Performance resilience was highlighted, profits were greatly improved, core profit resumed double-digit growth, and new growth points were explored. NetDragon (00777) handed over a steady report card.
The Zhitong Finance App learned that NetDragon recently released its financial report for the first half of 2026, with revenue of 2.09 billion yuan, of which game and application service revenue was about 1.6 billion yuan, a month-on-month increase; profitability continued to improve, with gross profit of 1.46 billion yuan and gross profit margin of 69.9%, up 0.4 percentage points year on year, operating profit of 140 million yuan, up 24.1% year on year, and operating profit margin 6.89%, up 2.0 percentage points year on year.
In fact, in the first half of the year, the company's two major businesses, “game+education”, comprehensively deepened the “AI+” strategy, maintained resilient performance under two-wheel drive, and improved profit quality significantly. At the same time, the company is exploring a new AI business, and “Meyu AI” has been officially launched simultaneously for testing in domestic and foreign markets, opening a new growth track.
NetDragon is actively increasing returns to shareholders. In March of this year, it announced a plan for total shareholder returns of not less than HK$600 million for the next 12 months, and is steadily implementing it. Dividends of HK$238 million per share have been paid in the first half of the year, and the return to shareholders is expected to be close to 15% for the full year. As of June 2026, the company held about 1.8 billion yuan in cash and realizable investments. Ample cash reserves support two major business expansions and exploration in the AI field, while also providing guarantees for shareholder return plans.
Comprehensive AI strategy, two main track management resilience
In the first half of the year, under the strategy of fully embracing AI, NetDragon's two major business tracks showed resilience. In the first half of the year, the game and application service business showed a recovery trend. In the first half of the year, the business achieved revenue of 1.59 billion yuan, an increase of 3.1% over the previous month, and revenue contribution of 76%. myND.AI's revenue was 510 million yuan, and revenue contribution of 24%.
In the gaming sector, the company's core strategic initiatives, such as deepening AI applications, achieved positive results, and recorded a month-on-month increase in revenue. Empowered by AI, the management resilience of the flagship Evergreen IP has been highlighted.
Among them, “Magic Domain” product content output increased by more than 10% year on year, and the average number of monthly active users of Magic Domain IP exceeded 3 million, up 24.1% year on year and 15.8% month on month, and achieved month-on-month growth for 5 consecutive years, driving Magic Domain IP revenue growth 3.7% month-on-month; Soul Blade IP's mobile game revenue increased 4.4% year over year, achieving year-on-year growth for 7 and a half years. Linkage with Little Yellow Duck IP received positive feedback from young users, driving overall net consumption to increase 37.1% month-on-month.
In the second half of the year, the company will rely on AI to create a closed loop integrating content production and content operation, and continue experimenting in fields with accumulated knowledge, such as AI meat pigeons, AI cultural tourism, and AI skits. At the same time, using AI production lines, it plans to expand overseas multilingual versions of Magic Domain and Soul Blade IP, and launch multiple special versions of Magic Domain and Conquer IP. Furthermore, the company is actively exploring the “game+cultural tourism” model, continuing to deepen cooperation with cultural tourism in various regions, and deeply embed cultural tourism content into gameplay with the help of AI to enhance user activity and stickiness.
Meanwhile, Mynd.ai, a subsidiary listed in the US, actively responded to industry adjustments, reducing losses by more than 35% year over year. By integrating cutting-edge AI technology from Merlyn Mind and Augment Me to enhance the interactive experience of the entire software and hardware ecosystem in the classroom scenario, while continuing to build recurring revenue through the service and SaaS business, this revenue increased year over year. The company released AP10 for the high-end market and a product portfolio for the value market. AP LE products are mainly aimed at emerging markets outside the US, and over 1 million classrooms around the world make up the company's huge user base for deploying AI services.
