After obtaining the strategic investment of Tencent, BABA and Bilibili Inc. Pre-IPO, he delivered the form to the Hong Kong Stock Exchange in two months, and successfully passed the hearing of the Hong Kong Stock Exchange in seven months. Today, the public offering began, and the mobile game upstart celadon Game entered the countdown to listing.

The celadon game went on sale on December 6, with China International Capital Corporation and CITIC as its co-sponsors. The company is the leader in domestic casual games (especially placement games) and Rogue-like RPG. According to Frost Sullivan's data, in 2020, the company ranked third and second in domestic casual games and placement games, accounting for 4.4% and 16.7% of the market share, respectively.

Celadon games not only take the lead in the industry share, but also grow rapidly in recent years, with a compound income growth rate of 253.1% and an adjusted net profit compound growth rate of 106.8% from 2018 to 2020. With the halo of Internet giant investment, how about the fundamentals of celadon games? let's take a look.

First, the integrated mode of research and transportation to create a variety of popular games

Zhitong Financial APP learned that the celadon game was launched in March 2012, with leisure placement and Rogue-like RPG as the track, launched the iconic Rogue-like RPG "not thinking Maze" in 2016, acted as the agent of the well-known independent game "Ares virus" in 2018, and launched the popular style self-developed game "the strongest Snail" in 2020. After 9 years of development, the company has formed a multi-business ecology of information services such as game operation, game external authorization and in-game advertising, which is driven by the integrated mode of research and transportation.

At present, the company is operating six game products, namely, "Yugong moves Dashan 3", "endless Adventure", "Lantern and Dungeon", "Ares virus", "incredible Labyrinth" and "the strongest Snail". Among them, Lantern and Dungeons and Ares virus are the agent operating games, and the other four are self-developed games. In addition, the company has a reserve of 10 mobile games, four of which are self-developed games.

In 2020, the company's revenue reached 1.227 billion yuan, an increase of 12.83 times over the same period last year, mainly due to the 95.3% revenue contributed by the popular product "the strongest snail" and 763 million yuan in the first half of 2021, a year-on-year increase of 7.62 times. The self-developed "strongest snail" and the agent-operated "Lantern and Dungeon" contributed 67.7% and 30.1% of the income respectively. The integrated research and operation model enriches the product matrix and creates a variety of popular games, which will continue to drive the rapid growth of the operation ecology.

Among the four independent R & D games in operation, in addition to "Yu Gong moves Dashan 3", the other three are also issued through external third parties, of which the blockbuster "the strongest Snail" was released by Gibbit in Hong Kong, Macao and Taiwan in July last year. However, foreign licensing income is relatively low, overseas markets have not been fully developed, only 2.5% in the first half of this year, there is still huge room for growth in the future. As a non-game business, the information service sector has little impact on performance at present.

II. A number of measures to meet the sustainability of growth and profitability

How can celadon games maintain the sustainability of future growth and profitability?

The cash mode of game companies is mainly based on free play + selling virtual props in the game as a source of income, and celadon games are no exception. For game companies, owning several popular games can fully change the financial results. Every game has its life cycle. During the life cycle, the sales of MAU and props show a decreasing trend, so we need to iterate constantly and launch new games to extend the life cycle to meet the user experience and needs.

(1) prolong the life cycle of the game

The independent research and development products listed earlier under celadon games also showed the characteristics of decline in players and income. "the strongest snail" was a placement game product launched in June last year, which took saving the world as its own responsibility and attracted many players with novel content. the running water exceeded 400 million yuan in the first month after launch and more than 2 billion yuan in 17 months on the line, with an expected life cycle of 96 months and is currently in a mature stage. It is also faced with the challenge of reducing the number of players.

For this reason, the company extends the game life cycle mainly through four aspects, especially popular style products: first, the game release and operation team works closely with the game development team, and the game is continuously updated and operated after the game is launched; the second is to establish a comprehensive systematic game development and operation model, such as monitoring players' playing habits to continuously update content, introducing more games and integrating more cultural functions, etc. The third is to provide a quality and fair game environment to put an end to the plug-in phenomenon; the fourth is to export mature products overseas, such as Hong Kong, Macao, Taiwan and Japanese markets, to open up room for incremental growth.

The company's MAU declined year-on-year this year, mainly as existing games entered maturity, but registered players maintained steady growth, with a total of 70.151 million registered players as of August 2021, an increase of 10.566 million from the end of 2020 and a 1.55-fold increase from the end of 2018.

Of course, long-term growth cannot be maintained by a single product, and the growth of performance scale depends on the development of more new popular products.

(2) continuously enrich the game reserve and effectively control the R & D expenditure.

Celadon games are driven by an in-depth combination of self-research ability and research and operation. under the deep agent mode, celadon games connect each other into the company's R & D and community system, create agent products in the mode of self-research, and constantly enrich the game reserve. Up to now, it has 10 game reserves, four self-developed games and six agent games.

