Produced by | At the forefront of entrepreneurship
Author | Left Xingyue
Edit | Hu Fangjie
American Editor | Li Yufei
Audit | Ode
On April 26, Hangzhou Electric Soul Network Technology Co., Ltd. (hereinafter referred to as "Electric Soul Network") disclosed its first quarter report for 2024. A month ago, on March 28, the company just disclosed its 2023 annual report.
In recent years, the life of the electric soul network has not been easy. Revenue and profits continued to decline, and it relied too much on the "Dream Three Kingdoms" series of games, which made the profitability of the Electric Soul Network fall into decline.
In addition, after Yu Xiaoliang, one of the company's core founders, withdrew from the ranks of actual controllers, the number of R&D personnel of the company will also face a big "dive" in 2023.
1. The core founder Yu Xiaoliang withdrew from the actual controller
Speaking of the Electric Soul Network, we have to mention Yu Xiaoliang, one of its founders.
Yu Xiaoliang was born in February 1981 and has a college degree. In 2004, Yu Xiaoliang, who was only 23 years old, worked as the chief planner of game products at Tencent.
According to media reports such as competition, Yu Xiaoliang has successively served as the planner of "QQ Fantasy", the chief planner of "QQ Game", and the chief planner of "QQ Hall". Among them, "QQ Tang" exceeded the 200,000 online users in 2005, and this game is also the childhood memory of many post-90s generations.
Yu Xiaoliang resigned and started a business together with his colleague Hu Yubiao when the future of Tencent's development was bright. It is reported that Hu Yubiao, who was born in 1980, worked as a development engineer at Tencent.
With his sensitivity to the gaming industry, Yu Xiaoliang recognized the potential of MOBA (Multiplayer Online Battle Arena, translated as "multiplayer online battle arena" in Chinese). This laid the groundwork for his achievements in the field of MOBA games after starting his business.
Back in 1998, when StarCraft was released, Blizzard Entertainment first bound a map editor to the game, and player Aeon64 made a custom map called Aeon Of Strife, which was the prototype of MOBA games.
Since then, with the popularity of games such as DOTA and "Warcraft", a number of MOBA games have sprung up, and many domestic manufacturers also want to get a piece of the pie, and Yu Xiaoliang and the "Dream Three Kingdoms" launched by the Electric Soul Network are one of the pioneers of the first batch of MOBA games in China.
In September 2008, Electric Soul Co., Ltd., the predecessor of Electric Soul Network, was established, which was jointly funded by five natural persons, Hu Jianping, Yu Xiaoliang, Hu Yubiao, Lin Qingyuan and Hu Meng, with a registered capital of 1 million yuan. In December 2009, "Dream of the Three Kingdoms" was officially launched for commercial operation.
"Dream Three Kingdoms" is based on the concept of "national style competition", and the gameplay is based on the division of labor and cooperation between players, and the main line of confrontation and competition, but in some modules of the game, it also retains the important role development content of MMORPG ("Massive Multiplayer Online Role Play Game", that is, massively multiplayer online role-playing games), which has the characteristics of fairness, confrontation, and fast pace.
In 2015, Electric Soul Network successfully launched the version of "Dream Three Kingdoms 2", which has been upgraded in terms of gameplay. It is understood that the "Dream Three Kingdoms" series of games has four camps, namely the Cao Wei Demon Clan, the Shu Han Human Clan, the Dongwu God Clan and the neutral camp, and the gameplay is very interesting and rich.
Electric Soul Network relied on "Dream Three Kingdoms" to successfully realize the capital dream. On October 26, 2016, Electric Soul Network was successfully listed on the main board of the Shanghai Stock Exchange, with an actual raised capital of 937 million yuan and an issue price of 15.62 yuan per share.
(Photo / Wind)
At the beginning, they worked together to start a business, but now, Yu Xiaoliang has withdrawn from the list of actual controllers.
