The company initially used user-operated SaaS free services to achieve customer flow, and is now the largest operator of interactive advertising effectiveness in China. The company started with a free SaaS service. By accumulating massive operating data, forward-looking, embedding and monetization with interactive advertising effects, the company built a mature business operation model. The company's revenue CAGR = 371.54% in the past 3 years, of which interactive performance advertising contributed more than 90% to revenue generation. User-operated SaaS customized payment services have been promoted since April 2018, and are actively shifting to the incremental market for offline enterprise development.
The company was the leader in the SaaS and interactive performance advertising market for users in 2018. The latter had a market share of 51.7%; thanks to the phased stabilization of interactive performance advertising media segmentation, the company's main business gross margin remained around 38% in 2017-2018. Among them, the advertising business was affected by increased procurement efforts from top and waist app media vendors, with a gross margin of 81.7%/36.4%/36.5% in the past 3 years; the SaaS business had a gross margin of 42.5%/44.8%/80.4% in the past 3 years due to e-wallet operators' fee reductions and payment services.
The actual controller of the company is Chen Xiaoliang, the founder of the post-90s, and the management team has shown its “young and promising” character. Mr. Chen Xiaoliang currently holds 40.91% of the shares. While studying in 2011, he founded the company's predecessor, “Hangzhou Duiba”, grasped the needs of users from the perspective of the younger generation, and formed a young career management team accordingly. Currently, the executive directors of the company's board of directors and core business executives are all under 40 years old.
SaaS services operated by domestic users are still in the early stages of low penetration, and there is huge room for future market development. According to iResearch data, the domestic user-operated SaaS market has CAGR = 78.1% in the past 5 years and will reach 56.8% in the next 5 years; it is expected that under the awakening demand of small and micro enterprises and the catalysis of new retail concepts, the market penetration rate of online enterprises is expected to increase from 0.1% in 2013 to 1.1% in 2018 and continue to increase to 18.7% in 2023; offline companies are expected to increase from 0.3% in 2013 to 3.4% in 2018, and continue to increase to 19.3% in 2023.
The interactive performance advertising market is expected to maintain a high level of prosperity, and the overall performance of the company's CPC model billing is a “steady increase in volume and price” trend. The domestic interactive effects advertising market has been fissioned in recent years, and future growth is expected to be significantly greater than cyclical; the market size in 2018 was 2.1 billion yuan, and is expected to increase to 135 billion yuan in 2023, CAGR = 44.5%; the company's advertising revenue is stable under the billing unit price under the bidding system, and the average revenue per click per unit billing in 2017-2018 was 0.36/0.35 yuan.
The company focuses on technology-driven advertising revenue growth and user operation effectiveness optimization. In the future, the company will target Adtech giant Trade Desk, and is committed to building a leading performance advertising SaaS service in China. The company is positioned as a technology-driven SaaS service and advertising agency operator, with more than half of the R&D personnel. Currently, the operating business is fundamentally different from SaaS service providers such as Weimeng and Youzan in terms of operating models, target customers, etc., and the development path of the technology advertising business is expected to be in line with Trade Desk.
Profit forecasts, valuations and investment ratings. We expect the company's adjusted net profit for 2019-2021 to be RMB 4.25/710/990 million yuan respectively; using the segment valuation method, we expect our users to have an operating income of 100/3.40/600 million yuan respectively in the SaaS service business in 2019-2021, giving the company 7 times the market sales rate in 2019; the interactive effects advertising business will achieve adjusted net profit of 440/715/990 million yuan in 2019-2021, respectively, giving 20 times the market in 2019 The profit margin, corresponding to the company's target market value of HK$10.830 billion in 2019 and the target price of HK$9.76 billion, was covered for the first time and given a “strong push” rating.
Risk warning: Risk of macroeconomic fluctuations, risk of empirical bias in future performance predictions, risk of excessive price increases for media supplier resources, risk of new media channel diversion impact, risk of increased competition within the industry, and payment conversion falling short of expectations when users operate SaaS platforms.