pjbooks Chapter 268 Explosive Financial Report
Chapter 268 Explosive Financial Report
Chapter 268 Explosive Financial Report
The thin morning mist of Manhattan draped the glass curtain walls of skyscrapers, and even the corners of the Charging Bull sculpture on Wall Street were shrouded in a faint layer of moisture.
But the front-page headline of The Wall Street Journal was like a bombshell, sending the first shockwave through this city where money is etched into the DNA.
"Dynamic Games officially launches IP0, priced between $42 and $50, aiming to raise one billion dollars."
Don't assume that the issue price is a fixed number. It's like the price of milk in a supermarket; the price fluctuates based on various factors.
The only fixed amount is the amount of funds raised; the issue price is a flexible figure, entirely dependent on how well the roadshow goes.
If investors rush to subscribe during the roadshow as if they've found a limited-edition luxury item, and the number of shares subscribed far exceeds expectations, then the issue price will naturally soar, inflating higher and higher like a balloon.
But if the market reacts coldly and investors back out with their money in their pockets, then the issue price will have to be pushed down obediently, like a deflated balloon that can't be lifted up.
Take YueDong Games as an example. Its total share capital is 1.2 million shares, and it plans to raise one billion US dollars this time.
If the offering price is set at $42 per share, then approximately 2380 million new shares would need to be issued to raise one billion dollars.
But if the offering price is raised to $50, only 2000 million shares need to be issued, and a billion dollars will be easily secured.
Don't underestimate the difference of a few hundred shares; it not only affects the number of newly issued shares, but also directly impacts the company's total market capitalization after listing.
Based on the offering price of $42, the total number of shares outstanding would be 1.2 million plus 2380 million, or 1.438 million, with a total market capitalization of just over $60 billion.
However, if calculated based on the offering price of $50, the total number of shares outstanding would be 1.2 million plus 2000 million, totaling 1.4 million shares, and the total market value would soar to $70 billion.
Whether it's $42 or $50, YueDong Games' IPO was like pouring water into a boiling oil pan, igniting the American market and putting Wall Street on fast-forward.
The analysts, who usually stroll leisurely into the office in custom-made leather shoes and carrying exquisite coffee cups, crammed the elevator into a sardine can today.
Even the lady selling sandwiches at the convenience store downstairs, hearing regular customers talking about the game, casually asked if it was the new burger combo, leaving a group of financial elites both amused and exasperated.
It's simply because YueDong Games' financial report was so explosive. How can a game company make so much money? It surpasses many established companies.
Analysts on Wall Street, who had just entered their workstations, turned on their computers and saw YueDong Games' financial report, and were immediately overwhelmed.
One analyst, barely setting his coffee cup down, couldn't help but swear, "Damn it, this year's projected revenue exceeds $8.2 million, gross profit is $5.68 million, and net profit is $2.74 million. What's the point of us being in finance? We might as well start a game company!"
His colleague, who had just brought over coffee and was still chewing the last piece of sandwich, quickly swallowed his food when he heard him shout. He patted his shoulder with a look that said, "You're still too young."
"What's so surprising? You haven't even seen the financial projections for next year. Full-year revenue is expected to exceed $12 billion, gross profit will reach $850 million, and net profit will be nearly $400 million."
"A 30% net profit! That's practically robbery. No, it's even easier than robbery, which involves risks."
The analyst who had just swore stared wide-eyed. Before he could even recover, his colleague added decisively, "An offering price of $42? Don't even think about it! With this financial report, anything below $50 would be a loss."
"I estimate that the $50 offering price was not achieved through the efforts of Goldman Sachs, Citigroup, and the other two brokerages; otherwise, it would have been even higher."
He was right. Ernst initially planned to set a high price, but the three brokerages responsible for the issuance—Goldman Sachs, Citigroup, and Morgan Stanley—dissuaded him.
Their reasoning sounded plausible: there had never been a game company with such a high market capitalization before. Setting the offering price lower would leave enough room for investors to rise, making everyone happy and allowing the stock price to surge even further.
These words were meant to be helpful, but Ernst knew that each of the three parties had their own agenda.
If the offering price is low, and the stock price rises sharply afterwards, they can earn more.
However, this was his first time doing IPO, just like driving on the highway for the first time. He was a little nervous, so he agreed to the brokerage's suggestion.
As for why they didn't set the price at $50 directly, but instead opted for a range of $42 to $50, that was a clever tactic employed by the three brokerage firms.
