Bilibili's Accelerated Cost-Cutting Measures To Improve Near-Term Profitability; Shares Undervalued

Bilibili posted better-than-expected earnings for third-quarter 2022, and announced additional cost-reduction measures. With cost-cutting ahead of our expectations, we've lowered our cost assumptions and brought forward our forecast of Bilibili's break-even timetable by one year, from 2025 to end-2024. However, even with plans to reduce spending in the next several quarters, we don't believe it warrants a change to our 16% long-term margin assumption. Management also said that it would increase monetization efficiency, but stopped short of providing anything new. We maintain our fair value estimate of $38.20 (HKD 300). Despite a 20% rally in the share price, we still think Bilibili is undervalued. We believe the current market valuation (price/sales multiple of 1.8 times for 2023) indicates that the market underestimates: 1) the long-term ad revenue contribution from the video-sharing platform and 2) more operating leverage as revenue grows.