Corporate Presentation October 2018 Disclaimer This presentation is - - PowerPoint PPT Presentation

October 2018 Corporate Presentation

Disclaimer

This presentation is prepared by NetDragon Websoft Holdings Limited (the “Company”) solely for information purposes and is not to be construed as a solicitation of an offer to buy or sell any securities of the Company in any jurisdiction. Information is given in summary form and does not purport to be complete. This presentation is prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. In this connection, information in this presentation is not investment advice and is not intended to be used as a basis for making an investment decision. This presentation may contain forward-looking statements that are based on current expectations of the Company’s management about future events and past performance. These expectations are, however, subject to known and unknown risks, uncertainties and assumptions, many of which are outside the control of the Company, and may involve significant elements of subjective judgment and assumptions as to future events that may or may not be correct. Past performance is no guarantee of future performance. Therefore, there is no assurance that actual results or performance will not differ materially from future results or performance expressed or implied by the forward-looking statements. Information in this presentation is made only as at the date of this presentation unless otherwise stated and subject to change without notice. None of the Company’s directors, employees or agents undertakes any obligation to correct or update information in this presentation as a result of new information, future events or otherwise.

2

Pioneer in Building Online Communities

3 2014 Acquired cherrypicks 1999 Founded by Group Chairman Liu Dejian 2003 Sold 17173.com to Sohu for US$20.5M 2007 IPO in HK 2013 Sold 91 to Baidu for US$1.9B 2015 Acquired ChiVox 2017 Included in Hang Seng Composite Large Cap & Mid Cap Index 2015 Acquired Promethean 2016 JV with ARHT 2017 Acquired JumpStart 2018 Acquired Edmodo

Building Global Online Communities

• User Acquisition Track Record: Largest 3rd party smartphone appstore 91

Wireless with 200M+ users

• Strong Monetization: 300M+ gamers, recorded over RMB1,600M of gaming

revenue in 2017

4

Expertise in Online Communities Cutting-Edge Technologies Global Team

• Developed and applied innovative VR, AR, AI, big data and speech

assessment technologies to gaming and education businesses

• Globalized team of 6,000+ headcounts, with >60% R&D staff
• Significant presence in China (Fuzhou, HK) and the US (Silicon Valley, Seattle,

Los Angeles) with 10+ regional offices in countries including UK, India, Germany, Canada and Thailand

Synergy between Gaming & Education

5

Community Building Big Data Technology Application Gaming

Education

ARPU RMB585 Countries 180 MAU 9M ARPU TBD Countries 200 MAU 5M

Data Analytics Understand Gamer Patterns Drive Gamer Engagement Increase Gamer Conversion Optimize Gaming Experience

VR AR Big Data Speech AI

Data Analytics Understand Students’ Interests, Strengths & Weaknesses Drive Student Engagement Provide Personalized Learning Increase Learning Efficiency & Experience

Education

190+

Snapshot of Key Metrics: Coverage

7

* Estimated weekly active teachers using our ActivInspire lesson delivery software based on a third party survey conducted by Hanover Research in May 2018 (estimated with 95% confidence level)

640K 2M+ 1.3M 10M

Teachers Installed Base

(In China – our 101 Edu PPT lesson delivery software)

Classrooms Countries Students taught by Teachers WAU

(In Overseas – our ActivInspire

lesson delivery software)*

Estimated Teachers WAU

(In Overseas – our ActivInspire lesson delivery software)*

50K+

Schools

Snapshot of Key Metrics: Usage

8 618M+

650M+ 129

Learning resources created and shared Learning resources created and shared per minute

5M+ 90M+

Registered Users MAU

1M+

DAU

9

Lesson Preparation Lesson Delivery Homework Resources Sharing Teacher- Student-Parent Communica- tions Content Marketplace

Our Complete Product Ecosystem

Our Three-Pronged Strategy

10

Continue our market leadership in front-of-class hardware as gateway to gain users Engage users with killer offerings that empower them to connect, share and socialize in a learning context

Monetize Users with Internet Services

Our Three-Pronged Strategy – First…

11

Continue our market leadership in front-of-class hardware as gateway to gain users

Interactive Display Systems

12

Our front-of-class interactive display panels for classrooms, together with our software, connects teachers and students into a new world of learning.

