Recently, game listed companies have successively announced their 2021 financial reports, and overall, the performance of most game stocks is difficult to be satisfactory.
For example, the game business revenue growth rate of giant Tencent (HK:00700) has slowed down; while companies such as Heartbeat Company (HK:02400) and Friendship Time (HK:06820) have experienced negative year-on-year revenue and net profit growth.
The reason is that, on the one hand, most of the game companies have achieved rapid growth during the outbreak of the epidemic in 2020, and the high base effect has led to pressure on performance; on the other hand, due to factors such as domestic version numbers and increased sales and research and development expenses, the net profit of many companies is facing greater challenges.
In this environment, Red Star Capital bureau noted that the "report card" of board gamers - ZenYou Technology (HK:02660) in 2021 is particularly eye-catching.
According to the financial report, in the whole year of 2021, Zenyou Technology achieved operating income of 1.474 billion yuan, an increase of 98.5% year-on-year; net profit attributable to the parent company was 500 million yuan, an increase of 126.4% year-on-year.
The capital market has also reacted quickly to the company's nearly doubling revenue and profit growth.
Zenyou Technology officially landed on the Hong Kong Stock Exchange on April 19, 2019, with an issue price of HK$1.23 per share, and since then, the stock price has once shown a "falling and falling" trend, and in December 2019, it fell to HK$0.53 per share. After the outbreak of the epidemic in 2020, the stock price of Zenyou Technology began to rebound, and after the release of the 2021 annual report, the company's stock price rose rapidly, reaching a high of HK$2.56 per share.
As of the close of trading on April 15, 2022, Zenyou Technology closed at HK$2.19 per share, with a total market capitalization of HK$2.227 billion.
This seemingly "niche" game stock, its products you may not be unfamiliar with. This article will be divided into three parts to talk about:
What is zenyou technology's business model?
How did ZenYou Technology's "amazing" performance in 2021 come about?
As a representative of board games, what is the future imagination space of Zenyou Technology?
(i)
A listed company that started with "fighting landlords"
ZenYou Technology was founded in July 2010, and the establishment of this company is closely related to Tencent Games.
Zeng Liqing, an early investor in Zenyou Technology, was one of Tencent's five founders, and he left Tencent in 2010 to start a new business, and later invested in The founding of Zenyou Technology.
Most of the core founding teams of Zenyou Technology come from Tencent Games: CEO Ye Sheng served as the product director of QQ Game Products, and CTO Yang Min served as the R&D director of QQ Games.
In 2013, ZenYou Technology launched "Tiantian Dou Landlord (Live-action Version)", which was very popular with users after its launch.
Source: Company website
In 2015, Yang Min said in an interview with reporters that ZenYou Technology currently has more than 40 games, and the most popular is the popular products such as fighting landlords and playing mahjong.
Zenyou Technology's prospectus also shows that the "landlord" supported the entire company at that time.
According to the prospectus, from 2016 to 2018, Zenyou Technology achieved operating income of 338 million yuan, 460 million yuan and 555 million yuan respectively; gross profit was 73.1 million yuan, 158 million yuan and 247 million yuan in the same period; net profit was 40.411 million yuan, 66.396 million yuan and 109 million yuan, respectively.
And among them, how big is the contribution of the "landlords"?
According to the prospectus, from 2016 to 2018, the Doudi main card game series contributed about 285 million yuan, 428 million yuan and 421 million yuan respectively, accounting for about 84.4%, 93.1% and 75.8% of the company's operating income in each period, respectively.
In 2018, the revenue contribution of the landlord card game declined due to the addition of in-game advertising monetization methods to obtain revenue by Zenyou Technology; in the second half of that year, the company hired 7 advertising companies to expand the in-game advertising business.
So it can also be seen here that the business model of Zenyou Technology is very simple: users can download and play for free, and the company earns income by selling virtual props (game beans) in the game; when the user does not want to pay, they can also get game beans by watching advertisements, and the company obtains advertising revenue.
