Tsinghua Xueba's game manufacturer plummeted 90% net profit in one year

Wen | Wei Yining, author of the weekly magazine "Finance and Economics"

Editor| Song Han

In March 2019, Apple CEO Tim Cook visited China and visited a company called Hong's Perfect Future Education. Soon, Cook publicly praised the company in Chinese and English on Weibo: "With ar technology and app store, Hong's perfect education has brought new and creative learning methods to Chinese children, which is encouraging; the entrepreneurial story of founder @Chi Yufeng is equally admirable!" ”

For China's post-90s and post-00s netizens who are active on Weibo, Hong'en Perfect Future Education may be a bit unfamiliar, and they know more about another company that Chi Yufeng is chairman of, Perfect World Holding Group. This game company has developed popular terminal games such as "Perfect World" and "Jie Xian", ranking third in the domestic game market, ranking only after the two giants of Tencent and NetEase.

However, on January 22, 2022, Perfect World handed over its worst report card since its listing: the 2021 performance forecast showed that the company was still profitable, but the net profit attributable to shareholders of listed companies in 2021 fell by 74.81%-77.4% year-on-year, and the net profit after deducting non-recurring gains and losses fell by 88.50%-90.42% year-on-year. On January 24, Perfect World opened and fell.

At the same time, the personal wealth of founder Chi Yufeng continues to increase. In June 2019, just after the three-year restriction period after Perfect World landed on A-shares, Chi Yufeng began to reduce his holdings and cash out. In more than a year, he has reduced his holdings by 76.9299 million shares, with a reference market value of more than 2.5 billion yuan.

In addition, other executives of Perfect World also cashed out more than 2 billion yuan, plus Chi Yufeng's 2.5 billion, a total of more than 4.5 billion yuan. Perfect World's net profit in 2020 was 1.549 billion yuan, while Chi Yufeng and executives cashed out together, equivalent to 3 times the company's profit in 2020.

At present, Perfect World is struggling to transform into mobile games, and for Chi Yufeng, who has entered the education, games, film and television industries and holds two listed companies, this transformation road seems to be somewhat difficult.

1、

Chi Yufeng was born in 1971 in Xiangyang, Hubei Province. Later, he was admitted to the Department of Chemistry of Tsinghua University.

While studying at Tsinghua University, Mr. Chi sold newspapers on campus and went to a counter in nearby Zhongguancun, where many people had not yet touched a computer in the early 1990s, and he had begun to accumulate knowledge.

In 1993, Chi Yufeng graduated from Tsinghua University and went to work for Guangdong Procter & Gamble, and the next year, the company gave him a chance to go to the United States for training, and when he returned, he could get a promotion, but he refused. Soon, Chi Yufeng submitted his resignation and decided to come out and start a business.

In 1996, just over a year into business, he had become one of the largest computer assemblers in Shenzhen and had earned hundreds of thousands of yuan, which was already a huge sum of money at the time. However, it was also this year that he gave up his business in Shenzhen and decided to return to Beijing.

No one does not want to make money, Chi Yufeng gave up this business because he saw a more suitable way to get rich: in the face of computers, which may change the entire society, help people assemble and repair computers, after all, make small money, teach people to use computers may be a greater business opportunity.

When Chi Yufeng repaired the computer, he found that many customers came to repair it, and they were not facing quality problems, but they would not operate, and they mistakenly thought that the computer was broken. Therefore, he decided to make a computer education software, so that people quickly learn the basic operation methods such as booting, file processing, and anti-virus.

On November 21, 1996, Chi Yufeng registered Beijing Jin Hong'en Computer Co., Ltd., the teaching software he designed was called "Groundbreaking", in order to be more vivid and flexible, the teaching software was designed in the form of a dialogue between "Little Doctor" and "Little Professor", voiced by him and his entrepreneurial partners.

The recording was made in a humble bungalow outside the Tsinghua campus, and the noise of nearby trains passing through the tracks was occasionally heard in the background, but the tutorial worked particularly well, selling 10,000 CDs within a month of listing.

