Introduction: in the era of navigation of science and technology, be a friend of certainty.

The ocean is the source of the exponential growth of human wealth.

The period from the 16th century to the middle of the 20th century was the great navigation era of agriculture and industry, and the middle of the 20th century to the 21st century was the great navigation era of science and technology. History can always enlighten us today:

In the stage of technology going out to sea, the companies with "technology matching unique business model" have the highest certainty of performance growth, and finding them in the undervalued stage is one of the most important topics for investors.

Chizi City Technology, which I think deserves a lot of attention during the technology sea phase of technology companies, has recently disclosed several key operating data (January-September 2020):

• Game apps have been downloaded 123 million times, up 38 per cent from the end of last year.
  

• The average number of monthly active users of game applications is 10.2 million yoy+67%.

• Social apps have been downloaded 152 million times, with an average of 9.1 million active users per month.

• Advertising revenue is about 310 million-350 million yuan, yoy+20% to 40%.

• The value-added service is about 420 million-450 million yuan, yoy+65 times.

The day after the announcement, Chizi City's share price soared 46%.

What is the value of Chizi City after the stock price has soared? I think this is what investors are most concerned about.

01The certainty of technology going to sea

There is nothing new under the sun. Reviewing the rise and fall of the major hegemons in the era of agricultural and industrial navigation will help us to see clearly the future of the era of great navigation in science and technology.

(1) Portugal, 15th century, Great Navigation 1.0

Prince Henry of Portugal set up a nautical school to establish a sound system of chart mapping, management and secrecy (death penalty for whistleblowers). The establishment of the "Royal Africa Company" to concentrate national efforts to expand maritime territory. For a long time, Portugal, which relies on state power to build leading chart knowledge, monopolized the vast sea area.

At this stage, just like the era of science and technology giants going out to sea, powerful subjects rely on their early accumulation to open up channels, occupy the wasteland of science and technology, and realize the "Columbus exchange" (product output from developed areas to backward areas). The American science and technology five giants "FAANG" is better.

(2) Holland, 16th century, Great Navigation 2.0

The religious tolerance of the Netherlands is a commercial country, it industrializes and spreads the chart widely, and then the whole people go to sea to promote the rapid development of its maritime trade, and the "sea coachman" is born. In today's words, the rise of the Netherlands is a victory for open systems over closed systems.

At this stage, it is equivalent to having a good business environment and infrastructure-- such as the global sales channel provided by Amazon.Com Inc, the global marketing provided by Google, etc.-- after that, any merchant / company can easily go to sea, the so-called all-people going to sea.

(3) England, 17th century, Great Navigation 3.0

Britain carried forward the Dutch practice of opening up ecology (lost two times in the three Anglo-Dutch wars in the 17th century, had no choice but to open it more vigorously), put forward the slogan of free trade and freedom on the high seas, and gradually strengthened the professionalism of navigation knowledge. hydrology departments were set up in the later stage to specialize in hydrological survey and chart production. The accumulated funds from trade were turned into technology to promote the upgrading of industrialization within Britain, while the Netherlands did not upgrade its industrialization due to factors such as a small land area. Finally, after the Netherlands lost the fourth Anglo-Dutch War in the 18th century, the country plummeted.

At this stage, the victory of Britain is the victory of technology, it constructs the positive feedback of the cycle of marine technology and domestic industrial technology upgrading, and the model is ahead of the world. Technology goes out to sea to crush giants to go to sea and all the people go to sea.

Today's byte jump, like the United Kingdom, also reflects the success of advanced technology and the success of advanced technology going to sea.

Its TikTok (overseas version of Douyin), a purely intelligent mode of "obtaining user data and training AI", crushes over overseas giant rivals such as Instagram. Another look at the traditional technology giant Tencent, its bottom is "online", its means to go to sea is to buy, it is difficult to subvert other overseas giants to get excess profits. In China, Tencent's APP of all kinds of information has also been beaten powerless by Jinri Toutiao, which is beating in bytes.

