A Chinese online video stock has rallied 370% — and analysts say it could run further

Published Sun, Feb 28 20219:16 PM ESTUpdated Sun, Feb 28 202110:58 PM EST

Ambitious user growth targets. A secondary listing in the pipeline. And growing online video consumption in China. These are some reasons analysts believe a U.S.-listed online video company in China, often likened to YouTube, can rally further despite its shares being up about 370% in the last 12 months. Analysts from two investment banks raised their price target on the Chinese technology firm after strong fourth quarter earnings. The highest price call represents a further rally of more than 46% if realized. The company they're excited about is Bilibili which reported fourth quarter 2020 net revenue of 3.84 billion Chinese yuan ($588.5 million) — a 91% year-on-year rise. Bilibili said its monthly average users (MAU) reached reached 202 million for the quarter and the goal is for that figure to hit 400 million by 2023. Shares of Bilibili closed at $125.97 on Friday, having surged 47% so far this year. The latest quarterly results sparked a few price target upgrades. Jefferies price target: $162 Jefferies raised its previous price target of $114 to $162. Analysts are excited by Bilibili's 400 million MAU target by 2023. Why the upgrade? "We believe BILI is well positioned to capture the long-term opportunities in video consumption in China heading towards its goal of 400m MAU by 2023," Jefferies said in a note. The platform is very popular with younger viewers thanks to the abundance of gaming and anime content, but Jefferies said the company is "engaging communities and penetrating user groups other than those born after 90's," to help growth. China Renaissance price target: $184 China Renaissance upped its target from $60 to $184 — more than three times its previous price prediction . If the price target is hit, it would represent a 46% rise from Friday's closing price. Why the upgrade? Analysts from China Renaissance are banking on Bilibili's growing user base to bring more opportunities to advertise. "Bilibili's video-based interest-driven community values continue to hold up, in our view," China Renaissance said in a note. "Despite the stock having experienced a notable re-rating since 2H20, we still see rerating opportunities ahead given increasing visibility on the higher addressable user base, and potential upside on ads/live streaming monetization in the medium term." Secondary listing Other analysts are also bullish. Daiwa has a $150 price target on Bilibili, which it raised in January. Daiwa's analysts said they believe the company is working on new features such as short-form videos and a payments platform which should help growth. The analysts also argued that the valuation of short-video app Kuaishou, which recently listed in Hong Kong , should give an indication of the share price direction of Bilibili. Kuaishou's market capitalization stood at around 1.41 trillion Hong Kong dollars ($181.92 billion) on Friday. Bilibili's valuation was $43.77 billion as of Friday's close. "Over time, we believe Bilibili should be worth more than Kuaishou," Daiwa said in its note published in January before the Kuaishou IPO. Meanwhile, CNBC reported last month that Bilibili has filed for a secondary listing in Hong Kong which could raise over $2 billion for the company. "The proceeds would allow the company to continue its cash burn to fuel its industry-leading growth," Daiwa Capital Markets analysts said in a note published in January. "Importantly, we believe Bilibili will be a key focus for China-based investors, who tend to be more accommodative on valuations." Cash burn refers to the amount of money a company is spending. Operating expenses for example more than doubled in the fourth quarter of 2020 compared with the same period in 2019. Meanwhile, losses widened. Not everyone's bullish However, not all analysts are convinced the huge rally in Bilibili shares can go further. Charlie Chai, analyst at 86Research, has a price target of $99 on Bilibili and a "hold" rating on the stock. "We like the fundamentals but not the price," Chai told CNBC. Fourth quarter results "showed that everything is on track, which further enhances investor confidence on the strong fundamentals. However, we believe broader buy-side expectations have been elevated to a fairly high level." Chai argued that investor expectations for upcoming earnings will be so high that it might be hard for the company to beat them. "For 2021, we think the stock will remain a high-beta name highly correlated with the China TMT (technology, media and telecom) sector, but the room for actual alpha should be very limited," Chai said. Alpha refers to the returns of an asset while beta refers to its risk profile.

Cosplayers perform during the 2020 China Digital Entertainment Expo & Conference (ChinaJoy) at Shanghai New International Expo Center on July 31, 2020 in Shanghai, China.

Zhou You | Visual China Group | Getty Images

Ambitious user growth targets. A secondary listing in the pipeline. And growing online video consumption in China.

These are some reasons analysts believe a U.S.-listed online video company in China, often likened to YouTube, can rally further despite its shares being up about 370% in the last 12 months.

Analysts from two investment banks raised their price target on the Chinese technology firm after strong fourth quarter earnings. The highest price call represents a further rally of more than 46% if realized.