Phoenix New Media Ltd ADR (NYSE:FENG) opened last week at $2.80 a share. By the close of play on Friday, the company was trading for $4.50 a piece and will open on Monday this week (by way of some pre-market activity). That’s a just shy of 65% appreciation across a five-day period. The stock has flagged up on various screeners on the back of the run and markets are asking the question – what’s next? Can Phoenix continue to appreciate or is the run a short-term bump?
Let’s have a go at answering that question.
For those new to Phoenix, the company is a tech stock that serves content to internet and television users in China. Primarily, the content feed is routed through three channels – what’s called its ifeng.com channel, television channel, and mobile channel, as well as transmits content to TV viewers, primarily through something called Phoenix TV.
For its size, the company is pretty strong from a revenues perspective and it’s this strength that’s driving the gains we’ve seen in market capitalization over the last week or so. The company put out second quarter financials on August 15 and the numbers looked strong. For the period, Phoenix generated revenues of $58 million, which represents a more than 12% growth on the same period a year earlier and puts the company above analyst estimates for the quarter by about $1.5 million.
The vast majority of the company’s top line derive from advertising (as is generally the case for these sorts of technology and media type companies), with the latest quarter bringing in $50 million in net advertising revenues. Again, this was a year over year expansion on previously reported numbers, with the net advertising figure rising in and around 14% on last year’s report. Notably, and as a sub-driver of this growth, mobile advertising revenues grew 66% year over year. Phoenix also reported a slight decline in PC ad revenues, but this is very much on-trend within the industry. Advertising revenues are shifting increasingly towards mobile devices (as users move away from traditional desktop media consumption and towards mobile device based consumption) so that Phoenix is moving in line with this trend illustrates the company’s ability to keep up with the space.
So what comes next and where does our answer to the above-outlined question come into this?
Alongside the most recent financials, Phoenix reported some expectations for the third quarter of 2017. Again, the numbers that the company expects to bring in are up on analyst expectations, so this sets up Phoenix shareholders for another bump as and when the report hits press – assuming the company can hit on its own expectations. Specifically, Phoenix expects to turn out revenues of between $59.3 million and $61.6 million. Analyst estimates put the figure at $59 million, so the larger the discrepancy between estimates and reality, the bigger the surprise and the bigger the jump we’ll likely see when the numbers are reported.
This is a Chinese company and – as what we might see as a hangover from turn of this decade – there’s a degree of stigma surrounding eastern public companies of this type. This stigma often serves up a degree of undervaluation and this, in turn, often leads to this sort of bounce action when the numbers validate expectations.
To answer the question, then, we expect Phoenix to hold onto its recent gains during the coming months and as the third quarter financials get closer we expect to see a degree of speculative loading in anticipation of another upside surprise.
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Image courtesy of Joe Hunt via Flickr
Disclosure: We have no position in FENG and have not been compensated for this article.