Global Leader in K-12 Interactive Technologies*

13

#1 USA #1 EMEA

*Source: Futuresource Consulting

• Revenue +57% YoY to US$196M in 1H18
• Gross margin ~30%
• Operating margin ~7-8%
• Market share (ex China) 34% in 1H18

Hardware as gateway to users creates significant entry barrier

Hardware aggregates traffic and is a gateway to bring users online

• Teachers and students are naturally our users upon hardware installation
• 1.3 million classrooms with our interactive display systems installed
• Long useful life varying from 5 to 12 years

Captive environment with ultra long usage time

• Classroom being a captive environment where students spent greater than 7 hours a day
• Higher usage time than WhatsApp, Snapchat, Instagram, WeChat and almost all other popular social platforms

Selling hardware into classrooms enables us to get insights in classroom engagement

• Pioneer in interactive classrooms since 1999
• Enables us to gain insights into classroom engagement
• With 20 years of experience in enabling interactive classrooms, nobody understands classroom engagement more than us

14

Sizable Untapped Market Opportunity

15

Classroom Penetration

26% 3% 71%

Promethean Other Brands Classroom without Interactive Displays Developed Countries Emerging Countries Total Penetration % 67 - 92% 12-24% Total Classrooms 3M 40M 43M Classrooms with Interactive Display 2.4M 7.2M 9.6M % that remains unpenetrated 8 - 33% 76 - 88%

Source: Futuresource Consulting

16

Engage users with killer offerings that empower them to connect, share and socialize in a learning context

Our Three-Pronged Strategy – Second…

Our interactive lesson preparation and delivery software offerings empower teachers to turn classroom into a highly engaged learning platform in a learning context because of the intensity of collaboration and sharing within the classroom using our software

17

* Estimated weekly active teachers using our ActivInspire lesson delivery software based on a third party survey conducted by Hanover Research in May 2018 (estimated with 95% confidence level)

Killer Offering #1 Interactive Lesson Preparation & Delivery

Our current user base: Overseas – an estimated 640K* teachers-WAU using ActivInspire, our lesson delivery software, covering

• approx. 10M students; 70% of these 640K teachers

use our software at least 4 times a week* China – 2M+ installed base teachers for our flagship platform 101 Education PPT

18

1+ Billion Messages 7+ Million Quizzes 100+ Million Quiz Answers 20+ Million Assignments 650+ Million Shared Assets & Resources

Connect & Communicate Share & Discover Homework & Assignment

Killer Offerings #2 and #3 Connect & Share; Homework & Assignments

Killer Offerings #4 and #5 (launching soon)

Killer offering #4 – Machine Learning

Recommendation

• Beta-launched AskMo – Free/Paid resource recommendations to

teachers & students

• In the stream, tailored to the conversations

Tutoring

• Partnership with IBM Watson Education for AI-based Micro-

Tutoring

• Scalable lead-gen for 1-to-1 tutoring

Killer offering #5 – Student-to-Student Chat

• To provide students with a coherent learning experience by

enabling them to do homework, share and communicate with each other all in one platform

• Target to launch in 2H18

19

Our Three-Pronged Strategy – Third…

20

Monetize Users with Internet Services

Current Monetization – Advertising

• Scale next year with new advertising models
• E.g. US Army, FDA that are more than just CPM-based sales
• Focus on a few large segments: Higher Education, Consumer Products (CPG), Entertainment

