Focus Media’s third-quarter revenue meets expectations; lower gross margin weighs on profit

Where did revenue and profit differ from expectations?

Focus Media’s third-quarter revenue in 2026 was 3.19 billion yuan, down 9% year over year and up 4% quarter over quarter. It was 1% above Morgan Stanley’s forecast and 1% below the market consensus, broadly meeting expectations.
Reported net profit was 1.35 billion yuan, down 14% year over year, 1% above Morgan Stanley’s forecast but 4% below the market consensus. Adjusted net profit was 1.3 billion yuan, down 16% year over year and 3% and 8% below the bank’s forecast and the market consensus, respectively.

Third-quarter gross profit was 2.26 billion yuan, down 13% year over year and up 2% quarter over quarter. It was 3% and 4% below Morgan Stanley’s forecast and the market consensus, respectively.
Gross margin fell to 70.7%, down 3.4 percentage points year over year and 1.5 percentage points quarter over quarter, below the bank’s forecast of 74.0% and the market consensus of 72.9%. Although revenue rose quarter over quarter, the decline in gross margin resulted in a smaller increase in gross profit.

Third-quarter operating expenses were 733 million yuan, down 18% year over year and 12% and 8% below Morgan Stanley’s forecast and the market consensus, respectively, cushioning the impact of gross profit falling short of expectations.
Operating profit was 1.53 billion yuan, down 10% year over year and up 4% quarter over quarter. It was 2% above the bank’s forecast but 2% below the market consensus; operating margin was 47.8%, unchanged quarter over quarter.

Morgan Stanley gives Focus Media an Equal-weight rating and a target price of 6.00 yuan per share. Its base case uses a 2027 forward price-to-earnings multiple of 16 times, in line with the historical average over the past five years.
The bank believes the recent macroeconomic environment is more reflective of the outlook and expects the company’s earnings growth to be relatively modest. Variables affecting its assessment include the pace of recovery in consumer and advertiser confidence, expansion in overseas and small and medium-sized enterprise markets, and competition in the elevator advertising market.