Incident: The profit side turned a year-on-year loss into a profit, and the absolute value exceeded expectations. The company released its semi-annual report for 2023. During the reporting period, it achieved revenue of 1.75 billion yuan, an increase of 10% over the previous year; realized net profit of 190 million yuan, turning loss into profit, the first half-year profit since the second half of 2020; non-GAAP net profit of 110 million yuan, turning loss into profit year on year, turned loss into profit, and the absolute value of profit greatly exceeded Bloomberg's unanimous expectations.
Two key products were launched in the first half of the year, and subsequent reserve products were launched quarterly. The 23H1 game business achieved revenue of 1.15 billion yuan, an increase of 2% over the previous year and a decrease of 13% over the previous year; among them, the mainland game business achieved revenue of 770 million yuan, which was mainly driven by a 14% increase over the previous year. In the mainland market, the company launched its self-developed products “Torchlight: Infinity” and “Firepower Soda (T3)” in May and June, respectively, and both topped the domestic iOS free list during the launch period. Furthermore, among mature products, such as “Sausage Party,” “Ragnarok M,” and “Neverending Urara,” performed steadily. Among them, the number of active users and turnover of “Sausage Party” all reached a record high during the Spring Festival this year. Looking forward to the future, the company currently has 4 products under development in its pipeline. Among them, “The Sword of Suzuran” was launched in Hong Kong, Macao and Taiwan in August 23, and is expected to be launched in the mainland market by the end of the year; the placement product “Let's Go! “Muffin” is also expected to go live on 23Q4-24Q1.
Revenue growth is still high even after MAU is reduced, and we are optimistic about the release of TAPTAP advertising revenue in the second half of the year. The information service business 23H1 achieved revenue of 600 million yuan, an increase of 29% over the previous year, and an increase of 18% over the previous month, exceeding Bloomberg's unanimous expectations.
In the first half of the year, TAPTAP's domestic MAU fell 19% year on year to 34 million, mainly due to relatively restrained purchasing volume investment and the boom in offline activities since the full end of the epidemic since this year; however, since July, with adjustments in operating strategies, TAPTAP's domestic MAU has regained growth to 39.4 million. We observed that in the first half of the year, TAPTAP's advertising revenue still recorded strong growth against the backdrop of a year-on-year decline in MAU. We expect this mainly to reflect the increase in demand and willingness of game manufacturers to advertise since 2023, driven by the normalization of version number distribution and supply-side recovery in the domestic game market. We are optimistic that the second half of the year will further expand the above industry beta as the domestic version of TAPTAP MAU returns to a growth trajectory.
Profit forecast and investment suggestions: Considering the business situation for the current half year and the incremental information provided in the financial report, we slightly adjusted the company's revenue forecast for 2023-2025 to 38/48/5.3 billion yuan, an increase of 11%/27%/10% over the previous year; return to the net profit forecast was 1.9/40/5.1 billion yuan, turning a loss into a profit/increase of 108%/29% over the previous year. We are optimistic about the revenue and profit growth brought about by the continued launch of the company's self-developed products, and that TAPTAP, as a third party channel, benefits from the expansion of the overall supply side of the industry, and maintains a “buy” rating for the company.
Risk warning: risk of macroeconomic fluctuations; risk of product launch progress and performance falling short of expectations; risk of increased industry competition.