In their words, this is called mobilizing investor enthusiasm.
Just as analysts were debating the offering price, someone else came over with a newspaper, pointing at the article and exclaiming in disbelief, "Look at this report! Some media outlets are actually issuing risk warnings to YueDong Games! Isn't that utter nonsense?"
Curious, everyone crowded around, and someone read out the contents: "Based on an offering price of $50 and a market capitalization of $70 billion, the price-to-earnings ratio has exceeded 25, indicating a risk of overvaluation."
As soon as these words were read aloud, an analyst couldn't help but laugh. "A P/E ratio of 25 is considered high? If they can meet their financial expectations next year, with net profit approaching 400 million, then the P/E ratio corresponding to this market capitalization will be less than 18. I really don't know if the editors of this newspaper graduated from a sports university; they have more trouble with math than my elementary school-aged nephew."
Not only Wall Street was buzzing with excitement, but the entire United States went crazy because of the IPO of the game company, Leap Games.
As if they had made a prior arrangement, the financial channels of major TV stations changed all their originally scheduled program content early in the morning, with all the shots and topics revolving around YueDong Games.
In particular, the gross profit and net profit of YueDong Games were outrageously high, becoming the focus of everyone's discussion.
After seeing YueDong Games' financial report, an expert couldn't help but loudly appeal on television, "I really don't understand! Why is the government still considering tax cuts for an industry with a gross profit margin as high as 70%? Are these people blind?"
He became more and more agitated as he spoke, his spittle almost splashing onto the camera lens. He insisted that the government should not only not reduce taxes for the gaming industry, but should instead increase the tax rate.
Of course, where there is opposition, there will also be disdain.
The ability to generate buzz is what TV stations value most.
"I think your idea is completely wrong. It's true that game companies have high gross profit margins, but that's because their costs are relatively low. Most of their costs are labor expenses, unlike other manufacturing industries, which have to spend money to import raw materials, build factories, and buy equipment. All the costs add up, which can squeeze profits to the limit."
"To judge whether a company is doing well or not, you should look at net profit, not gross profit."
The calculation of gross profit is very simple: revenue minus cost.
This figure excludes investment, GG, and other expenses; net profit is the actual money earned.
"Isn't YueDong Games' net profit high enough?" the other party retorted.
"That's because the game developed by YueDong Games became a huge hit, and it also has a complete game industry chain."
This question left the host bewildered, and he quickly seized the opportunity to interject with a curious question, "What is meant by the entire game industry chain?"
The expert who was refuting the argument cleared his throat and began to patiently explain, "In the game industry, it is generally divided into three stages: research and development, publishing, and distribution, just like the film industry's production, distribution, and theatrical release."
"The R&D process goes without saying; it's a group of programmers and designers working overtime to create the game, much like the filming and production of a movie."
"Release is about promoting a well-made game to a wider audience, just like a film distribution company pushes a movie to market."
"And distribution channels are like movie theaters, where players play and buy games."
"Under normal circumstances, the revenue sharing ratio for these three stages is roughly 4:3:3, with R&D taking 4%, distribution taking 3%, and channels taking 3%."
"But Yuedong Games is different. They have integrated the entire industry chain. They are essentially a film production company, a distribution company, and also own their own cinema chain."
"They develop their own games and distribute them through their own YueDong platform. Moreover, because they have a partnership with PayPal, they can bypass other channels, allowing players to buy games and top up their game cards directly on the YueDong gaming platform."
"In this way, the 6% of profits that would have been distributed to publishers and distributors ended up in YueDong Games' own pocket, which is why the profit margin is so high."
At this point, he changed the subject, saying, "But we can't just look at YueDong Games. Most game companies only do R&D, or only do publishing, or only do distribution channels. In other words, they can only get 3% or 4% of the profits, which means their revenue is cut by two-thirds."
"Similarly, the higher the risk for YueDong Games when a game fails."
This debate on the show not only popularized knowledge about the gaming industry to the audience, but also boosted the popularity of YueDong Games.
Reporters from the media, newspapers, and television stations flocked to San Jose like sharks smelling blood, carrying cameras and recorders.
This brought a rare burst of activity to this usually quiet city center of Silicon Valley.
But in the distant financial center of Wall Street, a conspiracy against Leap Games and Ernst is brewing quietly, like the morning mist over Manhattan.