NetDragon Announces 2017 First Quarter Financial Results

On track to profitability, operating loss reduced by half

(Hong Kong, 13 June 2017) NetDragon Websoft Holdings Limited (“NetDragon” or the “Company”; Hong Kong Stock Code: 777), a global leader in building internet communities, today announced its first quarter results ended 31 March 2017. NetDragon’s management team will hold a conference call and webcast at 6:30 p.m. Hong Kong time on 13 June 2017 to discuss the results and recent business developments.

Mr. Dejian Liu, Chairman of NetDragon, commented: “I am extremely pleased to see the strong financial results during the first quarter, with a 24.8% increase year-over-year in its revenue to RMB713.4 million. Our games business delivered robust performance with a revenue increase of 40.3% year-over-year. This served as a strong testament to our flagship games including Eudemons Online and Heroes Evolved. I am also excited to see the increasing contribution from our mobile games as mobile revenue more than doubled year-over-year. We expect to carry the momentum into the upcoming quarters as we start to see revenue contribution from our new games. Meanwhile we have a strong pipeline in terms of integrating our Virtual Reality (VR) and Augmented Reality (AR) technologies into our games which will expand our gaming portfolio into a new territory with substantial growth potential.”

“We are seeing very positive momentum in our education business. Our user-scaling in China is gaining
traction as we have significantly expanded our geographical coverage in terms of our cooperation with provincial and local education bureaus. Our international education business also delivered a steady performance in terms of revenue in Q1, and we are seeing significant ramp up of our sales pipeline as we
move into the peak season in Q2 and Q3, paving the way for what we expect to be a robust growth of our
revenue for the rest of the year. In addition, we are continuing to make progress to capitalize the Belt and Road Initiative to tap into the emerging markets in order to expand our global footprints. The partnership in Russia announced in March is our first step and we are seeing momentum in many other sizable new opportunities within the region.”

Mr. Ben Yam, Chief Financial Officer of NetDragon, commented: “In addition to seeing strong revenue performance of our core businesses, we are also delighted to see substantial improvement in our profitability as we have delivered a positive EBITDA during the quarter while our loss attributable to owners and Non-GAAP operating loss for the company as a whole have reduced by more than 50% on a year-over-year basis. We have achieved this by driving higher profitability for our gaming business and continuing to optimize our cost structure for our international education business as part of our post-acquisition integration of Promethean. Looking forward, we expect to be on track to achieve operating profitability.”

2017 Q1 Financial Highlights
  • Revenue was RMB713.4 million, representing a 24.8% increase year-over-year.
  • Revenue from the games business was RMB398.5 million, representing 55.9% of the Group’s total
    revenue, registered a 40.3% increase year-over-year.
  • Revenue from the education business was RMB297.8 million, representing 41.7% of the Group’s
    total revenue, registered a 6.4% increase year-over-year.
  • Gross profit was RMB445.8 million, representing a 28.7% increase year-over-year.
  • Core segmental profit from the games business was RMB168.8 million, representing a 78.9%
    increase year-over-year.
  • Core segmental loss from the education business was RMB157.8 million, representing an 18.3% increase year-over-year.
  • Non-GAAP operating loss improved to RMB45.7 million compared to RMB111.8 million for the same period last year.
  • Loss attributable to owners of the Company improved to RMB45.7million compared to RMB113.6 million for the same period last year.
2017 Q1 Gaming Operational Metrics
  • Monthly Average Revenue Per User (“ARPU”) was approximately RMB428, a 55.6% increase year-over-year.
  • Average Concurrent Users (“ACU”) was approximately 310,000, an 8.3% decrease year-over-year.
  • Peak Concurrent Users (“PCU”) was approximately 736,000, a 3.5% decrease year-over-year.
  • Active Paying Accounts (“APA”) was approximately 749,000, a 39.2% increase year-over-year.
Segmental Financial Highlights




(RMB 000) Gaming Education Gaming Education Gaming (Restated) Education (Restated)
Revenue 398,501 297,771 342,711 374,029 284,067 279,942
Gross Profit 377,275 68,563 317,256 101,256 264,857 82,936
Gross Margin 94.7% 23.0% 92.6% 27.1% 93.2% 29.6%
Core Segmental Profit (Loss) 168,761 (157,799) 97,898 (157,737) 94,314 (133,443)
Segmental Operating Expenses    
–        Research and development (99,527) (88,960) (107,229) (109,949) (77,344) (87,848)
–        Selling and marketing (49,638) (94,338) (44,623) (93,710) (33,520) (87,837)
–        Administrative (65,871) (36,104) (73,307) (41,584) (60,464) (38,952)
Games Business

During the first quarter of 2017, the Company’s games business continued to deliver substantial growth,
with revenue at RMB398.5 million, a 40.3% increase year-over-year, and core segmental profit at RMB168.8 million, a 78.9% increase year-over-year. The robust development in the games business was mainly attributable to our ability to expand monetization schemes through deep understanding of player demands, as well as increasing contribution from our mobile games. As a new growth driver, our mobile games business registered a 117.4% increase year-over-year. In addition, our APA and ARPU showed further improvement, with a year-over-year increase of 39.2% and 55.6% respectively.

While the Company continues to see revenue growth in Eudemons Online, the Company’s other flagship
game, Heroes Evolved, has also received an extremely positive feedback from the market. Heroes Evolved pocket version of this game was being ranked as the ‘top downloaded mobile game’ on Tencent Open Platform for five consecutive months with monthly active users (MAU) over 5 million. In addition, Heroes Evolved PC version was awarded with the recognition as one of the “top 10 most popular web game” by Tencent in January 2017..

Looking forward, we expect the gaming business to continue the momentum in Q1 as we launch new games including our second Eudemons Online mobile game (in partnership with KingSoft) and Tiger Knight Chinese version. We will also continue to ramp up monetization for Heroes Evolved pocket version to capitalize on its sizable MAU. In addition, we are excited by the fact that Tiger Knight was included by Sony as part of its renowned “PlayStation® China Hero Project” in March. This partnership with Sony will bring Tiger Knight with access to over 53 million global Sony Playstation® users, and serves as a compelling validation to the quality of the game itself.

Education Business

Our international education business maintained a steady performance during the traditionally slow season in the first quarter with revenue of RMB265.9 million. ClassFlowTM users have reached a record high of 3.0 million, of which about 1.7 million users were teachers. The first quarter also marked an important milestone for the Company’s education business in expanding its global footprint into the emerging market. The partnership with the City of Moscow was announced earlier this year where the City plans to equip over 14,500 educators throughout Moscow with education technologies.
Our focus in China continues to be user acquisition where we have seen significant traction. During the quarter, we continued to expand our coverage in terms of our cooperation with strategic partners and channel partners.

In particular, we are actively pursuing cooperation with provincial and local education bureaus, where we have established or is in the process of finalizing cooperation with education bureaus in multiple provinces where product trainings will be held for teachers. We have also signed a strategic partnership agreement with the education bureau of Guangzhou in the first quarter as an important first step in promoting our products in the Guangdong province.

Looking forward, as the second quarter is well-established as the peak season in the industry, the Company is expecting its education business to record substantial revenue growth in the upcoming quarter. Furthermore, the Company is gearing up to monetize our existing user base with the introduction of a new monetization scheme in the ClassFlowTM community planned for the second half of this year. The Company also continued to expand into a number of sizable opportunities along the Belt and Road Initiative, which will strengthen our global presence in due course. In China, our traction in gaining users is expected to pick momentum, as our multi-pronged user acquisition strategy begins to bear fruit.


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