37 Interactive Entertainment 2020 H1 Financial Report: Revenues Boosted by Development Studios' Strong Performance

GUANGZHOU,China,Sept. 11,2020 -- As of August 31st,thirty-one China A-shares video game companies had all published their 2020 H1 financial reports. With a revenue total of ¥7.989 billion RMB,37 Interactive Entertainment (stock code: 002555.SZ) was crowned as the best company amongst the group.

37 Interactive Entertainment's 2020 H1 revenues were up 31.6% YoY. The Guangzhou-based company also garnered a total net profit of ¥1.7 billion RMB,up by 64.5% YoY,higher than the total net profit in 2018.In the context of fierce competition in the domestic gaming industry,declining user growth,and peaking demographic dividend,this achievement is truly rare.

Within 10 years if its establishment,37 Interactive Entertainment became one of the Top 20 Global Public Game Companies,one of the Top 3 Chinese Mobile Game Companies,and a prominent "100-Billion RMB Market Cap" company. Such achievements are due to its constant dedication to game development and the accurate marketing capabilities.

Game Development: "Boutiqueization" + "Diversification"

Innovative research and development is the key to finding success in the video game industry.

37 Interactive Entertainment's semi-annual report shows that the company invested ¥645 million RMB in R&D in the first half of this year,an increase of 102.5% year-on-year,accounting for 38% of net profit. Among A-share listed companies with an average R&D investment of less than 5% of net profit,37 Interactive Entertainment can be said to be the best . Even in the game industry where R&D investment is generally high,nearly 40% of R&D investment is at a leading level.

In 2013,37 Interactive Entertainment spent only around ¥13.6 million RMB in game development. In 2019,the figure skyrocketed to ¥814 million RMB,almost 60 times higher than 6 years ago.

With continuous large-scale R&D investment,the company has developed various hit games such asBlades & Rings,Rite of Elves,etc. The revenue of the company's self-developed products exceeds more than ¥50 billion RMB. According to the latest issue of "China Mobile Game Market Annual Comprehensive Analysis Report" released by Analysys,the market share of 37 Interactive Entertainment's domestic mobile game business increased to 10.51% in 2020 H1,ranking third place in the country.

The research and development of 37 Interactive Entertainment mainly embodies two major characteristics: "Boutiqueization" and "Diversification". "Boutiqueization" is implemented through the entire life cycle of the company's self-developed products,from content planning to art direction,and sound/music effects before the game launch to the update iteration and process optimization after the game launch. This ensures the profitability and extended life cycle of a game.

At the same time,"Diversification" is the key to acquiring more users. Starting from 2018,the demographic dividend effect gradually wore out for the Chinese tech industry. Although the expansion of user base is slowing down,it is worth pointing out that the young users are on the rise,with more diverse demands and higher spending power. In response to this trend,37 Interactive Entertainment continues to expand its game categories and product line to include multiplayer online games,Card,Puzzle,Strategy,and Simulation games on top of the company's mature product line of RPG,ARPG,and MMORPG games. These products cover various themes/settings,e.g. Fantasy,Urban Life,Campus,Wuxia/Xianxia,etc.

In April 2020,37 Interactive Entertainment announced that it will spend ¥1.6 billion RMB in the next 3 years to develop 24 new games covering Western Fantasy,Oriental Fantasy,Norse Mythology,the Medieval Era,and many other themes. Innovative development will be emphasized in these games regarding story,gameplay,art style,visual effects,etc. in order to enhance players' sense of immersiveness. High-quality development and constant updates will keep players engaged and boost long-term profitability.

Localized Operation for Overseas Markets

While the company continues to increase its domestic market share,it never ceases to tap into the world,bringing more high-quality games to overseas players.

In 2020 H1,the total revenue of 37GAMES (37 Interactive Entertainment's overseas brand) game products reached ¥969 million RMB,up by 95%,the highest growth rate among all thirty-one China A-shares game companies. As of June 2020,37GAMES has published more than 80 games which covers more than 200 countries and regions. The product line involves ARPG,Gacha/Card RPG,and more genres and provides in-game languages in English,German,French,Russian,Turkish,Spanish,Portuguese,Italian,Polish,Japanese,Korean,Thai,Vietnamese,and many more.

37GAMES has been growing rapidly in the Asia-Pacific market. SNK All-Starwas ranked Top 1 on the download ranking list on both Google Play and Apple App Store shortly after its launch in Japan. The new game New Romance of the Three Kingdomsalso achieved great market response in Japan. In European and American markets,37GAMES has also achieved noteworthy progress. The company's latest mobile Strategy Puzzle game,Puzzles & Conquest,was ranked among the Top 50 Highest-Grossing games on Google Play and Apple App Store in multiple European countries.

"We have developed an effective and steady strategy in overseas game operation over the past 8 years. The high quality of our products lays the foundation for the steady year-on-year growth of our overseas revenue." Said Yang Jun,the senior vice president of 37 Interactive Entertainment in an interview in August 2020. "Our teams can provide players with high-quality and responsive services in each and every region where our games are published,24/7/365. This is pretty impressive,even from a global perspective."

The senior management of 37 Interactive Entertainment expressed that they will continue to focus on innovation and technology in game development and publishing to ensure the growth of revenue for investors as well as an optimal gaming experience for players all over the world.

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