The company's recent situation
Contact Interactive announced a major asset purchase plan on September 28, 2016 (updated on the 29th). It will purchase 55.7% of Newegg (Newegg)'s shares using a cash payment method of 264 million US dollars (or 1.77 billion yuan), with a corresponding percentage of voting rights.
reviews
1. The target of this acquisition is a leading e-commerce platform in the US, and the purchase price is reasonable. Using EV/S (multiple of enterprise value and operating income) as the valuation index, the valuation of the new egg EV/S was 0.17 times, far lower than the average valuation of comparable companies of 0.76 times.
This shows that Neegg was purchased at a reasonable price, and Liao Interactive obtained a high-quality electronic trademark at a lower price.
2. By joining forces with Xinyuan, there are significant synergies in terms of funding, channels, and products:
(1) Linked investments have provided important capital for new eggs. Relying on sufficient capital, Xinegg plans to expand categories while consolidating core products in the future, leveraging its advantages in big data, technology and logistics to further expand the scale of business, continue to develop e-commerce mobility and accelerate the internationalization process, and achieve leaps and bounds in growth based on existing business.
(2) Neegg is expected to become an important traffic monetization platform for connecting with existing users, and is the foundation of the company's traffic+e-commerce strategy. Contact Interactive has more than 100 million new active users per year, which is expected to channel traffic to the Xinegg platform, increase the ARPU value of users through e-commerce platforms, and enhance the traffic entry value of the Contact OS.
(3) Neegg effectively complements online sales channels and consolidates the company's intelligent hardware ecosystem.
The company has successively launched contacts with Mini, increased Avegant's capital into the virtual reality field, established a joint venture with Haier Smart Home Appliance to develop smart homes, and participated in hardware companies such as Cool Case and Razer, building a smart hardware ecosystem. Neegg will become an important platform for the company's hardware sales to help promote and sell hardware products.
Valuation recommendations
Net profit forecasts for 2016-17 were maintained at 498 million and 704 million, up 57.5% and 41.5% respectively over the previous year. Assuming that Xinegg is given 1.4 times P/S, the fair market value of New Egg will reach 20 billion dollars, corresponding to the 55.7% share value of this acquisition, about 11.1 billion dollars. Listed companies had a market capitalization of 42.9 billion before they were suspended. Considering Xinegg's fair value contribution, the corresponding market value of the main business was about 31.8 billion. Corresponds to the price-earnings ratio of 45 times in 2017. The company's intelligent hardware ecosystem is constantly being improved, and there is broad scope for long-term development. Maintain the recommendation, target price is $30.
risks
The progress of the game project fell short of expectations.