Phoenix New Media Down Almost 10% On Deutsche Bank Downgrade

Phoenix New Media Limited’s FENG stock is down almost 10 percent on Monday, to around $7.65, after Deutsche Bank downgraded it from Buy to Hold on a rising risk profile. In a report published Sunday, the firm trimmed its 12-month price target of $8.20 (when the stock traded around $8.50), “based on PEG, non-GAAP 2014 EPS and 14-16E CAGR. We [the analysts] apply a lower PEG of 0.8x vs prior 0.9x on FENG’s lack of visibility in rev growth and margin pressure.”

According to the report, the research firm sees the company’s mobile transition as troublesome: “Despite representing one of the premier online media properties in China, we believe FENG faces growing obstacles going forward, from different news consumption behaviors in mobile (eg -Weixin as a popular means of following newsflow) to the possibility that the anticipated Cyber Law will lead to a clampdown on online media.”

As Phoenix New Media faces increasing competition in the mobile segment, it is forced it to intensify its investments, thus pressuring margins. The report states: “FENG is planning to spend more heavily on mobile, including display ads, smartphone pre-install, and other types of promotions, in order to build up its mobile user base. We thus expect heavy margin pressure this year.  We cut FY15/16E net profit by 21%/14% to reflect margin pressure, and cut rev by 0%/3% to reflect lower than expected ad rev growth.”