Recently, Jibite, the parent company of Leiting Games, released its financial report for the first half of the year.

Due to the decline in revenue from its pillar games, Jibite's performance in the first half of the year continued to decline. In the first half of this year, the company achieved operating revenue of 1.96 billion yuan, a year-on-year decrease of 16.57%; net profit attributable to shareholders of listed companies was 518 million yuan, a year-on-year decrease of 23.39%.

The company achieved operating revenue of 4.185 billion yuan in 2023, a year-on-year decrease of 19.02%; net profit attributable to shareholders of listed companies was 1.125 billion yuan, a year-on-year decrease of 22.98%; and net profit after deducting non-recurring gains and losses was 1.119 billion yuan, a year-on-year decrease of 23.79%.

Including the performance in the first half of this year, Jibite's net profit has been declining for three consecutive years.

On the same day, Jibite also announced that its holding subsidiary Leiting Games had terminated its listing on the New Third Board.

After investing in 'Sheep Passed', Jibite fell into a dilemma of "falling and falling," and resorted to "making up for poor performance with dividends."

Is the decline of the once-promising game stock due to superficial operational issues or deeper institutional or human problems?

01 Declining old products, lackluster new games, and weak overseas expansion

Classified by theme, Jibite's self-developed and licensed games can be broadly divided into three categories: first, Chinese fantasy themes such as 'Daoist Asking,' 'Fighting Immortals,' 'One Thought Away,' and 'Thousand Dishes of the Divine Land'; second, IP-based games like 'Mole Manor,' 'Aobi Island: Dream Kingdom,' 'One Piece: Dream Pointer,' 'Ultra Evolution Story 2,' and the 'Underground Castle' series; and third, unique and innovative games such as 'Fly, Dragon Rider!' 'Immortal Family,' 'Amazing Maze,' 'This Dungeon is a Bit Strange,' and 'Blade of Abyss.'

Although there seems to be a large number of products, three self-developed games – the 'Daoist Asking' client, mobile game, and 'One Thought Away' mobile game – provide the majority of the company's profits and revenue.

According to the announcement, Jibite's core products are 'Daoist Asking' and 'One Thought Away.' The operating revenue, distribution costs, and profits of 'Daoist Asking' mobile game all decreased year-on-year in the first half of the year, while those of 'One Thought Away' (mainland version) and 'Aobi Island: Dream Kingdom' saw significant year-on-year declines. Additionally, after 'Mole Manor,' which had previously driven significant growth, experienced a sharp decline in revenue, Jibite has since withdrawn from its operation.

Among non-core products, the old games 'Fly, Dragon Rider!' (mainland version), launched in August 2023, and 'Ultra Evolution Story 2' and 'Picatong's Dream Origin,' launched in December 2023, contributed incremental revenue and profits in the first half of this year.

In terms of new games, Jibite had little to offer in the first half of the year. Although games like 'Immortal Family,' 'Thousand Dishes of the Divine Land,' and 'One Piece: Dream Pointer,' launched in the first half, contributed incremental revenue, they are still in the early stages of loss.

Despite the decline in both revenue and net profit, Jibite continued to distribute substantial dividends. The financial report shows that the company plans to distribute a cash dividend of 45.00 yuan (including tax) per 10 shares to all shareholders, totaling 323 million yuan (including tax), accounting for 62.36% of the net profit attributable to shareholders of listed companies in the first half of 2024.

Revenue and profits are overly dependent on three Chinese fantasy-themed products, while various attempts have been made in overseas expansion.

During the reporting period, the company's overseas revenue totaled 255 million yuan, an increase of 113.77% year-on-year. Since 2024, the company has successfully launched products such as 'Monster Never Cry (European and American versions),' 'Fly, Dragon Rider! (Overseas version),' and 'Outpost: Infinity Siege (Steam International version)' overseas.

However, overseas revenue accounted for only 13% of total revenue. Therefore, its contribution to overall performance is relatively minor.

Jibite has not made significant progress in overseas expansion. On the one hand, its over-reliance on Chinese fantasy themes has limited its overseas market, especially for its flagship product 'Daoist Asking,' which is difficult to bring overseas. On the other hand, the company's producer-centric model, characterized by "small steps and big wins," restricts project initiation.

In terms of product pipeline, Jibite currently has 10 exposed products, including four self-developed (mostly idle games) and six licensed, mostly simulation and card games.

The lack of blockbusters and a lackluster product pipeline are the current dilemmas facing Jibite.

As early as the release of its 2023 financial report, CEO Lu Hongyan admitted that the company's product pipeline...has undergone several rounds of testing, and overall, product performance has been average...So if you ask if there are any particularly significant products, we currently do not have such expectations. As for whether there are any potential blockbusters, I can only say that there may be some, as the performance of these products is passable, but ultimately, it depends on the user base.

