On August 30th, Vobile Group (03738) released the 2024 interim performance announcement. During the period, the company's revenue was 1.18 billion yuan (in Hong Kong dollars, the same below), an 18% year-on-year increase, continuing the strong growth momentum; gross profit was 0.5 billion yuan, a 28% year-on-year increase, with a gross margin reaching 43%, a 4 percentage point increase year-on-year; net profit was 0.04632 million yuan, a 37% increase year-on-year. The comprehensive growth of core performance data has demonstrated the company's excellent fundamentals, which is particularly noteworthy in a slightly sluggish market environment.

High performance growth and strong performance realization have always been important features of Vobile. From the revenue perspective, since its listing in 2018, the company's revenue has been climbing year by year, with a compound annual growth rate of 76%. The interim revenue this time has also reached such a high level threshold of 1.18 billion yuan. From the profit perspective, Vobile is one of the few companies in the industry that achieves profitability, with the company's net profit reaching 46.32 million yuan in the 2024 interim period, a strong increase of 37% year-on-year. From the gross profit perspective, since proposing the high-quality development strategy, the company has significantly strengthened its operating quality through means such as focusing on high-margin businesses and adjusting low-profit businesses. By the 2024 interim period, the company's gross margin has reached 43%, a 4 percentage point increase year-on-year, showing an accelerating upward trend.

In addition, the Intelligent Investment and Finance APP has noticed that Vobile's cash and cash equivalents were 0.3 billion yuan during the period, a 26% year-on-year increase, providing evidence of the improvement in Vobile Group's profitability and reflecting the company's outstanding ability in cash flow management. Strong cash flow provides the company with more financial flexibility and is conducive to supporting its innovation in the management and monetization of content copyrights in the new era of artificial intelligence, seizing the opportunity for AI growth.

Strong profitability realization - AIGC provides strong support for the business to achieve scale.

As a leading global provider of digital content asset protection and trading software services, Vobile Group's competitive track and business model advantages are driving strong profitability realization, while AIGC's rapid development provides strong support for the continued scaling of the company's business.

The continuous innovation of the production, transmission, and consumption models of digital content is driving the iterative development of the industry format. For Vobile, the constantly emerging new scenarios mean constantly expanding business space. On one hand, Vobile Group tracks infringements for various copyright owners through subscription services to safeguard their copyright interests. In the first half of 2024, Vobile Group achieved coverage of copyright content in all categories, with a focus on expanding into new content areas such as short dramas, e-commerce, music, and images, and subscription service revenue also reached 0.55 billion yuan, an increase of approximately 17% year-on-year, accounting for about 46% of the total revenue. It is expected that with the continuous enhancement of global copyright protection awareness, the company will continue to deeply tap into customers of all categories of copyrighted content, and as the willingness of copyright owners to pay continues to increase, the company's subscription services will continue to maintain strong certainty.

On the basis of protection, Vobile helps customers maximize the value of the content through rich value-added services. The company continued the trend of contract upgrades with large content providers, achieving larger scale coverage of top content providers. During the period, the business income was 0.64 billion yuan, a year-on-year growth of 19%, accounting for approximately 54% of the total income. It is worth mentioning that in the first half of the year, Vobile's content viewing on YouTube Shorts saw a significant increase, and the company has developed an innovative product system for short drama content, which not only helps to improve monetization capabilities and the number of active assets, but also reflects the company's strong business innovation capabilities in response to customer and market demands.

From a regional perspective, Vobile Group's copyright protection and monetization business model is accelerating its implementation in China. In the first half of 2024, the domestic market remained stable and improved, with an income of 0.6 billion yuan, an 8% year-on-year growth. During this period, Vobile used AI copyright protection new technologies and deep cooperation with CCTV to provide copyright protection services for the 2024 Paris Olympics, and through the construction of a comprehensive media matrix and localized operational strategy, effectively helped high-quality domestic copyright content to go global, increasing monetization income and international brand influence.

In the US market, Vobile strengthened its cooperative relationship with large content providers, continuing its strong growth momentum. During the performance period, the region's revenue reached 0.57 billion yuan, a significant 30% year-on-year increase. The number of customers and the company's management of active assets on social media continued to grow, demonstrating the company's strong business strength.

