Can Firerock Holdings (1909. HK) Can Fire Rock Holdings (1909.HK) Become the Sea of the Hong Kong Stock Market: A global digital asset trading platform has begun to take shape.

Recently, technology stocks in Hong Kong stocks have experienced a severe decline, and gaming stocks are not immune. Under the tidal waves, the author found that after a brief analysis, there are essentially only three listed companies in the Hong Kong stock market that have more than 10 billion games as their main business (as of the time of writing), NetDragon (0777.HK) and XD (2400.HK) and FireRock Holdings (1909.HK). Among them, since NetDragon's business includes the education sector, which accounts for an increasing proportion, it will not be discussed in detail here.

In fact, both XD and FireRock's long-term strategies are atypical game companies, and both hope to develop into vertical platform companies.

Take XD as an example. The TapTap platform is its core asset. The company hopes to create a four-party circular ecosystem of "platform + developer + player + content creator" and build platform influence on the game supply and consumer side.

FireRock, on the other hand, is working on the overseas game market and plans to build a digital asset settlement and trading platform overseas to conform to the trend of the digital asset era.

From the perspective of stock price performance, the market has also given full recognition to these two companies, especially in the context of the overall downward adjustment of industry valuations. In the past two years, both FireRock and XD's stock prices have increased by more than 10 times.

Specifically, XD has continued to invest in research and development and has not yet launched new game products to generate revenue, which has put the company's short-term financial pressure on it, and its share price has also undergone a major correction. On the fundamentals, Fire Rock maintains a steady growth trend, which is reflected in the stock price trend. According to the company's interim report, in the first half of 2021, Fire Rock Holdings recorded revenue of HK$497 million, a year-on-year increase of 58.1%; net profit was 273 million. Hong Kong dollars, a year-on-year increase of 28.4%. In addition, FireRock's recent progress in the field of digital payment has also brought benefits to the company's long-term growth.

Therefore, the author believes that the profitability of the game business guarantees the basic performance of FireRock Holdings, and the construction of the digital asset trading ecosystem is expected to help FireRock stand out among game companies with differentiated routes and become a complex of game + payment + NFT assets enterprise.

The meta-universe has not yet arrived, the NFT is already in place.

Recently, a WeChat article by an A-share game company once again heated up the market's discussion of Metaverse. The author believes that the meta-universe is not a specific reference to a certain technology or application, but a collective concept. This is also one of the reasons why the current meta-universe concept is widely discussed but it is difficult to reach a consensus.

For example, Tencent and Facebook put social attributes and user experience in a very important position in the future meta-universe; Roblox gave its own definition of the eight elements of the meta-universe in its prospectus: Identity, Friends, Immersive, Anywhere, Variety, Low Friction, Economy, Civilization.

 

It is not difficult to find that the concept of Metaverse is extremely broad, and no company can do it independently. Giants such as Tencent and Facebook mostly just approach the concept of Metaverse based on their own actual experience. Analogous to the current mobile Internet category, mobile phones (hardware devices), apps (developer side), and 4G/5G communication networks (infrastructure) are all components of the mobile Internet, so Metaverse must also have a complex composition.

There have been cases of commercialization of NFT, and the industry is growing rapidly.

Although there have been many discussions on the macro level of Metaverse, at the level of the economic system, a common perception is that the application of blockchain technology will become an important means of transaction payment in the future. Especially since 2021, NFT transactions based on blockchain technology have become popular, making the market feel the high growth in the field of digital assets.

In March, the digital work "Everydays: The first 5000 days" created by American digital artist Beeple was sold at Christie's auction for nearly $70 million. It is reported that the buyer will get the picture of the digital product and the corresponding NFT. The relevant NFT stores the metadata of the digital work, the original author's signature and ownership records. In August, NBA star Curry updated his profile picture on Twitter. The profile picture was an ape NFT collection, and the auction price reached US$180,000.

