NETDRAGON (00777) is accelerating its AI transformation across its two core businesses of "Gaming + Education," while steadily advancing its strategic "AI+" investments, positioning the company at the forefront of the AI revolution. The company recently released its 2025 financial results, which showed revenue adjustments due to broader market demand softness. However, by fully embracing AI and continuously empowering its education and gaming segments, the company achieved significant operational efficiencies. Full-year operating expenses decreased by 22.2%, with a notable improvement in profitability during the second half, where operating profit grew 47.7% year-over-year.

The company maintains a strong cash position, with net cash and liquid investments totaling RMB 2 billion as of December 2025. Demonstrating its commitment to shareholder returns, the Board approved a final dividend of HK$0.50 per ordinary share, bringing the total annual dividend to HK$1.00 per share, representing an annualized dividend yield of approximately 11%. Notably, NETDRAGON has fulfilled the HK$600 million shareholder return plan announced in August of last year and has now announced a new HK$600 million return plan, underscoring confidence in its future business development and cash flow generation. Having initially achieved an AI-driven organizational transformation in 2025, how will the company benefit in 2026?

NETDRAGON's 2025 performance was characterized by a stronger second half, with operating profit rebounding significantly. In terms of revenue, the year-on-year decline in the Gaming and Applications business slowed markedly in the latter half, while Mynd.ai's results were adjusted in line with industry demand cycles. On the profitability front, the second half saw a recovery, with operating profit increasing 47.7% compared to the same period last year. The Gaming and Applications business remains the core profit driver, contributing RMB 900 million in core operating profit. Although Mynd.ai is still operating at a loss, the drag on overall profit has decreased in recent years due to AI transformation and optimized costs. Operating profit for both core businesses improved in the second half of 2025.

Following its "Full Embrace of AI" strategy, NETDRAGON further introduced an "AI Now" strategy in 2025, fully implementing its strategic transformation. Both core business segments increased their AI investments, launching corresponding AI products to unlock commercial growth opportunities while significantly optimizing core expenses. The company's total operating expenses for the year decreased by 22.2%, with R&D expenses falling 29.1%. Financially, NETDRAGON maintains a prudent capital expenditure strategy, holding substantial cash reserves to support the full commercialization of its AI transformation across both core segments.

NETDRAGON's comprehensive AI strategic transformation aims to establish it as a global leader in AIGC creation, having initially completed an AI-driven organizational overhaul. Both core businesses and various "AI+" strategic investments are progressing steadily and beginning to yield results. In gaming, the company's AIGC capabilities are flourishing, with a strategic focus on developing AI-native games. AI technology continues to enhance the game development pipeline; in 2025, the company deployed over 200 AI "employees," increasing AI's share of total gaming workload to 25%. The company plans to deploy more AI employees in 2026, aiming to raise this share to 50%. AI-powered anti-cheat features now cover multiple core scenarios for the Eudemons IP, while AI companions are fully utilized in the Conquer and Heroes of Incredible Tales IPs, significantly improving player retention. Furthermore, the company is creating a new paradigm of "Gaming + Cultural Tourism" through AI technology, continuously enhancing the appeal and gameplay experience of its core IPs. For its flagship Eudemons IP, average monthly active users grew 11.1% for the full year and 7.1% sequentially in the second half of 2025, marking four consecutive half-years of sequential and year-on-year growth. Full-year revenue for the Conquer and Heroes of Incredible Tales IPs grew 6.4% and 21.3%, respectively, with the latter driven by content innovation and esports. PC revenue for Heroes of Incredible Tales has grown year-on-year for three consecutive years. The company plans to enter new game categories like Match-3 and Rogue-like in 2026, initiating development on multiple products.

In the education sector, NETDRAGON's AI Production Center has achieved several breakthroughs in product innovation, content creation, and AI integration, building a digital education ecosystem centered on "Game-based Learning." The company is successfully exporting its national-level "AI+Education" model overseas, with projects progressing steadily across Asia and Africa. In February 2026, NETDRAGON deepened its strategic partnership with Thailand's Ministry of Higher Education, Science, Research and Innovation to jointly develop an AI-powered learning platform, competency assessment system, and career bridging mechanism, creating an AI-driven, end-to-end education ecosystem from "learning to employment." In March 2026, an AI-powered smart classroom developed in cooperation with Cameroon's Ministry of Secondary Education was officially inaugurated in Yaoundé, marking the successful launch of the first flagship project for NETDRAGON's "AI+Education" solution in Africa, injecting new momentum into regional educational digital transformation. Overseas, Mynd.ai continues to advance AI empowerment, significantly enhancing the interactive experience of its software and hardware ecosystem in classroom settings by integrating cutting-edge AI technologies from Merlyn Mind and Augment Me. Facing customer budget uncertainties and increasing global trade challenges, Mynd.ai is pursuing a long-term development strategy, enriching its product portfolio and expanding its regional market presence. During the period, it launched the next-generation integrated solution—ActivPanel 10® and Promethean ActivSuite® software, alongside the ActivPanel LE and ActivPanel D series. While Mynd.ai's performance was impacted by industry headwinds, product optimization and AI empowerment led to a 61.8% quarter-on-quarter narrowing of adjusted EBITDA loss in Q4 2025.

