Large model capabilities continue to improve, and focus on commercialization of AI applications
On March 4, 2024, Anthropic released the third-generation Claude model. Capabilities in terms of long text and multi-modality have been improved. The three versions of the model can accept input of more than 1 million tokens in terms of long text; the multi-modal aspect can process content such as photos, tables, graphics, and scientific research charts.
We believe that the continued improvement of overseas large model capabilities may drive the continuous iteration of AI application-side products.
The company has a good product base and overseas business foundation. As the transformation enters a new stage, the revenue growth rate is expected to gradually accelerate. EPS is expected to be -1.02/-0.03/0.32 yuan in 2023-2025. Comparable to Ifind's 24-year average PS was expected to be 10.6 times, giving 2024 10.6 times PS, and a target price of 86.72 yuan, maintaining a “buy” rating.
Product foundation: It has a good foundation for AI application, and provides a product foundation for model implementation. Foxit has a good product foundation and pioneered the commercialization of AI technology through a PDF editor.
The overseas version of PDF Editor was upgraded in September 2023, and AIGC technology is integrated in all product forms. The desktop and mobile PDF editors can implement document summarization, content rewriting, and real-time interaction functions; the November 2023 version was further updated. Currently, users can summarize documents and rewrite content through AI assistants, and can use AI to replace people to operate PDFs through Smart PDF Commands. We believe that Foxit was the first to integrate large models on the product side. In the future, as the underlying model capabilities continue to be iteratively upgraded, Foxit's product functional experience is expected to be further improved, laying a good foundation for AI commercialization.
The overseas business base is good, and it is expected to benefit from the development of large overseas models. Judging from the revenue situation by region, the company has a good overseas business base. According to the investor relations table, in 2023, the company's North America/Europe revenue accounted for about 57%/23%, with a year-on-year growth rate of 0%/20%. Overseas revenue accounts for a relatively high share, and the customer and market base is good. Looking at overseas business development, overseas business is progressing smoothly.
Subscription revenue in Europe and the US grew 90% in 2023, and subscription transformation progressed smoothly. Channel revenue in North America/Europe grew 8%/60% year on year, and channel transformation in Europe and the US progressed rapidly. We believe that a good overseas business foundation will help the company actively seize the application transformation opportunities brought about by the development of large-scale overseas models.
The transformation has entered a new phase, and revenue growth is expected to accelerate
From the perspective of revenue growth, the company's dual transformation accelerated in 2023. According to the company's performance report, 23Q1-Q4's ARR net growth in a single quarter was 22 million/25 million/27 million/30 million+, which accelerated quarterly; channel revenue accounted for 30%/34%/35%/37%, increasing quarterly. In 2021-2023, subscription business revenue accounted for 15%/21%/35%, and agency channel revenue accounted for 24%/29%/35%. We believe that as the phased results of subscription transformation and channel transformation gradually become apparent, the negative impact of the 2024 transformation on revenue is expected to gradually weaken, and the company's total revenue growth may accelerate.
Risk warning: the expansion of new application scenarios falls short of expectations; risk of market competition; risk of fluctuations in the performance of joint ventures.