My Thoughts on XD Part 3 (XIRR Update)

 

Please click and read this disclaimer if you wish to continue with the contents below.


Those who have not read my previous two post on XD can click here and here

XD rose 27% today and has risen more than 85% since Jan 2021. It has given me a total profit of 135% as of today. 

After Tencent and Huawei channel dispute, the market began to focus on the TapTap(game platform of XD). As a beneficiary of the channel dispute, The market's increase in the valuation of TapTap and drives the stock price of XD.

Tencent as a provider of game content, has to pay huge channel fees when they put game contents on the Huawei App Store and other channels. Below are the cut that these channel charges:


TapTap charges zero from content creators, it makes money from advertisement. User acceptance of ads is also better. Game makers don't need to pay channel fees to put games on TapTap. Game creators can use the fees saved to create better content → good games attract players → platform traffic increase → more game creators will flow into the ecology. This will form a closed loop for TapTap.

Why game developers are willing to settle in TapTap?

1. No fees when listing on the channel

2. Test and optimize the game. This is the unique value of TapTap for many game developers. Due to the good layout of TapTap it has gathered a group of high-quality gamers. Developers can test games on TapTap early. Can optimize the game. It can also build the reputation of the target group in advance. Easier to do post-launch announcements.

3. TapTap's scoring system has been recognized by many players and channels. Especially some products with scores above 8. It has become a benchmark for many in China.

4. For small and medium developers, TapTap’s developer tools will save them cost and help them jump start faster. For quality indie games, TapTap will pay for it out of pocket to help it promote.

From the data disclosed by the company in the first half of 2020, TapTap App reaches 24.8 million monthly active users, 52% year-on-year increase. 

The reason the valuation is still murky for XD is because scaling and profit potential of TapTap is not fully realised. Their MAU, even though growing aggressively is still tiny compared to the main channels. Their advertising business is still not fully rolled out, not to mention, other ways of monetization.

Another catalyst is IGG's exclusive cooperation with TapTap. IGG's products will be launched on TapTap first. That is likely due to channel cost considerations and if fully implemented, will save IGG alot of money, hence its share price too surged today by 18%. There are already many game companies who prefer TapTap over traditional channels when listing games, TapTap's market voice is improving visibly. 

This will have a demonstrative effect. The reason is very simple. IGG will be signed first, and it will most likely receive priority traffic support and benefit first. The earlier you enter, the better. Other manufacturers may enter the TapTap's ecology after they feel that they are starting to lose out etc.

Changes on the game supply side will directly drive MAU growth, which in turn will strengthen the value of the platform and attract more vendors to join the game.

Their recent digital game award show which was live streamed on TapTap is also another way for them to drive up MAU. The most important aspect of the show is their introduction to cloud gaming.

Although still in beta testing phase, this could give TapTap additional revenue streams in the future. Cloud gaming is perfect for TapTap as it has monopoly over indie single player games which are not massive in memory size.

Full disclosure, I have vested interest in XD and it is currently up 135%.

Snap shot of my portfolio performance as of today: Total profit for 2021: S$51,486.77. I manage to exceed 100% profit for four stocks in my portfolio: XD(135%), Weimob(130%), China Youzan(108%) and Chanjet(112%)



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