Summer Game Showdown: Can Tencent Still Hold Its Top Spot?

If $TENCENT(00700.HK) tears apart the Android channel, it is a game of interests for all parties in the industry in terms of content. When upstream content providers fight each other, what is being competed is the understanding of user needs, judgment of industry trends, and the integrated strength of research and operation.

Since the resumption of game approvals in 2022, this year is the first normal summer vacation after the disturbance of the epidemic (no lockdowns, offline cultural and travel consumption slowdown). After two years of game approvals reserve and R&D testing, this summer has become a window of opportunity targeted by all companies for new releases. It is a time for various flowers to bloom, but also a fierce battle.

In the limited number of game approvals, "less but better" has long been the main strategy for major game companies. The narrowing gap in quality between products has also increased the difficulty for market insiders to predict game revenue performance. Can the DnF mobile game, which led the way in the second quarter, continue to help Tencent win this summer battle?

By discovering the evolving trends in user needs in recent years, Dolphin Jun has made some predictions about the popular projects of major game companies this summer, combined with valuation, and updated our investment logic for some listed game companies. However, due to the high-quality supply this year and intense competition, predicting revenue performance is more challenging. We welcome discussions in the background.

The following is the main content:

I. Why is this summer a fierce battle?

As summer approaches, this has always been a key time for game developers to launch new games. With various game companies revealing their pipeline for the rest of the year, Dolphin Jun has found that this summer's game lineup is particularly strong!

1. Inevitable Collision of Supply

When it comes to the entertainment industry in China, the issue of supply is always mentioned. The game industry, which is the largest in scale and has the most mature business models, is no exception. The tightness of game approvals directly affects the industry's scale.

Dolphin Jun believes that the changes in game approval policies this time have directly led to a mismatch between supply and demand cycles. Although game approvals resumed in April 2022, it has been two years since then, but in the past two years from 2022 to 2023, there has been no significant improvement in the actual supply in the game industry, or the improvement is far less than the speed of game approvals.

The reasons for this, we believe, are mainly twofold:

On the one hand, during the period of game approval suspension, the industry was overly pessimistic, coupled with the cost reduction and efficiency improvement guided by regulations in the Internet industry, game developers actively cut a large number of ongoing projects and low-ROI existing games On the other hand, while the issuance of game licenses has resumed, the quantity has decreased compared to before the suspension, and strict restrictions have been imposed on behaviors such as selling game licenses. With limited game licenses available, game developers are more inclined to cherish the licenses they already have, hesitating to release new games easily. They prefer to conduct multiple rounds of testing before launching, ensuring basic ROI. As a result, the industry has encountered some potential projects that have been delayed or even eliminated by developers in multiple rounds of testing.

So why are all companies eager to showcase their flagship products this year?

As we all know, the summer vacation is the peak season when users are most active each year, so game developers mostly release new games before or during the summer vacation.

However, in the summer of 2022, the impact of lockdowns in some regions on offline operations of game companies was significant, and since the game licenses had just been resumed, developers did not have ready-to-launch games available. Although NetEase promoted the classic IP "Diablo Immortal," unfortunately, the quality of the game itself was poor and did not seize the opportunity during the industry's competitive window.

In 2023, although it was the first normal summer vacation after the resumption of game license approvals, most of the licenses approved in the past year were mainly for casual games that had been suppressed before (popular in 2020-2021), and not many key projects of developers were approved. Additionally, 2023 was the first year after the pandemic, with a booming demand for offline cultural and tourism activities. Therefore, considering the flow of online traffic back to offline activities, some developers intentionally avoided releasing games. With limited supply and reduced competition, NetEase's "Justice" mobile game became the biggest winner of last summer.

Therefore, when the key projects of various developers obtained licenses at the end of last year and the beginning of this year, they almost couldn't wait to schedule their releases for this summer. Apart from the elimination of factors from the previous two years, the key reason is that after two years of limited activity, even the major companies with evergreen games were struggling.