Explore new AI businesses and open up a new growth curve
In addition to the two main tracks, NetDragon is exploring new AI businesses and creating new growth points in the field of application services. The company's self-developed Meyu AI uses AI agents as a technology base to create a multi-scene AI application ecosystem, providing a new AI application paradigm for work, learning, creation and design. In the first half of the year, Fish AI carried out system optimization around AI application segmentation scenarios such as content creation and education, and continued to iterate on the product and expand application scenarios.
Meyu AI is an ecosystem platform for AI employees, empowering thousands of industries. The business model covers B2C, B2B and B2G, and is fully used on the two main tracks of internal gaming and education.
For example, in the gaming sector, 269 AI jobs were launched in the first half of the year, and the share of AI employees' workload in the overall workload has increased to 35%-40%. Taking “Soul Pocket Edition” as an example, AI employees can simultaneously produce and push delivery materials for more than 100 countries. In A/B tests with traditional manual delivery teams, AI has surpassed human teams in some fields and discovered national-level opportunities undiscovered by human teams.
As can be seen, Meyu AI will use its advantages in scenario resources and operations to deposit data into industry knowledge, form a “private moat”, and continuously stabilize its core competitiveness. However, external market expansion will draw on the successful experience of the main circuit. Currently, there are basically no competitors in the market. Under scarce supply, customer dependence is high, and simultaneous domestic+overseas promotion is expected to open up a new growth curve.
In addition, NetDragon's investment business will enter a harvest period. The company focuses on the AI field. Its strategic cooperation with Chuangsi and Zhongke Wenge has further deepened, begun developing various applications such as AI administration and customer relationship management for local enterprises in the Hong Kong and Macau markets, and is cooperating to build a major model in the field of scientific research and an international version of Longgong, an enterprise-level security agent platform. These businesses are progressing steadily, and large-scale commercialization is expected to contribute to performance growth.
Profitability improved significantly, and undervaluation and high dividend rates drive a return to valuation
NetDragon's comprehensive AI strategy not only maintains business resilience and creates new growth opportunities, but also empowers overall improvement in management quality and significant improvement in profitability through AI. During this period, the company's gross profit margin was 69.9%, an increase of 0.4 percentage points over the previous year, with a steady increase. Among them, the gross margin of the game and application services division exceeded 80% and remained at a high level. myND.AI's gross profit margin was 27.7%, an increase of 2.3 percentage points over the previous year.
The company's Muyu AI has been fully applied to the two major businesses to improve quality and efficiency. In the first half of the year, operating expenses decreased by about 18% year on year, net profit to mother increased 20% year on year, and adjusted shareholders' net profit of 250 million yuan remained steady.
Data source: Company financial report
By business, operating expenses for games and application services decreased by 14.4% year on year, of which R&D expenses fell by 23.4%. The main AI employee matrix further significantly improved overall efficiency in various aspects such as R&D, operation, and maintenance. The classified operating profit was 461 million yuan, rising sequentially for two and a half years. However, Mynd.AI's profit improved markedly. Operating expenses fell 29.6% during the period, all three expense ratios were optimized, sales expenses fell 1.1 percentage points, R&D expenses fell 1.37 percentage points, and administrative expenses decreased by 3.56 percentage points, resulting in a 35% year-on-year reduction in classified operating losses, a 30.8% reduction in net loss, and a significant improvement in adjusted EBITDA of 53.7%.
Taken together, NetDragon has three highlights: one is the gradual release of AI capabilities, the game and application service business has achieved month-on-month growth, the flagship IP performance is strong, and the education business continues to advance transformation and improve the quality of operation; two, significant cost reduction and efficiency increases, and the profitability of the two main track cost optimizations has improved significantly; and third, the launch of “Mewoo AI” from internal application to external commercialization will reshape the growth engine.
Currently, NetDragon's valuation is low. The PB value is only 0.7 times, and the shareholder return is close to 15%. With the restoration of main track performance and the release of new growth variables, the valuation is expected to return.