In a report published on May 12, 2015, Tuesday, Rosenblatt analysts reiterated their Buy rating on iDreamSky Technology Ltd (ADR) (NASDAQ:DSKY), as well as the price target of $11.
Earnings Preview: Everything on Track, Reiterate Buy
Analysis from the Rosenblatt Securities Team goes as follows:
- DSKY will report their Q1 earnings later this month and we believe Q1 results will be strong due to promotions on several games during the Chinese New Year, including Ninja Fruit and Temple Run.
- We are slightly adjusting downward our Q2 revenue and EPS estimates due to China Mobile’s temporary suspension of its billing system in several provinces. But we think the several new games launching in Q2 will offset some of those negative impacts. We believe China Mobile cracking down on illegal games will be positive for DSKY over the long-run.
- We have $0.94 and $1.57 EPS estimates for 2015 and 2016, respectively, and we are maintaining our $11 price target on DSKY, based on 12x PE of 2015 EPS and 7x PE of 2016 EPS.
We think that although China Mobile’s billing policy on mobile games will temporarily affect Q2 results by around 5-6%, the clean mobile game market will be positive for iDreamSky, as there will be less competition for Ninja Fruit and Temple Run from pirated games. iDreamSky launches several new mobile games in May, which will partially offset China Mobile’s billing policy impact. We believe the company still has a strong pipeline for new games launching in the next few months.
We are reducing our revenue and EPS estimates by ~5% for Q2 and maintaining our estimates for Q3 and Q4. We think current annual estimates for 2015 are reasonable. If the company can manage street expectations well, the stock should have some upside from here.
Our conservative valuation on the stock is mostly attributable to uncertainty of margin improvement over the next few quarters. If DSKY’s gross margin remains at a 40% level and operating margins continue to improve, we believe there will be upside for the P/E multiple on the stock. (Original Source)
Shares of iDreamSky Technology opened today at $8.3 and are currently trading up at $8.67. DSKY has a 1-year high of $25.95 and a 1-year low of $6.64. The stock’s 50-day moving average is $8.65 and its 200-day moving average is $12.73.
On the ratings front, iDreamSky Technology has been the subject of a number of recent research reports. In a report issued on March 23, Piper Jaffray analyst Gene Munster reiterated a Buy rating on DSKY, with a price target of $12, which implies an upside of 44.6% from current levels. Separately, on March 16, Stifel Nicolaus’ George Askew downgraded the stock to Hold .
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Gene Munster and George Askew have a total average return of 27.0% and 21.7% respectively. Munster has a success rate of 70.3% and is ranked #1 out of 3604 analysts, while Askew has a success rate of 53.3% and is ranked #313.
iDreamSky Technology Ltd through its subsidiaries is engaged in the licensing and operating of single player mobile games and mobile online games in the People’s Republic of China.