#5月财经新势力 #
Preface:
Games are a controversial "good thing".
Why is it controversial?
There are two main reasons, the first game is not a serious job in the eyes of many people of the older generation, and the second game is easy to indulge.
Why is it a good thing?
Because it can bring happiness to people.
In my opinion, on a legal basis, everything that makes people happy is a good thing.
But everything should have a degree, excessive indulgence is not a good thing, and losing self-control will make people unable to extricate themselves from the quagmire of desire.
"Man can deny himself without trouble, and sleep peacefully without deception."
So the question is not the game itself, but how to play it.
It's good to play games for a while in your spare time, but it's not good if you delay normal study and work because of games.
From the perspective of making money, game to earn is among the best among all Internet products.
There are also two main reasons:
The first time is that it is cool, especially after paying for it, it will be even cooler, this kind of money is easy to earn.
Second, the cost is low, not counting the promotion cost, the main cost is manpower and servers, and the secondary cost is ordinary office supplies.
Some people may say, isn't the promotion cost the big head, why not.
There is no upper limit to promotion, and large-scale buying traffic is only done by large companies.
In fact, the number of games is very large, at least in tens of thousands, from children to the elderly, there are countless games for different stages of user groups to choose from.
There are also many small and medium-sized game companies, and I have many around me.
In my opinion, games can be roughly divided into three categories, the first category is single-player games, the second category is self-hi games, and the third category is competitive games.
Single-player games should have been played by everyone, such as Tetris, Contra, Tank Wars, Thunder, The King of Fighters, etc., without connecting to the Internet, download one or in the game hall, you can play casually.
The self-hi game is much more advanced, you need to connect to the Internet, but you don't need teammates to cooperate, or the cooperation requirements are very low, and there are no restrictions, it is an upgraded version of the single-player game, and it also belongs to the "level" type, which can be played at any time and interrupted at any time, which is nothing more than a new one, without any impact, such as "Ninja Three" and so on.
Competitive games are more advanced and the most popular, such as Honor of Kings, Peace Elite, etc., this kind of game belongs to confrontation.
In terms of development difficulty and cost, it is increased one by one.
But in essence, you only need to hire a developer, buy a server, and you can make a game.
So although there are very few popular games, the number of games is actually as many as cattle.
Is it only popular games that make money?
No, you are wrong, there are many money-making games, and the number of users above the million level is a popular game, and many games have only tens of thousands of players, which is also very profitable.
The reason is simple, the cost is very low, if you do not update the maintenance, such as single-player games, the cost is only the server.
This is also the entrepreneurial project chosen by many IT technicians, only need to hire someone to do 3D modeling, make a picture, and then you can develop it by yourself, and you can also maintain it yourself in the later stage.
This model is very common, although you can't make a lot of money, but if you are lucky, it is easy to earn salary money, and no matter how lucky you are, financial freedom is also possible.
Why is the premise that "luck" is good?
Because their strength cannot make super large games, nor do they have the funds to invest in advertising to attract users, they can only rely on light operation or organic traffic.
I generally call this "wandering."
It is precisely because of the low threshold that the market competition is very fierce, the user's time is limited, and each person can only play a few games at most.
Then the game market, naturally formed a layer, the top layer is of course Tencent and NetEase such old supergiants, the middle layer is Sanqi Interactive Entertainment such a rising star, the quality of the game is no problem, but need to rely on huge funds to buy traffic to maintain the volume, the bottom is just said small and medium-sized studios.
This is the fundamental framework for the functioning of the gaming market.
That Sanqi Interactive Entertainment has a giant at the top in this kind of situation, and there is a scattered market under it, can it highlight the encirclement?
Especially today's advertising costs are getting higher and higher, the cost performance is getting lower and lower, can you still rely on the way of buying traffic?
Let's answer these two questions by analyzing them from various angles.
1. Company
The establishment of 37 Interactive Entertainment is more interesting, and the growth is relatively simple.
The founder is called "Li Yifei", also known as Li Weiwei, a native of Sichuan, born in an ordinary family.
Li Yifei is not an outstanding talent, but his grades are not bad, and he was admitted to Sichuan University, studied management, and later was admitted to Cheung Kong Graduate School of Business to study EMBA.
The original intention of founding Sanqi Interactive Entertainment is also very simple, he likes to play games, all kinds of games come and go, from middle school to university are played like this, and has always wanted to develop a game of his own.
After graduating from university, I first went to work in an Internet company to learn the operation and management methods of Internet products.
