Dialogue with Hitcard: How to Build a Card Moat in an IP-Dependent Track?

The various sub-sectors of the derivatives economy contain rich business opportunities, and the collectible card sector is one of them, attracting numerous participants to join the competition.

Among them, Hitcard is one of the few companies, aside from the industry leader Card Game, that has been rumored to be considering options in the capital market.

As a company focused on the adult collectible card sector, Hitcard has launched card series based on popular IPs such as "The King's Avatar" and "Battle Through the Heavens," as well as derivative card series from popular TV dramas like "Celebrating More Than Years" and "Difficult to Please."

In its first year of establishment, it completed its first round of financing, receiving investments from industry and capital background investors such as POP MART, Sequoia China Seed Fund, and China Literature Group.

In 2024, Hitcard achieved revenue of approximately 400 million yuan, a year-on-year increase of over 600%.

Unlike Card Game, which relies on channel control and strong IP resources, Hitcard has chosen to collaborate with diverse and massive IPs to continuously expand its influence in both B-end and C-end markets.

The core narrative to the outside world has always been product quality and craftsmanship.

Hitcard founder Zhao Yunpeng told Xinfeng that the original intention of the company was to create a "Hitcard" for everyone—one that resonates deeply and is the most beloved card.

The maturity and advancement of printing technology have made cards a high-quality medium for carrying content IP. From an industrial perspective, cards have low cost and lightweight characteristics, making it a market that is growing faster than the explosion of trendy toys, thus giving rise to significant bubbles and competition.

After experiencing the dual dividends of the "My Little Pony" IP and Douyin channels in 2024, the card market has gradually returned to rationality, and participants are reassessing their routes and strategies.

Recently, regarding Hitcard's business model and development strategy, Wall Street Journal·Xinfeng held a dialogue with founder Zhao Yunpeng. Below is the edited transcript of the conversation:

Diversity, Limited Edition, Productism

Wall Street Journal·Xinfeng: What makes Hitcard special compared to other card brands on the market?

Zhao Yunpeng: Hitcard's core philosophy is "Everything can be a card, cherished for a lifetime." We believe that any IP can be transformed into a collectible card with exquisite craftsmanship and an understanding of the content.

At the beginning, Hitcard was the first in the industry to promote the "double-sided card" technique, precisely aligning and adhering the printed paper on both sides before cutting, solving the problems of traditional "small paper pieces" that feel cheap, are easily bent, and have limited surface craftsmanship adhesion.

Now, in adult card packs priced above 10 yuan, double-sided printing has become a basic configuration. This is a contribution Hitcard has made to the industry, and we always hope to guide users to pursue and own better cards.

Hitcard also adopts a limited production model, which is quite unique in the industry.

Traditional card companies usually look for a popular IP and produce it in unlimited quantities. Hitcard releases more than 10 products each month, each strictly limited in quantity.

If a certain IP receives a good market response, we will redesign and launch it in the form of a "second generation," rather than continuously selling the first-generation product. This keeps the total number of circulating cards in the market controllable, fostering an active secondary market Behind the business model of "multiple IPs, limited editions, and high-frequency new releases" is actually a significant amount of foundational work and execution difficulty.

Others might sell one IP or a hundred cards for half a year or even a year; however, for us, every two hundred cards might only sell for a month, and the next month we must redesign everything.

This model implies extremely complex design work, requiring diversified craftsmanship to achieve sufficient differentiation, even the packaging rules in factories have become very cumbersome, but this precisely constitutes our operational barrier.

Wall Street Insights·Xinfeng: This business model undoubtedly makes operations more challenging. How does internal management cope with the increased complexity?

Zhao Yunpeng: Hitcard initially adopted a strategy of "more people doing fewer products" to ensure the refinement of each product. As we gradually expanded our scale, continuously expanding the team and helping employees understand the corporate culture and clarify product direction became particularly crucial.

Hitcard has drawn a clear "red line," specifying what cannot be done. It can be said that this "red line" has shaped our current form.

