F-1/A: CTW Cayman Files for IPO, Reports Revenue Growth Amidst Profitability Decline and Increased Operating Costs

CTW Cayman, a leading web-based gaming platform, is pursuing an initial public offering on Nasdaq Capital Market, reporting a 23.2% revenue increase to $41.2 million for the six months ended January 31, 2025, but a significant 83.9% drop in net income to $0.6 million due to rising operating expenses and impairment charges.

Summary

• CTW Cayman operates G123.jp, a globally accessible, web-based HTML5 gaming platform featuring free-to-play games inspired by popular Japanese animations.
• The company primarily serves game developers by providing IP resources, distribution, marketing, and support, monetizing through a revenue-sharing model from in-game purchases.
• For the six months ended January 31, 2025, revenue increased by 23.2% to US$41.2 million, up from US$33.4 million in the prior comparable period, driven by new game launches.
• Net income for the six months ended January 31, 2025, significantly decreased by 83.9% to US$0.6 million, compared to US$4.0 million in the same period of the prior fiscal year.
• Operating income shifted from a positive US$5.5 million for the six months ended January 31, 2024, to a loss of US$0.5 million for the six months ended January 31, 2025.
• Gross in-game purchase amounts reached US$49.1 million for the six months ended January 31, 2025, and US$84.5 million for the year ended July 31, 2024.
• Monthly Active Users (MAUs) grew to approximately 3.27 million for the six months ended January 31, 2025, and Paying Monthly Active Users (PMAUs) reached 76,684.
• The company is the largest anime IP-based H5 games platform globally in 2023 by gross billings, according to Frost & Sullivan.
• Top games, Vivid Army and Queens Blade Limited Break, continue to contribute substantially to revenue, though their percentage contribution has decreased as new titles gain traction.
• The company has established partnerships with 33 animation IP holders and has 28 active games on its platform with 9 in pre-registration.
• CTW Cayman is pursuing an initial public offering of Class A ordinary shares on the Nasdaq Capital Market under the symbol CTW, with an estimated price range between US$ and US$ per share.
• The company operates on an asset-light model, retaining an average of approximately 80% of gross in-game purchase amounts after deducting IP royalty costs.
• Valuation provisions for advances to game developers decreased from 36.0% as of July 31, 2024, to 29.6% as of January 31, 2025, reflecting improved developer selection and IP strategy.

Sentiment

Score: 5

Explanation: While the company demonstrates strong revenue growth and a leading market position in a niche segment, the significant decline in net income and operating income, coupled with rising operational costs and impairment charges, indicates underlying profitability challenges. The IPO is a positive step for capital, but the recent financial performance raises concerns about efficiency and cost management, balancing the growth narrative with profitability pressures.

Positives

• Revenue increased by 23.2% to US$41.2 million for the six months ended January 31, 2025, driven by successful new game launches.
• Gross in-game purchase amounts show strong user spending, reaching US$49.1 million for the six months ended January 31, 2025.
• Monthly Active Users (MAUs) and Paying Monthly Active Users (PMAUs) have shown substantial growth, indicating expanding user base and monetization potential.
• Return on Advertisement Spend (ROAS) improved to 112.6% for the six months ended January 31, 2025, demonstrating efficient marketing execution.
• The company holds a leading market position as the largest anime IP-based H5 games platform in 2023 globally by gross billings.
• Strong relationships with 33 animation IP holders provide privileged access to popular content, enhancing game appeal and attracting dedicated fan bases.
• The asset-light business model with high profit margins (approximately 80% retention after royalties) and low upfront investment minimizes development-related risks.
• Proprietary AI-driven tools optimize game localization, data analytics, and advertising, contributing to enhanced user experience and efficient user acquisition.
• Platform independence allows the company to bypass significant fees from third-party app stores, enabling reinvestment into platform development.
• Experienced management team with deep expertise in gaming and technology sectors, including founder and CEO Mr. Ryuichi Sasaki with over 15 years of industry experience.
• Strategic global expansion into major markets like the U.S., Europe, and Asia is underway, aiming to broaden reach and market share.
• Commitment to exploring new opportunities with advanced technologies, including AI and blockchain for a proprietary virtual currency, to drive future growth.

