Bilibili's Q1 Performance Exceeds Expectations with Strong Advertising Revenue Growth

Overview

Morgan Stanley published a review report on Bilibili's Q1 2026 performance, noting that revenue and profits exceeded expectations. Strong advertising revenue growth drove overall performance. The firm maintains a 'Buy' rating with a target price of $31.

Core views

Bilibili's Q1 2026 financial report shows revenue reached RMB 7.5 billion, up 7% YoY, exceeding market expectations by 1%. Advertising revenue grew 30% YoY, surpassing expectations by 3%, becoming the primary growth driver. This growth benefited from healthy traffic growth (8% increase in daily active users and 10% rise in average usage time) and increased B2C ad spending during the Spring Festival holiday. Gaming revenue declined 12% YoY, in line with expectations, reflecting the natural attrition of existing game products. However, non-GAAP operating profit reached RMB 524 million, up 15% YoY, while non-GAAP net profit was RMB 585 million, up 14% YoY, both exceeding expectations. The operating profit margin improved to 7%, up 2.1 percentage points YoY, indicating progress in cost control and profitability enhancement.

Analysis framework

Morgan Stanley analyzed Bilibili's Q1 performance from three dimensions: revenue structure, profitability quality, and growth drivers. First, the firm evaluated the momentum of advertising revenue growth, finding significant benefits from B2C ad spending during the Spring Festival holiday, with user engagement being a key factor. Second, by comparing the decline in gaming revenue with the growth in non-gaming revenue, the firm concluded that the company is transitioning from single-product dependency to diversification. Finally, the focus on non-GAAP profit and margin improvements reflects the company's optimization in cost management and operational efficiency.

Methodology notes

• Industry Analysis FrameworkSupply-demand framework

  Relationship between advertising revenue growth, user engagement, and holiday marketing campaigns

  This framework emphasizes the core role of supply-demand dynamics in internet advertising, where user scale and stickiness form the foundation for ad revenue growth, while marketing campaigns serve as short-term catalysts. Bilibili's Q1 ad revenue growth reflects this supply-demand synergy.

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  Assessing company profitability through non-GAAP profit and margin improvements

  Free cash flow analysis focuses on the health of operating cash flow. Improvements in non-GAAP profit and margins reflect enhanced profitability quality while maintaining core operations, aiding in assessing long-term sustainability.

Key data

• Q1 RevenueRMB 7.5 billionUp 7% YoY, exceeding expectations by 1%
• Advertising RevenueUp 30% YoYExceeding expectations by 3%, driven by Spring Festival ad spending
• Non-GAAP Operating ProfitRMB 524 millionUp 15% YoY, exceeding expectations
• Non-GAAP Net ProfitRMB 585 millionUp 14% YoY, exceeding expectations
• Operating Profit Margin7%Up 2.1 percentage points YoY

Impact & implications

This performance demonstrates Bilibili's strong growth potential in advertising, particularly through the synergy between user engagement and marketing campaigns, which may continue to optimize its revenue structure. Additionally, improvements in operating and net profit indicate progress in cost control and operational efficiency, boosting investor confidence. The firm maintains a 'Buy' rating with a $31 target price, reflecting optimism about future profitability and valuation upside.

Risks

• Advertising revenue growth may slow due to worsening macroeconomic conditions
• Uncertainty in long-term retention and monetization capabilities of gaming business
• Intensified competition from expanding user base may impact MAU growth

What to watch

• Sustainability of advertising revenue growth in subsequent quarters
• Impact of game product transitions on revenue
• Stability of operating profit margins