22 October 2016
The company's hit title Castle Clash contributed 57 percent of the total revenue in the first quarter. Photo: internet
The company's hit title Castle Clash contributed 57 percent of the total revenue in the first quarter. Photo: internet

IGG gross margin squeezed by higher distribution costs

IGG Inc. (08002.HK), a mobile games developer and publisher, said its gross profit margin declined by 4 percentage points to 69 percent in the first quarter as increased revenue was offset by higher distribution costs.

Mobile games accounted for 92.9 percent of the overall revenue for the three months to March, up from 85.3 percent a year ago, the company said in a regulatory filing released Wednesday.

Chief financial officer Jessie Shen told reporters IGG’s gross margin could continue decreasing by 1 to 2 percentage points if the revenue contribution of mobile games keeps increasing.

Shen noted, however, that gross margin is not as important as net profit in the mobile games business.

The company’s net profit rose 7.2 percent from a year ago to US$14.8 million in the first quarter. Basic earnings per share reached 1.02 US cents.

Chief operation officer Kevin Xu said competition in the business remains fierce, but IGG holds advantages in capital, research and development capacity and product lines.

The company will continue to seek acquisition targets to supplement its research and development capacity, such as in developing car racing or football games, Xu said.

Earlier in the day, IGG announced a proposed acquisition of an online game publisher.

A non-legally binding term sheet has been signed and the deal is going through due diligence, among other procedures, it said in a regulatory filing.

The company plans to launch about 30 mobile games this year, of which four are expected to be unveiled within the next two months, according to chief executive Duke Cai.

Quarterly revenue rose 21.5 percent to US$53.6 million from a year earlier, but was down 11.4 percent from the fourth quarter of 2014.

The company attributed the quarter-on-quarter decline to tax changes in the European Union, which contributes 29 percent of its total revenue, since the beginning of the year. It also cited the negative impact of the weakening Russian rouble.

Shen expects revenue from upcoming games will offset the impact of the tax issue.

The company is transferring its listing to the main board from the Growth Enterprise Market, but Shen declines to say if it will be completed this year.

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