[Click eStock] Krafton New State's Poor Performance Critical... Investment Rating Downgraded

[Asia Economy Reporter Myunghwan Lee] Korea Investment & Securities announced on the 11th that it is downgrading its investment opinion on Krafton from Buy to Neutral, citing that Krafton's fourth-quarter earnings last year were significantly lower than market expectations.

Krafton's fourth-quarter revenue and operating profit were 444 billion KRW and 43 billion KRW, respectively. Compared to the previous quarter, revenue decreased by 14.9% and operating profit by 78%, recording results significantly below market expectations.

By segment, PC game revenue decreased by 11.2% from the previous quarter to 114.9 billion KRW. Korea Investment & Securities analyzed that PC game revenue slightly declined due to adjustments in monetization intensity ahead of the free-to-play transition of the flagship PC game "Battlegrounds" in January. Mobile game revenue was recorded at 303.7 billion KRW, down 20.2% from the previous quarter. The firm evaluated that sales of the Chinese version of Battlegrounds Mobile, "Hua Ping Jing Ying," declined, and overall costs, including operating expenses of 401 billion KRW, increased sharply.

Korea Investment & Securities pointed out that the poor performance of Krafton's new mobile game "New State Mobile," released in November last year, was a significant setback. New State's fourth-quarter revenue was 18.2 billion KRW (daily revenue of 360 million KRW), much lower than market expectations. The market initially expected daily revenue of over 3 billion KRW for New State. Researcher Hoyoon Jung from Korea Investment & Securities said, "Core fans are currently forming mainly in the U.S. and other regions, and the company's strategy is to expand users and revenue through marketing after a large-scale update in the second quarter, but it is difficult to be optimistic about this." He added, "Somewhat positive is that after the free-to-play transition, the PC monthly active users (MAU) increased significantly, and the existing Battlegrounds Mobile has been recovering in traffic and revenue since January."

Korea Investment & Securities did not present a target price for Krafton due to the new title's failure. Researcher Jung diagnosed, "Generally, applying a price-to-earnings ratio (PER) of 25 times, which is given to large game companies, results in a target price of 350,000 KRW, but since New State, which was supposed to drive earnings growth, failed, such a valuation is burdensome."

He continued, "The time to pay attention again will be after the company's planned New State update is successfully implemented and revenue growth is confirmed."

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