In 2011, Li Yifei felt that the time was almost ripe, and he had learned what he should learn.
So he pulled two other friends, established 37 Interactive Entertainment, and officially began to make games.
However, I did not develop it myself, but chose an agent.
The IT industry developed first abroad, and the game also did the best.
Li Yifei found some games that were done well abroad, and took them to China to publish and operate, because he did not have to develop it himself, so the number was very large, and he operated more than 100 games in the first year.
As the saying goes, quantity changes produce qualitative changes, so many games, there will always be some that will be loved by players.
So soon the number of users exceeded 100 million.
But at that time, the reputation was not good, because the behavior of "playing tricks and cutting leeks" was very obvious.
Competitive games must be supported by a large number of users, otherwise teams or PKs may not find people, which is naturally not fun.
However, the life cycle of games is destined to be short, and even the most classic games will eventually be abandoned by people of different ages.
So at that time, in order to make money, Sanqi Interactive Entertainment first attracted players to come in through a large number of advertisements, and at the beginning it was prosperous, the new user map was fresh, and many people would also charge money.
But after a period of time, the quality of the game itself is not high, and it will soon get tired of playing, and naturally many players will retreat.
Regress to a certain point, there is no guarantee of balance, and shut down the server.
Then in the same way, restart a new server, or a new game, and go through the process all over again.
From the perspective of the operating model, this is a virtuous circle, after advertising, you can gain a large number of users, then make a sum of money, and then have the capital to invest, and then continue to invest.
Relying on this simple and crude way, Sanqi Interactive Entertainment won 17% of the page game market in 2015.
However, this behavior also caused chaos in the industry order, so from that year, regulators intervened and began to rectify the game market, coupled with the popularity of smart phones, people's attention shifted from computers to mobile phones, so the page game performance of Sanqi Interactive Entertainment fell sharply.
Li Yifei was a visionary, he probably didn't expect regulation to come so quickly, but he certainly predicted that "mobile games" would replace page games.
So as early as 2013, it began to lay out mobile games and established 37 mobile games.
And the business model has also been transformed from agency to self-development.
In 2016, 37 Interactive Entertainment launched its first mobile game "Eternal Era", which was actually a trick, just making the page game into a mobile game.
But the result was good, successful, and popular, and the number of players soon exceeded 50 million, and the recharge amount exceeded 4 billion.
Later, there was an online novel that was very popular, called "Douluo Continent".
To what extent is the fire?
I believe that many young people have seen it, and most of them have heard of it, if not seen it.
Older people don't know how many people have seen it, but I have seen it anyway.
Sanqi Interactive Entertainment made a game "Douluo Continent" along the trend, and the result was self-evident, and it quickly became popular out of the circle.
This is almost a sure thing, but any popular novel, a game based on the prototype of the novel, does not perform badly.
The reason is simple, since you like this novel, of course, it is easy to accept the game of the evolution of the novel, and then after reading the novel, you are already familiar with the plot and characters, and then play this game naturally has zero threshold.
This is very important, the biggest problem of large games is acceptance and stickiness, and the game modified from the novel is equivalent to educating the user in advance.
Therefore, Sanqi Interactive Entertainment has achieved great success, and thus has become the third in the mainland game industry.
The eldest is Tencent, and the second is NetEase.
Although as the third old, it seems to be huge, but there is a problem.
Tencent has user advantages, and its position as the boss is undoubtedly and very stable.
NetEase has always paid attention to the quality of games, so most of the games are very classic, classic so that they do not need to be promoted, users will spontaneously pull friends to play together, classic enough to cross more than a generation.
Sanqi Interactive Entertainment obviously has neither user advantages nor NetEase's technical advantages, so it has been stuck in the quagmire of buying volume.
The picture above is the sales expenses of Sanqi Interactive Entertainment in recent years, which have risen to about 9 billion in just a few years.
In 2022, the total revenue will be 16.4 billion, the net profit will be only 2.9 billion, and the sales expenses will be as high as 8.7 billion.
Where did all this money go?
The figure above is a breakdown of sales expenses in 2022, almost all of which were spent on the item "Internet traffic fees".
And every year.
There are two operating models of 37 Interactive Entertainment, namely "independent operation and third-party joint operation".
The two models must be distinguished, because the cost problem is determined.
Independent operation is to use its own or third-party channels to publish and operate, be fully responsible for the operation, promotion and maintenance of the game, and provide unified management services for the promotion of the game, online customer service and recharge and collection.
In this model, the company's main expense is to buy traffic.
