$XD INC(02400.HK) first take: Driven by "Let's Go Muffin", the performance in the first half of the year was good and basically expected. On one hand, the game's revenue can be tracked by third-party platforms, and on the other hand, the company issued a performance forecast earlier this month. However, from the perspective of market expectations, both game revenue and TapTap advertising revenue seem to have slightly missed the mark. On the contrary, due to higher profit margins from self-developed games and more stringent-than-expected optimization of R&D personnel, the significant increase in marketing expenses caused by the global release of "Sword of Lily" in August was offset, ultimately resulting in Xindong's profitability exceeding expectations.

For game companies, due to the relative transparency of revenue data, market expectations have already been factored into the stock price earlier. What causes valuation changes is more based on the performance of future pipelines:

1. In the short term, market expectations for the revenue performance of games already launched in the second half of the year are not low, and a significant increase is expected quarter-over-quarter. Although the financial report does not provide much description, the popularity of "Xindong Town" after its launch is basically transparent. As a high-DAU game, it can contribute to incremental game revenue, but its monetization strength may not be as strong as "Muffin". Instead, it plays a bigger role in boosting TapTap user engagement.

In the first half of the year, TapTap's monthly active users reached a record high of 43.24 million, and it is expected to continue breaking records in the second half. At the same time, TapTap, which intentionally slowed down commercialization in the first half, is expected to perform well in the second half amid the summer game competition.

2. From a medium-term perspective, after this product cycle, next year's pipeline may be relatively weak. The current launch plans mostly involve the overseas release of this year's games. In the financial report, the company mentioned three games under development, with only "Ether Restart Day" remaining from previous reserves. However, Dolphin Research is relatively cautious about the performance of this game, as it is difficult to have as clear expectations as "Xindong Town". You can listen to the management's description during the afternoon earnings call.