24Q2 revenue was 25.49 billion (yoy +6.1%, qoq -5.1%). The year-on-year increase was mainly due to an increase in mobile game net revenue.
The Q2 gross profit margin was 62.95% (yoy+3.1 pp, qoq-0.4pp). The year-on-year increase was mainly brought about by the increase in Cloud Music's gross margin. Sales expenses 3.5 billion (yoy +7%, qoq -13%); management expenses 1.1 billion (yoy -3.6%, qoq -8.8%); R&D expenses 4.46 billion (yoy +14%, qoq +6.7%). Non-GAAP net profit of 7.82 billion yuan (yoy -13.3%, qoq -8.1%). GAAP net profit to mother was 6.76 billion (yoy -18%, qoq -11.5%).
24Q2's total revenue from games and related value-added services was 20.06 billion (yoy +6.7%, qoq -6.5%), and Q2 deducted 12.6 billion yuan (difference from previous period - 1.6 billion). The 70% gross profit margin for games and related value-added services (yoy+2.61pp, qoq+0.59pp) The month-on-month and year-over-year increase was mainly due to changes in the product portfolio. Among them, mobile game revenue was 14.73 billion (yoy +16.06%, qoq -8.3%), and mobile game revenue was 4.55 billion (yoy -0.05%, qoq +4%). Q3 The new games “Eternity” (launched on July 23) and “Marvel's Ultimate Reversal” (launched on August 29) brought in increases, and the “16 Sounds of Yan Yun” and “Seven Day World” mobile games are also in reserve. We expect Q3 revenue to reach 21.4 billion (yoy -1%, qoq +7%), mainly due to the high base of “Against the Cold” for the same period last year.
24Q2 Cloud Music's revenue was 2.04 billion (yoy +4.7%, qoq +0.5%). The year-on-year increase was mainly due to an increase in membership subscription revenue. Cloud Music's gross profit margin was 32.1% (yoy+5.1pp, qoq-5.9pp). The month-on-month decline was mainly due to a one-time adjustment of Q1's copyright fees, which increased Q1's gross profit margin by about 5 percentage points.
24Q2 had revenue of 1.322 billion (yoy +9.5%, qoq -5.05%). The year-over-year increase was mainly due to growth in digital content services, online marketing services, and AI subscription services. The gross profit margin was 48.2% (yoy+1.2pp, qoq-0.8pp). The month-on-month decline in gross margin was mainly due to a decline in the revenue contribution of its learning services. Its year-over-year increase was mainly due to improved gross margin of its online marketing services.
The company's new mobile games such as “Marvel's Ultimate Reversal”, “Seven Day World”, and “16 Voices of Yan Yun” are expected to be launched one after another to drive growth. We forecast that the company's net profit for 24-26 will be 29.6/35.2/39.6 billion yuan (the original 24-26 was 33.6/38.5/41.7 billion yuan, due to adjustments to revenue from active and innovative businesses based on the Q2 financial report, and the profit forecast was adjusted by superimposing adjustments to the pace of game launches). We used SOTP valuation and gave a target price of 136.96 HKD/123.81 yuan (HKD/CNY=0.9), maintaining a “buy” rating.
Risk warning
New game performance falls short of expectations; version approval uncertainty; game net interest rate fluctuates; competition for live streaming intensifies