Shareholders miss Zhou Yahui

Image source @ Visual China

Text | Node Finance, author of | Wu Xing

In 2003, Wang Xing dropped out of school to start Duoduoyou; in 2005, Zhang Yiming started a collaborative office system — in 2000, a few years before them, Zhou Yahui took a break from school to start Vulcan Animation Network.

Although he has invested in many unicorn companies that are envied by the outside world, such as Didi, Qudian and Yingke, Zhou Yahui's ambitions do not stop there. In an exclusive interview last January, Zhou Yahui said, "If you don't do a $10 billion company, you can't go out and meet people... This kind of time is to be a person with his tail between his legs", more than twenty years later, he has long been financially free, and he still classifies himself as a member of tsinghua Wudaokou's entrepreneurial circle.

Honest as he is, bluntly saying, "I'm not very good at mixing, so I'm still low-key." In 2015, he wrote many details of the internal operation of famous investment projects, which are still circulated today. He has been the chairman of Kunlun Wanwei for nearly 2 years, and he rarely appears, silently cultivating his re-entrepreneurship project Opera browser in Africa.

Zhou Yahui wants to return to the stage. Shareholders miss Zhou Yahui.

Starting with games, companies that now export Chinese models and products to the world often make the outside world incomprehensible. As the core business of the game, the development is slow, and in 2021, the frame of the five major businesses seems to make the company that is constantly exploring in various segments of the track take shape, but Opera, as a new pole of growth, seems to be struggling to survive in the face of internal and external difficulties. Judging from the industry average of each business sector, its valuation does seem to be undervalued, although it seems to be the consensus that profitability is strong and there is no shortage of money, but Zhou Yahui, who is a self-styled entrepreneur, seems to have become one of the biggest variables. Many people in the outside world are concerned: can investor Zhou Yahui personally bring up a good project, and whether a company with a market value of 10 billion will become his promised land?

01 Transformation "report card": investment supports net profit, overseas business accounts for 70%.

Not only that, but it also has a valuation that doesn't seem to match its revenue capacity. Kunlun Wanwei's dynamic price-to-earnings ratio was 11.47 on April 3, which is far lower than the average dynamic price-to-earnings ratio of 27.11 in the game industry in the same period.

Of course, Kunlun Wanwei is not a game company at the moment to profile or value.

Judging from Kunlun Wanwei's deducted non-net profit, 2020 will reach its peak in recent years. In 2020, Kunlun Wanwei sold its same-sex dating platform Grindr for 4.2 billion yuan. Although it hurts revenue, it makes net profit appear a "roller coaster" trend. In 2021, the net profit returned to normal levels, and the net profit after deducting non-profit was 1.29 billion yuan. In fact, in the first three quarters of 2021, Kunlun Wanwei's non-net profit was still 1.902 billion yuan, and the fourth quarter was a huge loss, mainly due to the loss of investment in Didi. In the fourth quarter, as of September 30, 2021, Didi's latest share price, Kunlun Wanwei's 2.1212 million shares (corresponding to ADS 8.4848 million shares) confirmed a fair value change loss of up to 349 million yuan.

Since the acquisition of Opera and Gridr in 2016, Kunlun Wanwei's business focus has shifted from a single game sector to a single game sector after only one year of listing, and it has continued to build a diversified business system through investment. According to the annual report, the company's total operating cost in 2021 was 4.32 billion yuan, while 8.56 billion yuan was invested in the investment field, of which 2.02 billion yuan was used to acquire Opera and Star Group to complete the financial consolidation.

From 2016 to 2021, Kunlun Wanwei's investment income accounted for 90%, 31%, 46%, 47%, 67% and 107.7% of the net profit of the current period. Since 2018, investment income has remained at more than half of Kunlun Wanwei's profits. Qudian, Yingke, Opera, Ruhan Holdings, Dada Group, Didi, etc. are all listed companies invested by Kunlun Wanwei. The game business, which once accounted for 95%, fell below 40% of the revenue contribution last year, less than 16.04%, ranking fourth in the main business income, and the revenue decreased by 35.16% compared with 2020.

02 The game business is declining, and it is assisted to go to sea

Kunlun Wanwei's revenue is mainly supported by the five major business sectors of overseas information distribution platform Opera, overseas social entertainment platform StarX, global mobile game platform Ark Games, leisure and entertainment platform Leisure Interactive Entertainment and technology equity investment.