In summary, the disruptions caused by the pandemic and game licenses have led to a small peak in the supply cycle this year, driving a trend towards more refined and high-quality games. (Key games from various companies are summarized in the following chart). For the industry, it is a long-awaited prosperity, with the potential to sweep away the gloom of the past two years and restore strong market growth. However, for individual companies, it is a time to face direct competition with their peers.

2. Casual players, forcing developers to focus on cost-effectiveness

In the previous overview of the game industry "Handing the New 'King,' Tencent is Fighting with Channels Again," Dolphin mentioned that in the post-pandemic era of 2022 and 2023, the growth of the market size slowed down. In terms of the relationship between quantity and price, the average spending per person did not actually decrease in sync with the overall environment, with the issue lying in the "quantity." This is reflected not only in the slowing growth of active users (monthly active users), but also in the decrease in the average monthly game time per player. Dolphin believes that in addition to the fading online home economy dividend, the suspension of game approvals, and the impact of policies restricting minors from playing, the demands of adult players themselves are also leaning towards a faster, simpler gaming experience.

For example, combining the structural distribution of mobile game users, the proportion of casual game approvals, and the successful games "rolled out" in the past two years, a trend is quite clear - there has been a shift in user demand from hardcore to casual.

(1) From App Games to Mini Program Games

From 2022 to the first half of 2023, the user base of the mobile game industry continued to grow, albeit at a slower pace. However, looking into details, monthly active users of mobile game apps have declined, while users of mini program games have increased.

Naturally, factors such as the suspension of game approvals and manufacturers being forced to seek alternatives (mini program games that monetize through in-app ads only require filing, despite the suspension of game approvals) have played a role. However, if not aligned with player demands, mini program games will not thrive.

Due to limitations in content loading and ease of use, mini programs generally focus on casual games with ordinary graphics, simple interactions, and a focus on creativity. The user experience duration per session is short, and the main monetization method is through in-app ads. Compared to paid mobile game apps, which focus on monetization, mini program games have limited potential to contribute to the overall market size.

According to research, the overall market size of mini game ads + payments in 2023 is approximately 20 billion RMB, accounting for 1/10 of the mobile game app market. Industry optimism expects this to climb to 50 billion RMB in the future. Dolphin believes that due to the technical limitations of mini program games, most of them operate casual games with low spending. The fact that the cost of acquiring users for mini programs is 10 times lower than for apps also indicates that the spending power of mini program game users is often low, even leaning towards pure ad viewers.

(2) Rise of Idle Casual Games and Other Casual Games

In terms of game categories, the demand for casual games post-pandemic has been higher than expected.

During the pandemic, many ordinary users turned into players, but these players do not necessarily have the spending habits of core players - such as AAA games, high-quality art, and hardcore gameplay. Instead, they prefer low-threshold, simple gameplay casual games, including match-three games and idle games that offer rewards for passive play. This trend is not only seen in the domestic market but also in the global market under the pandemic bonus.

On the contrary, after the epidemic, offline entertainment should have seen a natural decrease in the number of casual gamers, and casual games should have quickly quieted down. However, in reality, casual games are still active.

On one hand, the new territory of casual games - mini-games - continues to expand its user base. On the other hand, several idle mobile games have surged to the top of the download and best-selling TOP charts. Not to mention, the match-three puzzle game "Happy Elements" has consistently held a position in the TOP 10 despite the constant influx of new games.

This year, the popular game "Let's Go Muffin" is actually an idle mobile game. Its gameplay is not complicated, but due to its good art design, unique style, and most importantly, frequent content updates typical of hyper-casual games, it has become the dark horse of casual games this year. It has a similar momentum to when idle games like "Idle Heroes," "Sword and Expedition," and "One Thought Free" were first launched two years ago.

The loss of regular users, combined with the frequent emergence of hit casual games, may reflect a trend where regular players are shifting from hardcore to lightweight gaming.

(3) Winning Strategy - Reducing Hardcore Elements

The trend of lightweight demands from regular players is further evidenced by the trend of "reducing hardcore elements" in non-casual games.

