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A Quick Overview of How China Literature Makes Its Money

China Literature Ltd (SEHK: 772) operates a leading online literature platform in China and was a former unit of Tencent Holdings Ltd (SEHK: 700) before the tech giant spun it off in an IPO in November 2017.

As of June 30, 2019, China Literature had 7.8 million writers and 11.7 million online literary works, covering over 200 genres and reaching millions of readers.

In this article, I’ll help investors understand one aspect of the company – how does it make its money? This will help investors get a quick overview of the company’s various sources of income so they can decide for themselves whether it’s a business worth investing in.

Show me the money

I’ll start out by looking at the two main segments operating under the company’s arm; online business and intellectual property operations. Here’s a table summarising the financials for both segments in the year ended 31 December 2018.

Source: China Literature 2018 Annual Report

The online business segment is three times the size of the intellectual property operations segment, based on the 2018 revenue numbers. This segment makes money through a number of online channels, which include online paid reading, online advertising, and game publishing.

From the table above, we can see that majority of the online business’s income (43.9% of revenue) is derived from China Literature’s own platforms (such as QQ reading), while the rest are from other distribution channels like Tencent (such as Mobile QQ and Weixin Reading) and third-party platforms (Baidu Reading, Sogou books and JD Reading).

The next major segment, intellectual property operations, accounts for 20% of the company’s 2018 revenue. Here, it generates income mainly from monetising its content through venues like licensing and distribution of films, copyrights licensing, sales of physical books, online games and more.

Key takeaway

China Literature is an interesting business model showcasing how the literary industry might move forward in the age of technology.

Nevertheless, there are still a number of moving parts that investors should pay attention to in order to help them understand the attractiveness of the overall business.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.