iDreamSky Is Falling From This Downgrade

Shares of iDreamSky Technology Ltd (ADR) DSKY are plummeting on Wednesday, after analysts at J.P. Morgan downgraded the stock from Overweight to Neutral.

They also trimmed their price target from $24 to $9 on "higher-than-expected operation risk leading to even lower visibility."

Just recently, the company reported sluggish quarterly results.

This significant miss in results and guidance in the second quarter after its IPO indicate that the risks implied were higher than expected, "which leads to even lower visibility for future growth trajectory on top of a business [mobile game publishing] with a hit/miss nature."

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Management attributed the weak financial results to 1) underperformance and delay of games, and 2) technical issues of billing codes.

In light of these results, J.P. Morgan revised its 2015 and 2016 earnings forecasts by 41 percent and 49 percent, respectively. They now expect non-GAAP EPS of $0.86 for 2015, and $1.15 for 2016.

The $9 price target implies a 2015E P/E of 11x and 2016E P/E of 8x.