Text | Praying Mantis Observation
Author | Qingyue
There are still two weeks before the end of 2021, and the Hong Kong stock market has finally ushered in the first game stock of the year-celadon games.
As a well-known mobile game developer and publisher in China, as well as a leader in casual games and Rogue-like RPG, Celadon Games’ performance in the capital market is not satisfactory.
On December 15, with regard to Celadon Games, Futu Securities’ black market transaction showed a quotation of HK$11.38, which was only a slight increase of 1.61% from the IPO price of HK$11.2. On December 16, Celadon Games even suffered a break at the opening. By the close of the Hong Kong stock market that day, Celadon Games had closed at HK$10.68, down 4.64%, and its total market value had dropped to HK$7.316 billion.
(Source: Snowball)
Judging from the black market and the stock price changes on the first day of listing, Celadon Games does not seem to be favored by the capital market. So what is the fundamentals of this first game stock this year? Why did it face the "dilemma" of breaking on the first day? As far as Celadon Games is concerned, is there any opportunity hidden in the market that can help it "recover its shame"?
With significant user stickiness and good profitability, Celadon Games has won the platform of Tencent, Ali, and Station B
People who don’t usually play games have probably never heard of Celadon Games, but they must have heard of Tencent, Ali, and Bilibili, and these companies are the investors behind Celadon Games.
In April of this year, Tencent Investment, Alibaba and Bilibili jointly made a round of strategic investment in Celadon Games, with a transaction amount of 303 million yuan. According to the prospectus data disclosed before the listing of Celadon Games, before the IPO, Tencent, Ali Baba and Bilibili both hold 4.99% of the shares of Celadon Games.
In addition to these three well-known manufacturers, with the "Ask" series, it has consistently ranked first in the profitability of the game sector, with a gross profit margin of 90%. Gigabit, which has earned over 100 million a year since 2012, is also a major shareholder of Celadon Games. It is reported that in 2013, Gigabit subscribed for 20% of Celadon Digital’s equity with 10 million cash. Since then, Gigabit has increased its stake all the way, holding a maximum of 36.91% of the equity, becoming the second largest shareholder of Celadon Digital.
The reason why it can have such a heavyweight investment lineup is due to the rapidly growing revenue of Celadon Games on the one hand.
(Data source: Celadon Game Prospectus, drawing: Praying Mantis Observation)
According to the prospectus, from 2018 to 2020, the revenue of Celadon Games will be 98 million yuan, 89 million yuan and 1.227 billion yuan respectively; the net profit will be 25 million yuan, 20 million yuan and 104 million yuan respectively. In the first half of 2021, the revenue of Celadon Games increased by 757.3% year-on-year to 763 million yuan, and the adjusted net profit was 314 million yuan.
According to Frost & Sullivan data, based on the average turnover of self-developed games, Celadon Games will rank fourth among all mobile game companies in China with self-developed game turnover exceeding 1 billion yuan in 2020; by casual games and idle games Calculated by turnover, Celadon ranks third and second respectively among Chinese game companies in 2020; based on the turnover of self-developed Rogue-like RPG, it ranks second among Chinese game companies.
On the other hand, it stems from the advantage of Celadon Games in user stickiness. According to the prospectus data, as of October 31, 2021, Celadon Games has approximately 10.4 million "celadon fans". The official account and social media operated by the company are the main channels for interaction between the two.
Through the suggestions put forward by players in the community, Celadon Games can quickly understand the needs of players, make adjustments and optimizations in a timely manner, and can also organize activities and provide secret orders to enhance players' sense of belonging and identification with the company.
