Concerns over Growth Resolved to Some Degree
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
2Q20OP of KRW10.7bn (+32.7% QoQ) exceeds consensus (KRW9.7bn)
AfreecaTV posted operating profit of KRW10.7bn (+32.7% QoQ) on sales of KRW45.3bn (+9.0% QoQ) for 2Q20, topping the market consensus of KRW9.7bn. Platform service sales increased sharply by 13.2% QoQ (vs. our estimate of 6.9% growth) on the return of famous broadcasting jockeys (BJs) and addition of new ones (total number of BJs +9% QoQ). Despite the absence of major sports events, monthly unique visitors (MUV) rose 7% QoQ to 6.24mn and paying users were up 12% QoQ. Ad sales remained flat with the COVID-19 pandemic slowing the pace of recovery.
Open Studio (PC cafes, etc.) sales decreased 43.3% QoQ to KRW1.1bn amid the prolonged pandemic. Operating expenses climbed only 3.3% QoQ to KRW34.6bn thanks to increased human resource efficiency and reduction in ad commissions, despite the financial support to BJs and depreciation expenses related to eSports arenas. Operating margin improved by 4.2%p QoQ to 23.7%.
Platform service to remain strong, ad sales to visibly grow from 2021
AfreecaTV has successfully attracted famous BJs and seen improvement in BJ activity indicators. The addition of new BJs has also helped diversify content offerings. Operating margin of more than 20% looks possible this year with robust growth in platform service sales offsetting sluggish ad sales. Following the recent pilot launch of four new ad products, the company plans to add two new products in 2H20. It is in the process of developing its own ad operation platform and solution. Ad sales will likely recover to 2019 levels in 2021 with the introduction of highly efficient ads (targeted ads, etc.).
Target price revised up by 6.7% to KRW80,000
We raise our target price for AfreecaTV by 6.7% to KRW80,000 in line with the revision of our earnings forecasts to reflect the robust growth of platform service sales. New BJs have brought competition to create quality contents. Concerns over growth have been resolved to some degree.