Since the 1990s, the game industry has been growing in our country for less than 30 years. From the early days of video games such as red and white machines and arcades entering China, to the beginning of the online game era represented by NetEase, Shanda, and Tencent, to now entering the smartphone era, China's game industry has gone through three stages of pioneering, growing, and breaking the circle.

As a game development company, since its establishment in 2009, Chuangmendi (01119.HK) has also experienced three different stages of development, from an early source-based cooperation model, to strategic exploration for self-breakthrough and self-development, to now achieving a strategic focus on independent research and development.

Now, after several years of strategic exploration, Dream World has gradually found a growth path suitable for itself. Recently, the company also released its report card for the new year. Judging from market performance, on the two trading days of March 27 and March 28, the company's stock price achieved sharp increases of 10.00% and 10.82% respectively, reflecting the market's recognition of the company's current development. Behind this, what did Dream World do right in the 2023 fiscal year?

Core game revenue increased, and profit performance improved significantly in 2023

According to Chen Xiangyu, chairman of the board of directors, founder and CEO of the company, Changmengtiandi is currently in a new stage of development. According to the Zhitong Finance App, 2023 was a year where Chuangmeng Tiandi's financial data performance increased dramatically. The company turned losses into profits throughout the year, and cash flow was also drastically corrected.

In fiscal year 2023, Chuangmeng Tiandi achieved revenue of 1.92 billion yuan, of which the overall revenue scale decreased compared to the previous year, mainly related to the termination of the company's non-core business and offline derivatives business. In contrast, as online games continue to grow and self-developed products are steadily being launched, the company's core casual game revenue achieved a sharp increase in 2023, up 47% year-on-year, and the growth rate remains at the forefront of the industry.

In terms of profitability, the company's profit performance was greatly improved in 2023, and the adjusted annual profit was reversed, reaching 140 million yuan, mainly driven by several factors: 1. Increased gross profit due to increased revenue from core games and increased revenue from its own channels; 2. Significant drop in marketing expenses; 3. Reduction in R&D expenses.

Among them, in terms of expenses, in 2023, the company's marketing expenses fell sharply by 79% year on year to 230 million yuan, and the share of marketing expenses in revenue fell to 12% from 41.4% in the same period last year, a significant decrease. According to the company's management to the Zhitong Finance App, the decline in the company's marketing expenses in 2023 was mainly due to continuous improvements in customer acquisition efficiency and refined content, including in-game operations and community operations using Fanbook as the carrier.

According to information, compared to 2022, Chuangmeng Tiandi mainly spent marketing expenses on “Honor All Stars”, and with this product being transported through multiple channels and IP linkages in 2023, marketing expenses were drastically reduced in 2023.

In terms of management expenses, the company's management expenses in 2023 are roughly the same as in 2023. In terms of R&D expenses, the company invested 240 million yuan in R&D in 2023, down 25% from the same period last year. It is mainly related to the decline in R&D expenses due to projects such as “Carapicchu” and “Two Kingdoms: Interlaced Worlds” nearing completion, and the continued maturity of Fanbook functions.

The management of Chuangmeng Tiandi said that the company's R&D expenses in 2024 will be mainly due to “Carapicchu”, and it is expected that the overall R&D investment for the whole year will still decrease compared to 2023. In the future, the company will also use AIGC in game development to effectively improve R&D efficiency and reduce R&D costs.

The increase in profitability is reflected in cash flow. In 2023, the company's operating cash flow was 250 million yuan, a sharp increase of 169.4% over the previous year. According to management, the company's current core business base is growing steadily, and it is expected that profitability and cash hematopoietic capacity will continue for a long time as new games are launched one after another.

In fiscal year 2023, the company's balance ratio fell from 58.5% in 2022 to 53%, a decline of nearly 6 percentage points. The current ratio rose from 0.87 to 1.07. Interest-bearing liabilities such as convertible bonds and bank loans also fell by nearly 30% compared to the end of the previous year, and the balance sheet continued to be optimized.

The company's management said that the development strategy focusing on the main business has indeed brought about a marked improvement in the company's performance. Revenue from several key games increased dramatically. In the first quarter of 2024, the company continued to achieve positive operating cash flow. In the future, the company will continue to pay attention to operating cash flow management, continue to carefully manage the company's balance sheet, optimize the capital structure, control financial costs, and further enhance the company's operating stability.

Focus on key quality games and actively expand overseas markets

Now, Chuangmeng Tiandi is also in its 15th year since its establishment. Chen Xiangyu said that the company currently emphasizes positive cash flow in operations and focuses on the efficiency of input and output. On the one hand, the company focuses on self-developed and premium game content, focusing on casual, competitive, and RPG tracks; on the other hand, it focuses on community-driven product growth. Based on Fanbook, the company currently has a 10-million-level user community platform.

