Executive Summary / Key Takeaways

• Bilibili has achieved a significant financial turnaround, reaching GAAP net profit in Q4 2024 and sustaining profitability into Q2 2025, driven by robust growth in high-margin advertising and games businesses.
• The company's unique community of high-value Gen Z+ users, with an average age of 26 and increasing purchasing power, forms a strong foundation for expanding commercial opportunities.
• AI integration is a critical technological differentiator, enhancing ad efficiency, content recommendation, and creator tools, with specific quantifiable benefits like improved ECPM by over 10% year-over-year and AIGC-generated ad materials accounting for over 30% of ad covers in Q2 2025.
• Strategic initiatives include the successful "San Mou" game, international expansion, and a focus on high-quality content, supported by strong operating cash flow and an ongoing share repurchase program.
• While facing a competitive video landscape and macro uncertainties, Bilibili's distinct content ecosystem and AI advancements position it for sustained growth above industry averages, targeting midterm gross profit margins of 40-45% and operating margins of 15-20%.

Bilibili's Unique Ecosystem and Strategic Foundation

Bilibili Inc. ($BLBLF) stands as a distinctive online entertainment and content platform in China, primarily catering to the nation's young generations. Founded in 2009, Bilibili has cultivated a unique Professional User Generated Video (PUGV) community, complemented by mobile games and a suite of value-added services (VAS) including live broadcasting and original content. The company's overarching strategy centers on fostering a thriving, welcoming community built on high-quality content, a crucial differentiator in China's increasingly saturated video market. This approach has allowed Bilibili to secure a strong user mind share, particularly among the Gen Z+ demographic, which now represents nearly 70% of China's Gen Z+ population with an average age of 26. This maturing user base, with its rising spending power and diverse consumption needs, forms the bedrock of Bilibili's expanding commercial value.

Bilibili's success is deeply rooted in its commitment to high-quality content and an engaging community, which management believes is a scarcity in today's video landscape. Unlike platforms focused on "quick hits," Bilibili attracts users seeking "meaningful content they care about," leading to deeper engagement. This is evidenced by an average daily time spent of 105 minutes in Q2 2025, up 6 minutes year-over-year, and a nearly 20% year-over-year increase in watch time for videos longer than 5 minutes. The platform boasts 270 million official members with an impressive 12-month retention rate of around 80%, demonstrating strong loyalty. Bilibili maintains dominant leadership in ACG (Animation, Comics, Games) content, with Chinese anime watch time up 34% year-over-year in Q2 2025, and game content watch time increasing by 21% year-over-year. This content ecosystem also extends to knowledge-based and consumption-related categories, with AI-related content watch time surging 61% year-over-year in Q2 2025, and home appliance, parenting, and travel content showing significant growth. The platform empowers creators, with approximately 2 million earning income in the first half of 2025, and fan-charging program income more than doubling year-over-year in Q2 2025, underscoring users' willingness to pay for quality.

Technological Edge: AI as a Differentiator

Bilibili is strategically embracing AI as a core technological differentiator, moving beyond operational efficiency to directly accelerate monetization and enhance user experience. The company's unique advantage lies in its "world's largest repository of Chinese video content" and rich community interaction data, including over 1 million long comments generated daily, which serve as a "truly unique data asset" for AI training. This proprietary data allows Bilibili's AI model to analyze historical video data and extract precise information for user queries, a capability management claims is unique to the platform.

In advertising, AI integration has delivered tangible, quantifiable benefits. Deeper Large Language Model (LLM) integration with multimodal content understanding enables more precise user intent capture and personalized ad recommendations. AIGC (AI-Generated Content) tools are helping advertisers generate high-performing creative at scale; in Q2 2025, roughly 10% of new ad titles and over 30% of ad covers were created using these tools. These enhancements have boosted efficiency and scalability, improving ECPM (Effective Cost Per Mille) by more than 10% year-over-year and fueling approximately 30% year-over-year growth in performance-based advertising revenue in Q2 2025.

Beyond advertising, Bilibili is developing AI-assisted content creation tools for mid-to-longer-form videos, aiming to lower production barriers and improve creator efficiency. The company is also exploring AI's potential in ACG content, such as "virtual companionship by a virtual streamer or virtual idle," with product launches anticipated soon. These technological advancements contribute significantly to Bilibili's competitive moat, driving higher monetization efficiency, strengthening market positioning, and supporting long-term growth by leveraging its unique data assets and creative community.

