Alibaba's gaming dream was sold for 10 billion yuan.

On August 17, employees of Lingxi Games received an internal letter. It was written by CEO Zhou Bingshu in a very plain tone, stating that after multiple full communications and in-depth discussions, Alibaba Group and Trustar Capital have officially reached a transaction agreement. Alibaba will transfer all its shares in Lingxi Games to Trustar Capital, which will become the new shareholder of the company.

Zhou Bingshu thanked Alibaba for its cultivation and support to Lingxi over the past years, described the whole process as "friendly, stable and win-win", and said that the management team will stay to continue developing memorable products for users.

It is reported that the total transaction value is 1.5 billion US dollars, equivalent to more than 10.1 billion RMB. Two months ago when the transaction information first leaked out, the industry's estimated quotation range was 7 billion to 9 billion RMB. The final transaction price is more than 1 billion RMB higher than the early valuation.

Back in July, the market was optimistic about Ruyi and 37 Interactive Entertainment, as they have deep insights into SLG, long-term operation, and user acquisition, and understand every unspoken rule in this business. However, the situation changed in August. Trustar Capital, an affiliate of CITIC Capital, raised its bid and secured the target. After a group of people who know the games industry best sat at the negotiation table for two months, a PE firm finally took the deal away.

For Alibaba, this is a rare decent exit. Back in 2017, it acquired Guangzhou Jianyue with about 1 billion RMB. The company later developed into Lingxi Games, launched the game *Three Kingdoms: Tactics & Strategy*, and accumulated more than 100 million players.

Nine years later, Alibaba exited at a tenfold return. But when it acquired Jianyue nine years ago, Alibaba's ambition was far more than this simple return.

Bought at 1 Billion RMB, Sold at 10 Billion RMB

Guangzhou Jianyue was founded in 2011. Its three co-founders Zhan Zhonghui, Chen Weian and Wu Yunyang are all veterans in China's online gaming industry. Zhan Zhonghui joined NetEase in 1999 and was promoted all the way to COO, known in the industry by the nickname "Dingdang". Jianyue had developed SLG games, card games, and simulation management games before. Its products were not particularly amazing, but the team's capability was widely recognized.

Alibaba entered the gaming industry starting from small businesses. After acquiring UC in 2014, it assigned the mobile gaming business to 9game. In January 2016, UC 9game was officially renamed Alibaba Games, with Yu Yongfu serving as chairman and Lin Yongsong serving as president.

The company tried both distribution channels and game publishing, but neither delivered satisfactory results. The real turning point came in September 2017, when Alibaba Digital Entertainment fully acquired Guangzhou Jianyue for about 1 billion RMB and established its gaming business group. This was the first time that Alibaba acquired a team with proven game development capabilities, rather than just a game publishing pipeline.

Two years later, *Three Kingdoms: Tactics & Strategy* was launched.

The subsequent performance of this game exceeded everyone's expectations. A report released by Sensor Tower in April 2021 showed that before that, its total estimated global revenue on App Store and Google Play had exceeded 1 billion US dollars. Up to now, the number of its global registered users has exceeded 100 million, and its cumulative gross revenue has reached tens of billions of RMB. Seven years after its launch, its annual gross revenue in the domestic market still remained at 2.1 to 2.2 billion RMB in 2025, with monthly gross revenue roughly between 180 million and 250 million RMB. For an SLG game, this is the standard answer for successful long-term operation.

With the product achieving great success, the organization was also upgraded accordingly. In 2020, Alibaba Games was renamed Lingxi Games, separated from the Digital Entertainment system, and became a business group on an equal footing with Digital Entertainment. This was the most glorious period for Alibaba's gaming business.

The good times did not last long. After the "1+6+N" reform in 2023, Lingxi Games was demoted from an independent business group and reclassified back to the Digital Entertainment division. In August 2025, its reporting line was adjusted from Fan Luyuan, head of Digital Entertainment, to Xu Hong, Group CFO of Alibaba. Reporting to a business line and reporting to a finance line mean completely different things. The industry immediately regarded this move as a precursor to a sale, which was later proven to be correct.

Developing a blockbuster game usually takes several years, but the team has always been under the pressure of "proving its value as soon as possible". Lingxi now has five in-house R&D studios: Pingpingwuqi, Pumpkin, Star, Yuan, and Innovation, plus two operation platforms 9game and Jiaoyimao, with a total team size of around 1,000 people.

Its product line does not look narrow: it has *Fantasy Land of Three Kingdoms* for the card game category, *Ruyuan* for the female-oriented game category, *Wind of the Continent* for MMORPG, *Soul Mask* for the paid premium game category, and even recently released a recruitment notice for a UE5 open-world Three Kingdoms SLG project. But none of these products can match the performance of *Three Kingdoms: Tactics & Strategy*.

*Three Kingdoms: Tactics & Strategy* contributes about 70% of Lingxi's total revenue.

