Total revenue: 24Q2 reached 6.127 billion (yoy +16%, qoq +8.17%), with advertising and value-added businesses driving the company's main growth. 24Q2 gross margin reached 29.9% (yoy+6.78pp, qoq+1.58pp). 24Q2 sales expenses were 1.04 billion (yoy +12.79%, qoq +11.71%), management expenses were 0.49 billion (yoy -9.57%, qoq -8.22%), and R&D expenses were 0.89 billion (yoy -14.57%, qoq -7.30%). 24q2non-GAAP net profit reached -0.27 billion (yoy -71.79%, qoq -38.26%), achieving continuous loss reduction. 24q2non-GAAP operating profit was -0.28 billion, and we expect 24q3non-GAAP operating profit to reach 0.2 billion, which was corrected for the first time.
Advertisement: 24Q2 reached 2.04 billion (yoy +29.54%, qoq +22.11%). The proportion of advertising revenue in total revenue increased from 30% to 33% in the same period last year, effectively driving the company's gross profit increase. Supply side: The steady growth of DAU combined with the continuous integration of commercial products has led to continuous improvement in monetization efficiency. Demand side: As users of Station B mature, consumption capacity is quickly released. E-commerce and digital appliances were the two biggest drivers of advertising growth in Q2. The company's e-commerce has always adhered to the “big open loop” strategy. At this year's “618" B station, it achieved deeper integrated marketing and advertising cooperation with various e-commerce platforms, and also received the budgets of more e-commerce merchants. In “618” this year, e-commerce customer advertisements on Station B increased 300% year over year, and GMV delivery increased by more than 140% year over year.
We expect Q3 revenue to reach 2.1 billion (yoy +27%, qoq +2%).
Live streaming & VAS: 24Q2 reached 2.6 billion (yoy +11.48%, qoq +1.46%). Among them, the increase in the number of paying users for membership, live streaming, and other value-added services is the main driving force. We expect Q3 revenue to reach 2.87 billion (yoy +11%, qoq +12%)
Gaming: 24Q2 reached 1.01 billion (yoy 13.07%, qoq +2.50%). Mainly due to the increase in contributions to “Three Kingdoms: Desiring the World”. We expect Q3 revenue to reach 1.85 billion (yoy +87%, qoq +84%).
The performance of the company's new game “Three Kingdoms: Determining the World” exceeded expectations, driving high game growth; supply-side advertising traffic increased, adload increased, and demand-side users grew older and commercialization capabilities unleashed. The live streaming business continues to transform subscribers and users, and the growth is superior to the industry level. We expect the company's revenue for 24-26 to be 26.8/30/31.7 billion yuan respectively (the original forecast value was 25.7/28.7/30.8 billion yuan, as the game “Three Kingdoms: Designing the World” exceeded expectations and raised the revenue forecast). Based on a comparable company's 24-year adjusted average PS average of 2.0x, the target price is 141.07HKD (128.76CNY), and the exchange rate is HKD/CNY=0.91, maintaining the “buy” rating.
Risk warning
User growth falls short of expectations; cost control falls short of anticipated risk