Since last year, the domestic and global game market has been prospering rapidly and this momentum has continued into the first quarter. From the perspective of global game transaction scale, there were 280 open transactions within the game industry in the first quarter with a total value of US $39 billion, while the total transaction volume in 2020 was only US $33 billion, according to Investgame data.
Because the blooming of the game trading market has gradually affected the stock market, secondary market research institutions have begun to explore the undervalued game stocks.
Recently, Anli released its first coverage research report, giving iDreamSky Technology (1119. HK) a “buy” rating. The target price is HK $7 per share, up to 63% from HK $4.3 per share on June 3.
According to the report, as iDreamSky Technologyhas moved up along the value chain of the game industry and has actively transformed into a game developer, it builds a long-life cycle ecology to form a closed-loop cash flow.
Therefore, its user group is more valuable than those in the same industry. However, relatively speaking, the valuation of iDreamSky Technology is the lowest among its peers. Since iDreamSky Technology is seriously underestimated, it is optimistic about the company’s future valuation.
01. The valuation is seriously undervalued with a potential increase of 65%
In the report, based on the strategy and progress of iDreamSky Technology, Anli has made forward-looking forecasts on the company’s financial and valuation.
In terms of finance, previous iDreamSky Technology’s monthly active users (MAU) and average per user income (ARPPU) have maintained a favorable growth trend. According to Anli’s forecast, in 2021-2022, through strong game channel promotion, iDreamSky will achieve 3% / 5% Mau growth; thanks to the steady progress of medium and heavy games and the high average duration of leisure games, ARPPU’s compound annual growth rate in the same period was 6%.
Based on the above forecast, in 2021-2022, the adjusted net profit of IdreamSky Technology will reach 266 million yuan and 368 million yuan. More importantly, after 2022, as Idreamsky Technology demonstrates and consolidates the synergy between online and offline ecological effects, high customer lifetime value (LTV) and high user stickiness will push the company into a real harvest period.
In terms of valuation, Anli believes that the customer base preserve a great value with the characteristics of high viscosity and high unit price. Because the P/E ratio valuation method can only reflect the short-term profitability of game developers, but incapable of reflecting the long-term user value, Amway adopts a more reasonable multiple of customer lifetime value (LTV) as the pricing index in the report.
By assuming ARPU x Mau = LTV, Anli compares the major companies in the same industry, and finds out that the LTV multiple and MAU market value of Idreamsky Technology are obviously undervalued. Considering the tremendous user base of 138 million players have longer game life cycle and higher average game duration, Anli thinks IdreamSky is seriously underestimated. Based on the LTV multiple of 1.5 times, the target price of IdreamSky Technology is set at HK $7, with a potential increase of 65%.
02. Welcome the stock age and create a long game lifecycle ecosystem
The deep logic that supports the above prediction is the forward-looking strategic layout and good progress of IdreamSky Technology.
Due to the vanishing demographic dividend, the Internet began to accelerate from the era of increment to the era of inventory, and the major giants shifted the competition from seizing users to users’ time. The biggest change in the game industry is the increasing cost of buying customers.
In short, companies that can improve the player lifetime value (LTV) will acquire advantage in the inventory age.
Facing the general trend, iDreamSky is committed to creating a “24-hour entertainment life circle online and offline”. On the basis of the original online format, iDreamSky Technology creates offline game experience scenes and uses the integrated SaaS system tools of Zhongtai incubation in order to open up the online and offline platforms as well as an ecosystem with games as the core.
In this ecosystem, the 138 million users of IdreamSky can enjoy one-stop services including games, game retail, art toy and player social interaction. Such service can achieve “high frequency, long time, and high stickiness” interaction with users. Finally, iDreamSky Technology can obtain lower traffic cost and higher user value.
Meanwhile, according to the needs of users, IdreamSky Technology has built a wonderful “online + offline” game world, which deeply binds players in iDreamSky Technology ecosystem, so iDreamSky Technology has successfully stood out in the inventory era.
Specifically, in terms of games, in addition to business rearranging and strategic focus, IdreamSky Technology focuses on elimination, competitive and medium heavy games. These types of games have the features of high Mau, high ARPU and long LTV, which fit in the ecosystem and is conducive to amplifying user value.
In the aspect of offline, as the offline experiential entertainment store of Tencent and Nintendo, IdreamSky integrates game retail, social gathering and trendy play to meet the diversified needs of generation Z. According to the data, the disposable income of generation Z is 3501 yuan, which is higher than the national per capita disposable income of 2561 yuan. At the same time, generation Z is more willing to pay. The payment rate of mobile games reaches 35.7%, which is the highest among all online consumption.
In 2021, iDreamSky Technology plans to open 30 direct offline stores of “play together” brand in first and second tier cities and plans to open 150 stores in the next three years, covering more cities and players. By setting up experience of console games in offline stores, IdreamSky can attract audience users and establish an online user community to enhance user loyalty. From the multi-dimensional offline to stimulate users to the online game, IdreamSky has formed the whole chain of user services.
It can be seen that iDreamSky Technology continuously improves the construction of the ecosystem around a core long customer lifetime value, and creates a game infrastructure for the stock era. In long run, the ecosystem value of iDreamSky Technology will accelerate. Expanding the imagination space for investors, Anli made a prediction that the company will enter the harvest period after 2022.
Heidi He, Peanutmedia
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