Interpretation of 23Q3 performance
23Q3 revenue was 369 million yuan (yoy -13.26%), and net profit was 39 million yuan (yoy 163.03%). The decline in revenue is mainly due to the launch of Crazy Maple Studio, whose core products include Necessities; the profit improvement is due to continued optimization of the company's expenses. The company continues to cooperate with various downstream channels, including WeChat Reading/QQ Reading/Seven Cat Reading/Himalaya, etc.
Important short dramas adapted based on the company's IP resources include “Enchanting”, “Donggong on the Moon”, and “The Immortals Are Heist”. The animated anime “Sword of Chaos,” which uses AIGC technology, has received a lot of attention.
The company's Chinese escape model continues to empower the production of cultural products.
New changes in the industry: “interactive video games”, “mini-shows”, and “mini-programs” bring industry opportunities 1) Interactive video games have successfully left the market and entered the user's eye: Recently, the interactive video game “Done! After “I'm Surrounded by Beautiful Women” went live, it entered Steam's number one download list in China, receiving a great deal of attention from gamers and game consumers.
2) The micro-drama business model worked and is in the early stages of rapid growth: At the same time, since the second half of '23, micro-dramas have developed rapidly, continuously reached new users through purchase volume, and are in the early stages of rapid growth. The short drama is “cool” and intensive, bringing users quick emotional satisfaction. The content is suitable for the general public, the return verification cycle is short, and the production cost is low.
3) The growth of Tencent's WeChat applets: WeChat continues to increase the commercialization of large and small programs, and cultural products are in a dividend period that relies on applets to quickly reach users.
The company's growth logic in the face of new changes in the industry: IP and channels are the starting points. We judge that in the early stages of the growth of the “miniseries” and “interactive video game” tracks, even if the number of products will grow rapidly, early products will still be homogenized to a certain extent, so the success of the product will depend largely on whether there is “IP support” and “sufficient channel exposure.” Therefore, we judge that under current industry opportunities, manufacturers with the advantages of “IP resources” and “distribution channels” will benefit first:
1) On the IP side: The company has a large number of core literary IP resources (in the online text IP reserves of domestic companies, Reading Text Group is number one, Chinese Online is second); there are more than 4.5 million original Internet creators in the company community, cooperating with more than 600 copyright agencies across the country, and more than 2,000 signed authors. The company's huge IP resources will become an upstream source of content creativity for “short dramas” and “interactive video games”.
2) Channel side: The ReelShort mini-drama platform owned by ChineseOnline has maintained a growing trend since it was launched overseas in August '22. The company increased its investment and operation efforts after June '23, and product revenue increased significantly month-on-month. According to Data AI, in September '23, the product received a total of 4.827 million US dollars in monthly revenue from iOS and Google Play channels. The company's overseas product, Merchandise, uses interactive animation gameplay and has attracted many female gamers in Europe and the US. Currently, the product continues to operate steadily to contribute to the company's revenue from overseas regions.
Investment advice
Net profit for 23/24/25 is estimated at $1.32/1.83/223 million yuan (previous value: $16/207 million for 23/24), YOY 136.4%/39.1%/21.9%. Facing the important industrial opportunities of “short dramas” and “interactive video games”, the company has a deep accumulation. Maintain a “buy” rating.
Risk warning
Fluctuations in foreign exchange profits and losses; uncertainty in IP copyright sharing; uncertainty in industry policy regulation