The Life and Knowledge section became the newly emerging PUGV leading content sector. Rich PUGV content is the core of the development of Station B's community. In the fourth quarter of 2022, the average number of monthly UPGV owners on the platform reached 3.8 million, and 95% of the video views came from PUGV and Story Mode; in 2022, the number of UPGV owners who gained over one million fans in the Knowledge and Life Division reached 36 and 35 places respectively, surpassing ACG sectors such as games, animation, and music. At the same time, the platform introduced OGV content to provide users with an auxiliary selection of high-quality content. OGV's content focuses on animated animation and expands to “documentaries, variety shows, movies and television.”
(1) The knowledge partition is exclusive. From the perspective of content exclusivity, Station B has a significant advantage in the knowledge section.
We have compiled the performance of some of the representatives of UP owners distributing content through other channels in 2022. As can be seen, Station B Knowledge Zone UP mainly performed on other platforms such as Douyin; in addition to its good performance on Station B, Living Area UP also performed well on platforms such as Douyin.
(2) Focus on supporting domestic animation. In 2017, Station B established the “National Innovation Zone”, dedicated to the promotion and ecological maintenance of domestic original animations. In recent years, the company launched support programs such as the Little Universe Project, the Little Universe Rising Star Program, the Light Search Program, and the Capsule Program. After years of development, according to data published by the platform, since 2018, Station B's nationally creative works have implemented more than 300 animation licensing projects; there are about 120 domestic companies that can produce high-quality animations, and Station B has reached deep cooperation with 90% of them.
Interactive features enhance the platform's community attributes. As a platform for the Chinese video community, Station B forms a series of interactive features unique to the platform in terms of interaction. Specifically, when users of Station B browse the PUGV video content carefully created by UP Master on the platform, they can express their thoughts through “barrages” and “comments”; they are very appreciative of the quality of the video content, and can further express their support for the UP Master through “one click and three links” (long press the like button to complete likes, coins, and favorites); when watching UP's main live broadcast, users can choose to reward the UP host, join a fan group, and “go to the top”; similarly, after feeding the UP host, users can get corresponding fan badges, and when users send the bulletin, they can receive corresponding fan badges, and when users send the bulletin, they send the live broadcast It will be displayed, thereby highlighting the user's hobbies and support tendencies. We believe that this kind of interactive function on Station B strengthens the connection between users and UP owners and effectively enhances the platform's community attributes.
Story Mode satisfies the user's fragmented scenes. In 2021, Station B officially launched StoryMode, a vertical video function, similar to the waterfall stream mode for short videos, which is clearly different from traditional horizontal screen viewing and dual-column information stream distribution models. According to the company's 2022 Q1 earnings disclosure data, Story Mode's share of platform VV volume has reached 20%, and the trend of continuous improvement began in 2022 Q2. The average number of video views on 2022Q4 and Station B reached 3.9 billion times per day, an increase of 77% over the previous year. Among them, the average number of vertical video views in Story Mode increased 175% over the same period last year. On the other hand, according to the statistics of newcomers who rose from 0 to 1 million in 2022 on the new list, two-thirds of the UPs were mainly short vertical videos. We believe that Station B launched StoryMode to meet users' viewing needs in fragmented scenarios and effectively boost the number of daily active users of the platform.
The efficiency of commercialization continues to improve, and the launch of new games is expected to accelerate revenue growth. In 2018-2022, Station B's revenue increased from 4.13 billion yuan to 21.90 billion yuan, with a compound annual growth rate of 51.7%. The company plans to launch a number of new games overseas in 2023 and release two self-developed game products domestically. With the normalization of the distribution of domestic game versions and the restoration of economic sentiment, the domestic game industry environment has improved. The successful release of new games is expected to drive the revenue growth of Station B's game business at an accelerated pace.
Investment advice: Station B has accumulated a large amount of high-quality medium to long video content and excellent creators. Looking ahead, the company focuses on increasing platform user activity, enhancing commercialization efficiency, continuously reducing costs and increasing efficiency, and striving to achieve the 2024 community platform profit target. We expect the company's NON-GAAP net profit for 2022-2024 to be -3,001 million yuan, -529 million yuan and 568 million yuan respectively.
Kuaishou and NetEase Cloud Music were selected as comparable companies, and calculated using P/MAU, the monthly active user market capitalization of comparable companies was 322 yuan and 62 yuan respectively. A monthly active user market value of $250 was given to Station B. The corresponding company's valuation was $81.5 billion, and the corresponding target price was $205.76 (HK$234.56). First time rating, I gave a “Highly Recommended” rating.
Risk warning: (1) user growth falls short of expectations; (2) commercial monetization falls short of expectations; (3) loss of users due to declining content quality; (4) competition in the content community market intensifies.