Jibite's performance in new games in the first half of this year also confirmed CEO Lu's attitude of "average performance and no blockbusters."

On April 1, 'One Piece: Dream Pointer,' a new game jointly released by Leiting Games and Aofei Games, was launched. Licensed by the official 'One Piece' (translated as 'Pirate Warriors' in China), it is one of the top global IPs and theoretically has blockbuster potential.

However, the game was originally scheduled to be published by Zhaoxiyanguangnian, but in February this year, Leiting Games and Aofei Games announced that they had taken over its publication. The game peaked at 23rd on the iOS Bestseller Chart but had slipped out of the top 200 by May 6th, showing a relatively short lifespan.

Slightly earlier, on March 27th, 'Heavy Garrison' (PC), a domestic tower defense FPS game published by Leiting Games, was officially released on Steam. The game's reputation and data are currently not impressive, and it is unlikely to become a blockbuster.

02

Small steps and big wins, perhaps stemming from the CEO's entrepreneurial experience

Jibite CEO Lu Hongyan, a grassroots entrepreneur, made his first fortune by developing games with small investments and large returns before turning 30.

Born in Yantian District, Shenzhen, in 1977, Lu Hongyan was an academic star from a young age, entering Tianjin University's Computer Science and Technology program at just 17 years old. After graduating from university in 1998, he joined ZTE as a software engineer before studying abroad in Canada and working as a development engineer at Salira Optical Network Systems Inc. in the United States.

In 2003, Lu Hongyan gave up his Superior lifestyle in foreign countries and returned to China to start a business with Su Huazhou and Shen Wanli, whom he met through gaming. Together, they raised 1 million yuan (500,000 yuan each from Lu and Su, each holding 50% of the shares) and invited several online acquaintances to join them.

The next year, Jibite was officially established.

The young team, consisting of only five or six people, rented a small apartment in Xiamen and worked at night, resting during the day, to focus on game development. Lu Hongyan, aged 27, was responsible for technology; Su Huazhou, 23, for management and logistics; and Shen Wanli, also 27, for planning.

From the beginning of his entrepreneurship, Lu Hongyan's goal was clear: to develop online games. The small team, consisting of online acquaintances, drew inspiration from the story of 'Fengshen Bang' to build a "framework" for the game's background, technology, and art design. Sharing the belief that "imported games have vague story backgrounds and lack cultural depth," they embarked on their journey.

At the age of 29, Lu Hongyan released 'Daoist Asking,' which was officially commercialized the following year and launched in overseas Chinese markets. The game quickly gained popularity, attracting over 100,000 players upon its launch, and Lu Hongyan recouped his development costs that year.

In 2016, Jibite urgently needed to launch 'Daoist Asking Mobile,' which was also a great success. In just two months after its launch, 'Daoist Asking Mobile' contributed 410 million yuan in revenue to Jibite, four times that of its PC counterpart. This marked Jibite's successful transformation into a mobile game developer.

I believe that this entrepreneurial experience has led Jibite to adhere to the development model of "small steps and big wins" (as 'Daoist Asking' was such a success), which has become the DNA of Jibite's game development.

In an interview in September 2023, Lu Hongyan revealed that most of the company's product teams consist of 20 to 50 people, with 30 to 40 being the norm. In comparison, the early development team of 'Genshin Impact' consisted of over 300 people, while NetEase's 'Sculptor' boasted a team of 600.

Meanwhile, game development at Jibite is primarily driven by the producers' wishes. "There are about 20 game producers within Jibite, and game initiation is generally based on the producers' wishes. The incentives and management methods for production teams are primarily based on profit sharing and delegation of authority," Lu Hongyan has publicly mentioned.

In my opinion, this "small team and producer-centric" development model can indeed minimize costs and achieve big returns with small investments. Early successes like 'Daoist Asking' and later 'One Thought Away' are examples of this approach. Due to low development costs, these projects offer exceptionally high profit margins. In 2020, the company's annual net profit margin reached an astonishing 38%, and even in the weaker years of 2023 and the first half of 2024, this figure remained at 26%.

However, there are drawbacks to this model. Firstly, it is decentralized and risky, leading to a low hit rate. The mediocrity of self-developed products like 'Brave and Equipped,' 'Fly, Dragon Rider!,' and 'Immortal Family' demonstrates the company's lack of ability to replicate blockbusters, making it difficult to consistently and stably develop and publish outstanding products.

Secondly, with low costs and limited personnel per project, it is challenging to achieve global success, and the company often seeks differentiation by focusing on niche themes and gameplay, especially after 'One Thought Away,' when Jibite favored idle games. Examples include the ink painting fantasy and idle gameplay of 'One Thought Away,' the innovative shooting of 'Fly, Dragon Rider!,' and the idle synthesis of 'Immortal Family' and 'Brave and Equipped.' Most of Jibite's self-developed pipeline games are idle, leading to unique and casual gameplay that may struggle to attract high-paying, core players.

