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Nomura hikes AutoNavi PT: valuation of business is based on MAUs, not financials

  • Nomura hikes AutoNavi's (AMAP) PT to $19 from $17 following the company's lackluster financial results in Q3. The 6% Y/Y revenue decline should be understood in the context of AutoNavi's transition to offering its map app for free as it attempts to build a critical mass for its product, Nomura believes.
  • Under that framework, the quarter was a success, as Monthly Active Users grew 31% Q/Q to 85M. The torrid expansion was an acceleration from Q2's 16%.
  • Nomura values AutoNavi by applying peer average valuations per MAU (and a 40% haircut) to AutoNavi's user base. The firm thinks AutoNavi could grow MAU to 200M by 2015.
  • Meanwhile, Baidu has begun to pay handset makers to pre-load its own mapping app, while AutoNavi is trying to bundle pre-installs with partner apps (like Alibaba's). The pre-install market is split roughly 50:50 between Baidu and AutoNavi, with the situation rapidly "becoming a 'two-player' market and growing increasingly difficult for other players to compete," Nomura writes.
  • Investors agreed with Nomura's take on AutoNavi's Q3 results yesterday, sending shares up 8.1%.
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