Concurrently, NETDRAGON places high importance on "AI+" strategic investments, focusing on deep exploration of AI computing power and AIGC production capacity. It will continue investing in outstanding enterprises in frontier fields like AI and AR, creating synergies with its core gaming and education businesses to capture opportunities in emerging sectors and form multiple potential growth drivers. In 2025, the company secured several strategic partnerships, including a collaboration with ByteDance's cloud and AI service platform, Volcano Engine, becoming the first to integrate the SeeDance 2.0 API for educational AIGC production. The partners will jointly build deep cooperative barriers combining technology, resources, and ecosystems in domestic higher education and vocational training, mass-producing a new generation of AIGC educational resources to create a globally collaborative and innovative education ecosystem. A partnership with leading AI model firm Wenge was formed to co-develop three AI applications, promoting the innovative application and implementation of AI technology in education, enterprise, public services, finance, and healthcare. Furthermore, the company's investments in AI hardware and related firms are bearing fruit. Its investment in Rokid for AR glasses has seen rapid sales growth for the new generation of AI glasses. An investment in Shuaiku Networks secures a position in the lucrative group live-streaming sector, where production continues to lead the market with strong support from short-video platforms. These strategic collaborations and AI investments will strongly support and further propel NETDRAGON towards its goal of becoming a global leading AIGC creation enterprise.

Building on its AI Production Center, NETDRAGON recently launched an AI Employee Matrix internally, a new strategic product featuring Agentic AI capabilities, aiming to comprehensively restructure the entire content production chain. These AI employees can autonomously operate 24/7, managing the entire workflow from concept ideation and intelligent image generation to material refinement and video rendering, precisely handling highly repetitive and time-sensitive tasks to enable rapid output of massive, high-quality content. Compared to traditional human-driven models, the AI Employee Matrix can significantly shorten production cycles, reduce costs, ensure consistent quality, and shift content production from "human-driven" to "intelligence-driven," achieving goals of standardization, scalability, and speed. Core creative teams within both the gaming and education divisions have already begun deploying these AI employees to enhance content production efficiency. Internally, the AI Employee Matrix is positioned as a new strategic "Labor as a Service" (LaaS) product powered by AI. Beyond internal refinement, it will be gradually promoted externally, initially targeting AIGC enterprises within NETDRAGON's strategic investment portfolio as pilot clients. The future vision is to use the AI Employee Matrix as a core to deepen human-machine collaboration, liberate productivity, focus on creativity and quality upgrades, and inject new momentum for scalable intelligent content supply into the broader enterprise services market. On the foundation of steady growth in its core gaming and education businesses, NETDRAGON's various AI investments and groundbreaking AI Employee Matrix product are expected to bring substantial incremental growth to overall performance.

NETDRAGON adheres to a long-term philosophy, balancing robust development across three dimensions alongside its comprehensive AI transformation: First, financial stability, with a low debt ratio and ample cash flow; Second, a strong emphasis on ESG beyond operations, with MSCI's latest ESG rating upgraded from BBB to A, continuing a five-year trend of steady improvement; Third, a commitment to sharing development success with shareholders by continuously enhancing returns. The company rewards shareholders through a "buyback + dividend" model, fulfilling its shareholder return commitments. Since announcing a shareholder return plan of no less than HK$600 million in August 2025, the company had repurchased HK$60.77 million by year-end. It has paid dividends annually since its 2007 IPO, totaling 40 times with a payout ratio of 70%. Long-term market cap returns have also been considerable, with the company delivering over 10x returns from 2010-2017. After a year of adjustment, the market cap doubled again from 2019-2022. Since 2023, it has undergone a mid-cycle adjustment within a range of HK$8-12, with potential for a new uptrend in 2026 driven by the AI boom.

Supported by strong fundamentals and shareholder returns, the company has garnered positive views from major investment banks. For instance, Soochow Securities issued a report expressing optimism, citing stable operations of existing games, educational business benefits from equipment replacement cycles, comprehensive AI empowerment across gaming and education, and diversified investments contributing to earnings growth. They initiated coverage with a "Buy" rating.

In summary, NETDRAGON's 2025 performance improved markedly in the second half, benefiting from the steady advancement of its AI strategy and the empowerment of AI products across all business segments. The company's AIGC capabilities are flourishing in both gaming and education, with several flagship gaming IPs achieving growth in revenue and users against the trend, while educational initiatives are progressing ahead of expectations. With increasing AI penetration, Mynd.ai is expected to return to growth. The company possesses long-term investment value, underpinned by its fundamental long-term approach and a high total shareholder return driven by market cap performance, buybacks, and dividends. The current dividend yield exceeding 10% may present an opportunity for value investors.