Since the beginning of this year, with the technological breakthrough of the AI industry, the market has paid more and more attention to the TMT plate.

According to the market performance in the first half of the year alone, funds piled into the TMT plate and frequently appeared in the "highly crowded" range. In the medium to long term, institutions are still optimistic about the growth potential of the TMT plate, the plate may be expected to usher in a new round of market on the left side of the layout opportunity. For example, Bank of China Securities said that TMT in the second half of the year is still the biggest main line, while Tianfeng Securities said that TMT is one of the plates most likely to form fundamental beta in the next 1-2 years.

Under this upsurge, the game industry, as one of the scenarios where AI technology is most likely to be the first to land, under the resonance with scientific and technological innovation, game enterprises can quickly achieve cost reduction, efficiency and innovation to increase income, and the emergence of new application scenarios and business models, driving the growth of the industry and the improvement of the valuation center. The industry is gradually showing an obvious recovery, behind which there are some opportunities worthy of attention.

During the current reporting window of Hong Kong stocks, many game companies focus on themselves and improve the efficiency of research and development in order to achieve greater certainty while pursuing returns.

Baiao family interaction may be a good observation example, the steady growth of income performance and significantly narrowed losses, highlight its strong business resilience and growth potential in the trend of industry recovery.

According to the financial report, in the first half of the year, Biao family interaction achieved revenue of 451 million yuan, an increase of 55.6% over the same period last year, while the adjusted net loss was 3.15 million yuan, narrowing 59.8% from the same period last year. On the one hand, the company continues to increase investment in research and development to rapidly improve the ability of independent game development and user experience, so as to achieve considerable revenue growth; on the other hand, the company reduces costs and increases efficiency, the increased sales and marketing expenses are offset by some of the reduced administrative expenses in the same period.

What other key messages have been released by Baiao family interaction through this report card? Might as well focus on the development trend of the game industry and the strategic focus of Bao family interaction, and make a value judgment from a longer-term perspective, we may be able to see the recovery of the industry and the sustainable development potential of the enterprise.

Recovery: the technical resonance of the policy market and the inflection point of industry development

From the perspective of the industry, the game industry, as a compound cultural content product, also has profound scientific and technological attributes, and has great potential and attraction for development.

Judging from the trend in the first half of this year, whether it is policy changes, market dynamics, or technological upgrading, the development of the game industry has shown obvious signs of recovery, the inflection point may have been shown.

First, the policy side releases positive signals, and the game industry gradually returns to a fast-paced pace of development.

Since November last year, the stability of the release of domestic game version numbers is normal. Up to now, the number of domestic game versions approved this year has reached 610, basically covering the important products of head companies and waist companies. In terms of the average monthly release number, the average monthly version number in 2023 is 87.2, far exceeding the average monthly version number of 66.86 in 2022.

At the same time, the distribution of imported game version numbers is also gradually resuming. In December last year, import version numbers resumed after a lapse of 17 months. A total of 44 were approved, and another 20 imported version numbers were issued in March this year.

Second, there is a significant pick-up at the end of the market, sales revenue and user scale continue to grow, the plate ushered in repair.

According to the China Game Industry report from January to June 2023, the actual sales revenue of China's game market from January to June in 2023 was 144.263 billion yuan, an increase of 22.16% over the previous month. Among them, the actual sales revenue of the mobile game market was 106.705 billion yuan, an increase of 29.21% over the previous month, showing a strong momentum of recovery. The actual sales revenue of the client game market was 32.943 billion yuan, an increase of 7.17% over the same period last year. During the same period, the number of domestic game users was 668 million, an increase of 0.35% over the same period last year, reaching an all-time high.

In response, Zhang Yijun, first vice chairman of the China Association of Audio, Video and Digital Publishers and chairman of the Game work Committee of the China Audio and Digital Association, said, "according to the current trend, it is expected that there will be a relatively strong bottom rebound in the second half of the year."

Third, the technical side of the AI revolution, to break the game production of the "impossible triangle", to achieve cost reduction and efficiency.

Game is essentially a kind of cultural expression driven by technology. As the big language model represented by ChatGPT forms a new paradigm of artificial intelligence, it not only promotes a new wave of AIGC, but also brings subversive changes to the production efficiency and mode of game content. Zheshang Securities pointed out, "AI technology involved in game production, game marketing, production and operation links will be reshaped."

In other words, in the short and medium term, the production link of the game will be further optimized, releasing the elasticity of cost reduction and efficiency, and promoting both quality and quantity on the supply side to drive demand-side prosperity. In the medium to long term, AI will generate games or gradually become the main force of industry production, and more integrated and innovative game products will continue to come online, breaking through the existing scenes, games and imagination, subverting the traditional game form and industrial chain, expanding the new boundary of value creation, and then opening the ceiling of industry growth.

In addition, Chinajoy returned offline after two years, many game manufacturers announced the new tour process, and the first AIGC conference interpreted the paradigm shift of the content industry under the AI tide from the perspectives of technology, industry, capital, etc., and regained the market's attention to the game industry.

From the superposition of various positive expectations, it is not difficult to judge that the game industry is facing a new development opportunity and ushering in a high-quality era.

