China-based online marketing solution provider Baosheng Media Group Holdings (NASDAQ: BAOS) recently filed the SEC 13G form, which revealed the cornerstone investor in its IPO, CMGE Technology Group Ltd (HKG: 0302), which owns 7.33% of Baosheng’s total stocks issued as of February 8th 2021.
Three months ago, Reuters said ByteDance was in talks to buy into CMGE Technology. Even though the information was refuted by both parties, the Chinese mobile games publisher then started to gain more attention from the public.
So why did CMGE Technology invest in Baosheng Media Group this time? Based on the SEC filing and fundamental analysis, let’s figure it out.
Improve user acquisition capability through marketing channels arrangement
CMGE is an intellectual property-based mobile game operator and publisher in China. According to Analysis, except Tencent Games, CMGE had the largest IP reserve as of December 31, 2019, amongst all Chinese game publishers and ranked second in the terms of the total number of published games developed based on IPs. The core competitiveness of CMGE lies in the development and distribution of games, not in marketing channel distribution. In order to expand market share in the game industry, CMGE may need the help of Baosheng.
Based in Beijing, Baosheng provides marketing solutions, including online marketing strategies, advertising optimization, and delivers online ads. According to the Frost and Sullivan Report, Baosheng ranked fifth among independent online advertising service providers in China in 2018, and fourth among independent online advertising service providers by gross revenue generated through searching engine ads.
According to its prospectus, Baosheng has a lot of experience in cooperating with game companies to develop marketing activities. Its core customer, Ai Jiuyou, is also one of the well-known game developers in China. The cooperation between CMGE and Baosheng would strengthen CMGE’s competitive strength in traffic acquisition.
Strengthen the relationship with ByteDance through the investment in Baosheng
Baosheng works as the authorized agency for some of the most popular media in China. The company has been connected to Tencent-backed search engine Sogou and livestreaming platform Kuaishou, Alibaba Digital Media and Entertainment Group, Ocean Engine, as well as short video platforms like ByteDance-owned Douyin.
When we look back at the buyout rumor around CMGE and ByteDance, it is easier to understand why CMGE invested in Baosheng. It is highly possible that CMGE seeks to strengthen the relationship with ByteDance through the investment in Baosheng. If the investment in Baosheng works well, CMGE may have more cooperation and investment plans in the future.
Positive on Baosheng and expect to gain high ROI
Due to the pandemic, the length of time people stay at home and spend online is increasing. As a result, digital marketing industry and the gaming markets have not only survived the pandemic, they have actually thrived!
The global media and entertainment market has consistently been on the rise. The entire worldwide market is projected to grow from an estimated 1.72 trillion U.S. dollars in 2015 to 2.2 trillion U.S. dollars by 2021. Online marketing, especially short video marketing, and gaming are integral and ever-developing segments of the market.
Based on this fact, it is not hard to imagine Baosheng and CMGE’s robust increase in the future. Invested in the fast-growing online marketing solution provider, CMGE may expect to earn a good return on investment (ROI), as well as built up a win-win cooperation model with Baosheng.
For Baosheng, it is a good endorsement that supported by an HK-listed top mobile game company like CMGE. More significantly, for CMGE, investing in and cooperate with Baosheng is a strategic step to expand its business and achieve its long-term goal.
