Zhejiang Huanyu and The9 Establish Joint Venture and Signed Non-Exclusive Agreement to Operate New MIR Game with Annual Revenue Commitment of RMB600 Million, Profit Commitment of RMB200 Million and Annual Increase of 30%

Rhea-AI Summary

The9 (NCTY) has announced a joint venture with Zhejiang Huanyu Network Technology to operate the new MIR game, MIR M, for mobile and PC. The9 will hold a 51% stake in the joint venture, which is expected to become a consolidated subsidiary. Huanyu has committed to annual revenue of RMB600 million (US$84 million) and profit of RMB200 million (US$28 million) for 2025, with a 30% annual increase in 2026 and 2027.

The9 will grant Huanyu restricted shares worth approximately RMB98 million, to be unlocked based on achieving business commitments. The company's total sales target for MIR M in 2025 is RMB2 billion. This partnership aims to leverage the MIR IP and attract existing MIR players to the new game.

Positive

• Joint venture with Huanyu gives The9 a 51% stake in operating the new MIR M game
• Committed annual revenue of RMB600 million and profit of RMB200 million for 2025
• 30% annual increase in revenue and profit committed for 2026 and 2027
• Total sales target of RMB2 billion for MIR M in 2025
• Strategy to leverage existing MIR player base and IP for new game success

Negative

• Issuance of restricted shares worth RMB98 million may lead to potential dilution for existing shareholders
• Performance-based share unlocking mechanism ties company's equity to future game performance

Insights

Financial Analyst

This joint venture between The9 and Huanyu represents a significant business opportunity in the Chinese gaming market. The RMB600 million (US$84 million) revenue and RMB200 million (US$28 million) profit commitments for 2025, with a 30% annual growth target, are ambitious but reflective of the MIR franchise's popularity. The profit-sharing mechanism and The9's 51% stake position the company for substantial returns if targets are met.

The equity-based incentive structure, with The9 granting restricted shares to Huanyu based on performance, aligns interests and mitigates downside risk. However, investors should note the potential dilution effect on existing shareholders. The RMB20 billion annual revenue of MIR games highlights the market potential, but competition and user acquisition costs in the saturated Chinese gaming market remain key challenges to monitor.

Gaming Industry Expert

The partnership to operate MIR M marks a strategic move in the competitive MMORPG market. Utilizing Unreal Engine 4 for enhanced graphics demonstrates a commitment to modernizing the franchise, which could attract both nostalgic players and new audiences. The collaboration between Wemade's experienced Chinese development team and local operators like Huanyu leverages cultural understanding and existing player networks, potentially reducing user acquisition costs.

However, the success of MIR M will depend on its ability to differentiate from other MIR titles and mobile MMORPGs. The RMB2 billion sales target for 2025 is ambitious, representing 10% of the reported total MIR franchise revenue. Achieving this will require exceptional execution in game design, monetization strategies and marketing to stand out in China's competitive mobile gaming landscape.

Market Research Analyst

The MIR franchise's strong performance in China, with over RMB20 billion in annual revenue, indicates a robust market for this genre. The9's strategy to partner with multiple operators to attract MIR-type game users is sound, leveraging existing player bases to potentially reduce customer acquisition costs. The commitment to quarterly dividend distributions based on after-tax profits aligns with investor interests in regular returns.

However, the mobile gaming market in China is highly competitive and subject to regulatory risks. The success of MIR M will depend on its ability to capture and retain players in a saturated market. The 30% year-over-year growth commitment for 2026 and 2027 is aggressive and may face challenges if the game doesn't meet player expectations or if market conditions change. Investors should closely monitor user acquisition metrics and retention rates post-launch.

SHANGHAI, Aug. 23, 2024 /PRNewswire/ -- The9 Limited (Nasdaq: NCTY) ("The9"), an established Internet company, today announced that its wholly-owned subsidiary Shanghai The9 Information Technology Co., Ltd. signed a joint venture agreement (hereinafter referred to as the "Agreement") with Zhejiang Huanyu Network Technology Co., Ltd. (hereinafter referred to as "Huanyu"), a Chinese game development and operation company. The Joint Venture will become one of The9's consolidated subsidiaries to operate the mobile and PC versions of the new MIR game: MIR M, in which The9 holds a 51% stake and Huanyu holds a 49% stake.

