The9 Establishes Joint Venture to Focus on Mobile Game Operation and Distribution in China's Sinking Market

Rhea-AI Summary

The9 (NCTY) has announced a strategic joint venture with Chengdu Qing Cheng Network Science and Technology to focus on mobile game operation and distribution in China's sinking market. The9 will hold a 51% stake in the venture, while Qing Cheng will hold 49%.

Qing Cheng has committed to achieving an annual profit of RMB80 million (US$11 million) in 2025, with a guaranteed 50% profit increase annually in 2026 and 2027. The9 will grant Qing Cheng 110,232,600 restricted shares, which will be unlocked based on profit achievements.

According to QuestMobile's 2024 report, mobile Internet users in lower-tier markets reached 647 million, representing 52.6% of China's mobile Internet market. Qing Cheng employs an e-commerce-like strategy with virtual incentives to enhance gamer participation in lower-tier cities through offline distribution channels and gaming KOLs.

Positive

• Strategic entry into China's large sinking market with 647 million users
• Guaranteed minimum profit of RMB80 million in 2025
• Committed 50% annual profit growth for 2026 and 2027
• Quarterly dividend distribution based on shareholding ratio
• Access to Qing Cheng's established distribution network in lower-tier cities

Negative

• Significant share dilution through issuance of 110,232,600 restricted shares
• Performance-based share unlocking creates uncertainty
• Heavy reliance on partner's performance commitments

Insights

Gaming Industry Analyst

This strategic joint venture marks a pivotal transformation for The9, targeting the vast but underserved lower-tier mobile gaming market in China. The deal's structure reveals several critical aspects that warrant investor attention:

Profit Guarantee Mechanism: The committed RMB80 million (~$11 million) profit for 2025 with 50% annual growth through 2027 is secured through a performance-linked share vesting schedule. This structure aligns interests but introduces potential dilution through the 110,232,600 restricted shares (equivalent to 367,442 ADSs) granted to Qing Cheng.

Market Opportunity Analysis: The target market of 647 million users in lower-tier cities represents an immense opportunity, particularly given the relatively lower customer acquisition costs in these regions. Qing Cheng's innovative 'virtual subsidy' approach, inspired by Pinduoduo's successful model, offers a cost-efficient user acquisition strategy that could drive superior unit economics compared to traditional gaming platforms.

Competitive Advantages: Qing Cheng's established offline distribution network and KOL relationships in lower-tier markets create significant barriers to entry. Their virtual incentive model, unlike traditional e-commerce subsidies, maintains profitability while driving user engagement - a important differentiator in the competitive mobile gaming landscape.

Risk Considerations: Key challenges include regulatory oversight in China's gaming sector, execution risks in maintaining promised growth rates, and potential integration issues between The9 and Qing Cheng's operations. The success of this venture will heavily depend on consistent game content supply and effective monetization of the lower-tier market user base.

Joint Venture Partner Committed Annual Profit of RMB80 Million and 50% Annual Growth

SHANGHAI, Feb. 21, 2025 /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 Chengdu Qing Cheng Network Science and Technology Co., Ltd. (hereinafter referred to as "Qing Cheng"), a leading mobile game operation and distribution company focusing on serving gamers in China's sinking market.

The9 will hold a 51% stake and Qing Cheng will hold a 49% stake in the Joint Venture. The Joint Venture will become The9's flagship subsidiary to operate and distribute mobile games in the China's sinking market.

Qing Cheng committed that it will utilize its monopolistic and unique distribution channel advantages in the sinking markets to operate different mobile games for the Joint Venture. It will also utilize its strategic game development partners to ensure the Joint Venture will get continuous supply of high-quality games suitable to the lower-tier markets. Qing Cheng committed to The9 that the Joint Venture will have an annual profit of more than RMB80 million (approximately US$11 million) in 2025, with profit increasing by at least 50% annually in 2026 and 2027. 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.

The9 granted Qing Cheng The9 110,232,600 restricted shares (equivalent to 367,442 ADSs). These restricted shares will be unlocked in stages according to the actual achievement of the Joint Venture's 2025 profit as committed by Qing Cheng. If 2025 profit guarantee is achieved, The9 will grant Qing Cheng the second batch of restricted shares according to this mechanism. If the 2026 profit guarantee is achieved, The9 will grant Qing Cheng the third batch of restricted shares according to this mechanism.

"According to the QuestMobile 2024 Sinking Market Insight Report, as 5G and mobile Internet applications continue to explode in China, the number of users in lower-tier markets, including third-tier and lower-tier cities, continues to grow. The number of mobile Internet users reached 647 million, accounting for 52.6% of the entire mobile Internet market in China. Our cooperation with Qing Cheng will definitely bring our mobile game operation and distribution businesses in China's sinking market to the next level," said George Lai, Executive Director and CFO of The9.

"We have established a unique network covering third-tier and lower-tier cities through in-depth layout of offline distribution channels and designated gaming KOLs. Such sinking market channel advantage enables us to dominate the sinking market and form a competitive barrier that is difficult to replicate. We are using e-commerce way like "RMB10 billion subsidy" to regularly launch in-game discounts, points rewards and other activities to enhance gamers participation and loyalty in China's sinking market. The only difference with e-commerce is that our incentive is virtual which does not increase our actual cost. We are committed to bring our Joint Venture with The9 to become a benchmark company in the field of mobile game operation and distribution in China's lower-tier markets by continuously thinking from gamers' perspective, optimizing our business model and expanding our market share. We aim to become the "Pinduoduo of mobile gaming industry," said Peng Cheng Bin, CEO of Qing Cheng.

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 and Bitcoin mining business.

About Chengdu Qing Cheng Network Science and Technology Co., Ltd.

Chengdu Qing Cheng Network Science and Technology Co., Ltd. (Qing Cheng) is a leading mobile game operation and distribution company focusing on serving gamers in the sinking markets in China. Since the establishment of business in 2020, the cumulative registered users of Qing Cheng and its affiliate have reached 88.7 million, with MAU of 5.9 million and DAU of 0.6 million. The cumulative user payment has amounted to RMB4.4billion.

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SOURCE The9 Limited

FAQ

What is the profit commitment for The9's (NCTY) new joint venture in 2025?

The joint venture has committed to achieving an annual profit of RMB80 million (approximately US$11 million) in 2025.

How many restricted shares will The9 (NCTY) grant to Qing Cheng?

The9 will grant Qing Cheng 110,232,600 restricted shares (equivalent to 367,442 ADSs).

What is the ownership structure of The9's (NCTY) new joint venture?

The9 will hold a 51% stake in the joint venture, while Qing Cheng will hold a 49% stake.

How large is China's sinking market for mobile internet users in 2024?

According to QuestMobile's 2024 report, mobile Internet users in lower-tier markets reached 647 million, accounting for 52.6% of China's mobile Internet market.

What is the profit growth commitment for The9's (NCTY) joint venture in 2026 and 2027?

The joint venture has committed to increasing profits by at least 50% annually in both 2026 and 2027.