Core Insights - The overseas micro-drama app market is rapidly expanding, with 446 apps projected by August 2025 and a monthly increase of 18.57% in new app launches [1] - Micro-drama applications dominate the revenue rankings for non-gaming apps from China, with nine out of the top twenty spots [1] - The rise of native platforms like TikTok and YouTube is prompting micro-drama producers to replicate domestic strategies abroad [1][3] Group 1: Market Dynamics - The domestic micro-drama market is characterized by a "one strong, many strong" scenario, with leading firms dominating while mid-tier and new entrants focus on overseas expansion [1] - The number of overseas micro-dramas has surged from under 10,000 at the beginning of the year to over 26,000 [1] - TikTok for Business reported a threefold increase in micro-drama ad impressions, indicating significant user conversion improvements [3] Group 2: Content Preferences - There is a notable regional differentiation in content preferences, with emotional, urban, and revenge themes being the most popular, accounting for 70% of the overseas micro-drama market in the first half of 2025 [6] - Different regions exhibit distinct preferences for themes, such as North America favoring CEO and werewolf narratives, while Southeast Asia leans towards themes like "fake rich girl" and "restart life" [6][10] Group 3: Target Audience Segmentation - The demand for content is increasingly segmented by age, with younger audiences in North America gravitating towards campus love stories, while older viewers prefer family-oriented narratives [13] - The analysis of 6,524 revenge-themed micro-dramas shows significant variations in audience preferences across regions, necessitating tailored content strategies [10][12] Group 4: Distribution Strategies - The traditional reliance on single-app distribution is evolving towards a multi-channel approach, allowing for broader audience reach [16] - The "social media acquisition - app retention" model is prevalent, leveraging platforms like TikTok and Facebook to attract users before directing them to dedicated apps [18] - Direct engagement within social media platforms is becoming a viable strategy, as seen with the Japanese team "ごっこ倶楽部," which has achieved over 5 billion views on TikTok [19] Group 5: Quality Over Quantity - The focus is shifting from rapid growth to high-quality content, with an emphasis on global distribution strategies that leverage data tools for market identification and localization [22] - Successful cases like "好一个乖乖女" demonstrate the effectiveness of pre-planning for multilingual adaptations and synchronized releases across markets [25] - The future of micro-drama exports lies in building international platforms and nurturing local creators to foster global IP collaboration [28]

Investment Rating - The investment rating for the company is "Buy" with a 6-month outlook maintained [4]. Core Insights - The company reported a revenue of 7.34 billion yuan for Q2 2025, which is in line with Bloomberg consensus expectations. Adjusted net profit reached 560 million yuan, exceeding Bloomberg consensus by 8.1% [1]. - The user metrics show a Daily Active Users (DAU) of 109 million and Monthly Active Users (MAU) of 363 million, with a daily average usage time of 105 minutes [1]. - The company is benefiting from a strong performance in its gaming and advertising segments, with significant growth in user engagement and creator monetization [1][2][3]. Revenue Breakdown 1) **Mobile Games**: - Revenue for the quarter was 1.61 billion yuan, a year-on-year increase of 60%, driven by strong performance from "Three Kingdoms: Strategize the World" and stable contributions from "Fate/Grand Order" and "Azur Lane" [2]. - The company is also focusing on new game releases and overseas expansion for existing titles [2]. 2) **Advertising**: - Revenue reached 2.45 billion yuan, up 20% year-on-year, primarily due to strong growth in performance advertising [3]. - The company has improved its advertising infrastructure, leading to a more than 10% increase in eCPM and approximately 30% growth in performance ad revenue [3]. 3) **Value-Added Services (VAS)**: - Revenue was 2.84 billion yuan, a year-on-year increase of 11%, supported by growth in live streaming and other value-added services [3]. - The number of paid members reached 23.7 million, with over 80% opting for annual or auto-renewal plans [3]. 4) **IP and Derivatives**: - Revenue was 440 million yuan, a year-on-year decline of 15% [3]. Profitability - The gross profit was 2.68 billion yuan, with a gross margin of 36.5%, reflecting a year-on-year increase of 6.6 percentage points. The adjusted net profit of 560 million yuan indicates a turnaround from previous losses [4]. - The company is expected to benefit from its strategy of "self-developed quality products and global distribution," with projected revenues for 2025-2027 of 30.1 billion, 32.6 billion, and 35.6 billion yuan respectively [4].