Pursuant to the Agreement, Huanyu promised to guide its existing MIR and related game users to the Joint Venture to ensure the smooth operation of MIR M by the Joint Venture. All after-tax profits of the Joint Venture will be distributed as dividends every quarter according to the shareholding ratio of the Joint Venture partners. Huanyu committed that the Joint Venture will have a game revenue of at least RMB600 million (approximately US$84 million) and a profit of RMB200 million (approximately US$28 million) in 2025, and that the game revenue and profit will increase by at least 30% annually in 2026 and 2027.

The9 promised to grant Huanyu The9 restricted shares. The amount will be RMB 98 million / US dollar to RMB exchange rate on the date of issuance / NCTY share price on the date of issuance. The shares will be issued 5 working days after the Joint Venture submits all relevant materials for applying for the Internet Content Provider license to the local government and obtains an application receipt. These restricted shares will be unlocked in stages according to Huanyu's commitment to the Joint Venture's 2025 business results. If the 2025 business results commitment is achieved, The9 will grant Huanyu the second batch of restricted shares according to this mechanism. If the 2026 business results commitment is achieved, The9 will grant Huanyu the third batch of restricted shares according to this mechanism.

Zhu Jun, Chairman and CEO of The9, said: "MIR is a benchmark product in the history of Chinese online games. According to unofficial statistics, MIR games have annual revenue of more than RMB20 billion.

1. Thanks to all MIR games operators for their best efforts in the past 10 years to keep MIR players in the MIR ecosystem;

2. MIR M is different from all the other MIR games on the market. It uses Unreal Engine 4 to create and present top-level graphics, and upgrade traditional MIR games;

3. As Father of MIR, Wemade is well aware of the truth that Chinese games should be made in China. Wemade has formed a very experienced Chinese game development team. They conducted in-depth research and understand the preferences of Chinese MIR players. After about 2 years of dedicated creation, they have created the ultimate MIR;

4. As the exclusive licensee of MIR M in China, The9 is well aware that the key to MIR M success lies in the operators of MIR in the market and the MIR fan groups they control. I believe that the new generation of MIR and our originally created game marketing strategy will make the influence of MIR IP in China even higher;

5. Our total sales target for MIR M in 2025 is RMB2 billion. We will continue to work with different game operating companies to attract MIR type game users to MIR M using this most effective way. The revenue commitment of RMB600 million in the agreement with Huanyu is just the beginning..."

Safe Harbor Statement

This current report contains forward-looking statements. These statements are made under the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond The9's control. The9 may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about The9's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: The9's goal and strategies; The9's expansion plans; The9's future business development, financial condition and results of operations; The9's expectations regarding demand for, and market acceptance of, its products and services; The9's expectations regarding keeping and strengthening its relationships with business partners it collaborates with; general economic and business conditions; and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in The9's filings with the SEC. All information provided in this announcement is as of the date hereof, and The9 does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

The9 Limited
17 Floor,
No. 130, Wu Song Road,
Hong Kou District,
Shanghai 200080, PRC

About The9 Limited 

The9 Limited (The9) is an Internet company listed on Nasdaq in 2004. The9 is committed to become a global diversified high-tech Internet company, and is engaged in online games operation, Bitcoin mining and AI investment businesses in different industries.

About Zhejiang Huanyu Network Technology Co., Ltd. 

Zhejiang Huanyu Network Technology Co., Ltd. is a Chinese game development and operation company, mainly operating MIR and related games. The Group has more than 500 employees, more than 18 million game users, and more than 3.5 million paying users. The cumulative user payment amount exceeded RMB 1.7 billion.

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SOURCE The9 Limited

FAQ

What is the revenue commitment for The9's joint venture with Huanyu for MIR M in 2025?

The revenue commitment for the joint venture operating MIR M is RMB600 million (approximately US$84 million) for the year 2025.

What is The9's (NCTY) ownership stake in the new joint venture for MIR M?

The9 (NCTY) holds a 51% stake in the joint venture with Zhejiang Huanyu Network Technology for operating MIR M.

What is the profit commitment for MIR M in 2025 according to the agreement?

The profit commitment for MIR M in 2025 is RMB200 million (approximately US$28 million) according to the agreement between The9 and Huanyu.

What is the expected annual increase in revenue and profit for MIR M in 2026 and 2027?

The agreement commits to an annual increase of at least 30% in both revenue and profit for MIR M in 2026 and 2027.

What is The9's (NCTY) total sales target for MIR M in 2025?

The9 (NCTY) has set a total sales target of RMB2 billion for MIR M in 2025.