CarGurus, Inc.

CARG Details

CarGurus, Inc. (NASDAQ: CARG) is an online automotive marketplace connecting buyers and sellers of new and used cars. It derives revenue from two segments, viz. 1) Marketplace Subscriptions, from listing of dealer display subscription, and 2) Advertising and Other revenue, from displaying promotions of auto manufacturers and other auto-related brand advertisers. Apart from the United States, the company also operates in the online marketplace under the CarGurus brand in Canada and United Kingdom.

Launching CarGurus Instant Max Cash Offer: On July 30, 2021, CARG announced the launch of CarGurus Instant Max Cash Offer by CarOffer, its 51% held subsidiary, to assist consumers in selling their vehicles completely online to interested dealers on CarOffer's Buying Matrix platform and have them picked up at the location of their choice. The offer, which instantly shows the highest offer available for cars, will initially roll out in Florida, Massachusetts and Texas.

Q2FY21 Results: The company reported a significant increase of 129.84% in total revenue to USD 217.75 million in Q2FY21 (ended June 30, 2021) compared to USD 94.74 million in Q2FY20, primarily due to the YoY increase in total paying dealers as well as the Quarterly Average Revenue per Subscribing Dealer (QARSD), both in the U.S. and internationally. The net income for Q2FY21 was USD 28.05 million, compared to USD 7.13 million in Q2FY20. CARG exited the quarter with cash, cash equivalents and short-term investments of USD 269.64 million and no debt.

Key Risks: The company's primary source of revenue consists of subscription fees paid by the dealers. If a significant number of dealers terminate their subscription with the company, it would adversely affect its business and the results of operations. Furthermore, CARG relies on internet search engines to attract visitors to its websites. If its brand does not appear prominently in the search results, the traffic will decrease, and its business could suffer.

Outlook: As of Q2FY21, the company expects total revenue for Q3FY21 to be in the range of USD 210 million to USD 216 million, with non-GAAP operating income ranging between USD 53 million and USD 57 million. Non-GAAP EPS is estimated to be range from USD 0.30 to USD 0.32.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CARG Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CARG stock surged 26.91% in the past month and is currently leaning toward the higher-end of the 52-week range of USD 19.24 to USD 36.54. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 70.19. We have valued the stock using the EV/Sales Value-based relative valuation methodology and arrived at a target price of USD 27.34. Considering the significant uptick in the stock price, we believe it adequately reflects the strong business fundamentals and recommend a "Sell" rating on the stock at the current price of USD 31.60, up 7.81% as of August 06, 2021, 2:01 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV. 

DouYu International Holdings Limited

DOYU Details

DouYu International Holdings Limited (NASDAQ: DOYU) is a game-centric live streaming platform in China. The company operates its platform on PC and mobile apps, through which users can enjoy immersive and interactive gaming and live entertainment streaming. It derives its revenues through live streaming and advertisement. As of August 06, 2021, DOYU's market capitalization stood at USD 1.18 billion, with 324.41 million American Depository Shares (ADS) listed and outstanding (10 ADS representing one ordinary share).

Termination of Merger: On July 12, 2021, DOYU terminated its merger with HUYA Inc. because of a prohibition order by the State Administration for Market Regulation (SAMR) dated July 10, 2021. Following SAMR's decision, Tiger Company Ltd., a wholly-owned subsidiary of Huya, DOYU, and Nectarine Investment Limited, a wholly-owned subsidiary of Tencent Holdings Limited, terminated the merger agreement dated October 12, 2020. Subsequently, DOYU also terminated its reassignment agreement with Tencent, also dated October 12, 2020. (Note: Tencent is the largest shareholder in both Huya and DOYU).

Q1FY21 Results: The company reported a 5.50% decline in net revenue to RMB 2.15 billion in Q1FY21 (ended March 31, 2021), compared to RMB 2.28 billion in Q1FY20, primarily due to the reversal of paying users' consumption to pre-pandemic levels. Net loss for Q1FY21 was RMB 62.02 million vs. net income of RMB 260.45 million reported in Q1FY20. Average Monthly Average Users (MAUs) in Q1FY21 increased by 21.3% to 191.9 million from 158.1 million in Q1FY20.

Key Risks: The majority of DOYU's user traffic comes from eSports games. Therefore, if it fails to attract users through live streaming of popular eSports games or if game developers/publishers fail to maintain the operation of their online games, it may lead to a decline in the user and streamer base, which can adversely impact the company's financial position.

Moreover, the Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

DOYU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: DOYU stock price has decreased 75.29% and 75.99% in the past six and nine months, respectively, and has breached its previous 52-week range of USD 3.62 to USD 20.54. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 24.16. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 5.42. Considering the significant correction in the stock price, increasing demand for online gaming platforms (as reflected by the consistent increase in MAUs), associated risks, and current valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 3.58, down 1.65% as of August 06, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.