Nasmedia
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com -- Ed.
We lower our TP on Nasmedia by 22% to W35,000 on downwardly adjusted earnings estimates to reflect weaker profitability due to increased structural costs. However, we maintain a Buy rating, foreseeing ongoing benefits from the firm’s selection as Netflix’s exclusive ad agency and continuing mobile platform growth.
Declining margins need time for improvement
We lower our TP on Nasmedia by 22% from W45,000 to W35,000. Although it is positive that new business-oriented top-line growth will emerge despite unfavorable industry conditions, we trim our estimates to reflect profitability decline stemming from structural cost increase.
However, we adhere to a Buy rating, favorably viewing both the prospects for business as Netflix’s only ad agency, which is to accelerate in earnest from this year, and the firm’s efforts to preemptively expand into new business areas by strengthening its data capabilities. It is expected that profitability-related indicators will improve once the new business becomes firmly established.
Netflix ad-supported subscription plan outperforming expectations
According to media reports, the number of subscribers to the Netflix ad-supported plan in the US exceeded 1mn within two months of the service’s launch. Most of such subscribers are new customers. Thus far, there have been relatively few rate plan downgrades by existing users. In contrast to the lukewarm public response to the launch of the ad-supported plan, subscriber numbers look healthy.
In the early stages of launch, with some Netflix subscribers still needing time to adapt, the frequency of ad exposure (number of ad slots) is still lower than hoped. However, as the number of slots is likely to rise over time, Nasmedia should gradually feel benefits from the launch of the Netflix ad-supported plan.
1Q23 preview: Favorable new business, despite difficult industry
Nasmedia is expected to post consensus-missing 1Q23 consolidated sales of W35.1bn (+8% y-y) and OP of W6.1bn (-11% y-y). Despite reduced ad execution by advertisers due to unfavorable business conditions, top-line growth driven by new mobile platform business (programmatic, commerce, performance) should continue, though increased operating expense burden is also likely to sustain.