To our esteemed investors and partners,
In the blink of an eye, a year has passed since our previous annual letter. The uncertainty we faced in 2021 proved to be a difficult source of anxiety and apprehension.
XD may just be a gaming company, but we aim to do everything in our power to make a positive impact on the world, to build bridges between our cultures, and to preserve the invaluable diversity that exists within. Using video games as a conduit, we are here for a world of gamers and developers, eliminating prejudice and connecting individuals.
The COVID-19 pandemic failed to come to an end as we had all hoped, and the world has become increasingly fragmented by conflicts between nations, cultures, and ideologies.
New domestic policies within China gave rise to considerable challenges that were faced by all companies within the gaming industry. These policies forcefully disrupted existing product launch plans, as well as TapTap’s procurement of new content pipeline and advertising revenue. Despite these challenges, we understand that these structural adjustments are necessary for our industry to be more competitive and sustainable. In the course of time, we will find an even greater environment for innovation, artistic expression, and social responsibility within the video game ecosystem.
These external factors have greatly impacted our overall corporate strategy last year, and must continue to be considered while determining our direction for this fiscal year. First and foremost, more research and development (R&D) costs will be committed to products suitable for international markets and diverse cultures. Secondly, we will focus greatly on refining the performance at each phase of the development and publishing process for all our games to ensure the certainty of their commercial success. Thirdly, we will use our available funds to ensure both the company breaks even in 2023 and we meet our own development goals.
Overall, our strategy remains consistent, and we stand steadfast in our ideals. There are still countless opportunities to explore.
Although the international disputes continued, we firmly believe the shared values of humanity that span across countries, cultures, and religions will ultimately prevail. Above all else, we hope to see the citizens of the world united and seek peace together.
Although we found ourselves confronting the various aforementioned challenges, a closer look reveals continued tangible progress made.
In 2021 alone, 5 of our titles went online in Campfire, TapTap’s closed beta testing workflow: Flash Party, T3 Arena, Torchlight: Infinite, Sword of Convallaria, and XD Town. Both Flash Party and T3 Arena remained online after the initial tests, and received new live service content updates over the past year in parallel with a growing community of players, fans, and influencers.
The other three titles also garnered a strong following and a great deal of interest. The reception of these games and the positive feedback from our player-base serve as proof that the titles we built meet our audience’s expectations while both seizing market opportunities and creating experiences that they truly love. Yes, the pride we have in our success is derived from cold hard data and strong analytics, but even more so from the heartwarming reactions of our players, colleagues, friends, and families.
In addition to the titles launched through Campfire, several more games developed by XD were unveiled to the public at the 2021 TapTap Presents. It brings me great joy to see games that we have developed in-house through years of devotion get their chance to shine in the spotlight. While the resources currently available for R&D have proved to be a limiting factor when aiming to meet the production quality and technological standards set forth by AAA titles and mainstream games, the XD family has shown that through focused effort and persistence, we are able to close the gap.
Our Premium Games publishing division and TapTap Indie Partnerships also showcased their latest games at the 2021 conference. 2021 alone, over half a dozen million copies of premium games were purchased on TapTap and those from XD’s Premium Games publishing division accounted for over half those sales. Terraria Mobile and Human: Fall Flat are two examples of standout premium titles published by XD, both outperforming freemium games and claiming the No.1 spot in the domestic downloads charts. TapTap has proved to be a valuable marketplace for premium games to grow awareness and sales.
Of course, such impressive sales are in large thanks to the power of TapTap’s player base and their unique community-minded spirit. We often find that a premium title’s sales on TapTap will exceed its global downloads on both Google Play and the App Store combined.
Over the past few years, the call for high quality premium games has grown louder within our gaming community. It is our belief that a diverse selection of titles and genres will entertain our players’ unique interests; not every player needs to love every game, and not every game should follow a live service model with infinite content cycles. Driven by this belief, both XD and TapTap will continue to pursue innovative premium titles and explore new genres to offer the best possible support to both developers and players around the world. Games were downloaded from TapTap over 500 million times last year, an increase of 42.1% year-over-year. It is quite the achievement when considering the monumental challenges facing XD and TapTap in 2021: Game licensing was frozen within China for some time now, which resulted in an immediate reduction of new games available for our publishing pipeline. All external factors considered, the growth we see on TapTap is a substantial success.
