iDreamSky's Contrarian Bet In China's Fiercely-Competitive Gaming Market

The gaming company raised money via share placements three times in the last year as it bets on its self-developed ‘Strinova' to lead it back into the black

Key Takeaways:

• iDreamSky has conducted three share placements within a little more than a year, as it banks on its self-developed "Strinova" to lead it back to profitability
• The company expects to report a net profit of between 20 million yuan and 50 million yuan for the first half of 2025, representing its first profit in three years

In China's ultra-competitive online gaming world, iDreamSky Technology Holdings Ltd. (1119.HK) made a big contrarian bet that appears to be bearing fruit. As most game companies limited their development budgets, iDreamSky doubled down on such efforts, resolved to end its years of losses.

It has funded the gambit partly through a series of new share placements, mostly recently paying a $5 million licensing fee last week by issuing 38.1 million new shares priced at HK$1.024 each to Irish game publisher PLR Worldwide. The subscription price represented a discount of about 3.4% to the previous closing price, and the placement accounted for about 2.11% of iDreamSky's enlarged share capital, according to its announcement on the deal.

This sale was iDreamSky's third such share placement in about a year, following similar sales in May this year and July 2024. Those previous two placements raised HK$257 million ($33 million) and HK$70 million, respectively, to fund R&D and promotion for its games, including "Strinova," the self-developed title on which the company is pinning its future.

The latest share issue was used to settle licensing fees and make the Irish game publisher a strategic iDreamSky's shareholder, signaling the potential for longer-term cooperation. iDreamSky also pointed out that such an approach would preserve its cash flow for other purposes and strengthen its financial position.

Casual game origins

iDreamSky wasn't historically known for its self-developed high-tech games. Instead, it rose to prominence as a Chinese publisher of high-quality games licensed from overseas developers, including hits like "Gardenscapes," "Subway Surfers" and "Temple Run." Such a strategy worked well when China's gaming sector was booming and many companies used a similar licensing model. But as competition for premium games intensified, including a rise in games developed just for the China market, the revenue-sharing model became less sustainable. The company realized that greater control over its products was key to its longer-term survival.

That realization, despite consecutive years of losses and financial strain, led iDreamSky to place a big bet on its own game development, with "Strinova" as one of its first original self-developed titles.

The game combines anime-inspired art styles with mid- to hardcore shooting gameplay. The PC version launched in June 2023 generated strong downloads initially and livestream buzz. But it quickly experienced a drop-off, leading the company to admit to missteps in its overseas marketing strategy. Nonetheless, the game demonstrated iDreamSky's intent to move into self-developed games using AI-generated content, shooting experience modules and character interaction systems.

Key to transformation

While the PC version of Strinova fell short of expectations, iDreamSky remains committed to its new direction. Unlike miHoYo's "Honkai: Star Rail" and Tencent's "Honor of Kings" and "CrossFire," which achieved huge success among hardcore gamers, iDreamSky started with casual games and never established a distinct brand identity or flagship product. "Strinova" marks a key shift to that strategy, and a key step in the company's transformation.

The mobile version of "Strinova" is expected to launch later this year, targeting the mainstream domestic mobile game market. iDreamSky said it has learned lessons from the PC launch, and will compensate for shortcomings of that experience. The company has said in its previous financial results that the game will be its core R&D focus for the next several quarters, with increased investment in marketing, community building, technology and content updates. It will also use AI to shorten development cycles and reduce labor costs.

iDreamSky has struggled financially over the last two years, reporting losses of 556 million yuan ($77 million) and 528 million yuan in 2023 and 2024, respectively, as its revenue shrank from 1.92 billion yuan to 1.51 billion yuan over that time. While its cash increased slightly by 3.4% year-on-year to about 196 million yuan by the end of 2024, the company's total borrowings rose to a much higher 1.07 billion yuan, highlighting the financial pressure it faces.

While the latest share issue didn't bring in any new funds, it reflected the company's strategic choice to conserve its financial resources by paying some of its development costs using shares rather than cash.

Notably, the company's "Strinova" gambit appears to be bearing fruit. Last month iDreamSky said it expects to report a net profit of 20 million yuan to 50 million yuan in the first half of the year, reversing three years of losses, including a 109 million yuan loss in the first half of 2024. Equally important, the company said its operating cash flow was positive for the latest six-month period, ranging from 30 million to 60 million yuan. Such results represent an important turnaround, and should boost investor confidence.

Despite its nascent return to profitability, iDreamSky's shares have fallen 56.5% year-to-date, and now hover around the HK$1 level. They got a notable 7.55% lift, rising to HK$1.14, after the latest placement announcement, suggesting investors like the company's strategy. iDreamSky trades at a price-to-sales (P/S) ratio of approximately 1, higher than the 0.75 times of CMGE Technology(0302.HK) and 0.85 times of IGG (0799.HK), but lower than the 4.5 times for XD Inc. (2400.HK), placing the company in the middle of the gaming pack.

Of course, a single product does not a turnaround make, especially as "Strinova" faces stiff competition from larger players like Tencent (0700.HK), NetEase (NTES.US; 9999.HK), and miHoYo, which are far more experienced at self-developed titles. Whether iDreamSky can compete with the big guns, or whether it may be just a one-hit wonder, remains to be seen. Accordingly, all eyes will be watching to see what's next for this company after "Strinova" runs its course. 

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.