CyberAgent (4751): Backing its Bets by Doubling Up on AbemaTV Investment

Another results season, another better than expected performance from CyberAgent (CA); yet we have seen a 10% decline in its share price following the earnings announcement on October 27. This was for the same reason as experienced in Q3 FY16: the company’s decision to increase upfront investment in AbemaTV. One of the key points PSA takes from this is, however, a positive; that the service must have great potential, for CA to decide to double its investment level to ¥20bil in FY17.  
When we wrote our August 2, 2016 ‘’CyberAgent (4751): A Line-up of Hits’’ report, we were optimistic about CA’s prospects. Three months have passed and our stance remains the same, despite the lacklustre FY17 targets owing to the investment mentioned above.  
In this report we review each of the company’s business segments and reiterate our view that CyberAgent is an attractive investment from a risk-reward perspective.  

Key Points 

• While AbemaTV has had an auspicious start and is likely to continue to trend favourably, we don’t expect the business to break even before FY19. 
• The company’s leading position in the smartphone ad market is likely to be maintained, supported by in-feed ads and video ad sales which we think will increase at a faster rate than the industry overall. 
• CyberAgent’s ability to come up with hit titles, plus its diversified game portfolio, will likely sustain the solid performance of the Game business despite intensifying competition. 
• Profitability is likely to take a hit due to ongoing investment in AbemaTV, but we expect a recovery by FY19 as the Media Business moves further away from the red. However, based on our FY17e OP of ¥34.3bil, EV/OPe is still at a near 18% discount to the sector.