Growth Concerns Dissipating
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
3Q20 preview: OP to come in at KRW11.8bn (+9.8% QoQ)
AfreecaTV is expected to have secured operating profit of KRW11.8bn (+9.8% QoQ) on sales of KRW47.9bn (+5.9% QoQ) in 3Q20, coming in line with market consensus of KRW11.7bn.We believe quarterly earnings continued upwards despite the impact of the COVID-19 pandemic.
Platform service sales are estimated at KRW41.5bn, marking 6.1% QoQ growth on the uptrend in item sales. Ad sales should come in lower on a YoY basis due to the prolonged pandemic, but will likely show slight improvement vs. 1H thanks to the launch of new ad products.
Growth potential in live commerce confirmed
AfreecaTV has expanded into the live commerce market, which has been enjoying steep growth amid the pandemic. Early results look positive with the business enjoying a boost from collaboration with popular broadcasting jockeys (BJs) on its platform. A live commerce show for a Logitech product hosted by a famous game broadcasting BJ recorded 60,000 cumulative viewers and KRW100mn in sales. A live commerce show held in collaboration with Hmall for a food product sold out within the first 20 minutes.
Capitalizing on its strengths in diverse content (e.g., mukbang, games) and platform operations, AfreecaTV is expected to increase collaboration efforts with a wide variety of brands and retail channels for further expansion in the fast-growing live commerce market.
TP unchanged at KRW80,000 with growth concerns to dissipate
We retain our BUY rating and target price of KRW80,000 for AfreecaTV. Adding to concerns over a possible downturn in platform sales, ad sales took a hit from the pandemic. As a result, market concerns continued over growth despite reports of solid earnings, causing shares to trade at a discount.
However, given the recent rally of payment/e-commerce-focused tech stocks, we believe AfreecaTV's expansion into live commerce will help to remove the valuation discount. In addition to solid earnings from the platform service business, ad earnings are expected to recover to normal levels from 2021 with the introduction of in-house ad solutions.