 

NFT refers to non-homogeneous tokens, which can be understood as virtual items such as game props and electronic paintings that provide a means of unique property rights authentication. At the same time, NFT can enter the public chain for free circulation and transactions by deploying contracts on the blockchain. To put it simply, NFT has uniqueness, ability to confirm rights, and liquidity, which can help virtual items to efficiently circulate among users.

If the valuable NFT collectibles transaction has a certain degree of sporadicity, another NFT game project with a large number of ordinary participants may be of more reference value for evaluating the prospects of NFT's large-scale market.

Axie Infinity is a decentralized turn-based strategy game based on the Ethereum blockchain. The NFT pets in the game become the subject of trading. Players can increase their value by killing monsters, feeding, and breeding, and in the NFT trading market Trade or lease through Ethereum.

As of the time of writing, according to public information, Axie Infinity's cumulative NFT transaction volume is as high as 2.02 billion U.S. dollars, and the number of traders exceeds 600,000. Of particular concern is that starting from Q1 of 2021, Axie Infinity's revenue and MAU have grown rapidly. In February 2021, Axie's monthly revenue was US$240,000, and from August 1 to 26, its revenue was US$308 million, with a compound monthly growth rate of over 309%.

Obviously, the NFT trading market is experiencing rapid growth. Firerock Holdings is basically stable.

Layout of NFT is expected to open up long-term growth space

In addition to the aforementioned steady revenue and profit growth of FireRock, it is worth noting that FireRock's net profit margin exceeds 50%. The author believes that the net profit margin of FireRock Holdings is significantly higher than that of general listed game companies. On the one hand, it is due to its high-quality game research and development and operation capabilities, and on the other hand, it is inseparable from the high-value users in its ecology.

From the perspective of FireRock's long-term strategic path, the company hopes to further expand its influence among game users, increase its ecological construction, and promote the ecological value of FireRock through digital payment technology and provide users with more payment application scenarios. Long-term growth. The author believes that the Fire Rock game business can provide a stable cash flow for its long-term strategic investment, and the high-value users accumulated by the game business can also be converted into its ecological initial flow.

At the beginning of this year, the company has established a blockchain game application team, and plans to use blockchain technology to confirm the value of game players' digital assets. At present, FireRock has successfully launched NFT products.

Especially with the recent launch of strategic cooperation with Southeast Asian transaction payment provider FOMO Pay, FireRock has successfully opened up the settlement terminal of digital assets and legal currency. At the same time, it is expected to use FOMO Pay's large overseas audience to enrich the trading scene of FireRock ecology.

It is reported that FOMO Pay is currently the only licensed financial institution with a digital currency settlement license by the Monetary Authority of Singapore. The Fire Rock announcement also shows that FOMO Pay has a 36-month priority in the terms of cooperation with FOMO Pay. Investment rights. Under the global tightening of digital currency regulation, Singapore has become a depression of value for digital currency transactions, and many cryptocurrency companies such as Binance have chosen to move to Singapore to operate. Under this situation, the value of FOMO as the sole holder of a digital currency settlement license in Singapore will be further highlighted.

It is not difficult to guess from the open terms of the cooperation between FireRock and FOMO. With the deepening of the cooperation between the two parties and the development of the digital asset trading market, it is not excluded that FireRock will increase its investment in FOMO or even hold shares. The author believes that FireRock does have a better competitive advantage in the field of digital asset trading in Singapore this time.

In addition, according to the interim report, the test of the FireRock Thailand reward points platform is progressing steadily. At present, FireRock is cooperating with local operators in Thailand. Thai players can use FireRock game points to redeem phone cards on its point reward platform. The local calling card in Thailand is similar to the Hong Kong Octopus card. It is not limited to the call service function. Users can use the calling card balance to spend in offline scenes such as dining and shopping in Thailand. In the future, the company plans to continue to improve the reward points platform service functions, while landing it in more overseas countries and regions.

According to the company's latest announcement, FireRock has established a wholly-owned company in Turkey, and plans to launch new games in Turkey in Q4 this year, while copying the reward points platform service in Thailand.