Negatives

• Net income decreased significantly by 83.9% to US$0.6 million for the six months ended January 31, 2025, compared to US$4.0 million in the prior comparable period.
• The company reported an operating loss of US$0.5 million for the six months ended January 31, 2025, a substantial decline from an operating income of US$5.5 million in the prior comparable period.
• General and administrative expenses increased by 105.5% due to expansion efforts in Taipei and Shanghai, including higher salary costs, professional fees for the IPO, rent, and office supplies.
• Research and development expenses increased by 88.0%, primarily due to a 169.8% increase in impairment charges related to unrecoverable advance payments to third-party game developers.
• Sales and marketing expenses increased by 50.7% due to intensified promotional campaigns for new game titles and international expansion, indicating higher user acquisition costs.
• Paying user retention rates and active user retention rates decreased across Day 1, Day 7, and Day 30 metrics for the six months ended January 31, 2025, compared to the prior year, suggesting potential challenges in long-term user engagement.
• The business is highly dependent on a few flagship games and related developers, with Vivid Army and Queens Blade Limited Break contributing 28.6% and 11.9% of revenues, respectively, for the six months ended January 31, 2025.
• The company faces risks of not fully recovering advance fees provided to game developers if games fail to launch or generate sufficient in-game purchases, leading to financial losses.
• The dual-class share structure and concentration of voting control in the founder, Mr. Ryuichi Sasaki, may limit the ability of other shareholders to influence corporate matters.

Risks

• The industry is intensely competitive, with larger competitors having greater financial, technical, and personnel resources to secure desirable IPs and outpace marketing efforts.
• Reliance on the free-to-play business model exposes the company to risks if it cannot efficiently attract and retain end-users who make in-game purchases.
• Dependence on third-party game developers to create commercially viable games and appealing content, and the ability to compete for key licenses and engage with developers on favorable terms.
• Increasing difficulty and expense in acquiring players for games, potentially leading to a negative return on user acquisition efforts.
• Risk of losing the benefit of licensed intellectual property if key licenses or partnerships are not secured or renewed on favorable terms, and exposure to potential infringement claims.
• Dependence on the success of flagship games and related developers, requiring continuous launch of hit titles or sequels to compete successfully.
• Inability to fully recover advance fees provided to game developers if a game fails to launch or generate sufficient in-game purchases, leading to material adverse effects on financial condition.
• Subject to technology upgrade risks, including delays and additional costs, and the need to adapt to changes in web-based technologies, network infrastructure, and payment systems.
• Reliance on a small percentage of end-users for all in-game purchases, making the company highly sensitive to changes in player spending behavior.
• Operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies may harm reputation and business.
• Dependence on effectively operating the platform with operating systems and network infrastructures not controlled by the company, with changes potentially harming player retention and engagement.
• Reliance on a limited number of data storage and cloud infrastructure providers, posing risks of service disruption or fee increases.
• Dependence on servers and Internet bandwidth, with potential business suffering from loss of capacity or insufficient bandwidth.
• Reliance on third-party payment processors, with risks related to relationship management, fraud, and difficulty accessing banking services.
• Content policies or regulations adopted by regulators, consumer opposition, and litigation could negatively affect game distribution, especially regarding age appropriateness and sensitive content.
• Security breaches or other disruptions could compromise information, leading to loss of players, increased costs, and significant liability.
• Periodic and annual operating results are dependent on the release of hit titles, causing significant fluctuations due to unpredictable factors like consumer preference and competition.
• Profitability may be affected by the rate of business growth and the inability to successfully manage current and future expansion.
• Reported financial results could be adversely affected by the application of existing or future accounting standards.
• Changes to U.S. tariff and import/export regulations may negatively affect business, financial condition, and results of operations.
• Uncertainties in the tax system in operating countries could materially adversely affect financial condition and reduce net returns.
• Data privacy and security laws and regulations could increase operational costs and subject the company to penalties.
• No prior public market for Class A ordinary shares, leading to potential volatility and inability to resell at or above IPO price.
• Immediate and substantial dilution in net tangible book value for Class A ordinary shares purchased in the offering.
• Failure to implement and maintain effective internal controls or remediate identified material weaknesses could affect reporting obligations and investor confidence.
• Substantial increased costs as a result of being a public company.
• Sale or availability for sale of substantial amounts of Class A ordinary shares could adversely affect market price.
• No intention to pay dividends for the foreseeable future.
• If securities or industry analysts do not publish research or publish negative reports, share price and trading volume could decline.
• Dual-class share structure and concentration of voting control in the founder may limit shareholder influence.
• Management has broad discretion over use of IPO funds, which may not enhance results or share price.
• Inability to satisfy Nasdaq listing requirements could lead to delisting.
• Anti-takeover provisions in articles of association may discourage changes in control.
• Difficulty enforcing judgments against the company due to incorporation in Cayman Islands and assets/management primarily in Japan.
• Classification as a passive foreign investment company (PFIC) could have adverse U.S. federal income tax consequences for U.S. taxpayers.
• Shareholders may be held liable for claims by third parties against the company to the extent of distributions received upon redemption of shares.
• Development and use of artificial intelligence (AI) may present operational and reputational risks, including intellectual property ownership uncertainties.
• Risks associated with integrating acquired businesses, intellectual properties, or assets.
• Use of open-source software may pose risks to proprietary software, including unknown bugs, security vulnerabilities, and license compliance issues.
• Risks related to corporate and social responsibility and reputation, including negative reactions to the platform or services.
• Catastrophic events and climate change may have a long-term impact on the business.

