Continue to maintain the "overweight" rating of Phoenix New media stocks

The following is a summary of the contents of the report:

Phoenix New Media 2013 fiscal year quarter performance was very strong, mainly thanks to the excellent performance of the advertising business. With optimism in the first half of the year and a sluggish growth in paid services, we believe the Phoenix New Media's revenue portfolio will continue to move towards advertising, which will boost profitability over the next 6 to 12 months. This will also offset, to some extent, the negative impact of this year's investment plans (research, development, marketing and mergers), which we expect will be rewarded in the next 2 years. Therefore, we continue to maintain the Phoenix new media stocks "overweight" rating.

The quarter was strong: based on non-US GAAP, diluted earnings per share were 32% higher than our expectations, 33% higher than the average estimate of analysts surveyed by Bloomberg. This is mainly thanks to the strong growth of advertising revenue.

Phoenix New Media and Phoenix TV long-term synergy: A core advantage of Phoenix New Media is from its parent company Phoenix Satellite TV's unique news related content. After Phoenix New Media CEO Liu Yan was appointed Phoenix Satellite TV COO, we expect the two sides will have more integration in content and sales in the next year to two years. Content consolidation is expected to start in the next 1-2 quarters.

User base diversity: Phoenix New Media portal users are usually high-end users (high pay, high education). Phoenix New Media this year will launch a new strategy, through content investment and independent authoring to promote user diversification. We anticipate that the strategy will help Phoenix new media to win entertainment market users.

Paid services slump: Despite the structural decline in mobile value-added services, we expect Phoenix's new media payment services to continue to grow modestly, given the good working relationship with operators and 4G business.

Valuation: We continue to maintain the "overweight" rating of Phoenix's new media stocks, raising the target share price from $15 trillion to $16.