The company released the 2023 annual report and 24Q1 quarterly report: revenue for the full year of 2023 was 611 million yuan, up 5.3% year on year; net profit to mother was -91 million yuan, which increased the loss margin but was better than the previous performance report data. 24Q1 revenue was 169 million yuan, up 16.9% year on year, and net profit attributable to mother - 11 million yuan. Compared with the loss for the same period last year, it was slightly narrower. Driven by the strong overseas subscription business, 24Q1 revenue exceeded our expectations.
The core metrics of the subscription business continued to rise. According to the company's financial report, the subscription business accounted for 40%/44% of revenue for 23Q4/24Q1, respectively; the ARR for the subscription business at the end of the quarter was 250/ 281 million yuan, respectively, with year-on-year growth rates of 80.6%/75.2%, respectively; subscription renewal rates for Editor products remained at a high level of over 90%. ARR has been growing rapidly for several consecutive quarters, fully demonstrating the effectiveness of the company's subscription transformation. Moreover, after the share of subscriptions increased, the positive effects of subscription transformation gradually outweighed the negative impact on apparent performance, and the company achieved the highest quarterly revenue growth rate since the subscription transformation in '22.
It is expected that 2024 will have all the elements of subscription volume, accounting for more than half. In terms of products, the company completed the packaging and upgrade of the core product line PDFEditor, released a new product line with three-terminal integration and cloud service functions such as electronic signatures and AI assistants to promote cloud transformation; in terms of sales, it is currently strengthening the conversion of permanently authorized customers to convert subscriptions to procurement, maintenance, and upgrade services. We expect the company will account for more than half of its subscriptions in 2024.
The software is a benchmark for overseas markets, benefiting from overseas market conditions. According to the company's financial report, the revenue share of 24Q1 companies in North America/Europe/mainland China/other regions was 54.8%/25.7%/8.5%/11.0%, respectively, and the growth rates were 11.0%/26.0%/3.7%/44.8%, respectively. It can be seen that overseas demand is relatively strong (can also be verified from Adobe's financial reports). Rapid overseas growth also benefited from the company's channel transformation strategy. 24Q1 company's channel revenue increased 49% year over year, accounting for 37.4%.
AI+PDF capabilities are deeply integrated, and ecological cooperation continues to expand. In terms of large-scale model applications, in addition to regular document interaction functions such as document summarization, content rewriting, guaranteed translation, and grammar & spelling correction, the company has achieved AI construction of more than 100 PDF function instructions through the Smart PDF Commands function, and competitive barriers have been achieved. In terms of ecological cooperation, in January of this year, the company signed an agreement with core PC channel providers to provide Foxit PDF Editor with integrated AI capabilities; in March, the company and Huawei signed a Hongmeng ecological cooperation agreement to launch the development of native Hongmeng applications.
Investment analysis opinion: We slightly raised the 2024-2025 net profit to -0.52/+40 million yuan (the original forecast value was -0.55/ +0.38 billion yuan), and added the 2026 net profit forecast value of 112 million yuan. Due to the current subscription transformation period, both apparent revenue and profit are affected. The company's annual report revealed a consolidated business volume of 850 million yuan in 2023 after restoration, +20% over the same period last year. It is recommended to focus on core indicators such as subscription revenue share and ARR; it is expected that after the company initially reaches subscription transformation goals in 2025, the impact will gradually be eliminated, and apparent revenue and profits will be released quickly. Maintain a “buy” rating.
Risk warning: no profit in the short term; channel promotion falls short of expectations; Adobe exerts greater competitive pressure; changes in the overseas business environment.