Zhu Rong
Short-term mood swings are likely to bring long-term entry opportunities, and it is recommended to pay attention to game companies with large declines and a high proportion of overseas revenue.
At 8 o'clock in the morning on December 25th, before the market opened, the National Press and Publication Administration released the approval information of domestic online games in December, and a total of 105 games were approved, including Tencent's "Counter War: Future", NetEase's "Firefly Assault", etc.
Three days ago, the Publishing Administration released the approval information for imported online games in 2023, and a total of 98 games were approved. So far, so far in 2023, 1,075 game versions have been released, of which 977 are made in China and 98 are imported. Far more than in 2022 (512 models for the whole year, 44 imported models) and 2021 (748 models for the whole year, 76 imported models). The data shows that the stability of the version number policy has gradually increased, and the game market has rebounded significantly. However, the Measures for the Administration of Online Games (Draft for Solicitation of Comments) (hereinafter referred to as the "Draft") released by the Publication Administration on the same day triggered a shock in the industry and capital circles.
The author believes that the existence of some game targets with a high proportion of overseas revenue is obviously wrongly killed, among which companies with a large decline, a relatively high proportion of overseas business and stable performance have a right-hand layout opportunity.
Coordinated supervision of edition numbers accelerates the issuance of additional amounts
Take care of the development of the industry, and be optimistic about stocks with a high proportion of overseas income
At the end of 2023, the National Press and Publication Administration issued a draft on December 22, with a total of eight chapters and 64 articles, covering game modes, payment restrictions, edition number supervision, anti-addiction and other aspects. Among them, "prohibiting recharge inducement and setting recharge limits", "one-year validity period of version numbers" and "random selection" have triggered a wide range of discussions in the capital market, industries and players. On the day of the news, the AH share game sector fell sharply, and the online game index fell 9.76%. Station B and Kuaishou around the game industry fell by 9.67% and 7.22% respectively.
As the most critical "road", the version number has a clear policy guidance. Without the edition number, there is no way to make money. The draft clarifies the regulation of game version numbers, requiring online game publishing and operation units to organize game publishing and operation within one year from the date of issuance of the approval document after obtaining the approval document. This means that the previous phenomenon of "gray industry" and game companies "hoarding edition numbers" is expected to end, and the scheduling of new game products also needs to be determined as soon as possible. Although there was no explicit provision before, in fact, the validity period of the version number issued from 2020 is one year, and the head manufacturer can generally go online 3 to 12 months after getting the version number. At the same time, the draft is not a one-size-fits-all approach, and special circumstances that cannot be published and operated within the time limit can be reported to the public.
The author noted that on December 22 and December 25, the Publishing Administration announced the approval information of imported games and domestic games in December, and issued 105 domestic game versions, including 94 mobile versions, 3 client versions and 8 mobile-client double-ended versions, plus 40 imported game versions, a total of 145 games were approved. In terms of quantity, the number of domestic game versions approved in December exceeded 100 for the first time this year, and the number of imported game versions increased slightly from the 27 and 31 in the first two batches of the year. According to the statistics of the Publishing Administration, the number of game editions issued from 2021 to 2023 will be 748, 512, and 1075 respectively, indicating that the supply side of game editions has increased steadily and the stability of the edition policy has been enhanced. The author believes that the regulatory authorities continue to make efforts to promote the healthy development of online games, and continue to release positive signals, and the feelings of "care" are beyond words.
On the day of the release of the opinion draft, the online game index fell sharply due to short-term sentiment. In the author's opinion, some of the targets were clearly wrongfully killed. They are mainly non-game AI application related companies and game companies with a high proportion of overseas revenue. Roman shares, which closed down 4.47% on December 22, belong to the former, and most of the company's revenue comes from engineering construction, and the layout of the digital cultural tourism business is not affected by the draft. Affected by market sentiment, Shenzhou Taiyue, as a game company, closed down more than 10% on the 22nd. In fact, 87% of Shenzhou Taiyue's game business revenue comes from overseas and Hong Kong, Macao and Taiwan regions of China, and the overseas game business is not within the scope of management of this draft opinion. The author believes that short-term mood swings are likely to bring long-term entry opportunities, and it is recommended to pay attention to game companies with large declines and a high proportion of overseas revenue (see the attached table for details). Among them, Shenzhou Taiyue has two high-quality strategy games in the follow-up reserve, which are expected to become the target of a continuous rebound in the game sector.