Potential: rich game reserves + continuous innovation in content to build a moat of value growth

After defining the deterministic growth and trend improvement of the development of the game industry, can we achieve sustainable development in the industry competition in the future?The quality and content innovation of the game reserve become very important..

For the long-term research and development of Baiao family interaction, the company not only has a rich game reserve, but also continues to upgrade content innovation. It can be said that, whether at present or in the future, Baiao family interaction has already had a strong market competitiveness.

In the game reserve, on the one hand, the existing core products of Baiao Family interaction continue to operate steadily, constantly tamping the company's brand influence in the market.

For example, Obi Island: dream Nation is one of the longest-running and most influential IP products for Biao family interaction. After 14 years of operation, this IP has attracted and accumulated a large number of fans and players. This mobile game has been widely supported and recognized by players since its launch in July last year. After its launch, it quickly reached the top of the iOS game free list, and the next day it reached the sixth best-selling list of iOS games. At the same time, Obi Island: dream Nation maintains a high-frequency iterative update of content, with large versions ranking 20th on average on the best-selling list of online iOS games.

The official forum of the game or the topic of Weibo Corp is also the most active place for players, and the popularity of the discussion can reflect the popularity and market recognition of a game. It is reported that the topic of Weibo Corp in # Obi Island # has reached the seventh place on the most searched list.

In addition, the company's 11-year operation of the original IP "Ochi Legend" adaptation of "Ochi Legend Mobile Games" accumulated more than 10 million registered users, more than 100 million in the first month of launch. It has been more than two years since it was launched, and it has realized the continuous growth of community fans through continuous innovative marketing methods and content. Also by the operation of 13 years of the original IP "Aurra Star" adaptation of the "Aurra Star Mobile Games" will soon be the fourth anniversary of the launch, since the launch of the game has been committed to meet the needs of users, listen to the voices of players, and recently held a number of player meetings to accurately optimize the product for users' pain points.

On the other hand, Biao Family interaction continues to increase investment in product research and development, while updating the game version monthly, creating boutique games and expanding product reserves to consolidate core competitive advantages.. In the first half of the year, the company's R & D expenditure was 126 million yuan, an increase of 20.4% over the same period last year.

It is reported that the 3D multi-person pet round RPG mobile game "Aula Star 2" has been officially exposed and opened its reservation on June 8, and has been highly recommended by Bilibili Game reservation Center, XIAOMI Game Center and other platforms. Data show that "Aurra Star 2" has reached the highest fifth place on the Taptap reservation list, and the highest fourth place on the Bilibili Inc. reservation list.

At the same time, the company is also actively seizing overseas development opportunities to launch an overseas version of Obi Island: dream country, which is expected to be launched in the second half of 2023 to build the company's influence in the global game market.

The launch of the two games, on the one hand, has a certain incremental contribution to this year's performance, on the other hand, the game usually continues to create flow during the life cycle, and the recognition of the actual income included in the financial report will lag relatively. Therefore, it is also expected to make a positive contribution to next year's performance and effectively enhance the stability of the company's follow-up performance.

In terms of content innovation, through the unique mode of cross-border linkage with popular brands and cross-dimensional cooperation with traditional non-heritage culture, Baiao family interaction has made the game brand get more exposure and attention and attract more players and fans.

Games want to achieve long-term operation, often without cross-border linkage. In the first half of this year, the company's products launched cross-border cooperation with 10 IP to launch linked versions and game content, constantly expanding the influence of IP. Among them, the mobile game "Obi Island: dream country" has been linked with many well-known IP, including Sanrio, EMMA Chao, CCTV animation and so on, bringing a diversified game experience to users and triggering the popularity of social media topics many times. Weibo Corp's topic reading volume of # Obi Island Linkage Sanrio # has reached nearly 600 million, and the Weibo Corp super-talk reading volume of # Obi Island Mobile Tour # has exceeded 5 billion.

In the aspect of cross-dimensional cooperation of traditional non-heritage culture, such as the linkage between "Shiwuyu" and Guangcai intangible culture, "Ola Star Mobile Games" and Yangjiang Kite non-relics, "Oqi Legend Mobile Games" and Guangdong Lion Dance, a series of cooperation, relying on the interesting cultural linkage content, arouse the cultural confidence and resonance of the new generation of users, and contribute to the cultural inheritance and development.

To sum up, the Biao family interaction strategy focuses on game reserve and content innovation, building its potential and momentum for long-term value growth.

End

On the whole, the loss performance of Baiao family interaction continued to narrow in the first half of the year, fully testing the tenacity of its basic market. Looking to the future, the continuous online product reserve will also gradually release the company's growth potential, and is expected to achieve breakthroughs in new products and markets and open performance increments.

Back to the perspective of the capital market, the overall increase of the Hong Kong stock game plate relatively lagged behind the A-share game market in the first half of the year. I believe that by the release of version numbers, AI blessing and other multiple positive resonance, the market re-recognition of the nature and value of the game industry, Baiao family interaction, such as showing a strong performance of robust and rich product reserves of manufacturers, may usher in a new round of value upgrading.