Financial Transformation: From Growth to Profitability

Bilibili has undergone a significant financial transformation, culminating in its first GAAP net profit in Q4 2024 and sustained profitability into 2025. This turnaround is largely attributable to the robust performance of its high-margin Games and Advertising businesses. In Q2 2025, total net revenues grew 20% year-over-year to RMB 7.3 billion.

Games revenues surged 60% year-over-year to RMB 1.6 billion in Q2 2025, primarily driven by new seasons of the popular SLG title, San Guo: Mou Ding Tian Xia ("San Mou"). This follows a 76% year-over-year increase in Q1 2025 and an 84% increase in Q3 2024, demonstrating the game's enduring strength and Bilibili's successful diversification into the strategy game genre. Legacy ACG titles like FGO and Azur Lane also continue to deliver stable revenues.

Advertising revenues increased 20% year-over-year to RMB 2.4 billion in Q2 2025, supported by greater AI integration and advanced ad infrastructure. Performance-based advertising revenue grew around 30% year-over-year in Q2 2025, with the number of advertisers increasing over 20% year-over-year. Top advertising verticals include games, digital products and home appliances, e-commerce, internet services, and automotive. Value-Added Services (VAS) revenues grew 11% year-over-year to RMB 2.8 billion in Q2 2025, driven by live broadcasting, premium memberships (23.7 million members in Q2 2025), and the rapidly growing fan-charging program, which saw revenue increase over 100% year-over-year.

Bilibili's growth in high-margin businesses, coupled with stringent operating efficiency, has led to significant margin expansion. Gross profit in Q2 2025 rose 46% year-over-year, with gross margin expanding to 36.5% from 29.9% in the prior year period. This marks a consistent trend of sequential gross margin improvement over 12 quarters. Operating expenses remained stable year-over-year at RMB 2.4 billion in Q2 2025, with R&D expenses declining 3% due to efficiency improvements. These efforts resulted in a GAAP net profit of RMB 218 million and an adjusted net profit of RMB 561 million in Q2 2025, a substantial improvement from losses in the prior year. The adjusted operating profit margin reached 7.8%, and the adjusted net profit ratio was 7.6% in Q2 2025.

The company demonstrates robust cash flow generation, with approximately RMB 2 billion in operating cash flow generated in Q2 2025. As of June 30, 2025, Bilibili held a substantial cash and short-term investments balance of RMB 22.3 billion (USD 3.1 billion). This strong liquidity supports ongoing strategic investments and shareholder returns. In Q2 2025, Bilibili repurchased 5.6 million Class Z ordinary shares for USD 100 million, canceling them as part of its USD 200 million share repurchase program approved in November 2024. Approximately USD 84 million remains available for future buybacks, with management affirming that repurchases will continue based on market conditions, leveraging sufficient offshore U.S. dollar cash reserves.

Competitive Landscape and Strategic Responses

Bilibili operates within a highly competitive online entertainment landscape in China, facing direct competition from major players like iQiyi (IQ), Tencent Video (TCEHY), and Kuaishou (KUAS). While iQiyi and Tencent Video focus on broad, professionally produced content and extensive ecosystem integration, Bilibili carves out a distinct niche with its community-driven PUGV and dominant leadership in ACG content. Bilibili's emphasis on "high-quality content" and a "supportive, constructive community environment" is a scarcity in the market, fostering deeper user engagement and loyalty compared to rivals. The platform's ability to attract and retain high-quality content creators, whose fan bases exhibit "the highest and the strongest" stickiness on Bilibili, is a well-established competitive advantage.

Compared to iQiyi's reliance on licensed content, Bilibili's PUGV model potentially offers more agile content creation and lower direct content costs, contributing to its expanding gross margins. Against Tencent Video's vast ecosystem, Bilibili's specialized focus allows for deeper engagement within its niche, potentially leading to higher monetization per engaged user in its core segments. While Kuaishou excels in short-form video virality, Bilibili's strength in mid-to-long-form meaningful content caters to a different, more discerning consumption habit, which is harder for users to revert from once experienced. Bilibili's AI-driven content understanding and ad targeting also provide a technological edge, improving ECPM by over 10% year-over-year in Q2 2025, which directly impacts its advertising revenue efficiency against competitors.

