Update: The story was updated with information related to Citi's rating change.
Bilibili's (NASDAQ:BILI) stock rose about 7% premarket on Monday after JPMorgan upgraded shares to Neutral from Underweight and boosted its price target to $11.
The firm had downgraded the Chinese company's stock to Underweight in July 2023, but now it views the risk/reward as more balanced.
The analysts said Bilibili's double-digit revenue growth target for 2024 is in line with consensus (+14% year-over-year), and thus they think consensus forecast cuts will be limited.
"In 2024, we expect our top line growth will accelerate and achieve double-digit growth rate, with ad revenue growing at even faster rates. We expect our gross profit will also maintain high growth in 2024 as we further improve our gross profit margin, attributed by higher contribution from high-margin ad business," Bilibili's CFO Xin Fan had said during the company's said fourth quarter earnings call.
However, the analysts believe achieving double-digit revenue growth in 2024 will require good performance of new game pipelines and resilient growth in live streaming.
The analysts think Bilibili is facing competition from Douyin in the game streaming market, after Douyin's recent cooperation with Tencent (OTCPK:TCEHY) (OTCPK:TCTZF).
Bilibili is entering a new game launch cycle from the second quarter of 2024 with major games Three Kingdom and Heaven Burns Red, which should drive game revenue reacceleration, according to the analysts.
Meanwhile, Citi Research downgraded Bilibili's shares to Neutral/High Risk from Buy and lowered the price target to $12.5 from $18.
Following largely in-line fourth quarter results, Citi believes the revenue drivers could still come from ads and value-added services, though the gaming business still faces uncertainty with three titles in the pipeline, said a team of analysts led by Brian Gong.
The analysts also lowered their 2024 and 25 revenue estimates by 2% and 4% to reflect softer outlook over gaming and other business.
While the analysts applauded Bilibili's decent progress to achieve profit breakeven and efforts to push ads growth, they noted that decent momentum over live streaming is unlikely to excite investors amid its low valuation due to regulatory environment, and gaming business lacking growth drivers.
Revenue is only forecast to grow 10% on a compound annual growth rate between 2023 and 2026, while user growth is expected to slow, the analysts said.
Bilibili (BILI) has a Hold rating at Seeking Alpha's Quant Rating system, which consistently beats the market. The Seeking Alpha authors' average rating is also Hold, but the average Wall Street analysts' rating is more positive with a Buy rating.