The film producer and movie ticketing company staged a comeback in the second half of last year after suffering a profit slump in the first half

Key Takeaways:

• Maoyan Entertainment said it expects to report its profit rose around 200% last year, citing strong performances for its films and cost controls
• The movie ticketing and production company's revenue rose between 12.7% to 15% in 2025, far slower than its profit gain

The blockbuster "Ne Zha 2" shattered Chinese box office records early last year, grossing a staggering 15.46 billion yuan ($2.25 billion) in ticket sales to become the world's highest-earning animated film of all time. But even as the movie's producers and cinema operators boomed, online ticketing platform Maoyan Entertainment (1896.HK) failed to profit from the hit, reporting a 37% profit slump in the first half of last year.

But the Chinese film market's boom also proved to be short-lived, with the box office flagging in the second quarter of last year as "Ne Zha" inevitably lost momentum. That didn't bode well for Maoyan and its peers, leading investors to worry the group would suffer in the second half of the year as well. Against that backdrop, Maoyan's upside profit surprise for all of 2025, contained in an announcement last week, defied the earlier skeptics.

The company said it expects to report 2025 revenue between 4.6 billion yuan and 4.7 billion yuan, up 12.7% to 15.1% year-on-year. While that increase was modest, the company said it expects to report its profit surged by a much larger 196.9% to 224.4% year-on-year to between 540 million yuan and 590 million yuan.

Three key profit drivers

Maoyan attributed the big profit leap to strong performances for some of its key metrics, led by films it promoted, produced and distributed. Several titles delivered especially strong results. Those included its self-distributed and produced "Detective Chinatown 1900," which grossed over 3.6 billion yuan, making it China's third-highest grossing film of 2025. Another hit, "Nobody," generated 1.7 billion yuan, while "The Lychee Road" raked in 600 million yuan.

The company also benefited from a strong live performance market in China, with box office revenue from such shows rising 6.4% year-on-year to 61.7 billion yuan last year. Benefiting from that boom, Maoyan's live entertainment segment achieved record gross merchandise value (GMV) last year, growing significantly faster than its peers.

Lastly, the company also credited cost controls as an important factor behind the big profit gains. That included a strategic focus on high-quality content development and investment, which it said helped to mitigate risks associated with content development. It also made aggressive efforts to rein in outstanding accounts receivable, accelerating the collection of long-overdue payments and recovering some past-due amounts.

Despite the big profit gain, Maoyan's stock rose less than 2% to close at HK$6.41 the day after the upside profit announcement. Still, the uptick marked a reversal of a selloff that saw the stock drop 21% over the seven previous trading days.

Sputtering box office

Investor concerns about Maoyan's outlook aren't without merit. China's box office initially surged post pandemic, hitting 54.9 billion yuan in 2023 as people celebrated the end of several years of tough pandemic restrictions. But that rebound quickly sputtered, causing the box office to tumble to 42.5 billion yuan in 2024, before rebounding to 51.8 billion yuan last year. But even last year's rebound was misleading, since "Ne Zha 2" accounted for nearly one-third of ticket sales that year.

British consultancy Gower Street Analytics forecast late last year that China's box office would generate 51 billion yuan this year, marking a 4% dip from 2025. But things could be even worse, following a critical Lunar New Year period that delivered just 5.75 billion yuan over seven days last month — the worst showing since the pandemic. Such a weak start has raised doubts over whether the annual box office will even reach 50 billion yuan. Most industry watchers see little to no likelihood of a return to the 2019 peak of 64.1 billion yuan anytime soon.

Such a stagnating, or even contracting, market will make sustainable profit growth difficult for anyone. In such an environment, breakout hits become all the more important, as evidenced by Maoyan's 2025 surge that was fueled by success of several key films.

More than simple luck?

The problem is, producing consistent box office hits involves significant serendipity. There's no guaranteed formula for success, even with substantial investment, A-list actors and renowned directors and screenwriters. "Ne Zha 2's" phenomenal triumph was a generational event unlikely to play again anytime soon. Banking on Maoyan to deliver consistent hits seems speculative at best. Such unpredictability inevitably causes investors to value companies like Maoyan at a discount in the capital markets.

Acknowledging constraints of its sector, Maoyan is trying to build a stable base by pivoting towards the less fickle market for merchandise and other products based on movie-based intellectual property (IP). It established its Menggu Culture division last fall to manage its animation business, and launched an MmmGoods brand to leverage its IP in the retail sector. The overall strategy leverages Maoyan's movie IP as a springboard into a diverse array of entertainment scenarios and merchandise categories – an area where many Western film companies like Disney have found big success.

While such a strategy sounds prudent, Maoyan's midyear report showed that revenue from "advertising services and others," which includes IP development, totaled just 83.3 million yuan in the first half of last year, and even that was down 17% year-on-year. That shows the business remains nascent, and will require big investment to produce meaningful returns, a process likely to take years.

Rival Damai Entertainment (1060.HK), backed by e-commerce giant Alibaba, reported a profit of 520 million yuan in the first half of last year and commands a market cap near HK$25 billion ($3.2 billion). It significantly outpaces Maoyan in terms of profitability, financial backing, and scale, thanks in no small part to its membership in the Alibaba family. Given the current challenging market, Maoyan's prospects of matching last year's profit, let alone exceeding it, appear slim, providing limited appeal for investors despite last year's big profit gains.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.