[Into the Stock] NCSoft, Where Is the Bottom?

[Asia Economy Reporter Song Hwajeong] NCSoft's stock price has recently fallen sharply due to the failure of its new release to perform well. The stock price dropped to its lowest level in 15 months. NCSoft, which had reached the 1 million KRW mark in February and was once considered a blue-chip stock, experienced a decline due to poor earnings and the failure of its new release, losing its position as the leading game stock to Krafton, marking a harsh August.

As of 1:10 PM on the 31st, NCSoft was trading at 654,000 KRW, up 5,000 KRW (0.77%) from the previous day. After showing a slight decline in the morning, it turned upward and increased its gains. This is interpreted as a rebound buying trend following a steep decline over the past four days. NCSoft hit a 52-week low of 634,000 KRW during the previous day's trading session. Compared to the high of 1,048,000 KRW recorded on February 8, the stock price has dropped nearly 40% in about half a year and has fallen more than 30% since the beginning of this year until the previous day.

Stock Price Plummets Due to New Release Failure

NCSoft, which had surpassed the 1 million KRW mark in February, saw its stock price decline after reaching its peak due to profit-taking and fatigue from the rise, moving within the 800,000 KRW range. Earnings this year also fell short of expectations, and the upward trend after the peak could not be reversed. External factors such as regulatory measures on the Chinese gaming industry were also unfavorable. The new release 'Blade & Soul 2' (hereafter B&S2) was the factor that quickly dragged NCSoft's stock price from the 800,000 KRW range down to the 600,000 KRW range. An Jae-min, a researcher at NH Investment & Securities, stated, "B&S2, released on the 26th, failed to gain initial user enthusiasm due to issues such as an excessive pay-to-win model similar to the existing Lineage series, probability-based items, bugs, and optimization failures, contrary to initial expectations," adding, "It did not rank first on the Apple App Store, and on Google, which presents weekly average sales rankings, it ranked within the top 5 only three days after release. Initial daily sales are estimated to be in the low to mid 1 billion KRW range, with expected stabilized sales of 500 to 700 million KRW later." Researcher An added, "While the performance is not bad, it fell short of the expectations for NCSoft, a leading developer."

The failure of B&S2's success makes it inevitable to revise downward profit estimates for next year. Oh Dong-hwan, a researcher at Samsung Securities, said, "The market's expectation for B&S2's initial daily sales ranged from a minimum of 2 billion KRW to a maximum of 6 billion KRW, and we also expected an average daily sales of 4 billion KRW in the third quarter," adding, "However, considering the current pace of sales ranking improvement, B&S2's sales scale is judged to fall short of 'Lineage 2M' or 'Odin,' and accordingly, we are lowering the third quarter average daily sales estimate for B&S2 to 2.7 billion KRW." Samsung Securities lowered NCSoft's overall operating profit estimate for next year from 1.3 trillion KRW to 1 trillion KRW due to the downward revision of B&S2's sales forecast.

Other securities firms are also lowering their expectations for NCSoft. Ebest Investment & Securities adjusted NCSoft's target price down by 36% from 1.09 million KRW to 700,000 KRW, reflecting downward revisions in earnings forecasts and multiple adjustments due to the dilution of the premium as the number one MMORPG (Massively Multiplayer Online Role-Playing Game) company, and downgraded the investment opinion from 'Buy' to 'Neutral.' Korea Investment & Securities also lowered its investment opinion from 'Buy' to 'Neutral' and revised the operating profit estimate for next year down from 1.6 trillion KRW to 1 trillion KRW without providing a target price. Hyundai Motor Securities lowered the target price by 18% to 840,000 KRW, and NH Investment & Securities also reduced it from 1.05 million KRW to 780,000 KRW.

NCSoft has endured a more painful summer than ever. 'Lineage M,' which had held the number one spot on the Google Play Store for the past four years, lost its top position to Kakao Games' new release Odin, launched at the end of June, and on the 10th of this month, NCSoft also lost its position as the leading game stock to Krafton, which went public. The market capitalization gap between Krafton, which was 4.3 trillion KRW on the 10th, and NCSoft widened to 10 trillion KRW based on the previous day's closing price.

The reason NCSoft is in a dire situation like this is fundamentally because users have turned away, according to analysis. Jung Ho-yoon, a researcher at Korea Investment & Securities, explained, "During the long period of maintaining the number one spot in the domestic mobile game market revenue rankings, users' dissatisfaction with NCSoft's payment policies or operations accumulated. Recently, there have been frequent signs of worsening public sentiment, such as users sending trucks filled with complaints to NCSoft's headquarters," adding, "There is little difference in payment models between Odin, which currently holds the number one sales position, and NCSoft's games, and despite B&S2 having over 7 million pre-registrations, its download numbers are not significant. This also supports the opinion that NCSoft's recent slump is due to users' lost goodwill."

Can Lineage Save NCSoft?

As the stock price has shown a steep decline in a short period, attention is focused on whether NCSoft's flagship title, Lineage, can play a defensive role. Lineage M and Lineage 2M, which drive NCSoft's sales and profitability, hold the 2nd and 3rd positions in sales rankings. Kim Hyun-yong, a researcher at Hyundai Motor Securities, said, "Despite various recent controversies, Lineage M has maintained top-tier sales for four years since its release, and Lineage 2M has done so for over a year and a half," adding, "Assuming these two games maintain steady sales, it is highly likely that a bottom will form around a forward price-to-earnings ratio (PER) of 20 times in 2022 (around 616,000 KRW)."

The next anticipated new release, 'Lineage W,' is also expected to play a rescue role. NCSoft held a Lineage W showcase on the 19th and started pre-registrations, achieving 2 million pre-registrations in just 15 hours. Researcher Kim said, "Having confirmed the overseas success potential of the Lineage IP through Lineage 2M on mobile, Lineage W is expected to focus on global success with its gameplay and payment system," adding, "Although B&S2's initial performance was disappointing, there remains anticipation for additional major new releases within the year, and NCSoft's game development capabilities, including Project TL in 2022, are considered beyond doubt."

However, there is an opinion that confirmation of the new release's success is necessary. Sung Jong-hwa, a researcher at Ebest Investment & Securities, said, "In the mid to short term, the level of success of Lineage W, scheduled to launch in the fourth quarter, has become very important," adding, "Whether Lineage W will deliver a big hit exceeding expectations and fill the momentum gap left by B&S2's poor performance is realistically a matter for subsequent verification."

This content was produced with the assistance of AI translation services.