On Wednesday, HSBC reduced its price target on shares of Bilibili (NASDAQ:BILI) to $11.30 from $11.50. The firm has kept its Hold rating on the stock. The adjustment follows Bilibili's strategic shift to enhance its Gross Profit Margin (GPM) by reducing revenue sharing with livestreamers in the first quarter of 2024 and by recently implementing a cut to the video incentive plan for mid to top content creators starting in April 2024.
According to the firm's analysis, Bilibili's operational expenditure (Opex) improvements appear to be more constrained. Although game studio adjustments might alleviate some research and development expenses, the company's efforts to enhance monetization, particularly through advertising product enhancements, are expected to increase the need for more personnel.
Savings from marketing are projected to be minimal as the platform's daily active users (DAU) are already experiencing pressure, as indicated by recent data.
The analyst noted that while Bilibili's goal to reach breakeven by the third quarter of 2024 is ambitious, there are risks involved. The reduction in incentives for content creators and payments to livestreamers is not expected to affect content supply in the short term.
Still, there might be potential long-term impacts if content creators decide to move to other platforms in search of better compensation, especially if advertisement income growth slows down.
HSBC's revenue forecasts for Bilibili remain largely unchanged, but the firm has reduced its earnings estimates for 2024 by 8% due to anticipated higher operational expenses. The firm predicts Bilibili will reach breakeven in the fourth quarter of 2024. The new stock price target of $11.30 implies a modest downside of approximately 4% from the previous target, but the Hold rating is maintained.
InvestingPro Insights
In light of HSBC's recent analysis and price target adjustment for Bilibili, it is worth considering additional financial metrics and insights from InvestingPro. Bilibili holds a market capitalization of $4.74 billion, indicating its significant presence in the market despite its challenges.
The company's strategy to improve Gross Profit Margin is reflected in its latest figures, with a Gross Profit Margin of 24.16% over the last twelve months as of Q4 2023. Still, the company's P/E Ratio stands at -7.13, underscoring the concerns raised by analysts regarding Bilibili's profitability.
InvestingPro Tips highlight that Bilibili has more cash than debt on its balance sheet, which could provide some financial flexibility in executing its strategic plans. Moreover, the company is recognized as a prominent player in the Entertainment industry, which may help it maintain a competitive edge.
Yet, it is important to note that analysts have revised their earnings downwards for the upcoming period, and Bilibili is not expected to be profitable this year, nor has it been over the last twelve months. The company also does not pay a dividend, which may influence investor decisions.
For investors seeking a deeper dive into Bilibili's financial health and future prospects, InvestingPro offers additional tips. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a comprehensive set of tools and insights. There are 6 more InvestingPro Tips available that could provide further clarity on Bilibili's position and trajectory in the market.
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