Among them, the above focus is a summary of the company's development to the third stage, focusing on independent research and development strategies. From distribution to self-research, Chen Xiangyu summarized the core competencies of Dream World at this stage into three points: 1. It is a game IP with a large number of users and a long life cycle; 2. It is a game company with R&D and operation capabilities for the world; 3. It emphasizes user service and has built Fanbook, a community platform with a large number of users.

According to the Zhitong Finance App, up to now, classic games such as Dream World's “Subway Runaway”, “Temple Run 2”, “Dream Garden”, and “Dream Home” have all been online for 7 to 12 years, and they are still growing steadily.

Among them, the “Dream Series” game was very profitable in 2023. The revenue of “Dream Garden” and “Dream Home” surged by more than 50% compared to the same period in 2022, reaching record highs since launch. Among them, “Dream Garden” and “Dream Home” have been updated with nearly ten versions in the past year, and nine skins have been launched, which has promoted a double increase in the size and health of users.

On the other hand, “Subway Parkour” is still popular ten years after its launch. In 2023, Chuangmeng Tiandi successfully launched 12 new versions, linked with classic IPs such as Ultraman and Conan, and ranked at the top of the free iOS game list in mainland China during the Spring Festival. In the future, the company will further explore the competitive potential of “Subway Parkour” and develop a global competitive version to enhance user stickiness and extend the IP life cycle of “Subway Parkour”.

Furthermore, in January 2024, the national service version of “Mecha Team”, which was launched by the company, quickly rose to prominence. It advanced to 7th place in the iOS shooter category during the Spring Festival, making up for the gap in the domestic realistic mech-style real-time battle game category. The game also received a high rating of 4.7 on the App Store.

At the same time, Chuangtiandi has continued to further develop its own research over the past year and successfully delivered a variety of boutique games.

For example, the company's self-developed blockbuster product “Carapicchu” made up for the gap in the current market and became the world's first two-dimensional competitive shooter. It has the two most prominent features: shooting and two-dimensional. On the one hand, it focuses on segmented shooting tracks, and on the other hand, it combines two-dimensional art style and effects. During the public beta period, the average daily activity of “Carapicchu” increased by more than 60%, the number of new users increased by 130% year over year, and player retention increased by about 10% year over year; the participation rate for the new casual gameplay (cart) also exceeded 20% +, and the average online time per day was over 120 minutes.

The launch of this self-developed game not only gave Dream World a foothold in the field of shooter games, but also helped it successfully build a multi-platform global shooting technology pipeline and a two-dimensional content pipeline. Currently, Dream World is also one of the first manufacturers in the industry to research and use the world's leading virtual engine to develop games.

In response, the company's management stated that with the continuous development and unlocking of content such as new gameplay, new maps, and new characters, and the full launch of multiple platforms, they firmly believe “Carapicchu” has the potential to become a hit game.

Also, according to the Zhitong Finance App, in addition to “Carapicchu,” Dream World also successfully delivered two self-developed games, “Honor All Stars” and “Two Kingdoms: Interlaced Worlds.” Among them, “Honor All Stars” has generated rich revenue for the company in the past three years, and has continued to rank at the top of the horizontal fighting RPG category, showing long-term operating value.

As a large-scale multiplayer online role-playing game jointly developed by Dream World and Tencent, Tencent officially launched in February; in addition, according to the company's forecast, “Operation Delta” will also be launched on multiple devices in the fourth quarter of this year.

As Chuangtiandi continues to focus on self-developed and premium game content, the company is welcoming more and more products with high long-term operating value, laying the foundation for the company's long-term steady growth in the future.

Also, according to Guan Song, the company's co-founder and CTO, this year, Chuangmeng Tiandi will continue to maintain in-depth cooperation with major AI model manufacturers at home and abroad to further improve internal workflow efficiency and transform multiple ToC entertainment application scenarios. In terms of improving the efficiency of internal workflows, AI capabilities cover various art design, asset production, copywriting generation, global translation, role dubbing, etc., and the company plans to apply these mature technologies in the future.

At the same time, Dream World also plans to actively expand overseas markets, with the goal of increasing the share of overseas revenue to 50% within the next three years. In 2024, the company took the lead in entering the Middle East market. It participated in the Middle East LEAP Technology Exhibition in early March, and signed a contract with Saudi Cloud Computing during the exhibition to integrate the technology and resources of both parties to jointly promote the development of the gaming and e-sports industry in Saudi Arabia and the entire Middle East region.

Looking ahead to the new year, Chen Xiangyu said that with the continuous delivery of self-development and the company's long-term operation experience and advantages, he believes that in 2024, Dream World's game business will continue to grow rapidly. In the future, the company will continue to focus on the main game industry, cultivate game circuits, focus on increasing the company's internal value, bring high-quality products to players around the world, and create greater value for investors.