In addition, the rapid development of AIGC is opening up greater space for Vobile's business scalability. The iteration of technological tools not only helps to unleash the productivity of small and medium-sized content providers, but also effectively promotes lower costs and higher efficiency, as well as the development of a more transparent and fair distribution system. This means that the previous bottlenecks that limited Vobile services to small and medium-sized content providers have been broken, and the types and scale of content creators and serviced content will be increased exponentially, unlocking massive consumer business potential and achieving a comprehensive upgrade from tool service to platform infrastructure.

It is not difficult to understand why Vobile has continued to increase its research and development efforts in the field of AI in recent years. Following an annual research and development investment of over 0.23 billion in 2023, the company's research and development expenses reached 0.14 billion yuan in the first half of 2024, a 50% year-on-year increase. In terms of building a long-term competitive advantage and helping to unleash business scalability, these investments are expected to bring substantial returns to Vobile in the future.

In summary, under the drive of the two major businesses, Vobile Group's performance continues to grow. At the same time, seizing the development opportunities of AIGC, Vobile's business scale effect will be further unleashed, leading to an improvement in its profitability, continued strengthening of financial stability, and full preparation for achieving the annual performance targets and future development.

AIGC catalyzes the upgrade of industrial roles and service capabilities, brewing a new round of explosive growth.

The digital content industry can be said to be one of the most recent scenes for commercial application of AI, with strong content production capabilities brought about by business applications and equal rights brought about by consumer applications, offering a bright prospect for commercial application. Bloomberg estimates that generative AI is expected to generate $1.3 trillion in revenue over the next decade in many fields such as software, hardware, services, advertising, and games. The undeniable reality is that along with the economic value release of AI-generated content, disputes and litigation related to copyrighted content between content providers and large model providers are increasing, raising the industry's attention to copyright to new heights. A clear copyright framework and a mechanism for fair distribution of interests support the sustained development of AIGC. Vobile is expected to provide crucial solutions for balancing the interests between content providers and AI technology companies, significantly increasing its industrial importance.

The discussion on the copyright issues of generative artificial intelligence in the market is increasingly focused, with data and copyright protection becoming a policy priority. The "Artificial Intelligence Act" approved by the European Parliament in March of this year indicates that large model manufacturers need to establish corresponding rules to identify and respect the right of copyright owners to retain the choice of training their own works under commercial purposes by the model. At the same time, it is becoming a trend for large models to pay for the use of copyrighted training materials. In this context, the demand for copyright protection from high-quality content providers has significantly increased.

Based on leading AI technology and deep industry service experience, Vobile Group can provide reliable rights confirmation, copyright management, and transaction services for various important aspects of the AI industry through its copyright protection business, playing a more crucial role in the industry. Specifically, the company will serve both copyright owners and large models, conduct copyright scrutiny on high-quality materials and training sets, provide benefit protection services to copyright owners, and reduce potential litigation and legal risks for large models. In other words, Vobile will be involved in the copyright material review from the input end to the content generation output, covering all key processes in the digital content era.

In order to seize this epic development opportunity, Vobile continuously strengthens research and development cooperation with top universities, enhancing technological research and industrial deployment. The research center jointly operated with the University of Florida in the United States has been in operation for three years, making significant progress in multiple technology areas such as artificial intelligence, content rights confirmation, and watermarking technology. Additionally, Vobile closely collaborates with well-known institutions such as Zhejiang University and the Hong Kong University of Science and Technology to continuously enhance global research and development capabilities.

Summary: AIGC Era's scarce leading asset in digital content trading - Achieving both performance and valuation growth

From the report card submitted by Vobile Group, it is easy to see its strong profit growth and the potential for sustained high growth. From an investment perspective, as the scarce leading asset in digital content trading in the AIGC era, the growth logic of Vobile in the short, medium, and long term is already very clear.

In the short term, the market's performance expectations are already catalyzing the stock price.

In the medium term, under the new production model of "human + AIGC tools," the explosive growth of creative content production is expected. Vobile is poised to gradually grow into a directional indicator for digital asset protection and trading in the AIGC era, benefiting from valuation premium as a scarce leading asset, driven by industry trends.

In the long term, the development of AI business will gradually improve Vobile's pricing logic and drive its valuation higher. With the resilience of copyright protection demands in the AIGC era adding certainty to its performance growth, Vobile's growth space will further expand, achieving both performance and valuation growth.