Key points of investment:
Maintain the increase in holdings rating. The performance of the company's core advertising business exceeded expectations, and its Hippo Games enjoyed ByteDance's traffic monetization dividend+Xiaomi's overseas dividend. Maintain the 2020-2022 EPS at $1.96/3.1/4.65, maintain the target price of $90.70, and maintain the shareholding increase rating.
Incident: Lian Media, a wholly-owned subsidiary of the company, and JOYOTECHNOLOGY PTE.LTD, a wholly-owned subsidiary of Kuaishou Technology, recently signed a “Strategic Cooperation Framework Agreement”. The two parties plan to establish a joint venture subsidiary Little Orange Technology.
A battle agreement was signed with JOYO, a subsidiary of Kuaishou, to create an independent “Little Orange” brand and create synergies.
(1) “Little Orange” will support ecological content creators, stabilize the production capacity of high-quality content, and build a content ecosystem that includes casual games. JOYO provides cutting-edge information in the industry as creative support for content production. Rian Media is responsible for finding high-quality and efficient content creators; (2) JOYO will provide various forms of promotion services for Rian Media, and Rian Media will purchase traffic on the promotion platform provided by JOYO; (3) Rian Media will use traffic from its own or cooperative products to provide services for JOYO to display advertisements, traffic conversion, etc.
The casual game market is vast, and the company's casual game ecosystem is expected to be further strengthened. According to Ohayoo data, the daily active users of casual games in China reached 200 million, and the market size was about 30-50 billion. From 2019 Q4 to 2020 Q1, the length of leisure users increased by more than 300%. According to Gamma data, advertising revenue for casual games is expected to reach 71 yuan in 2020, an increase of 30% over the previous year. We believe that “Little Orange”, founded by the company's subsidiary and Kuaishou subsidiary, is expected to further strengthen the company's casual game ecosystem chain by building a casual game content ecosystem, and at the same time form collaboration with Kuaishou's traffic.
Risk warning: Internet advertising business expansion falls short of expectations, and new product development and operation falls short of expected risks