On the evening of August 25, 37 Interactive Entertainment Network Technology Group Co.,Ltd. (SZSE: 002555) released its 2026 half-year financial results, showing a familiar pattern of "higher profit but lower revenue." During the first half, the company posted revenue of 7.275 billion yuan, a 14.28% decline year-over-year. However, net profit attributable to shareholders rose 26.14% to 1.766 billion yuan.

Digging into the profit structure, a significant gap emerges. While attributable net profit reached 1.766 billion yuan, the figure excluding non-recurring gains and losses was 1.016 billion yuan, down 26.74% from the same period last year. The difference between the two numbers is approximately 750 million yuan, with the largest contributor stemming from investment income. In the first half, the company's investment gains totaled 1.016 billion yuan, accounting for 45.22% of total pre-tax profit.

In its financial report, the company explained that this increase was primarily driven by equity-method investment gains from long-term equity investments, dividends received from equity holdings, and income from wealth management products. Public information suggests that 37 Interactive Entertainment has been intensifying its investments in cutting-edge technologies like artificial intelligence. In early August, the company announced its participation in the A1 funding round of Fangqing Technology, a domestic AI computing systems developer. Prior to this, it had already invested in several innovative enterprises, including Zhipu Huazhang, Moonshot AI, Baichuan Intelligent, Aishi Technology, and Thunder Innovation.

As some of these "star companies" have made their way to the capital markets, 37 Interactive Entertainment has reaped substantial rewards. As early as the first quarter, Zhipu AI, dubbed one of the "Four Little Dragons" of domestic large language models, delivered a hefty investment gain for the company. During that quarter, investment income surged nearly tenfold, adding 326 million yuan. The company stated that Zhipu AI, invested in through an associate company, was listed during the reporting period, and the rise in Zhipu's share price boosted the fair value change gains of the associate, with the company recognizing corresponding investment income based on its shareholding ratio. As of the end of the reporting period, the company's long-term equity investments stood at 1.514 billion yuan, representing 6.59% of total assets, up from 541 million yuan at the end of the previous year.

While investments are raking in profits, the company's core gaming business is showing signs of fatigue. Breaking down revenue by product, the mobile gaming segment remains the primary driver, contributing over 97% of total revenue. However, its revenue fell 13.65% year-over-year to 7.115 billion yuan. The web game business continues to shrink, with revenue down 30.07% to 123 million yuan. The company attributed the first-half revenue decline to the varying lifecycles of its operating games. Long-term products like "Xun Dao Da Qian" have seen natural declines in revenue streams, while multiple new games launched in the fourth quarter of 2025 and during the current year, including "Survival 33 Days," "RO: World Journey," and "Last Asylum: Plague," are still in their introductory phase, with revenue contributions not yet stabilized.

Cash flow performance also reflects pressure on the core business. In the first half, net cash flow from operating activities totaled 1.089 billion yuan, a 37.89% drop from 1.753 billion yuan in the same period last year. The company explained this was mainly due to a reduction in cash received from sales of goods and services compared to the prior year.

More critically, looking at the broader idle game market, the domestic gaming market generated actual sales revenue of 188.45 billion yuan in the first half, up 12.17% year-over-year. The domestic mini-game market stood out, with actual sales revenue reaching 31.657 billion yuan, a substantial 36.01% increase—making it one of the key categories driving industry growth. Against this backdrop of an industry-wide recovery and the accelerating expansion of the mini-game market, 37 Interactive Entertainment, a deep participant in this segment, saw its gaming business decline year-over-year, significantly underperforming the industry.

Additionally, the company's current high profit growth is not solely due to substantial investment income; it is also linked to reduced user acquisition spending and lower marketing expenses. In the first half, operating costs fell 17.1% year-over-year to 1.639 billion yuan. The company stated this was primarily due to lower agent game revenue, which correspondingly reduced revenue-sharing costs. Sales expenses decreased 14.64% to 3.764 billion yuan, mainly because products in their long-term or mature operational phases, such as "Heroes Never Fade," "Time Explosion," and "Time Grocery Store," adjusted their promotional strategies and reduced traffic spending. These cost and expense reductions partially offset the impact of revenue decline on profits.

The less-than-ideal performance of the core business points to a decline in product reputation within the gaming segment and an awkward situation where new and old products are not seamlessly bridging the gap. In its half-year report, 37 Interactive Entertainment highlighted key products like "Xun Dao Da Qian," "Survival 33 Days," "Heroes Never Fade," "Time Explosion," and "Time Grocery Store." However, TapTap, the gaming community platform, shows ratings for these promoted games as follows: "Xun Dao Da Qian" scored 4.7, "Survival 33 Days" 6.2, "Heroes Never Fade" 6.0, "Time Explosion" 4.4, and "Time Grocery Store" 5.1 out of 10.

Specifically, "Time Explosion" and "Xun Dao Da Qian" received notably harsh criticism. Player dissatisfaction centers on issues such as server-hopping mechanics, gameplay that is "exhausting and heavily pay-to-win," low drop rates for resources, and frequent pop-up ads. Many low-scoring players pointed out that these games continuously open new servers to attract new players while neglecting the experience of existing ones. Additionally, resource acquisition is challenging, making it difficult to achieve a sense of accomplishment even with significant time invested, and paying for items does not guarantee access to rare resources.

Despite the pressure on its main business, 37 Interactive Entertainment has still announced a substantial dividend payout. The 2026 interim profit distribution plan proposes a cash dividend of 1.00 yuan (pre-tax) for every 10 shares held. Combined with the 462 million yuan already paid in cash dividends in the first quarter, the company is expected to distribute a total of 682 million yuan to shareholders for the first half, representing 67% of net profit excluding non-recurring gains and losses.