Gaming silver lining in dark financial cloud for Vietnam’s first tech unicorn VNG

VNG Corporation, Vietnam’s first tech unicorn, has suffered continuous losses in recent years with revenues from its online gaming segment not enough to offset losses from other business areas.

20 years on, VNG has evolved from an internet café and online game developer into a multi-sector technology company with platforms like messaging app Zalo, e-wallet Zalopay and digital enterprise VNG Digital Business.

The company says it’s riding the new technology wave by making substantial investments in artificial intelligence, defining AI as a focus for future growth. It also remains committed to international expansion, aiming to become a Vietnamese global tech firm.

Expectations were high in January 2023 as VNG began trading its shares on the unlisted public companies market UPCoM as VNZ, with grand ambitions to list on a U.S. exchange.

The ambition has been placed on a backburner with VNG’s financial outlook significantly deteriorating compared to the end of 2021.

Nearly three years ago, the company had a very safe financial structure, with 68% of its total assets funded by equity. Although its charter capital was modest at VND358 billion ($14.54 million), equity amounted to VND6.32 trillion ($256.7 million). Excluding treasury shares valued at VND1.94 trillion, equity exceeded VND8.2 trillion ($333 million), including VND6.65 trillion in accumulated earnings and VND1.13 trillion in capital surplus.

However, at the end of June 2024, the company's equity had dropped to just VND1.68 trillion ($68.23 million), a steep fall of 73.4% over the past two and a half years. Its charter capital decreased to VND287 billion ($11.66 million) due to the cancellation of treasury shares and a negative capital surplus of VND410 billion. Its retained earnings plunged 79% to VND1.4 trillion ($56.86 million).

The company’s liabilities increased significantly from VND2.91 trillion at the end of 2021 to VND8.45 trillion ($343.2 million) in Q2 this year. Specifically, it raised its borrowings from VND174 billion to over VND2 trillion ($81.23 million), while payable costs, unearned revenue, and deferred income taxes surged. As of mid-2024, its debt was five times its equity.

According to its H1/2024 financial statement, VNG suffered a loss of nearly VND586 billion ($23.8 million), nearly half the VND1.2 trillion for the same period in 2023. As of June 30, the company's short-term liabilities had exceeded its short-term assets by VND1.58 trillion ($64.17 million).

The continuous losses in recent years have eroded VNG's retained earnings. Despite revenues of above VND7.5 trillion ($304.6 million) over the past three years, VNG has seen year-on-year increases in after-tax losses - from VND71 billion in 2021 to VND1.53 trillion in 2022 and VND2.32 trillion ($94.22 million) in 2023.

In the first half of this year, VNG earned net revenues of VND4.31 trillion ($175.26 million), up nearly 30% year-on-year. The online gaming segment accounted for 73.25% at nearly VND3.1 trillion, up 35%.

For this year, company has targeted revenues of VND11.07 trillion ($449.7 million) and after-tax profits of VND150 billion ($6.09 million). As of the first half, it had met 39% of the annual revenue target and was far away from its profit goal.

Founder Le Hong Minh said balancing financial goals with business growth objectives will be a major challenge for VNG in the last six months of the year. However, he was confident that the firm would overcome challenges and make its 20th anniversary memorable.

Golden goose

While the online gaming segment continues to be a golden goose for the company, it is grappling with significant losses in the financial technology services sector (Zalopay).

In H1/2024, online gaming was the only segment that generated profit at VN659 billion ($26.76 million). The multimedia communication, financial technology services and other long term investment services recorded losses of VND59 billion, VND301 billion and VND169 billion, respectively.

In online gaming, the company is expanding its international market. In the first half, total bookings from foreign markets increased 23% year-on-year to VND1.03 trillion ($41.43 million).

ZingPlay Game Studios (ZPS) reported that international revenue from its Card & Board games has surpassed domestic revenue for the first time. In the second half, ZPS plans to release more than 10 local and casual games tailored to the cultural preferences of different countries.

For Zalopay, VNG's leadership has outlined strategies to break even as soon as possible. These include driving growth in payment volumes through various methods such as QR code and e-wallet payments, targeting small and medium-sized enterprises and developing cross-border payment systems.

In early July, Zalopay officially transitioned from a pure e-wallet to an open payment application, now accepting multiple payment methods including e-wallets, bank transfers, credit cards, Apple Pay and Zalopay’s own financial services like buy now, pay later.

On UPCoM, VNZ dropped over 6.8% to close Friday at VND480,000 ($19.5) apiece.

Vietnam’s first tech unicorn VNG Corporation last Saturday announced the appointment of deputy CEO Kelly Wong as acting CEO.

Previously, according to the company's mid-year governance report for 2024, Le Hong Minh was CEO of VNG. However, the Saturday statement did not mention Minh’s current role.

Kelly Wong is deputy CEO in charge of online games at VNG and boasts nearly 20 years of experience in various business sectors in Vietnam. He used to be deputy CEO of food major Kido Group, executive chairman of Red Wok Investment (RWI), and CEO of the Ho Chi Minh City Securities Corporation (HSC).

In the statement, VNG assured that its business operations are taking place as usual. "The company is actively cooperating with and complying with all requirements from competent authorities. VNG is committed to making every effort to ensure the stability of its business activities as well as the legal rights and interests of its partners, shareholders and stakeholders," it said.