2023 and 1Q24 results are in line with our and market expectations
Foxit Software announced 2023 results: achieved revenue of 611 million yuan, +5% year over year; net loss due to mother increased to 91 million yuan year over year; net loss after deduction increased 130% year over year to 179 million yuan. The performance is in line with our and market expectations. In the fourth quarter of a year, revenue of 168 million yuan was achieved, +10% year over year; net loss to mother increased 205% year over year to 30 million yuan; deducted non-net loss increased 85% year over year to 81 million yuan.
1Q24 performance: revenue of 169 million yuan, +17% year over year; net loss to mother narrowed 7% year over year to 11 million yuan; net loss after deduction of non-net loss narrowed 22% year on year to 121 million yuan, which is in line with our and market expectations.
Development trends
The dual transformation and growth strategy of subscription and channel priority is progressing smoothly. The 1Q24 revenue growth rate picked up year-on-year, reaching the highest value since the full launch of the double transformation in July '22. In terms of subscription transformation, the company's subscription revenue for the full year of 2023/1Q24 accounted for 35%/44% respectively, a significant increase from 21% in 2022; contract liabilities for the full year of 23 were 161 million yuan, up 71% year on year, and the overall subscription renewal rate for core products was about 91%; the ARR amount of 1Q24's subscription business reached 281 million yuan, +13% from the end of 2023, and the ARR increase in the single quarter increased by 41% year on year. At the level of channelization transformation, the company's channel revenue share for the full year of 2023/1Q24 was 34%/37% respectively, which is also a significant boost from 29% in 2022. The company continues to increase R&D investment to lay out new products, and the R&D cost rate in 2023 increased by 4.5ppt to 36.8% year-on-year. Adjusted net loss after excluding equity incentives and impairment of goodwill increased 222% year-on-year to 124 million yuan; further excluding investment losses from joint ventures, the company's own operations deducted non-net loss of about 88 million yuan. We believe that profit pressure in '23 was mainly due to share payments, impairment of goodwill, and operating drag on joint ventures, and is expected to improve in 2024.
AIGC's capabilities continue to advance, waiting for commercialization results to be demonstrated. Functional advancement: The company has continuously optimized the integration of AI functions in the core PDF editor, and has achieved continuous improvement in the experience of conventional functions such as document summarization, content rewriting, guaranteed translation, grammar & spelling correction; at the same time, it has gradually AIized PDF functional instructions through the Smart PDFCommands function, and has achieved more than 100 AI-based instructions, including page replacement, page splitting, and document format conversion. Additionally, in January 2024, the company also signed a software agency agreement with Dell, the core PC channel provider, to superimpose AI functions. In terms of industrial cooperation, in March 2024, the company and Huawei signed a Hongmeng Ecological Cooperation Agreement to provide users with digital office services in the Hongmeng ecosystem. We reaffirm our optimism about AI application-side development opportunities. We believe that as an upper level application provider, the company's domestic editor can also quickly integrate multiple underlying model capabilities. It is recommended to pay attention to the filing progress of its original Cloud version of AI Assistant and the testing progress of multi-model access.
Profit forecasting and valuation
The outperforming industry rating and 2024/25 profit forecast remain largely unchanged. Considering that the downstream boom is affected by macroeconomic fluctuations, the industry's valuation center declined, and the target price was lowered by 16% to 88 yuan (based on 11.5 times the 2024 market sales rate). The current stock price corresponds to 8/7 2024/25e P/S, with 44% room for an increase compared to the current stock price.
risks
The progress of subscription and channelization transformation fell short of expectations; expenditure exceeded expectations; market competition intensified.