Bilibili Keeps Getting More Profitable, and the Stock Keeps Getting Cheaper

Bilibili has now done something it rarely managed in its first years as a public company: make money, quarter after quarter. In the second quarter of 2026 it reported adjusted net profit of RMB 703.6 million — about US$104 million — up 25% from a year earlier, on a gross margin of 37.2% that has now expanded for 16 consecutive quarters. The stock, meanwhile, closed near $15.90, down roughly 35% so far this year, about 40% over the past 12 months, and more than half below its 52-week high near $36.

A profitable company getting cheaper is either a mispricing or a warning, and telling the two apart is the whole job here. The honest answer is that both sides hold some of the evidence — but the weight has shifted in a way the price has not yet absorbed.

What Bilibili actually is

For anyone new to the name: Bilibili is a Chinese video platform that grew up around anime, gaming, and creator-made content for a young audience — something like a blend of YouTube, Twitch, and a mobile-game publisher. It makes money three ways: advertising (now 39% of revenue), paid memberships and live-streaming services (37%), and mobile games (18%). The business runs on thin margins, so its entire profit story depends on converting a huge, loyal audience into advertising and subscriptions without wrecking the community that draws them in.

That conversion is visibly working. Adjusted margins climbed to 8.9% of revenue in the second quarter, a third full step up from the 7.8% in the first quarter and the 5.2% a year before. Free cash flow for the trailing year was around $760 million, and the company holds about $3.6 billion in cash and short-term investments. It has even been buying back its own stock, repurchasing about US$118 million worth through June under a new program.

Why the market decided to sell

None of that stopped the shares from sliding, and the reasons are real rather than imagined.

A gaming hangover. Mobile games, once the growth engine, fell 14% year over year in the second quarter — the biggest drag on the whole business. Much of that is a base effect: a year earlier the segment was flattered by the blockbuster run of a hit game, and now the revenue is lapping that peak. Management has pointed to a healthier new-title pipeline, but the segment is no longer carrying growth.

Advertising cooling toward the macro. Advertising is now the largest segment and grew a healthy 28%, its 14th straight quarter of 20%-plus growth. But it is decelerating, and management guided to only "low double-digit" ad growth for the third quarter on macroeconomic softness, with at least one bank warning the slowdown could extend into the fourth. When your biggest segment moderates, the market notices.

A convertible raise that reads as dilution. On September 4, Bilibili priced US$700 million of zero-coupon convertible notes due 2031, with Tencent taking US$200 million — three-quarters going to other institutions — alongside a roughly US$400 million secondary sale of existing shares by Tencent. Proceeds are earmarked partly for buybacks and AI investment, but convertibles convert into new shares, and a large holder trimming is an overhang. The shares fell about 18% over the 30 days into the announcement, closing at $15.23.

Put together, the market's case is coherent: slowing growth, a top line now expanding at only 8%, a shareholder trimming, and new shares that could print later. If that is where the story ends, the decline is rational.

What the price actually says

But the decline has carried the valuation somewhere notable. The market cap is roughly $6.5 billion. Strip out the net cash and the enterprise value drops to about $4.4 billion — under one times trailing sales, and about 12 times trailing EBITDA. For a company with a rising, 8.9% net margin, positive free cash flow, and its biggest segment still growing near 30%, that is not a demanding price.

The reason the market can hold two opposite views at once is that this is not a clean "cheap on earnings" story. On reported, unadjusted profit the stock trades near 29 times trailing earnings — not cheap — and on thin forward estimates it looks far pricier. The bull case has never been that current earnings are big; it is that margins have room to keep climbing, and that each step up re-prices the whole sales base. That is precisely why a stock can be cheap on sales and scary on earnings at the same time.

Which brings me to the hard part, and the reason I would not simply call this a screaming buy. Bilibili is not the archetypal "growth at multiples of the market, valued like a utility" case — its overall growth is a modest 8%. The burden of proof sits with the bulls, not the bears. A company can stay cheap for years if its biggest segment keeps decelerating into a weak macro and its cash conversion does not keep pace with competition from richer apps.

The test that separates the two readings is specific. First, does advertising hold roughly 20% growth once a choppy quarter passes, or does it keep stepping down toward single digits? Second, do games stop being a subtraction as the pipeline refills? Third, does the 16-quarter run of margin expansion continue — because that, not top-line speed, is what eventually justifies a higher multiple? The invalidation is equally clear: if advertising decays toward mid-single digits and margins flatten, the market's caution — compounded by future dilution — is the right call.

No rating is owed here; the gap is there for the reader to test. Just know what the current price has already conceded: that a company making more money every quarter, sitting on billions in cash, and growing its largest segment at nearly 30% is worth less than one times its annual revenue. One of those facts is going to have to give.