Future Outlook

CTW Cayman is committed to investing in high-quality IP content and collaborating with top-tier developers to deliver games appealing to a wider global audience, furthering its presence in global markets beyond Japan and increasing market share in the mobile game segment. The company plans to fully explore AI-driven opportunities for operational and strategic growth, including offering AI-based packaged solutions to external clients and developing a proprietary virtual currency powered by blockchain technology to reduce reliance on third-party payment providers.

Management Comments

• Our mission is to unlock the potential of Japanese animation-based games, offering game developers the digital floor with commercial opportunities and essential supports to turn their craft into financial success, while creating an unforgettable, ad-free, immersive gaming experience featuring beloved Japanese animations for end-users.
• We believe that our overall profitability will increase in the long run, primarily driven by our continuous focus on acquiring high-quality content and strategic partnerships as well as our growth momentum attributed by the expansion into the global market.
• We are committed to investing in high-quality IP content and collaborating with top-tier developers to deliver games with appeals to a wider audience globally, furthering our presence in global markets beyond Japan and increasing our market share in the mobile game segment of the gaming industry.
• We are also dedicated to exploring new opportunities presented by advanced technologies, including artificial intelligence and data analytics, to drive future growth.

Industry Context

The global online gaming market is experiencing robust growth, projected to reach US$219.7 billion by 2028 with a CAGR of 7.8% from 2023. Mobile games are a significant driver, expected to grow at a CAGR of 9.6% to US$123.9 billion by 2028. While the overall H5 games market has seen a decline (CAGR of -12.4% from 2019-2023), the Anime IP-based H5 games market, where CTW Cayman operates, is growing, with a CAGR of 10.2% from 2019-2023 and projected 9.1% from 2023-2028. This growth is fueled by IP licensing, content innovation, globalization, technological advancements, and increasing user demand for leisure and mobile entertainment. The industry value chain involves game developers, IP holders, publishers, distributors, and players. Competition in the H5 games platform market is intense, with top ten companies accounting for US$953.7 million in gross billings in 2023.