Soon, Chi Yufeng made two more computers and online teaching software, and then he noticed the boom in learning English and going abroad at that time, and produced the English education software "Speak English As You Want", which set a record of 8,000 sets of sales in 3 days.

20 years later, in 2017, when Chi Yufeng, as a mentor at Cheung Kong Graduate School of Business, shared his entrepreneurial experience with the students, the first experience was to "find the gap in the market", and when summarizing the specific principles, the first thing he said was to do something for the public.

Chi Yufeng makes educational software, following these principles, and making games is the same.

In 1997, several Tsinghua students knocked on Chi Yufeng's door, they noticed the business opportunities of stand-alone computer games, and studied a prototype of a 3D real-time strategy game, but because of the lack of financial support, it was difficult to continue to do, so they came to seek the support of the seniors. After the exchange, Chi Yufeng did not make games with them, but invested 200,000 yuan in them, and several students took this money to found Zulong Studio and develop a single-player game "Freedom and Glory" that was widely popular with players at home and abroad.

A few years later, Chi Yufeng reached the "ceiling" of his career. Although he received Intel's first venture capital in China in 1999, and Kim Hung-eun's advertisements were plastered all over Zhongguancun, occupying half of the market share of educational software, the copyright protection of computer software in China was still lagging behind, and piracy was rampant, so it was difficult for him to obtain benefits corresponding to fame. Someone once commented: "If there is no piracy, then Chi Yufeng would have been a billionaire long ago." ”

Zulong Studio is also facing the same problem, these loose team of Tsinghua Polytechnic men developed a number of popular stand-alone games such as "Freedom and Glory 2" and "Blood Battle on the Beach", but they could not compete with the overwhelming pirates, and in desperation, they decided to break up.

Several students talked about the idea of the team, but Chi Yufeng advised them to find a new way out. He noted that Internet games are on the rise, netease and Tencent have entered the game, but there is still a large gap in the market. After trying several online games at home and abroad, and personally going to South Korea to investigate, Chi Yufeng found that online games were difficult to pirate, so he suggested that the students do online games with him. In 2004, Chi Yufeng established Perfect Space-Time Network Technology Co., Ltd., and all the original team members of Zulong Studio joined.

Several founders are Tsinghua Xueba, Zulong Studio's 3D engine technology has been ahead of other peers, shortly after the establishment of the company, Perfect Time and Space launched the first 3D game "Perfect World", which immediately became a hit, and then, they launched a combination of film and television works, online novel IP online games "Wulin Waichuan" and "Xue Xian", which also detonated the market. In 2007, Perfect Spacetime, which was founded only three years ago, was listed on the NASDAQ.

The US stock listing did not stop Chi Yufeng in the game, in the development of the "Wulin WaiChuan" game, Chi Yufeng has realized the benefits that excellent film and television IP can bring, in 2008, he founded Perfect Film and Television, began to lay out the film and television industry.

In 2011, perfect film investment film and filming of two films "Steel Piano" and "33 Days of Lost Love" have been released, "Steel Piano" is a small-budget comedy film, telling the story of laid-off workers handmade a piano for their daughter, which was well received after the release. "33 Days of Lost Love" is adapted from the popular novel of the same name, which exceeded 100 million yuan in four days of release, and finally reached 350 million yuan at the box office, becoming the dark horse of the domestic film box office that year.

In the same year, Perfect Spacetime, which is mainly engaged in games, was officially renamed Perfect World, however, from this period, Perfect World's revenue and stock price began to decline. In 2010, Perfect World's revenue was 804 million, which shrank to 542 million in 2013, and its market value at NASDAQ also went all the way down.

Despite this, Chi Yufeng handed over the game business to Tsinghua alumnus Xiao Hong, faded out of the game business himself, and began to turn to film and television and investment. His TV series such as "The Legend of Chu Han" and "The Legend of Lu Zhen" have generated a certain degree of popularity, and in December 2014, Perfect Film and Television was listed on the A-share market through backdoor Jinlei shares, and later renamed Perfect Universal.

2、

Chi Yufeng once said that he wanted to be the "wrench" of his life.