For example, last year's mobile game "Swords of Legends," as a classic MMO, introduced features such as seasonal play, no selling of power, and 6 yuan costumes right from the start, catering to players' preference for "lightweight and low-spending" gameplay. This approach, contrary to the usual high-priced items in MMOs, resulted in "Swords of Legends" achieving the highest revenue among MMOs last year. In contrast, the MOBA game "Honor of Kings," which initially focused on fairness, later released high-priced legendary skins, leading to player complaints, such as the 1000 yuan Daji Green Hill Nine-Tailed Fox skin (obtained through lottery, priced based on probability) and the 3800 yuan Mi Yue Bulgari collaboration skin (later shelved due to Bulgari's reasons).

the high-priced skins temporarily boosted revenue (during the 2023 Spring Festival, "Honor of Kings" revenue hit a historic high), the backlash from players quickly followed. In the second quarter, revenue for "Honor of Kings" dropped more than the usual seasonal change, indicating a real problem in operations. For MOBA games that rely on multiplayer PVP, a rapid or long-term decline in Daily Active Users (DAU) is extremely detrimental Another positive example of reducing liver and reducing krypton is the recent launch of "Three Kingdoms: Strategy Conquest" on Bilibili. The current revenue situation of this game is quite impressive (compared to the expectations before launch). As of July 1st, data from Qimai shows that the iOS revenue of "Three Kingdoms" is $26.8 million. If we assume that the ratio of iOS to Android is 1:2, then the estimated total revenue across all channels is close to 600 million RMB, averaging 300 million RMB per day. Following this trend, it is expected to reach 700 million RMB in revenue by July 13th in the first month.

Although this first-month scale is not comparable to the 5 billion of "Dungeon & Fighter Mobile" or the 3 billion of "Swords of Legends Online," the former two belong to the RPG game field with a larger user base (around 100 million users in China). In contrast, "Three Kingdoms" is in the SLG game field, with a player base of only a few million, which is less than 1/10 of RPG games, but with a higher average spending per player.

If "Three Kingdoms" performs well, with continuous updates of content and strong event operations, the annualized revenue for the first year is expected to reach 3 billion RMB. Such an achievement would almost place it in the top tier among Three Kingdoms SLG games.

NetEase's "The Land of Sovereignty" (3 billion) and Alibaba's "Three Kingdoms Strategic Edition" (6 billion) almost dominate the market, followed by mid-range products like "Under the Horizon" (1.6 billion) and other competitive products with similar styles but not based on the Three Kingdoms IP, such as Tencent's "Chaos of Three Kingdoms" and "Return to Empire."

With only a few million players, breaking through in such a niche market is not easy. Therefore, "Three Kingdoms" relies on differentiation to succeed in a crowded market by taking a different approach—reducing liver and reducing krypton:

(1) Compared to competitors, card draws are discounted by 50%-70%;

(2) Reduce the intensity of players' grinding and introduce more automatic system functions, such as automatic road paving, automatic training, and automatic city attacks.

This change in "Three Kingdoms" is similar to last year's "Swords of Legends Online," which also emphasized reducing krypton and attracted a wave of fans in the more intense MMO race. Of course, the retention in the future still depends on the quality of the product itself. The product quality of "Three Kingdoms" is also outstanding (such as excellent graphics, innovative gameplay like adding multiple professions), with the development team from Dongfeng Studio having a background in NetEase + SLG players. The lead producer, Lingfeng, previously served as the lead planner for NetEase's "Swords of Legends Online" PC game, and other team members are players of an SLG game guild. By combining NetEase's high standards in game development and player-driven product design, they were able to create such a dark horse.

In conclusion, although the overall game spending by users has not significantly decreased throughout the year, it does not mean that the overall trend of the macro environment has not affected game consumption. For individual games, labels like "low spending, lightweight, non-numeric" can more easily attract players, especially those on the edge of the gaming community. However, it is worth considering that when heavy-duty games with high-quality UI, art, and innovative gameplay step down from the altar, lower their style, and reduce the threshold for players to start the game, will this pose a threat to casual games that originally won with low thresholds and lightweight advantages?

