China’s NetDragon pumps more cash into augmented and virtual reality

PUBLISHED : Monday, 25 April, 2016, 10:23pm
UPDATED : Tuesday, 26 April, 2016, 11:53am

NetDragon Websoft, the Hong Kong-listed operator of China’s leading online gaming portal, is ramping up investments in augmented reality and virtual reality technologies to increase user growth at its core games and online education businesses.

Based in Fujian province, NetDragon announced on Monday its acquisition of cherrypicks alpha, the AR and VR research arm of its Hong Kong subsidiary Cherrypicks, for US$6 million in cash and shares.

It also committed to inject additional capital of up to US$12 million into Cherrypicks to step up the business expansion of this local mobile marketing and e-commerce solutions provider.

Cherrypicks was purchased by NetDragon for nearly US$30 million in cash and new shares in 2014.

The new cherrypicks alpha acquisition followed NetDragon chairman Liu Dejian’s statement in February that the company’s educational product line would be enhanced by VR technology.

AR integrates digital information in real time with a user’s environment, such as a smartphone application that provides global positioning system data to identify the user’s location.

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VR provides the user with a totally artificial environment using computer-generated simulation, which has been vastly popular using advanced video game software and hardware.

Simon Leung Lim-kin, NetDragon’s vice-chairman, said on Monday that the VR and AR solutions from cherrypicks alpha “can directly support all our business units”.

Established in 1999, NetDragon owns and operates popular multiplayer online role-playing games, such as Eudemons Online and Conquer Online, as well as gaming portal 17173.com.

“NetDragon’s recent acquisition of Promethean, a provider of interactive learning technologies with a user base of 1.3 million classrooms globally, also has the potential to deliver cherrypicks alpha AR technology to an enormous audience in the K12 (kindergarten-to-grade 12) space,” Leung said.

The company aims to carve out a profitable niche in the global online education market after completing its US$130 million acquisition of London-listed Promethean World, a provider of interactive learning technologies, in November.

Since 2014, NetDragon has been accelerating the development of its online and mobile education business, which includes social networks, cloud platforms, media tablets and interactive classroom software for children in primary and secondary schools.

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In addition, the firm is developing vocational, non-academic credentials and other educational products, such as those that use an interactive gaming model.

It is also focused on licensing and purchasing a wide variety of content from domestic and foreign publishers of textbooks and other educational products.

In January last year, NetDragon raised US$52.5 million from new investors to support its online education activities. These investors included IDG Capital Partners, Vertex Venture and Shenzhen-listed animation producer Alpha Animation.

Internet consultancy iResearch has estimated mainland China’s online education market posted total revenue of 119.2 billion yuan last year, up from 99.8 billion yuan in 2014.

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“Pressure will remain on NetDragon’s short-term profitability as long as its education business

remains at the investment stage,” CCB International analyst Eric Qiu said in a report.

NetDragon reported a net loss of 142.98 million yuan last year, compared with a 176.68 million net profit in 2014. Its revenue, however, grew 32 per cent to 1.27 billion yuan last year from 962.82 billion yuan in 2014.

“Despite the mixed results, we remain positive on NetDragon as it shifts its focus to its more promising education business,” Qiu said.