Core Viewpoint - The article highlights the challenges faced by Kingsoft's gaming division, particularly in the context of declining revenues and increased marketing expenses, while emphasizing the company's focus on long-term game development and IP ecosystem building [2][3][4]. Financial Performance - Kingsoft's gaming and other business revenue for the first half of the year was 1.988 billion yuan, accounting for approximately 43% of total revenue, but this represents a 10% decline compared to the same period last year [2]. - In the second quarter, the revenue from this segment was 0.952 billion yuan, showing a significant year-on-year decrease of 26% [2]. Marketing Expenses - The company incurred marketing expenses of 0.765 billion yuan in the first half of the year, a 19% increase year-on-year, aimed at supporting new game launches and enhancing promotional efforts [6]. - Despite the increase in marketing spending, the gaming revenue did not grow, raising concerns among investors about the effectiveness of these expenditures [6]. Game Portfolio and Challenges - Kingsoft's main gaming products include the "Jianxia Qinyuan" series, "Chunbai Jinzhu," and "Jiexianji," with the "Jianxia Qinyuan" series being a long-standing title in the market [6][13]. - The "Jianxia Qinyuan" series faces challenges as its core player base ages, leading to decreased engagement and spending [6]. - New titles like "Jianxia Qinyuan: Zero" have not met expectations, with initial rankings dropping significantly after launch [7]. Competitive Landscape - Compared to competitors like Tencent and NetEase, Kingsoft's gaming performance has been notably weaker, with Tencent's gaming revenue reaching 118.7 billion yuan in the first half of the year, a 32.6% share of total revenue [10]. - Tencent's gaming revenue grew by 22% year-on-year in the second quarter, while NetEase also reported a 13.7% increase, highlighting Kingsoft's struggles in a competitive market [10][9]. Industry Issues - The gaming industry is facing challenges from "black and gray market" activities, which disrupt the gaming ecosystem and affect player retention and spending [11]. - Kingsoft has acknowledged the need for improved measures to combat these issues, which have been detrimental to its gaming business [11]. Player Feedback and Game Quality - Player feedback on new titles like "Jiexianji" has been largely negative, with complaints about gameplay balance, depth, and overall experience [15]. - The game "Chunbai Jinzhu" also received criticism for its shooting mechanics and weapon design, indicating broader quality issues within Kingsoft's game offerings [15][16].

Core Viewpoint - Kingsoft Software's Q2 2025 performance showed a revenue of 2.307 billion yuan, a year-on-year decline of 7%, which was in line with expectations, while operating profit was 383 million yuan, slightly below expectations due to higher-than-expected expenses [1] Group 1: Business Performance - Office business revenue grew by 14% year-on-year and 4% quarter-on-quarter, driven by the expansion of WPS Personal and WPS 365 [1] - The number of global monthly active devices for WPS Office reached 650 million in June 2025, representing a 9% year-on-year and 1% quarter-on-quarter increase [1] - The gaming business saw a revenue decline of 26% year-on-year and 8% quarter-on-quarter, primarily due to high comparison bases from last year for titles like "Dust White Zone" and "Jian Wang 3" [1] Group 2: Strategic Developments - The company launched WPS AI 3.0 and introduced the native Office intelligent assistant "WPS Lingxi," marking a shift from tool-based applications to collaborative intelligent agents [1] - Management indicated a commitment to increasing R&D investment in AI and collaboration, aiming to enhance product and service deployment across various office scenarios [1] - The gaming business will continue to focus on a premium strategy, deepen IP ecosystem development, and steadily advance global expansion for long-term operations [1] Group 3: Financial Metrics - The operating profit margin for Q2 was 16.6%, down 15.5 percentage points year-on-year and 9.1 percentage points quarter-on-quarter, mainly due to increased R&D and marketing expenses related to AI and new games [2] - The net profit margin reached 23.1%, up 7.2 percentage points year-on-year and 10.9 percentage points quarter-on-quarter, benefiting from one-time gains from Kingsoft Cloud's placement and share subscription [2] Group 4: Earnings Forecast and Valuation - Revenue forecasts for 2025 and 2026 were lowered by 6.7% and 6.5% to 10.33 billion yuan and 11.56 billion yuan, respectively, due to cautious assumptions regarding the gaming business [2] - Net profit forecasts for 2025 and 2026 were reduced by 21.0% and 10.0% to 1.41 billion yuan and 1.71 billion yuan, respectively, considering revenue adjustments and increased investments in new games and AI strategy [2] - The target price was adjusted down by 10% to 45 HKD, reflecting a 29% upside potential based on a 32 times 2025 price-to-earnings ratio [2]

