ZEEKR shares target cut by BofA on higher-than-expected operating expenses

On Thursday, BofA Securities adjusted its outlook on ZEEKR Intelligent Technology (NYSE:ZK) shares by reducing the price target to $26 from the previous $30, while still holding a positive stance with a Buy rating. This follows the company's announcement of its second-quarter financial results for 2024 on August 21.

ZEEKR reported a significant year-over-year (YoY) and quarter-over-quarter (QoQ) increase in total revenue, reaching 20 billion RMB, which marks a 58% rise compared to the same period last year and a 36% increase from the previous quarter.

The gross profit margin (GPM) also exceeded expectations, landing at 17.2%, a notable improvement from the forecasted 12.6%. This increase was primarily attributed to the higher battery and component sales GPM.

The company anticipates that the GPM for its battery business will stabilize between 10% and 12% in 2024. Meanwhile, the GPM for vehicles was reported at 14.2%, showing marginal gains both YoY and QoQ.

The year-over-year improvement was linked to a reduction in procurement prices, while the quarter-over-quarter gain was due to changes in the product mix.

Operating expenses (OPEX) as a percentage of sales were recorded at 26.1%, which is an increase of 2.4 percentage points YoY but a slight decrease of 0.2 percentage points QoQ.

This figure was higher than the anticipated 22.0%, mainly because of share-based compensation expenses following the company's initial public offering (IPO).

However, ZEEKR's financial performance also highlighted some challenges, with a non-GAAP net loss of 1.2 billion RMB. This result did not meet expectations and was 36% greater than the estimated loss of 0.9 billion RMB.

InvestingPro Insights

As ZEEKR Intelligent Technology (NYSE:ZK) navigates through its financial journey post-IPO, the real-time data from InvestingPro provides a deeper understanding of the company's market position. With a current market capitalization of approximately $4.17 billion, ZEEKR's scale within the Automobiles industry is considerable. Despite a challenging financial performance, as indicated by the non-GAAP net loss reported, the company's revenue growth has been robust, with a 60.46% increase over the last twelve months as of Q1 2024. This growth trajectory is further emphasized by a quarterly revenue growth of 70.95% in Q1 2024.

InvestingPro Tips highlight ZEEKR's high shareholder yield and significant return over the last week, which may interest investors looking for short-term gains amidst price volatility. However, analysts are cautious, as they do not anticipate the company will be profitable this year, and the company's short-term obligations exceed its liquid assets. For those considering an investment, understanding these dynamics is crucial. The InvestingPro platform currently lists several additional tips, providing a comprehensive analysis for potential investors.

It's also worth noting that the stock has experienced a significant price drop over the last three months, with a 36.68% decrease in total return, reflecting the market's reaction to various challenges faced by the company. Yet, the InvestingPro Fair Value estimate of $18.42 suggests a potential undervaluation compared to the analyst target of $32.97. This discrepancy could signal an opportunity for investors willing to tolerate the associated risks.

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