Produced by | Entrepreneurship Frontline

Artistic Design | Xing Jing

Audit | Song Wen

Since the founder Lin Qi's death in 2020, Yozu Network's performance has not improved significantly, and this remained the case in the first three quarters of 2024.

Data shows that in the first three quarters of 2024, Yozu Network achieved a revenue of 997 million yuan, a year-on-year decrease of 15.43%, and a net profit attributable to shareholders of 5.178 million yuan, a year-on-year decrease of 50.42%.

In 2020, Yozu Network's revenue exceeded 4.7 billion yuan, but it has declined for multiple consecutive years since then. In the first three quarters of 2024, Yozu Network's revenue was even less than 1 billion yuan. After Lin Qi's death, Yozu Network seemed to have lost its direction.

As Lin Qi's children transferred the majority of their equity to Shanghai Jiayou Enterprise Management Partnership (Limited Partnership), a company controlled by the current chairman Wan Ping, the Lin family retreated from Yozu Network. Under the leadership of major shareholder and chairman Wan Ping, can Yozu Network regain its glory?

1. Both revenue and profit are declining, and the shadow of the founder's death lingers

As a native of Wenzhou, Zhejiang, Yozu Network's founder Lin Qi inherited the entrepreneurial genes of the Wenzhou people. Just one year after graduating in 2005, Lin Qi founded Shanghai Tiansoft Software Technology Co., Ltd. After his first venture failed, Lin Qi established an advertising company in 2007. Like his first venture, Lin Qi's second venture also ended in failure.

Consecutive failures did not dampen Lin Qi's entrepreneurial confidence, and in 2009, he founded Yozu Network. At that time, driven by phenomenal online games like League of Legends, domestic web games were rapidly emerging.

Against this background, Yozu Network successively launched online game products such as "Thirty-Six Stratagems" and "Sword of Decade", and the company began to make a name for itself in the gaming industry.

Under Lin Qi's leadership, Yozu Network began to expand overseas, exporting "Thirty-Six Stratagems" to Hong Kong, Macau, and Taiwan, as well as countries like Singapore, Malaysia, and the Philippines. In July 2011, "Sword of Decade" entered the South Korean market, followed by Vietnam in October.

With the success of games like "Thirty-Six Stratagems" and "Sword of Decade", Yozu Network began planning for its listing. In 2014, Yozu Network successfully entered the capital market through a backdoor listing with listed company Meihua Umbrella.

(Image / Yozu Official Account)

In 2015, the mobile internet began to explode, and mobile games became the new frontier of the gaming industry. Yozu Network seized the opportunity and launched "Young Three Kingdoms".

Upon its release, the game was well-received by users, with revenue exceeding 100 million yuan in just 20 days, and it had a long lifespan, setting a record of 20 million yuan in daily revenue during the 2016 Chinese New Year holiday season.

Driven by this, Yozu Network's performance grew year by year. In 2015, Yozu Network's revenue and net profit attributable to shareholders were 1.535 billion yuan and 516 million yuan, respectively, and by 2018, these figures had grown to 3.581 billion yuan and 1.009 billion yuan, respectively.

In 2019, the gaming industry underwent significant changes, with the issuance of domestic game licenses being suspended, leading the industry into a winter. Due to the inability to launch new products, the company intensified its promotion of existing products, and Yozu Network's profits began to decline sharply in 2019. That year, Yozu Network achieved a net profit attributable to shareholders of 257 million yuan, a year-on-year decline of 74.58%.

In 2020, the founder and chairman Lin Qi unexpectedly passed away, leading to management chaos within the company. Coupled with the poor performance of the newly launched "Three-Body" series of games and the lack of appeal of existing games, Yozu Network's performance continued to decline.

Data shows that from 2020 to 2023, Yozu Network's revenue was 4.703 billion yuan, 3.204 billion yuan, 1.981 billion yuan, and 1.625 billion yuan, respectively, representing a cumulative decline of 65% over three years. During the same period, the company's non-recurring net profit was only positive in 2023, with losses of hundreds of millions of yuan in the other years.

In the first three quarters of 2024, Yozu Network's revenue and net profit attributable to shareholders both declined again. Judging from its performance, Yozu Network is still unable to emerge from the difficulties following Lin Qi's death.

2. Terminating fund-raising projects to supplement working capital, focusing on AI while reducing R&D investment

For Yozu Network, in traditional web and mobile games, the company has already lost its first-mover advantage. With the accelerated development of AI, Yozu Network seems to have seen a new direction for development and has made a series of capital layouts to this end.

On June 29, 2024, Yozu Network held its first bondholder meeting and first extraordinary general meeting of shareholders for 2024, approving the "Proposal on Terminating Fund-raising Projects and Permanently Supplementing Working Capital with Remaining Raised Funds"."In 2019, Yozu Network raised 1.15 billion yuan through bond issuance, with a term of six years. After deducting issuance costs, the actual funds raised were 1.135 billion yuan.

According to the previous plan, of the 1.15 billion yuan raised by the company, 325 million yuan was used to supplement working capital, while the remaining funds were allocated to online game development and operation projects, as well as online game operation platform upgrade projects.

As of May 2024, with the exception of the funds used to supplement working capital, the investment progress of the other two projects was 12.78% and 76%, respectively, with a total investment of 524 million yuan from the three projects, leaving approximately 628 million yuan remaining. After the approval of this proposal, Yozu Network plans to use the remaining 628 million yuan to permanently supplement working capital.

In response, Yozu Network explained that due to the profound impact of AI on the gaming industry, the previous plan failed to meet the current market development changes and the company's business development plan, so the company decided to terminate the implementation of the above two physical projects.

