FENG: JPMorgan research comments
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Phoenix New Media Ltd (FENG US)
Extending strengths in news service to mobile
Overweight
Price: $7.35
24 Feb 2015
Price Target: $12.00
PT End Date: 31 Dec 2015
Phoenix New Media recently announced a US$57.6m strategic investment in Particle (US$30m for 21% new shares and US$27.6m for a 13.8% stake from existing shareholders). Particle operates Yidian Zixun, a personalized mobile news aggregator (similar to Flipboard) that sees fast-growing popularity among the Chinese audience. Upon the completion of the deal (expected in 2Q15), Phoenix will become the largest shareholder of Particle, with a 46.9% stake, along with Xiaomi, one of Yidian’s earliest investors.
· We view this as a long-term strategic effort to extend PNM’s leading position in news and lifestyle information from PCs to the mobile Internet space. Riding on the high-quality in-house content from PNM and the growing distribution power of Xiaomi, Yidian is likely to become a competitive player in personalized news aggregation service, in our view, in which Jin Ri Tou Tiao, or Today’s Headlines, is the current market leader, with over 10m DAU. However, we do not expect the monetization of Yidian Zixun to ramp up meaningfully in the near future and believe Yidian’s main focus will be user acquisition (Yidian had 6m DAU as of Dec-14). In the long run, we see significant monetization potential in Yidian through native ads.
· We expect synergies with PNM’s own news service, as Yidian’s and PNM’s in-house news services are complementary, in our view: (1) PNM is strong at current-affairs-related news, while Yidian covers a wider range of verticals, including fashion, health and finance; (2) the news content offered by PNM is primarily traditional editor-selected content, while Yidian offers customized content based on user behavior and preferences; and (3) we believe Yidian is an ideal platform to integrate PNM’s native marketing solution.
· Xiaomi helps on distribution. Yidian has also reached a strategic agreement with Xiaomi to pre-install the Yidian app on all Xiaomi smartphones and tablets in China. We believe the collaboration with Xiaomi will help Yidian quickly expand its user base in 2015. Our channel checks suggest that Yidian has already been built into Xiaomi 4 smartphones. Yidian is also in talks with Cheetah Mobile, one of Xiaomi’s affiliates, on distributing Yidian’s English version in overseas markets, according to Forbes China.
We are Overweight on Phoenix New Media due to our positive outlook on Yidian’s market positioning and long-term monetization capability, despite short-term financial pressure arising from investments.
