1Q26 review: solid user traffic growth and monetization improvement

1Q26 review: solid user traffic growth andmonetization improvement Target PriceUS$30.00(Previous TPUS$30.50)Up/Downside50.0%Current PriceUS$20.00 BiliBilireported 1Q26 financial results: total revenue grew by 7% YoY toRMB7.47bn,in line with Bloomberg consensus estimate;adjustednetincomewas up by 63% YoY to RMB593mn, 11% ahead ofconsensus estimatethanksto investment income of RMB65mn. User community saw healthy growth, withDAU/average dailytimespent up by 8%/10% YoY in1Q26, supported by Bili’squality content, community-first strategy and AI empowerment. Looking into2Q26E, we expect total revenue to grow by 8% YoY, primarily fuelled by thestrong ad revenue growth. We raiseour FY26-28Eearnings forecast by 2-5%,as weexpectcontinuousefficiencygains and operating leverage despite thestepped-up AI investment.We fine-tune our SOTP-derived target price toUS$30.0(previous: US$30.5), mainly due tothedecline in sector valuation.Maintain BUYon Bili’s healthy usercommunity and monetization improvement. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Improvingmonetization on vibrant community.In 1Q26,1)VASrevenue grew by 4% YoY to RMB2.91bn (39% of total revenue), fuelled bystable performance of the live streaming business and the strongrevenuegrowthof Fan Charging program (up by over 50% YoY). 2)Advertisingrevenue was up by 30% YoY to RMB2.59bn (35% of total revenue), drivenby 19% YoY growth of total user time spent and AI-enhanced monetizationefficiency. Ad budget from the AI tech sector surgedby over 170% YoY in1Q26.3)Mobile games revenue declined by 12% YoY to RMB1.52bn (20%oftotal revenue),primarily due to the normalisation of revenue fromSanMou.For 2Q26E, we forecast total revenue to rise by 8% YoY toRMB7.90bn, primarily supportedby 2%/28% YoY growth in VAS/advertisingrevenue, but partially offset by 12% YoY decline in mobile games revenue. YeTAO, CFA(852) 3850 5226franktao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Stock Data AIacceleratingbusiness growth.AIhasempoweredBiliBili onmultiplefronts: 1)Content creation: the company provides creators with AIGC toolstoenhanceproductivityand content quality, resulting in 19% YoY growth indaily video submissions in 1Q26.2)Content discovery: the companydeveloped models to better identify and promote high-quality content,driving the number of creators with over 1k followers up by over 30% YoYin 1Q26. 3)Admonetization: performance-based advertising saw a 25%YoY increase in conversion rate, as Bili deepened AI integration into its adalgorithms. And thepenetrationof AI-powered automated ad campaignsreached c.85% in 1Q26, boosting ad placementefficiency. Continuousmargin expansion despite increased AI investment.Adjusted OPM expanded by 2.1ppt YoY to 7.0%in 1Q26,primarilyunderpinned bythe GPM expansion (+0.8ppt YoY) and operating leverage.Lookingahead,management expects AI-related investment to impactFY26E earnings by c.RMB500mn. That said, we still expect adj. OPM toimprove by 1.4ppt YoY to 9.5% in FY26E, supported by operating leverageand enhancedefficiency. Source:FactSet Business forecasts updateand valuation SOTP Valuation Based on the SOTP valuation, our target price for Bili is US$30.0per ADS, including: 1) US$17.5for the advertising business (59% of the total valuation),based on a21x 2026EPE. Thetarget PE multipleis atapremiumtothe industry average (19x 2026E PE),reflecting Bili’s strong ad monetization potential and revenue growth outlook. 2) US$5.7for the VAS business (19% of the total valuation),based on a1.4x 2026EPS.The target PS multiple ison par withthe average PS of other video platforms. 3) US$6.6for mobile games (22% of the total valuation),based on a17x 2026E PE. Thetarget PE multipleison par withthe industry average. 4) US$0.2forIP derivatives and others(1% of the total valuation),based on a0.3x 2026EPS. Thetarget PS multiple is on par with the average PS of the other e-commerce platforms. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer thatthe analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or tradedin the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any o