1H23 Report Overview
Flowing Cloud Technology Ltd (6610.HK) has released its 1H23 Interim Report on September 25th. The report reveals impressive financial performance, with a 26.6% YoY increase in revenue, reaching RMB 599 million. The company achieved a gross profit of RMB 196 million, marking a 32.7% YoY growth compared to 1H22. The gross profit margin also improved by 1.5 percentage points, reaching 32.7% from 31.2% in 1H22. Flowing Cloud realized a net profit of RMB 116 million, reflecting a remarkable 41.4% YoY increase, with a net interest rate of 19.4%, up two percentage points from the same period last year.
Regarding business segments, AR/VR Marketing Service revenue amounted to RMB 425 million, reflecting a year-on-year increase of 25.3%; AR/VR Content Service realized operating income of RMB 147 million, marking a year-on-year increase of 29.8%; and AR/VR SaaS Service revenue amounted to RMB 27 million, showing a year-on-year increase of 35.7%.
In terms of operational data, the number of advertised products and the average consumption of AR/VR Marketing Service increased by 22.4% and 35.7% year-on-year, respectively. The number of customers and projects for AR/VR Content Service increased by 52.2% and 40.4% year-on-year, while the number of paid subscribers for AR/VR SaaS Service increased by 117.2% compared to the same period last year.
Flowing Cloud also ventured into the landscape of AIGC and To C content businesses to harness the potential of the second phase of growth. During the first half of 2023, the company embarked on an experimental journey by integrating content generation AI with its existing business operations. This resulted in the successful automation of AI-generated images, text, and audio content through AIGC, leveraging its proprietary engine FT-Engine. Additionally, the company trained AI mini-models tailored for specific verticals like cultural tourism and entertainment.
By harnessing the capabilities of digital personas, FT-Engine offers users immersive and humanized interactive experiences across various scenarios. The model continually evolves through feedback data, creating a closed-loop cycle of ‘data-training-application.’ While maintaining consistent growth in its original To B and To G AR/VR content business, Flowing Cloud fully leverages its strengths in digital content creation and operation. It actively participates in To C content operations, yielding noteworthy results.
Metaverse: a broad development prospect
The Metaverse industry is experiencing significant growth. According to a study conducted by Bain Consulting in August 2023, the Metaverse industry’s market size is projected to reach between US$700 billion and US$900 billion by 2030. This growth is expected to be primarily driven by content and content creation tools that offer users immersive virtual experiences, accounting for approximately 70% of the market size.
The Metaverse sector is also receiving strong support from an increasing number of policies. In February 2023, the Chinese government unveiled the Overall Layout Plan for the Construction of Digital China, signaling China’s entry into a new era of digital economy development. This move provides a fertile ground for the rapid expansion of the Metaverse industry. Simultaneously, governments in major cities like Beijing, Shanghai, Shenzhen, and Zhengzhou have introduced policies aimed at fostering Metaverse development.
Notably, in September of the same year, the Ministry of Industry and Information Technology, along with five other government departments, jointly issued the “Metaverse Industry Innovation and Development Three-Year Action Plan (2023-2025).” This plan outlines the policy direction for the growth of the Metaverse industry and emphasizes that the Metaverse encompasses a range of cutting-edge information technologies, including artificial intelligence, blockchain, 5G, Internet of Things, virtual reality, and other applications. It is widely regarded as a high-potential industry with ample room for future growth.
Enhancing Share Price Performance through Financial and Capital Strategies
At the market level, Flowing Cloud has been garnering increased attention from investors. Since the company’s initial listing, research reports have been issued by prominent firms such as China Merchants Securities, Anxin Securities, Shenwan Hongyuan, Oriental Fortune, and Kaiyuan Securities. These reports acknowledge the growth potential of the Metaverse sector and recognize the company’s development prospects.
Furthermore, after joining the ‘Hong Kong Stock Connect’ portfolio in March of this year, Flowing Cloud has witnessed a steady rise in interest from mainland investors. As of September 22, mainland investors’ holdings have surpassed 26%, a clear indication of their strong belief in the company’s value and potential.
Moreover, Flowing Cloud’s management team demonstrates unwavering confidence in the company’s future. Firstly, in July of this year, over 72 million share options were granted to employees at an exercise price of $1.78 HKD, fostering a high level of alignment between the company’s interests and those of its employees. Secondly, the company’s two founders and major shareholders, Wang Lei and Li Yanhao, made a voluntary lock-up commitment in August, pledging not to sell their shares for the next six months.
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