The company's reserve games are planned to be launched in 2022 and 2023, including time Travel Service in Hong Kong, Macao and Taiwan in the first quarter of 2022, Lantern and Dungeons in the second quarter and the strongest Snail version in Japan in the second quarter. The company has a successful export case in the Hong Kong, Macao and Taiwan markets. In July last year, the "strongest snail" entered the fifth best-selling list of Hong Kong iOS on its first day of launch in Hong Kong, Macao and Taiwan, the 10th best-selling list in Taiwan and the sixth best-selling list in Macao.

Self-developed products require a lot of R & D investment, and celadon games have been stepping up R & D efforts. More than 50% of the employees are R & D personnel, and the R & D cost is 146 million yuan in 2020, with a three-year compound growth rate of 140.2%. However, the R & D expenditure rate maintained a downward trend, falling to 2.4% in the first half of 2021. The reason is that celadon has a strong method of systematic game development. In the early stage of the project, celadon will form a core project team of less than 10 people led by the producer, formulate a detailed game development plan, and then select core players from the celadon player community for testing. Feed back the game experience to the core project team. After many rounds of testing and optimization, celadon can accurately predict the number of players and revenue scale, and customize the marketing plan and appropriate budget for the game, and then promote the official launch of the game.

Compared with some game companies in the early research and development stage of the game produced a large number of internal R & D investment, celadon "Jingbing exploring" development method undoubtedly makes the cost more controllable, but also ensures the commercial success of the game to a greater extent.

(3) reduce the cost of traffic acquisition.

In fact, celadon game R & D strength and game distribution strength continue to enrich the product matrix, together with IP holders to build celadon game universe, while traffic acquisition and channel distribution strength open the boundary of game realization.

The strong shareholder advantage is the company's biggest competitive chip compared with its peers. It won gigabit strategic investment in 2014 and Tencent, BABA and Bilibili Inc. (4.99% equity) in April 2021. In the later stage, it may make full use of the traffic advantage of the Internet giants to gain new players at home and abroad.

With the growth of scale, the company's expenses have maintained a downward trend and its profitability has improved. In the first half of 2021, the gross profit margin was 75.3%, an increase of 14.5% over the same period last year, and the sales expense rate was 32.1%. Among them, the core flow acquisition expense rate significantly decreased by 148.5 percentage points, while the administrative expense rate and R & D expense rate decreased to a low number of units. it's mainly economies of scale. In the first half of the year, the adjusted net profit was 314 million yuan and the adjusted net interest rate was 41.15%.

III. Subdivided leading stocks in the Chaoyang industry

From the perspective of the industry, China Mobile Limited's game industry is in a growth stage, with a market size of 239.6 billion yuan in 2020, with a compound growth rate of more than 20% in the past five years, of which the segmented RPG (role-playing games) industry has the fastest growth rate, with a market size of 67.6 billion yuan and a compound growth rate of nearly 30% in the past five years. Roguelike, a branch of RPG, has a small market but has a compound growth rate of nearly 40 per cent in the past five years.

Zhitong Financial APP learned that celadon games operate six games, and the self-developed products are mainly placement and placement + innovative play, of which "the strongest snail" belongs to placement + simulation, while the agent products such as the popular "Lantern and Dungeons" belong to Rogue-like. The company is a leader in placement games and Rogue-like RPG, ranking second with 16.7% of the placement game market in 2020.

In addition to leading market share, the company's user base is younger than its peers, has high consumption potential and has been sticky for a long time. According to Frost Sullivan, about 76% of celadon players are 30 or younger, much higher than the industry average of 65%. As of October 31, 2021, it had 10.4 million celadon fans. These die-hard fans have a high conversion rate in the new game and greatly reduce the cost of traffic acquisition.

It is worth mentioning that the company currently accounts for a relatively small share of overseas revenue, while the overseas mobile game market, including Japan, Southeast Asia, Hong Kong, Macao and Taiwan, South Korea and the United States, has a higher compound growth rate than China in the past five years. In addition to increasing expenditure on self-research, this fund-raising is also to open up overseas markets. The company plans to release games in overseas markets, establish local overseas distribution channels and overseas player communities, and all of its 10 reserve games have plans to go out to sea.

Celadon games are basically clear, the industry is growing well, and they are at the leader of the subdivided industry. Nine years of research and development have built celadon brands, and overseas market channels have been initially set up. The investment of Internet giants brings expectations for reducing traffic costs, and 10 reserve games drive high performance growth in the next two years. With a good hand in hand, it remains to be seen whether the company will focus on research and development or go out to sea again.

To sum up, celadon game began to issue shares, entered the countdown to the listing, following the pace of Internet bosses, perhaps investors' bullets are ready!