Incident The company released its 2024 interim report: in the first half of 2024, the company achieved operating income of 11.792 billion yuan, a year-on-year increase of 14%; net profit to mother was -1.357 billion yuan, a decrease of 38% year on year; adjusted net loss was 0.727 billion yuan, down 64% year on year. Losses all narrowed markedly year over year. Among them, in the second quarter of 2024, the company achieved operating income of 6.127 billion yuan, a year-on-year increase of 16%; net profit to mother -0.608 billion yuan, a year-on-year decrease of 61%; and an adjusted net loss of 0.271 billion yuan, a year-on-year decrease of 72%. At the same time, the company's gross profit margin was 29.9% in a single quarter in 2Q24, and gross margin increased for eight consecutive quarters.
The performance of the new game was impressive, boosting follow-up performance. The company launched the new game “Three Kingdoms: Determining the World” in the first half of the year. After launch, it remained stable at the top of the App Store game bestseller list in the first month, and subsequent turnover ushered in a new round of growth after the S2 season began. Considering the overall operating pace of SLG Gaming and the game's market performance at the beginning of its launch, we believe that “Three Kingdoms: Designing the World” has clearly boosted the company's game business and is expected to continue to contribute incremental results to the company's game business in the second half of the year.
Operating data is growing steadily, and community user stickiness was strong. In the second quarter of 2024, the DAU surpassed 0.102 billion, an increase of 6% over the previous year; MAU reached 0.336 billion, and the average daily usage time of users was 99 minutes.
We believe that the operating data of users in the boosted community has been growing steadily, and that user engagement and user stickiness have remained at a high level.
The advertising business grew significantly, and commercialization space effectively freed up the company's advertising business revenue of 3.71 billion yuan in the first half of 2024, an increase of 30% over the previous year. The company actively explored monetization of effective advertising, driving overall advertising revenue to maintain a high growth rate. Furthermore, in the first half of 2024, the company further improved commercialization efficiency and effectively unleashed community value. The number of paying users for conference members, live streaming, and other value-added services all increased.
Investment advice: The company's new launch performance is impressive. Continued growth in the company's revenue side will drive the company's revenue side to accelerate growth. The company is expected to reverse losses in a single quarter of adjusted operating profit in 3Q24. The company's revenue is expected to increase by 19%/15%/8% in 2024-2026, reaching 26.754/30.751/33.348 billion yuan, maintaining the “recommended” rating.
Risk warning: the risk that the macroeconomy falls short of expectations, the risk of increased competition in the online video industry, the risk that the operating performance of new long-term channels falls short of expectations, and the risk that the advertising and live streaming business will fall short of expectations.