Zhou Hongyi was not optimistic about the concept of the metaverse before
The Metaverse was undoubtedly one of the hottest concepts in the technology circle last year, and many technology, related and media companies around the world rushed to embrace this concept. In the A-share market, after some listed companies announced publicly or privately that they would be involved in the Metaverse business, their stock prices rose.
However, whether it is the technology circle or the capital market, people have different views on the development of the Metaverse. Some people are very optimistic about the metaverse, thinking that the concept of the metaverse is operational and can eventually be realized; others believe that with the current level of technological and industrial development, computing power, bandwidth, and even the immersion provided by VR cannot be supported by hardware requirements such as Metaverse concept.
Zhou Hongyi, chairman of the domestic Internet security giant 360 Security Technology Co., Ltd. (hereinafter referred to as “360”, 601360.SH), was not optimistic about the concept of the metaverse before. When participating in a CCTV program, he believed that the concept of the Metaverse has become very popular recently, and many people have found new ways to make money. “If everyone lives in an illusory space, it will not bring real development to human society”.
However, on December 28, 2021, at the strategy conference of the 360 Group, Zhou Hongyi changed his attitude towards the Metaverse, saying: “Today, we will not spray the Metaverse, but guide the Metaverse to the country. It will develop in a favorable direction for the industry and serve the real world.”
It is reported that Zhou Hongyi divides the metaverse into different factions such as game faction, stock speculation faction, currency speculation faction, and virtual world faction, and 360 will be the “digital twin faction” in the metaverse.
Similar to the controversy caused by Facebook’s algorithm, in 2021, due to pop-up advertisements, 360 will also attract the attention of regulators and social heated discussions; in response to the controversy over pop-up advertisements, 360 also launched an ad-free 360 Security Guard Express Edition. In order to change the market’s perception of the company, Zhou Hongyi, the founder of 360, made frequent appearances in 2021, explaining the company’s development strategy focusing on Internet security. In November 2021, 360 also invested in Nezha Auto to enter the automotive cybersecurity market. In the frequent strategic layout of 360, the pressure faced by the company is hidden.
Main business encounters strong supervision
360 plays a pivotal role in the development of China’s Internet industry, especially in the field of Internet security. Its 360 Security Guard, 360 Browser and other products ensured the information security of PC users during the chaotic period when the Internet was just emerging, while simplifying the threshold for PC use.
Relying on the previous deep accumulation in the PC market, today, although the Internet industry has ended the chaotic period, 360 still has a group of users, and many of its softwares maintain a huge installed capacity on PCs. Relying on these installed capacity, 360 has obtained stable advertising distribution income.
Although 360 has developed new businesses such as smart hardware, security and other businesses, and games in recent years, as of the first half of 2021, the Internet advertising and service business has contributed 3.059 billion yuan in revenue to the company. accounted for more than 54%. The smart hardware business, which contributes the second largest revenue, has a revenue of 1.049 billion yuan in the first half of 2021, barely exceeding one-third of the revenue contributed by the Internet advertising and service business.
It is worth mentioning that, starting from 2020, the revenue of 360 Internet advertising and service business has shown a downward trend. Compared with 2019, the revenue of 360’s business in 2020 decreased by 22.76%; compared with the first half of 2020, in the first half of 2021, the revenue of 360’s business also decreased by 7.28%.
Since 2020, the regulatory authorities have gradually strengthened the supervision of the Internet industry. Affected by this, Internet industries such as community group buying, online education, and even games have encountered strict supervision, and these companies have long been the bulk of Internet advertising. In addition, in 2021, the regulatory authorities have also formulated relevant regulations for the previously popular advertisements related to academic education and adult education. The recently announced regulations on the listing of Internet companies and related new regulations on algorithms will have a certain impact on Internet entrepreneurship, which is bound to further affect the advertising of Internet companies.
