On April 21, the company released performance reports for the full year of '23 and 24Q1, achieving revenue of $526.2/15.78 billion, respectively, corresponding year-on-year growth rates of 43.4%/61.5%, respectively; net profit to mother of $120/80 million yuan (-21.8/150 million yuan, respectively). The median earnings forecast for the full year of '23 was below, and overall in line with previous expectations. The 24Q1 revenue side continued its strong growth momentum for 23 years, while the profit side was affected by equity incentives issued in September '23, which was slightly under pressure. In addition, the company adopted a profit distribution plan to distribute a cash dividend of 0.1 yuan (tax included) to all shareholders for every 10 shares, with a total cash dividend of 24.875 million yuan.

The revenue side is growing at an impressive rate, and full-case promotion services and overseas advertising are growing rapidly. Looking at the business segment in '23, total promotion revenue was 11.28 billion yuan, up 73.1% year on year, gross margin was 8.4%, down 4.4 pct year on year. Overseas advertising revenue and gross margin both showed a rapid growth trend, contributing 37.36 billion yuan in revenue in '23, an increase of 41.7% over the previous year, accounting for 71% of revenue. The gross margin of the overseas business was 1.7%, an increase of 0.2 pct over the previous year. In 2023, agencies Meta and Google maintained double-digit ad revenue growth rates. With the breakthrough of closed-loop e-commerce, the advertising revenue growth rate of the agency TikTok ForBusiness was nearly 50%. After the company started official agency cooperation with Microsoft Advertising and Pinterest in 2023, performance developed rapidly, showing multiple growth. The All in AI strategy reshapes AIGC and the blue cursor, and the marketing industry model “Blue AI” accelerates cost reduction and efficiency.

Due to the impact of the 23-year restricted stock incentive plan issued in September 23 on 23H2/24 cost sharing and credit impairment, the profit side was slightly pressured. In '23, the company achieved net profit of 120 million yuan and deducted non-return of 150 million yuan, turning a loss into a profit over the previous year.

In '23, the company accrued credit impairment losses of 420 million yuan, an increase of 21% over the previous year. Considering that the incentive to issue restricted shares in '23 brought about 76.35 million yuan in share payment expenses, and the net cash flow generated by the company's operating activities in 2023 exceeded 600 million yuan, we believe that the company's operations have improved significantly. The 24Q1 profit side was affected by the decline in gross margin and the annual share fee of 180 million yuan. Net profit after deducting non-return to mother was 79.89 million yuan, compared to 130 million yuan for the same period in '23.

AI-driven revenue reached $108 million in 2023, and AI-driven revenue is expected to grow by RMB 5-10 billion in 2024.

In September 2023, Blue Cursor released the industry model BlueAI 1.0. Together with Baidu, Smart Spectrum, Microsoft China, Google and other cloud platforms, it now serves key customer projects such as overseas and domestic integrated marketing, content marketing, and advertising.

Under AI, the overall business productivity of the Blue Label increased by about 50%, reaching 100-1000% overseas, and 35%-100% domestically. In the future, BlueAI will continue to upgrade and evolve into a multi-modal, multi-scenario AI Agent (AI Agent). Based on the industry model, create enterprise-level marketing assistants, enable market insight, consumer interaction, multimedia content creation, and further enhance the level of AI organization and business AI.

Profit forecast: We raised revenue for 2024-2025 to 63.40/73.58 billion yuan (previous value was 628.3/70.85 billion yuan) and lowered net profit to mother to 23/250 million yuan (previous value was 32/340 million yuan). We expect operating income and net profit to mother for 26 to be 82.51 billion yuan/280 million yuan respectively. Considering the healthy and rapid growth of overseas business, rapid recovery on the combined revenue side, and improving operations, we gave it an “increase in wealth” rating.

Risk warning: The impact of macroeconomic changes and industry regulations on advertising, uncertain advertisers' intention to launch, progress in new business development falling short of expectations, risk of impairment of goodwill, and AI business falling short of expectations.