EBITDA up 13% as stage is set for next growth phase
HONG KONG, Aug. 29, 2024 /PRNewswire/ -- NetDragon Websoft Holdings Limited ("NetDragon" or the "Company"; Hong Kong Stock Code: 777), a global leader in building internet communities, today announced its financial results for the first half of 2024. NetDragon's management team will hold a results presentation and webcast at 10:00am Hong Kong time on 30 August 2024 to discuss the results and recent business development.
Dr. Dejian Liu, Chairman of NetDragon, commented: "In the first half of the year, we delivered results that demonstrate both our resilience in the face of short-term challenges and our focus in building products to strengthen our competitive position and drive long-term growth. Our domestic PC gaming business delivered revenue of RMB1.36 billion, an increase of 2.1% YoY driven by our focus in driving engagement and retention of players. We believe as players' spending habits are clearly trending towards games with high quality contents and highly acclaimed IP, our iconic and non-replicable flagship IPs, together with our business model of building high quality games around these IPs, put us in a great position to differentiate and drive sustainable growth. With that being said, our overall gaming revenue in the first half was affected by our overseas revenue which declined by 12.9% YoY due to short-term temporary issues, and we are confident to emerge in the second half with a stronger performance. Our confidence stems from the fact that the execution of our growth strategy remains on track with many positive news to share. Our new game Code-Alpha is expected to be launched in the second half and will be expanding into several countries. We also received encouraging metrics from our testing of Under Oath Overseas Version which puts us on track to launch this new ACGN game in the Japanese market within the next 6 to 9 months. In addition, we have received very positive players' feedback for our new roguelike top-down shooter game Nebula Rangers that featured a second place on the TapTap platform's ranking of new games, coupled with a user score of 8.0. We expect this game to launch globally in 2025 and has the potential to become a new major title with high DAU."
"Turning to our education business, our overseas education subsidiary, Mynd.ai, continued to go through a stage of industry transformation that presents both challenges and opportunities. On the one hand, we continued to see softening hardware shipment as education authorities are still reacting to a broad normalization of budgets post-Covid, and from a macro standpoint, inflation also played a role in affecting budget allocation decisions of schools. On the other hand, we believe the market is in a very early stage of transitioning from a hardware-centric model to an integrated software and service-based model, which presents a transformational opportunity, especially for Mynd.ai as the incumbent market leader in our addressable markets with an installed base of over 1 million classrooms."
"In recent months, NetDragon has also made remarkable progress in our country-level initiatives in Thailand and the Kingdom of Saudi Arabia. In particular, we have announced a strategic initiative to develop aom-ai, a state-of-the-art AI education platform, with the support by the Ministry of Higher Education, Science, Research and Innovation in Thailand. This learning platform, which combines our cutting-edge education technologies with deep local insights of learners in the local market, is set for launch later this year. In Saudi Arabia, we are also working closely with the Ministry of Education on several exciting education technology initiatives in markets including K12 learning as well as technical and vocational training segments."
2024 First Half Financial Highlights
Revenue was RMB3.30 billion, representing a 10.3% decrease YoY.
Revenue from the gaming and application services was RMB2.12 billion, representing 64.3% of the Company's total revenue and a 0.8% decrease YoY.
Revenue from Mynd.ai was RMB1.18 billion, representing 35.7% of the Company's total revenue and a 23.5% decrease YoY.
Gross profit was RMB2.20 billion, representing a 3.8% decrease YoY.
Core segmental profit[1] from the gaming and application services was RMB688 million, representing an 11.5% decrease YoY.
Core segmental loss1 from Mynd.ai was RMB111 million, compared to a loss of RMB48 million in the first half of last year.
Operating profit was RMB634 million, representing a 9.3% decrease YoY.
Non-GAAP operating profit[2] was RMB640 million, representing a 7.5% decrease YoY.
EBITDA was RMB1.04 billion, representing a 12.9% increase YoY.
Non-GAAP EBITDA2 was RMB1.15 billion, representing a 33.1% increase YoY.
Profit attributable to owners of the Company was RMB400 million, representing a 20.0% decrease YoY.
Non-GAAP profit attributable to owners of the Company2 was RMB558 million, representing a 5.3% decrease YoY.
The Company declared an interim dividend of HKD0.40 per ordinary share for the six months ended 30 June 2024.
1 Core segmental profit (loss) figures are derived from the Group's reported segmental profit (loss) figures (presented in accordance with Hong Kong Financial Reporting Standard ("HKFRS") 8), but exclude non-core/ operating, non-recurring or unallocated items including government grants, impairment loss (net of reversal), fair value change and exchange gain on financial assets at fair value through profit or loss ("FVTPL"), fair value change and exchange loss on derivative financial instruments, interest expense and exchange loss on convertible and exchangeable bonds and convertible note, redundancy payments, legal and professional fees for spin-off and reversal of impairment loss of intangible assets.