To seize the wave of AI development, Yozu Network even established an AI Innovation Institute in 2023, leveraging AI to reduce costs and increase efficiency for the company.

(Image / ECNS Photo Library)

Although Yozu Network has repeatedly stated its commitment to increasing AI innovation, from its business layout, it is apparent that Yozu Network is cutting costs and increasing capital reserves, suggesting that the company is becoming more conservative.

Take R&D expenses as an example. In the first three quarters of 2024, Yozu Network's R&D expenditures were 126 million yuan, compared to 218 million yuan in the same period of 2023.

AI R&D is a highly capital-intensive endeavor. Taking Kunlun Tech, an internet gaming company that is all-in on AI, as an example, to accelerate the company's AI business development, Kunlun Tech's R&D expenses in the first three quarters of 2024 were 1.144 billion yuan, compared to 620 million yuan in the same period of 2023, representing a nearly doubling of expenses.

In addition, Yozu Network is also significantly reducing its administrative and selling expenses. Through a series of operations, Yozu Network achieved a non-recurring net profit of 12.02 million yuan in the first three quarters of 2024, turning a loss into a profit.

In addition to reducing expenses, Yozu Network has also increased its external borrowing. As of September 30, 2024, Yozu Network's short-term loans, long-term loans, and non-current liabilities due within one year totaled over 580 million yuan, compared to approximately 316 million yuan in the same period of 2023.

Under a series of company operations, Yozu Network's monetary funds have also increased. As of September 30, 2024, Yozu Network's monetary funds were 1.81 billion yuan, an increase of over 370 million yuan compared to the same period in 2023.

Judging from Yozu Network's current expense expenditures and cash reserves, the company has not shown the same determination as Kunlun Tech in going all-in on AI. Instead, the company appears to be preparing for a "winter," cutting costs to cope with declining performance and reserving cash to deal with future uncertainties.

3. Share price falls by over 62% in one and a half years, chairman goes from a floating profit of 1.8 billion yuan to a loss of 40 million yuan

In the post-Lin Qi era, Yozu Network has apparently not yet found a way to break through.

Facing an uncertain future, under the leadership of its largest shareholder and chairman Wan Zheng, Yozu Network is accumulating cash on a large scale. Wan Zheng, who is heavily invested in Yozu Network, is undoubtedly making a big bet.

After Lin Qi's death in 2020, his equity was inherited by his three children. However, as the children were all minors, their equity was managed by Lin Qi's wife Xu Fenfen, who was therefore the company's de facto controller and chairman for a time.

Due to Xu Fenfen's lack of management skills, on December 30, 2022, Yozu Network announced that Xu Fenfen had transferred a total of approximately 113 million shares (12.34% of the total share capital) held by Lin Xiaoxi, Lin Ruijing, and Lin Li to Shanghai Jiayou at a price of 10.20 yuan per share, with a final agreement to transfer 107 million shares.

According to Tianyancha, Shanghai Jiayou was established in May 2022 with a registered capital of up to 1.36 billion yuan, but it has a total of zero employees. Various indications suggest that the company was likely established for the purpose of acquiring equity in Yozu Network.

Upon further investigation, natural person Wan Zheng is the absolute controller of Shanghai Jiayou. After acquiring Yozu Network's equity, in April 2023, Wan Zheng smoothly became the chairman of Yozu Network.

Public information shows that Wan Zheng, born in 1984, has deep involvement in the gaming industry and previously served as an executive at an e-sports-based pan-entertainment platform.

Shortly after Wan Zheng took over, the market had new expectations for Yozu Network. In addition, in 2023, AI+games attracted capital attention, and Yozu Network repeatedly responded that the company had layouts in AI.

Under this influence, Yozu Network experienced its own "sweet moment" in the capital market, with the company's share price surging. By May 2023, the company's share price had risen to a maximum of 26.36 yuan per share, an increase of over 200% compared to around 8 yuan per share in November 2022. At one point, Wan Zheng's investment in Yozu Network equity generated over 1.8 billion yuan in profits.

However, this good fortune did not last long. With the retreat of the AI+games trend and the company's continued sluggish performance, Yozu Network was abandoned by investors. In August 2024, the company's share price fell to 6.85 yuan per share, setting a new low since Yozu Network's backdoor listing in 2014.

Since then, due to the overall recovery of the capital market, Yozu Network's share price has improved somewhat. As of November 5, Yozu Network's share price closed at 9.84 yuan per share, still over 62% lower than its May 2023 high. Chairman Wan Zheng's investment in Yozu Network has also shifted from a previous floating profit of 1.8 billion yuan to a current loss of nearly 40 million yuan.

(Image / ECNS Photo Library)

In the capital market, short-term fluctuations in listed company share prices are normal, but in the long run, the share prices of excellent companies will inevitably trend upwards.

However, such trends in share prices are mostly due to problems with the company's fundamentals. Judging from Yozu Network's performance in recent years, there are indeed significant issues with the company's operations.

Since regulatory authorities tightened control over the gaming industry in 2018, Yozu Network's operations have stagnated, and coupled with the founder's death, the company's management has become chaotic, leading to continued sluggish performance.

For Yozu Network, after a series of changes, it is difficult for the company to launch phenomenal products in the traditional web game and mobile game sectors. To this end, Yozu Network has adjusted its fund-raising direction and reduced R&D expenses.

Caught up in the wave of AI, Yozu Network, which has accumulated a large amount of cash, has only one path forward. Under the leadership of the new chairman Wan Zheng, can Yozu Network stage a comeback and return to its peak share price? "ECNS Entrepreneurship Frontline" will continue to keep a close watch.

*Note: The featured image in this article is from Yozu's official account.