On the whole, the author believes that FireRock is in the early stage of its trading ecology. 1) Relying on the company's traditional game business to gather basic user traffic. At the same time, as a high-flow and high-margin business, games have also accumulated funds for the company's technical investment in the construction of the trading ecosystem and expansion of payment scenarios; 2) Thailand's reward points platform is expected to become an important benchmark project for the company, and it will be more in the future. Offline suppliers cooperate to provide users with payment scenarios to help users realize the value of online games; 3) The advancement of NFT technology and the cooperation with FOMO Pay will enrich the basic payment capabilities of the igneous transaction ecosystem.

Sea's growth path may be worth learning.

Sea is currently one of the world's most watched Internet companies, and is ambitiously embarking on its path to global expansion, with businesses covering games, e-commerce and digital payments.

Looking back on its growth process, gaming is the core business it started. By obtaining the exclusive agency rights of Tencent Games in Southeast Asia, Sea quickly accumulated its first pot of gold and initial traffic through game publishing; in 2014, Sea launched AirPay in Vietnam Entered the digital financial sector, which is the predecessor of the three major business sectors SeaMoney; in 2015, Sea established Shopee and officially entered the e-commerce field. Relying on its in-depth understanding of local users and the benefits of accelerating local Internet penetration, Sea has gradually grown into an Internet complex of games + e-commerce + payment.

Specifically, before 2020, the game business will account for the largest proportion of Sea's revenue. Games provide Sea with a stable cash flow, enabling the company to support the long-term and healthy development of e-commerce and payment businesses. By 2020, e-commerce has become Sea's largest revenue contributor, but in terms of profit, the position of games is still significant. According to the company's announcement, in 2020, Sea's game, e-commerce, and payment businesses accounted for 46.1%, 49.5%, and 1.3% respectively; and the adjusted EBITDA of the three were 19.8, -13.1, and -510 million U.S. dollars, respectively.

The author believes that games often play an important role in the development of Internet complexes due to their high-flow business characteristics. Internet business is inseparable from traffic. First, the acquisition of traffic is direct purchase, and the other is product attraction. Games happen to be able to obtain a stable flow of funds while attracting user growth. This is why domestic platform companies such as Ali, Byte, and Bilibili spare no effort to develop the game business.

Therefore, with the strong support of the game business, Sea has the ability to successfully capture the dividends of the Internet development in Southeast Asia, expand into e-commerce and payment businesses, and create the current situation of coordinated development of games + e-commerce + payment. However, since the e-commerce business needs to continue to exert efforts in the early stage of logistics, warehousing and other infrastructure, as well as the medium and long tail traffic, it is a typical asset-heavy business in the Internet industry and needs to experience a long payback period and long-term loss. According to Sea's 2021 Q2 financial report, the company is still at a loss in Q2, and with its plans to expand into the European market, it will inevitably put further financial pressure on it.

Back to FireRock, the company's game business has grown steadily and has gradually entered a stage of large-scale growth, becoming an important source of its initial flow and cash flow. In terms of flow, FireRock has accumulated more than 1 million high-value users worldwide. On this basis, FireRock has established NFT asset capabilities through the NFT technology layout; and strategic cooperation with FOMO, has helped FireRock open up the settlement end of digital assets and legal currency.

The author would like to particularly emphasize that NFT assets are different from e-commerce businesses, they are virtual assets and do not require large-scale investment in offline infrastructure, so the business form is lighter. This means that once FireRock's NFT asset trading enters the stage of large-scale, it can quickly generate profitability and directly contribute to the company's performance.

At the same time, the author believes that the company's management team headed by Tencent veteran Zhang Yan (former CEO of the founder and CEO of Wangyu), the chairman of FireRock Holdings, has been deeply involved in the Internet industry for many years and has rich experience. It is optimistic that FireRock will grasp the rapid development trend of NFT digital asset transactions under the leadership of the management, and successfully build a next-generation game + payment + NFT asset transaction complex, and broaden the company's revenue and profit channels.

Bloomberg also stated in its recent article that the new market and the emerging digital economy will provide growth momentum for FireRock in the next decade, and Fire Rock is expected to become another potential stock in the technology sector besides Sea.