Rebirth 08: Can a mobile game company also build a tech empire?

Chapter 125 Valuation

"Secondly, independent financing. After the split, the subsidiaries can independently introduce strategic investors according to their own development stage and funding needs. Telecommunications companies need a lot of funds to do R&D and expand production capacity. Game companies have good cash flow and can take it slow. Internet companies are still in the growth stage and need to burn money to acquire users. Separate financing makes the valuation clearer and makes it easier for investors to understand."

"Third, risk isolation. The mobile phone industry is highly competitive. If any generation of products has a problem, it will not drag the entire company down. Hardware, games, platforms, and overseas businesses are all independent and do not affect each other."

The office was silent for a few seconds.

Lin Bing spoke first.

His tone was clearly full of praise.

"This structure is very clear. Subsidiaries and branches are established as needed, which can maintain the flexibility of each business line while coordinating resources in a unified manner."

Jiang Chang, who was sitting diagonally opposite, nodded thoughtfully.

As the de facto head of the gaming business.

He knows best what becoming an independent company means.

Projects can be initiated quickly by following the established practices of the gaming industry.

It allows for more flexible decision-making regarding project progress.

We don't need to compete with the hardware department for limited resources every time.

Just then, Lu Chen spoke up again.

"Of course, everyone should not think that splitting up means going their own way."

His voice was calm and clear.

"All subsidiaries and branches must maintain strategic synergy with the parent company. The parent company will provide support in key resources, such as funding, talent, and brand endorsement. The Journey brand is a shared asset of all businesses. Companies can be separated, and risks can be isolated, but the value of the brand is shared."

He looked around, his tone serious.

"Zhengtu Technology is no longer a small workshop. We need to prepare for the future. The competition in the future will not be a competition of single products or single businesses, but a competition of ecosystems and systems. Hardware, software, content, and services need to form a synergistic effect. Mobile phones are the entry point, app stores are the bridge, and games and platforms are the glue. The separation is for better growth, not for going it alone."

The meeting room fell silent for a moment.

Everyone is processing this information.

The restructuring means clearer responsibilities.

This also means greater responsibility.

Jiang Chang spoke first.

"Mr. Lu, I have no problem. I will definitely keep a close eye on the gaming business."

Xu Yi nodded as well.

"Leave the Z-dimensional code and the answer to me."

Lin Bing pushed up her glasses.

"Hong Feng and I will work well together with the telecommunications company."

Lu Chen nodded in satisfaction.

"Okay! It's settled then."

"In the next week, we will complete specific tasks such as business registration changes, financial accounting, and personnel transfers. Susie will coordinate these processes."

"Starting next week, all subsidiaries will officially operate under the new structure!"

After the meeting, everyone left one after another.

Lu Chen leaned back in his chair and let out a long sigh.

He knew about today's decision.

This will completely change the future direction of ZhengTu Technology.

From a flat startup team.

To become a hierarchical and structured group company.

Take this step.

There's no going back.

But he doesn't regret it.

This is the only way!

After the architecture adjustment was completed.

7 month 15 day.

Lu Chen and Lin Bing were sitting in the office.

Various data reports were laid out in front of him.

The first step in financing is to determine the valuation.

This requires a reasonable assessment of the company’s current performance and future potential.

"Let's start with the data."

Lin Bing opened her notebook and began her report.

"In the first month after its launch, Journey 1 had 453,728 activated units. As of today, July 15, that number has grown to 520,000 units."

"In terms of revenue, ZhengTu Communications' total revenue is approximately one billion yuan, with a net profit of around fifty-five million yuan."

"This is the result of the hardware component."

Lin Bing paused for a moment, then continued.

"The app store's monthly active users have exceeded 400,000. Although this part is not yet directly profitable, the user base is growing rapidly."

Lu Chen nodded.

He was aware of all this data.

But it was systematically sorted out from Lin Bing's words.

It still gave him a clearer understanding of the company's current situation.

"Based on its current performance, how much do you think ZhengTu Communications is worth?"

Lu Chen asked directly.

Lin Bing was clearly prepared.

"I created three valuation models."

"The first method is the price-to-earnings ratio. If we calculate based on annualized net profit, our net profit for the past month was 55 million. However, this is a special situation in the first month after listing, and it will definitely fall back later. Conservatively speaking, the net profit for the whole year should be between 400 and 500 million."

"Compared to A-share listed consumer electronics companies, the price-to-earnings ratio is generally between 20 and 30 times. Based on this, the valuation of ZhengTu Communications is between 10 billion and 15 billion yuan."

Lu Chen shook his head.

"That's too high. That's the valuation logic of listed companies, and it's a premium in the secondary market. You can't calculate it like that when it comes to primary market financing."

Lin Bing nodded.

"So the second model is the price-to-sales ratio method, calculated based on annualized revenue. Our revenue for the past month was 900 million, and we expect it to be around 10 billion for the whole year. In the primary market financing of the consumer electronics industry, the price-to-sales ratio is usually between 1.5 and 2."

He paused.

"Based on this calculation, the valuation is between 15 billion and 20 billion."

Lu Chen shook his head again.

"That's unreasonable too. Our Journey 1 only has a 5% profit margin, which is a typical low-profit, high-volume strategy. The high price-to-sales ratio is due to the initial explosive growth, but investors look at returns, not revenue scale. 10 billion in revenue sounds good, but if there's only 500 million in profit, why would they give it a 20 billion valuation?"

"The third model is the comparable transaction method."

Lin Bing turned out another piece of paper.

The top is covered with various data and notes.

"I looked at a few similar companies recently for reference. Although Meizu has not disclosed its financing data, based on its sales data, its valuation is about 3 billion. HTC's market value is currently about 49 billion RMB, but it is a listed company and has the support of the global market."

Apple's market capitalization is over $100 billion, so there's no comparison.

"Taking all factors into consideration, I believe that the reasonable valuation for Journey Communications should be between six billion and eight billion. This range reflects our current achievements and leaves enough room for investors' imagination. If the negotiations go well, we can move towards eight billion. If the other party is more conservative, six billion is also acceptable."

Lu Chen pondered for a moment.

"If we value the company at eight billion, how many shares are we planning to sell?"

My suggestion is 10%.

Lin Bing answered quickly.

"A 10% stake can raise enough funds without diluting too much control, and this percentage is common in the investment community and is easily accepted."

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