At its interim results conference held on August 28, NETDRAGON (00777) reported a quarter-on-quarter revenue increase for its gaming business, alongside a significant rebound in user activity for its core flagship IP. The company also noted that its Mynd.ai division is advancing cost optimization efforts, with expectations for EBITDA to reach breakeven in the second half of the year. During the meeting, the company officially unveiled its AI employee ecosystem, 目鱼AI, and outlined plans to leverage sovereign large language models to accelerate its global education business.
According to the management, the first half of 2026 saw total revenue reach approximately RMB 2.1 billion. Revenue from gaming and application services contributed around RMB 1.6 billion, marking a sequential increase and signaling a stabilizing trend. Mynd.ai's education business generated approximately RMB 500 million in revenue, a figure impacted by a delayed recovery in industry demand. The company's overall gross margin improved by 0.4 percentage points year-on-year to 69.9%. As part of its ongoing AI strategy, operating expenses were cut by approximately 18% year-on-year to around RMB 1.1 billion.
Profit attributable to owners reached approximately RMB 36 million, a year-on-year growth of about 20%. After adjusting for impairment provisions on Ether and one-time severance costs, adjusted profit attributable to owners was approximately RMB 250 million, maintaining a stable performance. Within the gaming and application services segment, the gross margin exceeded 80%, with core segment profit growing quarter-on-quarter to about RMB 460 million. The segment's operating expenses also saw a year-on-year reduction of roughly 14%.
The management indicated that the gaming revenue growth in the first half was primarily user-driven, laying a foundation for future revenue stabilization and a return to growth. As the core flagship IP, Eudemons Online, celebrated its 20th anniversary, the introduction of new storylines, new classes, and an optimized social system significantly boosted user re-engagement, with long-term retention rates improving by at least 2.8 percentage points. With the deeper integration of AI, content production output for the core Eudemons Online product increased by over 10% year-on-year. The Conquer IP saw a rise in overseas users, with revenue growing significantly when excluding currency effects. Hero Soul, now in its eleventh year of operation, achieved positive year-on-year growth on PC, and a collaboration with the B.Duck IP received positive feedback from younger users, leading to a 37.1% quarter-on-quarter surge in overall net consumption.
In the gaming plus cultural tourism sector, the company has deepened collaborations with various regional tourism authorities, using AI to embed cultural tourism content into gameplay, which has yielded positive results in both user engagement and monetization. The company stated that AI's penetration into its gaming business is deepening, with AI employees now accounting for 35% to 40% of total work. These AI employees can autonomously accept, analyze, and deliver tasks, and support real-time scaling based on workload—launching between 100 and 200 instances for a single role, equivalent to 100 to 200 human workers operating simultaneously. For example, with Hero Soul Pocket Edition, AI employees can create and push marketing materials for over 100 countries concurrently. In A/B tests against traditional human marketing teams, AI has already surpassed human performance in certain areas, uncovering country-level opportunities that human teams had missed.
For the second half of the year, the company plans to leverage AI to establish a closed loop integrating content production and operations, while continuing to experiment in areas with accumulated knowledge such as AI roguelike games, AI cultural tourism, and AI short dramas. It also intends to adapt successful MMO mechanics into lighter formats to explore both domestic and international market opportunities.
Regarding Mynd.ai, the core segment's losses narrowed significantly by 35%. Management noted that the company is moving towards its goal of achieving EBITDA breakeven in the second half, driven by cost reductions and the Q3 procurement season. On the product front, the company recently launched the AP10 for the high-end market and a portfolio for the value segment, with the AP LE products targeting budget-constrained markets outside the US. The global base of over one million classrooms provides a substantial user base for rolling out its AI services. As for the education market outlook, there are early signs of budget release and recovery in North America. The company remains cautiously optimistic about the second half and anticipates 2027 could be a year of industry recovery.
In terms of new business, NETDRAGON released its AI employee ecosystem, 目鱼AI. This platform productizes the AI capabilities developed in its gaming and education businesses, using agentic AI to build workflows focused on vertical industries. The company positions it as an open platform where "enterprises can hire AI employees on demand." The business model spans B2C, B2B, and B2G segments, and it will be adopted across its internal gaming and education operations. Its differentiation lies not in a proprietary large model but in its ability to select open-source or open-weight models as needed, while accumulating data into industry-specific knowledge, creating a "private domain moat." For regions with weak network infrastructure, the company has introduced a sovereign large model solution to support AI teaching in schools, which is currently being piloted in several schools in Hong Kong.
On shareholder returns, the board has declared an interim dividend of HK$0.5 per share, consistent with last year, reflecting the company's commitment to the shareholder return plan announced in March. With cash and liquid assets on hand totaling RMB 1.8 billion, the company has a strong foundation to support its shareholder return policy.