This figure is both Lingxi's greatest asset and its biggest problem. The fact that a company has repeatedly tried multiple categories but always returned to the Three Kingdoms theme shows that it does not prefer the Three Kingdoms theme, but that other paths are not feasible.

Resources are naturally increasingly tilted towards *Three Kingdoms: Tactics & Strategy*, leading to deeper path dependence. In March 2024, Zhan Zhonghui and Chen Weian announced their resignation, and Zhou Bingshu, the producer of *Three Kingdoms: Tactics & Strategy*, took over as CEO. Two months later, Wu Yunyang left Alibaba after the Ant Engine project was shut down. The founding team basically stepped down by then.

Calculated based on the product revenue disclosed by Sensor Tower, Lingxi's annual revenue is stable at 3 billion to 4 billion RMB, with net profit close to 2 billion RMB. In May 2026, it returned to the top 10 of Sensor Tower's global revenue ranking for Chinese mobile game publishers, with a revenue scale equivalent to a mid-tier game manufacturer. With an acquisition cost of about 1 billion RMB, this investment has long been fully recovered, and has generated multiple rounds of returns.

Alibaba's revenue in the 2026 fiscal year reached 1,023.67 billion RMB, breaking the 1 trillion mark for the first time. Lingxi's revenue accounts for about 0.3% to 0.4% of that total. In the financial report, it is classified into the "All Other" segment together with Freshippo and DingTalk, with only aggregated data disclosed. The last time it was mentioned separately was in the first quarter report of the 2025 fiscal year, with an evaluation of only eight words: operating performance has improved significantly.

An asset that generates 2 billion RMB in net profit every year is so small in front of the 1 trillion RMB total revenue that it needs to be found with a magnifying glass. It is good enough, but not important enough.

Four Major Industry Players Running in the Race, One PE Firm Seals the Deal

The news first came out on June 23.

According to reports at that time, Alibaba planned to sell the entire Lingxi business as a package, including all five in-house R&D studios, 9game and Jiaoyimao, involving about 1,200 employees. The company had contacted at least five potential buyers, with a quotation range of 7 billion to 9 billion RMB.

The next day, 37 Interactive Entertainment, Century Huatong and Giant Network all responded with statements like "refer to the official announcement" or "no comment on the rumors", while Alibaba chose to remain silent. Century Huatong stated directly that the transaction starting at 7 billion RMB would exceed 10% of the company's net asset ratio, which requires approval from the board of directors, and that the company already has sufficient SLG production capacity, so it does not need to make such an acquisition.

This statement actually explains the situation of the industrial buyers.

Century Huatong owns Shengqu Games and Diandian Interactive, whose products *Benben Kingdom* and *Endless Winter* have long occupied the top 3 of the overseas revenue ranking. In recent years, it has established two main business lines of "Games + AI", and invested a large amount of resources in AI-generated content and intelligent NPCs. The value of Lingxi for Century Huatong is its existing market share in the domestic SLG market, which has a high overlap with its existing business. Acquiring Lingxi will only bring scale expansion rather than complement its shortcomings, and will also generate additional goodwill.

Century Huatong owns Shengqu Games and Diandian Interactive, whose products *Benben Kingdom* and *Endless Winter* have long occupied the top 3 of the overseas revenue ranking. In recent years, it has established two main business lines of "Games + AI", and invested a large amount of resources in AI-generated content and intelligent NPCs. The value of Lingxi for Century Huatong is its existing market share in the domestic SLG market, which has a high overlap with its existing business. Acquiring Lingxi will only bring scale expansion rather than complement its shortcomings, and will also generate additional goodwill.

The situation of 37 Interactive Entertainment is more delicate. The company is a representative of the domestic user acquisition model, with a strategy of focusing on traffic and gameplay while attaching less importance to content, achieving scale through fast turnover and heavy ad placement, and its core focus has fully shifted to the mini-game track in recent years. Lingxi, on the contrary, is a typical R&D-driven company, and the success of *Three Kingdoms: Tactics & Strategy* comes from content polishing and word-of-mouth accumulation. Forcing two different R&D systems, two different talent structures and two different operation logics together will not bring much synergy, but lead to immediate cultural conflicts.

Giant Network is restricted by its capital situation. Its revenue in 2025 was 5.047 billion RMB, its net profit attributable to shareholders was 1.755 billion RMB, its monetary funds at the end of the year was about 6.26 billion RMB, and its net cash flow from operating activities was 2.985 billion RMB. An acquisition of 7 billion to 9 billion RMB is equivalent to 1.4 to 1.8 times of its annual revenue, and 4 to 5 times of its net profit.

The company has always maintained a prudent financial style in recent years. In 2025, it even announced that it would use no more than 2 billion RMB of idle funds to purchase wealth management products, and there has never been any sign of large-scale mergers and acquisitions. In addition, after the two companies' business scales are combined, the threshold for operator concentration review will also be raised.

