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Bear of the Day: Bilibili (BILI)

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Bilibili (BILI - Free Report) is a Zacks Rank #5 (Strong Sell) that provides online videos, live broadcasting and mobile games, primarily in China. The streaming video website appeals to the Chinese youth as it is the closest thing China has to YouTube.

Overview of Company

BILI was founded in 2009 and is based in Shanghai, China. The company has over 8,000 employees and is valued at $32 billion. The stock has Zacks Style Scores of “B” in growth, but “D” in momentum and Value.

Investors took the stock from $45 to $160 earlier this year, but has since sold off on valuation concerns.

Previous Earnings and Estimates

The company has an inconsistent earnings history, reporting five earnings beats out of the last nine quarters. However, the recent move higher in the stock actually came off a miss on EPS of 11% back in November. The key to positive price action wasn’t the bottom line, but rather monthly active users, or MAUs.

The average MAUs grew 54% year over year, while the average paying monthly users was up 89% y/y. This helped revenues come in at $3.2B v the $1.9B mark the prior year. The company then guided revenues for Q4 in a range of $3.6-3.7B.

These numbers sparked the stock higher, which helped investors before the quarter triple their investment over a period of three months.

The stock has come off significantly since the February highs as investors are uncertain those numbers can be repeated. The company will report May 13th , when the it is expected to report a loss of 36 cents. Over the last 90 days, that number dropped from a loss of 26 cents, or 38%. Looking at the current year, we saw a large drop in estimates over that same time frame. Analysts previously expected a loss of $0.87, but now that number is a loss of $1.41.

Looking at those estimates, we can understand why the stock sold off. Investors might be facing a large down move after earnings, if the company doesn’t beat these expectations.

The Technicals

The stock rode the momentum train to start the year, holding the 21-day moving average until late February. The 50-day MA found buyers, but eventually failed as well and is now resistance at $110.

Earnings likely provide two scenarios that determine the stocks future. First, earnings beat with continued MAU growth that helps the bulls break the 50-day. From there, the stock can continue its trend higher. However, the second scenario could be a disappointment in MAU growth and an EPS miss. This would like lead the stock lower, where it could possible test the 200-day moving average at $81.

In Summary

Bilibili is growing, but the stock got way ahead of itself in valuing the earnings growth. Falling estimates have helped reality set in as the stock is off 40% from highs. Even so, there is risk the company could miss expectations and fall further. Those that want in the stock should wait for the 200-day and see if it holds.

Those that want in the internet services area can find a much more diversified company with Alphabet (GOOGL - Free Report) . The stock is a Zacks Rank #1 (Strong Buy) and trading near all-time highs.

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