Core Insights - The core issue identified by the company is the failure of the new game "解限机" to meet expectations, particularly in its monetization and player engagement strategies [1][4][11] Financial Performance - In the first half of 2025, the company's gaming revenue was 1.988 billion yuan, a year-on-year decline of 10% [2] - Q2 revenue was 0.952 billion yuan, showing a year-on-year decline of 26% and a quarter-on-quarter decline of 8% [2] Game Launch and Reception - "解限机" generated approximately 0.1 billion yuan in its first month, but its peak player count on Steam dropped from 130,000 to 7,000 shortly after launch, indicating a significant decline in interest [4] - The game faced criticism for being both "pay-to-win" and requiring excessive time investment, leading to a perception of lost engagement among players [5][7] Key Mistakes Identified - The first major mistake was reducing the depth of monetization, which led to players feeling a lack of goals and engagement [5][7] - The second mistake involved uncontrolled gray market activities, which were exacerbated by the game's free-to-play model and multi-platform release, damaging the game's ecosystem [5][6] - The third mistake was the fragmentation of the player base across multiple platforms, which negatively impacted the matchmaking experience [6] Game Design Flaws - The game design failed to provide a satisfying feedback loop for player investment, leading to a sense of disinterest [8][10] - The initial player guidance was inadequate, failing to explain key gameplay mechanics, which contributed to player confusion [8] - The reward mechanisms were poorly structured, particularly in the early stages, discouraging casual players from engaging with the game [10] Industry Context - The company faces significant challenges in the mech and competitive gaming market, which has a naturally limited user base [11] - There is skepticism about whether the company can pivot "解限机" into a successful product without addressing its current issues, particularly in monetization and gameplay content [11]

Core Viewpoint - In the first half of 2025, despite a general recovery in the gaming sector, Kingsoft's gaming business faced unexpected pressures and challenges, with significant revenue declines in its online gaming segment [1][2][3] Financial Performance - In Q2 2025, Kingsoft's total revenue from online games and other businesses was 952 million yuan, a year-on-year decrease of 26% and a quarter-on-quarter decrease of 8% [1] - For the first half of 2025, this segment's total revenue was 1.988 billion yuan, down 10% compared to the same period in 2024 [1] Product Performance - The new game "Mecha BREAK" did not meet expectations after its launch, contributing to the revenue decline due to high comparative figures from 2024 [1][3] - The classic IP "Jian Wang 3" continued to perform strongly, supported by content updates and technical enhancements, while new titles like "Jian Xia Qing Yuan: Zero" faced challenges [3][4][5] Strategic Focus - Kingsoft's management emphasized a strategy of focusing on high-quality games and deepening IP ecosystem development, while also pursuing global expansion [2][8] - The company is looking to optimize existing products and explore new IP collaborations to find growth opportunities [11] Market Outlook - Kingsoft's gaming business is currently in a phase of short-term pressure but long-term potential, with the second half of 2025 seen as a critical period for validating its long-term operational capabilities [12]

Core Viewpoint - Kingsoft's financial performance shows a mixed picture, with strong growth in office software and services but a significant decline in the gaming sector, impacting overall revenue [4][3]. Group 1: Financial Performance - For Q2 2025, Kingsoft reported revenue of 23.07 billion RMB, a decrease of 7% year-on-year and 1% quarter-on-quarter [4]. - Gross profit fell by 9% to 18.54 billion RMB, with a gross margin of 80%, down 3 percentage points year-on-year [4]. - Net profit attributable to shareholders increased by 35% to 5.32 billion RMB [4]. Group 2: Office Software and Services - Revenue from office software and services reached 13.56 billion RMB, representing a year-on-year growth of 14% and a quarter-on-quarter increase of 4%, accounting for 58.77% of total revenue [2][4]. - The growth in this segment is attributed to the performance of WPS 365 and personal WPS services, driven by product strength, high-quality service, and enhanced customer retention [2]. Group 3: Gaming Sector Performance - The gaming and other business segment generated revenue of 9.52 billion RMB, a significant decline of 26% year-on-year and 8% quarter-on-quarter, making up 41.26% of total revenue [3][4]. - The decline in gaming revenue is primarily due to underperformance of key titles such as "Dust White Zone" and "Jian Wang 3," which faced high comparative bases from the previous year [3]. - The gaming market, particularly for second-dimensional games, has been experiencing a downturn, with a reported 8% decrease in sales revenue for the first half of 2025 [5]. Group 4: AI and R&D Investment - Kingsoft's investment in AI is increasing, with R&D expenses rising by 18.7% to 9.59 billion RMB, representing 36.07% of revenue, an increase of 2.6 percentage points year-on-year [2]. - The company is focusing on AI integration across its office software components, which is seen as a key growth area in the industry [2].

