Metaverse vision | what are the highlights of zhidu Co., Ltd. in establishing metaverse joint venture?

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Zhidu shares (000676. SZ) said on the investor interaction platform on March 18 that the company has continued to explore and invest in the field of blockchain technology in recent years. At present, the main application scenarios are blockchain supply chain finance and metaverse related businesses.

The company announced on January 17 that it would establish a “metaverse” joint venture. (see announcement on joint investment and establishment of Guangzhou zhidu cosmos Technology Co., Ltd. and related party transactions on January 17) according to the announcement, the company and zhidu Group Co., Ltd. (hereinafter referred to as “zhidu group”) Guoguang Electric Appliance Co., Ltd. (hereinafter referred to as “Guoguang electric appliance”, securities abbreviation: Guoguang electric appliance, securities code: 002045. SZ) jointly signed the joint venture agreement on the establishment of Guangzhou zhidu universe Technology Co., Ltd. on January 16, 2022. The contribution of the three parties is shown in the table below. The contribution of zhidu shares accounts for 48% of the registered capital of the new company, zhidu group accounts for 42% and Guoguang electric appliance accounts for 10%.

The joint venture initially focuses on the development of social games and digital art metaverse projects based on VR environment.

Social games: social game projects based on VR environment mainly use virtual reality, holographic vision and other technologies to connect cultural tourism and pan entertainment content. In the early stage, VR terminal is mainly used as the main entrance to realize the specific theme atmosphere required by various script plots and experience the panoramic immersive real person interaction scene;

Digital art metaverse community: through VR, AR, Mr, blockchain, cloud computing, artificial intelligence and other technologies, realize the integration of online and offline virtual and real scenes, take VR terminal as the main entrance, provide rich creative tools and display methods, and create virtual exhibitions of artists’ works with different themes and styles.

On the second day (January 18) after the company announced the establishment of metaverse joint venture, the company announced that it had received a letter of regulatory concern, in which it asked about “the actual relevance between the proposed investment project of the joint venture and metaverse”. In the reply to the letter of concern on January 19, the company said:

The social game project and digital art metaverse community project that the company plans to invest in developing VR environment adopt metaverse core equipment VR hardware as the entrance. Based on the main atmosphere of script plot and the structure of real art community, the reality structure is restored to the parallel digital world through metaverse core technologies such as holographic image, VR, AR and MR, combined with the blockchain technology with independent intellectual property rights of the company, Provide users with interactive game entertainment and digital art life experience of “full immersion, low delay and strong interaction”. This has the same attributes as the basic logic of metaverse’s virtual reality integration and the sense of immersion and experience embodied by metaverse, and follows the application settings of metaverse.

However, recently, some investors put forward on the interactive platform: “the major shareholders of the company basically reduce their holdings once a month. Is it not optimistic about the development prospect of your company?” “Does zhidu universe, a joint venture between your company and Guoguang electric appliance, rub metaverse hot spots?” And other sensitive issues.

According to the company’s announcement, the author makes incomplete statistics on the reduction of the company’s holdings in recent two years. Take the first 20 statistical results as shown in the table below, pay attention to the time interval of the announcement, and then combined with the situation of the top ten shareholders announced in each financial report. In a comprehensive view, it is true that the reduction of the company is frequent, as the investor said.

The company’s reply to the above sensitive questions is as follows:

Zhidu shares (000676. SZ) said on the investor interaction platform on March 18 that the reduction of shareholders’ holdings is a normal reduction of shareholders’ holdings based on their own capital needs.

The disclosure of the company’s foreign investment transaction is prudent, and there is no case of rubbing against the hot concept of “metaverse”.

For the current progress and achievement display in metaverse, the company also said:

At present, the “meta other side” art metaverse community has completed the research, development and release of public beta versions of Pico VR and Android mobile applications, and has launched two metaverse art galleries, “listen to the waves of the Yellow River – Xu Huijun” and “walk, stop! – Duan innovation”, which provide users with works exhibition of well-known artists, online social interaction, immersive viewing experience and limited digital collection services based on the company’s blockchain platform.

The specific answers of the company are shown in the figure below.

With regard to the “meta other side” art metaverse community, the company replied to another question from investors on March 18:

Since the public beta, “meta other bank” has opened two pavilions of well-known domestic artists to users and exhibited a number of art works, providing well-known artist works exhibition, online social interaction, immersive viewing experience and limited digital collection services based on zhidu’s blockchain platform.

“The other side of meta” not only has the art exhibition hall with artist’s personality style, but also can break the restrictions of time and space through the functions of art curation in the community, and hold art exhibitions in metaverse in a more convenient, fast, innovative and interesting form, so as to provide a new way to open art. (see the figure below)

For the company’s advantages and core competitiveness in metaverse business, AVIC securities made the following comments in the Research Report last December:

The card position metaverse gold track has significant advantages.

Hardware advantage: metaverse’s “auditory organ”. Guoguang electric, which directly holds 11.5% of the shares of the company, has produced acoustic modules in VR equipment for M company, an international top platform company, and is expected to become an important entrance for metaverse industry applications.

Software advantage: metaverse’s “sky mending stone”. The company’s blockchain technology is an important infrastructure of metaverse, which is used to ensure the security of users’ digital assets and digital identity, carry out value transmission and incentive, create conditions for the generation and circulation of value in metaverse economic system, and do a good job as a “safe scavenger” on the highway of metaverse industrial development. Relying on the first mover advantages and technical barriers in hardware and software, the company can quickly cut into the “metaverse” track, accelerate the commercialization process and continuously extend the application scenarios.

At present, the company has also announced the performance forecast for 2021. In 2021, the company expects to turn losses into profits and deduct non net profit, which is adjusted to 70 million yuan. The main financial data are shown in the figure below.

The company believes that there are three main reasons for turning loss into profit in 2021:

1) optimize the digital marketing business structure and improve the overall gross profit margin. The company will shrink the effective marketing business with low gross profit margin in the digital marketing business and focus more on core customers and markets. The company launched advertising agency business with Huawei in September 2021. With the expansion of Hongmeng’s business territory, various intelligent terminals can join Hongmeng’s system, such as Zhihui screen, smart speaker, smart TV, automatic driving, etc. in the future, the volume will continue to increase, Huawei’s ecology will release greater commercial value, and the overall advertising revenue is considerable. Zhidu’s sole generation plate (games, social networking, tools) is the largest plate of Huawei ads, It is expected to increase the company’s profits.

2) the margin of bad factors has improved, and overseas Internet media business has opened up growth space. Overseas SPE companies and CFIUS in the United States have settled. The signing of the agreement is conducive to eliminating the uncertainty of business development. With its technology driven advantages, high-quality distribution strategy and optimized operation experience, the commercial liquidity is continuously enhanced.

3) in the same period of last year, the company made provision for the impairment of the goodwill of some subsidiaries. The relevant subsidiaries involving goodwill operated well this year and did not involve the impairment of goodwill; In the same period of last year, the company made a significant provision for credit impairment loss for accounts receivable, etc., which was less in this reporting period.

The author inquired about the year-on-year growth rate of the company’s net profit attributable to the parent company in recent years (the official financial report has been published so far, and the third quarterly report as of 2021). As shown in the figure below, the year-on-year growth rate data of the net profit attributable to the parent company is not very stable in a single quarter. For example, the year-on-year growth of the net profit in 2020 decreased significantly, one of the reasons is that the company had a significant impairment of goodwill in the 2020 annual report.