Main points
China’s end travel is in an environment of weak supply and strong demand, and the end travel market may be underestimated. The end tour has laid the development and pattern of China’s game industry, while the hand tour has really opened the space for game research and development and realized China’s curve overtaking for foreign game research and development. At present, the research and development of mainstream game companies focus on mobile games, and there are few market participants in end games.
1. From the demand side, there is still strong demand for end-to-end tourism. According to traveller star, in September 2021, Shanghai New World Co.Ltd(600628) (produced by Amazon, MMORPG) was launched on steam. On the first day of launch, 500000 people were online at the same time, up to 910000 people were online at the same time (nearly half of them are estimated to be Chinese), and more than 200000 people were online at the same time in the previous beta test in July; In February 2022, the steam version of the Lost Ark was launched, with 980000 people online on the first day and more than 1.3 million on the next day. According to steam’s official report, in 2018, the monthly life of international service people reached 30 million, and it is expected that the monthly life of Chinese people will reach 40-60 million by the end of 2021 (steam’s global monthly life will reach 120 million by the end of 2020). Most of these users are high-value hard core game users.
2. From the supply side, few domestic end games have been launched since 2016. The most recent one is eternal robbery, which was launched last year. From the game approval in 2019, a total of 1570 games have passed the approval and obtained the version number, including 1462 mobile games and only 65 end games. Mobile games account for almost 93% of the reviewed games, while end games account for only about 4%.
We believe that the reasons for the weak supply of the end game industry mainly include:
1. Cost side: (1) the average R & D cost of mobile games is less than that of end games: the R & D cost and marketing cost of gta5 are US $137 million and US $128 million respectively; “Wild escort 2” reached the peak of the industry with a R & D cost of US $644 million.
(2) there is a gap in R & D technology between China and foreign countries, and the competitiveness of R & D end games is insufficient. GTA4 was developed by a development team of more than 1000 people for three and a half years, and more than 2000 relevant personnel participated before and after. In order to truly restore New York City, the game R & D team spent months investigating traffic and residents on the streets of New York, and took all-round images of each building to make a more realistic 3D model.
2. Revenue side: the operating efficiency and profitability of mobile games are significantly higher than those of end games. Whether in China or abroad, the mobile game market has surpassed the end game in terms of market scale, of which China’s mobile game market accounts for more than 70%.
From the “mobile game” to the “mobile game” in China. In the era of end-to-end travel, China’s game industry focuses on learning. In the era of mobile travel, China’s game industry overtakes at the curve, and has experienced the dividend of high growth of mobile Internet users and the dividend of end-to-end IP to mobile travel. At present, all dividends are nearing the end. In the post mobile Internet era, game R & D companies mainly focus on the high-quality research and operation of mobile games, game going to sea, etc. As the largest game segment in early China, the end game market is not concerned by the industry. We believe that:
1. There is still demand in the end game industry. At present, the shrinking market scale is mainly due to the lack of high-quality content supply. Therefore, the head end game R & D manufacturers may reap large dividends by launching end games.
2. In the VR / AR era, companies with strong end game R & D strength may benefit. Large scale VR games are more similar to PC or host games, and have higher requirements on the overall quality of the game. Therefore, companies with end game R & D strength are expected to obtain the first mover advantage in the era of immersing in the Internet.
Investment advice
We are optimistic about the game industry for a long time, and the end game market may be underestimated. China’s end travel is in the stage of weak supply and strong demand. Companies with end travel R & D strength and launch high-quality end travel are expected to reap the greatest dividends. Pay attention to leading game companies with end game R & D experience, strong research and operation strength and rich IP and product reserves, such as Netease, Tencent, Perfect World Co.Ltd(002624) , Zhejiang Century Huatong Group Co.Ltd(002602) , G-Bits Network Technology(Xiamen)Co.Ltd(603444) , etc. At the same time, pay attention to Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , which has been successfully transformed and has strong operation ability and high-quality game development ability.
Risk tips
Game version number risk, stricter industry regulatory policies, increased industry competition exceeding expectations, market demand falling short of expectations, end game product performance falling short of expectations and other risks.
