4Q22 performance is basically in line with our expectations.
The company announced 4Q22 results: revenue 6.142 billion yuan, year-on-year increase of 6.3%, month-on-month growth of 6.0%, in line with expectations; Non-GAAP net loss of 1.312 billion yuan, corresponding to a loss rate of 21.4% Personality 4Q21 loss of 1.652 billion yuan, basically in line with our and market expectations.
Trend of development
Pay attention to the healthy growth of users, and the commercial value of users is released steadily. 4Q22's MAU grew 20% year-on-year to 326 million, down 2.0% from a month earlier. The company turned to pay more attention to the healthy growth of user quality. DAU increased by 28.5% to 92.8 million; DAU/MAU reached a new high of 28.5%, and the company expects to reach 30% in 2023. We believe that high-quality community and content ecology are the basic disk of the company, the quality of users is developing continuously and healthily, and the conversion efficiency of DAU business value is expected to be gradually improved.
Marketing ecological construction Xu Li recovery, game supply or gradual improvement. 4Q22, advertising revenue fell 4.7% to 1.512 billion yuan from a high base in the same period last year, and the company continued to improve month-on-month. The company continued to strengthen the commercialization of StoryMode and the construction of transaction transformation scenarios, and 4Q22 effect advertising revenue increased by more than 50%. In terms of games, revenue from the game business fell 11.5% to 1.146 billion yuan compared with the same period last year, which is still affected by the insufficient supply of new games in the short term. The company said that 2Q23 may have more games online, including 2 self-developed games "Thrud" (domestic), "Yiluhir" (overseas) and 5 overseas issued games. Revenue from value-added services increased by 24.0% to 2.35 billion yuan, of which live MPU increased by 40%, and anchors were disturbed by the epidemic but maintained good growth as a whole; the number of large members increased by 6.5% to 21.4 million compared with the same period last year, mainly due to the launch of "three-body" in December; e-commerce and other income also increased by 13.1% to 1.134 billion yuan. The company guides revenue of 240,026 billion yuan in 2023 and says it will shrink its low gross margin businesses such as e-commerce; it expects e-commerce and other revenue to fall by 2530% in 2023, while non-e-commerce revenue (including gaming, VAS and advertising) is expected to grow by about 20%.
The results of reducing costs and increasing efficiency will be released gradually, and we will pay attention to the improvement of profitability. In terms of gross profit margin, 4Q22 gross profit margin increased by 2.1ppt to 20.3% month-on-month. We expect that income growth in 2023 will lead to a further decline in the share of fixed costs. With the adjustment of income structure, gross profit margin is expected to increase steadily to around 25%. In terms of expenses, 4Q22 sales rates have decreased to 20.6% month-on-month, and good management has continued. The management fee is increased to 13.3% from the previous month, and the R & D fee is increased to 24.3% from the previous month. This is mainly due to the one-time fees related to personnel optimization and self-developed game combing. The optimization results will be shown in 2023. The company said that sales rates will be further optimized in 2023, while the absolute value of management and R & D expenses will also decline, and profitability is expected to further improve and make steady progress towards break-even in 2024.
Profit forecast and valuation
Consider that the company has taken the initiative to scale back its low gross margin business and cut its 2023 Universe revenue by 6% to 250 / 30.4 billion yuan in 2024, maintaining the Non-GAAP net profit forecast. At present, Hong Kong stocks correspond to 2.1 times 2023 / 2024 Pmax S, while US stocks correspond to 2.0 prime 1.6 times 2023 pm 2024. Taking into account the downward shift of the valuation center of the industry and the uncertainty of forward earnings, the target price of Hong Kong stocks / US stocks (SOTP valuation method) was lowered by 32.4% / 31.6% to HK $198 / US $26, which corresponds to 2.8xb / 2.3x 2023max / 2024 Pmax S, while Hong Kong stocks / US stocks have a potential upside space of 29.3%. Focus on the company may be adjusted to include land stock in mid-March, trading activity and value recognition may be improved.
Risk
The progress of business recovery is not as expected, the process of reducing costs and efficiency is not as expected, and the progress of self-research games is slow.