qihu's arpu - playing games with investors
DESCRIPTION
QIHU’s ARPU: Playing Games with Investors - presentationQihoo 360 Technology Co. LtdSame games, different storyMatt Berry7/18/20121Disclosure: I am short QIHU. I am not infallible. Every investor must do their own due diligence. Every investor must make an individual decision based on his/her judgment of the company and the market. This is not a recommendation to buy or sell a security. I may not (and usually do not) post changes I make to my positions.7/18/2012100 90 80 70 60 50 4TRANSCRIPT
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Regarding Qihoo 360 Technology Co. Ltd
Matt Berry 7/18/2012
Qihoo’s games are the same; the revenue is out of line – a presentation
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Disclosure: I am short QIHU. I am not infallible. Every investor must do their own due diligence. Every investor must make an individual decision based on his/her judgment of the company and the market. This is not a recommendation to buy or sell a security. I may not (and usually do not) post changes I make to my positions.
See the Video presentation http://tinyurl.com/arpuvideo
7/18/2012
Qihoo claims that web game revenue grew 248% from the same period last year.
Web games, according to Qihoo, made up about 25% of total revenues for the 1st quarter of 2012.
“Within IVAS web game revenue was 17.3 million, up 248% from the same period last year and up 28% from the prior quarter.” ~Q1 2012 conference Call 12:20
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ARPU average of 64.5 Typical online game companies in China and their monthly Average Revenue Per Paying User (ARPU).
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Average 64.5 RMB
All numbers are as of March 31, 2012, except for Renren, which is a 2011 average . Quarterly amounts were divided by 3 for monthly comparison.
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ARPU source material Source material: Data as of March 31, 2012, except for RenRen, which represents an average for 2011. Quarterly
ARPU was divided by 3.
“Monthly Average Revenue per Paying User (ARPU) for games operated in China was RMB99.9, compared with RMB92.8 in Q4 2011.” ~ Shanda Games Reports First Quarter 2012 Unaudited Results
“Online games revenues increased by 22.9% from US$34.4 million in 2010 to US$42.3 million in 2011 due to the increases in revenues from purchases by end users of in-game virtual merchandise or premium features and an increase in the number of licensed and internally developed games offered through our online games center. …. We had approximately 243,000 active paying users on a quarterly average basis in 2011, compared to 225,000 active paying users on a quarterly average basis in 2010.” ~ Renren Inc 2011 20-F
Annual revenue divided by 12 months then divided by quarterly average paying users
= $14.51 average monthly ARPU in USD
= 2011 average Monthly ARPU of 92.34 RMB]
“First Quarter 2012 …. Average Revenue Per User ("ARPU") for online games was RMB228, up 3.1% QoQ and up 5.6% YoY” Giant Interactive Announces First Quarter 2012 Results (Divided by 3 for monthly comparison.) ARPU 76 RMB.
“… average revenue per active paying accounts or ARPU for the quarter was RMB225, a slight increase of 2% quarter-over-quarter and 7% year-over-year from RMB221.” ~ Changyou Q1 2012 Earnings Call Transcript (divided by 3 for monthly comparison) ARPU 75 RMB.
“For the 1Q12 3-month period, domestic mainland China online game operations achieved average concurrent users ("ACUs") of 228k and aggregate paying accounts ("APAs") of 744k with quarterly average revenue per user ("ARPU") of RMB153.” ~KongZhong Corporation Reports Unaudited First Quarter 2012 Financial Results (Divided by 3 for monthly comparison.) ARPU 51 RMB.
“Monthly Average Revenue per Paying User (RMB) … 47” ~ Kingsoft Announces 2012 First Quarter Results
Shek Hon Lo - SVP and Deputy CFO: “In terms of the ARPU range for MMOG is 90 to 130 per quarter and advanced casual game is between 50 to 95.” Tencent Holdings Ltd Q1 2012 Earnings Call Transcript (I took the top numbers, then divided by 3 for monthly comparison.) Monthly ARPUs of MMOG 43 RMB and Casual Games 32 RMB
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Qihoo is “different.”
“Qihoo 360 is running a very unique business model that is hard to find a close comp in China or globally.”
~ SEC 6-K exhibit 99.2 filed 12-16-2011
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Got that right. Qihoo sticks out like a CEO in an orange jumpsuit.
Alex Xu, CFO
Q1 2012 conference Call
“Jan basically, as I mentioned the game business at the end of the 3rd quarter … I’m sorry, March, we have 87 games up and running on the platform, 139,000 paid customers … uh, paid players and the ARPU for the month was about 440 RMB per month.”
[47:18 Listen: ]
… and which is it? “For the month” or “per month” … ?
“440” is so painfully off the chart that I’m going to help out. Let’s say that the CFO means Average Revenue per Paying User before splitting revenue with developers 70:30 ‒ so I trimmed 30% off the top. (He didn’t say that, but I’m trying to be generous. Doesn’t help much.)
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See. If he didn’t mean ARPU before revenue share, the number is worse, as pointed out by this interviewer in China.
