Leading office software, revenue performance is growing steadily. The company was founded in 2011. After more than ten years of development, it has become a leading domestic office software product. Its main product is the WPS Office suite, which covers PC, mobile and cloud, providing users with a full range of office solutions, and a new type of intelligent office covering various demand scenarios in the form of full terminals and cloud services. In recent years, the company's business has developed rapidly. The revenue growth rate in 2018-2021 was high, 49.97%/39.82%/43.14%/45.07%, respectively. Affected by the business sentiment authorized by the agency from 2022 to 2023, the revenue growth rate declined, with a year-on-year increase of 18.44%. In 2023, we achieved revenue of 4.556 billion yuan, an increase of 17.27% year on year, and achieved performance of 1,318 billion yuan, an increase of 17.92% year on year.
The company's profitability is relatively stable. The gross margin remains around 85%, and the overall net margin remains around 30%. With the development of the digital age and the increase in demand for online collaborative work, individual and institutional subscription business revenue increased from 37/023 million yuan in 2018 to 2653/957 million yuan in 2023, respectively, and their share of revenue increased from 32.73%/2.03% to 58.24%/21.01%, respectively.
The office software market has great potential, and AI+ office is the general trend. As the global digitization process accelerates, the demand for enterprises to go to the cloud increases. Combined with national policy support for the software industry and AIGC to enable office software, the office software market has huge potential. In 2023, China's collaborative office market will reach 33.01 billion yuan, an increase of 12.3% over the previous year. Under the current wave of AI around the world, leading office software companies such as Microsoft, DingTalk, Jinshan, and 360 have released a series of office products around AI empowerment, and competition is fierce. With big model cooperation+small model self-research, long-term industry know-how accumulation, and AI technology advantages, the company launched WPS AI in April 2023. It targets Microsoft's Copilot. It has comprehensive functional coverage and is on par with Copilot's ease of use. On November 16, 2023, the WPS payment interface launched an AI formula writing function. As a value-added benefit package for Super Members and Super Member Pro annual subscription members, the company announced the launch of the WPS AI function.
On March 29, 2024, the company announced that it has formulated a pricing plan for its WPS AI products. The current price of WPS AI is 188 yuan/year.
With multiple benefits such as membership system upgrades and WPS+AI, the volume and price of the company's products are expected to rise sharply. C-side: The company completed the optimization of the membership system in 2023, and also announced the suspension of advertising business at the end of 2023, which is expected to significantly enhance the user experience. AI-enabled office can not only enhance the original tool attributes of WPS Office, but also lead the transformation of office software from tool to assistant attributes, effectively complete office assistance, and meet the diverse needs of C-side users. It is expected that with the commercialization of WPS AI in 2024, the use of new AI-enabled office tools will further increase the overall number of users, increase the loyalty of existing users, and attract new members. The user payment rate and ARPU are expected to continue to increase. According to estimates, after the launch of WPS, the overall user ARPU is expected to increase from 74.75 yuan in 2023 to 83.62 yuan in 2024, achieving a year-on-year increase of 11.86%, and is expected to grow 11.85% to 93.53 yuan in 2025. B-side: Firmly optimistic about WPS AI's increase in the unit price of B-side customers. Driven by the two major capabilities of WPS Office, cloud, and collaboration, the company's B-side products are expected to rise rapidly, and the room for growth is expected to open up further.
Investment suggestions: The company's subscription business has performed well, and AI strategy investment has opened up room for growth. Combined with the 2024 quarterly report results, we gave 2024-2026 net profit forecasts of 1,626 billion yuan, 2,995 billion yuan, and 2,673 billion yuan (previous values of 16.73, 21.97, 2.73 billion yuan), corresponding growth rates of 23.4%, 28.8%, and 27.6%; corresponding EPS (diluted) was 3.52 yuan, 4.54 yuan, and 5.79 yuan, respectively. In terms of valuation, we use DCF's absolute valuation. Assuming that the company's sustainable growth rate after 2032 is 5%, the company is given a target market value of 184.049 billion yuan and a target price of 399 yuan, maintaining a “strong” rating.
Risk warning: The commercialization of WPS AI falls short of expectations, the development of large model capabilities falls short of expectations, and users' willingness to pay falls short of expectations.