On Wednesday, Morgan Stanley (NYSE:MS) maintained its Equalweight rating on Bilibili (NASDAQ:BILI), with a steady price target of $11.10. The firm has identified Bilibili as a New Research Tactical Idea, indicating a strategic focus on the company's stock.
The firm's assessment suggests that Bilibili's shares are expected to decline over the next 60 days due to the stock's recent price increase, which has rendered its short-term valuation less attractive. Bilibili's stock has seen a 13% increase month-to-date, outpacing the HSTECH index's 5% gain.
Morgan Stanley forecasts that Bilibili's game revenue will fall short of consensus expectations, attributing this to an absence of new game launches and negative organic growth. The firm anticipates a year-over-year decrease in game revenue of 7% for the fourth quarter of 2023, 6% for the first quarter of 2024, and 5% for the full year of 2024. Sensor Tower data indicates that the grossing of Bilibili's exclusively distributed titles in January was approximately 20% lower than the fourth quarter of 2023, which may signal further risks to the company's performance in the first quarter and throughout 2024.
Games have been a significant contributor to Bilibili's profits, accounting for about half of its gross profit in the third quarter of 2023, according to estimates. The company is expected to release its fourth-quarter 2023 results at the end of February 2024.
The firm also noted Bilibili's current valuation, trading at 1.4 times its projected 2024 sales, which implies a 14 times nominal price-to-earnings ratio based on an estimated 10% net margin. This valuation is considered more expensive than most of Bilibili's peers. Moreover, Morgan Stanley estimates that the likelihood of Bilibili reaching a break-even point by the third quarter of 2024 is very low, with a probability between 70% to 80%.
InvestingPro Insights
Morgan Stanley's analysis of Bilibili (NASDAQ:BILI) has highlighted several challenges the company faces, including weaker game revenue expectations. Delving deeper, InvestingPro data reveals a complex picture. Bilibili's market capitalization currently stands at $4.2 billion, and its price-to-earnings (P/E) ratio is negative at -5.94, reflecting the company's lack of profitability in the last twelve months as of Q3 2023. Despite a 12.46% return over the last week, the stock has experienced a significant decline over the past year, with a -56.17% one-year price total return as of Q1 2024.
One of the InvestingPro Tips suggests that Bilibili holds more cash than debt on its balance sheet, which could provide some financial flexibility in the short term. However, another tip indicates that analysts do not anticipate the company will be profitable this year, aligning with Morgan Stanley's assessment of a low probability for Bilibili to reach a break-even point by the third quarter of 2024.
For those interested in a more comprehensive analysis, there are additional InvestingPro Tips available for Bilibili at https://www.investing.com/pro/BILI. For instance, the company is a prominent player in the Entertainment industry, but it's also quickly burning through cash, which could be a concern for investors looking at the long-term sustainability of the company.
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