Upfront S&M Spending Drags Earnings in 2Q; New Game Focuses on LT Operations

Research evidence excerpt

Upfront S&M Spending Drags Earnings in 2Q; New Game Focuses on LT Operations

China (PRC) | Media & Entertainment

Perfect World - A EquityJulyResearch14, 2026

FLASH NOTEUpfront S&M Spending Drags Earnings in 2Q;

RATING BUYNew Game Focuses on LT Operations

PRICE Rmb10.48^

PWRD released preliminary 1H results reporting losses mainly due to (1)

PRICE TARGET | % TO PT Rmb19.80 | +89%

upfront S&M spending on Neverness to Everness; (2) revenue is recognized

52W HIGH-LOW Rmb23.68 - Rmb10.41

on a deferral basis; (3) maturity of existing games. Neverness to Everness

FLOAT (%) | ADV MM (USD) 57.2% | 144.73

generated over RMB1.4bn in global gross billings in 2Q, with higher

contributions from overseas. PWRD expects to release 2-3 new games in MARKET CAP RMB21.1B | $3.1B

2026. TICKER 002624 CH ^Prior trading day's closing price unless otherwise

noted.

What’s new? PWRD released preliminary 1H results with net loss guided at between (RMB80m)

to (RMB120m). Adjusted net loss to be between (RMB180m) to (RMB220m) in 1H, which is

below market expectations of positive earnings at RMB333m. PWRD attributes the net loss to:

(1) upfront S&M spending on Neverness to Everness while revenue is recognized on a deferral

basis; (2) Neverness to Everness generated RMB1.4bn in global gross billings in 2Q; and (3)

maturity of existing games.

Key takeaways from conference call. 1H26 overview. (1) Launch of Neverness to Everness

created a temporary mismatch between upfront marketing expenses and deferred revenue

recognition, resulting in a reported loss despite strong commercial performance. (2) Earnings

contribution from Neverness to Everness will gradually be recognized from 3Q26 onward. (3)

Existing games experienced a natural revenue decline, resulting in lower profit contribution