China Literature Revenue Rises 10.7%, but Profits Plunge 84% Due to Tax Costs

China Literature Limited reported an overall revenue increase during the first half of 2026, yet its bottom line suffered a steep decline due to heavy tax-related liabilities. According to financial disclosures reviewed by market analysts, total revenue climbed 10.7% year-over-year to 35억 3천만 위안, driven largely by gains in intellectual property operations and non-reading content formats. However, profitability contracted sharply as the company absorbed a 3억 위안 tax-related expense that included back taxes and associated late payment fees.

The unexpected tax burden heavily impacted the company’s net earnings for the period. Under International Financial Reporting Standards (IFRS), China Literature posted a shareholder-attributable net profit of 1억 3천 5백만 위안, representing an 84.1% plunge compared to 8억 5천만 위안 during the corresponding period in the previous year. Operating income under IFRS dropped 67.2% to 2억 7천 1백만 위안, while non-IFRS net profit fell 49.0% to 2억 5천 9백만 위안.

Market response to the earnings report was immediate. China Literature shares traded down 2.17% to $20.74, bringing the stock closer to its 52-week low of approximately $18 and well below its 52-week high of $46.88. Analysts noted that investor sentiment focused heavily on the dramatic compression of net earnings rather than the top-line revenue expansion or the rapid growth of the company’s newer digital media segments.

Revenue Shifts and Core Business Pressures

The financial report highlights a significant transitional phase for China Literature, as newer digital formats expand rapidly while traditional segments face downward pressure. Total gross profit increased 11.1% to 17억 9천만 위안, maintaining a relatively stable gross margin of 50.7% compared to 50.5% in the prior-year period. Nevertheless, the online reading division experienced a 7.5% revenue decline, falling to 18억 4천만 위안 from 19억 9천만 위안 in the first half of 2025.

Company executives attributed the online reading contraction to shifts in user traffic toward free-to-read content on proprietary platforms and a strategic pullback from low-retention third-party channels. Monthly active users (MAUs) shifted from 1억 4,130만 명 to 1억 3,410만 명, while monthly paying users (MPUs) moved from 920만 명 to 820만 명. Despite these user metrics adjustments, leadership emphasized that the core reading ecosystem remains a vital foundation for generating original stories that can be adapted into visual media.

Conversely, IP operations and other non-reading formats demonstrated strong growth. IP operations revenue surged 41.9% to 16억 1천만 위안, while total IP operations and other revenues combined reached 16억 9천만 위안, up 14.3% year-over-year. The company’s merchandise gross merchandise volume (GMV) grew by more than 60%, bolstered by stronger self-operated sales channels and expanded brand licensing agreements.

Expansion in Short-Form Dramas and AI Animation

Short-form video dramas and artificial intelligence-generated animation have emerged as China Literature’s fastest-growing business units. Combined revenues for these visual formats surpassed 4억 3천만 위안 during the first half of the year. Chief Executive Officer Hou Xiaonan noted during an earnings briefing that the industry is shifting from high-volume production toward quality-focused competition.

“Trends are shifting from quantity to quality, and competition now centers on storytelling quality and consistency in producing hits,” Hou stated, emphasizing the company’s vast repository of original literary IP as a structural advantage. “China Literature holds the largest original literature IP library in China, addressing the industry’s core problem of a shortage of engaging stories.”

Hou also addressed the integration of artificial intelligence into production workflows, characterizing the technology as an amplifier rather than a threat. “We view AI as an amplifier of IP value, with the power to truly allow great stories to reach their full potential,” he said. Echoing this perspective, New Classics Media executive Cao remarked that while AI video models will reshape production workflows, cost structures, and delivery speeds, they cannot replace core artistic elements such as compelling storytelling, strong performances, and refined aesthetics.

Upcoming Content Lineup and Strategic Outlook

Looking ahead to the remainder of 2026, management outlined aggressive production and publishing schedules across multiple digital entertainment sectors. China Literature plans to produce at least 200 short-form dramas during the year—representing an increase of approximately 70% over its first-half output pace. Additionally, premium AI-animated drama production capacity has exceeded 100 titles, while the company’s overseas platform, Toons Glow, aims to release more than 1,000 works throughout 2026.

The company is also expanding its footprint in the gaming sector through intellectual property licensing agreements designed to generate high-margin, low-risk recurring revenues. Upcoming public beta test schedules include:

• Battle Through the Heavens: Path of the Dou Emperor MMO – scheduled for open beta on July 29, 2026.
• My Heroic Husband Management Simulation Mobile Game – scheduled for open beta on August 12, 2026.
• Lord of the Mysteries UE5 Flagship MMO – scheduled for open beta on August 21, 2026.

Internationally, China Literature reported that WebNovel has incorporated more than 3만 개 이상의 AI-translated works, which contributed 40% of the platform’s novel revenues during the first half of 2026. Management indicated that low production costs and expansive global demand for short-form and animated content will continue to drive its overseas expansion strategy.

Financial analysts tracking the company continue to monitor potential risks, including ongoing tax uncertainties, margin sustainability in new visual formats, and rising operating costs. Investors looking for further details on corporate performance can review filings and updates through official investor relations channels as the company prepares for its third-quarter financial disclosures.