From the user level, as of December 31, 2018, Zenyou Technology had 442 million registered players, of which 284 million were card gamers.
On average, there are 5.145 million players who "fight landlords" on the platform every day, and 21.633 million monthly active players. Of the 21.633 million monthly active players, 1.013 million pay for game beans every month. These paying users spend an average of 35 yuan per person per month on the "landlord".
Source: Prospectus
It is worth noting that since after 2018, Zenyou Technology has developed advertising as a way to monetize traffic, to some extent, this actually reduces the threshold for users to play games. Therefore, in 2018, although the average conversion rate of monthly paid users and paying players has declined, the cumulative registered users, daily active users, monthly active users, and average revenue per paid user have maintained steady growth.
From the perspective of Zenyou Technology, this was actually the strategy of "pulling new" at that time. Because the entire market was still in an incremental market at that time, the company needed to gather enough players to improve user stickiness and stabilize its basic disk.
Source: Prospectus
In general, Zenyou Technology relies on "fighting landlords" to make the company gain a firm foothold in the board game sector. It is not an exaggeration to say that this company is listed by "fighting landlords".
As for why it is a "landlord"? On the one hand, this is the traditional entertainment project of mainland users and has a large audience base; on the other hand, with the popularity of smart phones and 4G networks at that time, the relatively mild game of "Fighting Landlord" is very convenient and fast in line with the needs of users' entertainment.
(ii)
"Mahjong" has become the baton of revenue
Combined with the latest financial report data, from 2018 to 2021, the revenue of Zenyou Technology was 555 million yuan, 662 million yuan, 743 million yuan and 1.474 billion yuan, and the revenue growth rate was 20.7%, 19.3%, 12.1% and 98.5% respectively.
It is obvious that from 2018 to 2020, although the total revenue of Zenyou Technology is still increasing, the revenue growth rate has slowed down significantly; in 2021, the company's revenue growth rate will reach 98.5%, almost doubling the total revenue.
Source: Company Financial Report, Red Star Capital Bureau
In terms of net profit, the net profit attributable to the parent company of Zenyou Technology in 2021 was 500 million yuan, while in 2020, the net profit attributable to the parent company was 221 million yuan, an increase of 126.4% year-on-year in 2021.
The "big harvest" of ZenYou Technology in 2021 is inseparable from "mahjong".
In 2021, the revenue of The board game business represented by mahjong of Zenyou Technology directly increased from 64.397 million yuan in 2020 to 918 million yuan in 2021, an increase of 1325.6% year-on-year.
From the perspective of the proportion of revenue of each business of Zenyou Technology, the proportion of card game revenue in total revenue decreased from 66.1% in 2020 to 35.1% in 2021; while the proportion of board game revenue increased rapidly from 8.7% in 2020 to 62.3% in 2021.
Source: Company Financial Report, Red Star Capital Bureau
ZenYou Technology also said in the 2021 financial report that "Fingertip Sichuan Mahjong" is popular and loved by players, and it has won the second place in the desktop game of China's iOS best-selling list and the first place in the live broadcast of Douyin chess and card games.
Source: Company website
The "Mahjong" business will achieve great success in 2021, which may also be inseparable from the "pay" of Zenyou Technology itself.
According to the 2021 financial report, Zenyou Technology has added a new "new marketing cost" item, which will reach 61.359 million yuan in 2021, accounting for 10.8% of the total cost of sales, and the so-called new media cost refers to the expenditure of Zenyou on live broadcasting.
The financial report also mentioned that the company has expanded the source of new users and maintained user stickiness by increasing the publicity of new media channels such as Douyin, Tencent Video, Kuaishou, Watermelon, and Toutiao.
Source: Company earnings
And Zenyou Technology's marketing layout in 2021 is also mostly spent on "mahjong".
