On October 17th, the online gaming sector experienced a strong rebound, with the Gaming ETF (159869) surging by more than 4% at one point during the trading session. The market was highly active, with a trading volume amounting to 692 million yuan. It is evident that the recent rebound trend in the gaming sector is significant. Although there was a broad adjustment the week after the National Day holiday, the upward rebound channel for games has been continuously activated since the beginning of this week. Amidst the current market situation where the overall market trend is caught in a volatile adjustment, why can the gaming sector still rise against the trend?
China's gaming market revenue sets a new record in Q3: Nearly 91.8 billion yuan in a single quarter
On October 16th, the Game Working Committee, in conjunction with Gamma Data, released the 2024 Q3 China Game Industry Quarterly Report. The report mentioned that new mobile games and top products in Q3 brought significant revenue growth. At the same time, "Black Myth: Wukong" has brought a substantial increase to the standalone and console game markets, with China's gaming market revenue reaching an all-time high.
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In the third quarter of 2024, China's gaming market revenue was 91.766 billion yuan, a year-on-year increase of 8.92%, and a sequential growth of 22.96%. Among them, the mobile market revenue was 65.658 billion yuan, a year-on-year increase of 1.21%, and the client game market revenue was 16.926 billion yuan, a year-on-year increase of 0.4%. The overseas market revenue of China's self-developed games was 5.169 billion US dollars (approximately 36.8 billion yuan), a year-on-year increase of 20.75%. This growth was mainly due to the strong performance of "Black Myth: Wukong" in the overseas market. According to data from the market research institution VG Insights, "Black Myth: Wukong" sold 21 million copies on the Steam platform, with a total revenue exceeding 1 billion US dollars (approximately 7.01 billion yuan), setting a new sales record for domestic AAA games.
Guoyuan Securities stated that the gaming market in August showed good growth both month-on-month and year-on-year, with 109 game licenses issued in September. In August 2024, the scale of China's gaming market was 33.64 billion yuan, a month-on-month increase of +21.01%, and a year-on-year increase of +15.10%. In September, 109 domestic game licenses were issued. In terms of new product launches, several major game companies are about to launch new products in October. The supply of high-quality new games is expected to boost industry prosperity and drive the continuous growth of the gaming market scale.
CITIC Construction Investment Research Report indicated that recently, there has been a concentrated testing of new games, including the first round of testing for Kingnet's "Douluo Continent: Exorcism Legend", the impressive testing data for "Dragon Nest World", and the first round of file deletion testing for "Tomb Note: Departure" at the end of September; both "M72" and "M88" by Giant Network have completed their first round of paid testing. On the demand side, the domestic game market size from January to August this year increased by 3.3% year-on-year, with both old and new games contributing to the growth. On the supply side, the number of licenses from January to September has exceeded 1,000, a year-on-year increase of about 37%, and the supply side remains very sufficient. In addition, with the introduction of new merger and acquisition regulations, there is an expectation that the market-oriented mergers and acquisitions in the gaming industry will return to the right track.
Actively seize the offensive flexibility driven by both valuation and performance in the gaming sector
At present, the valuation of the gaming sector is still relatively low, and the new game cycle may drive a continuous improvement in the fundamentals. The valuation of the gaming sector is still relatively low, and with the expectation of policy stability and game companies entering the new game cycle one after another, the game track is expected to achieve valuation repair and a better fundamental outlook.
On the industry sentiment level, the domestic AAA game "Black Myth: Wukong" has performed brightly since its launch two months ago, boosting the sentiment of the sector. Since its launch on August 20th, "Black Myth: Wukong" has been highly popular, breaking the record for the number of simultaneous online players in single-player games on the Steam platform. As of October, it has sold 21 million copies on the Steam platform, with a total revenue exceeding 1 billion US dollars (approximately 7.01 billion yuan), setting a new sales record for domestic AAA games.On the industrial data front, the industry exhibits characteristics of "weak reality, strong expectations." The actual side shows that the semi-annual report performance is slightly under pressure, but the gradual normalization of game license issuance is expected to support the industry's future prospects. The revenue of the Zhongzheng Animation and Game Index (930901) tracked by the Game ETF increased by 6.63% in the first half of the year, while the net profit attributable to the parent company fell by -27.61%. On September 29, the National Press and Publication Administration's official website released the latest batch of domestic online game license lists, with a total of 109 games approved. To date, the total number of licenses issued in 2024 has reached 1020, of which domestic games account for 945, and imported games for 75. This year, the normalization of license issuance has, to some extent, reflected the policy level's support for the gaming industry, which is expected to support the industry's future expectations.
On the valuation expectation front, generative large models may drive the industry's "cost reduction and efficiency enhancement" and profit release, coupled with the Federal Reserve's interest rate reduction cycle, the sector's valuation is expected to be enhanced from both the numerator and the denominator sides. From the generation of text, images, sounds, and videos to 3D scene modeling and rendering, AI is reshaping the way games are created. The accelerated implementation of artificial intelligence is expected to reduce the cost input for game developers, thereby increasing the profits of companies within the industry. On the other hand, the Federal Reserve has implemented the first interest rate cut of this cycle and has provided guidance on the pace of interest rate cuts for a certain period in the future. During the Federal Reserve's interest rate reduction cycle, there is also a certain level of support for the denominator end of the game sector's valuation.
Overall, the gaming sector is catalyzed by multiple benefits such as "normalization of license issuance + AIGC-driven cost reduction and innovation + Federal Reserve's interest rate cuts supporting industry valuation," and the Game ETF (159869) may have a certain valuation lift space.
The Game ETF (159869) is the largest gaming industry ETF in the market, tracking the Animation and Game Index, which focuses on the leading companies in the gaming industry. It mainly invests in listed companies whose main businesses involve animation, comics, games, and other related entertainment industries, reflecting the overall performance of A-share listed companies in the animation and game industry. The top ten constituent stocks account for 70.67% of the weight, including leading A-share gaming companies such as Kunlun Wanwei, 37 Interactive Entertainment, Kaiying Network, and Century Huatong, focusing on the gaming industry with high elasticity and growth. Those who are optimistic about the development of the gaming industry in 2024 can pay attention to the largest gaming ETF in the market (159869, linked funds 012768/012769).