Newborn Town is a globally leading China-based internet social entertainment provider with over 60% of its social networking revenue from the Middle East & North Africa (MENA) region. Its flagship products, SUGO (audio-video companion social APP) and TopTop (game social platform) consistently rank in Saudi Arabia’s top‑3 social and gaming grossing charts, together contributing over half of the social networking segment’s revenue.

Promising MENA market opportunity – The MENA region offers strong growth prospects for the media market. With a young population (median age 29 vs. 33 globally), MENA has a large and expanding consumer base that is highly receptive to new digital trends. Internet engagement is high, with average daily time spent reaching 7–8 hours, above the global average of 6–7 hours. In the Gulf Cooperation Council (GCC) states, users demonstrate strong willingness to pay for digital services. For online gaming, Saudi Arabia has about 29mn paying gamers, 12% of whom are heavy mobile spenders, with an ARPPU (average revenue per paying user) of USD 205 compared to the global average of USD 45–50. Beyond the GCC, non-GCC MENA countries offer further long-term upside due to their fast developing economies and rising smartphone adoption, as well as large populations (Egypt and Iran alone account for nearly 40% of the MENA population).

High growth potential in other markets – The company is expanding both geographically and in product diversity. Both SUGO and TopTop are extending beyond MENA into Latin America, Europe, and Japan. In Latin America, SUGO’s monthly revenue surged more than threefold in FY25. On product diversity, Newborn Town launched a new AI product, Aippy, which has received positive feedback in the U.S. and EU markets, and plans to promote it to a broader user base in 2026. In September 2025, the company acquired Playlet, an integrated short-drama company, and intends to release more short-drama content across multiple markets in 2026. The company has also stepped up marketing efforts, as in FY25, sales and marketing expenses accounted for 32.9% of total expenses, up 750bps from 25.4% in the prior period.

Robust growth in financials – In FY25, Newborn Town total revenue grew 35.3% YoY to RMB6.9bn, in line with guidance, while attributable profit surged 94.6% YoY to RMB935mn. Adjusted EBITDA reached RMB1.2bn, up 26.1% YoY. GPM expanded 460bps to 55.8%, driven by AI-driven cost optimization. The company holds a net cash position of RMB2.7b, representing about 20.4% of its current market cap, providing ample cash flow for further marketing and M&A activities.

Our view: Newborn Town has established itself as a leading overseas social entertainment company through a diversified product matrix and deep localization. Its flagship apps, SUGO and TopTop have demonstrated steady growth and accelerating global layout, the Mgt expects strong momentum to continue into FY26. The company’s success is underpinned by the MENA region’s compelling fundamentals with young population, high internet engagement and strong willingness to pay. Meanwhile, non‑GCC countries offer long‑term upside from their large populations and growing economies.

The company plans to launch 5 to 6 new games in 2026. The turnover of the short drama platform Playlet and the standalone App DramaBite continues to double. The application of AI technology is expected to improve operational efficiency and support business and content development (e.g., for the short‑drama platform), as the company’s AI token consumption growing more than 30 times YoY in FY25. Additionally, the company  announced a RMB30mn share buyback plan, demonstrating confidence in the company’s value. Regarding the recent situation in the Middle East, the Mgt expects the impact to be limited.

The counter is currently trading at 8.8x FY26E P/E (vs China internet peers’ average of 13.4x). (Research Department)