The company released its 2024 quarterly report, with operating income of 1,208 million yuan, down 0.79% year on year, net loss of 187 million yuan, net loss of 190 million yuan after deducting non-net loss of 190 million yuan. Profit for the same period last year was 212 million yuan and 166 million yuan respectively.
The share of overseas revenue increased, and the profit side fluctuated due to the influence of investment business. In the first quarter, the company achieved revenue of 1.21 billion yuan, of which overseas business revenue accounted for 88.4%, an increase of 6.2 pct over the previous year; the overall gross margin reached 78.4%, maintaining a high level. Profit side fluctuations in the first quarter were mainly affected by increased investment business and expenditure. In terms of investment business, investment losses of 15 million yuan were achieved in the first quarter, mainly due to a decrease in earnings achieved by investment projects during the reporting period; loss of 114 million yuan from changes in fair value, mainly due to a decrease in the fair value of some investment projects; and the investment business generated a total phased loss of 129 million yuan in the first quarter, which was a small amount of loss outside of the investment business.
Operating cash flow is steady, and investment in the AIGC sector continues to increase. On the cost side, sales expenses increased 16% year over year to 450 million yuan; management expenses decreased 30% year over year to 160 million yuan, due to reduction in consulting service fees and equity incentives; and R&D expenses increased 104% year over year to 349 million yuan, mainly due to corresponding increases in labor costs, technical service fees, and server contributions brought about by the company's AIGC business. Operating activities achieved net cash inflows of $107 million, compared with $206 million and $129 million for the same period last year and the fourth quarter of 2023, respectively. The company continued to buy and lease servers to develop AIGC related business. There was a marked increase in fixed assets and right-of-use assets in the first quarter.
Tiangong series products maintain high-frequency iteration, and diversified AI application layouts open up room for growth. In terms of product updates, on April 17, the company's MoE large model “Tiangong 3.0” officially began public testing and simultaneous open source. Using a 400 billion parameter MOE architecture, many evaluation indicators reached the world's leading level. The company also released a new version of Tiangong AI intelligent assistant, updated the multi-agent ecosystem, and launched China's first music SOTA model, “Tiangong SkyMusic”, to meet the diverse needs of users. In terms of AI games, the company's self-developed AI game “Club Koala” officially began testing the alpha version on April 18. At present, the company has formed a diverse AI business matrix such as AI big models, AI search, AI music, AI video, AI social networking, and AI games. As related products are gradually implemented, it is expected that the commercialization space will be further expanded.
A draft equity incentive plan was issued to further strengthen core AI technical talents and competitiveness. On March 30, the company announced the first restricted stock incentive plan for 2024 (draft). The number of restricted shares to be granted to incentive recipients is 62.4619.41 million shares, accounting for about 5.1409% of the company's total share capital. The award price is 19.63 yuan/share, and the revenue targets corresponding to the assessment for 2024-2026 are 5.5 billion yuan, 6 billion yuan, and 6.5 billion yuan respectively. The incentives include core technical personnel, with the aim of consolidating the competitiveness of high-quality talents and core technology.
Maintain a “Highly Recommended” investment rating. The company has developed its own big model and actively embraces innovative technology. It has now formed six major AI business matrices: AI big model, AI search, AI game, AI music, AI animation, and AI social networking, which is expected to further broaden the commercial monetization space in the long term. We expect the company's revenue in 2024-2026 to reach $55.1/6.56 billion yuan, and net profit to mother of 8.7/10.3/1.07 billion yuan, corresponding to 55.5/47.2/45.4 times the price-earnings ratio, respectively.
Risk warning: Model iteration falls short of expectations, commercialization of business in fields other than artificial intelligence falls short of expectations, increased market competition, stricter regulations, etc.