NetDragon Websoft (777) H2 2024 earnings summary

Executive summary

• Advanced AI integration across gaming and education, reducing R&D staff by 14% and launching new AI-native products and platforms.

• Revenue declined 14.8% YoY to RMB 6.0B, mainly due to Mynd.ai's 27.6% drop and gaming adjustments, but profit before tax rose 19.1% YoY to RMB 756M, driven by investment returns and cost savings.

• Flagship IP Eudemons saw user activity growth despite revenue decline; Heroes Evolved revenue up 18.3% YoY; overseas expansion contributed to growth.

• Sale of early childhood development business and other non-strategic assets enhanced capital structure and cash reserves.

• Declared a final dividend of HKD 0.50/share, up 25% YoY, with ongoing buyback considerations and strong payout history.

Financial highlights

• FY2024 revenue was RMB 6,047M, down 14.8% YoY; gross profit RMB 3,942M, down 10.3% YoY; gross margin improved by 3.3 ppts to 65.2%.

• EBITDA rose 7.1% YoY to RMB 1,418M; profit before tax up 19.1% YoY to RMB 756M.

• Net profit attributable to owners was RMB 311M, down 43.4% YoY, impacted by a one-time non-cash deferred tax expense of RMB 452M; adjusted net profit up 17.4% YoY.

• Operating cash flow exceeded RMB 1B for the sixth consecutive year; net cash at year end increased 13.3% YoY to RMB 2,098M.

• Final dividend per share increased 25% YoY to HKD 0.50, with a dividend yield of 7.6%.

Outlook and guidance

• Continued focus on "AI + Gaming" and content-first strategies, scaling SaaS revenue and strengthening global AI-driven classroom technology.

• Ongoing cost optimization and efficiency improvements, with full-year AI-driven cost savings expected in 2025.

• Education headwinds to persist through 2025, with recovery anticipated in 2026; gaming revenue rebound projected in H2 2025 as new titles launch.

• ADS buyback program and ongoing review of share repurchase opportunities to stabilize market expectations.