Hitcard resolutely does not engage in the following types of activities: first, we do not conduct business aimed at minors; second, we do not create cards that we ourselves would not want to buy; third, we absolutely do not use non-environmentally friendly materials; fourth, we do not create "low probability high rarity cards," as card designs with gambling characteristics are firmly resisted by us.

Even those who are not core users of card games can feel the obvious difference between Hitcard products and others. The richness of our card positions is far higher than that of our peers, with the average number of processes and designs used per set of cards being about three times that of others.

Wall Street Insights·Xinfeng: How does the supply chain support the operation of multiple product lines and multiple IPs?

Zhao Yunpeng: To be honest, we have not been able to fully rely on external solutions for this issue, which is why we chose to build our own factory.

Printing is a large-scale repetitive operation, with the cost of a single card usually only a few dimes or even a few cents, while Hitcard's single card cost exceeds one yuan.

This is because our production batch is small, and we frequently switch lines; we might just run the machine for half an hour before switching to the next product, coupled with tight timelines and our high requirements for card environmental friendliness and materials.

Currently, Hitcard has a wholly-owned self-built factory, covering an area of about 20,000 square meters. At the beginning of the year, we also introduced a 14-color printing machine, which is one of the pure imported printing devices with the most color groups in the country.

Wall Street Insights·Xinfeng: What are the main sales channels for Hitcard currently? Are there plans to open offline self-operated stores?

Zhao Yunpeng: Sales on the Douyin platform account for over 60%, while various offline retail stores account for about 30%.

At this stage, we have not found a carrier that can fully reflect the brand's connotation and is suitable for carrying the offline store format. We will continue to think about it and learn from peers, and will push forward once our ideas are clear.

Differentiation Builds Barriers

Wall Street Insights·Xinfeng: Most IPs for card companies come from external licensing. How does Hitcard build brand effects and maintain its core fan base? Zhao Yunpeng: We have numerous IPs in collaboration and will not overly fixate on the gains and losses of a single IP or project. Instead, we welcome more partners to participate in this field and jointly promote industry progress.

Conversely, due to Hitcard's continuous innovation on the product side, consumers have closely associated the brand with innovation and high quality. Many people actively choose "Hitcard's card" and are even willing to try new IPs because of the craftsmanship.

Currently, about 70% of the complex card crafting techniques visible in the market were originally created or developed by Hitcard. For example, the well-known "damage card," as well as gold-plated film cards, ceramic cards, etc., have attracted industry attention and imitation.

I personally welcome peers to learn from our designs and craftsmanship, and I hope everyone can provide users with richer and higher-quality products.

Wall Street News · Xin Feng: Are you worried about dependence on external IPs? Are you considering developing your own IP products?

Zhao Yunpeng: Hitcard is better at interpreting IP rather than creating IP. Therefore, we will continue to focus on our strengths and collaborate with IP parties to explore better content presentation methods.

For example, we designed a TCG system for the "Full-Time Expert" card and embedded an NFC chip, which, when scanned, can access a Level-2 text interaction system that records game progress, containing multiple storylines, with an experience duration of about ten minutes, similar to playing a mini-game.

Most similar designs are lightweight, requiring no card deck assembly; purchasing 3-4 packs is enough to start playing, resembling more of a poker or board game experience.

Wall Street News · Xin Feng: Will such innovations significantly increase development costs?

Zhao Yunpeng: It will indeed, but this is precisely why many IP parties are willing to collaborate deeply with us. Hitcard has both the technical capability and the willingness to invest in these innovations.

Most card companies pursue profit by packaging "craft innovation" or "content creativity" to sell high-margin products. Although our products are priced similarly to competitors, our costs are much higher, all reflected in product quality.

Hitcard's average gross margin is about 30%. We believe that only by maintaining a reasonable gross margin can we truly "stack materials" and put thought into our products, allowing users to feel that they are getting their money's worth.

