Shulou(Shulou.com)06/02 Report--

China Literature today's "contract storm" is becoming more and more intense, can the palm reading from the other side benefit?

On April 27th, Palm Technology released its first-quarter 2020 results. According to the financial report, the company's revenue in the first quarter of 2020 was 491 million yuan, an increase of 9.25 percent over the same period last year, and its net profit was 55 million yuan, an increase of 78.25 percent over the same period last year. This is another rapid growth after the fourth quarter of 2019 and reached a single-quarter high.

In the first quarter of the year, palm technology could achieve such a result without the help of the epidemic, as well as the "free + pay" twin-engine model adopted by palm technology.

Of course, palm technology currently faces a lot of challenges. The growth of digital reading business, the main part of revenue, is weak, the cost is high, and competitors inside and outside the industry are also emerging one after another, constantly squeezing the profit space of palm reading, it is obvious that the road ahead of palm reading technology is not smooth.

"Free + pay" twin engines contribute to net profit growth

Under the epidemic, the demand for digital reading by users has soared. According to Questmobile data, the per capita duration of mobile Internet use throughout the country increased significantly during the Spring Festival in 2020 compared with the same period last year, with a per capita use time of nearly 160 hours per person in February, a year-on-year growth rate of 37.3%. During the 2020 Spring Festival holiday, five digits read APP ranked among the DAU incremental Top50.

At the same time, during the epidemic, users began to get used to the new mode of digital reading. According to iResearch, in February 2020, more than 50% of readers read books / online literature almost every day; among them, 84.2% of users who had been exposed to reading for more than five years read every day. 30.8% of users who have been exposed to reading for less than a year have formed the habit of daily reading.

In addition, according to iResearch, 86.2% of the people exposed to digital reading said they would continue to read after the epidemic, and 80% of those who were exposed to digital reading for less than a year said they would continue to read, indicating that digital reading has a strong retention rate for new users during the epidemic.

Palmer makes full use of its own brand, operation and other comprehensive strength, adopts the "free + pay" twin-engine model, and realizes the steady growth of net profit. According to data from CITIC Construction Investment Securities, the coincidence between free reading and paid reading users is less than 10%. Free reading does not have a substitute impact on the paid reading market, but brings new users to the industry.

During the epidemic, Palmer adopted different cash strategies for different groups of people. Take free as the entrance to obtain traffic and realize it through advertising, and then transform the free users who enter the platform, which not only increases the overall gross profit of the company, but also drives up the net profit of the whole company.

According to the financial report, in the first quarter of 2020, when the revenue of holding technology increased by only 9.25% compared with the same period last year, the net profit increased by 78.25% compared with the same period last year, and the net profit reached 55 million yuan, nearly 1/3 of the net profit in 2019.

In response to this financial report, Cheng Xiang, the technology CEO, said, "(this financial report) is mainly affected by the epidemic, but the positive impact of the epidemic is short-term." In fact, under the gorgeous financial results, digital reading in charge of science and technology is facing a severe challenge of stagnant growth or even decline.

The foundation of "cash cow" is shaken.

In early April, Palm Science and Technology released its 2019 results. According to the annual report, the revenue of the digital reading platform for Palm Science and Technology is 1.583 billion yuan, down 5.55% from the same period last year. This is obviously not good news for technology.

Palm started with digital reading business, and since its establishment, it has formed four major business sectors: digital reading, growth services, copyright operation and other (advertising). And digital reading business has always been the main force of science and technology contribution revenue and the "cash cow" of profit contribution.

The annual revenue of Palm Technology is 1.9 billion in 2018, of which the digital reading business reached 1.66 billion yuan in revenue, accounting for 94.06% of the annual revenue in 2018, and the business profit accounted for 95% of the total annual profit. Looking back, the 2017 annual report data showed that the "digital reading" business accounted for 94.07% of the annual revenue; even if this figure declined in 2019, the digital reading business still accounted for 84.14% of the total revenue, accounting for the majority of technology revenue.

However, the foundation of this so-called "cash cow" is gradually shaking. This is mainly reflected in two aspects: on the one hand, as the main revenue force, it has experienced a decline in revenue growth; on the other hand, the profits it can contribute are also declining, and the role of cash cow is gradually "transposition".

