- 2024-10-26
- News
The Gaming Industry: Expanding Overseas and Mini-Program Games
The performance among 23 gaming companies listed on the A-share market has shown significant divergence, with approximately 60% facing declines in both revenue and net profit. Additionally, the rankings and results of leading gaming companies have shifted. Analysis of the changing revenue rankings and the driving factors behind their performances indicates that international expansion and mini-program games are two crucial trends in the industry.
The approval of gaming licenses resumed in April 2022, leading to a rapid recovery of the gaming market. According to Gamma Data, in 2023, driven by a concentration of high-quality new game launches, the actual sales revenue of China’s gaming market reached 302.964 billion yuan, an increase of 13.95% year-on-year.
In the first three quarters of 2024, the domestic gaming market continued its growth with actual sales revenue at 239.033 billion yuan, marking a 4.61% year-on-year increase. Among this, the sales uplift from the single-player and console markets, significantly influenced by the performance of "Black Myth: Wukong," contributed several billion yuan in incremental growth. Furthermore, the revenue increase of leading mobile games such as "Endless Winter," along with the launches of new titles like "Zero Zone" and "Three Kingdoms: Strategy Across the World," also provided a boost to the gaming market.
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According to the data from the 23 A-share gaming companies, their combined operating revenue for the first three quarters of 2024 amounted to 59.395 billion yuan, reflecting an 8.19% year-on-year growth, which is higher than the actual sales revenue growth rate of the domestic gaming market. During the same period, the net profit attributable to the parent company’s shareholders, after deducting non-recurring gains and losses, was only 7.060 billion yuan, down 13.83% year-on-year, indicating a widespread issue in the industry of increasing revenue without corresponding profit growth.
On a relatively optimistic note, the leading gaming companies in the A-share market have continued to perform robustly, although there have been changes in the internal rankings of the first tier. Analyzing the shifts in rankings and performances of these top companies reveals two key trends in the domestic gaming industry: international expansion and mini-program games.
Changes in First Tier Rankings
From the data, in the first three quarters of 2024, 15 of the 23 listed gaming companies experienced a year-on-year decline in operating revenue, while 13 companies reported net profits attributable to parent company shareholders that fell below the same period in 2023 after accounting for non-recurring items.
Among these, the performance decline was most pronounced for Glacier Network and StarJoy Entertainment. According to Choice data, during the reporting period, Glacier Network's operating revenue stood at 1.983 billion yuan, a 6.19% year-on-year decrease, with a net profit attributable to the parent group of -498 million yuan, marking a drastic year-on-year decline of 400.48%, shifting from profit to loss.
In the same period, StarJoy Entertainment reported an operating revenue of 1.034 billion yuan, down 29.48% year-on-year, and a net profit attributable to parent shareholders of -246 million yuan, representing a staggering 567.05% decline.
Among the leading companies, in the first three quarters of 2024, the top six by operating revenue, in descending order, were ST Huatuo, 37 Interactive Entertainment, Shenzhou Taiyue, Perfect World, Kaiying Network, and Gigabit.
Specifically, Perfect World experienced the most significant drop, with an operating revenue of 4.073 billion yuan, down 34.26% year-on-year, and a net profit attributable to parent shareholders of -448 million yuan, a 197.98% decline year-on-year. The company's ranking also fell from third to fourth compared to 2023.
From the financial report data, the revenue decline for Perfect World primarily stemmed from the downturn in older game revenues combined with disappointing performance from new releases. The company's revenue is primarily derived from titles such as "Tower of Fantasy," "Tian Long Ba Bu 2," "Zhu Xian," "Dream of Fantasy Zhu Xian," and "Perfect World." With the resumption of game approvals in the first half of 2022, the rapid increase in market supply has intensified competition, leading to a continuous decline in revenues from older games.
New titles such as "One Punch Man: World" and "Persona 5: Phantom of the Night" have underperformed expectations. Of note, the mobile game "One Punch Man: World," launched in February 2023 in Southeast Asia, reached the top of several application markets on the day of its release but still fell short in terms of revenue.
Gigabit's challenges mirrored those of Perfect World, with a 14.77% decline in operating revenue due to decreased flow from older games, and a 25.54% drop in net profit attributable to parent shareholders, causing the company to drop out of the top five in revenue, now ranking sixth in the industry.
Kaiying Network has since taken Gigabit's place, securing the fifth position in the industry. In the first three quarters of 2024, Kaiying Network reported an operating revenue of 3.928 billion yuan, a year-on-year increase of 29.64%, and a net profit, after deducting non-recurring gains and losses, of 1.281 billion yuan, a year-on-year increase of 23.43%.
Since 2021, Kaiying Network has achieved consecutive growth in both operating revenue and net profit for three years. In the first three quarters of 2024, the company's titles, including "The Legend of Sword and Fairy: A New Beginning," "New Heaven and Earth," "War of Angels," "Original Legend," and "Monster Alliance," have all maintained stable revenue flows. Shenzhou Taiyue has retained its third position in the industry without any shifts in ranking, keeping steady revenue performance.
