The Torchlight Online Game Generates Over 100 Million Yuan in Revenue in Its First Month of Operation; Xindong Company Turns Loss into Profit in the First Half of 2023.

On August 31st, Xindong Company (02400) released its performance announcement for the first half of 2023. During the reporting period, the company's revenue reached 1.75 billion yuan, a year-on-year increase of 10%; gross profit was 1.04 billion yuan, a year-on-year increase of 32.5%; net profit was 100 million yuan.

This is the first time Xindong Company has recorded a net profit during the reporting period since the first half of 2021, achieving a turnaround from losses to profits. CEO Huang Yimeng stated at an investor communication meeting in April 2022 that he would "make good use of the cash on hand to ensure a balance between profits and losses in 2023."

According to the announcement, in the first half of 2023, the company maintained steady revenue growth, benefiting from increased advertising revenue from TapTap and the launch of two games, "Genshin Impact: Infinite" and "Fire Soda," in the domestic market. Coupled with rigorous cost control discipline this year, the company successfully turned losses into profits.

In addition, the announcement disclosed that the MAU (Monthly Active Users) of TapTap China decreased by 18.6% year-on-year to 33.97 million, and the MAU of the international version decreased by 20.5% year-on-year to 7.14 million. The number of monthly active users and monthly paying users for online games also declined.

The announcement analyzed that the year-on-year decline in TapTap China's MAU was mainly due to a decrease in the time users spent playing online games after the withdrawal of epidemic-related restrictive policies. Additionally, in order to control costs, the company reduced marketing activities in the first half of the year, resulting in a decrease in the number of new users.

After several strategic adjustments, TapTap China's MAU has returned to a growth trend and reached 39.3 million in July this year. Compared to the first half of the year, there is a significant trend of stabilization and rebound.

Self-developed games entering the harvest period, first-season revenue of Genshin Impact may exceed 100 million yuan

In May and June of this year, Xindong's self-developed games, "Genshin Impact: Infinite" and "Fire Soda," were successively released for paid testing in the domestic market.

The semi-annual report disclosed that "Genshin Impact" has become the third highest-grossing game for the company, with the top two being "Sausage Party" and "Ragnarok M: Eternal Love." After the launch of the domestic version, "Genshin Impact" topped the iOS China region's pre-download free game chart and ranked among the top three on the free game chart for a consecutive week, reaching a peak position of 19th on the overall bestseller list.

As a seasonal game, "Genshin Impact" has significant cyclical characteristics in terms of revenue trends. Based on the trend of the iOS China region's bestseller list, it is estimated that the game's revenue in the first season of the domestic version has already exceeded 100 million yuan. The second season will start on September 8th, and the return of old players will be one of the most important indicators to observe the long-term operational strength of "Genshin Impact."

"Sausage Party," which has been online for more than five years, had some ups and downs in its performance in the first half of the year. According to the financial report, during the Spring Festival period, the number of active users and revenue of the game reached a new historical high. After the holiday, with the withdrawal of epidemic-related restrictive policies, there was a general trend of reduced playing time for mobile games, and "Sausage Party" also experienced this phenomenon. In addition, the game was also affected by the launch of several competing games, resulting in a decrease in both MAU and MPU compared to the same period last year. However, the company believes that "Sausage Party" still maintains a large number of users in the domestic market and has further growth potential.

With the combination of new and old games, Heartbeat's game revenue in the first half of this year remained flat compared to the same period last year. It can be said that "Torchlight," "Fire Soda," and "Sword of Bellflower," which will be launched in the second half of the year in the domestic market, have optimized the company's game product line. With the introduction of new games after "Sausage Party" and "Ragnarok Online" entered the mature stage, the blood supply of the business has been boosted, ensuring business security.

Another advantage of self-developed games is that the gross profit margin of the company's game division has also increased significantly, from 40.1% in the first half of last year to 47.3%.

In addition, Heartbeat's investment in game development has become more conducive to a virtuous cycle. According to the financial report, as of June 30th this year, the company had 828 employees engaged in game development, a decrease of 209 compared to the same period last year. This is mainly due to the termination or adjustment of some game projects in the second half of last year in order to reduce costs and increase efficiency. Currently, the company has 4 games in the development stage.

The direct effect of this is that Heartbeat's R&D expenses (including games and TapTap) in the first half of the year decreased by nearly 20% to 530 million yuan compared to the same period last year. This reflects the trend of cost reduction and efficiency improvement in the domestic game market over the past two years.