From 2016 to 2018, the growth rate of digital reading dropped from 91.3% and 39.21% to 5.61%. In 2019, the revenue contributed by the digital reading business dropped by 5.55%, showing a "decline".

The gross profit margin of Digital Reading is also falling. It continued to decline to 27% in 2019, which, together with 2017, has fallen by 3% for two consecutive years. It is obvious that the old business of reading "digital reading" is exhausted.

However, the problem of high channel cost, which has been perplexing digital reading for a long time, has not been solved. on the contrary, with the influx of capital and the intensification of peer competition, this hidden worry behind reading gorgeous financial reports is further magnified.

The high cost behind the competition

Thanks to the rapid popularity of smartphones, palmreaders equipped with mobile phones have achieved quite good results in obtaining users. However, in recent years, with the saturation of the smartphone market, the pre-installation cost of mobile phones is getting higher and higher, resulting in high costs and deteriorating gross margins.

Now the situation is becoming more and more serious. With the increase of competitors, users can choose to read APP online more and more, in order to get customers, each company must continue to increase the number of pre-installed mobile phones in the market, which makes the already high cost of reading.

Of course, cost factors aside, in the actual competition, it is also difficult to read China Literature, who is backed by Tencent, and the book flag, which is backed by Ali. According to the data, China Literature ranked first with a market share of 25.2% in 2019, while palm reading and book flag ranked second and third with a market share of 20.6% and 20.4%, respectively.

As far as Tencent China Literature is concerned, China Literature Group has a strong content ecology and content distribution channels, and has unique advantages in channel delivery and full-cycle operation of IP, which is exactly what Palm does not have.

China Literature Group has high-quality content production platforms such as QQ Reading and starting Point Reading, which gives Tencent China Literature strong content copyright resources and lays the foundation for the whole process operation of IP. In addition, relying on Tencent "family buckets" including Tencent Video, Tencent Music, Tencent Games, QQ, Wechat and so on, China Literature has the lowest channel cost in the industry (according to QQ and Wechat, you don't need to buy), thus its gross profit and net profit are higher than those of the industry.

In 2018, China Literature's gross profit margin can reach more than 50%, while palm reader's net profit rate is only 29%. China Literature's net profit rate can reach more than 18%, while palm reader's net profit rate is only 7.15%, a difference of twice as much.

The difference in market share between relying on Ali's book flag and palm reading is only 0.2%, so it is reasonable to rely on Ali's cultural and entertainment ecology to surpass palm reading.

Not to mention, the free market is also interesting headlines, byte jump, Ali and so on continue to throw money into the game, this war is getting more and more popular, it is bound to further push up costs.

This makes Palm have to think about its way out in the field of online reading. From a current point of view, it is undoubtedly a good way to bring in external allies, and in fact Palm does do so.

The antidote to flow may not be effective

On March 17, Palm signed a strategic investment agreement with Baidu's Bairuixiang Venture Capital Management Co., Ltd. according to the agreement, Bai Ruixiang will own an 8.8% stake, and the two sides will cooperate in copyright licensing, content distribution and other content areas.

There is no doubt about Baidu's position in the search engine, and cooperation with Baidu seems to be a win-win decision for both sides. Relevant data show that as of July 2019, Baidu has firmly ranked first in the market share of the three major search engines in China (platform-wide, PC and mobile), with Baidu's share of the mobile market as high as 87.63%.

As far as palm reader is concerned, the problem of customer cost will be solved to a certain extent by introducing Baidu, a "traffic giant" in China's search market; for Baidu, getting better content copyright is also necessary to enhance the attractiveness of its platform. However, whether Baidu can solve the problem of palm reading is open to question.

First of all, for the current review, reducing channel costs is only one aspect, how to carry out the platform-wide IP copyright operation is also very important, and this is precisely a great disadvantage compared with China Literature, and this problem seems to be very difficult to solve.

Baidu Literature's literary products vertical and horizontal literature is a warning. As Baidu holding's "own son" literature relies on Baidu and Perfect World, its full-process IP operation has always been difficult to improve, let alone read this "godson"?

At present, it remains to be seen whether Baidu can solve the problem of palm reading, which indicates that there are still many variables if it wants to break through in online reading.

(official account of Liu Kuang / tr. by Phil Newell) ID:liukuang110

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