(From the i Wall Street “snowball” column: Professionally translated)
Question: “If your game revenue is all shared income, then according to your published figures, on average every paying game player, every month, will spend around 550 RMB on games. Is this a normal (level) of expense?”
[Qihoo CFO “Alex”] Xu Zuoli: “Our ARPU is 400 RMB, which is identical to the average value of the overwhelming majority of domestic web-based game companies and platforms, and is nothing special.” ~
“Qihoo Zuo Li, Xu, CFO: navigation page income 70% of the total advertising” (A Google Translation)
Original Chinese Text:
提问：如果你们游戏收入都是分成收入，那么按你们公开的数据，平均每个付费游戏玩家，每月在游戏上的花费要达到550元RMB左右。这样的花费正常吗？
徐祚立：我们的ARPU是400RMB左右，这个和国内绝大多数网页游戏公司和平台的平均值是吻合的，并没有特别的地方。
Original article: “奇虎CFO徐祚立：导航页收入占整体广告70%”
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Don't think so Alex
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For those who were hoping that QIHU would please clarify …
They did ... in an SEC filing in response to accusations that their ARPU was out of line, so you’d have to think that they got it right this time … right?
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Statement filed with the SEC, December 2011: (here)
“The monthly ARPU has been fairly stable at around RMB380.”
monthly ARPU has been fairly stable at around RMB380.”
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This one was filed with the
SEC
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Qihoo then says in May 2012 that they have 440 ARPU.
What were they thinking?
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Alex Xu, CFO Q1 2012 conference Call “Jan basically, as I mentioned the game business at the end of the 3rd quarter … I’m sorry, March, we have 87 games up and running on the platform, 139,000 paid customers … uh, paid players and the ARPU for the month was about 440 RMB per month.” [47:18 ]
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Casual games earn less than MMO games.
Shek Hon Lo - SVP and Deputy CFO: “In terms of the ARPU range for MMOG is 90 to 130 per quarter and advanced casual game is between 50 to 95.” Tencent Holdings
Ltd Q1 2012 Earnings Call Transcript
(To help Qihoo out with the
comparison, I took the top numbers, then divided by 3 for monthly comparison.) Month ARPUs of MMOG 43 RMB and Casual Games 32 RMB.
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Lowest average age and the lowest personal monthly income
“And all the survey results indicated that the users of large & medium sized casual games had the lowest average age and the lowest personal monthly income.” ~
iResearch
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Qihoo doesn’t do MMO games, which earn more. … So why advertise that?
They’re not MMO They’re not MMO
“Qihoo 360's gaming ARPU is not comparable to that of other publicly listed Chinese gaming companies because almost all of them are focusing mainly on MMORPG games.” ~ Qihoo 360
Responds to the Citron Report
“Qihoo 360’s web game ARPU is very much in line with other major Non-Social WEB game developers and platforms in China. Yet the short sellers tried to mislead the public by comparing our ARPU to that of MMORPG game developers or SOCIAL game platforms. Comparing our Non-Social WEB games with MMORPG games or SOCIAL games is like comparing apples to oranges. It is simply wrong, period.” ~ “Short-Sellers Are Wrong Because Qihoo 360 Is Different”
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Huh? There is nothing unique about Qihoo’s web games
They are the same games that other web operators are hosting.
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Renren games that are identical to Qihoo games
Click a logo to go to a Renren or Qihoo Game
Bouncing Church (DDTank) Ghost Shrouded Dream Feixianguan Golden Age Three Kingdoms Generals Naruto World Knight World Troubled world Long Will
To simplify communication in English and to help readers independently verify the facts, I have used Google translations of the Chinese games. Links are as of 7/15/12. Like pop songs, these games will eventually be replaced with newer games.
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Renren Qihoo
Same Games
Qihoo is unreal, even at 300 ARPU. And 440!?
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Renren & Qihoo’s Identical Games
Era of the Ocean (The Power of Capital) Battle of Wits Datang Real Dragon II Happy Sword Blade of the Sky The Decade Sword The Martial Arts Situation King of the Sailing Wonderland Fantasy
Renren & Qihoo’s Identical Games
Prehistoric Myth Mortal Comprehension Dream Cultivation Wolong Yin The Martial Arts Hero Fantasy Basketball Disdain of the World Three Blood Rich Countries Ming Dynasty Immortal
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Renren & Qihoo’s Identical Games
Nine Days Cents a Dream Battle of Wits Cultivation Pass Blood Journey Dragon God Tomb Star World Heroes Expedition Heaven and Earth Football World (All Soccer) Business Tycoon God of Cookery Little Ninja
Call them what you will, QIHU’s games are the same as other operators’ games.
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Some other operators for the game, “Immortal”
The preceding slides have only been a comparison between Qihoo and Renren. Qihoo’s hosted Games are also hosted by many other web game operators. For example, here are other hosts for the game, “Immortal” (神仙道) …
Baidu game Click here
616wan Click here
65wan Click here
01yo Click here
Three Realms game Click here
57k Click here
Pipi game Click here
Daisy Game Click here
Want to play Click here
To accompany tour Click here
Fun network Click here
UFO game Click here
E7uu Click here
49you Click here
9377 Click here
96PK Click here
56uu Click here
5Q play Click here
Heart game Click here
UU178 Click here
655u Click here
91 Click here
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360, just one of many game operators
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Top 10 games represent 60 to 70% of game revenue.