On the contrary, China Ruyi, which was once regarded as an "outsider", was once considered the most suitable buyer. The Hong Kong-listed company generated 2.149 billion RMB in game revenue in 2025, accounting for more than 60% of its total revenue. Its game *Red Alert OL* has accumulated more than 6 billion RMB in gross revenue, and it also has film and television production business and streaming media platforms. Acquiring Lingxi would allow it to adapt its film and television IPs into games, and divert game users to its film, television and streaming media platforms, forming a closed business loop with low monopoly risk. The market widely bet on it in July.

However, the bidding situation changed quietly between July and August. Traditional game manufacturers have limited bidding capacity under capital pressure, while Trustar Capital, an affiliate of CITIC Capital, raised its quotation with its capital advantage, offering a premium of more than 1 billion RMB over the early valuation of 9 billion RMB, and finally defeated all industrial buyers. In early August, the two bidders that entered the final round were Trustar Capital and Giant Network, and the internal letter was released half a month later.

The name Trustar Capital is unfamiliar in the gaming circle, but well-known in the PE circle. Formerly known as CITIC Capital Partners, it is a private equity platform under CITIC Capital focusing on holding-type acquisitions, with total assets under management of about 10 billion US dollars, and has completed more than 100 investments in China, Japan, the United States and Europe.

Industrial buyers focus on synergy, and will lower their bids if they cannot calculate clear synergy benefits, while deducting integration costs in advance. PE firms do not focus on synergy, but only on cash flow.

A game that has been launched for seven years, with monthly gross revenue of 200 million RMB and more than 100 million users, is a very attractive one-year annuity in the DCF model, so PE firms can offer a higher price. Some investors revealed the logic of Trustar Capital: the acquisition is not a bet on the gaming industry dividend, but a recognition of the stable cash flow generated by *Three Kingdoms: Tactics & Strategy* with more than 100 million global users, and Trustar Capital can exit in the future through independent listing or secondary merger and acquisition.

There is another layer of consideration: after the PE firm takes over, it will not carry out integration or replace the management, and the existing management team will remain in place, which is the best choice for more than 1,000 employees who are waiting for the result, and also the most convenient handover method for Alibaba. After an industrial buyer takes over, the first thing it will do is to merge the teams and cut overlapping businesses, and every new variable on the negotiation table will become a factor that may lead to transaction failure.

But the story does not end here. After the new shareholder joins, the game release rhythm, user acquisition budget and long-term investment intensity will all change, with more emphasis on return on investment for ad placement, and the overall operation will be more prudent, so mid-to-long tail products and ongoing R&D projects will face resource restrictions.

In the first few months after the transaction is completed, the priority is to maintain stability. Real changes will not be seen until the end of the first complete budget cycle and performance assessment cycle. As for the so-called secondary resale, the premise is that there are still buyers willing to take over the assets a few years later, but no one can guarantee that game assets can pass the policy and game license approval smoothly.

When Gaming Turns From a Dream to an Asset

Lingxi is not the first gaming asset sold this year.

On March 20, ByteDance signed an agreement with Savvy Games Group, an affiliate of the Public Investment Fund of Saudi Arabia, to sell 100% of the equity of Moonton Technology for more than 6 billion US dollars. When ByteDance acquired Moonton in 2021, it spent about 4 billion US dollars, and the book premium of this transaction is about 20%. Moonton's headquarters will still be located in Shanghai, the management team remains unchanged, and Zhang Yunfan still serves as CEO — the deal structure is almost exactly the same as that of Lingxi's transaction.

In just half a year, the two most influential internet companies in China have sold their most valuable gaming assets.

In February 2025, Wu Yongming stated that the company will invest more than 380 billion RMB in the next three years to build cloud and AI hardware infrastructure. In his letter to shareholders in May 2026, he mentioned that the company will continue to increase investment in AI infrastructure and self-developed chips.

The cost is reflected in the cash flow statement: as of the 2026 fiscal year, Alibaba Group's free cash flow has recorded a net outflow of 46.6 billion RMB, while the free cash flow in the previous fiscal year was a net inflow of 73.9 billion RMB. On ByteDance's side, at the all-hands meeting in early 2026, Liang Rubo identified the application of AI assistants as the top priority for the year.

Facing such financial statements, the embarrassment of the gaming business is not that it cannot make money, but that it is not related to the main business. The R&D cycle of the content industry is very long, and blockbusters rely heavily on luck, with no direct synergy with the transaction mindset of the e-commerce business and the technology base of the cloud computing business, so no matter how well it performs, it can only be classified into the "other" segment. Not to mention the patience required for gaming, which is exactly what efficiency-oriented organizations lack. Alibaba's gaming dream has lasted for 12 years, but it was not blocked by capital shortage, but because no one is willing to wait another five years for results.

The entire industry has also reached a new stage.

According to the *2026 China Game Industry Report (January-June)* released on July 30, the total actual sales revenue of the domestic game market in the first half of the year was 188.45 billion RMB, with a year-on-year growth of 12.17%, and the number of users reached 684 million, an increase of only 0.82% compared with the same period last year