TapTap has quietly changed the company's revenue structure

TapTap China has recorded a decrease in monthly active users during the reporting period for the first time in over three years. This news was disclosed in the previous profit announcement released by the company, raising questions: Has the user growth of TapTap China reached a plateau? Has it reached the ceiling of its growth potential?

The financial report provides clues to the decrease in TapTap's monthly active users compared to the same period last year. In the first half of the year, the company's sales and marketing expenses decreased by 18.2% to 330 million yuan compared to the same period last year. The financial report further states that this is mainly due to cost-cutting measures, resulting in a reduction in marketing expenses for TapTap and the game division.

In fact, due to the company's management setting the goal of achieving a balance between profit and loss by the end of this year as early as the beginning of last year, Heartbeat's business growth this year has been influenced by multiple constraints, including cost reduction. Under the significant reduction in marketing expenses, the decrease in TapTap's monthly active users in the first half of this year was within expectations.

Heartbeat's return to profitability in the first half of the year has gradually advanced the goal of achieving a balance between profit and loss for the whole year. On the one hand, it has reduced the financial constraints and pressures to be borne in the second half of the year.

One important piece of information is that despite the decrease in TapTap's monthly active users in the first half of the year, TapTap's information service revenue is still growing rapidly. The financial report reveals that TapTap's revenue in the first half of the year was 600 million yuan, an increase of nearly 30% compared to the same period last year. At the same time, the revenue cost decreased by 20%, achieving significant cost reduction and efficiency improvement.

According to the financial report, in the three years from 2020 to 2022, TapTap's annual revenue recorded: 520 million, 690 million, and 980 million yuan, with a compound annual growth rate of 23.5%. Therefore, this year, TapTap's revenue is expected to reach a new historical high, while still retaining a large commercial space. With TapTap's revenue maintaining rapid growth for multiple years, its contribution to the company's overall revenue structure has been continuously expanding. As of the first half of this year, TapTap's revenue accounted for nearly 35% of the company's total revenue, reaching a historical high. In the company's first disclosed interim report after its listing in 2019, this proportion was only 17.6%.

From the perspective of revenue structure, TapTap is closer than ever to its business positioning of "platform + games". This achievement has first significantly increased the company's business security coefficient compared to pure game companies, as its growth is not solely dependent on hit games. Secondly, it allows TapTap to provide high-quality exclusive content through game development and publishing, drive user growth through exclusive content, retain users and generate revenue through TapTap's own product and operational advantages, and then further support content creation by first-party and third-party vendors, thereby generating more high-quality content and continuing to drive TapTap's further growth.

One piece of evidence is that just a few days before the company released its interim report, NetEase's game "All-Star Street Basketball Party" chose to exclusively distribute on TapTap for Android, without using other channels. It is reported that TapTap will continue to actively promote more major games to be exclusively distributed on its platform in the future. In terms of the business model of exclusive games, TapTap retains flexibility and obtains actual monetization returns.

A light boat crosses a thousand mountains

Looking back at TapTap's business situation since its listing nearly four years ago, the monthly active users of TapTap have almost doubled from 17.9 million at the end of 2019 to 34 million in mid-2023. TapTap's revenue has also grown from 460 million yuan in 2019 to 980 million yuan in the previous year, reaching a historical high of 600 million yuan in the first half of this year.

In terms of games, from relying mainly on "Sausage Man" and "Ragnarok M: Eternal Love" in 2019 to the release of "Torchlight" in the first half of this year, which quickly became the third highest-grossing game for the company.

In November of this year, "Sword of the Bellflower" will also be launched in the domestic market. Judging from its performance in the Hong Kong, Macau, and Taiwan regions, its performance in the domestic market can be anticipated. On the iOS bestseller list, "Sword of the Bellflower" achieved the first place in Hong Kong and the eighth place in Taiwan. This was not achieved when the game was first launched, but on the day the game's new card pool was released on August 25th. For an SRPG game, the payment situation at the release of new card pools can better reflect the game's long-term competitiveness.

By the end of this year and into next year, the company will also release three or more self-developed games, including "Let's Go, Muffin!", "Ether Reboot Day", and "Heartbeat Town", with the expectation of further optimizing the company's game product matrix. After four years of being listed, it has also been a turbulent four years for the domestic mobile gaming market. For Dolphin Research, the self-developed games have been gradually gaining recognition, and TapTap has validated the company's business positioning of "platform + games," which has significantly improved the company's business security margin and development space compared to four years ago.

It can be said that the company's most difficult moments are about to pass, and what needs to be focused on is how high the potential of new games and TapTap can reach.