In addition to the client, 360’s advertising exhibition and video terminal also encountered doubts from the regulator and the market in mid-to-late July 2021. The Jiangsu Consumer Protection Association released an investigation report on July 18, 2021, and notified the pop-up advertisements of many Internet giants such as 360 and Xunlei. In response to doubts, at the end of July, 360 launched the “Speed Edition” of 360 Security Guard, which it claims is permanently free and has no pop-up ads. Under the circumstance that the regulatory authorities strengthen the supervision of the Internet industry, the Internet advertising and service business of 360 may continue to be under pressure.
Increase investment in R&D and sales
As the installed capacity of PCs is nearly saturated, and the major manufacturers of mobile phones are building closed-loop systems, it is difficult for 360 auxiliary software to play a big role on the mobile phone. The company is also aware of the limitations of the current Internet advertising and service business, and is actively seeking new growth points.
In the process of development, the company has successively developed businesses such as games and smart hardware.Relying on the deep accumulation in the field of Internet security, 360 will actively focus on the security and other businesses of B-end customers under the circumstance that the company’s Internet advertising and service business revenue will decline in 2021. The security and other businesses of 360 mainly cover government and enterprise security as well as technical services, hosting services, cloud/cloud disk services and other businesses. In the first half of 2021, this business achieved revenue of 912 million yuan, a year-on-year increase of 322.45%, more than 808 million yuan for the whole year of 2020.
In addition, in November 2021, 360 also made a high-profile investment in “Nezha Auto”, a new force in car manufacturing, and plans to deploy the field of automotive safety through in-depth cooperation with “Nezha Auto”. It is understood that with the improvement of the computing power of the current automobile central control system and the maturity of the mobile Internet technology, the cars currently leaving the factory are generally equipped with 4G/5G networking functions, which will create huge network security requirements. However, the operating system of the car central control is generally developed based on the Android kernel, which may form a closed-loop software service ecosystem like the mobile phone industry. In such an ecosystem, the development opportunities of the tripartite security system may not be large.
In order to successfully develop new businesses, 360’s R&D expenses have continued to increase in recent years, and the proportion of R&D expenses in revenue has also increased. In the first three quarters of 2021, 28.6% of the company’s revenue was invested in research and development. At the same time, in order to develop the company’s new business, the sales expense ratio of 360 also has an upward trend. In the first three quarters of 2021, the company’s sales expense ratio reached 20.33%.
The increase in R&D and sales expenses squeezed part of the company’s profits, which in turn allowed 360 to increase revenue without increasing profits. Compared with the first three quarters of 2020, the company’s revenue in the first three quarters of 2021 increased by 7.09%, but the net profit dropped from 1.707 billion yuan to 1.004 billion yuan; compared with the first three quarters of 2020, the company’s research and development expenses increased. The company’s sales expenses increased by 586 million yuan.
Although 360 is gradually increasing its investment in R&D and sales expenses, the increase in short-term expense ratios has caused the company to increase revenue without increasing profits, and the market has also divided the development prospects of 360. Since March 2021, the stock price of 360 has begun to fluctuate and fall, and the company’s stock price has also dropped from around 16 yuan per share to around 14 yuan per share; the reduction plan announced by the actual controller Zhou Hongyi in April further made the company’s share price bear the burden. pressure. Since then, although the company has announced a repurchase plan, the stock price of 360 has fluctuated around 12 yuan per share for a long time.
It is worth mentioning that the additional shares issued by 360 in 2018 when the backdoor listing was completed have been gradually lifted in February 2021; and the additional shares issued by the company in January 2021 were also lifted in July of the same year. In 2018, the price of 360’s additional shares was 7.89 yuan/share; in January 2021, the price of 360’s additional shares was 12.93 yuan/share. Based on the current stock price of 36012 yuan per share, the annualized return rate of the institutions participating in the 360 additional issuance is not high.
On the one hand, the transformation effect was not as good as expected, and the company’s revenue did not increase; on the other hand, after the issuance of additional shares was lifted, the company’s stock price fluctuated at a low level for a long time. It remains to be seen whether embracing the Metaverse will inject new concepts and vitality into 360.
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