21

Future Monetization – Recurring Subscription Model

22

Tutoring Machine Learning Stay Tuned…

Gaming

9 Million 180

MAU Countries

RMB585

Monthly ARPU

Gaming Business Snapshot

24

• One of the most legendary MMORPG in China
• Accumulated gross revenue of over RMB10 billion
• 5 months of monthly gross billings over RMB100 million during 1H18
• Accumulated more than 200 million gamers

25

Eudemons Online

Member of 10 Billion Club

• Top #2 MOBA mobile game in China
• Registered users > 150M
• Mobile MAU 4M
• Multiple eSports events hosted by Information Centre of General Administration of

Sports of China in 1H18

26

Heroes Evolved

6 Million+ MAU

IP GAME TITLE/CATEGORY PC MOBILE AR/VR

PC & Mobile Cross-Platform Version

√

3D Eudemons Online

√

H5 Game

√

Third Person Shooting

√

√

VR Trading Card Game

√

Strategy MOBA Game

√

SLG

√

H5 Game

√

New IPs

3D ARPG Game

√

H5 Game

√

Gaming Pipeline

27

Financials

1H18 Results

Revenue: RMB2.5 Billion Net Profit: RMB201 Million

29

1,775.3 2,469.9

• 500.0

1,000.0 1,500.0 2,000.0 2,500.0 3,000.0

1H17 1H18

(RMB million)

25.8 200.7

• 50.0

100.0 150.0 200.0 250.0

1H17 1H18

(RMB million)

Segmental Results

Gaming Segment Education Segment

30

802.4 1,039.3 334.1 524.4

• 200.0

400.0 600.0 800.0 1,000.0 1,200.0 1H17 1H18 (RMB million) Revenue Core Segmental Profit/(Loss)

934.1 1,384.1 (189.2) (158.7)

(400.0) (200.0)

• 200.0

400.0 600.0 800.0 1,000.0 1,200.0 1,400.0 1,600.0 1H17 1H18 (RMB million) Revenue Core Segmental Profit/(Loss)

Condensed Income Statement

(RMB million) 1H18 1H17 YoY (%) Revenue 2,469.9 1,775.3 +39.1% Education 1,384.1 934.1 +48.2% Gaming 1,039.3 802.4 +29.5% Gross Profit 1,402.1 1,033.3 +35.7% Selling & Marketing Expenses 332.6 292.5 +13.7% as a % of Revenue 13.5% 16.5%

• 3.0 ppts

Administrative Expenses 409.5 344.9 +18.8% as a % of Revenue 16.6% 19.4%

• 2.8 ppts

R&D Expenses 442.2 396.3 +11.6% as a % of Revenue 17.9% 22.3%

• 4.4 ppts

Net Profit attributable to Shareholders 200.7 25.8 +678.8%

31

(RMB million) Education Gaming 1H18 1H17 YoY (%) 1H18 1H17 YoY (%) Revenue 1,384.1 934.1 48.2% 1,039.3 802.4 29.5% Gross profit 421.5 273.2 54.3% 978.5 755.2 29.6% Gross profit margin (%) 30.5% 29.2% +1.3 ppts 94.1% 94.1%

• Core Segmental profit (loss)1

(158.7) (189.2)

• 16.2%

524.4 334.1 56.9% Segmental operating expenses2

• Research and Development

(214.5) (183.8) 16.7% (222.4) (203.2) 9.5%

• Selling and Marketing

(224.2) (192.1) 16.7% (102.6) (97.1) 5.7%

• Administrative

(113.0) (68.8) 64.2% (143.8) (133.9) 7.4%

Segmental Financial Highlights

32

Note 1：Core segmental profit (loss) figures are derived from the Company’s reported segmental profit (loss) figures (presented in accordance with Hong Kong Financial Reporting Standard 8 (“HKFRS 8”) but exclude non- core/operating, non-recurring or unallocated items including government grants, fair value change and finance cost of financial instruments and fair value change of convertible preferred shares. Note 2: Segmental operating expenses exclude unallocated expenses such as depreciation and amortisation that have been grouped into SG&A categories on the Company’s reported consolidated financial statements but cannot be allocated to specific business segments for purpose of calculating the segmental profit (loss) figures in accordance with HKFRS 8.