Comparison to Industry Standards

• CTW Cayman ranked as the largest anime IP-based H5 games platform in 2023 globally in terms of gross billings (US$87.3 million), surpassing Tencent Games (US$77.8 million), Poki (US$59.1 million), GameSamba (US$57.7 million), and DMM Games (US$48.9 million) in this specific niche.
• In the broader H5 games platform market, CTW Cayman ranked third in 2023 with US$87.3 million in gross billings, behind Tencent Games (US$222.4 million) and NetEase Games (US$98.8 million), but ahead of Poki (US$84.4 million) and GameSamba (US$82.4 million).
• The company's ROAS of 112.6% for the six months ended January 31, 2025, indicates effective marketing, though it is lower than its own FY2023 ROAS of 131.2%, reflecting increased advertising costs across major digital platforms.
• The company's average cost to acquire a new user through advertising increased by approximately 24.0% in FY2024 compared to FY2023, aligning with broader industry trends of rising user acquisition costs in competitive digital advertising markets.
• The decline in paying user retention rates (e.g., Day 30 from 25.46% to 18.47%) and active user retention rates (e.g., Day 30 from 1.08% to 0.85%) for the six months ended January 31, 2025, suggests a challenge in user stickiness compared to prior periods, which is a common issue in the competitive free-to-play gaming sector.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently subject to any significant legal proceedings.
• The company may, from time to time, encounter actual or threatened legal actions, claims, investigations, and government inquiries in the ordinary course of business, including matters related to anti-money laundering, gambling, intellectual property, data privacy, consumer protection, and advertising.

Related Party Transactions

• No material transactions with related parties occurred during the six months ended January 31, 2025, and fiscal years ended July 31, 2024 and 2023, as identified in accordance with Form 20-F rules.

Stakeholder Impact

• **Shareholders**: Potential for dilution from the IPO, immediate and substantial dilution in net tangible book value for new investors. Share price volatility is expected. The dual-class structure limits influence for Class A shareholders. No dividends are expected in the foreseeable future.
• **Employees**: Benefits from the 2025 Equity Incentive Plan and 2025 Employee Share Purchase Plan, designed to attract, motivate, and retain talent. The company provides free meals and snacks, and fosters an inclusive work environment.
• **Customers (Game Developers)**: Benefits from upfront advances, access to high-value Japanese animation IPs, comprehensive distribution and marketing support, and a revenue-sharing model that aligns success. However, there's a risk of unrecovered advances if games underperform.
• **End-users/Game Players**: Benefits from a diverse selection of free-to-play HTML5 games, ad-free immersive experiences, cross-device accessibility, and AI-based customer support. Potential for new game launches and features based on popular IPs.
• **IP Holders**: Benefits from partnerships that leverage their intellectual property for game development, expanding their brand reach and generating royalty fees.
• **Creditors**: The company's ability to pay debts is subject to its financial performance and cash flow from operations. The company's cash balances are held in financial institutions with high credit ratings, but subject to deposit insurance limits.

Next Steps

• Launch of new game titles based on globally recognized animation IPs, including Doraemon Comic Traveler and Kakegurui ALL IN, expected in the rest of 2025 and early 2026.
• Continued investment in high-quality IP content and collaboration with top-tier developers.
• Significant global expansion into major markets across America, Europe, and Asia over the next five years.
• Optimization of SEO strategies and integration with popular global social media channels like Line and Facebook to boost brand visibility and user engagement.
• Further investment in advanced AI technologies to streamline internal processes and offer AI-based packaged solutions to external clients.
• Exploration of a proprietary virtual currency for in-game transactions, powered by blockchain technology, to reduce reliance on third-party payment providers.
• Remediation of identified material weaknesses in internal control over financial reporting, including strengthening system data change controls and user access review processes, and retaining an external consulting firm for SOX compliance.
• Appointment of independent directors and establishment of an audit committee to strengthen corporate governance.

Key Dates

Recommendation

Keywords

Gaming platform, HTML5 games, Anime IP games, Free-to-play, In-game purchases, Game developers, Intellectual property licensing, Digital distribution, Mobile gaming, Japan, Global expansion, AI in gaming, User acquisition, Monetization, SEC filing, IPO, Nasdaq Capital Market, CTW Cayman