2 To supplement the consolidated results of the Group prepared in accordance with HKFRSs, the use of non-GAAP measures is provided solely to enhance the overall understanding of the Group's current financial performance. The non-GAAP measures are not expressly permitted measures under HKFRSs and may not be comparable to similarly titled measures for other companies. The non-GAAP measures of the Group exclude share-based payments expense, amortisation of intangible assets arising on acquisitions of subsidiaries, write-down of inventories, fair value change on investment properties, fair value change on financial assets at FVTPL, fair value change on derivative financial instruments, finance costs, deferred tax, reversal of impairment loss of intangible assets, gain on disposal of intangible assets and exchange gain on pledged bank deposits, financial assets at FVTPL, convertible and exchangeable bonds and derivative financial instruments.
Segmental Financial Highlights
2024 First Half
2023 First Half
Variance
(RMB million)
Gamingand application services
Mynd.ai
Gaming and application services
Mynd.ai
Gaming and application services
Mynd.ai
(Restated)
(Restated)
Revenue
2,121
1,180
2,139
1,542
-0.8 %
-23.5 %
Gross profit
1,849
351
1,896
392
-2.5 %
-10.5 %
Gross margin
87.2 %
29.7 %
88.6 %
25.4 %
-1.4 ppts
+4.3 ppts
Core segmental profit (loss)1
688
(111)
777
(48)
-11.5 %
+131.3 %
Segmental operating expenses3
- Research and development
(595)
(101)
(542)
(99)
+9.8 %
+2.0 %
- Selling and marketing
(210)
(139)
(240)
(187)
-12.5 %
-25.7 %
- Administrative
(324)
(200)
(361)
(145)
-10.2 %
+37.9 %
3 Segmental operating expenses exclude unallocated expenses/income such as directors' fee and salaries, amortisation and exchange difference that have been grouped into SG&A categories on the Company's reported consolidated financial statements, but cannot be allocated to specific business segments for purpose of calculating the segmental profit (loss) figures in accordance with HKFRS 8.
Gaming Business
Our gaming revenue, which represents 87.8% of gaming and application services revenue, reached RMB1.86 billion in the first half, representing a 1.3% increase HoH and a 3.0% decrease YoY. Our focus in the first half was two-fold. On the one hand, we focused on deepening engagement of users through our ever-increasing quality of gaming experience for our existing games, hence leading to strong retention of users that pave the way for long-term sustainability of our existing games. On the other hand, we made remarkable progress in the development and testing of our new games in the pipeline, and we are pleased to have seen some promising metrics and feedback that put us in a strong position to grow our revenue in the next 6 to 12 months.
During the first half, domestic PC game revenue was RMB1.36 billion, marking a YoY increase of 2.1% and a HoH increase of 5.3%. Our three major IPs, Eudemons, Conquer and Heroes Evolved, all recorded both YoY and HoH growth for their respective domestic PC gaming revenues. The stable growth of our existing games is a result of our focus in expanding our gaming contents towards an optimal combination of content-driven and numerical attributes-driven spending that leads to higher quality of gaming experience over time.
Our top flagship IP Eudemons generated a total revenue of RMB1.69 billion during the period, representing a 0.6% HoH increase and a 3.8% YoY decrease. The performance of Eudemons IP in the first half was affected largely by two factors, namely (1) stable HoH performance of our existing Eudemons games during the period while we put our focus in working towards the launch of our next new Eudemons game, Eudemons Remake Version, which is scheduled to launch in Q1 of next year, and (2) short-term disruptive bot issues experienced in the overseas version of Eudemons Online, where measures have already been put in place to put the game back on growth track.
We continued to focus on enhancing quality of experience for our players leading to YoY growth of both gameplay-driven and content-driven revenue of our flagship game Eudemons Online in the domestic market during the first half. In particular, our measures include enhancing the depth and richness of different character roles, optimizing our graphics and in-game music, and integrating "Guofeng" and cultural elements to resonate with the interests and passion of many of our players.
Going forward, we expect to implement a multi-pronged growth strategy for the Eudemons IP, including achieving stable growth for our existing games, launching the Eudemons Remake Version and Eudemons Pocket Version 2.0 (in early 2025 and 2026 respectively) to target the huge existing pool of Eudemons IP players with a market-proven revenue model, as well as developing a new Eudemons PC game to be launched in the second half of 2025 to target both brand new players and existing player pool. We believe this strategy will bring the revenue scale of the Eudemons IP to a new level, and will drive revenue growth for many years to come.
Our Heroes Evolved IP continued to make positive progress in the first half, both from a revenue growth standpoint and a long-term strategic development standpoint. In particular, our Heroes Evolved PC game continued its momentum and delivered three consecutive reporting periods of revenue growth with a 29.6% increase in revenue YoY in the first half, driven by significant enhancements in overall gameplay and success in utilizing e-sports events to "activate" our players, leading to increase in players' retention, APA and ARPU during the period. We also saw a 28% increase in the number of e-sports teams participating in our summer season competition, as well as a 71% increase in the audience number compared to the same competition in the autumn season last year. In terms of expanding our mobile revenue for Heroes Evolved, we are in testing stage for our new mobile game Code-Nirvana and target to launch the game in 2025.
Our Conquer IP delivered strong result in the domestic market with a 6.6% YoY increase in revenue, driven by two major content updates and the introduction of new innovative gameplays. In
