Achieved Record Growth for Education Business with Revenue Up 71.2% YoY

HONG KONG, Aug. 30, 2022 /PRNewswire/ — NetDragon Websoft Holdings Limited (“NetDragon” or the “Company”; Hong Kong Stock Code: 777), a global leader in building internet communities, today announced its financial results for the first half of 2022. NetDragon’s management team will hold a webcast at 10:00am Hong Kong time on 31st August 2022 to discuss the results and recent business development.

Dr. Dejian Liu, Chairman of NetDragon, commented, “We continued to make significant progress across our business in the first half of 2022 as our revenue increased by 26.3% YoY to RMB4.2 billion and net profit attributable to owners of the Company increased by 31.2% YoY to RMB565.1 million. Our achievement is made possible by solid commercial execution, as well as years of investment in our product R&D, global sales network and most importantly our people to maintain our overall operational competencies at the highest level.”

“Our education business delivered a record growth performance in the first half. We continued to see countries around the world accelerating their adoption of edtech with an ever-growing emphasis on blended learning in K12 classrooms. As the global market leader, we continued to innovate and drive positive, sustained impact on teachers and students. As a result, we further expanded our leadership position by increasing our market share in the first half, and delivered an exceptional performance with 71.2% YoY growth in education revenue. In addition, we stepped up our effort in pursuing partnerships and potential M&A opportunities to monetize our Promethean platform with software and SAAS applications.”

“In China, the resurgence of Covid-19 cases has led to challenges in the economy which inevitably affected consumer sentiment and spending power, and as a result impacted our gaming revenue during the first half. Despite the near-term challenges, we continued to focus on executing our long-term growth plan by actively building our pipeline of new games, driving players’ engagement level and expanding our base of paying users of our existing games. We are also excited by the quality of our pipeline. We are developing several new games under the Eudemons IP that will continue to drive the long-term revenue growth of this legendary IP, and we are also actively expanding into new IPs, new genres, and the overseas markets.”

“We are committed to following through on our capital return commitment to maximize value for our shareholders. To that end, we are pleased to announce that the Board declared a special interim dividend of HK$0.50 and an interim dividend of HK$0.40 per ordinary share for the first half of 2022. Meanwhile, we will continue to operate our business with a strong financial position with RMB3.5 billion in net cash as of June 30, 2022, which will enable us to capitalize on future acquisition, investment and strategic opportunities.”

2022 First Half Financial Highlights

• Revenue was RMB4.2 billion, representing a 26.3% increase YoY.
• Revenue from the education business was RMB2.4 billion, representing 56.8% of the Group’s total revenue and registering a 71.2% increase YoY.
• Revenue from the games business was RMB1.8 billion, representing 41.9% of the Group’s total revenue and registering a 3.9% decrease YoY.
• Gross profit was RMB2.3 billion, representing a 4.0% increase YoY.
• Core segmental profit^[1] from the games business was RMB1.0 billion, representing a 6.2% decrease YoY.
• Core segmental loss^[1] from the education business was RMB35.7 million, representing an 86.1% improvement YoY.
• Operating Profit was RMB744.6 million, representing a 7.7% increase YoY.
• Non-GAAP operating profit^[2] was RMB854.4 million, representing a 13.3% increase YoY.
• EBITDA was RMB877.5 million, representing an 1.6% decrease YoY.
• Non-GAAP EBITDA^[2] was RMB1.0 billion, representing an 11.2% increase YoY.
• Profit attributable to owners of the Company was RMB565.1 million, representing a 31.2% increase YoY.
• Non-GAAP profit attributable to owners of the Company^[2] was RMB815.8 million, representing a 44.0% increase YoY.
• The Company declared a special interim dividend and an interim dividend of HK$0.50 and HK$0.40 per ordinary share respectively, for the six months ended 30 June 2022.

Segmental Financial Highlights

Education Business

Our education business achieved a record growth rate as its revenue in the first half increased by 71.2% YoY, reaching RMB2.4 billion. Core segmental loss narrowed to RMB35.7 million as we benefit from strong operating leverage and disciplined cost management measures. 

We continued to benefit from the accelerating global trend of edtech adoption and the growing emphasis on blended learning. And it has become increasingly clear that IFPD (interactive flat panel displays) is a necessity in every K12 classrooms, without which blended learning is not possible. As a result, the industry saw a phenomenal 71.5% YoY growth in shipment volume of IFPD in the international market during the first half of 2022^[4]. As the global market leader in IFPD, we continued to capitalize on the market momentum by delivering 82.5% YoY and 46.9% HoH growth in our volume shipment of IFPD. Not only did we hold the number-one market share globally, we also expanded our market share by 4.1 ppts HoH to 26.0% in the first half^[5].  We continued to win in the market as we increased our market share in all of our Top 5 countries by revenue contribution, namely the U.S., Italy, the U.K., Germany and France.

Our gross margin for the education business saw a decline from 30.6% to 25.3% YoY due to higher material and freight cost, and a 4.3% YoY reduction in ASP as we sold down inventory of ActivPanel 7 in anticipation of our new ActivPanel 9 product launch in June. Since the second half of 2021, we have seen materials cost and freight cost trending down as global supply chain challenges started to ease, and as we continued to implement best practice measures on cost management, we have seen margin improvement on a sequential basis. Excluding the tariff impact, our adjusted gross margin for our key subsidiary Promethean increased by 1.3 ppts HoH from 28.6% to 29.9% in the first half of 2022.