Based on this, in terms of users, Celadon Games has achieved high stickiness and strong retention. According to the data in the prospectus, in the first half of 2021, the average weekly user retention rate of Celadon Games will be more than 20%, and the average weekly user retention rate of "Lantern and Dungeon" will reach 39.3%. According to Frost & Sullivan's report data, the industry average weekly player retention rates of RPG, Rogue-like RPG, casual games and idle games during the same period were 8.2%, 10.2%, 9.4% and 12%, respectively. In the whole year of 2020 and the first half of 2021, the overall ARPPU of Celadon Games is 206 yuan and 221 yuan respectively, which is also higher than the industry average.
From this point of view, it is not surprising that Celadon Games, which have fully released profitability, significantly improved performance, and high user stickiness, can get the favor of Ali, Tencent, Bilibili, and Gigabit. Why did the reproachable celadon game break on the first day of listing?
It broke on the first day, and there are many hidden worries behind the listing of Celadon Games
There is one thing to say, 2021 is not friendly to Hong Kong stocks.
According to statistics from Bloomberg, for companies that raised more than US$100 million in IPOs in Hong Kong this year, their post-listing prices dropped by an average of nearly 20% compared to the issue price. At the same time, the loss effect of new Hong Kong stocks has also increased significantly. Since August, among the 26 new stocks listed in the form of public offerings in Hong Kong stocks, 18 have broken on the first day of listing, accounting for nearly 70%.
To a certain extent, Celadon Games’ breakout on the first day of listing may indeed be affected by the general environment, but more in fact, there are indeed some hidden dangers in the company itself.
First of all, the revenue of Celadon Games is too dependent on a single game.
At this stage, the games operated by Celadon Games include "The Strongest Snail", "Unbelievable Labyrinth", "Lantern and Dungeon", "Aris Virus", "Endless Adventure" and "Yugong Yishan 3 - The Counterattack of the Wise Old Man" , but most of its revenue comes from "The Strongest Snail". It is reported that this game contributed 1.17 billion yuan in revenue within half a year of its launch, accounting for about 90% of the company's total revenue in 2020. In the first half of this year, it contributed another 567 million yuan in revenue, accounting for 74.31% of the total revenue.
Secondly, the word-of-mouth of the "pillar" games of Celadon Games is also declining sharply, and some popular games have also begun to decline.
In 2018, after the launch of "Ares Virus", it reached the top of China's ios paid game list overnight, and it has been ranked among the top ten paid adventure games for more than 30 consecutive days; after the launch of "The Strongest Snail" in 2020, The turnover in the first month exceeded 400 million yuan, contributing 95.3% of its revenue for the year; in March 2021, Celadon Games introduced the authorized game "Lamp and Dungeon". China's iOS Top 10 Free Rangers topped the list.
Generally speaking, the life cycle of a mobile game usually includes three stages: growth, maturity and decline. Although Celadon Games stated in the prospectus that the life cycle of games in operation is generally between 60-96 months, both "The Strongest Snail" and "Lantern and Dungeon" have begun to experience a decline in monthly active users and declining paying users. As for whether these two games will enter the recession period in advance, it is not impossible. After all, looking at the player community TapTap now, many players have begun to complain that "The Strongest Snail" is too "krypton gold" and less creative.
Finally, focusing on marketing and ignoring research and development, Celadon Games’ ability to produce explosive models is in doubt.
(Data source: Celadon Game Prospectus, drawing: Praying Mantis Observation)
From 2018 to 2020 and the first half of 2021, the sales and marketing expenses of Celadon Games were 14 million yuan, 17 million yuan, 559 million yuan, and 245 million yuan respectively; while the research and development expenses of celadon games were 25.305 million yuan and 25.612 million yuan respectively yuan, 146 million yuan, and 18.043 million yuan.
In 2020, the sales and marketing expenses of Celadon Games will be 3.83 times the research and development expenses. In the first half of 2021, sales and marketing expenses are 13.61 times that of research and development expenses.
Although the company plans to launch a new Rouge-like RPG game "Time Travel Agency" in 2022, casual games "Familiar Project" and "Blade Heart 2", RPG game "Aris Virus 2", ACT RPG game "Knight Duck" . However, as the huge purchase cost erodes profits and R&D fails to keep up, the game's playability and content richness will be affected, which will directly affect whether it can produce a second hit game.
