Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Korean game studios cast mixed Q2 earnings outlook
Netmarble's Solo Leveling: Arise / Courtesy of Netmarble
By Nam Hyun-woo
Outlook bullish for Netmarble, Krafton, Nexon, gloomy for NCSOFT, Kakao Games
Major Korean game studios are set to announce their second-quarter earnings next week, with market expectations mixed for the top five companies.
Netmarble, Krafton and Nexon are expecting bullish numbers, driven by solid revenues from their new and existing titles. In contrast, NCSOFT and Kakao Games are facing a bleak outlook as their key revenue-generating games have underperformed amid rising costs.
According to market tracker FnGuide, Netmarble is assumed to have posted 770.3 billion won ($560 million) in sales for the second quarter of this year, up 27.7 percent from a year earlier. Its operating profit is expected to reach 68.3 billion won, improving from a 37.2 billion won operating loss a year earlier.
Analysts attributed the revenue growth to Solo Leveling: Arise, an action game based on the popular webtoon and novel series "Solo Leveling."
Hi Investment & Securities analyst Yoon Ye-ji assumed that the title alone posted 216 billion won in sales for the second quarter, noting the game entered the top 10 in mobile revenue rankings in 27 countries on the first day of its release in May and has surpassed 20 million cumulative downloads.
Nexon's Dungeon & Fighter Mobile / Courtesy of Nexon
Nexon is also expecting record-high earnings in the second quarter. During its first-quarter earnings call, Nexon, listed on the Tokyo Stock Exchange, predicted it will likely reach up to 104.7 billion yen ($700 million) in sales and 27.7 billion yen in operating profit, up 10.9 and 0.4 percent year-on-year, respectively.
However, expectations are growing that the numbers will be greater than the estimations because its Dungeon & Fighter Mobile became a megahit in the Chinese market, posting over $270 million in sales revenue just a month after its release in May.
Krafton, the top game share on the Korean market, is also expecting handsome numbers for the second quarter, buoyed by solid revenue from PUBG: Battlegrounds. Its sales and operating profit are expected to reach 549.5 billion won and 195.7 billion won, respectively, up 42 percent and 48.9 percent from a year earlier.
Meritz Securities analyst Lee Hyo-jin said PUBG: Battlegrounds experienced controversies over refunds in the domestic market, but "the impact is considered minimal given the high proportion of global gamers, and user metrics on Steam and game consumption on Twitch remain at elevated levels."
NCSOFT's headquarters in Pangyo Techno Valley in Seongnam, Gyeonggi Province, Feb. 15, 2022 / Courtesy of NCSOFT
On the other hand, NCSOFT is expected to post an operating loss for the first time in 12 years since 2012. According to FnGuide data, NCSOFT is projected to post 386.4 billion won in sales, down 12.2 percent year-on-year, and an operating loss of 1.4 billion won.
The backpedaling is attributed to the declining revenue of its flagship franchise, Lineage, and growing costs for developing and marketing new titles.
"The decline in the revenues from existing games is assumed to be insufficient to offset costs for releasing new games, making a quarterly operating loss inevitable," Hanwha Investment & Securities analyst Kim So-hye said.
"While revenues from PC titles are expected to remain similar to the previous quarter, mobile game revenue, except for Lineage M, is believed to have significantly dropped compared to the previous quarter."
Kakao Games is also expecting bearish numbers. It is forecast to log 250.3 billion won in sales and an operating profit of 11.9 billion won, representing respective year-on-year declines of 7.7 percent and 55.1 percent.
The lack of major new releases during the period and the sluggish sales from new title ROM: Remember of Majesty have negatively impacted these figures.
Rumors are growing that Kakao Games may divest from its subsidiary Kakao VX, its screen golf business, to improve the company's book numbers and concentrate resources on game development.
"There is little synergy between Kakao Games' game development and publishing businesses and Kakao VX golf businesses," SK Securities analyst Nam Hyo-ji said. "The sale of Kakao VX could improve Kakao Games' profitability and allow the company to focus its resources on its primary business, leading to smoother new game releases and more efficient management of existing titles."