Couple of firms comment on Gmarket (NASDAQ:GMKT) after the Korean internet auction company reported its Q2 results last night:
- Goldman Sachs believes that advertising revenue can grow substantially further given Gmarket collects less than 15% of what NHN achieves, with a user base approximately half as large as NHN's, composed of (they assume) visitors that are less frequent but with a higher propensity to spend, and given some other e-commerce websites generate all their revenue from advertising and listing fees. 3Q07 GMV growth should suffer from the earlier Chusok holiday in 2007, but 3Q07 margins may benefit from no TV advertising campaign and CJ Home Shopping's retreat. GSCO raises their 2007 EPS estimate by 5% to $0.76 and 2008 by 7% to $1.08, delaying the benefits of lower credit card and click-through fees to 2008-2011.
They raise their 12-month target price from $24 based on 24X 2008E GAAP EPS to $28 based on 26X 2008E GAAP EPS. Maintains Conviction Buy List status.
- RBC Capital notes that as expected, nontransaction (advertising) revenue pointed the way toward top and bottom-line upside as GMKT reported solid results for 2Q07. Restructuring of the seller banner advertising platform from a flat CPM to an auction-bidding environment looks to be a success. They believe estimates will continue to head higher as Gmarket executes on its many 2H07 initiatives and nonseller-advertising starts to ramp. Firm maintains Outperform rating and raise target from $26 to $27 as EBITDA/EPS estimates increase by 4%/3% for 2008 and 6%/6% 2009.
Notablecalls: Did you notice GMKT's operating margin going from 11% to 14% quarter over quarter? Or did you notice the high-margin ad revenue up 80% y/y vs GSCO's 50-60% estimate? Management noted on the conference call that GMKT's market share reached a all time high this quarter. Yet the thing is selling at a lower multiple than eBay.
As I have noted in the past, I think GMKT represents an interesting opportunity. I expect to see around 10% upside in the stock today (and much more over the next couple of years).
Disclosure: no position