Third-party joint operation is a joint operation with one or more game operation companies or game application platforms.
The focus is on the management of their respective channels with third-party game operation companies or game application platforms, such as operation, promotion, recharge and collection, and billing systems.
The popular explanation is this joint operation model, users through third-party companies, there is no traffic cost, but the money contributed by users must be shared with the third party, which is the main expense of the company's "operating costs".
The picture above is the cost of 37 Interactive Entertainment in the past five years.
What I put in the red box is to work with a third-party company and share the money to them, so it is the operating cost.
What I use in the green box is the autonomous operation model, and the money to buy traffic is the sales expense.
Comparing the amount of the two, you will find that the sales expenses are much higher than the operating costs, and Sanqi Interactive Entertainment mainly relies on buying traffic.
Of course, any company needs to advertise, and Moutai also has to advertise in order to promote a series of wine.
So there is nothing wrong with this behavior itself.
But as we all know, traffic fees are getting more expensive year by year, and the difficulty of acquiring users is getting harder and harder year by year.
Now spending 89 billion to advertise, you can still get back more than 10 billion in revenue.
If the traffic fee rises by another 50%, no, it doesn't take 50%, according to the net profit of 2.9 billion, another 30% increase will eat all the profits.
Will the traffic fee rise again in the future?
Of course, there will be, and in the future, when the population is getting smaller and the competition is becoming more and more fierce, the traffic fee will not be a question of rising, but a question of how many times it will increase.
Because not only to grab users, but also to educate users and cultivate users.
Under this trend, the simple and crude way of buying traffic will obviously become more and more difficult.
There are only two ways to solve this problem, the first way is to expand the scale of the market, and the second way is to improve its own competitiveness.
Expanding the market scale is, of course, to go to sea, the domestic is too rolled, then to grab foreign users.
Of course, improving competitiveness is to optimize products, whether it is game quality or game quantity, which is a problem to be considered in the future of 37 Interactive Entertainment.
In fact, Sanqi Interactive Entertainment also does this, and from his business performance, you can see how these two roads are currently going.
II. Business
There are two parts of 37 Interactive Entertainment's business, one is mobile games and the other is page games.
Now of course, it is the world of mobile games, except for Internet cafes, few people should hold the computer to play games.
When Sanqi Interactive Entertainment went public at that time, it was a backdoor auto parts company, and of course it had already divested this business.
At present, the online game business, that is, page games, is already a year after year, and the revenue in 2022 is only 600 million, which is negligible.
Mainly focused on mobile games, with revenue reaching 15.6 billion in 2022.
At present, there are four main business brands of 37 Interactive Entertainment, namely "37 Games, 37 Mobile Games, 37 GAMES, 37 Online Games".
As shown in the chart above, the four major brands each perform their own responsibilities and the business is clear.
For the main game products of 37 Interactive Entertainment, the game "Douluo Continent: Soul Master Showdown" cannot be bypassed, which can be said to be a milestone for the company to transform from an agent to independent research and development.
The point is that the game is very successful, once ranked fourth in the game category on the Apple Software Store, and at its peak, it had a monthly transaction volume of 700 million.
Of course, not only this one has succeeded, but also "Puzzles & Survival", "Song of the City on the Cloud", "Call Me a Big Treasurer", "Little Ant Country", "Empty Fortress: Set Sail", "Bright Adventure" and so on, these games with good performance are the main contributors to the performance of 37 Interactive Entertainment.
If you count all the markets inside and outside Shanghai, the highest monthly transaction volume of these games is as high as 2 billion, and the active users exceed 43 million.
Moreover, there are 7 products with a monthly turnover of more than 100 million yuan, and the longest time is more than 4 years.
The success of a game depends on two factors, the first is how much money it makes, and the second is how long it has been in operation.
I have to say that Sanqi Entertainment is very good at making users pay money.
Of course, on the road to attracting users, Sanqi Entertainment has also done a good job, because its demand for advertising is too large, so it has developed an intelligent delivery platform "quantum".
This quantum platform connects to most mainstream media platforms and can be automated for delivery.
It is really a feature on the road to buying traffic.
From the perspective of overseas business, Sanqi Interactive Entertainment went overseas relatively early, it has been 10 years.
In 2022, overseas revenue will be 6 billion, a year-on-year increase of 25.5%, and everyone may have no concept of this data.
There are several other data that are more intuitive, and 37 Interactive Entertainment ranks first in the ranking of Chinese game manufacturers' overseas revenue.
In 2022, Chinese game manufacturers ranked first in the Korean market, and Sanqi Interactive Entertainment ranked first in revenue.
