Recently, the company behind TapTap (02400.HK) issued a profit warning, saying that as of December 31, 2021, its net loss was about 870 million yuan to 930 million yuan (hereinafter the same). According to Nandu reporter, the stock price of the company has fallen from the highest point of 114.5 Hong Kong dollars in February 2021 to 18.28 Hong Kong dollars, and the market value has shrunk by more than 84%. According to the stock exchange, Huang Yimeng, chairman and CEO of Heartbeat Company, has increased his holdings 12 times since April 2021, spending nearly HK$250 million.
Version number suspension for nearly 8 months, many game companies have lowered expectations, adjusted the strategy and related organizational structure, manpower distribution, and the heart of the company is currently suffering from a decline in mature game revenue, new products can not be launched for the time being, under the high investment in research and development, how to play the cards in Huang Yimeng's hand?
R&D expenses have doubled year after year
Declining revenue and rising costs were the main reasons for the losses incurred by the companies.
On the one hand, the announcement said that revenue from several existing games in the mature stage declined and partially offset the increase in revenue from TapTap. At the same time, the proportion of agency game revenue is high, but because of the need for multi-party sharing, the gross profit of agent games is low, resulting in a decline in gross profit margin.
On the other hand, corporate spending continues to expand. Among them, R&D expenditure increased by about 550 million yuan to 600 million yuan compared with the same period in 2020, doubling again. At the same time, the increase in TapTap's promotional expenses and employee benefits increased by approximately RMB175 million to RMB225 million in sales and marketing expenses and general and administrative expenses.
In the past two years, the investment in game research and development has been visible to the naked eye. At the end of 2019, the number of R&D personnel in Heartbeat Games was 805, and by June 2021, the company had a total of 1270 employees involved in game research and development. At present, the uncertainty of the domestic game distribution environment makes the prospect of the development of heartwarming game products more uncertain, since the State Press and Publication Administration last announced the approval information of domestic online games in July 2021, the issuance of game version numbers has entered a state of stagnation. TapTap was once punished for publishing a game without a version number for three months.
It is worth noting that although the surge in R&D costs and marketing expenses has not increased overall revenue, the Board of Directors of Heartbeat has made optimistic expectations for the future, saying that it will invest a lot of resources in game development and TapTap's international business expansion in 2021, "although it did not generate revenue in that year, in the long run, the investment is in line with the long-term interests of the Group and is expected to gradually realize benefits this year and next year".
However, at the beginning of this year, the company was exposed to "lay off one-third of the staff", and then Huang Yimeng responded on Twitter that there was indeed an adjustment of some team positions, but the number of people increased or decreased according to actual business needs, and there was no one-size-fits-all ratio. Enterprises also said in response to the media that the proportion of layoffs is significantly less than 1/3, and the recruitment of key businesses and important positions of the company will still be promoted normally.
Overseas markets may become new growth points
Industry insiders told Nandu that heartbeat companies have relied on the popularity of "Wonderland Legend" in the past, but in recent years, they have not been able to launch new phenomenal games. In today's mobile game system, NetEase, Tencent, Bilibili, Mihayou, etc. all rely on big IP production to win the market. In contrast, although Heartbeat Games has achieved significant growth in paid games through works such as "Meowth Run" and "Human Falling Dreams", paid games account for a relatively small proportion of total revenue, and it is still difficult to take on the responsibility of reversing the situation. Industry insiders said that if the heartbeat is delayed in completing the breakthrough of the research and development end, it may fall into a greater crisis.
According to the 2021 interim financial report, the average monthly active users of Heartbeat Games in the first six months of 2021 were 15.69 million, down 48.5% year-on-year. It is worth noting that "Sausage Party", a game with declining domestic user activity, was welcomed by players after landing in the Southeast Asian market, and received 15 million downloads in 30 days. In addition, the data shows that in the first six months of 2021, the average number of monthly active users of the TapTap international app reached 13.183 million, an increase of 484.4% year-on-year. In contrast, TapTap China's monthly active users were 28.671 million, an increase of only 15.6%.
As Xinxin said in its previous response to the layoffs, "We are ready to invest our main resources and business focus into overseas markets with greater certainty and growth, while also reducing the total number of projects under research and focusing our goals and resources on projects that are scheduled to be launched in 2022."
Industry insiders said that under the status quo of the release time and unknown response of the new work, the development of overseas markets will be the growth point of the profitability of the heart-pounding game, and it is also the direction of expanding its business layout.
How far is it from "Netflix in Gaming"?
In a letter to shareholders issued in April 2021, Huang Yimeng explained the slogan "Heartbeat, never realistic to start to achieve": "The 'unrealistic' here is not that we can't understand reality, we can't recognize reality, but 'we are not satisfied with reality'. And TapTap is a manifestation of its ambition.
In Huang Yimeng's vision, he hopes that TapTap can become a "Netflix in the field of games" and have an international impact. The game products under Heartbeat and tapTap also have an inseparable symbiotic relationship, the research and development end provides high-quality content to the platform, and the platform uses its own traffic to expand the influence of the product.
When various channels harvest lucrative mobile games through the harvest, TapTap does not charge commissions, and the model of relying only on advertising to make money is different. In recent years, TapTap has bypassed the channel and won the favor of popular games such as "Original God" and "Awakening of All Nations", and the scale of the market at home and abroad has also expanded.
According to the data, TapTap is expected to have revenue of 700 million yuan in 2021, an increase of about 36% year-on-year. According to tapTap's annual report, in 2021, the tapTap platform will have a total distribution of more than 510 million times (January to November), of which there are five games with more than 10 million downloads. In the whole year, more than 1,000 new games were launched on the platform, and the cumulative download was 144 million times. In terms of paid game distribution capabilities, TapTap sold a total of 6.2 million buy-out games (excluding free downloads and paid unlocked games) throughout the year, with the highest single selling of more than 1.2 million copies.
Industry insiders said that the resumption of the issuance of domestic version numbers is expected to promote the growth of platform user scale and revenue, while the trend of games going overseas will also drive the development of TapTap international version. But the question of how to convert traffic from popular games into revenue still awaits a better answer. At the same time, behind the increasing investment in research and development, whether self-developed games can achieve self-breakthrough with the help of the platform's Dongfeng will also be one of the keys to determining the company's future development, and whether Huang Yimeng's "unrealistic" can really enter reality or will also depend on this.
Written by: Nandu reporter Ye Lu intern Duan Xinyu
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