What I’m most proud of from this past year however, is not how many users we have acquired from other platforms nor the number of downloads we provided, rather the 170+ exclusive partnerships we made with indie games and their developers. Their creations, typically under-valued in most traditional platforms, would have faced an incredible challenge to win the attention they so rightly deserve. With TapTap, we have been able to showcase their artistry through hundreds of millions of downloads, thereby providing a platform on which they can do more than just survive — they thrive.
As a truly gaming-focused platform, TapTap provides developers with exposure and financial support such that they can focus on crafting great experiences. Our dream is that, with TapTap’s support, a whole new generation of vibrant and unique games that focus on game design over monetization can exist. This is the valued impact that we hope to contribute to the entire gaming industry.
Analyzing the current Western gaming market reveals a stark parallel to the environment which gave rise to TapTap and our ethos back in 2016. Many of the games that frequently make it to the top of Google Play “Free Games” charts are riddled with abrasive advertising content or simply have low production quality as they focus too much on short-term monetization. One explanation for this is that in the United States and Europe, the typical target audience for mobile gaming greatly differs from their counterparts on PC and consoles. For example, we need look no further than the 2018 Diablo Immortal reveal. When a presenter told the dedicated Diablo fanbase in attendance that “we don’t have any plans at the moment to do PC”, he was greeted with boos from the audience. The memorable “Do you guys not have phones?” meme would then go on to spread throughout the market. When XD began promoting the upcoming release of Torchlight: Infinite, we also saw backlash from existing core players worried about the quality of a mobile game set in the Torchlight universe. My belief is that Western audiences are themselves not adverse to such mobile titles, but rather skeptical of the current state of their mobile gaming market. The lack of truly fun games, a dedicated platform to discover such experiences, and the ability to form a community with like-minded gamers leaves a void unfilled and creates an opportunity to be seized.
This opportunity is one that TapTap and our games will seize outside of China. In short, the primary focus of TapTap this year is to establish a strong foothold in the American and European markets and begin fostering a high quality, dedicated global player-base. We will achieve this goal by collaborating with even more Chinese developers and assisting them in overcoming the difficulties of entering the global market including advertising, licensing, operations, and more. In fact, TapTap will begin testing an international advertisement system this year to help reduce the global user acquisition costs faced by Chinese developers.
We are also planning to publish our own in-house games in international markets this year. Flash Party officially launched in February to an incredible reception by Japanese players. T3 Arena has begun testing on TapTap and will officially launch in May of this year. Both titles are casual competitive games that can support a high number of daily active users (DAU). During the early stages of both games’ official launches, we will focus on growing their user base, improving retention, increasing brand awareness, and raising XD and TapTap’s commercial value.
After several rounds of testing on TapTap, Torchlight: Infinite and Sword of Convallaria will also launch officially this year. In addition, XD has several other smaller projects in the pipeline to be tested and launched. While we have controlled expectations in these smaller titles becoming huge commercial successes, they will certainly prove to be invaluable in retaining TapTap users, increasing their activity, and further diversifying our game library.
Publishing partnerships will also continue to be an important facet of our company strategy. One such title we will focus on in 2022 is Sausage Man. The revenue and DAU of Sausage Man reached an all-time high during the most recent Spring Festival, 4 years after its original launch in China. We believe that this long-lived domestic title can find even more success by expanding our presence in international markets.
Breaking out of our domestic market, raising our international brand awareness, and cultivating a dedicated audience of global gamers will prove to be no small challenge for TapTap and XD. If we persevere and achieve our goals, however, not only will XD’s own titles reap the benefits, but so too will our countless fellow developers who have been restricted by the inability to receive licenses for their inspiring creations.
Lastly, I would like to sincerely thank all of my colleagues, partners, and investors for your continued support and trust. Although we have always said that short-term stock evaluations are not our primary focus, we fully understand the concern and pressure that the market fluctuations brought you. Yet, we are resolute in our belief that we must focus on the core business and ensure its stable development to sustain our long-term, overall value. I have no doubt our dedication and persistence will result in many great things to come.