On September 23, Sichuan Xunyou Network Technology Co., Ltd. received an inquiry letter for the semi-annual report, requesting the company to explain the continuous growth of accounts receivable, the decline in the performance of its subsidiaries, and the cash flow situation. This is also the fifth time the company has received a letter from the Shenzhen Stock Exchange in 2020. Founded in 2008, Xunyou Technology is the first professional online game acceleration service provider in China. With its Xunyou accelerator, it seizes the domestic market and accounts for 70% of its revenue. In 2015, the company completed its listing, but its performance has continued to decline since then. During the period, the company’s investment in many projects were not as good as expected, resulting in a substantial decline in assets.
In the first half of 2020, when the game industry generally harvested a wave of traffic dividends, Xunyou Technology missed growth opportunities and its profits fell by more than 60%. In the first half of the year, revenue was 245 million yuan, a year-on-year decrease of 7.35%; net profit attributable to the parent company was 35 million yuan, a year-on-year decrease of 66.75%.
On the evening of September 7, Xunyou Technology issued an announcement stating that its actual controller was changed to Guiyang SASAC. This is also the case that Xunyou Technology ushered in a state-owned rescue after it fell into operating difficulties.
Regarding the issue of the company’s future transformation strategy, Xunyou Technology responded to “Investor Net”: “In the future, the company will use its existing position in the intelligent network industry and the accumulation of loyal user groups to conduct business for the service needs of game players, game manufacturers and developers. The enrichment and expansion of the network, combining the advantages of global user resources and technical advantages, and expanding intelligent network optimization services to more high-quality, complex and personalized Internet applications.”
Decline in the proportion of core business
Xunyou Technology’s profit mainly relies on providing users with fee-based network acceleration services, covering from online games to mobile games, contributing more than 100 million yuan in revenue to the company every year.
As the company’s largest source of income, the revenue share of the network acceleration business has fluctuated sharply, from 99.45% in 2015 to 36.49% in 2018, and 74.01% in 2019.
The main products of Xunyou Technology include “Xunyou Online Game Accelerator” and “Xunyou Mobile Game Accelerator”, and the gross profit margin has basically remained above 60%. As the former market-leading accelerator brand, Xunyou Technology is now facing dozens of similar competing products, including Raytheon accelerator, NetEase UU accelerator, Tencent online game accelerator, etc.
From the perspective of product revenue, the differentiation between mobile and PC is becoming more and more obvious. Among them, the proportion of mobile game accelerators increased from 0.88% in 2016 to 12.38% in 2018, and the proportion of online game accelerators dropped from 98.61% to 24.14%. . Regarding the current accelerated business development, the company only stated in the semi-annual report that “PC-side accelerated business basically maintained stable development; mobile-side accelerated business revenue and profit achieved rapid year-on-year growth”.
According to the “2020 Game Industry Trend Report”, the actual sales revenue of China’s game market in 2020 is expected to exceed 270 billion yuan, of which mobile games are the main driving force for the current growth. In addition, the increase in the number of game products that operate on the same service globally will further stimulate the demand for network acceleration services in the game market.
Analysys game analyst Liao Xuhua analyzed “Investor Net”: “Accelerator is an industry that is easy to get started but difficult to do. The basic technical route is relatively mature and simple. However, starting from the specific product user experience, it is important for comprehensive products and The technical requirements are still very high. From the product point of view, it can be said that the substitution is relatively strong, but in fact, the willingness of users to migrate is still relatively low.”
Sun Hui, chairman and CEO of Fuzhijiujiu, said that as a tool product, product performance and user experience determine the scale of users. “The technical threshold of the product itself is not high, but there are requirements for capital, which is mainly reflected in the hardware investment. From the perspective of the layout, there are certain difficulties in achieving national interconnection, and the entire industry has not shown a state of fierce competition.”
Compared with the many game products in the subdivisions, the accelerator product track is narrower, but from the perspective of Xunyou Technology’s R&D investment in the past two years, R&D expenses have maintained a relatively high growth.
In terms of R&D expenses, in 2018 and 2019, they were 68 million yuan and 1.02 yuan, respectively, a year-on-year increase of 64.18% and 51.24%. The company explained that it was due to the increase in equity incentive expenses and labor costs. In the first half of 2020, it was 46 million yuan, a year-on-year increase of 31.20%. The flow of funds is still linked to labor costs.
In response, the company replied: “During the reporting period, the company continued to conduct technical research and product development around core business based on market demand. The main R&D content includes’router embedded acceleration system’ and’Xunyou big data analysis system’ , “Xunyou Terminal Update System” and other accelerated platform function evolution development and other manufacturers’ cooperation version of accelerators. Mobile acceleration products have built-in cooperation with many mainstream mobile phone manufacturers, and cooperate with underlying hardware manufacturers.”
In addition, the company’s receivables surged, which is closely related to the number one business. The report for the first half of the year showed that its accounts receivable was 22.95 million yuan, an increase of 139.31% from the beginning of this year. Xunyou Technology stated that “mainly due to the increase in the income from the Internet acceleration service business during the reporting period, which led to the increase in the accounts receivable of subsidiaries” , The top five accounts receivable total 14.37 million yuan.
Overseas business expansion “folded”
From relying on a single product to adding new overseas advertising business, Xunyou Technology is trying to add more sources of income. However, due to the failure of business expansion, the company’s assets have continued to shrink. As of now, the total assets are 1.516 billion yuan, a decrease of 7.59% from the beginning of the year.