It also performed well in Japan, ranking 3rd in Sensor Tower's 2022 China Mobile Game Japanese Market Mobile Game Growth List.
You must know that South Korea is a big game country, and it is very good that Sanqi Interactive Entertainment can have this performance.
But the vast majority of gamers are characterized by "liking the new and disliking the old", and few people can play a game for a long time.
So for game development companies, the biggest test is whether they can continue to provide products that players love.
The picture above is the game reserved by Sanqi Interactive Entertainment, which has its own research and development and agency, mostly agents.
Now that the three models of "Fu Shake Dream, Hegemony, Dragon and Alice" have been developed, it is really difficult to say whether these models can rely on these models to drive performance this year.
From the performance of the first quarter of this year, it is not very optimistic, let's take a look at the specific performance.
3. Performance
As we all know, the game industry has been artificially blocked by the impact of the A4 paper (game version number suspension approval) incident.
However, 37 Interactive Entertainment has shown the resilience of an excellent company.
Let's first look at the company's revenue and profit growth in the past two years, as shown in the following figure:
It didn't suffer much, but because of the expected problems, the company's share price still retreated a lot from its 2020 high.
At worst, such as last October, a company's share price was less than a third of its peak.
Therefore, the market's pessimistic expectations for the industry as a whole are the main reason limiting the performance of the company's share price.
However, with the re-approval of the new version of the game in the second half of last year, the stock price of 37 Interactive Entertainment also began to repair and rebound significantly.
If you start from a low level, the stock price of 37 Interactive Entertainment has more than doubled in more than half a year.
Market sentiment and the company's valuation repair are going hand in hand.
Let's explain in detail the company's performance composition and future growth expectations.
First, the results for 2022:
For the full year of 2022, the company's revenue was +1.17% year-on-year, and the net profit attributable to the parent was +2.74% year-on-year, of which the mobile game industry revenue was +1.74% year-on-year.
The industry still maintains positive growth in the headwind environment, mainly due to the company's "Douluo Continent: Soul Master Showdown", "Puzzles & Survival", "Song of the Cloud City", "Call Me Big Treasurer", "Little Ant Country" and many other long-life products have a stable flow, and the new game "Empty Fortress: Set Sail" and "Bright Adventure" contributed to the increase in performance.
In 2022, the company's overseas revenue will be 5.994 billion yuan, accounting for 36.54% of revenue, and it will debut in October 2022 data.ai first in the list of overseas revenue.
Its overseas phenomenal product "Puzzles & Survival" has accumulated a cumulative turnover of more than 6 billion yuan, and "Song of the City on the Cloud" has become the mobile game with the highest revenue of overseas publishers in the Korean market in 2022, ranking third in SensorTower's mobile game revenue growth list of Chinese mobile games in the Japanese market in 2022.
Then, let's take a look at the results for the first quarter of 2023.
In the first quarter of this year, the company's revenue was -7.94% year-on-year, mainly due to the natural decline of old swimming flow due to the fact that no new products were launched during the reporting period; Net profit attributable to owners was +1.92% year-on-year, mainly due to the increase in investment income from financial assets.
According to data.ai data, the company ranked first in the list of overseas revenue of Chinese game manufacturers in 2022 and ranked second in March 2023.
Products: (1) As of March 2023, the global cumulative turnover of "Puzzles & Survival" has exceeded 7 billion yuan, the highest monthly turnover has exceeded 330 million yuan, and the highest ranking in 2023Q1 is 9th/15th on the US/Japan iOS best-selling list.
(2) According to the annual report, "Song of the City on the Cloud" is the mobile game with the highest revenue of overseas publishers in South Korea in 2022, and was ranked 3rd in SensorTower's 2022 Chinese mobile game Japanese market revenue growth list.
Moreover, Sanqi Interactive Entertainment is also very rich in game reserves.
Specifically, more than 10 models have been approved for domestic reserves.
Among them, the cumulative reserve of 33 products covers MMO (11 models, 4 self-developed), SLG (11 models, 2 self-developed), cards (6 models, 1 self-developed), simulation (4 models), leisure (1 model) and other tracks.
In addition, self-developed products "Shake a Dream", "Hegemony" and "Dragon and Alice" have been developed.
Domestically, "The Last Primitive Man" is scheduled for May 6, "Mortal Immortal Cultivation: Human Realm Chapter" is scheduled for May 24, and the rest of the reserves with version numbers include MMO "Fu Shake a Dream", "Dawn Project", SLG "Hegemony", "The Land of Ten Thousand Multipliers", the card "Dragon and Alice", the simulation management "Weaving Dream Forest", "Gold Partner" and so on.
