Widening Acceptance of Sponsorship System
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
Widening acceptance of sponsorship system and strong ad growth
Some 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 the spreading culture of influencer sponsorship, AfreecaTV is seeing a rise in its paying ratio (4.8% as of 1Q21). Service updates including user interface improvements are also leading to increased user participation, which will likely help to drive up paying ratios even further in the mid-to-long term.
Visible growth in number of advertisers and improvement in share of direct ad sales have been confirmed following the launch of the new ad platform, AfreecaTV Ads Manager (AAM), in March 2021. As a result, we expect ad sales to continue on a steady uptrend every quarter to reach KRW47.9bn (+63.2% YoY) for the full year. Ad sales growth should accelerate from2H21 on the introduction of commercial breaks for live-streaming broadcasts.
2Q21OP forecast at KRW21.2bn (+8.0% QoQ)
AfreecaTV is expected to post operating profit of KRW21.2bn (+8.0% QoQ) on sales of KRW64.5bn (+6.0% QoQ) for 2Q21, meeting the consensus estimate of KRW20.7bn. Platform service sales should reach KRW52.5bn in 2Q21, marking further QoQ improvement despite the high base with 13.5% QoQ growth recorded in 1Q21. Higher user participation and deepening bonds between broadcasting jockeys and viewers are driving continued growth in both ARPPU (average revenue per paying user) and paying ratio.
Ad sales will likely jump 23.4% QoQ and 140.5% YoY to KRW10.3bn in 2Q21. Strong growth should be propelled by: 1) improvement in platform ad revenue driven by the launch of AAM; and 2) 26% QoQ increase in content ad revenue to KRW6bn thanks to the resumption of eSports tournaments.
Target price raised by 8.3% to KRW130,000
Our target price for AfreecaTV is revised up by 8.3% to KRW130,000. We shifted our valuation base from 2021F to 12-month forward EPS to reflect forecasts for steady growth of major businesses such as platform services and ads. AfreecaTV shares have rallied sharply, but earnings are growing at a faster pace. The company stands to see a re-rating of valuations from current low levels (2021F PER of 16.5x) once ad sales start to increase visibly in 2H21. In our view, AfreecaTV is a must-own stock in the internet sector.