Incident: The company released its report for the third quarter of 2021. (1) 2021Q3 achieved operating income of 444 million yuan, an increase of 42.32% over the previous year, and net profit of Guimo was 114 million yuan, a year-on-year decrease of -0.62%, after deducting net profit of 114 million yuan from non-Gumo, an increase of 59.01% over the previous year. (2) 2021Q1-Q3 achieved operating income of 1,373 million yuan, an increase of 65.67% over the previous year, net profit of 31,400 yuan from Guimu, an increase of 96.58% over the previous year, after deducting net profit of 312 million yuan from non-Gumo, an increase of 184.13% over the previous year.
Hippo Gaming relies on the entry of ultra-casual game product traffic, and its business is growing rapidly. The sharp increase in the penetration rate of short videos has driven its off-site traffic monetization business into a dividend period. Relying on ultra-casual game products as an entry point for off-site traffic, Hippo Games collaborated deeply with leading short video platforms such as Kuaishou Technology and ByteDance to continuously expand the direction of Internet advertising and content monetization business, accelerate advertising monetization efficiency, and drive rapid growth in the company's performance. Relying on the advantages of existing advertising resources, the company actively seeks new business growth points on the premise of existing Internet technology and overseas market advantages to further enhance the profit efficiency of the company's Internet advertising and content monetization business. It is expected that the company will continue to maintain high growth in the future, driven by the double growth of traditional internet advertising and hippopotamus games.
The negative impact of the policy has been gradually digested, and overseas business is advancing at an accelerated pace. 1) Policies represented by Apple's new IDFA policy and a series of national personal privacy protection policies have had a certain impact on Hippo's Internet advertising business since the second quarter of this year. Through a period of business adjustments and algorithm optimization, the moment where the policy had the greatest impact has now passed, and the company's operations have resumed one after another; 2) The company has stepped up production capacity expansion to enhance product richness. Currently, business cooperation with Kuaishou overseas has been implemented, and the game “Ludo Master” has achieved impressive performance in Indonesia, and the company will continue to expand overseas.
Investment advice: Relying on the monetization dividend of external traffic from short video stations, the company has built a traffic operation platform, and long-term development can be expected. Net profit for 2021-2023 is expected to be 501/7.85/1,103 million yuan respectively; a year-on-year increase of 66.2%/56.7%/40.5%, corresponding to 2021/2022/2023 8.6/5.5/3.9XPE, maintaining the “buy” rating.
Risk warning: Higher goodwill balance risk, increased risk of advertising business competition, and game policy risk.