In his view, life is like a track, people walk on their own tracks, see only the scenery determined on both sides of the track, until they meet the "wrench", they will go to another road, see different landscapes, and also walk into the unknown world. The entrepreneurial process of Chi Yufeng is the process of constantly "pulling the road" and developing new fields.

In 2015, Chi Yufeng gave the company and his life another time: he decided to delist from nasdaq and privatize Perfect World.

At that time, Perfect World's stock price was around $15.76, which was lower than the initial issue price, and had fallen by nearly 70% compared to the highest share price of $48.1 in September 2009, and the overall market value was only 5 billion yuan.

Chinese online game companies are difficult to get the recognition of Wall Street, and Chen Tianqiao, CEO of another game company, once publicly stated: "Wall Street does not understand Chinese games." In stark contrast, the domestic A-share game was pompous at that time: the market value of Palm Fun Technology was 20.5 billion yuan, and the market value of interactive entertainment that mainly engaged in page games was 9.56 billion yuan.

Titanium Media has published an article pointing out that although the game business makes money, there is not much linkage effect, the game is just a pure cash cow, but if the user does not have a platform that can stay outside the game, the game is difficult to drive the development of other industries and form a synergy effect. For companies that only have a game business and no online platform, going public is not necessarily the best choice, and making money from game revenue is the most important thing.

Titanium Media expects that Perfect World will follow in the footsteps of Shanda and be listed on A-shares after delisting from the NASDAQ, and the attitude of the author of the article is not optimistic: "Perfect delisting, good luck to it, and good luck when the A-share market has not yet officially woken up." At the same time, the author sharply points out that the perfect delisting may have nothing to do with development, capital, and branding, but is just a huge capital game.

Everything that happened later was expected by this review article: in 2015, Perfect World completed its privatization, perfect global, which was already listed on the A-share market, announced the suspension of trading on July 6, and half a year later, on January 6, 2016, Perfect Global announced that the company purchased 100% of the equity of Perfect World at a transaction price of 12 billion yuan.

Through a series of capital operations, Chi Yufeng injected Perfect World into Perfect Global, returned to A shares through a backdoor, and after the transaction was completed, Chi Yufeng became the actual controller of the company.

After the merger is completed, Perfect World has formed a large-scale film and game complex, Perfect World Film and Television is one of the most well-known film and television production companies in the industry, with continuous IP resource creation capabilities, Perfect World Games is a global comprehensive network game developer and operator, also has excellent IP originality capabilities, independently developed games are not only popular in China, but also exported to more than 100 countries and regions around the world.

Therefore, as soon as Perfect World resumed trading, it was warmly sought after by the capital market. Before the suspension of Perfect Universal, its total market value was 10.3 billion, and when it resumed trading as a company that integrated film and game, it obtained 6 limit increases, and Chi Yufeng's wealth soared by 5.7 billion.

After the merger of Perfect World and Perfect Universal, a large-scale film and game complex was formed, with operating income of 6.159 billion yuan and net profit of 1.133 billion yuan in that year, ranking first in the A-share game industry. At the end of 2016, the company's total market value was 39.164 billion yuan, at this time, Chi Yufeng's net worth grew to 26.5 billion, on the Hurun China alumni rich list, becoming the richest Tsinghua alumni of that year, and ranking 64th in the Hurun Hundred Rich List that year.

According to the relevant provisions of backdoor listing, it cannot be transferred for 36 months from the listing. When the game company injected into the listed company, it once issued 2.12 additional shares in a private placement, and Chi Yufeng himself spent 4.15 billion yuan to subscribe for 83%, and this part of the shares was lifted on June 17, 2019. In the month of lifting the ban, Chi Yufeng immediately began to reduce his holdings in large quantities, selling stocks at a price slightly lower than the 23.56 yuan increased offer price.

From June 2019 to June 2020, in a total of one year, Chi Yufeng cashed out four times, reaching 2.587 billion yuan, and the other two major shareholders Perfect Holdings and Deqing Junyang also reduced their shares by a total of more than 2 billion yuan. Lu Xiaoyin, the actual controller of Deqing Junyang, is the president of Perfect World Co., Ltd. and the CEO of Perfect World Games, that is to say, the major shareholders who have significantly reduced their holdings are controlling shareholders, actual controllers and affiliated companies.

