But Tencent and NetEase make 80% of the profits, and the gaming industry is divided into two or eight categories: the top ten manufacturers earn 81 billion yuan in revenue | Market | Tencent

For gaming companies, 2022, which has just passed, has been the most difficult year in recent years, with most of the listed companies losing money last year. After experiencing a cold winter, the industry is looking forward to a bottoming out and rebound in 2023.

Entering June, most listed gaming companies in the A-share, Hong Kong, and US stock markets have released their first quarter reports. In the Q1 financial report that has been released, First Financial has compiled the top 10 gaming companies in terms of revenue, based on which to observe the trend of the gaming market at the beginning of 2023.

The total revenue of the top 10 gaming companies in Q1 was about 81 billion yuan, with Tencent and NetEase accounting for over 80%. A clear trend is that industry concentration is further increasing. At the same time, except for two major companies, the revenue of the gaming business of the other eight companies is declining. The financial reports mention that the influencing factors include the rhythm of new game launches, the decline in the flow of old games, cost reduction and efficiency increase, as well as a decrease in online gaming time for players.

Jiang Xiaoxiao, Executive Director of CIC Zhuoshi Consulting, believes that compared to 2022, there are still relatively clear signs of industry recovery, which can also be seen from the feedback of the capital market on gaming stocks. The Spring Festival in the first quarter is a key period for gaming companies to focus on, but 2023, as the first Spring Festival in the post pandemic era, has its particularity.

"Most people across the country choose activities such as returning to their hometowns to visit their families, while offline activities occupy most of the time during the Spring Festival. On the other hand, most of the revenue is occupied by existing top tier games. For mid-range game companies, the launch of new games still takes time, which has led to a further decline in revenue," said Jiang Xiaoxiao.

The Matthew effect intensifies

Among the top 10 gaming companies, if we look at the overall revenue situation, there are 6 companies that have decreased year-on-year. However, only from the gaming business sector, except for Tencent and NetEase, the revenue scale of other manufacturers is shrinking. Bilibili and Kingsoft have maintained year-on-year growth overall due to more business support.

Taking Bilibili as an example, just looking at games, this is its third largest business in Q1 financial report, with a revenue of 1.1 billion yuan, a year-on-year decrease of 17%, and unchanged from the previous quarter. In the financial report of Kingsoft Software, the revenue from online games and other businesses was 919 million yuan, a year-on-year decrease of 6% and a month on quarter decrease of 10%.

In addition, manufacturers such as Perfect World, Gigabit, and Sohu Changyou have seen a double decline in net revenue and profit. The net profit of Perfect World decreased by 71.3%, partly due to a significant year-on-year decrease in non recurring gains and losses. After deducting non recurring gains and losses, the attributable net profit decreased by 37.58% year-on-year, mainly due to a natural decline in the revenue of the game Fantasy Tower compared to its initial high point.

In the past two years, Gilbert, which has performed well in performance, also experienced a decline in this quarter. In its financial report, it was mentioned that this was mainly due to a year-on-year decrease in revenue from popular products such as "Quest for Mobile Game" and "One Mind Easy". The financial report mentioned that this was influenced by factors such as increased offline liquidity of some players and reduced online gaming time.

The overall downward trend is basically in line with the Gamma Data released at the end of April's "Gamma Industry Report for January March 2023", which shows that the actual sales revenue of the Chinese gaming market in the first quarter was 67.509 billion yuan, a year-on-year decrease of 15.06%.

However, Tencent and NetEase, which have top products, experienced completely different growth trends in the first quarter.

The revenue of NetEase's gaming related business in Q1 2023 was 20.1 billion yuan, a year-on-year increase of 7.6%, with the gaming business accounting for 80.4% of the revenue. NetEase's net profit attributable to its shareholders was 6.8 billion yuan, a year-on-year increase of 53.7%.

Tencent's gaming business has rebounded comprehensively and returned to the growth track. Tencent's gaming revenue in the first quarter of this year was 48.3 billion yuan, a year-on-year increase of 10.8%. Among them, the local market game revenue was 35.1 billion yuan, a year-on-year increase of 6.4%, marking the first time since Q1 2022 that year-on-year growth has resumed. The international market revenue was 13.2 billion yuan, a year-on-year increase of 24.5%, becoming its second growth curve.

Based on existing data estimates, Tencent's local gaming revenue accounted for about 50% of China's gaming market revenue in the first quarter. In Q1 2022, this figure was only about 40%.

One top enterprise occupies half of the market, and in the current environment of stock competition, the Matthew effect in the gaming industry is further intensifying. The strong are always strong, leaving less room for small and medium-sized manufacturers to break through.

