Maintain a buying rating for the Phoenix New Media stock

The following is the full report:

Quarterly results exceeded expectations and may be adversely affected by seasonal factors in the first quarter

Phoenix New media revenue for the quarter of 400 million yuan, an increase of 32.4%, compared with the Deutsche Bank forecast and analyst average expectations of 6% and 7% respectively. Among them, net revenue of advertising business grew 36.7% year-on-year, and paid service revenue grew 24.9% year on year. The number of advertisers increased to 349, while the average revenue per advertiser (ARPA) grew 25% to 800,000 yuan. Gross profit margin of 4.8%, better than Deutsche Bank's expectations, this is mainly due to the advertising business to increase the revenue contribution, resulting in lower revenue-sharing costs. Operating profit is 71 million yuan, 22% higher than Deutsche Bank's expectations. Non-US GAAP net profit is 92 million yuan, 35% higher than Deutsche Bank's expectations, mainly due to higher share-price and government tax rebates. Company management estimates that the total revenue in the first quarter of 2014 will be 340 million to 351 million yuan, the chain down 12% to 15%, advertising business net revenue of 230 million to 235 million yuan, paid service revenue of 110 million to 116 million yuan. The decline was mainly due to the impact of the Chinese New Year holiday.

Advertising business Development Momentum continues

In the quarter, the portal was still the biggest driver of revenue growth. We also see significant growth in video and mobile advertising revenues. The car remains the largest vertical channel, accounting for 32% of total advertising revenue. We expect that in the 2014, the industry will be more active and have a large advertising budget potential. Company management wants to work with advertisers to provide a converged platform and one-stop solution. We expect strong growth in advertising revenue to continue in 2014.

The increase of advertising price and advertising position

January, Phoenix New Media will increase the price of advertising 15%. We expect the company to carry out another price increase in July, bringing the total price increase to 15% to 20% in 2014 years. At present, Phoenix New media advertising thousands of display costs (CPM) relative to the same industry companies exist 30% discount, after the price of the discount will still exist. We believe that the new advertising position will bring huge growth potential. Through joint ventures with real estate agents, the Phoenix New Media portal launched the real estate channel. We anticipate that the 2014 Phoenix New media will provide more content around food, travel and mother and child, resulting in greater flow.

Raise target price to 16.2 dollars

We will increase the Phoenix New media in the 2014, 2015 and 2016 of fiscal year, the net profit forecast increases by 10%, 5% and 7% respectively to reflect the strong growth momentum of advertising revenue. Therefore, we will raise the target price of Phoenix New media to 16.2 U.S. dollars. Among them, the market surplus growth ratio (PEG) is 0.9 times times, 2014 non-US General accounting standards earnings per share is expected to be 0.74 U.S. dollars, 2014-2016 annual compound growth rate of 24%. The target price is equivalent to 22 times times the 2014 forward earnings ratio. We believe that 0.9 times times the peg is reasonable, in the middle of the valuation of China's web portal companies. Maintain a "buy" rating. Key risks include: macroeconomics, the commercialization of video and mobile services.