China’s Ourgame eyes expansion into social casino games, eSports

Chinese online games operator Ourgame International Holdings is looking to step up its expansion into the US$4.5 billion social casino gaming market in the United States this year, after reporting stable net profit and revenue for last year.

Beijing-based Ourgame also expects to bolster its international operations in eSports, which are organised multiplayer video game tournaments with live television and online audience.

In the company’s regulatory filing on Monday, Ourgame chairman Eric Yang Qing said the company will continue pushing forward with its transformation “from a Chinese card and board games provider to a global mind sports games and entertainment company”.

The term mind sports generally refers to games of mental skill like chess and various board games, as well as recent disciplines such as eSports.

“We will continue to make strategic investments and acquisitions on key areas of our ecosystem to accelerate the group’s growth,” Yang said.

Ourgame reported a 30 per cent increase in net profit to 148.7 million yuan (US$21.6 million) last year, up from 114.4 million yuan in 2015, on the back of steady growth at its core online card and board games business.

Revenue rose 13.2 per cent to 871.1 million yuan from 769.6 million yuan in 2015.

Operating costs, however, continued to climb last year. Selling and marketing expenses grew 28.5 per cent year-on-year to 181.6 million yuan, while administrative costs were up 30.9 per cent to 135.6 million yuan.

“We achieved satisfactory growth ... despite intensified competition in the industry,” Yang said.

Apparently, that was not enough for retail investors who expected better financial results. Jefferies had earlier projected Ourgame to post a net profit of 160.5 million yuan and revenue of 958.6 million yuan.

The company’s share price reversed gains made last week, falling 4.22 per cent to close at HK$3.18 in trading on Monday. That put its market capitalisation at HK$2.5 billion.

“While the ground work has been laid [for Ourgame’s business expansion], most of the expected earnings will not start to show until 2017,” Jefferies equity analyst Johnny Wong Kin-man said in a recent report.

Founded in 1988 and listed in Hong Kong in 2014, Ourgame was the first among China’s top online gaming providers to focus on products based on popular card and board games. These include Fight the Landlord, Texas Hold ‘em, Mahjong and Chinese Chess.

The company counts more than 500 million registered users and had 416 employees as of December 31.

Its most high-profile investment to date was the acquisition of WPT Enterprises, operator of World Poker Tour, for US$35 million in cash from online gambling group Bwin.party Digital Entertainment in 2015.

WPT, now a subsidiary of Ourgame, runs a series of international poker tournaments and syndicated television shows broadcasting each of those events.

In the second half of last year, Ourgame launched its PlayWPT Poker and PlayWPT Slots products for online and mobile platforms.

With that launch, Jefferies’ Wong said Ourgame is adapting its successful “freemium” business model for games in China to the US, where WPT has been operating a subscription-based online service.

Freemium refers to the online model in which basic services are provided free of charge, while use of advanced features must be paid for.

“If successful, the freemium model can substantially improve the earnings potential for World Poker Tour,” Wong said. “We believe that the strength of the WPT brand and Ourgame’s freemium poker experience in China will help Ourgame get a share of the social casino gaming market in the US.”

Last year, Ourgame subsidiary Allied e-Sports invested in US-based Esports Arena, launch European venture ELC Gaming and formed a mainland joint venture to start development of its flagship tournament arena in Shenzhen.

“Allied e-Sports is well on its way to becoming the best global platform for games publishers, tournaments, content creation and broadcasting for eSports,” Yang said.

Yang pointed out that Allied e-Sports will continue to aggressively expand this year to develop its international arena network, intellectual property resources and television programming.

While the company is new to eSports, Ourgame has had similar experience in organising poker and Fight the Landlord tournaments on the mainland.

The global eSport market is expected to grow to US$1.1 billion in total revenue by 2019 from an estimated US$463 million last year, according to Jefferies’ Wong.