In October 2019, Electric Soul Network issued an announcement that the "Concerted Action Agreement" signed by Hu Jianping, Chen Fang, Hu Yubiao, Yu Xiaoliang and Lin Qingyuan on January 15, 2011 expired and terminated. Hu Jianping, Chen Fang, and Hu Yubiao jointly signed a new "Concerted Action Agreement", constituting a new concerted action person relationship.
At present, the actual controllers of the electric soul network are Hu Jianping, Chen Fang, and Hu Yubiao.
(Photo / Electric Soul Network's 2023 financial report)
After retiring as the actual controller, Yu Xiaoliang only served as a director of the Electric Soul Network. As early as the IPO declaration, Yu Xiaoliang was not only one of the actual controllers, but also served as the chairman and general manager of the company, which shows that Yu Xiaoliang seems to be gradually breaking away from the core of power.
(Photo / Electric Soul Network Prospectus)
2. The performance has been declining year after year
At present, the games in operation of the Electric Soul Network include client games (users need to install client software on the computer, referred to as "terminal games") products "Dream Three Kingdoms 2" and "Dream Tower Defense"; Mobile games (online games running on mobile terminals, referred to as "mobile games") products such as "Dream Three Kingdoms Mobile Game", "My Knight", "Barbarian War", "Huawu Warring States", "Craftsman and Traveler", etc.; The stand-alone game "Dream River" originated from the plot and core gameplay of "My Knight"; VR game "Hitomi", etc.; H5 game "Dream of the Three Kingdoms" and so on.
However, in recent years, the life of the electric soul network has not been easy, and its revenue and net profit have declined year after year.
From 2021 to 2023, the company's operating income will be 996 million yuan, 791 million yuan, and 677 million yuan respectively, a year-on-year decrease of 2.7%, 20.64%, and 14.36%; In the same period, the net profit attributable to the parent company was 339 million yuan, 201 million yuan and 56.8379 million yuan respectively, down 14.19%, 40.66% and 71.73% year-on-year.
(Photo / Wind (unit: 100 million yuan))
In recent years, the performance of Electric Soul Network has been on a downward trend, and in 2023, the company's net profit attributable to the parent company will even shrink to less than 100 million yuan.
This state of affairs also extends into 2024. On April 26, the company released the first quarter report of 2024, and the operating income of Electric Soul Network was 137 million yuan, a year-on-year decrease of 11.7%; The net profit attributable to the parent company was 46.3733 million yuan, a year-on-year decrease of 2.03%.
In terms of products, the company's products are mainly divided into two categories: terminal games and mobile games.
Among them, in 2023, the operating income of the electronic soul online terminal game will be 440 million yuan, a year-on-year decrease of 15.21%; The operating income of mobile games was 205 million yuan, a year-on-year decrease of 18.31%.
It is reported that the company's main source of income is the purchase of virtual game equipment and some special game function modules by gamers in online games.
The Electric Soul Network adopts a prop charging model, where gamers can experience the basic functions of online games for free, and only need to pay fees when purchasing virtual props in the game (which can enhance the user's game experience, etc.).
Under the downward trend of consumption, the decrease in game recharge revenue is one of the main reasons for the sluggish performance of the electric soul network.
(Photo / Electric Soul Network's 2023 financial report)
In addition, the gross profit margin of various products of the electric soul network is also declining. According to the financial report, in 2023, the gross profit margin of the electronic soul network terminal game will be 86.11%, a decrease of 3.52% from the previous year; The gross profit margin of mobile games was 65.44%, a decrease of 4.46% from the previous year.
(Figure / Changes in the gross profit margin of the electric soul network in 2023 (unit: yuan))
It is worth mentioning that the gross profit margin of Electric Soul Network once reached more than 90% when it applied for IPO, and now it has dropped to 79.55%.
(Photo / Electric Soul Network Prospectus)
According to the 2023 China Game Industry Report, some users have reduced their game time, and it is expected that their payment amount will also decrease accordingly. In the future, the proportion of users who are expected to spend less on games will also outweigh those who spend more. Therefore, if the electric soul network is unable to acquire more high-value users, the product profit may further decline.
