Bilibili priced Hong Kong listing at HK$808 a share as ‘China’s YouTube’ hit by tech valuations fears

Alison Tudor-Ackroyd
·5-min read

Video-streaming and mobile gaming site Bilibili priced its share sale on Hong Kong’s stock exchange at HK$808 each on Tuesday, becoming the latest Chinese technology giant to float its shares in the city.

Nasdaq-traded Bilibili raised about HK$20.2 billion (US$2.6 billion) from investors, slightly below its US$2.8 billion target flagged at the launch of marketing for its second listing on March 17, according to a term sheet seen by the South China Morning Post.

Blame that on timing. Sentiment has gradually soured on the flood of US-listed Chinese companies seeking new listings in Hong Kong, as relations between the two superpowers fray. Investors are increasingly twitchy about technology companies’ sky-high valuations, especially for unprofitable firms such as Bilibili. The Hang Seng Tech Index has dropped 22 per cent from its February 17 high.

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Investors have quizzed management during the share sale on how they could hit a target of 400 million monthly average users (MAU) by 2023, as well as on ways the company will make money and how it can defend itself from competitors trying to poach content creators. A spokeswoman for Bilibili declined to comment on the pricing.

Bilibili is pinning its hopes on consumers’ love affair with videos continuing. Consultancy iResearch predicts that the video-based industry will generate 1.8 trillion yuan (US$276.4 billion) in revenues by 2025, up from 583 billion yuan in 2019. This explosive growth is being spurred by China’s expanding 5G network, a smorgasbord of content from a swelling host of content creators, paid for by loyal users with ever deeper pockets as China’s economy grows.

“[The] videolisation trend is creating massive market opportunities in China,” said Xin Fan, Bilibili’s chief financial officer to investors. “It is becoming a dominant medium for communication, entertainment and information,” he added.

Bilibili believes that Generation Z plus, born between 1985 and 2009, will decide the industry’s future and it is actively courting these digitally native “zoomers” who grew up with internet access. The company boasts that 86 per cent of Bilibili’s MAUs were aged 35 and below in 2020, the highest percentage among its major peers in China. Bilibili had 202 million MAUs as of the fourth quarter of 2020, up 55 per cent year on year.

Competitors have tried to poach Bilibili’s content creators, but it says that once people have got used to the way its platform works it is hard to leave. Still, Chinese entertainment apps such as Watermelon are mushrooming as the industry grows and a host of short-form video companies are attracting more eyeballs.

Turning profitable depends on Bilibili cultivating loyal following from a highly-engaged community of users. Once they start spending more time on the platform, Bilibili can persuade them to pay for a premium membership that qualifies them to view extra content, such as pay-to-view comics. Management sees monetisation of users gathering pace as the platform gets to know users and suggests features that will appeal to them based on their interests, such as game-related live broadcasting to a gamer.

Critically, more people are spending more time on the platform. Active users spent 75 minutes on average every day interacting with the platform last year.

Market shares of video streaming market in 2020
Market shares of video streaming market in 2020

Still, as Bilibili poured money into fuelling its expansion its net loss in 2020 deepened at roughly the same pace as its gross profit grew year on year.

Once a niche platform for fans of anime, comics and games it is gradually attracting a wider audience. A few years ago over 80 per cent of revenues came from mobile games. That share has fallen to about 40 per cent.

While mobile gaming, such as the Japanese role-playing hit game Princess Connect was still its biggest revenue source at 4.8 billion yuan in 2020, other areas such as value-added services, advertising and e-commerce are all contributing to the pie.

“As a full-spectrum video community for the young generation in China, we believe we are well positioned to capture the attractive videolisation opportunity,” said Bilibili’s Fan.

Bilibili is one of the few companies to count both Tencent Holdings and Alibaba Group Holding as shareholders. Tencent owns 12.4 per cent while Alibaba, also the owner of the Post, has a 6.7 per cent stake in the company.

The company sold 25 million shares in its Hong Kong offering, with the offer price representing a 2.7 per cent discount on its closing price of US$106.88 in New York on Monday. Shares of Bilibili are slated to begin trading in Hong Kong on March 29.

The company’s American depositary receipts (ADRs) have increased by nearly four times in value in the past year, but have dropped 4 per cent since the launch of its share sale this month.

Bilibili’s markdown to the closing price of its ADRs is roughly in line with other big secondary listings in Hong Kong over the past 16 months. Alibaba priced its Hong Kong listing at HK$176 a share, a 2.9 per cent discount, while JD.com discounted its shares by 3.9 per cent. NetEase achieved one of the tightest discounts at 2 per cent.

The share sale by the Nasdaq-listed online video-sharing platform consists of newly issued shares, with 12 per cent of the offering reserved for retail investors in Hong Kong.

The banks acting as joint sponsors on the transaction include Morgan Stanley, Goldman Sachs, JPMorgan and UBS.

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