When Chi Yufeng cashed out three times, Perfect World's stock price was rising, and when it reduced its holdings for the third time, the stock price reached about 50 yuan per share, which was much higher than the original additional offer price. However, this frequent reduction of major shareholders is difficult to reassure investors, and it also leads to a decline in stock prices.

In order to appease the market, in 2019, Perfect World promised to repurchase shares, with the total amount of repurchase funds not exceeding 600 million yuan and not less than 300 million yuan. However, as of February 2020, Perfect World had only repurchased 570,000 shares, with a total transaction amount of 16.02 million yuan, which was completely different from the original promised target.

3、

Chi Yufeng's repeated cash-outs are related to the drag on revenue of the film and television business and the stagnation of the game business. For Chi Yufeng, although he has made huge profits fall into the pocket through multiple cash-outs, the commercial territory he has built involving games, film and television, and education is not stable.

After returning to A-shares in 2016, the first performance highlight of Perfect World Holding Group was the summer hit "Spy Movie 5". Perfect World Pictures appeared in the opening scene along with Universal Pictures in the United States, and the spy blockbuster achieved a box office of 447 million yuan in China.

In the initial planning, the "game + film and television" pan-entertainment development path can form a synergy effect, as early as the "Wulin WaiChuan" into a game, Chi Yufeng noticed the combination of games and film and television, no matter which party produces high-quality IP, can achieve sharing, to achieve 1 + 1>2 effect.

What Chi Yufeng did not expect was that the cold winter of the film and television industry suddenly came. After the introduction of the actor salary restriction order in 2018, the industry trend of chasing traffic stars and content injection was curbed, and the film and television industry entered a period of reduction and quality increase, which led to a slowdown in the expansion of film and television capital, which also made the production cycle of the film and television industry longer, and many projects were suspended or postponed.

In terms of games, although games are still the main force of Perfect World's performance, in 2014, Zulong Studio left Perfect World, and the original head Li Qingdai team was independent and established Zulong Entertainment Company. After losing Zulong Studio, which has the strongest research and development capabilities, the development of Perfect World's game projects has slowed down, and it has also missed the outlet for developing mobile games.

From 2016 to 2017, with the full popularity of smart phones, the mobile game market entered the explosive stage, and the two major game giants Tencent and NetEase developed "Glory of the King" and "Yin and Yang Division" respectively, establishing the top two positions in the domestic game market. At this time, Perfect World "perfectly" missed the outlet of mobile games.

The most popular IP in the hands of Perfect World is still the "Perfect World" and "Jie Xian" developed by Zulong Studio in that year, but under the impact of mobile games, the end game is declining day by day, and it is difficult to attract new users and retain old users.

Since the epidemic, strict epidemic prevention measures have led to a decrease in offline entertainment, consumer entertainment activities have shifted to online, in 2020, Perfect World's game business revenue finally reversed the previous decline, revenue of 9.26 billion yuan, an increase of 35% year-on-year, profit of 2.285 billion yuan, an increase of 20%.

However, at the same time, offline theaters are difficult to open, and it is difficult for films to start shooting, resulting in the further shrinkage of Perfect World's film business. Previously, Perfect World had invested 2 billion yuan to buy theaters to try to improve its business structure, but Perfect World, which has always been based on online, is not good at operating offline theaters. In 2019, Perfect World's film and television business revenue was only 1.178 billion yuan, down 55% year-on-year, and by 2020, due to the impact of the epidemic, its film and television business revenue continued to decline to 960 million yuan, with a loss of 500 million yuan.

The film and television business has become a drag on Perfect World, and the loss part must be made up by game profits, resulting in Perfect World falling into the dilemma of "increasing revenue without increasing profits", and net profits have always stagnated.

In terms of education, Chi Yufeng's Hong En education is also not very smooth, and has been tepid. On October 16, 2020, Hong En Education landed on the New York Stock Exchange, and Chi Yufeng added another listing experience.

