Bilibili Inc. (BILI) is a Shanghai, China-based online entertainment services company. Its platform provides content that includes video services, mobile games, value-added services, and ACG-related comic and audio content. Professionally created videos, occupationally made videos, and live streaming are among the video services the organization offers.

BILI’s shares are down 78.9% in price over the past year and 40.6% over the past month to close yesterday's trading session at $21.68.

In addition, Goldman Sachs analyst Piyush Mubayi downgraded the stock to Neutral from Buy and lowered its price target to $43 from $105. The downgrade is based on the company's monetization rate, profitability, and cash flow prospects, which have been impacted by worsening macroeconomic conditions in China and regulatory uncertainty in the online game/ad sectors.

Here is what could shape BILI's performance in the near term:

U.S. Securities and Exchange Commission (SEC) Crackdown

The SEC recently named five Chinese companies that are publicly traded in the United States that have failed to comply with the Holding Foreign Companies Accountable Act (HFCAA). The American depositary receipts (ADRs) of these companies may be the first publicly traded Chinese securities to be penalized for failing to follow HFCAA requirements. This SEC investigation has resulted in a widespread selloff of Chinese stocks.

Negative bottom line

BILI's total net revenue increased 51% year-over-year to RMB5.78 billion ($907.1 million) for the fourth quarter, ended Dec. 31, 2021. Its average daily active users (DAUs) grew 34% from its year-ago value to 252.4 million. However, its operating loss increased 50.5% from the prior-year quarter to RMB1.99 billion ($316.24 million). And the company's net loss surged 148.4% from its year-ago value to RMB2.09 billion ($331.46 million), while its loss per share amounted to RMB2.34.

Poor Profitability

BILI's 20.9% trailing-12-months gross profit margin is 59.5% lower than the 51.6% industry average. Also, its ROA, net income margin, and ROC are negative 13%, 35%, and 13.9%, respectively. And its trailing-12-month cash from operations of $115.37 million is 61.5% lower than the $299.40 million industry average.

POWR Ratings Reflect Uncertainty

BILI has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BILI has a D grade for Stability, Quality, and Growth. The stock has a 1.34 beta, which is in sync with its  Stability grade. In addition, the company's weak profitability and financials are consistent with the Quality and Growth grade.

Among the 50 stocks in the F-rated China industry, BILI is ranked #48.

Beyond what I have stated above, you can view BILI ratings for Value, Sentiment, and Momentum here.

Bottom Line

Considering the SEC crackdown on U.S.-listed Chinese stocks and the heavy regulatory pressure on tech stocks in China, investors remain concerned about BILI's prospects. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $34.82 and $70.93, respectively, indicating bearish sentiment. So, given the company's negative profit margins and widening losses, we believe the stock is best avoided now.

How Does Bilibili Inc. (BILI) Stack Up Against its Peers?

While BILI has an overall D rating, one might want to consider its industry peers, NetEase Inc. (NTES), FinVolution Group (FINV), and China Automotives Systems Inc. (CAAS) which has an overall B (Buy) rating.

Note that FINV is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

BILI shares rose $0.72 (+3.32%) in premarket trading Friday. Year-to-date, BILI has declined -53.28%, versus a -10.42% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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