Thirdly, the "small team and producer-centric" approach essentially hands over project initiation to producers (as Lu Hongyan puts it, "full delegation of authority"). Lacking top-down guidance and constrained by producers' experience and abilities, this model can lead to a lack of focus and missed strategic opportunities, such as in the mini-game and overseas markets.

For instance, in the mini-game sector, Lu Hongyan believes that the currently popular mini-game market is vibrant and full of potential. However, due to Jibite's producer-driven product system, product direction choices are left to producers. Additionally, as the company aims for global products, mini-games primarily target the domestic market. As a result, Jibite has not focused on the mini-game sector. Although Jibite invested in the highly popular 'Sheep Passed' through Beijing Jianyou, that was two or three years ago.

The ability to replicate blockbusters has always been a measure of a game company's excellence. In terms of publishing, companies like Tencent and 37 Interactive rely on traffic operation capabilities to achieve high success rates for new products, with 37 Interactive launching several popular mini-games such as 'Path of the Dao,' 'Nameless,' and 'Sword of the Spirit Master.' In terms of development, companies like miHoYo and NetEase invest heavily in R&D to enhance content quality and playability, with miHoYo achieving consecutive successes with 'Honkai Impact 3rd,' 'Genshin Impact,' and 'Honkai: Star Rail.'

Jibite's lack of ability to replicate blockbusters ultimately stems from a lack of top-down vision and commitment to future content directions.

Jibite has been focused on replicating the success of 'Daoist Asking' by using small teams to create blockbusters, recouping costs within a year, and achieving high returns. However, as the gaming industry enters a maturity phase, the "small investments, big returns" model becomes increasingly ineffective. The threshold for industry R&D continues to rise, and blockbusters often require sustained large investments and top-down strategic emphasis.

03 Has the 'Game Stock' entered middle age and become mediocre?

Declining revenue from old products, weak overseas expansion, mediocre new products that fail to shoulder significant responsibilities, and a lack of ability to replicate blockbusters make Jibite resemble a stable but uninspiring "middle-aged" company:

Having passed through its glorious and passionate youth, it has entered a stable, unexciting, and predictable middle age.

Gradually settling into complacency, reducing expenses, and pinning hopes on new products in the "next generation."

Back in 2020, Jibite's share price once soared to 671.6 yuan per share, and its reputation as the 'Game Stock' was widespread due to its high dividends, high share price, and stable revenue.

However, since 2022, Jibite's net profit has declined for two consecutive years. Currently, the company is implementing "cost reduction and efficiency enhancement" measures, with operating costs, selling expenses, and administrative expenses decreasing by 14.36%, 16.46%, and 7.67%, respectively, in the first half of this year.

Perhaps realizing that its previous strategies were no longer effective, Jibite's "Minutes of Investor Research and Communication Activities from April 1 to April 30, 2024" indicated that the company may form three types of teams in the future: large teams of over 100 people, smaller teams of 20 to 30 people, and micro-teams of no more than 10 people, primarily responsible for project pre-research and small games. The company's expansion will prioritize the first type of team, and with an expanded workforce, it will ensure sufficient production capacity.

This suggests that Jibite is currently adapting to a new model, experiencing the pain of transformation as it nurtures the "next generation" during this "lactation period."

The 'Game Stock' has become mediocre.

Recent blockbusters in the gaming industry follow a typical "dumbbell model": casual, fragmented light games on one end, represented by mini-games, and high-quality, content-rich mid-to-heavy games on the other, exemplified by mobile games like 'Ni Shui Han' and 'Honkai: Star Rail.' However, Jibite finds itself stuck in the middle, struggling to make a definitive choice.

A boat sailing against the current must advance or be driven back. Even established gaming giants like Tencent, NetEase, and 37 Interactive are actively embracing strategic opportunities such as large DAU games, open-world experiences, and mini-games. Games like Tencent's 'Dream Star,' NetEase's 'Ni Shui Han' mobile game, Bilibili's 'Three Kingdoms: Strategy Under Heaven,' and 37 Interactive's string of mini-game hits are all examples of these companies rejuvenating themselves.

At just over 20 years old, Jibite must consider whether it is content to remain mediocre and fall behind.

Interestingly, Lu Hongyan seemingly foresaw the peak of the share price and a stable future in 2023, selling shares on the secondary market and cashing in over 100 million yuan.

At the latest financial report meeting, Lu Hongyan claimed that his personal income primarily comes from dividends.

In the first half of the year, despite the continuous decline in performance, the company still distributed 60% of its net profit as dividends, which is quite thought-provoking.