Indirect competitors include traditional media, social media platforms like Douyin, and standalone gaming apps. These platforms can divert user attention and advertising budgets. However, Bilibili's unique blend of high-quality content, strong community interaction, and specialized content categories (ACG, knowledge, consumption-related) helps it retain users who seek "fulfillment, not short-term stimulation." The company's strategic partnerships, such as the collaboration with CCTV for the Spring Festival Gala, demonstrate its ability to expand brand awareness and attract broader audiences while maintaining its unique interactive experience through features like bullet chat. This multi-screen, multi-scenario strategy, including strong OTT user growth, reinforces its leadership in diverse viewing settings.

Bilibili's strategic responses to the competitive landscape involve continuous investment in its core strengths. The company is sharpening its focus on delivering the "best PUGV community experience" and proactively investing in monetization initiatives. For games, the goal is to make San Mou a "long-lasting title" with a life cycle of over five years, expanding its content and exploring international markets like Hong Kong, Macau, Taiwan, Japan, and Korea. In advertising, the "one horizontal and vertical strategy" emphasizes strengthening ad infrastructure and integrated solutions, with AI playing a crucial role in driving efficiency and revenue. Bilibili also aims to expand into broader consumer categories for advertising as its Gen Z+ users mature and their purchasing power increases.

Outlook and Growth Catalysts

Bilibili's management is confident in sustained profitability and growth. The company anticipates continued gross margin expansion, projecting to reach around 37% by Q4 2025 and maintaining a midterm target of 40% to 45%. Operating expenses are expected to decline year-over-year in the second half of 2025 due to improved R&D efficiency and lower marketing spend compared to the previous year. Management targets achieving a 10% adjusted operating margin by Q4 2025, with a midterm goal of 15% to 20%. This outlook is predicated on the continued strength of high-margin games and advertising businesses, further AI integration, and the increasing commercial value of its maturing user base.

Key growth catalysts include the ongoing success and international rollout of San Mou, with a traditional Chinese version expected by year-end 2025 or early 2026, followed by exploration into Japan and Korea. The game pipeline includes 4-5 titles awaiting licensing approval, including ACG and casual games. In advertising, Bilibili expects AI to continue driving efficiency and revenue through enhanced algorithms and AIGC tools. The company also plans to broaden the application of its products and technologies across multiple endpoints and scenarios, including PC, OTT, story mode, live streaming, search, and trending topics, to link consumers with advertisers more effectively. The growing demand for consumption-related content among its financially independent Gen Z+ users also presents significant opportunities for advertising expansion into broader consumer categories.

Risks and Challenges

While Bilibili's outlook is positive, several risks warrant investor attention. The company acknowledges that "actual events or results could differ materially" due to various uncertainties, including those detailed in its SEC and Hong Kong Stock Exchange filings. The advertising business faces "uncertainties in advertisers' budget" under the current macro environment, with budgets remaining tight in sectors like automotive, beauty, fashion, and real estate. While positive economic policies are being introduced in China, their materialization may "take time." Competition for user attention and advertising spend remains intense across the video industry. Furthermore, the company's reliance on the success of key game titles like San Mou means that any underperformance could impact game revenues.

Conclusion

Bilibili Inc. has demonstrably transformed its financial trajectory, moving from consistent losses to sustained GAAP profitability, a testament to its unique value proposition in China's digital entertainment landscape. The core investment thesis hinges on the company's deeply engaged Gen Z+ community, its commitment to high-quality content, and its strategic embrace of AI as a powerful engine for monetization and operational efficiency. Bilibili's ability to leverage its proprietary data assets and AI tools to enhance advertising effectiveness and foster content creation provides a distinct competitive edge against broader entertainment platforms.

Looking ahead, Bilibili's strategic roadmap, encompassing the international expansion of successful game titles, a robust game pipeline, and continuous AI-driven innovation across its advertising and content ecosystems, positions it for continued growth above industry averages. The company's strong cash flow generation and commitment to shareholder returns through buybacks further bolster its investment appeal. While macro uncertainties and intense competition present challenges, Bilibili's differentiated technological leadership and unwavering focus on its high-value community underpin its potential for long-term, sustainable profitability and expanding commercial influence.