Mobvista is the world's leading AI-driven third-party advertising technology company which benefits substantially from the going global trend of Chinese internet industry. The overseas transaction environment is different from that in China. In addition to big media channels, medium- and long-tail traffic channels also have great value. Third-party advertising platforms based on AI technology and vertical advantages often have better return on investment (ROI). In 2021, its core business, Mintegral, ranked among the world's top four in terms of comprehensive advertising retention across all categories. We believe that the Company has both short-term performance certainty and long-term growth potential. In the short term, it will benefit from the expansion of traffic categories and the opportunities brought by transactions in overseas expansion by domestic mobile applications. And the Company also expects Mintegral to achieve revenue of US$1bn in 2022 (+74% YoY). Recovered from the reputational attack by overseas competitors in 3Q20, Mobvista has accumulated technologies and built new business resilience. In the long run, it aims to build a Software as a Service (SaaS) product ecosystem based on enterprise marketing and cloud computing operation and maintenance, providing customers with full-cycle solutions before, during and after marketing to improve customer stickiness and life-time value. We are optimistic about the Company's long-term development strategy based on data and AI technology to empower business growth and link the global market. We give the Company a target price of HK$8.0 and initiate coverage with a “BUY” rating.
Company overview: A global leader in third-party advertising platforms
Mobvista is a technology service company based on internet ecosystem. It mainly provides marketing technology services and cloud computing technology services and has built an integrated service matrix covering statistical analysis, advertising monetization, cross-channel delivery, programmatic creativity and cloud computing optimization management. Its core business Mintegral, a brand of programmatic advertising, is developing rapidly. It ranked fourth in both iOS and Android platforms in the global all-category retention strength list released by AppsFlyer in 2H21, making its way to tier-one global advertising technology providers (the only one in China). In 2019/20/21, the Company achieved revenue of US$500mn/520mn/760mn (+15%/+3%/+46% YoY) and adjusted net profit of US$40.95mn/8.98mn/ -3.95mn, respectively. Mintegral’s revenue and profit growth in 3Q20 was affected by public opinion attacks from western competitors, but the revenue and gross profit margin recovered in 2H21 and even exceeded prior levels. We believe that after the incident in 3Q20, Mobvista’s further investment in algorithms, data privacy protection and other fields will equip the business with more solid technical capabilities and more resilience. With the recovery and expansion of its traffic and customers, driven by the broadening of categories and the overseas expansion trend, the Company will resume strong growth.
Industry overview: Programmatic advertising is the general trend, and third-party platforms benefit from the post-IDFA era.
According to eMarketer, the global programmatic advertising spending in 2021 was about US$155bn (+20% YoY), with a penetration rate of 81% in global digital advertising which may increase to 85% in 2025. With advantages of monitoring, high efficiency and low cost, programmatic advertising is becoming the mainstream way of advertising. The distribution platform landscape is affected by identifier for advertising (IDFA), which benefits third-party platforms substantially. With the launch of IOS 14.5, as of the end of 2021, about 48% of iOS devices become unable to track IDFA. The large media platforms that relied on long-term user portrait data in the past were significantly affected, while Mintegral and other platforms based on recommendations of user context information have benefited remarkably. According to AppsFlyer, in the iOS game in-app advertising (IAP) index list in 2H21, the performance rankings of big media platforms represented by Google Ads and Meta Ads have declined to varying degrees, while the rankings of third-party platforms such as Applovin/Mintegral have moved up three/four places, respectively.
Core business Mintegral: AI-driven advertising technology platform, continuously benefitting from overseas expansion of Chinese internet companies.
Mintegral is an AI-driven programmatic interactive advertising platform that provides global user growth and monetization services for mobile apps by aggregating fragmented mobile traffic ecosystems. As of 2021, the Mintegral platform’s revenue reached US$580mn (+88% YoY). Net dollar retention of customers with revenue of over US$0.1mn reached 185%. The Company aims to achieve revenue of US$1bn in 2022 (+74% YoY). The growth of platform revenue is mainly driven by the expansion of vertical categories and the opportunities brought by the going global trend of Chinese internet industry. In terms of vertical category expansion, about 66% of Mintegral's revenue comes from light game. In the future, systems based on business data such as Reyun are likely to drive the expansion of heavy games, ecommerce and other categories. In terms of market expansion, according to iResearch, the market size of China's overseas digital marketing industry is likely to reach US$50.2bn in 2025, with a CAGR of 19% in 2021-25. Mintegral, as the only Chinese platform among the top five platforms with global retention strength, has about 94% of the traffic distributed overseas, and the Company is likely to continue to benefit from the trend.
Long-term strategy: From AdTech to MarTech, build a SaaS matrix ecological flywheel.
Focusing on the core brand Mintegral, Mobvista has continuously improved its full-stack marketing technology products with advertising technology as its core through acquisitions (Reyun Technology, etc.), commodification of mid-end technologies (SpotMAX, EnginePlus, etc.), providing full-cycle solutions before, during and after marketing in terms of data analysis, user growth, statistics attribution, traffic monetization, and cost optimization. We believe that although the commercialization of the Company's new SaaS products is still in the preliminary stage, and considering the continuous improvement of the its SaaS matrix, the Company is likely to expand from the acquisition of corporate advertising budget to corporate marketing and cloud computing operation and maintenance budget through cross-marketing and up-selling so as to increase customer stickiness and customer lifetime value,and bring long-term valuation increments.
Potential risks:
Less-than-expected revenue from vertical business; continuous reduction of gross profit due to intensified market competition; loss of important customers; goodwill impairment; supervision on user privacy data.
Investment advice:
Mobvista is the world's leading third-party advertising technology company and will likely benefit continuously from the expansion of application categories and the going global trend of Chinese internet companies in the short term. In the long run, the Company will benefit from full-link SaaS matrix covering data analysis, user growth, traffic monetization, data supervision and so on. We forecast 2022E/23E/24E revenue of US$1.17bn (+54.4% YoY)/1.62bn (+39.2% YoY)/2.07bn (27.4% YoY), and adjusted net profit of US$21mn/67mn/127mn. Based on the average valuation of 22x 2023E PE for Applovin (APP.O) and Unity Software (U.N) as comparable companies, we assign the Company 25x 2023E PE to derive a target price of HK$8.0 and initiate coverage with a “BUY” rating.