Company: Sungy Mobile Limited(NASDAQ:GOMO)
Current Price: 6.73 US$ (10/3/2015)
Target Price: 19 US$
Average daily liquidity:2.12m/US$
What does the company do?
Sungy Mobile Limited(GOMO) is a leading provider of mobile internet products and services globally with a focus on applications and mobile platform development. Sungy Mobile's platform product on Android smartphones and serves as users' first entry point to their phones.
Why the Android smartphone user use the Launcher product?
Smartphone users have become dissatisfied with the limited functionality and performance and the same feel and look of the factory configured launcher of the standard Android smartphones. As a result, these users are attracted to third-party launcher products that can provide them with redefined experience.
How does the company operate into its industry, both positively and negatively
For the positive side:
The GOMO Go launcher as the mobile entrance point.
We view launcher as a potential entry point for smartphone usage because it is the function layer app that is the first touch point of users and it is "always-on".
For the negatively side:
1): the company face high intensify competition.
2): Because the Android operating system provides the low level, basic functions of smartphones, so if the Google provide better Android operating system that will lead the launcher demand reduce.
3): the GOMO still need to find a way to balance the user experience and monetization.
How the GOMO make money?
What are the Key drivers for profitability?
1) User: how to attract new user
As the launcher product characteristic decide that the user use it and not easy delete the software. So how to attract new users is key challenge.
From the macro view, the new user amount based on the Android smartphones market growth.
From above figures, we can make sure one thing that the smartphone market and Android smartphones will growth in the future
the ranking of the company, measured by the overall global downloads, actually climbed from no.7 in March to no.5 in June.
The MAU and accumulated number of users still keep y to y growth. But the MAU was a slight decline on a quarter-over-quarter basis. The GOMO CEO said that they are now shifting GOMO main focus from monetization to further improve GOMO portfolio products functionality and user interface.
2: Monetization process and potential
GOMO's series of mobile products will benefit from mobile traffic competition to improve sell-through rate, ad pricing and monetization model.
Monetization depth off its traffic base is still at low level for GOMO, compared with other major mobile traffic platforms. If we use mobile revenue/MAU as a metric to gauge monetization intensity, GOMO's level is way below what other major mobile platforms achieved.
As the smartphone entry point, the company can find many ways to make money from the user.
How do you value the company?
Our target price : US$19 is based on 24x 2015E P/E
Compare the GOMO with other Leading mobile platforms
Company P/E EV/EBITDA
2014E 2015E 2014E 2015E
Tencent 33.6 26.6 24.3 18.9
Baidu 24.5 19.1 18.5 14
Qihoo 34.8 21.8 25.5 14.8
Facebook 48 36.6 20.6 16.2
GOMO 20.45 8.42 9.56 6.37
Why do you see value that the market doesn't?
There were several reasons led the GOMO stock price down in these days.
1) : The GOMO 2Q2014 financial result below the analysts estimate and net margin fall 70%.
2) : The GOMO 2Q MAU was a slight decline on a quarter-over-quarter basis
3) : The recent resignations of several key executives included company CFO
4) : TrinityResearch report : GOMO A No-Go (https://seekingalpha.com/article/2449365-sungy-mobile-q2-14-earnings-preview-gomo-a-no-go).
But I see some value that the market doesn't see.
1: the GO product still keep attract to the new user,
You can see the picture I caught from the Google play. I think the Go user number is true.
2: The Company underestimate the GOMO existing users' value and cash and cash equivalents amounting provide enough safe margin.
The company holds cash and cash equivalents amounting to $3.66 per share, and the 10/05/2014 close price is $6.73 per share. The cash and cash equivalents amounting provide enough safe margin.The GOMO MAU was 96millions. And the per user value is :$1.17(112.2millions/96millions) . This value is far below the other competitors like Fackbook,91 wireless
3: GOMO's literature product revenue decline is a short-term problem.
The Chinese carriers led a major coordinated crackdown on content providers and were understandably quite tough on porn. From the history view, the central government effort to purge the Chinese internet is not a new action. Similar action also happened in the 2004 and 2009. So I think the GOMO's literature product revenue decline is a short-term problem.
4: Total revenues for the second quarter of 2014 increased by 25.2%, although the Revenues from mobile reading services decline 28, 75%.
Although Revenues from mobile reading services, which contributed about one third of FY 2013 revenue, declined 28.75% in the 2Q2014. But the Total revenues for the second quarter of 2014 increased by 25.2%. The company has found a new way to increase its revenue.
5: The marketing exaggerated the influence of the recent resignations of several key executives included company CFO.
If you look at the GOMO ex-CFO resume, you can find that he joined the company in the 2013. His aim was the GOMO IPO and now, he had completed it. I think his resignation will not hurt the GOMO long-term competitiveness.
Risks to your stock recommendation
1：Intensify competition both in domestic and overseas markets: GOMO also faces potential competition both in domestic and overseas markets. .
2: Balance between monetization and user experience
3: More and more smartphone manufactures install their own ROM and Google also propose better optimization system. Those will reduce the Go series product demand.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.