Core Viewpoint - Kingsoft Software reported a decline in revenue for Q2 2025, with a total revenue of 2.307 billion RMB, a year-on-year decrease of 7% and a quarter-on-quarter decrease of 1% [1][2]. Revenue Breakdown - The revenue from the office software and services segment reached 1.356 billion RMB, representing a year-on-year growth of 14% and a quarter-on-quarter growth of 4%, accounting for 58.77% of total revenue [2][3]. - The revenue from the online gaming and other segments was 951.76 million RMB, showing a significant year-on-year decline of 26% and a quarter-on-quarter decline of 8%, making up 41.26% of total revenue [2][6]. Profitability - Gross profit for the quarter was 1.854 billion RMB, down 9% year-on-year, with a gross margin of 80%, a decrease of 3 percentage points compared to the previous year [1][2]. Growth Drivers - The growth in the office software segment was primarily driven by the performance of WPS 365 and personal WPS services, supported by enhanced product capabilities and AI features [3][5]. - As of June 30, 2025, WPS Office had 651 million monthly active devices, an increase of 8.56% year-on-year, with paid user numbers rising by 9.54% to 41.79 million [3][5]. Challenges in Gaming Segment - The gaming segment faced challenges, particularly with the performance of the games "Dust White Zone" and "Jian Wang 3," which saw significant revenue declines due to high comparative figures from the previous year [6][8]. - The overall decline in the online gaming segment reflects broader market trends, with the two-dimensional mobile game market experiencing an 8% drop in actual sales revenue in the first half of 2025 [9]. New Game Launches - The recent launch of the mech shooting game "Limitless Machine" has not met expectations, with a significant drop in player numbers shortly after release [9][13].

Core Insights - Kingsoft Software (03888.HK) reported a revenue of RMB 2,307.4 million for Q2 2025, representing a year-on-year decline of 7% and a quarter-on-quarter decline of 1% [1] - The office software and services segment generated revenue of RMB 1,355.7 million, showing a year-on-year growth of 14% and a quarter-on-quarter growth of 4% [1] - The gaming and other businesses segment reported revenue of RMB 951.8 million, reflecting a year-on-year decline of 26% and a quarter-on-quarter decline of 8% [1] Revenue Breakdown - The growth in the office software segment was driven by the performance of WPS 365 and personal WPS business, attributed to enhanced product capabilities, quality service, and deep penetration into industry and business scenarios [1] - The decline in gaming revenue was primarily due to high comparative figures from the previous year for games like "Chasing White Zone" and "Sword Network 3" [1] Cost and Profitability - R&D expenses for Q2 2025 amounted to RMB 853.8 million, an increase of 15% year-on-year and 3% quarter-on-quarter, driven by ongoing investments in AI and collaboration capabilities [1] - The operating profit before share-based compensation costs was RMB 453.7 million, down 48% year-on-year and 31% quarter-on-quarter [2] - The profit attributable to the parent company was RMB 532.4 million, compared to RMB 393.4 million in Q2 2024 and RMB 283.9 million in Q1 2025 [2]

Core Viewpoint - Kingsoft Software continues to show steady revenue growth, with a first-quarter revenue of 2.34 billion RMB, representing a 9% year-on-year increase [1] Group 1: Financial Performance - The company's gross margin for the quarter is approximately 82%, an increase of 1 percentage point year-on-year [1] - Research and development expenses are around 830 million RMB, up 16% year-on-year, primarily due to investments in AI capabilities and new game categories [1] - Sales expenses are approximately 340 million RMB, a 30% increase year-on-year, mainly driven by promotional investments for new games [1] - Administrative expenses remain stable at about 160 million RMB year-on-year [1] - The net profit attributable to shareholders is approximately 284 million RMB, slightly down from 285 million RMB in the same period last year [1] Group 2: Business Segments - The office segment, including WPS personal and WPS 365 businesses, generates 1.301 billion RMB in revenue, a 6.22% year-on-year increase [1] - WPS personal business revenue is 857 million RMB, reflecting a 10.86% year-on-year growth, with a global monthly active user base of approximately 647 million, up 7.92% [1] - WPS 365 business revenue is 151 million RMB, showing a significant growth of 62.59% year-on-year, driven by document, collaboration, and AI capabilities [1] Group 3: Gaming Segment - The gaming and other business segment generates approximately 1.04 billion RMB in revenue, a 14% year-on-year increase, mainly from the success of the games "Dust White Zone" and "Jian Wang 3" [2] - "Dust White Zone" maintains user engagement through differentiated content and long-term operational strategies, while "Jian Wang 3" solidifies its user base through gameplay updates [2] - The new game "Limitless Machine" launched on July 2, has received positive feedback, ranking fifth on Steam's global wishlist [2] Group 4: Investment Outlook - The company is expected to see continued revenue growth driven by the dual engines of office and gaming segments [2] - Projections for revenue from 2025 to 2027 are 11.4 billion RMB, 12.9 billion RMB, and 14.6 billion RMB, with net profits of 1.88 billion RMB, 2.46 billion RMB, and 2.85 billion RMB respectively [2] - The target valuation for Kingsoft Software is approximately 49.1 billion RMB, corresponding to a target price of about 40 HKD, maintaining a "buy" rating [2]