2. The ultimate winner lies in sustainability, competing with self-developed and self-initiated hard power

The chaotic battle in the summer of this year is not only reflected in the number of participating games, but also in the fact that there are many types of games, and there is no completely identical same type + same theme, each with its own characteristics, making it difficult to say there is an absolute "ebb and flow" correlation.

In this situation, it is not easy for a game like "Justice" that dominated last year to reappear, and the more likely scenario is the emergence of a "multi-headed situation", with a leader in each segmented track. The lower the similarity to potential users in the same industry, the fewer new games in the segmented track, and the easier it is for games to break through and gain popularity, the higher the probability of taking the lead in the end.

In addition to the risk of casual games being threatened by lowering their standards as mentioned earlier, Dolphin expects the results of this summer's chaotic battle to become clearer - relatively speaking, among the new summer products, the competitive action mobile game "Eternal Roar" has a high chance of taking the top spot.

On one hand, there are no major new MOBA games this summer, only evergreen games with significant content updates, and Tencent's "Dawn of the Stars" based on the "King of Glory" IP. Although "Dawn of the Stars" and "Eternal Roar" are similar in category, based on the feedback from the early testing phase, Dolphin has more confidence in "Eternal Roar";

On the other hand, MOBA games are more likely to gain popularity, not to mention that "Eternal Roar" has the IP of the PC game to attract players.

Among other new games, Tencent's "Need for Speed" also has the potential for high DAU, but because it is a racing casual game and NetEase released a decent performance "Peak Speed" last year, our revenue expectations for it are weaker than "Eternal Roar".

MiHoYo's "Zero Zone" and Game Science's "Black Myth: Wukong", Dolphin believes that these two games will be successful representatives in their respective niche tracks. Lily's "Sword and Expedition: Departure" is a new idle game, but due to concerns about being threatened by lowering standards in the ultra-casual category, Dolphin's expectations are relatively cautious.

However, the quality of a game's "short-term revenue" can affect short-term valuation, but it cannot determine the company's long-term valuation. Unless there is a perennial game with a huge revenue scale and an extremely long lifecycle like "King of Glory" or "Genshin Impact". In most cases, the long-term valuation of a game depends on its internal development capabilities, and whether it has the hard power of self-publishing under channel changes, so as to confidently cross traditional channels and reduce the revenue benefits of channel fragmentation.

Next, let's talk separately about the progress and competitive advantages and disadvantages of Tencent, NetEase, Xindong, and Bilibili in the game industry, as well as the current investment logic 1. Tencent: DnF Mobile Game Boosts Research and Operation Confidence, Non-Game Business Smoothly Avoids Single Product Risks

It is said that this year is a cycle of new products. In fact, Tencent launched quite a few new products last year, including games like "Awakening of Dawn" and "Return to Empire" that had high expectations before going online, but most of them failed quickly. Here, "failed" is relative. It should be noted that Tencent's current game revenue of 180 billion, if it is only a few billion in revenue from new products, the increase is very small. However, for other companies, these few billion would be considered very good results.

This year's confidence in the new product cycle comes more from "DnF Mobile Game." In the previous article, it was mentioned that there are some overly optimistic revenue expectations for the first 12 months in the current market. In reality, the revenue for "DnF Mobile Game" in the Korean market decreased quite rapidly, with a 50% drop in the second month after launch. Of course, the user base in Korea interested in the DnF IP is not very high. Compared to the Chinese market, the sustainability is likely to be better, but as analyzed in the previous article, achieving sustainability and benchmarking against MOBA games is quite challenging.

Therefore, it is believed that even with an optimistic estimate of an annual revenue of 20 billion, assuming that the operation can generate 12 billion in revenue in the first half of the year, with Nexon taking 30%, channels taking 20%, and Tencent's internal expenses taking 10%, resulting in a profit of 4.8 billion. This is equivalent to an increase of 1.5% in our original profit expectation for the year (previously, it was expected that "DnF Mobile Game" would generate 5 billion in revenue this year). However, it is clear that a single game like "DNF Mobile Game" has limited incremental value for Tencent. The significance of DnF Mobile Game for Tencent lies in proving its internal research and operation capabilities, and more importantly, increasing the valuation multiple brought by gaming confidence.