As early as 2020, founder Zhou Yahui left the chairmanship to start a second venture and devote himself to African projects - Opera and Opay. Zhou Yahui is ambitious, "must make today's headlines in these places." It seems to be an initiative, but behind it is actually a game-breaking move in the face of a long-term stagnation in the core game business.

In 2017, the company's game business has been surpassed by the revenue of online social business. From 2017 to 2021, Kunlun Wanwei's game business revenue has been nearly stagnant for nearly five years. In 2020, the epidemic spawned demand for games, and when other companies expanded their territory, Kunlun Wanwei even fell by nearly 20% year-on-year. 2021 went further, with a year-on-year decline of more than 35%.

In 2021, the game business is seriously marginalized, and Kunlun Wanwei is fading the game background. In 2020, the gap between the revenue of the game business and the social network business is not large, and the gap between the two is only about 2% (it is worth noting that Kunlun Wanwei split the income of leisure and mutual entertainment, the income of the room card is classified as "social income", and the income of the platform game intermodal transport is "game income". ）

The company's management is aware of this: "Games are what we do best. Although our share of the company's business has declined, we will continue to invest resources, especially in Southeast Asia and emerging markets such as South America and the Middle East. In other words, the game will assist other overseas businesses in making grand strategic transformations.

Since the self-developed "Divine Demon Sacred Domain" in 2016, the mobile game platform GameArk platform's "Clash of Clans" and "Island Raiders" can bring stable revenue every year, but there has also been a downward trend. Since the development of the game "Tower of the Sacred Land" was launched in Hong Kong, Macao and Taiwan this year, it has achieved remarkable results. This game will be represented by ByteDance in the domestic market, and it may usher in a wave of positives after the release of the version number.

03 10 billion new business dawning? Can the blue ocean market be smoothly "ferryed"

In 2020, Kunlun Wanwei sold Grindr, one of the world's largest gay dating platforms, for regulatory reasons, for $620 million. The $320 million transaction money received in 2020 enabled Kunlun Wanwei to achieve an inverted performance of 2.7 billion yuan in revenue and 4.9 billion yuan in profit.

In February 2021, Kunlun Wanwei acquired a 60.65% stake in starGroup, a U.S.-based company, for 1.395 billion yuan, holding a total of 80% of the equity after the completion of the transaction, and completed the merger work. Despite the long-term investment, it was not until 2021 that it was decided to buy this project and enter the K song platform. StarGroup (renamed Star X) is considered a replacement asset for Grindr.

As an online K-song platform, in the first half of 2021, StarMaker (StarX's main product) users spent an average of 49 minutes online per day, second only to YouTube (77 minutes), Tiktok (71 minutes) and Facebook (55 minutes). At present, StarMaker has won the first place in the same category download list in South Korea, Spain, Italy and other countries, and has entered the top five in France, Belgium, Mexico, Brazil, Chile and other places. Kunlun Wanwei regards it as a potential stock to vigorously support. What is the prospect of this business? Slightly miserable to say, Kunlun Wanwei is not too worried about competitors, because "the giants in this field can't look at it at all."

Opera, which was also merged last year, was once known as the world's third largest browser, and under the operation of Zhou Yahui, it is committed to becoming The "Headlines of the Day" in Africa, while Opay is positioned as the African version of "Alipay". At present, Opera seems to be moving towards the Internet platform - the platform will get more traffic and advertising revenue.

Zhou Yahui believes that Opera is a tens of billions of dollars in the future, although Opera has achieved an operating income of 1.60 billion yuan, the market value of NASDAQ is only about 600 million US dollars. Last year's net profit turned from profit to loss, with a net loss of 280 million yuan. Valuations appear to be well below the industry average, and Opera announced a $50 million share buyback program in January. Kunlun Wanwei has increased its support for R&D investment in Star X and Opera. In the nearly three years before the merger last year, the proportion of Kunlun Wanwei's R&D investment to operating income was 10.86%, 7.67% and 6.06% respectively, which decreased year after year. After the merger, the R&D expenditure has shown a year-on-year growth trend since 2021. Perhaps, investment in game research and development remains low, and new businesses are creating profitable growth points.

Zhou Yahui was famous for the series of investment notes released around 2015. "Angels can take Zihui's money, A round takes Zhu Xiaohu's money, B round takes my money, C round gets Sequoia's money, that is definitely a perfect combination." The horse lost its front hoof, the Musical.ly which he had invested in, was later incubated by ByteDance to TikTok.

