Platform service sales on the rise
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
1Q20 OP of KRW8.1bn (+10.8% QoQ) misses consensus (KRW9.1bn)
AfreecaTV posted sales of KRW41.5bn (-4.2% QoQ) and operating profit of KRW8.1bn (+10.8% QoQ) for 1Q20, missing market expectations (sales of KRW43.5bn, operating profit of KRW9.1bn). Platform service sales of KRW34.5bn (+7.6% QoQ) met the consensus (KRW34.2bn), fully recovering from the suspension of KakaoPay payment service and stricter risk management of mobile micro payments. Ad sales dropped 51.4% QoQ to KRW4.2bn, as content ad sales plunged 60.1% QoQ due to the postponement and cancellation of eSports tournaments.
Operating expenses fell 7.3% QoQ to KRW33.4bn with paid commissions declining on sluggish ad business and base effect created from year-end event spending. Labor cost increased 13.7% QoQ on new hires (+40 employees QoQ).
Platform service sales on the rise, ad sales bottom confirmed
AfreecaTV saw a steep upturn in traffic in March amid heightened social distancing guidelines. Monthly unique visitors (MUV) increased to 6.15mn in March from around 5.66mn-5.67mn in January-February. Broadcasting jockeys (BJs) were particularly active. New BJs joined the scene and broadcast channels other than education, music, lifestyle, sports, and games grew in numbers. The uptrend in platform service sales has been confirmed in March-April vs. January-February. The ad business should continue to be weighed down by weak demand, but will likely stage a rebound in sales in 2Q with eSports tournaments resuming without audience.
Retain BUY and raise target price by 9.5% to KRW69,000
We retain our BUY rating on AfreecaTV and raise our target price by 9.5% to KRW 69,000. The valuation base is changed from 2020 to 12-month forward forecasts. A10% discount applied previously is also removed to reflect a clear uptrend in earnings, recovering from the impact of COVID-19 and 1Q trough.