Investment summary
Fanbook directly targets the Chinese version of Discord, and To Community is expected to open up space for private traffic monetization. We believe that Fanbook belongs to To Community's private sector management platform, including the social circle of friends, fan/IP management circles, etc. (such as brand circles, gaming circles, star circles). As a decentralized community platform, Fanbook has obvious network effects. The number of fan circles and the number of users need to reach a scale threshold before it can be expected to show strong social fission capabilities.
We think Fanbook has gone through a difficult cold start period. According to the company's annual report, the number of Fanbook users exceeded 10 million in 2022, daily activity exceeded 1 million, and many groups of fan communities with millions of users have emerged.
(1) Strong social fission ability: The Fanbook fan circle uses a user invitation system. Users can only join the fan circle through an invitation link or QR code. Based on a non-open social ecosystem, Fanbook can help identify core user groups and help expand the monetization value of private traffic.
(2) Unique private domain monetization model: Fanbook can provide rich private domain user operation capabilities, support functions such as text, voice, live streaming, private, and circle channels (public & private), and is already connected to AI tool capabilities (such as various intelligent robots). We believe that the Fanbook monetization model is expected to revolve around various types of private domain circles (such as sales sharing, provision of value-added services) and various types of private domain circles (such as point exchange), which is expected to truly open up the private domain monetization model. The private domain monetization model has obvious advantages over public domain monetization in terms of user activity and stickiness, ARPU value, fissivity, etc., and is highly scarce.
(3) Significant business collaboration capabilities: Building a pan-game industry chain layout around Fanbook, self-developed and agency games are expected to use Fanbook to achieve growth exceeding expectations.
In terms of agent games: The company's game revenue in 2022 mainly comes from long-term agent games such as “Subway Parkour”, “Dream Garden”, “Dream Home”, “Temple Run”, etc., which are expected to continue to contribute stable cash flow. Among them, the old game “Subway Parkour” quickly broke the circle using Fanbook fan base operation and content creation between players. In 2022, the “Subway Parkour” iOS download list topped the iOS download list for 33 consecutive days; the average number of daily active users during the Spring Festival in 2023 exceeded 20 million, with over 100 million monthly active users; in January 2023, social interactions exceeded 870 million, and the total number of matches exceeded 1.25 billion. According to the Qimai App, as of April 23, 2023, “Subway Parkour” ranked 13th and 1st in the iOS game free list and adventure game free list, showing Fanbook's strong social fission ability.
In terms of self-developed new games: The company is expected to launch “Karapicchu” and “Two Kingdoms: Interlaced Worlds” in 2023, and the game business is highly flexible. Among them, “Karapicchu” received a game license in March 2023. As of April 23, 2023, the Bilibili platform had a rating of 9.2 points, and the number of reserved users reached 660,000; “Ni no Kuni: Interlaced Worlds” had already started full platform reservations on March 28, and the number of overseas versions exceeded 100 million US dollars after 11 days of launch.
On the AIGC side: At present, the company has cooperated with Microsoft to help various fields such as game product development and Fanbook AI ecosystem construction through the big model capabilities of Microsoft Azure and Open AI. On February 20, 2023, the company announced that it had become Baidu Wenxin's first ecological partner, applying the results of intelligent dialogue technology to premium game experiences and closed-loop operation of the Fanbook community. Priority was given to receiving support from leading AI technology, marking the first landing of conversational language model technology in the gaming field and large-scale community user management scenarios in China.
Investment advice
The company's agency games contribute to stable cash flow. At the same time, self-developed games are expected to open up performance space, and it also has a scarce private fan circle operating platform, Fanbook, which has strong performance certainty and platform scarcity. We expect the company to achieve net profit of 201 million yuan (yoy +108.1%), 317 million yuan (yoy +58.0%), and 401 million yuan (yoy +26.4%) in 2023-2025, corresponding to EPS of 0.14 yuan, 0.22 yuan, and 0.28 yuan respectively. The current stock price corresponds to the valuation of 23 times, 15 times, and 12 times, covering the “buy” rating for the first time.
Risk warning
There are risks of tightening industry regulations, increased risk of industry competition, risk of version number issuance falling short of expectations, risk of turnover falling short of expectations, and risk of new business expansion falling short of expectations.