4Q23 total revenue grew by 3% YoY/ 5% YoY on constant currency to US$464m, above consensus/ BOCIe. Healthcare, eCommerce and game verticals were strong while FMCG, cosmetics and personal care categories were relatively weak. Adj. OPM was 31.5%, in line with BOCIe. We expect macro uncertainties, intensified competition among verticals and online ad platforms, prolonged marketing budget transitions for key discretionary advertisers and forex impact will weigh on Co.’s N-T topline and bottom line performances. Moreover, we see limited novel monetisation opportunities for L-T growth given Co.’s strategies, macro and competitive landscape. Downgrade to HOLD and cut our TP to US$10.0/ HK$79.0 on 6.0x 2024E adj. EPADS.
　　Key Factors for Rating
　　Prolonged N-T pressure on core ad recovery; lack of L-T monetisation imaginations. We believe Co. will continue to execute their channel, product, content ecosystem, traffic mechanism and monetisation strategies. While we expect i) prolonged macro uncertainties; ii) fierce competition among key verticals and online ad platforms; iii) marketing budget shift of key discretionary advertisers towards transaction-oriented channels on inventory clearance; iv) deepened collaborations among key Internet giants; and v) forex impact will weigh on Co.’s N-T ad performances given Co.’s brand-oriented mindshare among key advertisers. Moreover, we see limited novel growth engines that will unleash Co.’s mid to long-term monetisation ceilings. Thus, we trim our 2024- 2025E online ad revenue forecasts by -10%/-11% respectively. We currently estimate that 2024E online ad revenue will drop by -2% YoY with consecutive QoQ rebound benefitted by eC festivals in 2/4Q24 and Olympics in 3Q24.
　　Op deleverage and committed investments dampens bottom line. We see Op deleverage on lower revenue forecasts and necessary investments of channels, content and infrastructures will drag Co.’s bottom line given their commitment to solidity competitive edges and improve competitiveness among key content verticals. Thus, we cut our 2024-2025E adj. EPADS forecasts by - 26%/ -28% by largely keeping our opex estimates unchanged.
　　4Q23 better ad recovery; US$200m special cash dividend. Total revenue of US$464m (up 3% YoY/ 5% YoY on constant currency basis), 2%/ 1% above consensus/ BOCIe. Core online ad rebounded back at positive 3% YoY to US$404m, with Non-Alibaba and Alibaba ad revenue delivering 3% YoY and 6% YoY respectively. Regarding verticals, healthcare, eCommerce and game verticals delivered decent YoY growth while FMCG including food and beverage, cosmetics and personal care were still under pressure. D/M ratio was stable both YoY/ QoQ at 43.0% with both MAU/ DAU experienced slight -1% QoQ decline. GPM remains flattish QoQ at 78.4%, above consensus. Non-GAAP OPM was 31.5%. Co. announced a US$200m special cash dividend.