Wall Street News · Xin Feng: A 30% gross margin is considered low in the IP and media industry.

Zhao Yunpeng: That is indeed the case, but we neither want to cut costs to lower prices nor hope to achieve higher profits through price increases.

Hitcard's costs have been controlled at a low level through refined management, and the current pricing system aligns with our positioning of "reasonable category gross margin."

Wall Street News · Xin Feng: What is the reason for Hitcard achieving about sixfold growth in 2024? What are your expectations for performance in 2025?

Zhao Yunpeng: The accumulation in the early stages has indeed begun to show results in 2024, and factory capacity has also kept pace during this period.

Previously, individual products often sold out, but due to capacity constraints, it was always difficult to break through Currently, Hitcard can achieve 100% self-production and self-sales, but the existing production capacity is expected to be unable to fully meet next year's performance targets.

Wall Street Insights · Xin Feng: How does Hitcard view its core competitive barriers?

Zhao Yunpeng: First, the supply chain itself is a significant barrier. Hitcard's supply chain capabilities are well recognized in the industry and have developed to a level that can stably support complex processes, rapid production, and high-quality output.

Second, we have established systematic capabilities in IP interpretation and transformation. Hitcard is one of the companies in the industry with the richest coverage of IP types, almost involving all kinds of themes, and has representative works in multiple fields.

Third, Hitcard has formed significant operational barriers on online channels such as Douyin.

The platform's traffic distribution mechanism itself has a "Matthew effect" where the strong get stronger, and the keyword "Hitcard" has already established strong recognition on Douyin, which can naturally drive traffic to the live broadcast room. Once our products are listed, they can gain corresponding traffic support.

These advantages also bring many derivative values. Because of the high product quality, Hitcard dares to establish direct contact with consumers and provide after-sales guarantees. If the quality does not meet standards, brands would not dare to promise "returns and exchanges" and can only buffer risks through distributors or intermediaries.

Wall Street Insights · Xin Feng: You seem to have not emphasized the relationship with upstream IP copyright holders. As a company highly dependent on IP, how does Hitcard maintain cooperation with copyright holders and avoid being constrained by upstream?

Zhao Yunpeng: The key lies in whether the interests of both parties are aligned. If your product only consumes IP value, the cooperation is often one-time; but if you can bring growth to the IP through the product, the other party is willing to continue cooperating.

Hitcard continuously conveys a message to IP holders through product and market strategies: we are jointly increasing the value of the IP.

Currently, in adult-oriented IP collaborations, Hitcard is usually the first choice for copyright holders, covering about 70% to 80% of the licenses in top film and television IPs. The most recognized film and television card products in the market basically come from us.

In addition, Hitcard has introduced almost no other financial investors besides Sequoia. We believe that what we need most now is not the funds provided by financial investors, but rather a deeper binding with IP holders through equity.

Wall Street Insights · Xin Feng: In what form will cards truly achieve "popularization"?

Zhao Yunpeng: Cards, as a medium that has existed for decades, have their lightweight and easy-to-collect characteristics as the key to their lasting vitality. Compared to trendy toys that require mold opening and have higher costs, cards can achieve exquisite presentation at a single cost of just over a dollar.

The industry needs to fully leverage the value of this medium, create higher cost-performance ratios, and work together to promote new card standards.

Wall Street Insights · Xin Feng: IP resources with traffic and success rates are being consumed and are increasingly scarce. How do you view this phenomenon as a constraint on the future development of the industry? Zhao Yunpeng: If your business model must rely on "hit IPs," you will indeed face challenges of resource scarcity. Most of these IPs are locked by leading companies, as their user base tends to focus on a few top IPs.

In contrast, Hitcard's user base is more widely distributed, allowing for the operation of various IPs without being constrained by the scarcity of IP resources.

We also believe that in the end, the companies that can establish a long-term foothold in this industry will be those that are dedicated to making quality products. Consumers have a wide range of choices and are not limited to just one option