With the ability to release games across the entire network, TapTap achieves a record high in monthly active users, while XD INC turns its overall loss into profit in the first half of 24H1

According to the information obtained from Zhitong Finance APP, on August 30th, XD INC (02400) released its mid-term performance for 2024. In the first half of the year, the revenue was RMB 2.22 billion, a year-on-year increase of 26.7%; gross profit was RMB 1.5 billion, a 44.3% increase; net profit for the period was RMB 250 million, a 143.8% increase. The company as a whole achieved a turnaround from loss to profit.

In terms of specific business data, the monthly active users of TapTap China reached a new high since the company's listing in Hong Kong at the end of 2019, reaching 43.24 million, a 27.3% increase; TapTap platform business revenue was RMB 730 million, a 21.7% increase.

The company's game business revenue in the first half of the year was RMB 1.49 billion, a nearly 30% increase. The announcement stated that the increase in game business revenue was mainly attributed to the launch of "Sword of the Bellflower" and "Let's Go, Muffin" in China at the end of last year and the first half of this year.

The fundamental turnaround in business and strengthened "profit-making ability" were the main factors for XD INC to achieve a turnaround from loss to profit in the first half of this year. Compared to simply achieving this goal by "cost reduction", this is a healthier and more sustainable way.

The first half of this year also marked a significant growth period for both TapTap business and game business since the company went public. As a game company with both platform and self-developed businesses, in the context of the stabilization and improvement of industry macro policies, the company has a better chance of benefiting from the combined advantages of industry and its own business rebound.

Business Turnaround and Future Growth

With the confirmation of the continued significant improvement in the company's business, the market is more concerned about XD INC's future growth prospects. The announcement also provided some clues -

In terms of self-developed business, the performance of "Heartbeat Town" launched in July this year was not reflected in the financial report for the first half of the year. The announcement stated that "Heartbeat Town" was launched in the mainland Chinese market and was well-received, with over 25 million downloads in the first month.

Third-party data shows that since the launch of "Heartbeat Town", it has consistently ranked in the top five on the iOS overall list, and has sparked hot topics on social media platforms such as Douyin, Xiaohongshu, and Kuaishou. Videos related to "Heartbeat Town" have received nearly 7 billion views on Douyin. In addition, "Sword of the Bellflower" was launched in the US, Japan, and South Korea on August 1st; "Let's Go, Muffin" is also expected to be launched in Japan and South Korea in September.

The announcement also revealed that the company currently has 3 self-developed works in the research and development stage.

Regarding TapTap, the announcement stated that the release of "Heartbeat Town" closely cooperated with TapTap, bringing a large number of new users and broader brand awareness to TapTap; in the first half of the year, the company limited the ad loading rate on TapTap and made the ad system more simple and transparent. Although this may have a slight adverse impact on advertising revenue in the short term, it is conducive to improving user experience and achieving long-term sustainable development.

The above information indicates that in the second half of this year, the company will continue to focus on game business with the launch of "Heartbeat Town", "Sword of the Bellflower", and "Let's Go, Muffin" in Japan and South Korea, while the user activity on TapTap China remains optimistic, actively limiting the ad loading rate to enhance long-term user experience, rather than pursuing short-term performance gains at the expense of long-term interests Cost Reduction and Efficiency Enhancement in Progress

Despite the stabilizing industry conditions, "cost reduction and efficiency enhancement" remains a high-frequency theme for major gaming companies. In XD's semi-annual report for the 24th year, the results of "cost reduction and efficiency enhancement" were also presented.

In terms of revenue costs, compared to a year-on-year growth of 26.7% in company revenue, revenue costs only increased slightly by 1.1% year-on-year;

Research and development expenses decreased by 20.5% year-on-year to 420 million yuan, with the number of research and development personnel decreasing from 1143 in the same period last year to 997 by the first half of this year;

Although sales and marketing expenses increased by 110.4% year-on-year, this was mainly due to the promotion and advertising expenses of new games "Setting Off Muffin" and "Sword of Rurin," as well as the marketing expenses of TapTap China.

Overall, with necessary game promotion expenses and marketing expenses for TapTap off-site promotion, XD effectively controlled other major project expenses in the first half of this year, leading to a certain degree of improvement in research and development efficiency.

This resulted in a 44.3% year-on-year increase in the company's overall business gross profit, with a gross profit margin reaching 67.4%, higher than the gross profit margin level of the same period last year.

The outbreak of self-developed business also drove the improvement in gross profit margin level. The announcement stated that the revenue increase of self-developed games such as "Setting Off Muffin," "Sword of Rurin," and "Torchlight: Infinite" (the gross profit margin of self-developed games is generally higher than that of licensed games) helped improve the gross profit margin of the company's game division from 47.3% in the same period last year to 59.9% in the first half of this year.

TapTap's Publishing Ability Effectively Reaches All Network Traffic

At the TapTap Annual Developer Salon held at the end of July this year, CEO Huang Yimeng stated in his keynote speech that TapTap currently has the ability to cover off-site network promotion and advertising, which can help all developers. In the future, the company hopes to expand cooperation and attract more developers to try.

He further explained at the time that the success of "Setting Off Muffin" and "XD Town" is inseparable from the win-win cooperation with TapTap. This help and support is not about TapTap giving game traffic at all costs, but about TapTap's exclusive games not only being played by TapTap's on-site players. On the contrary, XD now has the ability to help these exclusive games achieve full network coverage on social media platforms such as Douyin, Kuaishou, and Xiaohongshu, allowing game products to have more off-site exposure.

In addition to the two self-developed games by XD mentioned above, in the first half of this year, third-party games such as "Phigros" and "Master Fishing Joy" also received good exposure across the network with the help of TapTap, attracting a large number of off-site users and also bringing in a large number of new users for TapTap.

According to TapTap CEO Dai Yunjie's PPT revealed at the event, in the first half of the year, TapTap helped "Phigros" achieve 8 million downloads off-site and "XD Town" achieve 10 million off-site downloads.

"This not only meets the demand for game user acquisition but also, as it does not upload to traditional Android channels and does not need to be divided by mobile phone manufacturers, it allows these games to have a better potential profit margin level," Huang Yimeng said On New Year's Day in 2021 and in June of this year, there were two significant conflicts between domestic Android channels and game developers as well as mobile phone manufacturers. The issue of mobile application markets collecting "Android tax" and "Apple tax" has become a hot topic in the gaming industry in recent years.

In August of this year, the official WeChat account of the Shanghai Consumer Protection Commission published an article titled "Frequent Phenomenon of Mobile Phone Manufacturers Intercepting Third-Party App Downloads," quoting expert opinions that setting multiple operation steps, prompts, options, etc., which go against user intentions and choices, increase operational complexity, disrupt usage coherence, hinder third-party app store software downloads or access, insert diversion links, and force target redirection, violates relevant provisions of the Anti-Unfair Competition Law. This behavior is a very typical case of using technical means for unfair competition.

It is widely believed in the market that the era of mobile phone manufacturers "building high walls" to collect game revenue shares is unsustainable. Especially when "reducing costs and increasing efficiency" remains the focus of efforts for game developers, the high revenue sharing ratios of up to 30-50% have become one of the main obstacles to "reducing costs and increasing efficiency," which is not conducive to the healthy development of the industry.

In this situation, "not going through channels" has become one of the options, including for leading game developers. However, this also tests the game's ability to be distributed across the entire network through non-traditional app download channels.

TapTap has helped multiple first-party and third-party games achieve successful network-wide distribution experience in the first half of this year, laying a good foundation with successful case studies