We reached a major milestone in product innovation during the first half as Promethean introduced the all-new ActivPanel 9 in June to deliver transformational user experience with enhanced simplicity, connectivity, security, adaptability, and longevity to address the key needs of the educators in a hybrid learning environment. Shipment has started since the official launch, and we expect the new model to continue to drive our future revenue growth. We also stepped up our effort in exploring for software monetization opportunities for our Promethean platform. In June, Promethean entered into a US-based exclusive distribution agreement with leading education AI technology company Merlyn Mind as our first step to leverage our sales network to expand beyond hardware sales into SaaS solutions. At the same time, we are actively pursuing M&A opportunities with the intention to plug in ready-to-monetize software tools into our Promethean platform.

We continued to develop traction with our B2G country-rollout strategy. In Egypt, shipment for the definitive contract signed in Q1 (to supply 94,000 Promethean panels to K-12 schools around the country) is expected to commence in the second half of this year. In China, our priority is focused on our partnership with the National Center for Education Technology (“NCET”), a unit directly under the National Ministry of Education in China, in building the National K-12 Smart Education Platform. Since the launch of this platform on 1st March, the average daily page-view exceeded 40 million and number of registered users reached 21 million, as more and more regions within China are starting to adopt the platform.

Looking forward, we expect 2022 to be a year of exceptional growth. With our new ActivPanel 9, our expanded market leadership position and our operational capability, we believe we are in a strong position to capitalize on the opportunities ahead.

Gaming Business

Revenue of our gaming business decreased by 3.9% YoY to RMB1.8 billion in the first half of 2022, as the macro-economic impact in China has led to more conservative players’ spending across our domestic games. Revenue from our PC games decreased by 5.2% YoY due to a relatively larger high-spending players’ cohort, while revenue from our mobile games increased by 3.1% YoY.

Revenue from our flagship IP Eudemons decreased by 0.6% HoH and 3.8% YoY. While players’ spending has been affected in the short term, we put our focus on driving players’ engagement and expanding our paying user base. We launched four expansion packs for our Eudemons games during the first half, and have conducted multiple in-game events and campaigns to drive activities, leading to YoY increase in both MAU and APA (Average Paying Accounts) for the IP. In particular, despite the macro impact on revenue, our Eudemons PC game registered a 34% YoY increase in MAU and a 65% YoY increase in APA. Eudemons Pocket Version, our game with the highest mobile revenue contribution, also delivered a resilient performance with a 7.8% YoY increase in revenue. In addition, we continued to make progress with expanding the influence of the Eudemons IP on the pan-entertainment front by launching its first ever stage play Eudemons Light of Yate in August.

Our Conquer IP delivered stable revenue growth on the back of two expansion packs launched in the first half and our continuous effort to innovate with new gameplay and contents. We continued to focus on expanding the overseas markets for the Conquer IP, and while we maintained a 20.8% YoY gross billings growth in our core market in Egypt, our gross billings from outside of Egypt increased by 57.7% YoY.

We continued to make progress with our new gaming pipeline. In July 2022, we achieved a key milestone for our Under Oath IP as we reached agreement with a renowned global 3A game publisher to launch the overseas game version of this IP in multiple countries starting next year. In addition, we are also excited about the alpha launch of our first Web3 game Neopets Metaverse in August, as we stay on track to bring this popular IP with over 150 million registered users to the Web3 space.

Looking forward, we expect to beta-launch Eudemons Mobile 2 and Neopets Faerie’s Hope in the second half of this year, and on top of those, we have a solid pipeline of new games lining up for 2023 and beyond. On the macro side, as China inevitably recovers from the Covid-related economic slowdown and as the gaming industry in China continues to trend towards a positive direction, we believe our gaming business is well positioned to achieve long-term sustainable growth.

Management Conference Call and Webcast

NetDragon’s management team will hold a conference call and webcast at 10:00am Hong Kong time on 31st August 2022 to discuss the results and recent business developments.

Details of the live conference call are as follows:

A live and archived webcast of the conference call will be available on the Investor Relations section of NetDragon’s website at http://ir.nd.com.cn/en/category/webcast. Participants in the live webcast should visit the aforementioned website 10 minutes prior to the call, then click on the icon for “2022 Interim Results Conference Call and Webcast” and follow the registration instructions.

About NetDragon Websoft Holdings Limited

NetDragon Websoft Holdings Limited (HKSE: 0777) is a global leader in building internet communities with a long track record of developing and scaling multiple internet and mobile platforms that impact hundreds of millions of users, including previous establishments of China’s first online gaming portal, 17173.com, and China’s most influential smartphone app store platform, 91 Wireless.   

Established in 1999, NetDragon is one of the most reputable and well-known online game developers in China with a history of successful game titles including Eudemons Online, Heroes Evolved, Conquer Online and Under Oath. In recent years, NetDragon has also started to scale its online education business on the back of management’s vision to create the largest global online learning community, and to bring best-in-class integrated blended learning solutions to every school around the world.