Hidden dangers are still unresolved. Before the country’s strong supervision of the game industry, it was surrounded by established game companies such as Tencent and NetEase with strong R&D and distribution capabilities, as well as Lilith, Mihayou, 37 Interactive Entertainment, and Perfect World with outstanding R&D capabilities. , it is not difficult to understand why Celadon Games broke on the first day of listing.
Going to sea or metaverse, what can become the "new story" of celadon games?
The celadon game surrounded by wolves, in order to regain the "favor" of the capital market, urgently needs to find some new entry points and tell a more beautiful "new story".
In view of this situation, "going to sea" has become the first choice of Celadon Games.
In 2021, Celadon Games has targeted players from Japan, Southeast Asia, Hong Kong, Macau and Taiwan as its main target audience. It is expected to launch "Time Travel Agency" in Hong Kong, Macau and Taiwan in the first quarter of 2022, and "Lamp and Underground" in Hong Kong, Macau and Taiwan in the second quarter of 2022. The local version of "City", and launched "The Strongest Snail" in Japan. In the next two to three years, Celadon also plans to expand to Europe and the United States.
According to the "2020 China Game Industry Report", the actual sales revenue of China's self-developed games in the overseas market in 2020 will be US$15.45 billion, a year-on-year increase of 33.25%, and the growth rate has increased by 12.3 percentage points year-on-year. The revenue growth rate has hit a new high in the past four years. Even though this piece of cake is quite attractive, in the first quarter of 2021, Celadon Games’ revenue outside mainland China was 11.832 million, accounting for only 2.5% of the total revenue.
To put it bluntly, one of the problems is that overseas markets also value the quality of the game itself. As mentioned above, if Celadon Games does not change the problem of emphasizing marketing, heavy krypton gold, and ignoring R&D, even if it goes overseas, it will still be unable to save itself.
In addition, the competition in the overseas game market is equally fierce. There are not only popular overseas idle games such as "Traveling Frog" and "Cat Backyard", but also Mob Research Institute's "2021 China Mobile Game Industry In-Depth Insight Report", which will Compared with the first echelon of Tencent and NetEase and the second echelon of Lilith and Mihayou, the three echelons of game companies that go overseas, Celadon’s experience in overseas operations of games is not so rich.
It's not easy to go to sea, so Celadon Games set its sights on the metaverse again.
Zhongqingbao only announced that it will launch a metaverse game "Master of Wine" with the core of winery management. The stock price rose by 20% the next day after the news was released. Within a month, the stock price tripled, and the market value soared by 5 billion. A year ago, Tom Cat Company was burdened with huge losses and was accused of insider trading. As a result, it just announced the establishment of the "Metaverse Working Group" and directly raised its limit on the opening day.
In contrast to Celadon Games, it plans to build a Celadon universe by developing original and iconic IP for the game (including through the fusion of cultural elements), supplemented by peripheral products and pan-entertainment content (such as comics, videos and other merchandise), and explore the future The collaboration between Celadon's multiple IPs enhances player stickiness and monetization capabilities.
However, it should be noted that at this stage, Celadon Games does not have enough powerful IP, and at least 10 companies, including Tianxiaxiu, Zhongqingbao, and Shengtian Network, have received regulatory letters or letters of concern from relevant departments. It is also the reason why Celadon Games has caught the hot spots of the Metaverse, but the stock price is still not ideal.
All in all, in the view of "Praying Mantis Watch", whether it is going to sea or metaverse, at this stage, it is not enough to become the next "growth point" of celadon games. If you want to continue the high-growth myth, Celadon Games still needs to expand its game product portfolio, enhance its R&D capabilities, improve user experience, and extend its product life cycle.
*The pictures in this article are all from the Internet
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