It is believed that what can truly bring predictable high EPS growth to Tencent's medium to long-term business is, on one hand, the reform of the gaming channel, optimizing profit scale by increasing gross profit margins. On the other hand, it is the high growth potential of non-gaming businesses, such as video number e-commerce advertising, Jinke credit business (installment payments). As the product matrix dilutes and the success probability of individual boutique games becomes more important, these non-gaming businesses of Tencent can help mitigate the risk of unexpected failures of explosive products.

At the beginning of the year, Tencent, with a 100 billion buyback and the recent performance of DnF, has increased market preference for Tencent's risk (Forward P/Non-IFRS NP increased from 13x to 16x), but the current valuation is still not high.

2. NetEase.US: Negative Impact Enters Valuation, Focuses on Marginal Changes The main issue with NetEase comes from the impact of the adjustment of the content of the "Fantasy Westward Journey" PC game on revenue and the game's lifecycle.

(1) What did "Fantasy Westward Journey" adjust?

The PC version of "Fantasy Westward Journey," which has been in operation for 20 years, undergoes adjustments approximately every 3 years. On one hand, it raises the price of game cards (corresponding to real-world price increases), and on the other hand, it lowers the price of Fairy Jade (basic in-game material) to prevent inflation within the game.

This round of adjustments for the PC version of "Fantasy Westward Journey" was divided into two phases:

The first adjustment was in March, similar to the two actions mentioned above, essentially aiming to naturally increase the company's revenue (reasonable adjustment of card prices) and combat specialized gold-farming studios (small organizations that rely on manual farming of Fairy Jade and account levels, then sell them in the Treasure Pavilion) to balance the in-game user experience, especially for paying users.

However, because these actions also affected regular players (especially those who rely on gold farming in the game to earn real RMB), negative public opinion peaked in early April due to incitement from gold-farming studios.

The second adjustment was in April regarding the trading rules of the Treasure Pavilion, which overall raised the trading threshold and costs between players. Due to the direction of the adjustment aligning with some provisions in the online gaming regulations from December last year regarding game trading platforms, it sparked some market panic, with concerns about a resurgence of regulatory measures. However, after internal research and communication, it was found that there were many misunderstandings, and in reality, there was no significant tightening of regulations, and overall, it was part of normal management.

(2) How significant is the impact of the adjustments?

Due to the company's excessive adjustment following a misjudgment of regulatory intensity in April, some adjustments have already been reverted. The company has deleted adjustment announcements for the Treasure Pavilion of PC games other than "Fantasy Westward Journey," mainly "Nishuihan PC" and "Dahua Westward Journey Selection." However, the adjustments made in March had a significant impact at the time - weekly DAU dropped by 20%, and revenue is expected to decline by 5-10%. The main loss was the "gold-farming" players from gold-farming studios.

As for how long the impact will last, the company's previous communication indicated it would affect Q2 and Q3, with a recovery expected in Q4. However, a recent commentary from Morgan Stanley at the end of last month regarding the devaluation of in-game currency in "Fantasy Westward Journey" has reignited concerns in the market about the game. In addition, Morgan Stanley also conducted a survey in the "Fantasy Westward Journey" Tieba, showing that over half of the players play "Fantasy Westward Journey" to make money, emphasizing the game's "economic" aspect.

While we do not deny the importance of the economic attributes of "Fantasy Westward Journey" to the entire game lifecycle, as of now, Dolphin believes that the direct impact of "Fantasy Westward Journey" on profit has been largely priced into the stock price.