Cheetah Mobile Inc's tool APP "global arbitrage" has come to an end, which is the end of the stage of the whole people going out to sea. Byte beat Tik Tok is popular all over the world, which is the beginning of the stage of technology going to sea.Various signs show that the internationalization of technology companies has entered the era of "technology going out to sea".

Interestingly, in addition to the byte jump is called "APP factory", Chizi City is also known as "APP factory". And because Chizi City recently disclosed several key data of rapid growth, I studied Chizi City, which is also a company that technology goes out to sea.

02Certainty of strategy and tactics

Then it is said that there are two companies in China known as "APP factories", Byte Jump and Chizi City, whose "intelligent" path can be said to be the same, strategically promoting product research and development and cash out through data and AI. The only difference lies in the process of implementation:

Byte beat is the star route. Its first star product Jinri Toutiao, its development path is the rapid expansion of aggregated content under "advertising revenue (including future cash flow expectations) > infringement costs", which generates user interaction data, trains AI to accurately push content to users, efficiently matches advertisers to cash out, buys copyrights and rewards authors for deficiencies. The risk is the early occurrence of VC and the founder can not bear a large amount of content infringement litigation compensation. The risk of failure in this model is high, and if it succeeds, it will reach the pinnacle of the APP of information content.

Chizi City is a grassroots route. In the early stage, we do not pursue the vigorous, super popular style, nor the long life cycle of the product, but to achieve the intelligent goal step by step and stage by stage on the premise of ensuring profitability.

(1) upgrade of mobile advertising platform.

Mobile advertising platform has two meanings for Chizi City:

It was the main source of profit in the early days of Chizi City.In 2016, the mobile advertising platform division contributed 56.884 million yuan in gross profit to Chizi City, accounting for 79.9% of the total gross profit. From 2016 to 2018, the gross profit of the mobile advertising platform division all exceeded 50 million yuan.

It provides data support for the upgrading of Chizi City's business model.The threshold of simple mobile advertising platform is not high, and new entrants emerge one after another, so it is difficult to become bigger and stronger. But if you use this as a springboard to collect advertisers' data, tap the directions and tracks with the most potential for cash flow, and develop your own applications accordingly, this is the first business model upgrade.

In order to achieve the tactical goal of "mining advertiser data to guide R & D direction", Chizi City's mobile advertising platform has shifted its focus from "media acquisition business" to "programmed advertising platform business". The relative revenue of the two has reversed in 2017, as shown in the figure below.

(2) self-owned applications range from 0 to 1 billion users.

After the R & D direction of "money Road" is determined, Chizi City's application matrix is becoming more and more powerful.

In 2017, Chizi City began to launch other types of mobile applications, such as media entertainment, fitness and games, and then formed the SoloX application matrix. From 2018 to 2020, the total number of users of Solo X was 670 million, 970 million and 1.13 billion respectively-- "APP factory" in name.

We said that Chizi City's business is not so vigorous, did not spend a lot of money to do not see the hope of profitability of the new business, it is very robust, profit is a persistence, in its own application division is no exception. In fact, the gross profit of its own application in 2018 is 85.665 million yuan, which has exceeded the advertising platform business of China Mobile in the same period.

Like the mobile advertising platform, in addition to making a profit (mainly realized by docking advertising traffic in the early stage), self-owned applications also have more important significance:The data insight generated by level 1 billion users guides Chizi City's research and development from light applications to heavy applications: from leisure applications, to boutique applications, and even star applications (represented by a substantial increase in domestic purchase income and stronger cash realization ability of unit users).

At present, Chizi City has made great achievements in boutique applications and star applications.

1) moderate games

Archery Go . Those who have been on SensorTower for three consecutive quarters since Q3 in 2019[TOP20 downloads of Chinese mobile games in the United States]The list topped the App Store game download list of 14 countries and regions, and the App Store sports game download list of 102countries and regions TOP10.