The gaming industry has debated the issue of adult quota spending
Pay attention to the follow-up adjustments and implementation of the draft for comments
The authors note that Article 18 of the Draft Opinion on "restricting the excessive use and high consumption of games" is the clause that has attracted the most attention in the market, and may have a substantial impact on the monetization model of game companies, and the extent of the impact depends on the level of the recharge limit set and whether the subsequent implementation is strict.
The draft also stipulates that "all online games must set user recharge limits and publicize them in their service rules, and pop-up warnings should be given to users' irrational consumption behaviors", which does not specify the keywords "users" and "recharge limits". The recharge limit for minors has been stipulated before, and the cumulative monthly recharge of minors aged 8-16 cannot exceed 200 yuan, and the cumulative monthly recharge amount of minors aged 16+ does not exceed 400 yuan, which aims to solve the social problem of minors addicted to online games. In fact, in offline retail industries such as e-commerce and community group buying, membership top-up and full-discount activities with similar principles have always existed, and they are normal commercial promotion methods.
Regarding the recharge limit, the author believes that if the single recharge limit is restricted, the impact is small, while the total recharge limit is greater. If the latter is the case, game companies with a large number of high-ARPPU (average revenue per paying user) games with a high revenue share are likely to be the most affected, while companies with a higher number of low-ARPPU games are less affected, and companies with a focus on overseas gaming businesses are not expected to be affected.
For the random lottery mechanism, which usually requires players to kryptonite, manufacturers have previously been required to clearly announce the probability of the lottery and limit the daily draw limit. The new provision that "users should be allowed to directly purchase props or rewards in the lottery" indicates that the Publication Administration has taken into account the particularity of the lottery mechanism for the game, and the sense of achievement that players get from random selection is also part of the game experience. The author believes that game companies can maintain users' willingness to draw cards by setting high prices for prizes, and set the grand prize at a price that most players are not willing to buy directly. Eventually, players will still prefer to draw items or rewards through lotteries. Specifically, it is necessary to pay attention to the revision of the draft and the implementation of the final policy.
Encourage the high-quality content industry to accelerate the clearance
The game industry continues to develop healthily
In the long run, the Draft is an important addition to the Interim Measures for the Administration of Online Games, which was repealed in 2019 (the "Interim Measures"). After the repeal of the Interim Measures, the administrative departments for culture are no longer in charge of online games, and no longer assume regulatory functions, resulting in a gap in the regulation of online games during and after the event. Based on this background, it can be found that many of the provisions in the draft can be found in the relevant expressions in the Interim Measures. In the author's opinion, this shows that the continuity of online game regulatory measures, aimed at eliminating industry chaos and promoting healthy development, is fundamentally different from the previous "double reduction" policy on education.
Tencent, NetEase, Perfect World and other game companies have all said that the introduction of the new regulations on online games is conducive to the healthy development of enterprises and will actively participate in feedback. The draft will also promote the trend of product quality, making it difficult for game companies to rely on streaming and buying to acquire users, and turn to strengthening game development and creativity to attract players.
The relevant person in charge of the Publication Administration also released a reassurance, saying that "the draft for comments is based on ensuring and promoting the prosperity and healthy development of the online game industry", and will carefully study the concerns and opinions raised by all parties, and will be further revised and improved on the basis of continuing to listen to the opinions of relevant departments, enterprises, users and other parties.
The author believes that in fact, the draft opinion is a huge positive for listed companies, especially leading stocks, supplementing the gaps in the rules and regulations of industry departments, forming a policy moat, and it is a rare "centralized cleanup" for hot spots and fake online game stocks.
(This article was published in the December 30 issue of Securities Market Weekly.) The views in the article only represent the personal guests and do not represent the position of this magazine. The individual stocks mentioned in the article are only for analysis and do not make investment advice. ）