Incidents:
On March 20, the company announced its 2023Q4 quarterly report, achieving revenue of 32.56 billion yuan (YoY +15.1%, QoQ +16.5%), operating profit of 3,622 billion yuan, net profit of 3.612 billion yuan, and adjusted net profit of 4.362 billion yuan. For the full year of 2023, the company achieved revenue of 113.47 billion yuan (YoY +20.5%), operating profit of 6.331 billion yuan, net profit of 6.399 billion yuan, and adjusted net profit of 10.271 billion yuan.
Our point of view:
1. Operating conditions: Continuously optimize user growth strategies and algorithms. User data on the 2023Q4 platform maintained steady growth, MAU reached 700 million, DAU reached 383 million, and daily active users spent an average of 124.5 minutes per day, maintaining high user stickiness.
2. Analysis of main financial indicators: Revenue grew steadily, gross margin continued to be optimized year on year. Q4 adjusted net profit reached 4.362 billion yuan, better than market expectations. Adjusted net interest rate improved significantly to 13.4% year on year, and profitability continued to increase.
3. Online marketing services: 2023Q4 increased 20.6% year over year to 18.2 billion yuan. Internal circulation maintained strong growth, and products such as “full-site promotion” and intelligent hosting increased the willingness and effectiveness of merchants; external circulation advertising continued to grow, and fully automated lead marketing products and AIGC enabled intelligent delivery.
4. Live streaming business: 2023Q4 remained flat at 10 billion yuan year-on-year. It is deeply expanding operations locally in major regions around the world, promoting new content, new interactions, and new gameplay, continuously exploring and cultivating high-quality live streaming content and live streaming, empowering traditional industries with the “live streaming +” model, and the rapid recruitment and ideal home business is developing steadily.
5. Other businesses: 2023Q4 increased 36.2% year on year to 4.3 billion yuan, e-commerce GMV increased 29.3% year on year to 403.9 billion yuan, the average number of monthly buyers exceeded 130 million, and more than 1 million operators participated in the Double Eleven promotion. The average number of monthly sales merchants grew by more than 50% year on year, branded products continued to grow, while pan-shelf e-commerce accounted for more than 20%; overall operating losses in overseas business decreased by 63.2% year on year, and operating losses narrowed further from month to month.
The profit forecast and investment rating take into account the strong growth of the company's advertising and e-commerce business, continuous improvement in single-user monetization efficiency, and steady implementation of cost reduction and efficiency. We raised the company's profit forecast. The company's FY2024-2026 revenue is estimated to be 1277/1456/162.7 billion yuan, respectively, and adjusted net profit to mother is 168/255/32.1 billion yuan, corresponding to PE 12/8/6X, respectively. We conduct SOTP valuations based on the profitability and competitive landscape of different business segments (with corresponding premiums/discounts). The 2024E target market value is $319.7 billion, target prices are $73 and HK$81, maintaining a “buy” rating.
Risks indicate the risk of slowing the growth rate of active users, the risk of stabilizing the production of high-quality content, the risk of changes in Internet information publishing policies, the risk of video content supervision, the risk of rapidly increasing content costs, the risk of rapid increase in channel costs, competition risk, antitrust risk, and valuation adjustment risk.