[Click eStock] "AfricaTV Increasing Content Investment, 2Q Earnings Expected to Fall Short of Estimates"

[Asia Economy Reporter Lee Myunghwan] Korea Investment & Securities announced on the 28th that it maintains a buy rating on AfreecaTV but lowers the target price by 23.5% from the previous 170,000 KRW to 130,000 KRW. This is due to expectations that the second-quarter earnings this year will fall short of market forecasts because of increased costs for strengthening content.

Korea Investment & Securities projected AfreecaTV's first-quarter sales this year to be 78.1 billion KRW, up 20.3% year-on-year, and operating profit to be 23.6 billion KRW, up 9.5%. The platform segment is expected to achieve stable growth based on a solid ecosystem and user base, with sales increasing 19.2% year-on-year to 60.4 billion KRW. Advertising revenue is estimated to rise 29.4% to 16.7 billion KRW, with overall growth expected in platform advertising and brand content advertising.

Operating expenses are expected to reach 54.9 billion KRW, up 25.7% year-on-year. This is anticipated to be higher than previous estimates due to contract costs related to the professional gaming team SK Telecom T1 and depreciation expenses for the e-sports dedicated stadium, Colosseum.

Korea Investment & Securities explained that AfreecaTV is currently experiencing a continuous decline in monthly active users (MAU) but is making various investments recently to strengthen content competitiveness. To enhance content, AfreecaTV signed a streaming contract with SKT T1, a professional League of Legends team, and since June, T1’s pro gamers have been broadcasting live on AfreecaTV. In the second half of the year, they plan to invite entertainment PDs and writers to produce original content with BJs and expand the video-on-demand (VOD) business.

Researcher Jung Hoyoon of Korea Investment & Securities said, "Securing popular influencers such as T1 pro gamers and producing original content will be a driving force for strengthening the ecosystem and long-term growth based on it," but also noted, "In the short term, increased costs such as contract fees may negatively impact profitability."

Researcher Jung added, "Although the short-term profitability deterioration due to increased investment is somewhat regrettable, we can expect ecosystem expansion and consequent performance improvement in the long term," and analyzed, "The current valuation at a historically low level of 12.8 times is also attractive."

This content was produced with the assistance of AI translation services.