According to DataEve-ADX data, from the perspective of advertising volume, Zenyou Technology's advertising volume has increased significantly in 2021. From the perspective of gameplay, ZenYou will focus on landlord games in 2020; in 2021, it will turn to bet on mahjong games, mahjong games account for more than 80% of the total amount of materials, and the proportion of landlord games will drop to less than 20%.
Source: DataEve-ADX
It can be seen that Zenyou Technology is indeed "spending blood" for "mahjong", and with the help of live effects, Zenyou Technology has also increased its revenue in the mahjong series of games by 13 times a year.
At the user level, the cumulative number of registered players of Zenyou Technology increased from about 1.1 billion as of December 31, 2020 to about 1.3 billion as of December 31, 2021, and the virtual item ARPPU (average revenue per paying user) increased from about RMB35 for the year ended December 31, 2020 to about RMB88 for the year ended December 31, 2021. That is to say, in 2021, the registered users of Zenyou Technology and the amount of payments paid by single users have increased significantly.
As for why "mahjong"? On the one hand, due to the huge mass base of "Mahjong" and the variety of "Mahjong" gameplay, it meets the different needs of players; on the other hand, Zenyou Technology has naturally begun to focus on "Mahjong" after many years of "conquest of battle landlords".
(iii)
Under the supervision and competition, Zenyou Technology is also under pressure
When it comes to "playing mahjong and fighting landlords", it may be easy to associate it with words such as gambling, which is naturally also an industry that the regulatory authorities pay attention to, which also has a greater business risk for board game companies; on the other hand, due to the low threshold, wide audience and high gross profit margin of this industry, many players have long been gathered.
Let's start with the regulatory level.
Since 2019, the regulatory authorities have cleaned up and rectified board games, and Tencent and other companies have taken the initiative to remove games such as Texas and Fried Golden Flower, which once made the board game market enter a state of deep adjustment.
Although the entire chess and card industry has improved after the outbreak of the epidemic, in view of the characteristics of the industry, the state will still strengthen supervision of board games in the future.
As far as the release of game version numbers is concerned, from december 2018 to July 2021, except for some competitive chess games, no mahjong or card games have been reviewed.
In the case of limited version numbers, Zenyou Technology can only add new ways of playing old board game products, such as "Four Seasons Ivy" of "Fingertip Sichuan Mahjong", "Blood Flow Eight Treasure Cards" of "Zen You Dou Landlord" and so on.
But how long can the user's popularity last? Under strong supervision, the future of Zenyou Technology still has more uncertainties.
The second is industry competition.
Nowadays, board games have entered the stock market, and the competition is very fierce. Although the supervision of chess and card categories tends to be strict, the homogenization competition has not decreased, and everyone wants to gain a foothold in the huge board game market.
As far as Zenyou Technology is concerned, although the 2021 financial report is very eye-catching, it is still in the middle of the market, and the difference between the head player is huge, which also means that the company does not have any market discourse. For example, Tencent also has "Happy Bucket Landlord" and "Tencent Happy Mahjong" and other products, according to sensor tower data, Tencent developed the "Happy Bucket Landlord" iOS terminal in March 2022 global monthly revenue of 5 million US dollars.
In addition, more and more entertainment options are presented in the mobile phone terminal, not limited to competition in the same industry, major APPS are competing for the user market, and the user's attention is also easy to be diverted. In the face of fierce market competition, Zenyou Technology still appears too "thin".
brief summary
According to Frost & Sullivan data, the number of domestic chess and card users reached 432 million in 2018, and the number of online board games is expected to reach 529 million in 2021.
It can be seen from the data that games such as "fighting landlords and playing mahjong" in China are indeed loved by the people, and it also makes Zenyou Technology a company that earns "a lot of money". On the other hand, although the life cycle of such board games is long, enterprises have also lived under the dual pressure of supervision and competition for a long time, and Zenyou Technology will face great challenges in the future, whether it is deeply cultivating board games or opening up new game types.
Red Star News reporter Yu Yao Liu Mi
Responsible editor Ren Zhijiang
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