Foxit Software is the world's leading PDF software company and has a complete B/C PDF product
Foxit Software has continued to be deeply involved in the PDF software field since 2004. Over the years, it has continued to expand in overseas markets, and has built complete PDF software and TOB solutions through self-development and acquisitions. The company has Foxit PDF Reader and Foxit PDF Editor versions for C-side users, and also has B-side solutions including PDF SDK, PDF Compressor, etc. In addition, the company has also launched industry solutions. The company's controlling interests are concentrated and stable. In 2022, the company issued equity incentives, which promoted the transformation of the subscription system while demonstrating confidence in business growth and providing a good balance between growth and transformation.
The company's revenue growth rate has declined since it began to accelerate the transformation of the subscription system in 2022, but the share of ARR and subscription revenue continued to rise, reaching 44% of subscription revenue in Q1 in 2024. We believe that as the transformation of the subscription system continues to advance, the company's revenue growth rate is expected to take off again.
The transformation of both the subscription system and channel has achieved remarkable results. AI and Huawei have paved a new growth direction. Since July 2022, the company established a dual transformation growth strategy with subscription priority and channel priority. By 2024, the results have been remarkable. From Q4 2022 to Q1 2024, the company's share of subscription revenue increased from 21% to 44%, and ARR also increased from less than 140 million to over 280 million, more than doubling in 6 quarters, while maintaining a subscription renewal rate of more than 90%. In terms of channel transformation, the company actively cooperated with Dell, Shenzhou Digital and other channels, signed software agency agreements with DELL, and channel revenue also increased rapidly from 48.16 million in Q4 2022 to 63.19 million in Q1 2024, accounting for a rapid increase, accounting for The share of revenue also rose steadily to 37%. In addition, the company officially released an AI assistant function and worked with ChatGPT to create AI product functions. The company is also actively embracing the Huawei Hongmeng ecosystem, expanding the new IDP product line, and actively creating a growth path.
There is still much potential in the global PDF market. Adobe's price increase brings Foxit growth opportunities. PDF as a layout file continues to grow along with the popularity of electronic office. Globally, Adobe has the largest market share in the PDF market. Document Cloud's revenue in FY2023 was 2.7 billion US dollars, and its revenue growth was accompanied by continuous price increases, while Foxit Software has a high cost performance ratio compared to Adobe, and the market share is expected to continue to increase; referring to Adobe, the company's profit margin was affected during the transition to the cloud, which ushered in continuous improvement in profit and cash flow. At the same time, Acrobat also introduced AI assistants and pricing. We expect Adobe PDF will also welcome AI in the future. New growth brought about. Foxit is also expected to obtain a new growth curve through Assistant AI in the future.
Investment advice: Since 2024, the company's dual transformation has entered the second half. Taking into account the company's share of subscription revenue, the continued high growth of PDF tools and online services, and Foxin Kunpeng's, we expect the company's revenue for 24-26 to be 723/8.46/1,011 million yuan, respectively, and net profit to mother of -0.47/-0.12/0.53 billion yuan, respectively. We chose Jinshan Office, Wanxing Technology, and ArcSoft Technology as comparable companies. Considering Foxit Software's product strength and industry position, we conservatively gave the company 10 times P/S in 2024. Combined with forecasting the company's 2024 revenue of 723 million yuan, we gave Foxit Software a target market value of 7.230 billion yuan, corresponding to a stock price of 79.03 yuan. First coverage, giving a “buy” rating.
Risk warning: subscription transformation falls short of expectations, geopolitical risks, commercialization of new products falls short of expectations, and risks of asset acquisitions falling short of expectations