Around 2010, iPhone sales exploded, and many apps were developed through this platform, and a casual app called "Talking Tom" was born.
Subsequently, developer Outfit7 successively launched "My Tom Cat" and "Talking Tom Runner", creating a "Talking Tom Family" IP. Relying on this well-known IP, Outfit7 has aggregated hundreds of millions of users around the world, becoming one of the world's largest mobile Internet traffic platforms.
In 2017, a big event happened at Outfit7 - naturalization in China. A-share listed company Jinke Culture (300459SZ) has completed the acquisition of a controlling stake in Outfit7 for $1 billion, and has also acquired the world-renowned IP "Talking Tom Family".
In the early years, Jinke Culture was mainly engaged in the research and development, production and sales of oxygen bleaching additives SPC, and was one of the main manufacturers of SPC in the world.
Since the acquisition of Outfit7, the company's main business has gradually shifted to online mobile applications. With the IP of the "Talking Tom Family" as the core, it produces and distributes mobile Internet applications, animations, big movies, etc., online to increase user traffic and realize the realization of advertising and game monetization; Offline through co-branded merchants, the production of IP derivatives, through e-commerce, Tom Cat Park, stores and other channels to realize.
At present, the global cumulative number of Tom Cat family APP products has exceeded 20 billion, and the highest monthly active users have reached 4700 million times. The "Talking Tom Family" series of cartoons has been viewed more than 100 billion times around the world.
In 2020, Outfit7's operating profit for listed companies accounted for 9949%, the "Talking Tom Family" IP-related business has become the most important and core business income**, so Jinke Culture changed its name to "Tom Cat" to further highlight its core business.
What's it like to have a casual mobile app that's popular all over the world? According to the third-party data platform dataAccording to AI's report, from 2013 to 2022, the "Talking Tom Family" IP series of game products ranked first in the global game IP list for ten consecutive years.
It stands to reason that Tom Cat has mastered a huge traffic password, and the company's performance should also rise, but the reality is a slap in the face.
A difficult road to transformation
Outfit7, acquired by Tom Cat, is a global advertising distribution and Internet early childhood education application developer, integrating big data advertising distribution and Internet home entertainment, and its business covers most countries and regions around the world, such as the European Union, the United States, and China.
Relying on the huge number of users and active users, the company has cooperated with many well-known advertising and marketing service providers around the world, such as Google, Meta (formerly known as Facebook), ByteDance, Huawei, etc., to obtain revenue through built-in advertising and in-app purchases of mobile application products, so advertising revenue accounts for nearly 80%.
In addition, relying on the traffic influence of the Tom Cat family IP, the company has successively deployed offline businesses such as IP derivatives and licensing, parent-child theme parks in recent years, and has landed a number of Tom Cat parent-child theme parks in Anhui, Zhejiang, Jiangsu, Xinjiang, Chongqing and other places.
But what is puzzling is that the company's revenue scale has been tepid since it experienced a brief explosion in 2018.
In 2022, the company's revenue will decline further to 163.3 billion, down 16% year-on-year;Net profit attributable to shareholders of the listed company was 4400 million, down 38% year-on-year.
According to the annual report, the development of China's game market in 2022 will be hindered, with sales revenue and user scale declining year-on-year. **In the advertising sector, weak consumption led to a decline in advertisers' overall budgets, which further affected the unit price of advertising in the market.
What's more difficult is that the company made a number of asset impairment provisions in 2019, resulting in a huge loss of 2.8 billion net profit attributable to the parent company, and it has not been able to fill this big hole until now.
The main reason for the large loss was the impairment of goodwill, which came from the acquisition of Hangzhou Zhexin and Outfit7.
Why is goodwill frequently thundering?
1. Hangzhou Zhexin.
In 2016, Tom Cat spent 2.9 billion yuan to acquire 100% of the shares of Hangzhou Zhexin, taking this as an entry point to enter the field of mobile Internet information technology and service industry. The acquisition generated a substantial amount of goodwill23200 million yuan, which laid a hidden danger for the later goodwill thunderstorm.
The reason why it spent a huge amount of money to acquire Hangzhou Zhexin is that it has established a comprehensive operation platform for mobile Internet issuance, through which it has accumulated huge customer resources. By the end of 2016, there were nearly 700 channel providers cooperating with Hangzhou Zhexin.
Usually, the acquirer will require the acquiree to make a certain commitment to the target profit, and if the target is not achieved, the acquiree will compensate the acquirer.
Hangzhou Zhexin's performance has been accurate for three consecutive years, but just after the performance commitment period, Tom Cat made a provision for goodwill impairment in full, and the motive of "taking a big bath" was clearly revealed.
2、outfit7
In 2017, the Company generated goodwill from the acquisition of Outfit7.365.1 billion yuan. Combined with the goodwill generated by the acquisition of Daily Power and Star Treasure Paradise, the balance of goodwill accounts for 67% of the company's net assets. The higher this ratio, the greater the impact of goodwill impairment.
From 2017 to 2019, Outfit7 committed to a target profit of: 80,000 euros, and the actual cumulative profit totaled 24,624490,000 euros, a total of 87% of the non-net profit deducted from the commitment72%。
The reason for the unfulfilled target performance in 2019 was mainly due to the decline in downstream demand for Outfit7's IP licensing business, and in Chinese mainland, one of the main revenue regions, due to the control of the total number of game versions in the mobile Internet application publishing business and the stricter review of version numbers, the online rhythm of IP series products and the introduction of advertisements were affected to a certain extent, which ultimately led to revenue growth falling short of expectations.
As a result, Tom Cat made an impairment provision for the goodwill of Outfit7.26.2 billion, superimposed on the impairment provisions for Hangzhou Zhexin, Daily Zhili and other companies, the total goodwill impairment reached 261.1 billion, resulting in a huge loss of the company's net profit.
After the goodwill "bath", the book balance is still 3.6 billion, and for the company, this hidden mine will have to be cleared up sooner or later. No, there will be another "big bath" in 2023.
2023 earnings forecast
In January this year, Tom Cat released its 2023 performance forecast, which is expected to have a net profit loss attributable to shareholders of listed companies of 6 to 900 million yuan, compared with a profit of 4 in 2022400 million can be called a "cliff-like" decline.
The main reasons for the change in performance are the lack of global advertising demand in 2023, geopolitical events in some overseas markets, and the short-term impact caused by the change of Google's advertising bidding mechanism, which led to a decline in advertising unit price and a decline in the company's revenue and profit.
Combined with the actual operating situation, the company expects to make an asset impairment provision of about 8 to 1 billion yuan, and the impairment assets involved are mainly part of the goodwill formed during the acquisition of Outfit7 and Daily Force.
Summary
Tom Cat holds a world-renowned IP, and it has gradually declined after only a brief outbreak for a year. On the one hand, it is the impact of industry changes, and on the other hand, it comes from the impact of the goodwill thunderstorm, and the huge goodwill generated at the time of acquisition is quickly digested through the way of "taking a big bath", and will continue to affect the company's performance in the future.