Behind the glamorous game industry, Youzu Interactive (002174.SZ) is quietly stepping into an unprecedented predicament. Recently, its earnings forecast for the first half of the year not only failed to bring excitement to the market but also revealed the company's hidden cash flow concerns and strategic confusion.

In the first half of the year, Youzu Interactive is expected to achieve a net profit attributable to shareholders of only 4 to 6 million yuan, while the net profit after deducting non-recurring gains and losses can reach 11 to 16.5 million yuan. Behind this apparent turnaround from losses to profits lies the heavy blow of non-recurring losses. According to the announcement, the fair value of the company's held financial assets declined significantly during the period, resulting in an estimated non-recurring loss of 5 to 12.5 million yuan. Such financial maneuvering, akin to robbing Peter to pay Paul, hardly conceals the weakness in the company's main business profitability.

Facing cash flow constraints, Youzu Interactive had to take drastic measures, terminating two convertible bond fundraising projects and converting 627.5 million yuan of project funds into supplementary working capital. While this decision temporarily alleviated the immediate pressure, it sparked significant controversy in the market. The change in the use of up to 55.53% of the raised funds not only raised doubts among investors about the decision-making capabilities of the company's management but also further exposed Youzu Interactive's shortcomings in fund management and strategic planning.

From a financial perspective, Youzu Interactive's net cash flow from operating activities has plummeted in recent years. From 2021 to 2023, its net cash flow from operating activities was 327 million yuan, 158 million yuan, and -230 million yuan, respectively. The significant net outflow in 2023, in particular, pushed the company's solvency to the brink. Additionally, the increase in the ratio of short-term debt to total debt further exacerbated the company's financial pressure.

Since the exit of the Lin Qi family and Shanghai Jiayou becoming the largest shareholder, Youzu Interactive has undergone comprehensive reforms ranging from the board of directors to the research and development front desk and back-end functional systems. However, this large-scale adjustment has not yielded the expected results. Instead, with a 34.9% year-on-year decrease in the total number of employees, the company's savings in labor costs do not seem to have translated into significant business growth. Moreover, the adherence to the "global card game+" strategy, while somewhat improving the success rate of product launches, has not fundamentally addressed the company's profitability challenges.

The persistence of non-recurring losses casts a lingering shadow over Youzu Interactive. The estimated non-recurring losses for the first half of the year contrast sharply with the non-recurring gains in the same period last year. In particular, the disposal losses from Ningbo Zeyu Venture Capital Partnership and the fair value changes losses from Jiaxing Youliang Investment Partnership have compounded the company's difficulties. These investment failures have not only drained the company's financial resources but also tarnished its reputation in the market.

Youzu Interactive stands at a crossroads, facing unprecedented challenges. Overcoming cash flow difficulties, enhancing the profitability of its main business, and successfully implementing strategic transformation are critical issues the company must address in the future. However, based on the current situation, Youzu Interactive appears to have yet to find a clear path forward. Under the shroud of negative news, its future development prospects are increasingly concerning.