Bilibili (NASDAQ:BILI) just delivered its 16th straight quarter of gross margin improvement, and the numbers behind it are hard to ignore. Advertising revenue jumped 28% year over year in the quarter ended June 30, 2026, marking the 14th consecutive quarter of at least 20% growth in that segment. GAAP net profit rose 55% year over year even as total revenue grew a more modest 8% to RMB 7.94 billion. That gap between top-line and bottom-line growth is the story investors should be watching.
Ads And AI Are Doing The Heavy Lifting
The advertising engine is Bilibili’s clearest strength right now. Revenue from that segment reached RMB 3.13 billion, and management pointed to AI as a real driver rather than a buzzword: AI advertising revenue more than doubled year over year, particularly in the internet services vertical, while search advertising revenue also doubled. Click-through and conversion rates, a measure of how well ads actually work, improved 19% year over year as AI sharpened the matching between ads and users. Newer verticals are also picking up steam, with home decoration, footwear and apparel, and automotive advertising each growing more than 60% year over year, spreading the business beyond its traditional gaming and internet-services base.
That revenue strength is translating into real operating leverage. Gross margin expanded to 37.2% from 36.5% a year earlier, the 16th consecutive quarter of sequential improvement. Non-GAAP adjusted net profit climbed 25% year over year to RMB 703.6 million, pushing the adjusted net profit margin to 8.9%. The company is also returning cash to shareholders, having repurchased 5.8 million shares for $118 million from the start of 2026 through the date of the call, backed by a newly approved two-year, $300 million buyback program.
Underneath the financials, engagement metrics kept climbing. Average daily active users reached 116.5 million, up 7% year over year, and average daily time spent rose to 113 minutes from 105 minutes in the same quarter last year. Watch time for videos longer than five minutes grew 18% year over year, and long comments over 100 characters jumped 67%, evidence that users are sticking around for substantive content rather than skimming. Creators are benefiting too, with the number of creators topping 1,000 followers up 30% year over year and average creator income up 21%.
A Games Slump And A Tougher Ad Market
Mobile games revenue told a different story, falling 14% year over year to RMB 1.39 billion. Management attributed the decline to a difficult comparison against San Guo: Mou Ding Tian Xia’s strong performance in the prior-year quarter, and CFO Sam Fan said games revenue is expected to return to growth in the fourth quarter. Whether that rebound materializes depends heavily on the pipeline, including the global launch of the self-developed simulation title Lumi Master on September 17, 2026, and a new licensed strategy title slated for the fourth quarter.
There are also signs the advertising environment itself could get harder to navigate. Carly Li flagged a challenging macroeconomic backdrop in China, where advertisers are pushing for higher conversion efficiency in the short term rather than simply spending more. Value-added services, the segment covering premium memberships and live broadcasting, grew just 5% year over year to RMB 2.97 billion, the slowest pace among Bilibili’s major revenue lines and a reminder that not every part of the business is compounding at the same rate as advertising.
What The Market Is Pricing In
Hedge fund interest in Bilibili has cooled, with the number of funds holding a position slipping from 32 in the prior quarter to 29, which points to some institutional trimming rather than accumulation. Short interest sits at 7.5% of the float, a level that suggests a meaningful but not extreme amount of organized skepticism. As of August 31, the stock trades at a forward price-to-earnings ratio of 16.10, a multiple that does not scream growth-stock pricing given the advertising segment’s 28% growth rate.
Where The Next Few Quarters Will Tell The Story
Bilibili’s advertising business and its expanding margins are carrying the company right now, while games revenue is working through a tough year-over-year comparison. For the advertising and AI-driven efficiency gains to keep compounding, the newer verticals like home decor and automotive need to keep scaling even as Li describes a tougher macro backdrop for ad spending in China. For the games business, the fourth-quarter rebound Fan pointed to will depend on titles like Lumi Master and the new licensed SLG actually connecting with players.
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