All of the above are important manifestations of the strong competitiveness of 37 Interactive Entertainment in the field of games.
IV. Summary
(1) Track
There is no doubt that the game is a long-term, sustainable sunrise track.
Once a game is successfully developed, it is like a money printing machine in the life cycle, which can enjoy the dividends of low-cost operation for a long time, and the characteristics of light capital determine that excellent companies have very good operating cash flow.
We can see from the company's financial statements in recent years:
From the above figure, it can be seen very intuitively that the cash flow of 37 Interactive Entertainment's operating activities is very abundant.
This ensures that the company can continue to provide dividends in the future.
The revenue landscape in the first quarter of this year fell slightly, but the company's operating cash flow increased by more than 100%, indicating that the company's financial situation is very healthy, and the money earned is also real money.
(2) R&D and investment
After the game version is released, the company should increase its research and development efforts.
In addition to the project reserve, let's take a look at the company's R&D investment in recent years:
The above is the R&D investment of 37 Interactive Entertainment in the past 10 years, except for the negative growth of R&D investment in 2022 due to special reasons (version restrictions), the rest of the years are incremental.
Data from the first quarter of this year shows that the company's R&D investment still fell by 12% year-on-year, and it needs to be followed up.
In 2022, R&D expenses will be 905 million yuan, YOY-27.64%, the decrease is mainly due to the company's adjustment of personnel structure, increasing investment in strategic categories such as SLG while reducing investment in individual non-strategic categories, the R&D expense rate is 5.51%, down 2.2pct year-on-year; R&D expenses in 2023Q1 are 200 million yuan, YOY-27.52%, and R&D expense ratio is 5.31%.
However, after the probability that the company will hit the bottom, with the release of the version number, the company will return to the high-investment state again to reserve more high-quality projects.
This requires constant observation.
(3) Competitive advantage.
37 Interactive Entertainment has continuously deepened its strategy of "quality, diversification and globalization", with remarkable results, and the steady development of overseas business has built a growth pole.
With the opening of the domestic new product cycle, the probability of continuation in the market in 2023 is very large.
In addition to about 10 self-developed games, the company has a layout of 20 products in terms of reserve agents.
There are more than 20 reserve agent products, including MMO "Mortal Cultivation: Human Realm Chapter", card "The Last Primitive", SLG "PuzzlesChaos", etc., of which "The Last Primitive Man" and "Mortal Cultivation: The Human World" will be launched in May 2023.
This kind of diversified reserve is conducive to the company's issuance and expense control, so as to reduce costs and increase efficiency, which will strongly drive the company's revenue upward.
The company's abundant reserves and the trend of normalized issuance of edition numbers promote steady growth in performance, which are the advantages of leading companies.
(4) Possible risks:
The impact of A4 paper (policy risk) on the gaming industry, we have seen in the past two years.
However, the norms of any industry are conducive to the healthy and stable development of the industry, so my personal judgment is that the systemic risk of this industry is gradually lifting.
The company has abundant reserves, the follow-up online rhythm is relatively compact, and the basic flow of overseas products is stable.
With the re-issuance of the game version number, the industry regulation is gradually clear, so the probability of returning to high-speed growth in the future is very large.
Of course, on the other hand, the new game test is not as expected, the traffic cost is rising, the life cycle of old products is not as expected, the technology development is not as expected, the exchange rate fluctuations, the policy supervision is stricter, the progress of version acquisition is not as expected, the loss of core talent, the change of player preferences, etc., these are all possible risks for the company.
Investment is like that, opportunities and risks, go hand in hand.
Of course, the probability of a good company continuing to be excellent is greater than the probability of sudden deterioration.
From this point of view, as long as we build positions in these excellent companies in a reasonable position, the probability of investment success is relatively large.
Investing requires not only patience, but also a certain amount of expertise.
In addition, I made the following table, a table of A-share core asset research summary, which selects hundreds of high-quality leading companies and attaches tens of thousands of words of analysis methods.
In the future, all analyzed companies will update the data in the table "A-share Core Asset Summary", and at the end of each week, an in-depth summary of the analyzed companies this week will be made together, and the weekly summary will also be put together with the table.
Focus on listed company financial reports and fundamental in-depth analysis.
Liking and following the continuous update of content can avoid many risks for you.
Exploring the fundamentals of enterprises together, the gains will be huge.
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