1) TapTap equity increased to 74.12%. The latest purchase of TapTap stake is 18.34%, valued at RMB 1.8 billion. Based on 2019 FY earnings that is around 9.24x PE. The latest purchase is cheaper than their prior purchase. That is good news.
2) Research and development expenses increased by 68.2% to RMB 218.1 million. This is mainly due to the increase of R&D personnel from 618 to 1065. They invested the money they earned back into TapTap and game development. This is very much needed because they currently have 11 games under study.
3) TapTap MAU increased by 52% (growth better than last year's 19.6%. Growth accelerated) Monthly active accounts of online games increased by 65.4% MPU increased by 52.2%. The growth is satisfactory, but TapTap is still in its early stages and monetization is still an experiment.
4) The decrease in gross profit margin was due to the increase in cost of revenue. Developers who share game revenue, mainly attributable to newly released or profitable licensed games in 2019 and the first half of 2020, such as "Endless Ullala", "Sausage Party" and "Blue Yan Qingmeng". The commission platform and payment channel collected are generally consistent with the growth of the game and the total revenue is recognized.
For the information services business, this increase is due to increased bandwidth and server hosting fees, which are usually in line with the average increase in the MAU of the TapTap mobile application and the increase in game player activity in TapTap.
5) All in all, I think investors buy XD because of its ecosystem(TapTap). The increased stake in TAPTAP is good. The increase in research and development is inevitable because although their games have long-term value, most of their games have matured. This result tells me that XD will have a good long term track, but likely to see short term volatility due to margin. See how the market reacts today.
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