A-share gaming giants ST Huatuo and 37 Interactive Entertainment lead significantly in revenue scale. In the first three quarters of 2024, their combined operating revenue accounted for an impressive 48.60% of the total revenues of the 23 companies. While ST Huatuo surpassed 37 Interactive Entertainment to claim the top spot in revenue, 37 Interactive Entertainment maintained its lead in profit.
Reasons for Divergence
From the data for the first three quarters, ST Huatuo and Shenzhou Taiyue exhibited the strongest performances. During this period, ST Huatuo reported an operating revenue of 15.529 billion yuan, a year-on-year increase of 58.66%, with a net profit attributable to parent shareholders of 1.782 billion yuan, up 47.98% year-on-year.
The outstanding performances of self-developed games and agency products in overseas markets have been the main factors driving its performance growth. ST Huatuo's overseas market operations are primarily managed by its subsidiary, Diandian Interactive. In the first half of 2024, Diandian Interactive achieved revenues of 4.374 billion yuan and a net profit of 676 million yuan, accounting for nearly half of ST Huatuo's total income, and its net profit represented 55.97% of the listed company's net profit.
According to Sensor Tower data, in the first three quarters of 2024, only four products from A-share gaming companies, namely "Whiteout Survival," "Puzzles & Survival," "Age of Origins," and "War and Order," consistently ranked in the top 30 for Chinese mobile game overseas revenues.
Among these, "Whiteout Survival" has stood out as a star product for Diandian Interactive. By the end of July 2024, the global cumulative in-app purchase revenue for this game had surpassed 1 billion US dollars.
In the first three quarters of 2024, Shenzhou Taiyue reported revenues of 4.514 billion yuan, a year-on-year increase of 11.42%, and a net profit attributable to parent shareholders of 832 million yuan, reflecting an impressive year-on-year increase of 55.11%.
Shenzhou Taiyue's overseas gaming operations are primarily managed by Kemu Software. In the first half of 2024, Kemu Software generated operating revenues of 2.427 billion yuan and a net profit of 823 million yuan, which accounted for a staggering 132.03% of the listed company's net profit during the same period.
It is worth mentioning that among the top 30 mobile game overseas revenue rankings from A-share gaming companies, both "Age of Origins" and "War and Order" are products of Kemu Software. Furthermore, according to the company's "Investor Relations Activity Record," in the first half of 2024, "Age of Origins" achieved revenues of 1.789 billion yuan, up 21.43% year-on-year, while "War and Order" generated revenues of 560 million yuan. Additionally, in the third quarter of 2024, both "Age of Origins" and "War and Order" maintained relatively stable revenue performance.
The data from Century Huatuo and Shenzhou Taiyue indicates that international expansion has become the second growth curve for these companies. Moreover, in an increasingly competitive domestic market, their success in overseas markets has provided a clear path for other manufacturers to follow for business expansion.
It should be noted that, currently, Chinese mobile games targeting international markets primarily focus on mid-to-heavy gameplay, with the top-performing segments being SLG (Simulation, Strategy, and Role-Playing) games and anime-style games. Notable SLG titles, such as "Whiteout Survival," "Puzzles & Survival," and "Age of Origins," have performed exceptionally well in the US. Meanwhile, typical anime-style games like "Genshin Impact," "Honkai: Star Rail," and "Goddess of Victory: NIKKE" lead in Japan.
In addition to international expansion, mini-program games have emerged as another vital avenue for domestic gaming companies to enhance their performance. According to the "Mini-Game Industry Report," in the first half of 2024, domestic mini-program mobile game revenue reached 16.603 billion yuan, up 60.50% year-on-year, with the market continuing to experience rapid growth.
Among various mini-program game developers, 37 Interactive Entertainment is one of the pioneers in laying out and delving into mini-program games. In the first three quarters of 2024, the company reported an operating revenue of 13.339 billion yuan, a year-on-year increase of 10.76%, with a net profit attributable to parent shareholders of 1.877 billion yuan, down 9.67% year-on-year.
From the data, several products that have been operational for over three years, such as "Call Me the Boss" and "Song of the Cloud City," have naturally seen revenue declines compared to the same period in 2023. However, several new mini-program games, including "The Search for Dao," "Unnamed," and "Soul Prologue," have provided new sources of revenue growth for the company. The revenue from mini-program games has helped offset the impact of declining revenues from older games, resulting in a year-on-year increase in total operating revenue.
The main reason for the decline in profits was the launch of several new products in the third quarter, such as "Time Grocery Store" and "Three Kingdoms Heroes: The Great Ambition." The concentrated release of new products led to a growth rate in sales costs that exceeded that of current operating revenue. As the revenue from new games starts to rise, the company's profits are expected to recover.
Public information indicates that several companies, including Youzu Interactive and StarJoy Entertainment, are actively entering the mini-program gaming market. For instance, ST Huatuo's "Endless Winter" has consistently ranked first in the mini-program game rankings. Kaiying Network's mini-program games, such as "Monster Alliance," "The Legend of Sword and Fairy: A New Beginning," and "War of Angels," have also generated significant revenue increments for the company. Giant Network, on the other hand, launched several mini-program games under the "Conquest" IP series, including "King of Conquest" and "Original Conquest," in the first half of 2024.
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