3. Rely on a single game
"Jiemian News: Entrepreneurship Frontline" noticed that after years of development, the Electric Soul Network still relies more on the "Dream Three Kingdoms" series of games.
According to the financial report, in 2023, the operating income of the electric soul network from the "Dream Three Kingdoms" series of terminal games will account for 65.07% of the total operating income.
In fact, the dependence of the Electric Soul Network on the "Dream Three Kingdoms" series of terminal games is deepening year by year. From 2020 to 2023, this part of the income will account for 48.65%, 55%, 64.27%, and 65.07% respectively, showing an upward trend year by year.
In recent years, Electric Soul Network has launched a number of new games, but none of them have become a popular hit like "Dream Three Kingdoms".
In 2023, seven new e-sports events will be added to the Hangzhou Asian Games, which is also the first time that e-sports will be used as an official competition event of the Asian Games, and "Dream Three Kingdoms 2" has been selected among them.
The seven major projects are "League of Legends", "Honor of Kings Asian Games Version", "Peace Elite Asian Games Version", "Dota", "Dream Three Kingdoms 2", "Street Fighter 5", "Football Online 4", including MOBA, Sports Simulation (SPG) and other e-sports categories.
In the "Dream of the Three Kingdoms 2" competition, the Chinese team won the gold medal, which not only showed the demeanor of Chinese e-sports players to the world, but also made the electric soul network appear in the public eye again.
(Photo / Dream Three Kingdoms OL official Weibo)
However, this wave of heat did not make the performance of Electric Soul Network pick up, and the company's operating income in 2023 will still decline by 14.36% year-on-year.
For the Electric Soul Network, developing a new popular game may be the only way to turn the tables, but the company's investment in research and development is stretched.
Wind data shows that from 2021 to 2023, the company's R&D expenses will be 210 million yuan, 190 million yuan, and 151 million yuan respectively, which is in a downward trend year after year.
(Photo / Wind (unit: 100 million yuan))
At the same time, the electric soul network is also constantly streamlining the size of its personnel. From 2020 to 2023, the number of employees in Diansoul Network will be 1,129, 1,229, 878 and 808 respectively, and after the number of employees increased in 2021, it will decline rapidly in 2022 and 2023.
Among them, from 2020 to 2022, the number of R&D personnel of the electric soul network will be 585, 617 and 672 respectively, accounting for 51.82%, 50.20% and 76.54% of the total number of the company, respectively, which is in a trend of increasing year by year.
However, in 2023, the company's R&D personnel will plummet to 403, accounting for 49.88% of the total number, and the number of R&D personnel will "shrink" significantly.
(Photo / From top to bottom, the 2023, 2022, 2021, and 2020 financial reports of Electric Soul Network)
For game companies, R&D and innovation have gradually become the core of market competition. With the gradual disappearance of the demographic dividend of the game industry and the stricter supervision of game version numbers, the product value of the game industry is constantly being amplified, and R&D capabilities have become the focus of considering the strength of enterprises.
At this node, the reduction of R&D expenditures and the number of R&D personnel may be a last resort for the company when its revenue declines. However, after the R&D investment is reduced, when will the company be able to develop the next game hit?
However, for the game industry, the current national policy is also vigorously supporting. "Jiemian News: Entrepreneurship Frontline" has reported that since the restart of domestic game versions in 2022, the number of version numbers has steadily increased, and the number of approvals has stabilized at 80-90 each time. The stable issuance of the version number has also given the majority of game companies a "reassurance".
In addition, the data shows that a total of 98 imported game versions will be issued in 2023, which is already higher than the level of 2020-2022.
In this context, a number of game companies such as Electric Soul Network may usher in new opportunities, and whether Electric Soul Network can seize the opportunity, "Interface News, Entrepreneurship Frontline" will continue to pay attention.
*Note: The title picture in the article is from the official WeChat account of Electric Soul Network.