A Must-own Stock in the Internet Sector
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
1Q21OP exceeds consensus at KRW19.6bn (+14.2% QoQ)
AfreecaTV posted operating profit of KRW19.6bn (+14.2% QoQ) on sales of KRW60.9bn (+1.0% QoQ) for 1Q21, surpassing the consensus estimate of KRW15.7bn. Platform service sales increased 13.5% QoQ to KRW50.8bn. MUV (monthly unique visitors) declined slightly QoQ to 5.8mn, but largely in line with the recent trend (5.8mn-6.2mn levels). Strong earnings were driven by growth in paying users, paying ratio, and ARPPU (average revenue per paying user).
Ad sales declined 39.4% QoQ to KRW8.4bn, but jumped 99.1% on a YoY basis. The QoQ drop is attributable to seasonal factors such as the absence of eSports leagues. The ad platform AfreecaTV Ads Manager (AAM) is still in its infancy (launched in early March), but is already driving visible improvement in the share of direct ad sales as well as increase in the portion of small/mid-size advertisers. We thus expect earnings from platform ads to grow from 2Q21.
Focus on increased sponsorship and strong ad growth
investors have been doubtful about the growth potential of influencer sponsorship in platform services (star balloons, etc.) over the past few years. Such concerns have now abated, with the system widely adopted as a business model by communication channels such as YouTube, TikTok, and Clubhouse. Amid a spreading culture of influencer sponsorship, AfreecaTV saw a rise in the paying ratio (4.8% as of 1Q21). It plans to improve its services (user interface, etc.) in 1H21 to boost user participation, which should help drive up the paying ratio further in the mid-to-long term.
It is disappointing that the introduction of commercial breaks for live-streaming broadcasts has been delayed to 2H21. However, we expect ad sales to continue on a QoQ uptrend throughout 2021, backed by the AAM launch effect. Full-year ad sales are forecast at KRW47.9bn (+63.2% YoY).
Target price raised by 20% to KRW120,000
We raise our target price for AfreecaTV by 20% to KRW120,000, with earnings forecasts revised up to reflect robust growth in platform service sales. AfreecaTV shares have rallied sharply, but earnings are growing at a faster pace. The company stands to see a re-rating of valuations from the current low levels (2021F PER of 15.1x) once ad sales start to increase visibly in 2H21. In our view, AfreecaTV is a must-own stock in the internet sector.