Recently, xd inc released the mid-year financial report for 2024, and this latest achievement is quite impressive. Let's take a look at what makes it unique.

Both revenue and profit have increased, with multiple popular new games contributing to the incremental growth.

According to the financial report, the company's revenue in the first half of the year was 2.221 billion yuan (RMB), a year-on-year increase of 26.7%; gross profit was 1.497 billion yuan, a year-on-year increase of 44.3%; and the company's equity holders' share of surplus profit was 0.205 billion yuan, a significant increase of 127.4%. XD Inc has achieved dual growth in revenue and profit, and is moving towards high-quality development.

Looking at the business separately, game business revenue in the first half of the year was 1.49 billion, a nearly 30% increase; TapTap platform business revenue was 0.73 billion, a 21.7% increase. XD Inc is continuously moving forward with the dual drive of "game + TapTap".

Specifically for the game business, which accounts for 67% of the contribution, its strong revenue growth is attributed to new games such as "Chufa Ba Maifen", "Linglan Sword", and "Torchlight: Infinite" becoming popular products and contributing to the incremental growth. The first two new games are among the top five revenue contributors for XD Inc.

Taking "Chufa Ba Maifen" as an example, as a self-developed idle game by XD Inc, it was launched in the Greater China region in January this year and generated over 100 million in monthly revenue in its first month. According to Point Data's estimate, the game's revenue in the Greater China region exceeded 0.65 billion yuan as of May. It can be said that it became a hit as soon as it was launched and has sufficient product competitiveness in the market, further validating XD Inc's strong accumulation and technical strength in self-developed games.

Generally speaking, the gross margin of self-developed games is higher than that of licensed games. Therefore, as XD Inc's self-developed game revenue ratio increases, it drives the growth of gross margin. The gross margin in the first half of the year increased by 8.2 percentage points to 67.4% YoY, with the game business gross margin increasing by 12.7 percentage points to 59.9% YoY. XD Inc adheres to the strategic direction of self-developed games and is accelerating towards a period of harvest.

Looking ahead to the second half of 2024, XD Inc may have more expectations in terms of revenue and profit. The Hong Kong, Macau, and Taiwan versions of "Chufa Ba Maifen" made a significant contribution to revenue growth in the first half of the year, and the domestic version was launched on May 15th, with the possibility of some deferred revenue, which is expected to contribute to performance growth in the second half of the year. The performance of the Hong Kong, Macau, and Taiwan versions fully validates the "hit game" quality of this game, so the performance of the domestic version is likely to be strong as well.

In addition, the second half of the year has seen the launch of the international versions of 'Heartbeat Town' and 'Sword of Rindo,' with the upcoming 'Set off, Muffin' to be released in the Japanese and Korean versions, as well as other overseas regions. The gameplay of 'Heartbeat Town' fills a gap in the industry, taking the lead in this type of game, ensuring stable content updates and operational capability, and is expected to contribute a considerable revenue.

It is understood that xd inc currently has 3 self-developed products in the R&D phase. Therefore, it can be foreseen that the above-mentioned new games further strengthen the certainty of xd inc's performance growth, combined with the high gross profit margin characteristics of self-developed games, xd inc's profitability will also be significantly enhanced. Currently, their adherence to the logic of self-developed games is clear, and the game business will enter a new growth cycle.

The TapTap platform has strong scarcity, fully enjoying the dividends of industry development.

The full release capability of TapTap has become a competitive force that xd inc cannot ignore. In this niche, TapTap has almost no strong competitors. Based on a large user base and the synergy with new games, helping users discover good games, TapTap is extremely 'scarce' in the industry, and also contributes to xd inc's significant revenue growth.

In the first half of 2024, TapTap's platform business gross margin increased by 0.7 percentage points to 82.5% year-on-year. In terms of user-related data, TapTap's MAU reached 43.24 million, a year-on-year increase of 27.3%, setting a new high since its listing.

A large number of heavy new games were launched domestically this year, and TapTap also ushered in a new period of explosive growth in high-quality game content on the platform. Among them, 'Sword Net 3 Boundless' and others were exclusively released on the platform, bringing in external downloads of 8 million for third-party games such as 'Phigros' and 'Happy Fishing Master.' The self-developed game 'Heartbeat Town' also benefited greatly from close cooperation with TapTap.

Sealand Securities previously stated that as the normalcy of game approvals continues to be verified and new products are released one after another, the supply side of the game industry is tending towards a stable state, and the industry as a whole is entering an upward cycle, from which TapTap will benefit.

In the long run, with TapTap's coverage of off-site full-network publicity and promotion capabilities, the platform is becoming increasingly popular with more and more game developers. At the same time, around the user front, based on xd inc's control over the commercialization and content creation of TapTap, the sustained growth of MAU also means that the platform is truly converting traffic users into active users, bringing a solid underlying foundation for the healthy development of the platform.

It is worth mentioning that xd inc. limited the ad load rate in the first half of the year to ensure user experience, which will further benefit the healthy growth of the platform. It is not difficult to infer that under the benign ecological cycle of the platform, TapTap still has broad space for long-term revenue and active user growth.

In addition, Huang Yimeng, the CEO of xd inc., mentioned in the earnings conference that they are exploring the development path of the PC game store.

From an industry perspective, the global game market is expected to reach $187.7 billion in 2024, with the PC platform as an important pillar, with 0.98 billion users and $43.2 billion in revenue. PC games are a global 'big cake'. In addition, with more and more Chinese game developers developing cross-platform games for PC and mobile, xd inc. is expected to enjoy more industry development dividends and drive faster development of the platform business through exploring the PC game store.

Summary

With the emergence of 'Black Myth: Wukong', the market has seen the development potential and commercial value of high-quality game products from China. The game industry is showing high-quality development and will attract more and more attention from investors.

For xd inc., the performance has already verified that their self-developed game business has withstood the market test and truly high-quality games have become loved by users. And xd inc. has the advantage of TapTap, which brings together a group of high-quality game users, differentiating it from competitors in other industries, thus forming a dual-drive for self-developed games and game publishing.

As of now, xd inc.'s stock price has already surpassed 100% in cumulative increase this year, and the capital markets are bullish on its development prospects. Based on the increased operating scale and quality in the first half of the year, as well as the gradual release of value from the continuously launched game reserves and the sustained development of the TapTap platform, xd inc. has entered the 'snowball rolling' moment, and the future expectation is how high its growth ceiling will be.