Management Team

Dejian Liu

Group Founder and Chairman

▪ Ahead-of-the-curve product designer ▪ Conceived, successfully scaled and commercialized “first-mover” ideas including:

• 1st gaming portal (17173.com)
• 1st “free-to-play” MMORPG (Eudemons Online)
• Largest smartphone appstore (91 Wireless)
• Dr. Simon Leung

Vice Chairman, NetDragon; Chairman, Edmodo

▪ Former Chairman & CEO, Greater China, Microsoft ▪ Former President, Asia Pacific, Motorola ▪ Doctorate in business administration from Hong Kong Polytechnic University and honorary doctorate in laws from University of Western Ontario 34

Visionary Leadership…

• Dr. Vibhu Mittal

CEO, Edmodo

◼ Former Senior Scientist of Google ◼ Former Co-Founder and CEO of Root-One ◼ Ph.D in Computer Science from University of Southern California

Ben Yam

Chief Financial Officer

◼ Former Senior Vice President, SAIF Partners (Asian PE fund with US$4B AUM) ◼ Sat on board of 7 TMT portfolio companies ◼ MS from Columbia University ◼ CFA, CA, CPA

Vin Riera

CEO, Promethean

◼ Former Director and CEO of Collegis Education ◼ Former Director and CEO of Edmentum ◼ Served in executive leadership roles at Gateway, Inc. and Orange Business Services

Song Wang

Chief Product Officer

◼ Chief Designer of “Eudemons Online”, NetDragon’s most popular and most profitable MMORPG ◼ Expert in gamification and user experience

Wei Lin

President of Fujian Huayu (China)

◼ Head of sales of educational products of Huayu Education (China) ◼ 15+ years of experience in IT, mobile Internet, and education industries

Biao Yu

Chairman of Fujian Huayu (China)

◼ Head of planning, consolidation and operation of Huayu Education (China) ◼ 15+ years of experience in education management

Hongzhan Chen

Chief Technology Officer, Executive Director

◼ Head of game development & technical support ◼ Former CEO of 91 Wireless ◼ 15+ years experience in online game development, management, & hardware development

Xin Lin

VP, Gaming Operation

◼ Head of operations of gaming business, having served 8+ years in the company ◼ Former senior management of Ogilvy, China, with 10+ years of experience in marketing and brand management

• Dr. Li Xiong

Rotating CEO

◼ Associate Director of National Engineering Laboratory for Cyberlearning and Intelligent Technology ◼ 12+ years of management experience in TMT industry

And a seasoned executive management team with track record in execution…

35

Hong CHEN

Chief Technology Officer

• f Fujian Huayu (China)

◼ Former CTO of SVMsoft (Joint Venture of VMware and Sugon) ◼ Former Director of VMware ◼ 10+ years of experience in software engineering and development ◼ MBA from Tsinghua University

36

Investor Relations Contact ir@netdragon.com

Appendix

Product Portfolio

38 Easy Preparation; Efficient Delivery

E-Learning Games

Educational Resources

Announcements Quizzes Assignments Printables

39

Lesson Builder Activities Productivity Apps Lesson Delivery

Platform

[Identity, Storage, Roster, Telemetry…]

Future Platform

The PLATFORM is the glue that connects these experiences –

It creates a consistent user experience across personas, apps and devices – in school and at home – and allows large-scale

• nboarding of new content and resources.

2M+

Current installed base

40

Parents’ Communication

4M

Teachers

80M

Students

120M

Parents

2M+

Teachers in 1.3M classrooms as current installed base

Interactive Lessons & Homework

China Overseas

Online Community Engagement

• Resources sharing, homework
• Active community with MAU of 5M+

User Acquisition Strategy