Maoyan shines in spotlight of rebounding China box office

The country’s top ticket seller said its revenue doubled last year, as income from film production overtook its older ticketing business to become its top revenue source

Key Takeaways:

• Maoyan said it expects to report its revenue roughly doubled last year on a strong rebound in China’s box office, while its profit soared more than eightfold
• Despite the strong gains, analysts see the company’s revenue growth slowing to 16% this year as consumers become more cautious and foreign films regain market share

By Doug Young

A resurgent Chinese box office lifted Maoyan Entertainment (1896.HK) to turbocharged profit gains last year, as moviegoers celebrated the end of the country’s tough pandemic restrictions to return to cinemas in droves. But despite the latest positive profit alert from China’s leading online ticket seller, released on Thursday, a growing number of stress signs are pointing to tougher times ahead for the industry as a slowing economy causes consumers to rein in their spending.

Investors welcomed Maoyan’s latest report by bidding up its shares 14% in the Friday morning session. Maoyan forecast it would report between 4.7 billion yuan ($650 million) and 4.8 billion yuan in revenue for 2023, roughly double the 2.3 billion yuan in 2022 at the height of some of China’s most severe Covid restrictions. The forecast was largely in line with analyst estimates for 4.78 billion yuan in revenue for the year.

Our calculations show Maoyan’s revenue growth actually accelerated during 2023, rising to 126% in the second half of the year from 84% in the first half. That said, analysts see the company’s revenue growth slowing considerably to 16% this year, which reflects a return to more normal conditions and also probably factors in growing consumer caution.

The company said its profit last year grew even more strongly, rising more than eightfold to a record of between 880 million yuan and 930 million yuan from 104 million yuan in 2022. The profit performance also improved during the year, rising to about 500 million yuan in the second half from 405 million in the first half.

The strong performance isn’t too surprising, given the sharp rebound in the Chinese box office last year after a miserable 2022. China movie ticket sales were worth 54.9 billion yuan ($7.6 billion) last year, up 83% from 2022, making it the world’s second largest market behind only North America at about $9 billion. We should note that even after last year’s solid gains, last year’s box office was still about 15% lower than the 64.3 billion yuan in movie ticket sales in 2019, the last year before the pandemic.

The box office also posted a record performance during the recent long Lunar New Year holiday for 2024, rising 18% year-on-year to 8 billion yuan. But again, we should note this year’s holiday included an extra day compared with last year.

Maoyan said that in addition to strong movie ticket sales, it also posted a strong rebound for its live performance ticket sales, as attendance for such performances nationwide reached 111 million in the first three quarters of last year, higher than the figure for all of 2022.

Booming market for domestic films

Besides ticket sales, Maoyan’s other big revenue source is its film production and distribution business. That side of the business has boomed since the pandemic, as Hollywood films that once accounted for about half of the market have rapidly lost share to domestic rivals. Domestic films accounted for 84% of the box office last year.

But that said, at least four of the world’s 10 highest-grossing Hollywood blockbusters last year were released in China. So, it’s a bit unclear if the rapid decline in foreign films’ share of the Chinese box office is due to a growing fondness for domestic productions or if Hollywood films might make a comeback in the years ahead – a factor that could hurt domestic film producers like Maoyan.

Maoyan said its content services business, which is mostly in film production and distribution, achieved “breakthrough” growth last year, helping to lead its strong revenue and profit gains. The content services business passed a milestone in the first half of last year, when it became the company’s biggest revenue source by overtaking its older ticketing services. We expect content services may have continued to take up an even larger share of Maoyan’s overall revenue in the second half of the year on the boom for local movies.

Maoyan is a strong indicator for China’s box office, and its latest profit forecast shows how the market improved from the first half to the second half of the year as people returned to theaters with the end of pandemic restrictions.

But as we noted at the start of this review, a growing number of data points show that Chinese consumers are becoming more cautious and reining in their spending on non-essential items like movies and live performances.

While the Lunar New Year box office this year was up 18%, the number of tickets sold for the period was up by an even larger 26%. That implies that people were paying less per ticket as they searched for bargains and as cinema operators lowered prices in response.

In its interim report for last year, Maoyan also said its cost of revenue rose to 49.9% of its total revenue in the first half of 2023 from 47.8% in the year-ago period. That also implies that theaters are giving less of their revenue to Maoyan as a percentage of each ticket sold, again reflecting the pressure that many are feeling in the growing climate of consumer caution.

And we should also point out that despite the strong Lunar New Year performance, China’s box office is still down about 14% so far this year, showing the industry may face some tougher times ahead as the “feel good” holiday sentiment fades and consumer caution returns.

The Friday rally for its stock had the significant impact of lifting Maoyan’s share price from the negative to positive column in terms of year-to-date performance, with the shares now up about 5% since the start of 2024. The rally also lifted Maoyan’s price-to-earnings (P/E) ratio to 27, making it an equal with Germany’s CTS Eventim (EVD.DE) and well ahead of the 11 for Vivid Seats (SEAT.US).

At the end of the day, 2023 has shaped up as quite a banner year for Maoyan and China’s box office in general. The outlook is far less clear for this year, however, as the slowing economy and a potential resurgence for foreign films could put a major damper on both the box office and also China’s domestic film industry.

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