Professionally translated:
[Qihoo CFO] Xu Zuoli: “Go to our web-based games platform wan.360.cn and take a look; basically one can determine the ranking of games according to the sequence of pictures shown, we do not have any one game that is dominant.”
Question: “What percentage of games revenue is contributed from those in ranking in the top five?”
Xu Zuoli: “Those ranking in the top ten represent 60-70%.”
(Original / Google Translated)
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At first glance Qihoo appears to have an exclusive game. Taking a second look …
Mortal Comprehension 2
Legend of Love
“Legend of Love” (AKA “Legend of the Situation”) is the same game as “Mortal Comprehension 2” ‒ both developed by The Guangzhou Philippine sound Information Technology Co.,
Ltd 广州菲音信息科技有限公司 Google Translation of blog:“The first thing to note is that the Legend of love and mortal comprehension is the same game different, but the agents, such as 4399, 91wan, etc., 360 The above is known as the Legend of the situation.”( Here)
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Wan.360.cn’s 仙剑情 is also known as 凡人修真2, which has many game operators : Daisy Game, Brothers Play, Special Tour, Cocoa States, UFO Game, YA 247, e7wan, e7UU, SNSyx, 91yx, 65wan, Three Realms Game, Game Fun! EQ Platform, 92you, 37play, YOUC Network …. And more
Legend of Love
仙剑情
Mortal Comprehension 2
凡人修真2
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Wan.360.cn’s Legend of Love 仙剑情 played through other platforms as Mortal Comprehension 2 凡人修真2 The Big Dipper break the sky II 斗破苍穹Ⅱ Dream Feixianguan 梦幻飞仙 Sea Laugh 沧海笑 The Magic of the Wizard 魔之精灵 (In Beta Testing (7/15/12), 17173 article: Not found in Kanke.com data base. Main operator: 5ay.com, developer is Kun Bo Chang-hong Technology Co., Ltd. 坤博长红科技有限公司)
The Divine Comedy (“Shen Qu”)
神曲
JX Romance
剑侠奇缘 One Hundred Make Cents
百炼成仙
Blood Piece
热血海贼王 Ghost Once upon a Time
神魔仙界 Long Will
龙将 Naruto World
火影世界
Immortal
神仙道
Golden Age Three Kingdoms
盛世三国
Pa Knife
霸刀
Bouncing Church (“DDTank”)
弹弹堂
Screen shot: 7/15/2012
Click through to Kanke.com’s Web Game Portal to see the many operators that carry the same games as Qihoo. (The English titles link to Google translated pages; the Chinese titles, to the original pages.)
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CYOU 2011 SEC 20-F
Changyou.com Ltd. (CYOU) owns 68% of Shenzhen 7road Technology Co., Ltd ‒ the developer of the popular games, “Shen Qu” and “DDTank.” Google usually translates these games as “Divine Comedy” and “Bouncing Church,” respectively.
DDTank, which Google translates as “bouncing church”
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Qihoo 360
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“Average revenue recognized per active charging accounts for 7Road’s games were RMB50, an increase of 32% quarter-over-quarter. The increase was mainly due to players’ average spending level for Shen Qu, which is a role-playing game, being higher than it is for DDTank, which is an action game.” ~ 6-K as Filed with SEC & as reported on Changyou.com.
[Qihoo CFO] Xu Zuoli: “Go to our web-based games platform wan.360.cn and take a look; basically one can determine the ranking of games according to the sequence of pictures shown, we do not have any one game that is dominant.” (Here)
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ARPU isn’t just revenue for Qihoo. It is also what gamers spend.
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Same games, same platforms, … but different revenue? Same chunk of cheese to start with, same cheese grater, but ….
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When you look at the pizza, you know whose 2 pound chunk of cheese actually passed through the cheese grater and whose didn’t.
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There is no difference between Qihoo’s games and other operator’s games.
The only distinction is the price that gamers pay.
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Tencent Casual
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Qihoo's Chunk
Whose Cheese got Grated?
Whose Cheese got
Grated?
Again, Qihoo’s disclosures are vague. Out of kindness I fill-in the blank and record ARPU as 300 and not 440.
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Analysts have said that Qihoo’s ARPU is in-line with other web game operators in China.
How is that possible?
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If this is not a bluff, show your cards.
… Analysts ‒ some examples please.
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Regarding Qihoo 360 Technology Co. Ltd
Matt Berry 7/18/2012
Qihoo’s games are the same; the revenue is out of line – a presentation
1
Disclosure: I am short QIHU. I am not infallible. Every investor must do their own due diligence. Every investor must make an individual decision based on his/her judgment of the company and the market. This is not a recommendation to buy or sell a security. I may not (and usually do not) post changes I make to my positions.
See the Video presentation http://tinyurl.com/arpuvideo