Video platform iQiyi unveiled last week that in 2021, its revenue had only gone up 2.8% from a year ago. Worse, average paying subscriptions dropped nearly 6% to 97 million by the end of 2021. Yet still, its shares on Nasdaq surged more than 20% the following day.
Investors were happy to hear that the Chinese video firm, which has never been profitable, has actually managed to trim its losses last year to Rmb6.2 billion ($980.58 million) from Rmb7 billion in 2020 and its cost-cutting measures had been bearing fruit.
However, when rival Bilibili reported a 60% increase in 2021 revenue and a 37% increase in the number of paying subscribers, investors sent its share price down 8%. Apparently they were not happy to see a jump in Bilibili’s operating cost, which saw its net loss widening to Rmb5.5 billion from Rmb2.6 billion during the same year.
Indeed investors are becoming increasingly discerning about the profitability of Chinese internet firms. Since hitting a record high in February 2021, Bilibili’s Nasdaq-listed shares have fallen more than 70%. To pacify shareholders, during its earnings calls, Bilibili forecast that it expects to break even by 2024.
Industry observers, however, are sceptical. “Frankly speaking, although the focus of Bilibili’s operation in the past two years has shifted towards diversification and time and again, it’s proven that Bilibili has a firm grasp on the Gen Z demographic. But judging from the widening losses, it is definitely too optimistic to achieve the goal of breaking even after two years,” says Huxiu, a news portal.
While the number of paying subscriptions continues to climb, a lot of analysts worry that Bilibili will soon reach a bottleneck. While competitors like iQiyi offer a lot of perks for its paying subscribers – they receive advanced viewing of the hottest shows and can skip over all the commercials – there is little difference between Bilibili’s paying and non-paying members.
“There is neither adverts nor compelling perks for paying subscribers. If you don’t want to post criticisms or comments, you don’t even need to register an account on Bilibili,” says Huxiu. “There is no denying that Bilibili is generous towards its users, but for a company, there is obviously a lack in the development of its own membership system. Once user growth stagnates, Bilibili will need to derive more value from its membership base and that is going to be much more difficult compared with for Youku, iQiyi and Tencent.”
The company has also poured a lot of money into its gaming business. In August last year alone, Bilibili released 16 new game titles. But other than Warm Snow, an action game, and Soda Crisis, which have done well, reception to the other titles had been lukewarm at best. “Even though Bilibili has some foundation in building a pipeline and marketing video games, but a game is still a product. Last year, it poured a lot of resources into the game Artery Gear, but anyone with a discerning eye knows that the game is not good. To put it bluntly, the quality is not there,” a seasoned gamer told Huxiu.
In frothier times, investors would be pleased with high growth and little return in the bottom line. But now they are more rational: “The market’s valuation logic for Chinese-concept stocks has shifted. Investors no longer have the patience to listen to the same story of ‘burn money in pursuit of growth’. Instead, they are paying attention to whether the platform has the ability to turn losses into profits,” Huxiu concludes.
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