04 Billion-level blue ocean market, Zhou Yahui's "Promised Land"?

Africa is considered to be "the world's last billion-level blue ocean market" and has become the preferred destination for many domestic Internet companies to go to sea. In 2016, Kunlun Wanwei acquired Opera, a browser with a 30% market share in Africa at the time.

A survey of Kunlun Wanwei, released two years ago, pointed out, "The current problem is that the monetization cycle in Africa is relatively long, so from the perspective of monetization, we should not enter India and Southeast Asia, but should enter Europe, which has a better user monetization base." ”

The monetization cycle is relatively long because the African ARPU value, that is, the average income per user, is low. Enterprises can occupy a high ground in this blue ocean with the first-mover advantage, but how to make money from it is fundamental. How high is the market ceiling for Opera Browser? Song Lin, co-CEO of Opera, has a saying: "70% to 80% of users do not care about browser brands, generally we do not target such people as target users, our goal is the remaining 20%. But even this 20% of users is a market of 1 billion users. "However, the reality is that opera's market share is declining, according to statcounter data, opera's market share in Africa has dropped to 9% as of April 2022, behind Chrome (72.44%) and Safari (9.12%). Opera's influence in Africa is being severely eroded by other competitors.

In terms of global browser market share, Opera accounts for only 2.07%, and has been almost standing still for many years. According to the April 2022 data, Opera's market share ranks sixth in the world.

Opera is known for its data compression technology, which is more user-friendly to African traffic charges, so gradually Africa has gained a foothold. Another piece of information disclosed in the 2021 annual report is "rapid user growth of 35% in Latin America and 22% in North America," respectively. This shows that the company is still in a period of rapid growth, and more importantly, perhaps the growth rate of new users in Africa is slowing down and needs to be filled by other regions.

From a business model perspective, browsers are still essentially dependent on search and advertising. From the perspective of future revenue composition, the search part has fewer changes, basically around the MAU, and the increment will focus on the advertising revenue brought by Opera News and so on. Another Chinese enterprise that went overseas in Africa pointed out that the African market has not yet occupied an absolute market share of mobile Internet products in the fields of payment, finance, music, travel, and life services. Opera's performance in terms of content ecology and payment has not yet reached the cashing period, so the stock price remains depressed.

epilogue

According to wind data and Huatai Securities statistics, A-share game companies in 2021 PE more in the range of 15-30 times, and the latest research reports of many securities companies believe that "the valuation of the game sector has bottomed out". Kunlun Wanwei's latest market value is about 17.4 billion yuan, from the perspective of game business, the net profit of Leisure Interactive Entertainment is 842 million, if it is 20 times PE, the market value is 16.84 billion.

The valuation of the last part of the investment business, some industry insiders through the discount analysis of this, known reporting period of the company's joint venture long-term investment account cost of 1.794 billion yuan, other non-current financial assets of 5.889 billion yuan, trading financial assets of 833 million yuan, then the total of the three about 8.516 billion, according to the 70% discount, about 5.96 billion.

The sum of the valuations of the above sectors is about 32.23 billion yuan. At present, the total market value of Kunlun Wanwei is only about 17 billion, which is far lower than the industry level.

In addition to the financial data itself, one of the biggest variables affecting Kunlun Wanwei's valuation may be Zhou Yahui himself. In the past, Zhou Yahui invested in personal assets, waited until the project matured, sold at a premium to his own listed company, and continued to invest and cash out after recovering cash. Leisure Entertainment, Opera and Star Group have all injected into listed companies in this form, and now also include Opay. No matter how depressed the company's stock price is, Zhou Yahui personally makes a lot of money. Not only that, from the listing in 2015 to 2021, the company has achieved a cumulative net profit attributable to the mother of 11 billion yuan. However, the company's dividends to shareholders are better than nothing. This is criticized by the outside world.

Under the operation of Zhou Yahui, Kunlun Wanwei' main business sector is almost promoted at the rhythm of a major adjustment every year. Compared with Wang Xing, Zhang Yiming and other insiders in the five-way entrepreneurial circle, it is difficult to get rid of the true color of investors. The outside world still questions whether he has the ability to make the project from 1 to 100, taking Opay, who he personally presided over, as an example, the project has been subjected to continuous pressure due to supervision and public opinion due to the attributes of small loans. But can time stand on the side of Zhou Yahui, who is not short of money and is known as "all in" Opera?

"Entrepreneur" Zhou Yahui is testifying to himself, and shareholders miss Zhou Yahui.