"This year, with the launch of MiHoYo's" Star Dome Railway "and the subsequent acquisition of the" Absolute Zone Zero "license, it is predicted that the overall gaming industry will continue to dominate Tencent, NetEase, and MiHoYo." Jiang Xiaoxiao believes that overall, the industry's valuation level will be on par with the current level of the "three giants" in the Chinese gaming industry.

The game content is king

As a typical entertainment consumer industry, game manufacturers ultimately rely on game products to win. From financial reports, it can be seen that Tencent and NetEase have both had explosive games driving performance growth. Correspondingly, other game manufacturers did not launch any impressive new games in this quarter, and the revenue of old games continued to decline due to lifecycle issues.

During a conference call after Tencent's Q1 financial report, when discussing the gaming business, the management mentioned that whether to outperform or lose the entire industry "largely depends on the quality of the content we can provide". Some "evergreen tree games" helped Tencent achieve outstanding performance in the first quarter of this year.

"Evergreen Tree Games" refers to Tencent's competitive games that have been in operation for many years, including "King of Glory" and "Peace Elite", and these games have long been at the top of the charts.

In this quarter, Tencent's self paced chess game "Battle of the Golden Shovel" released in 2021 saw a year-on-year increase of over 30% in revenue, with daily active accounts exceeding 10 million in April, setting a historic high and becoming the support for performance growth.

In addition, NetEase mentioned in its financial report that the growth in performance was partly driven by the leisure and competitive mobile game "Egg Party". Egg Party is the first super popular game of 2023 with over 30 million daily active players, making it the game with the highest number of daily active users in the history of NetEase Games.

According to Gamma Data, in the top 10 mobile game rankings in the first quarter of 2023, Tencent's games occupied five seats, with "King of Glory" and "Peace Elite" ranking in the top two, and "Battle of the Golden Shovel" ranking in tenth place. The third is "Genshin Impact" from Mihayou, and NetEase's "Egg Boy Party" ranked fourth.

In the top 10 mobile gaming rankings for this quarter, Tencent and NetEase's gaming products accounted for 7 spots, with the remaining mostly products from non listed gaming companies, leaving little market space for other listed gaming companies.

In this quarter's financial reports, several gaming companies have raised the issue of game content in response to the decline in performance.

The financial report of Bilibili mentioned that the decrease in game revenue was mainly due to the lack of new game launches in the first quarter of 2023. Kingsoft also stated that the year-on-year decline in game revenue was mainly due to the natural decline in revenue from mobile games such as Swordsman World 3 and Swordnet 1: Return, which had a relatively high revenue base in Q1 2022.

Affected by factors such as the pace of new product launch and marketing strategies, Sanqi Interactive Entertainment's revenue decreased in the first quarter. In its financial report, Sanqi Interactive Entertainment stated that during the reporting period, the company's online games in the past and 2022 have entered a relatively stable product cycle stage to varying degrees. The company has combined product lifecycle management marketing strategies to reduce costs and improve efficiency.

Jiang Xiaoxiao believes that in the past year, the decrease in license plate distribution has affected the plans of some companies to launch new games, and a large number of long tail game companies, even mid-range game companies, have been affected. However, for top game manufacturers, as long as the game's physical strength is strong enough, it further enhances the concentration of players. Especially for mobile games that require long-term operation, players can only play one game of the same type at the same time, and only the most high-quality game can stand out.

Entering 2023, with the release of licenses, game manufacturers have also had the opportunity to launch new games and seize the market. Since 2023, the distribution of game licenses has remained between 86-88 per month. As of the end of May, a total of 433 domestic online game licenses and 27 imported game licenses were approved during the year.

Based on the new product reserves revealed in the financial reports of various game manufacturers, this is destined to be a year of intensive game launches, and competition will also be relatively fierce.

Tencent released 18 heavyweight new game products at its May game launch event, of which 15 have already obtained licenses, including "Aurora at White Night", "Battlefield Without Borders", "Contract Without Fear", and others. At the game launch event in May, NetEase announced 11 new games, 35 popular games, and platform products, including the mobile game "Against the Cold Water", "Shooting Eagle", and "Jiuji: Qifeng Journey".

At the conference call, Tencent's management believed that the global gaming industry has experienced some transitional challenges, including the post pandemic discomfort in Western countries and the lack of new gaming licenses in China. The industry is expected to return to a historically high single digit growth state. After the global gaming industry returns to its growth trajectory, Tencent hopes to strive for synchronous or faster growth with the global industry.