In the third quarter of 2025, Hong Kong-listed Kingsoft Corporation Limited (03888.HK) reported mixed financial results. While its office software business grew steadily by 26%, its gaming revenue plummeted 47% year-on-year to RMB 898 million, marking the steepest decline since 2019.

The much-anticipated sci-fi mecha game "JXJ" (解限机), once seen as a potential hit, saw its Steam player count drop sharply from a peak of 130,000 to just a few thousand within four months of launch. Its positive review rate fell below 60%, highlighting the severe challenges Kingsoft faces in its gaming division.

**Gaming Division Drags Down Performance** Kingsoft’s Q3 2025 financial report showed total revenue of RMB 2.419 billion, down 17% year-on-year, while net profit fell 48% to RMB 213 million.

The revenue structure revealed a stark contrast: office software and services now account for 63% of total revenue, while gaming’s share dropped to 37%. This shift stems from widespread weakness in gaming—flagship IP "JX3" (剑网3) lost users due to lackluster content updates, anime-style game "Chen Bai Jin Qu" (尘白禁区) faced stiff competition, and "JXJ" failed to fill the revenue gap.

More concerning is the deterioration in gaming profitability. Sales and distribution expenses surged 55% year-on-year to RMB 564 million, primarily due to heavy marketing for "JXJ," which failed to deliver expected returns. Gross margin fell 4 percentage points to 80%, reflecting weaker contributions from high-margin in-house games. CEO Zou Tao admitted during the earnings call that new games were in a "market cultivation phase," with existing titles underperforming expectations.

**"JXJ" Struggles: From Global Hype to Operational Woes** The failure of "JXJ" was a key factor in the earnings slump. The game initially set a record with 317,000 concurrent players during global testing in March 2025 and topped Steam’s wishlist for domestic games. However, post-launch in July, player dissatisfaction over poor balance and rampant cheating drove its Steam rating below 60%.

The deeper issue lay in misaligned design and operations. Producer Guo Weiwei acknowledged in an open letter that cutting monetization features in response to player complaints about grind and paywalls backfired, stripping the game of its core appeal. Additionally, gold-farming by illicit studios disrupted the in-game economy, accelerating player attrition. Despite plans to relaunch a "JXJ Revamped" version and expand to PS5, dwindling player numbers make a turnaround increasingly difficult.

**Premium Strategy and Overseas Challenges** Kingsoft’s struggles mirror broader industry shifts. In Q3 2025, China’s gaming market shrank 4.08% year-on-year, with PC games growing 19.88% but mobile competition intensifying. Established players like Kingsoft face dual challenges: managing aging IPs (e.g., "JX3" plateauing after 16 years) and improving global operations. While "Chen Bai Jin Qu" succeeded overseas, "JXJ" struggled with cross-cultural adaptation.

To counter this, Kingsoft is diversifying its pipeline, with CEO Zou Tao revealing plans to launch international IP games like "Goose Goose Duck" and "Angry Birds" in 2026. However, analysts caution that Kingsoft must balance its 37% R&D spending with user-centric strategies to avoid repeating "JXJ’s" tech-over-operations misstep.

**Future Direction: AI and Ecosystem Revamp** Amid gaming setbacks, WPS remains Kingsoft’s anchor, with global monthly active devices reaching 669 million and WPS 365 enterprise revenue up 72%. Chairman Lei Jun emphasized an "AI, collaboration, globalization" strategy, leveraging AI (e.g., smart NPC systems) to boost game development efficiency.

Short-term, Kingsoft must address gaming’s cash flow pressures. Analysts recommend adopting "Chen Bai Jin Qu’s" long-term engagement model with frequent updates. Long-term, building an IP portfolio is critical to reducing reliance on single hits.

Notably, Kingsoft’s RMB 26.08 billion cash reserves provide a buffer, but investor patience is waning—shares fell over 10% post-earnings, with institutions cutting profit forecasts.

From WPS’s battle against Microsoft to "JX3’s" decade-long resilience, Kingsoft has historically rebounded from setbacks. The gaming division’s current woes serve as both a warning on product strategy and a reflection of industry transformation. As AI reshapes game development, Kingsoft’s ability to convert technical prowess into user value will determine its standing in the next decade.

*(Note: This article was generated with AI assistance and does not constitute investment advice. Market risks exist; caution is advised.)*