CMGE Technology, the leading international IP-oriented game-based company in China, released its 2021 Interim Financial Report, recording total revenue of RMB2.18 billion, gross profit of RMB840 million and adjusted net profit of RMB402 million, representing increases of 27.2%, 58% and 17.6% respectively, compared with the First Half 2020.
In studying the financial report, we were surprised as the growth potential of CMGE (HKG:0302) became apparent. Expansion to overseas markets contributed a lot to corporate performance with a significant increase in gross profit of 58%. According to the above data, CMGE saw a considerable increase in both its revenue and gross profit for the first half of 2021, and especially, its gross profit recorded a much greater increase than its revenue.
When measuring the revenue in different business segments, for the first half of 2021, CMGE recorded a total revenue of RMB1.5253 billion in its game publishing business, RMB567 million in its game development business, and RMB87.8 million in its IP licensing business, representing increases of 2.4%, 156.8% and 2012.6% respectively, as compared to the First Half 2020.
It is noticeable that in the first half of 2021, CMGE performed excellently in its overseas publishing business, and gained a total revenue of RMB219.7 million in those markets, representing an increase of 6250.4% as compared with the First Half 2020. CMGE’s outperformance in overseas markets is mainly attributed to its advantageous products and game publishing strategies.
In terms of products, CMGE pitches high-quality and hot-selling products tested by the domestic market to overseas markets to make certain of hitting a great success in overseas markets. In terms of game publishing strategies, CMGE focuses on in-depth localization and brand awareness to give full play to its great potential in overseas markets.
For the Second Half 2021, CMGE will continue its efforts to expand overseas markets. For example, “The New Legend of The Condor Heroes: Iron Blood and Loyal Heart” will be launched in Vietnam, South Korea and Thailand; “Reborn!” will be launched in South Korea; “Sword and Fairy 7” will be simultaneously launched in mainland China and overseas markets.
Seek the “unchanged” in a changing era: focus on core IP and keep integrating R&D and operations
All Internet businesses are essentially dependent on traffic, products and operations. Games are a typical business centring on “Internet content”. CMGE mainly adopts the IP game strategy which, specifically speaking, is intended to build a business closed-loop based on the game publishing business, R&D business and IP licensing business that centres on “supply, cultivation, development and back-feeding” of IP, with IP as the core and with games as the foundation.
Why does CMGE stick to its core proprietary IP strategy?
First of all, IP can effectively reduce traffic acquisition costs and extend the game lifecycle. From the angle of operating data, IP games with a fan base have a higher fan conversion rate and have their fans showing stronger willingness to pay for games.
Moreover, IP ecological operation will enhance IP vitality and create greater added value. Film and television, animation, online literature, derivatives and other diversified businesses deriving from IP will increase CMGE’s corporate revenue and profitability.
Furthermore, organic IP operation will lead to higher IP popularity and further enhance the vitality of games.
Therefore, CMGE prefers to form an ecological closed-loop by relying on core product assets such as IP and conducting IP-based research and development. As a result of its adherence to the IP game ecological strategy for years, CMGE currently possesses 118 IPs (including 50 authorized IPs and 68 proprietary IPs), making it a game company with the most IPs in China.
Whether an IP can be transformed into competitive game products is determined in R&D, which is an important step in the process of IP core realization. Besides, in view of the severe homogeneity of game products and the scarcity of IP-based independent R&D capabilities, R&D strength matters a lot in the current game industry.
To ensure independent research and development, CMGE is also continuing its investment in outstanding producers and its acquisition of outstanding developers, and established “Man Tian Xing Workshop”, “Ling Dian Workshop” and “Da Yu Workshop” in the 1H of this year. From Nov 2016 to April 2021, CMGE invested in nearly all game development companies such as Phonecool Game and Love Games. In 1H 2021, CMGE completed its investment in R&D companies such as Shenzhen Heyao Network, Beijing Xinrui Game and Fuzhou Tornado.
By means of investment, CMGE has gained a continuous supply of high-quality games and has also achieved certain results in this respect. For example, “One Piece: The Voyage” jointly launched with Nuverse, “Soul Land: God of Battle Arise” independently published by CMGE, and “Dynasty Warriors: Hegemony” developed by EZFUN, invested by CMGE and published by Tencent on August 10 have ranked first among the Top Free Games in Apple’s App Store in Mainland China, and have been repeatedly recommended in “Hot Games Today” and “Best-selling Games” in the Apple Store since its launch.
In addition, operational efficiency and channel control are also of great importance for game companies.
Game operations essentially involve planning, organization, implementation and control of the entire production and R&D process and lifecycle of games. CMGE does this well. For example, “The World of Legend – Thunder Empire” and “Legend of Dragon City”, two games independently developed by CMGE, went online before 2020 and remained a stable contribution to CMGE’s revenue and profit in the first half of 2021, reflecting CMGE’s high operational efficiency and its strength in researching and developing high-quality games.
“Channel”, also known as “distribute”, is a process by which game products are made available to players. High-quality channels can synergize with games and lead to business expansion. In 1H 2021, CMGE reached strategic cooperation with Huawei on the game business. On April 29, 2021, Bilibili, previously acting as the cornerstone investor in CMGE’s IPO, increased its shareholding ratio in CMGE and served on CMGE’s board of directors.
Through strategic cooperation with top traffic platforms, CMGE has become more capable of dealing with channels. When disadvantages are eliminated and an ecological closed loop is formed, CMGE will surely thrive in the future.
Give back to society while seeking great development
Enterprises, as part of the social economy, must find a balance between corporate and social interests while seeking profits and growth, so as to achieve long-term development. CMGE takes strict control of its product by connecting to a real-time authentication system, with anti-addiction and age limit reminder systems, and by limiting the cumulative monthly spend by minors between the ages of 16 and 18 in games to RMB400. In 1H 2021, minors (under the age of 18) contributed only about 0.026% to CMGE’s game revenue in China.
CMGE has also made due contributions to public welfare and charity. It set up the eighth “CMGE Dream Libraries” in the Central Primary School of Lvcongpo Town, Badong County, Enshi Tujia and Miao Autonomous Prefecture, Hubei in April this year, and donated RMB1 million to Henan Charity General Federation to help fight the heavy rainfalls hitting Henan Province in July this year.