Summary of Key Points
Alibaba has sold all its shares in the gaming brand Lingxi Huyu to Xincheng Capital, a subsidiary of CITIC Capital, for a transaction valued at over $1.5 billion (approximately 10.1 billion RMB), which is higher than the market's expected range of 7-9 billion RMB. Lingxi once became a cash cow for Alibaba's gaming division with the game "Romance of the Three Kingdoms: Strategy Edition." However, due to Alibaba's strategic shift towards AI and core e-commerce, as well as Lingxi's own growth stagnation, reliance on a single product, and staff turnover, the brand was ultimately sold. Although Xincheng Capital is not an experienced player in the gaming industry, it saw the potential for Lingxi's stable profitability and acquired it at a high price. In the future, Lingxi will need to overcome its dependence on a single product to continue developing.
I. Alibaba Selling Lingxi: A Strategic Decision to Prioritize Other Areas
Alibaba's current focus is on AI and cloud computing, and it has officially announced plans to invest 380 billion RMB in these areas over the next three years. The gaming business has been classified as a "non-core asset," meaning that although it still generates revenue, its contribution to Alibaba's overall strategy is limited. Therefore, the money from selling Lingxi can be used to invest in more crucial areas such as AI.
Lingxi itself has also faced challenges: its annual revenue peaked at nearly 6 billion RMB but dropped to 2.3 billion RMB by 2025, only 40% of its peak level. Moreover, 70% of its revenue comes from the game "Romance of the Three Kingdoms: Strategy Edition," which makes it highly dependent on this single product. With key members of the team leaving (including founder Zhan Zhonghui), Alibaba decided to sell Lingxi and concentrate resources on its core businesses.
II. Lingxi's Rise and Fall: From a Successful Star to a Sold Asset
Lingxi originated from Alibaba's acquisition of the Jiuyou channel through UC, and in 2017, it invested 1 billion RMB to acquire Jianyue Company, founded by former NetEase COO Zhan Zhonghui, to build its own development team. The turning point came in 2019 when "Romance of the Three Kingdoms: Strategy Edition" became a huge success, remaining among the top-selling games on iOS for a long time and attracting over 100 million global users, making it a major revenue source for Alibaba's gaming division. In 2020, Lingxi was elevated to an independent business unit under the name "Lingxi Huyu."
However, success was short-lived. In 2023, during an organizational restructuring at Alibaba, Lingxi was downgraded from an independent unit to a subordinate of its entertainment division. In 2024, founder Zhan Zhonghui stepped down as CEO, and in 2025, Lingxi's reporting line was directly under the company's CFO, signaling that it might be sold. By 2025, Lingxi had dropped from 5th to 9th place in the domestic iOS revenue rankings, and its plans for a public offering were also canceled, making a sale inevitable.
III. Why Xincheng Capital Bought at a High Price?
Xincheng Capital is a private equity firm under CITIC Capital with experience in privatizations (such as Focus Media) and investments in companies like McDonald's China. Although it had previously invested in Qingyou Network in 2015 and lost money due to poor performance, it has not been involved in the gaming industry for ten years. This time, it took a chance because the gaming market remains profitable. Lingxi's "Romance of the Three Kingdoms: Strategy Edition" is a stable revenue generator, providing a steady cash flow even with slow growth. For investors, this represents an opportunity to acquire a mature team, operational platforms (such as Jiuyou and Trade Cat), and projects in progress (like a 3A三国 SLG game using UE5 technology), which is more cost-effective than starting from scratch.
IV. Lingxi's Future Challenges: Overcoming Single-Product Dependence
After the sale, Lingxi faces both opportunities and challenges. On the positive side, it no longer relies on Alibaba for resources like traffic and funding, and its new owner, Xincheng Capital, can provide industry expertise and capital. The biggest challenge is breaking its dependence on "Romance of the Three Kingdoms: Strategy Edition." If revenue from this game continues to decline, Lingxi will be at risk. The new management team needs to quickly develop new hit games, such as the planned 3A open-world三国 SLG or the female-oriented game "Ruyuan" (although some key developers have left). Stabilizing the team is also crucial for future success.
In summary, while Lingxi currently has a stable revenue stream, it must find new sources of income to ensure long-term sustainability.