Investment Rating - The report maintains a "Buy" rating for Kingsoft Software [3][5] Core Views - Kingsoft Software continues to experience steady revenue growth, with Q1 revenue reaching 2.34 billion RMB, a year-on-year increase of 9%. The office and gaming segments contribute 56% and 44% to the total revenue, respectively [1] - The company's gross margin for the quarter is approximately 82%, reflecting a 1 percentage point increase year-on-year [1] - R&D expenses for the quarter are around 830 million RMB, up 16% year-on-year, primarily due to investments in AI capabilities and new game categories [1] - The report forecasts revenue growth driven by both office and gaming segments, estimating revenues of 11.4 billion, 12.9 billion, and 14.6 billion RMB for 2025, 2026, and 2027, respectively [3] Summary by Sections Office Segment - Kingsoft Office recorded Q1 revenue of 1.301 billion RMB, a year-on-year increase of 6.22%. The personal business segment generated 857 million RMB, growing by 10.86% [2] - WPS 365 business revenue reached 151 million RMB, marking a significant year-on-year growth of 62.59% [2] - WPS software business revenue declined by 20.99% to 262 million RMB, mainly due to new procurement processes affecting sales [2] Gaming Segment - The gaming and other business revenue for Q1 was approximately 1.04 billion RMB, a year-on-year increase of 14%, driven by contributions from games like "Dust White Zone" and "Jian Wang 3" [2] - The new game "Limitless Machine" launched on July 2, has received positive feedback, ranking fifth on Steam's global wishlist [2] Financial Projections - The report projects net profits for 2025, 2026, and 2027 to be 1.88 billion, 2.46 billion, and 2.85 billion RMB, respectively, with corresponding growth rates of 21%, 31%, and 16% [4][3] - The estimated P/E ratio for 2026 is 17.4, with a target valuation of approximately 49.1 billion RMB, corresponding to a target price of around 40 HKD [3]

Core Viewpoint - The company is expected to experience a decline in revenue and operating profit in Q2 2025, primarily due to pressures in the gaming sector and increased investments in new games and AI initiatives [1][2]. Revenue Forecast - The company forecasts a revenue of 2.29 billion yuan in Q2 2025, representing a year-on-year decline of 7.5% [1]. - The office business is projected to generate 1.34 billion yuan in revenue, with a year-on-year growth of 13.0% and a quarter-on-quarter growth of 3.1% [1]. - The gaming business is expected to generate 0.945 billion yuan, reflecting a year-on-year decline of 26.5% and a quarter-on-quarter decline of 8.8% [1]. Profitability Analysis - The operating profit is anticipated to be 400 million yuan, with an operating profit margin of 17.5%, down 14.6 percentage points year-on-year and 8.2 percentage points quarter-on-quarter [2]. - The net profit attributable to shareholders is expected to reach 601 million yuan, corresponding to a net profit margin of 26.3%, showing an increase of 10.4 percentage points year-on-year and 14.1 percentage points quarter-on-quarter [2]. Adjustments to Forecasts - The revenue growth forecast for the gaming segment has been revised down from 5% to flat for the year, reflecting cautious assumptions regarding the performance of new and existing games [1][2]. - Revenue forecasts for 2025 and 2026 have been reduced by 2.4% and 3.1% to 11.07 billion yuan and 12.36 billion yuan, respectively [2]. Valuation and Target Price - The target price is maintained at 50 HKD, based on a sum-of-the-parts (SOTP) valuation for 2025, corresponding to a price-to-earnings ratio of 35 times for 2025 [2]. - The company is currently trading at a price-to-earnings ratio of 25.2 times for 2025, indicating a potential upside of 38% [2].