Bilibili Inc. (NASDAQ: BILI) has emerged as a standout performer in China’s digital entertainment sector, with its Q2 2025 earnings report underscoring a dramatic financial turnaround. Total revenue surged 20% year-over-year to RMB7.34 billion ($1.02 billion), driven by explosive growth in mobile gaming and advertising. While the company’s net profit of RMB218.3 million (US$30.5 million) marked a historic shift from a RMB608.1 million loss in Q2 2024, investors and analysts remain divided on whether this momentum can translate into long-term profitability.
Mobile Gaming: A Double-Edged Sword
The mobile gaming segment delivered a 60% YoY revenue increase to RMB1.61 billion, fueled by the runaway success of San Guo: Mou Ding Tian Xia. This strategy game’s Season 8 update, featuring refreshed maps and anniversary events, generated a 76% YoY revenue spike in Q1 2025 alone. The game’s 80% auto-renewal rate for premium subscriptions and 32 million monthly paying users highlight its stickiness. However, analysts caution that this success may hinge on a single title.
Key Risk: The sustainability of mobile gaming revenue depends on Bilibili’s ability to replicate San Guo‘s formula. High sales and marketing expenses—up 26% YoY in Q1 2025—raise concerns about margin compression. While AI-driven tools are optimizing game mechanics, the reliance on aggressive promotions could strain profitability if user acquisition costs rise.
Advertising: Growth Amid Saturation
Advertising revenue grew 20% YoY to RMB2.45 billion, driven by performance-based ads. Bilibili’s 109.4 million daily active users (DAUs) and 105-minute average daily engagement time provide a fertile ground for advertisers. Yet, the segment faces headwinds. The 15% decline in IP derivatives revenue and rising revenue-sharing costs (up 9% YoY) signal over-reliance on core segments.
Key Risk: Market saturation looms large. With 36.5% gross profit margin (up from 29.9% in 2024), Bilibili must balance ad density with user experience. If ads become intrusive, engagement could wane, undermining both gaming and advertising revenue.
Analyst Sentiment: Cautious Optimism
While Bilibili’s Q2 results reflect disciplined cost management (flat operating expenses at RMB2.42 billion) and a robust balance sheet (RMB22.29 billion in cash), analysts remain wary. The Tencent partnership, while beneficial for infrastructure, introduces dependency risks. Additionally, regulatory scrutiny in China’s gaming and advertising sectors could disrupt monetization strategies.
Bull Case: Bilibili’s transition from a growth-at-all-costs model to a profitability-focused approach is evident. The 136% improvement in net profit and 7% YoY DAU growth demonstrate scalable monetization. With 23.5 million premium subscribers and AI-driven engagement tools, the company is well-positioned to capitalize on its ecosystem.
Bear Case: Sustaining mobile gaming growth requires consistent hit titles, which is notoriously difficult in the gaming industry. Advertising revenue could plateau if user engagement flattens or competition intensifies. Rising debt from the recent $690 million convertible notes offering also adds financial risk.
Investment Implications
Bilibili’s Q2 performance justifies a cautiously bullish stance for investors with a medium-term horizon. The company’s ability to monetize its 368 million monthly active users (as of Q1 2025) and its strategic focus on AI-driven engagement suggest long-term potential. However, investors should monitor:
1. Gaming Pipeline: Can Bilibili replicate San Guo‘s success with new titles?
2. Ad Monetization: Will performance-based ads maintain their efficacy amid rising competition?
3. Cost Discipline: Can operating expenses remain flat as the company scales?
Recommendation: For risk-tolerant investors, Bilibili offers an attractive entry point amid its profitability transition. However, position sizing should reflect the company’s execution risks. A diversified portfolio that includes BILI alongside more stable tech names could balance growth and stability.
In conclusion, Bilibili’s Q2 earnings beat highlights its strategic agility and monetization prowess. While the road to sustained profitability is fraught with challenges, the company’s ecosystem-driven approach and user-centric innovation make it a compelling case study in China’s evolving digital landscape. Investors who can navigate the risks may find themselves rewarded by Bilibili’s long-term potential.