In 2017, Xunyou Technology acquired the entire equity of its subsidiary Lion Roar for 2.7 billion yuan. This is a mobile Internet startup company that focuses on overseas markets. Its revenue comes from Internet mobile advertising. The purpose of Xunyou Technology’s income is to open up new business lines and expand the international market. The evaluation report shows that this high-premium acquisition also gave Xunyou Technology a goodwill of 2.27 billion yuan in the book.
After the completion of the merger, the proportion of mobile Internet advertising business in Xunyou Technology has increased significantly, once increasing the company’s overseas market revenue to 60%.
From the perspective of the growth of the mobile Internet advertising business, the performance is not stable. From 2017 to 2019, this business achieved revenues of 47 million yuan, 463 million yuan and 124 million yuan, respectively, accounting for 16.83%, 63.38% and 25.70% of the company’s total revenue. The growth is like a “roller coaster.”
In the first half of 2020, Lion Roar’s revenue was 29.43 million yuan, and its net profit was about 9.09 million yuan, accounting for only 14% of Xunyou Technology’s total profit. Its net cash flow from operating activities was 61 million yuan, a year-on-year decrease of 25.54%. The company said, “due to the decline in revenue from the mobile Internet advertising display service business during the reporting period.”
Regarding the poor operation of overseas business, the company stated that it was affected by factors such as the regulatory environment of overseas countries, Sino-US trade frictions, and the continued decline in industry prosperity.
The unfavorable development of Lion’s Roar has become a major concern for the company’s operations. When it joined Xunyou Technology, it promised to achieve net profits in 2017-2019: 192 million yuan, 250 million yuan and 324 million yuan. However, this goal has not been achieved. The actual net profits are respectively: 194 million yuan, 225 million yuan, and 45 million yuan.
Looking at the continuous increase in the scale of the domestic game industry, the demographic dividend is gradually approaching the “ceiling”. In this context, many game companies go to sea for gold. Leading companies such as Tencent, NetEase, and Sanqi Mutual Entertainment have set their sights on overseas markets to promote product promotion, investment and mergers and acquisitions.
Liao Xuhua believes: “The core of accelerator products is to do a good job in network acceleration. The overall user experience improvement space is still relatively large. In addition, increasing support for overseas games is a more quantifiable way to increase the user scale, because At present, many domestic games are launched overseas first, and many players are paying attention.”
Sun Hui told Investor.com: “This year, whether it is overseas or domestic, the entire game market has achieved growth of at least 30%. Companies that go overseas have success and failure, and some companies fail because of overseas traffic. And the product does not belong to oneself, development is hindered to a certain extent.”
Control eventually returned to state-owned enterprises
Since its listing in 2015, the company’s performance has shown a downward trend, and in 2018 it began to fall into a state of net loss. In 2018 and 2019, Xunyou Technology had a net loss of 803 million yuan and 1.162 billion yuan respectively, totaling more than 1.9 billion yuan.
Chart source: wind data
During the period, Xunyou Technology made a number of investments, including the acquisition of 13.4% of Yumo Technology for 217 million yuan, the acquisition of 18.18% of Yidong Wuxian for 100 million yuan, and the wholly-owned acquisition of Lion’s Roar, but these acquisitions have not Achieve performance promises.
After a huge loss, Xunyou Technology began to seek financial support. On June 21, 2019, the company and Zheshu Culture signed the “Share Transfer Intention Agreement”, intending to transfer a total of 23.8 million shares held by the company to Zheshu Culture or its designated subject, accounting for 10.66% of the company’s total share capital. The transaction is priced at 21 yuan per share. If the final transfer is completed, Zheshu Culture will become the second largest shareholder of Xunyou Technology.
Established in 1992, Zhejiang Shushu Culture focuses on the three major sectors of the digital entertainment industry, digital sports industry, and big data industry with high-quality IP as the core, while focusing on the development of cultural industry services and cultural industry investment businesses.
Xunyou Technology stated that if the intentional transaction can finally be implemented smoothly, it will help optimize the company’s shareholder structure, gather more industry resources, and form a strategic synergy effect in business with Zhejiang Digital Culture.
However, within two months, Xunyou Technology announced the termination of the agreement of intent to transfer shares. Until recently, Xunyou Technology once again announced matters related to changes in equity.
Xunyou Technology announced on September 7 that the company’s original controlling shareholders and actual controllers Zhang Jianwei, Yuan Xu, Chen Jun and Big Data Group signed the “Supplementary Agreement on Relief and Investment Agreement”, Yuan Xu, Chen Jun and Big Data Group Signed the “Voting Rights Entrustment Agreement”. After this voting rights entrustment, Big Data Group holds or controls the voting rights corresponding to 36.52 million shares of the listed company, accounting for 18.66% of the company’s total effective voting shares. The controlling shareholder was changed to Big Data Group, and the actual controller was changed to Guiyang SASAC.
After two changes of ownership, the change of the company’s actual controller is finally settled. From “the first share of game acceleration” to overseas expansion, Xunyou Technology’s toss and turns are reflected in the performance trend for many years, until the control finally returns to state-owned enterprises.
Sun Hui said that including Xunyou, as well as traditional IT companies or Internet companies such as Xunlei and Baofengyingyin, have accumulated a large number of users at a certain stage in the past, but with the changes of the times, the demand has gradually disappeared. “Some companies have adopted the conventional method of divorcing from their main business and opening up a new business, which is actually equivalent to making an investment. But fundamentally self-revolution is still difficult.”