"Fantasy Westward Journey" has been in operation for over 20 years, and its ecosystem has evolved to be quite complex. The monetization methods of the PC version of "Fantasy Westward Journey" mainly consist of three types: a. Selling point cards, consuming 6 points per hour (adjusted to 8 points in March), with 1 point = 0.1 RMB. (Regularly increased, consistent with the trend of RMB price changes in the real world)

b. Selling in-game items (1P)

c. Treasure Pavilion transaction flow sharing, charged at 2%. (3P)

According to research information, the annual revenue of Fantasy PC is 5-8 billion, accounting for 40% of the total revenue of terminal games and 6% of the total revenue. The main sources of revenue are the sales of point cards and 1P items, while the revenue from Treasure Pavilion transaction fees is not high.

However, the impact on profits varies. Due to "no channel sharing for terminal games + Evergreen games", the profit margin of Fantasy is very high. Assuming a profit margin of 80%, if the revenue is 70 billion, which is 55 billion in profit, it will account for 1/5 of NetEase's overall operating profit in 2023. Therefore, if Fantasy's revenue loss is 10%, it means that the overall operating profit must also decrease by 2%.

However, from a medium to long-term perspective, the intentions behind the adjustments in March and April, NetEase is actually following a core direction: maintaining a balance between "real players" and "gold farming clubs/intermediaries".

A game with a healthy ecosystem needs to provide an upgrade path for zero or low-paying players, while also soothing the gaming experience for high-paying players, relying on high-paying players to make money and active the ecosystem with free-to-play players. As mentioned above, gold farming studios generally hire a bunch of players to level up accounts by playing for long hours, or buy a large number of accounts from ordinary players at low prices and then sell them at a higher price to high-paying players.

A moderate number of gold farming studios can help enrich the ecosystem, but too many gold farming studios in the game will, on one hand, inflate the trading prices of accounts/equipment, increasing the costs for high-paying players; on the other hand, it will raise the difficulty for low-paying players, in the long run, the continuous loss of real players in the game will also reduce the gaming experience for high-paying players, leading to the loss of high-paying players and directly affecting platform revenue.

Therefore, from the perspective of extending the game's lifespan, the impact of the current adjustments is to contribute to longer-lasting revenue in the future. Dolphin believes that the expectation of the end of the Q4 impact mentioned by NetEase can boost confidence. We expect that the revenue of terminal games in 2Q24 will still decline by double digits, but in the second half of the year, with the launch of the new game "Yan Yun Sixteen Sounds," the return of "World of Warcraft," and the weakening impact of "Fantasy Westward Journey," it will recover strong growth in the high single digits.

Mobile games also show marginal improvement, Dolphin is optimistic about the mobile game "Eternal Calamity," as well as the high-quality "Seven Days World," and boldly predicts that the Q4 "Yan Yun" mobile game can go online (1Q24 conference call: management expects that "Yan Yun Sixteen Sounds" mobile game will not be too far apart from the launch time of the terminal game), contributing to some incremental growth.

However, due to the outstanding performance of "Nishuihan" in Q3 last year, making the base number relatively high, this year's year-on-year growth rate is not explosive enough. In addition, with a cluster of summer games this year, the cost of buying traffic may be pushed up, thereby affecting the profit margin level for this year. But this does not prevent NetEase's current valuation from being weaker than historical averages, with a higher probability of the stock price rising than falling

3. $Bilibili(BILI.US) & $XD INC(02400.HK): More attractive than occasional hits, benefiting from channel transformation

This year, Bilibili and XD Inc are somewhat similar to Heartbeat in that they were quiet and sluggish for two years, then suddenly rebounded strongly with a hit product.

Although this year's hit products have boosted revenue and EPS expectations, Dolphin believes that these two companies cannot easily raise the valuation multiples of their gaming segments:

(1) On one hand, the sustainability of hit products still needs to be observed

For Bilibili's "Three Kingdoms," it is necessary to observe the subsequent operations and whether it can effectively respond to the competitive counterattacks from the top player "Three Wars" and the second player "Rate Tu." In particular, NetEase's "Rate Tu Zhi Bin," although the game has been around for 5-6 years, the development team has the courage to make major gameplay changes to reinvigorate the game. For example, after the release of the new version in the second half of last year, the active user base began to rebound, and the 4Q23 and 1Q24 financial reports both mentioned the revival of "Rate Tu Zhi Bin."

