
 Bilibili’s e-commerce business can be divided as three segments, member purchase, user's
own stores and live streaming.
Firstly, "member purchase" is dedicated to serve the core users who love anime, is also the
most important part of the Bilibili e-commerce. But many anime products’ copyright
are assigned to Japanese , which needed to purchase from Japan, so the transport speed
is so slow, and also difficult to ensure the quality, causing customer loss in the end. Therefore,
even if there is a clear customer base, Bilibili’s e-commerce merchandise costs are still much
higher than other platforms,profits aren't considerable enough as a middleman .
Secondly, although the user has his own window, but the essence is to attract customers for
the third-party e-commerce platform. Compared to the independent business of "member
purchase", the benefit of the multifaceted business isn't well. On the other hand, most of the
products sold in the windows of users are not related to the contents of their videos, which isn’t
attractive to other users who are more concerned about the contents.
Our suggestion for the e-commerce business of Bilibili is to remove some of the pre-sale goods
that can’t accept discounts and have high purchasing costs away according to the members'
preferences, and ensure the quality supervision of the products on sale continuously; try to build
an individual supply chain belonging to Bilibili, enhance the connection between the window
goods and the content ability of the users, and attract other users to buy goods while viewing
videos to increase revenue without taking advantage of the price.

3. Future development and forecast of Bilibili

As we can see above, the two main reasons for Bilibili's losses are that the cost of investing in
content is outweighing the company's revenue and that new growth areas have not been
explored far enough. Despite this, this fast growing business still has decent potential.
Value-added services: Value-added services are growing very rapidly, with the financial results
showing that in Q1 2022, value-added services turnover was $2.1 billion, accounting for 40% of
total revenue and still maintaining a 37% year-on-year growth rate. The growth rate of this
business reflects users' superb ability and willingness to pay in the area of virtual services and
content. We can predict a very promising future for this business.
Game business: Bilibili's game business is at the end of its maturity and is growing slowly at this
stage due to the changing business landscape. This year only saw a year-on-year growth rate of
only 16%, which is enough to show that Bilibili may keep moving into other business areas in the
future.
Advertising and e-commerce business: As Bilibili's user base grows, e-commerce and advertising
will become key directions. Various forms of advertising will gradually boost advertising revenue
to overtake the game portion of revenue and go hand in hand with value-added services.
4.Conclusion
In this article, we analyse the current financial situation of the company based on its financial
statements for 2018-2021 from the perspective of operations, profitability and solvency, give
corresponding optimization options in relation to the current profitability model and forecast
future development.
However, as Bilibili has only been commercialized for a relatively short period of time, there is
still a strong uncertainty about its future development. Therefore, the conclusions drawn from
the analysis of financial data and profitability models about its current and future development
may not be sufficiently convincing.
Moreover, combined with the tidal wave of development in the Internet industry and the
unpredictable market environment, the current profit model of Bilibili is unique and has many
possibilities for the future.