New Game Cycle and AI Tailwinds Support Bilibili's Upside Potential

Overview

This report is Morgan Stanley's company research on Bilibili Inc. It argues that after Bilibili's recent share pullback, a clearer value opportunity has emerged, driven mainly by higher visibility in the new game pipeline, AI adoption-driven platform efficiency and advertising tailwinds, and upward revisions to core business earnings expectations. Morgan Stanley raised Bilibili to Overweight and set a target price of US$31.

Core views

The core views are threefold: first, after San Mou's natural decline, Bilibili's gaming business may be relaunched into growth in 2H26 by San Wang, NCard and Lumi Master, with San Wang expected to launch in 4Q26 and annualized grossing of approximately RMB1.7bn; second, AI adoption helps content recognition and distribution, creator efficiency, coding development efficiency, and advertiser expansion, and together with stronger spending power among younger users supports advertising revenue to outperform the broader online marketing market; third, Bilibili is one of the few Chinese internet names that may benefit simultaneously from both core business and AI tailwinds while delivering EPS upgrades.

Analysis framework

The report uses a framework centered on segment operating forecasts, game product cycle assessment, advertising growth assumptions, and DCF valuation. In earnings forecasts, the report lowered 2026E revenue by 1% due to weaker live streaming performance, but raised 2027-28E revenue by 2% on potential San Wang contribution; it also lowered 2026E non-GAAP operating profit by 3% and raised 2027-28E non-GAAP operating profit by 10% and 7.5%, reflecting operating leverage expansion.

Methodology notes

• Valuation MethodDCF Valuation

  Base-case discounted cash flow valuation

  In the base case

• Scenario AnalysisRisk Reward

  Bull/base/bear case

  The report compares the stock's risk-reward across different assumptions for game revenue, advertising revenue, and margin via bull case, base case, and bear case; the bull case corresponds to US$48, while the bear case corresponds to US$17.

• Earnings ForecastMorgan Stanley ModelWare

  Model-based operating forecast

  The report states that unless otherwise specified, all metrics are revised using the Morgan Stanley ModelWare framework, focusing on mobile game revenue, advertising revenue, non-GAAP operating profit, and EPADS.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BILI.US

  Core coverage name

  Strengths

  Improved visibility of the new-game pipeline, AI adoption driving content distribution, creator efficiency, cost efficiency, and advertising demand, along with stronger spending power in the younger user base, creating EPS upside potential.

  Weaknesses

  Gaming revenue still depends on timing and lifecycle of new-game launches; a weaker live streaming business led to lower 2026E revenue forecasts, and growth for the platform requires continued validation of MAU and ad monetization.

  Comparison

  San Wang and San Mou are both Three Kingdoms SLG titles, but the report argues San Mou is a lighter SLG, while San Wang targets a more hardcore SLG audience, with key competitors including Romance of the Three Kingdoms: Strategy Version and Invincible.

  Risks

  New-game performance below expectations, cannibalization between San Mou and San Wang, weaker ad demand, MAU growth below expectations, and higher sales marketing and content costs than expected.

Key data

• Rating ActionUpgrade to OWThe report upgrades Bilibili to Overweight.
• Target PriceUS$31.00The target price was raised by 24%, mainly reflecting revised earnings forecasts and forward free cash flow.
• Bull CaseUS$48.00Corresponds to stronger new revenue monetization, stronger game revenue, and stronger advertising revenue growth.
• Bear CaseUS$17.00Corresponds to below-expectation monetization, higher costs, and slower growth.
• 2027 Game Revenue ForecastMSe Rmb7.8bn vs consensus Rmb6.8bnThe report believes new-game contributions have not been fully priced in by the market.
• San Wang Contribution AssumptionMSe annualized grossing Rmb1.7bnExpected to launch in 4Q26, and viewed as one of the core drivers of the 2H26 game inflection.
• 2027-28e Mobile Game Revenue Revision+17%Mainly from new-game contributions.
• 2027-28e EPS Revision+2-3%Reflects higher mobile game revenue and improved operating leverage.
• Base-case Valuation InputsWACC 12%; terminal growth rate 3%Used for DCF valuation.
• 2025-27e Growth AssumptionsBase-case game revenue CAGR 11%, advertising revenue CAGR 20%Bull case is 19% and 24%, while bear case is 7% and 15% respectively.

Impact & implications

If the report's assumptions are met, Bilibili's investment logic would expand from being a single narrative of content community and advertising growth to a combined narrative of game product-cycle recovery, AI-enhanced platform efficiency, and expanding advertiser mix. For the stock, this means market consensus may be underestimating game revenue and profit leverage from 2027 onward, especially after the share pullback, where valuation recovery appears more evident.

Risks

• New-game launch timing, grossing, and retention below expectations, causing a delay or weaker magnitude of the 2H26 game revenue inflection.
• Overlap of user themes between San Wang and San Mou; if cannibalization is greater than assumed, incremental grossing contribution may be offset.
• Advertising revenue growth may be affected by macro conditions, shifts in AI advertising budgets, and competition in online marketing.
• MAU growth may be weaker than expected, especially as competition intensifies as the user base expands.
• Sales and marketing expenses, content costs, or revenue-share ratios higher than expected may compress margin expansion.
• Morgan Stanley disclosed it has or is seeking business relationships with covered companies, and investors should watch for potential conflicts of interest.

What to watch

• Whether San Wang launches as expected in 4Q26 and the post-launch performance of grossing, DAU, and retention.
• The marginal contribution of NCard and Lumi Master to 2H26 game revenue growth.
• Whether Bilibili's advertising revenue continues to outperform the broader online marketing market, particularly given AI B2C advertiser budget changes.
• Whether AI tools are delivering real improvements in content supply, user duration, coding development efficiency, and cost structure.
• Whether 2027 game revenue approaches MSe Rmb7.8bn rather than consensus Rmb6.8bn.
• Whether non-GAAP operating profit margin expands as the report expects.