Perfect World Forecasts Growth After Gaming Freeze

One of China's major developers expects profit surge in first full quarter since Chinese regulators ended their game approval freeze.
Jul. 14, 2022 17:51
Perfect World Forecasts Growth After Gaming Freeze

(CapitalWatch, July 14, Hong Kong) The Beijing-based video game developer Perfect World predicted net profit growth of as much as 350% in its semi-annual performance forecast for 2022. 

Perfect World (SHE: 002624) estimated that the net profit attributed to parent company owners will be somewhere between $164 and $172 million, an increase in the range of 331% to 350% over the same period in 2021. Net profit after deducting non-recurring gains and losses under these predictions would be between $94 and $100 million, up by as much as 1,600% from last year.

Net profit from the company's game business is expected to be in the range of $171 and $177 million. After deducting non-recurring gains and losses, it is expected to be as much as $112 million, a more than 2,000% year-on-year increase.

Perfect World credited its massive profit growth to the company's upgrades and transformation over the past year. The company's games have performed well consistently and it's started adjusting its overseas strategies.

Although Perfect World's profits are certainly motivated by its strategic changes and growth, it's a good sign for China's gaming industry that was hard-hit by regulatory crackdowns and a nearly record freeze on the approval of new gaming titles.

Beijing has taken a hard stance to combat gaming addiction among minors in China. As regulations squeezed the industry, developers were left in the lurch.

Under the new policies, children are only allowed to play video games between 8 p.m. and 9 p.m. on weekends and public holidays. Other new policies also limited minors' capabilities to use online payment for games.

Companies like Alibaba Group (NYSE: BABA; HKEX: 9988) took measures voluntarily. Media outlet 36kr (Nasdaq: KRKR) reported that Alibaba launched a face verification feature for parents, and it amassed over 150,000 users in a month after its launch.

While regulators weigh on the market's consumer base, the halt of game title approvals by China's National Press and Publication Administration (NPPA) stalled profits for companies. 

The NPPA would typically approve up to 100 new games a month, but no games were approved between July 2021 and April of this year.

Smaller developers were forced to shutter their businesses, workers were laid off, and stocks fell as the world's leading game market was blocked from starting new projects.

A new release last month by Chinese gaming giant NetEase (Nasdaq: NTES; HKEX: 9999) was supposed to be a gauge for the market after approvals started again, and it sent a pretty dire message.

With just three days ahead of the scheduled launch, NetEase announced that it would be pushing the release to July 8. The company said that it made the decision to make some adjustments and improvements to the game.

The delay was announced after the company's official Weibo account was barred from posting. NetEase didn't address the ban, but screenshots circulated of a May 22 post from the company's account that could be alluding to criticism of President Xi Jinping.

With $46 billion in annual revenue, China's game market is the largest globally. Gamma Data reports that revenue for the market rose almost 18% year-over-year in January 2022 to $3.5 billion.

Although the market is billions of dollars above other markets globally, a report by the China Game Industry Research Institute found that in 2021, the industry's growth rate decreased almost 15% compared to 2020.

Perfect World had a new game approved in the most recent round of licensing last month. Its mobile game named "Perfect World Mobile" was publicly tested in January and "Tower of Fantasy," another mobile game tested at the end of last year, updated its content this year. 

The company has mobile game titles including "Black Cat" and "Demi Gods and Semi Devils 2 Mobile", as well as PC games like "Jade Dynasty World", "Perfect New World" and "Have a Nice Death", all currently in the development process.

Perfect World stocks rose 0.3% in Shenzhen, currently trading at $2 per share.