Since 2001, Hong En Education has shifted from the initial computer and adult English business to the field of online education for young children, with the main feature of "combining entertainment and education". Although Hong En Education has a certain reputation, Perfect World can also provide financial support for Hong En Education to a certain extent, but Hong En still has problems such as continuous customer acquisition, lack of product barriers and core advantages.

In 2021, although Hong En, who focuses on early childhood education, was not affected by the double reduction policy, in the 2021 financial report, Hong En continued to lose money, with losses of 7.1 million yuan and 1.9 million yuan in the first two quarters, and more serious in the third quarter, with a huge loss of 43.9 million yuan, and the stock price also went all the way down.

Online education needs to continue to research and develop new content, but also needs to improve brand recognition, therefore, Hong En education needs to increase wages, outsourcing costs and advertising expenditures, and its gamified learning model is still not widely accepted by parents, and there is still a long way to turn a profit.

4、

Chi Yufeng, who has repeatedly pulled the road and developed three commercial paths of education, games, film and television with a keen sense of business, found that at the age of 50, each road seems to be full of obstacles: education is difficult to obtain benefits, and the "film-game linkage" that was previously pinned on high hopes cannot be realized.

At the same time, Perfect World's main game business is also facing high-intensity competition, and the third position in the game industry is shaky. In March 2021, ByteDance acquired the game company Mu Hitomi Technology, with a valuation of $4 billion, which is equivalent to the current market value of Perfect World, and the independent Zulong Entertainment has landed on the Hong Kong stock market as early as July 2020, with a market value of 11.2 billion Hong Kong dollars.

The perfect world in 2021 has been a little twilight, there is no space to continue to expand, establish an "entertainment empire" linked by film and television and games, and focusing on the track of games has become a more realistic path.

As early as 2018, Perfect World cooperated with Steam to launch the Chinese version of the "Steam Platform", and on February 9 last year, the Steam Platform opened the pioneer test, gradually listing more than 50 games, including "Noodle Man" and "Dyson Ball Project" and other popular games.

The steam platform still faces huge competition, and Tencent has begun to build a stand-alone game platform Wegame, hoping to develop into a "Chinese version of Steam" to compete with the steam platform. At the same time, due to multiple factors, there are fewer games on the steam platform, and more Chinese players still choose the original Steam. However, for Perfect World, in the current slowdown in the growth of gamers, the platform can still bring traffic entrance and user stickiness.

On the other hand, Perfect World has increased its research and development efforts in self-developed games, with a particular focus on catching up in the field of mobile games. Last April, Perfect World released 24 new games, of which 5 were in beta in 2021, 18 were under research, and 1 was undecided. Of these games, only 4 are identified as console or PC, 3 are undetermined, and the rest are all mobile games.

On this list, the top ten games are "New Immortal World" on the PC side, "New Immortal World" on the mobile side, "Perfect New World" and "Tianlong Eight Parts 2 Mobile Game", as well as the mobile game of the same name adapted from the previous Perfect Film and Television projection TV series "Fragrant Honey Sinks Like Frost". This shows that for Perfect World, the priority option is still the continuation and upgrade of classic IP, as well as the advantages of combining film and television IP and game IP.

However, for the game that Perfect World is officially announcing in development and about to be tested, the enthusiasm of players is not high. Under the question of knowing about "Perfect World", some players commented that "Perfect World" has a delicate picture, but many players have bluntly said that "Perfect World" has no new gameplay so far, and it is boring to play, just "consuming leeks" in the amount of fighting, using the exquisite paid appearance to induce players to kryptonite.

And for the two-dimensional game that Perfect World is going to develop next, players don't seem to have hope. Several players said on social networking sites that in the two-dimensional realm, Perfect World could not be compared to Miha You, which developed Original God.

Losing the perfect world of Zulong Studio, it is no longer "perfect", and the newly developed game is difficult to bring surprises and expectations to players. Although Chi Yufeng, a Tsinghua scholar who has reached the age of knowing his destiny, has made a lot of money through capital operations, he has fallen into the dilemma of a comprehensive decline in revenue, profits and stock prices at the moment when film and television are cold, and the competition in games and education is fierce, and for him, it is too difficult to "pull" a new road.

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