Merge Wonders . Compared with other Merge games, it adds the "map editing" function, which allows users to play more freely, which is to meet the personalized creation needs of European and American users. The game can be retained up to 50% the next day.

2) Social applications

Social apps MICO and Yi. MICO is an open social entertainment application with more than 100 million users. It has been ranked No. 1 on the App Store social download list in 71 countries and regions. First, audio and video social networking, Google Play social application download list TOP10 in 9 countries and regions.

To sum up the above business model of Chizi City, Chizi City has evolved three times since 2016:

• The business of mobile advertising platform has been upgraded from media procurement to programmed advertising platform.

• The stylized advertising platform guides the Solo X application matrix from 0 to 1 billion users.

• The SoloX application matrix is upgraded again from leisure applications to boutique applications and even star applications.

Chizi's business form, or its label, is no longer a mobile advertising platform, tools and leisure applications, but a data-driven AI company that is imaginative in terms of gaming and social networking.

03Certainty of market capitalization

Value should be seen qualitatively as well as quantitatively. There has been enough qualitative analysis above, so let's move on to quantitative analysis.

(1) buyback

Just talking about returns without talking about risk is hooliganism. Before we talk about market value imagination, we need to talk about market value decline risk.

The risk of another sharp decline in the value of Chizi cities, I think, is small, because it is supported by buybacks. On September 24, 2020, Chizi City announced that it would exercise the share buyback plan approved at the previous annual general meeting to buy back up to 100 million shares, accounting for 10% of the total share capital, including other major shareholders who hold more than 5% of the shares. It is difficult for stock prices to fall sharply at this price.

(2) the biggest worry of the market has been the landing of boots.

Chizi City's revenue from mobile advertising platform has been sluggish in the past two years, which is the biggest concern of the market. Now this problem can be said to have landed on the ground: after a little research, we can see that Chizi City Mobile Advertising platform accounts for less than 10% of the total revenue. In fact, from the perspective of the company's business strategy, this part of the business has been strategically abandoned and the impact has been negligible.

It is necessary to clarify the reasons for the sluggish business of the mobile advertising platform: 1, the macro trend fluctuated in the past two years; 2, novel coronavirus wreaked havoc in the first half of 2020; 3, the most important thing is that the historical task of the mobile advertising platform to guide the research and development of mildly own applications has been completed, and it is no longer the core of the future strategy, just like the rocket booster that will actively shed off the fuel-exhausted rocket booster when the satellite is launched into space.

People who have the benefit of hindsight are still concerned about the performance of the mobile advertising platform. Prescient investors have discovered the fine and star upgrade of the Solo X application matrix. See that many of its games (Archery Go,Merge Wonders, etc.) / social applications (MICO, Yiya, etc.) have gone from the R & D investment period to the operation realization period.

The results from January to September 2020 already show that advertising revenue (mainly traffic realisation) is about 310 million-350 million yuan, yoy+20% to 40%, and value-added services (mainly internal purchase of applications) is about 420 million-450 million yuan, yoy+65 times.

I expect that by the end of 2020, Chizi City will have realized 500 million yuan in business income and 800 million yuan in internal purchase business income, and the mobile advertising platform has strategically abandoned the revenue. If the income growth rate is about 25% in 2021 and 2022, the income will reach 2.03 billion yuan in 2022. At 15 per cent net profit and 20 times PE, its expected market capitalization is HK $7 billion. As of October 23, 2020, Chizi City is worth HK $2.16 billion, which means that even if it has risen by 46% in a single day, there is still 224% expected room for increase by the end of 2022. The market situation does not fully reflect the real fundamentals of Chizi City!

Howard Marks, founder of Oak Capital, mentioned the second level of thinking in "The Most Important Thing". Our perception in investment practice is that if you can see the third layer of the company's growth and the market only sees the first layer (the current pricing only reflects the perception of the mobile advertising platform), then this may be a good opportunity. With the domestic investors' understanding of overseas markets and the gradual realization of Chizi City's performance, the real probability of value is "late but late".