As for Heartbeat's "Let's Go Muffin," it was a game that Dolphin misjudged in the early stages. Compared to "Muffin," we were more focused on "Sword of Ruriko" before, but unexpectedly, "Ruriko" didn't perform well, while "Muffin" frequently topped the bestseller list. As of now, 1.5 months after the launch of the domestic server, iOS revenue is 240 million yuan. Assuming iOS: Android = 1:2, the total revenue has exceeded 700 million. This is significantly driving Heartbeat's revenue in 2023. The main reason for this is that Dolphin's inherent bias against idle games led to subjective neglect.

After experiencing it, Dolphin has gained a certain understanding of the gameplay of idle games that meets user needs. However, we also found that the sustainability of such ultra-casual games requires timely content updates, frequent operational activities, and continuous investment in user acquisition to awaken users (because idle play also generates income, it is difficult to autonomously motivate Buddhist users to open the game application).

(2) Lack of pipeline, the next hit product has not yet appeared

Both Bilibili and Heartbeat have games in their pipelines for Q3. Comparatively, the potential of Heartbeat's "Heartbeat Town" is slightly higher. However, due to some differences between the current version of "Heartbeat Town" and the version proposed at the beginning, which has cut some content from an ROI perspective, Dolphin will also keep an eye on how the actual online game version experience turns out Bilibili is relatively weaker: currently there are basically no self-developed projects, mainly acting as agents for some external game developers. The feedback from the early testing of "Flaming Sky" planned to be released in the third quarter is average. Therefore, this year's incremental growth still depends on "Three Strategies" and perennial games like "FGO" for the 7th anniversary celebration.

Combining <1-2>, although current explosive hits can stimulate short-term stock prices, in terms of sustainability, they should not be easily given high valuation multiples. In the medium to long term, the company's reasonable value still requires sustained revenue/profit growth expectations.

However, beyond the gaming business, what Dolphin is more concerned about is the gaming channel transformation mentioned in the previous section - from traditional app stores to new channels that guide traffic to official downloads. This favorable push for both companies may lean more towards medium to long-term logic.

In simple terms, for game developers, if the lifetime value (LTV) of users from traditional channels is not higher than that of new channels, developers can allocate the budget previously divided into 30%/50% for traditional channels to acquire users on new channels (Douyin for meat, TapTap for soup). In addition, with the overcrowding of games during this summer, new channel platforms naturally benefit.

In addition, both companies are at a turning point in profitability, and short-term funds may relatively appreciate this narrative logic. Therefore, the main potential negative factors for Bilibili and Xindong at the moment are the early weakening of the performance of explosive hits in terms of revenue, and given the current valuation is not low, there is a high demand for investors to continuously track revenue.

Dolphin's "Pan-Entertainment Overview" related articles:

June 21, 2024 " With the New "King", Tencent is Fighting with Channels Again"

January 6, 2023 " Pan-Entertainment "Starting Strong", Tencent, Bilibili, Whose Rebound is More Sustainable?"

September 27, 2022 " The "Disappearance" of Kuaishou, Xindong, iQIYI, Tencent Music, Can They Still Turn the Tide?"

September 16, 2022 " After Seeking Different Paths, Tencent, Kuaishou, Bilibili Have Different Fates"

June 15, 2022 " All "Blood-Loss" Giant Baby Syndrome, Can Kuaishou and Bilibili Recover?" invite-code=)》

May 5, 2022《 Breaking the Game in Pan-Entertainment: Revisiting Tencent and Bilibili's Vast Universe》

April 15, 2022《 Big Moves, Small Ripples: Why the Restart of Game Licenses Failed to Boost Game Stocks?》

September 15, 2021《 Reviewing Pan-Entertainment (Part 2): Another Cold Winter, How Far Away is the Spring for Tencent and Kuaishou?》

September 13, 2021《 Reviewing Pan-Entertainment (Part 1): Another Cold Winter, How Far Away is the Spring for Tencent and Kuaishou?》

Risk disclosure and statement of this article: Dolphin Research Disclaimer and General Disclosure