Increased investment in June with delayed recovery, Flyme Technology faces short-term pressure but remains committed to long-term growth

In recent months, the domestic gaming industry has entered a stage of deepening stock competition. Factors such as product lifecycle differentiation, the pace of new game launches, and user acquisition costs continue to impact companies' short-term performance. Under the trends of premiumization and long-term operations, profit performance in a single reporting period is more susceptible to product cycles and investment pacing. $FEIYU(01022.HK)

According to the company's latest announcement, Feiyu Technology (1022.HK) expects to record a post-tax loss of RMB 5 million to 15 million for the first half of 2026, compared to a post-tax net profit of approximately RMB 56.5 million in the same period last year. This fluctuation in performance is primarily driven by two factors: first, the timing difference between operational investments made at the end of the reporting period and their corresponding delayed returns; second, a year-on-year decline in revenue contribution from "One Step Two Steps." Specifically, this performance fluctuation can be attributed to three short-term dimensions:

First, although overall operational investment decreased year-on-year in the first half of 2026, the company significantly increased operational investments around its core games for continued operations and new game launches starting from mid-June. Since related revenue contributions are typically realized gradually in subsequent periods, a timing gap exists between investment recognition at the end of the reporting period and revenue realization.
Second, "One Step Two Steps" was in its peak return phase in the first half of 2025, establishing a high year-on-year base. As the product enters a more mature lifecycle stage in 2026, its revenue contribution has declined year-on-year.
Third, after the launch of "Reversal Rounds" in March 2026, the company gradually increased upfront operational investments based on product operations and commercialization performance. The revenue contributions corresponding to these investments have not yet been fully reflected in the first-half 2026 results.

Overall, these three factors point to the same structural characteristic: upfront operational investment and delayed revenue realization. In fact, the company's overall operational investment in the first half of 2026 is under orderly management planning. At the same time, expanding operational investments for core games in June and targeted increases for new game launches are conventional operational strategies for gaming companies to proactively layout at key product nodes. Related revenue contributions are expected to be gradually reflected in subsequent periods. This rhythm mismatch reflects the 阶段性 financial characteristics of the gaming operation business model, rather than a change in the company's long-term profitability.

If we extend the observation cycle, based on the company's disclosed operating data, its classic IP operations, user base for mini-games, and new product reserves will provide strong support for medium-to-long-term operations:

In terms of traditional gaming business segments, the "Shenxian Dao" series has been online for over fifteen years, maintaining high user loyalty and resilient monetization performance. Classic IPs like "Carrot Fantasy" continue to contribute long-term value. By the end of 2025, the company's casual games had accumulated approximately 757 million activations/downloads, with advertising revenue growing 35.5% year-on-year in 2025. Mature IPs still possess a robust user base and sustained operational potential.

In the mini-game business segment, cumulative registered users reached 90.3 million by the end of 2025. The popular game "One Step Two Steps" returned to the 8th spot on the WeChat Mini-Game Best-Selling Chart in June 2026, while "Reversal Rounds" recently climbed to the 27th spot, demonstrating the high commercialization potential of both products. Additionally, the company disclosed that several new games are currently in testing phases and planned for launch in the second half of the year, which is expected to further enrich the company's product matrix. The follow-up performance of these new products is worth watching.

Overall, the company has gradually formed a business structure where traditional gaming provides a stable foundation, while mini-games continuously contribute new product increments. The long-term operational capability of mature IPs effectively complements the continuous iteration of new mini-games, providing a basis for resource allocation across different product lifecycles.

Looking at the most recent complete annual financial data disclosed, by the end of 2025, the company's cash and cash equivalents grew by over 119% year-on-year, operating cash flow turned positive from negative, and the asset-liability ratio stood at 26.2%. The overall financial structure remains relatively robust, providing a solid financial foundation for subsequent product operations and new product investments.

Reviewing past operational rhythms, "One Step Two Steps" saw increased upfront operational investment at the end of 2024, with its revenue contribution being released centrally in early 2025. This is a typical "upfront investment, gradual subsequent revenue realization" model in the game development and operation business. Besides the mini-games launched in the first half of 2026, multiple new games are currently in testing and planned for launch in the second half of the year. If new products proceed as planned and achieve good operational performance, they will undoubtedly provide considerable incremental gains for future results.

From an industry perspective, the profit of a single reporting period for gaming companies is easily affected by product lifecycles, the pace of new game launches, and upfront operational investments. For Feiyu Technology, the current pressure on performance mainly reflects the combined effect of the decline from a high base of existing products and concentrated investments at the end of the reporting period. "One Step Two Steps," as one of the company's core existing products, is both an important source of the higher performance base in the same period of 2025 and a key product for concentrated operational investment in June 2026. Against the backdrop of increasingly fierce competition in the gaming market, the value of expanding operational investments for this product at its second anniversary node is itself a noteworthy operational signal. Generally speaking, whether a gaming company expands investment comprehensively considers user retention, monetization efficiency, content activity, and investment recovery performance. Therefore, the company's decision to continue increasing investment in this two-year-old product to some extent reflects management's relatively positive judgment regarding its content appeal, monetization efficiency, and node operational performance, indicating that the product may have already achieved phased success in content updates, user operations, or monetization conversion. From this perspective, the concentrated investment in June is not merely a front-loading of expenses but also reflects operational considerations to extend the product's lifecycle and further 挖掘 user value.

Whether subsequent performance can gradually recover still requires close observation of the continuous monetization ability of existing products like "One Step Two Steps," the operational performance of "Reversal Rounds" and subsequent new games, and the release rhythm of corresponding revenue contributions after the concentrated operational investment in June. Based on current chart performance, new game reserves, and classic IP foundations, the company's medium-to-long-term operations still have certain support, but related performance contributions need to be verified by subsequent operating data.