NetEase growth accelerates, Tencent Music is constrained by competition, and Bilibili faces slowing advertising growth
Bank of America’s third-quarter preview maintains Buy ratings on NetEase and Bilibili and a Neutral rating on Tencent Music: NetEase benefits from PC games and a low comparison base, Tencent Music’s revenue growth is unlikely to drive profit growth, and Bilibili faces margin pressure from slowing advertising and game revenue sharing.
Original source：BofA Global ResearchFirst published on Unhidea：Original source date：
Key takeaway
Bank of America is more positive on the support from NetEase’s established games and catalysts from new releases. Competition for users constrains a valuation recovery for Tencent Music, while Bilibili’s earnings growth case faces pressure from slowing advertising and the timing of revenue sharing.
Why is NetEase’s growth accelerating, and what is tempering its profit gains?
Bank of America expects NetEase’s total revenue to rise 10% year on year in the third quarter of 2026, above the second quarter’s 8%; online game revenue is expected to grow 12%, also above the second quarter’s 10.4%. The main support comes from the PC version of Fantasy Westward Journey: server openings accelerated after July, while third-quarter promotion of Eggy Party is also expected to increase gross billings.
Support from PC games coexists with divergent trends in mobile games. Sensor Tower data show that gross billings for the mobile version of Fantasy Westward Journey continued to fall in September; QuestMobile data show that total time spent on Eggy Party declined month on month in September. Established titles are not strengthening across the board.
Bank of America expects adjusted operating profit to rise 42% year on year in the third quarter but remain roughly flat quarter on quarter. The higher year-on-year growth rate mainly reflects the comparison base created by elevated sales and marketing spending last year. Non-cash foreign exchange and investment losses will continue to weigh on profit, so the improvement in operating profit cannot be directly carried over to net profit.
Bank of America maintains its earnings forecasts, Buy rating and price target of 174 dollars, and sees an opportunity for earnings forecast upgrades from Ananta, which is expected to launch in January 2027. The current valuation implies approximately 12.6 times and 11 times forecast earnings for 2026 and 2027, respectively. The new title’s launch schedule and marketing budget are key variables ahead.
Why is Tencent Music’s revenue growth still insufficient to drive a valuation recovery?
Bank of America expects Tencent Music’s total revenue to rise 8% year on year in the third quarter of 2026, with online music revenue growing 12%, partly benefiting from a full quarter of consolidation of Ximalaya. Adjusted net profit is expected to be flat year on year. The additional revenue includes the contribution from consolidation, while profit growth has yet to keep pace.
Competitive pressure is evident in user metrics: after stabilizing over the summer, Qishui Music’s daily active users and time spent have resumed growth in recent weeks, while Tencent Music’s main mobile engagement metrics have yet to reach an inflection point. In September, Qishui Music had 61 million daily active users, more than QQ Music and Kugou Music; Kugou nevertheless led in total time spent, at 20 billion minutes. Different platforms lead in daily active users and time spent.
Accordingly, even though Bank of America expects results to be broadly in line with expectations, it sees no near-term catalyst for a valuation re-rating and maintains its Neutral rating and price target of 10 dollars. It believes industry-leading buybacks help support the share price on the downside; operationally, it is watching Ximalaya’s margin improvement and the scale of investment in offline businesses.
Bilibili’s user metrics are healthy, so why cut earnings forecasts?
Bank of America expects Bilibili’s total revenue to rise 6.1% year on year in the third quarter of 2026, below the second quarter’s 8.2%; advertising and value-added services revenue are expected to grow 20.5% and 4.5%, respectively. Advertising remains a faster-growing business, but macroeconomic headwinds will slow its growth in the second half.
The slowdown will continue into subsequent quarters: Bank of America expects advertising revenue to grow 15.4% in the fourth quarter and 15.5% in 2027, partly because of a high prior-year comparison base. Healthy platform engagement can coexist with slowing advertising growth; active users alone are insufficient to offset the effects of the macroeconomic environment and the comparison base.
Margins face a separate timing pressure. Bank of America considers AI spending manageable, but a mismatch between the timing of mobile game revenue sharing and revenue recognition in the fourth quarter could slightly weigh on gross margin. On that basis, it has cut its adjusted earnings per share forecasts for 2026–2028 by 0–2%.
Bank of America still sees limited competitive pressure on Bilibili and expects its earnings per share growth to outpace peers in 2026–2028. It maintains its Buy rating and price target of 27 dollars. Its positive view rests mainly on medium-term earnings growth, while the near-term advertising slowdown and revenue-sharing costs have been incorporated into the forecast revisions.
