NC reports 67% drop in Q1 operating profit... Final preparations for new release 'TL' (Comprehensive)

NCSoft's operating profit in the first quarter of 2023 decreased by 67% year-on-year due to a decline in sales of Lineage W and other titles. The company aims to rebound its performance with the global launch of the highly anticipated 'Throne and Liberty' (hereafter TL) in the second half of the year.

Operating Profit Falls 67% Due to Decline in Lineage W Sales

NCSoft announced on the 10th that it recorded sales of 478.8 billion KRW, operating profit of 81.6 billion KRW, and net profit of 114.2 billion KRW in the first quarter. Sales decreased by 13% and 39% compared to the previous quarter and the same period last year, respectively. Operating profit increased by 72% compared to the previous quarter but decreased by 67% year-on-year. Net profit turned positive compared to the previous quarter but decreased by 32% year-on-year.

By region, sales were 303.7 billion KRW in Korea, 99.4 billion KRW in Asia, and 33.3 billion KRW in North America and Europe. Royalty revenue amounted to 42.3 billion KRW. 'Guild Wars 2' recorded its highest quarterly performance since its launch in China in 2014 (local service name: Gyeokjeon 2), driving a 9% increase in royalty revenue compared to the previous quarter. Overseas and royalty sales accounted for 37% of total sales.

Mobile game sales totaled 330.8 billion KRW. 'Lineage W' generated 373.2 billion KRW in sales in the first quarter of last year but recorded 122.6 billion KRW in the first quarter of this year, a 67.1% decrease. In contrast, 'Lineage M,' now in its seventh year since release, saw sales increase by 12.3% from 115.9 billion KRW to 130.1 billion KRW during the same period.

PC online game sales amounted to 91.4 billion KRW. This includes 'Lineage' at 24.5 billion KRW, 'Lineage 2' at 21.5 billion KRW, 'Aion' at 17.6 billion KRW, 'Blade & Soul' at 7.3 billion KRW, and 'Guild Wars 2' at 20.4 billion KRW.

Operating expenses in the first quarter were 397.1 billion KRW, down 27% year-on-year and 21% compared to the previous quarter. Among operating expenses, labor costs were 211.9 billion KRW, variable costs and other expenses were 152.5 billion KRW, depreciation was 27.9 billion KRW, and marketing expenses were 4.9 billion KRW.

NCSoft explained that labor costs decreased by 9% compared to the previous quarter due to the disappearance of Lineage W incentives, and marketing expenses dropped by 90% during the same period as there were no major updates across games.

Five New Titles Including TL to Launch This Year

NCSoft plans to announce five new games this year. In addition to the highly anticipated TL, four other new titles outside the massively multiplayer online role-playing game (MMORPG) genre, where the company has traditionally been strong, are also in preparation. The company will also attend the international game exhibition G-Star for the first time in eight years. The titles to be exhibited are yet to be decided.

Regarding TL, scheduled for release in the second half of the year, the company expressed confidence. Hong Won-jun, Chief Financial Officer (CFO), stated during the first-quarter earnings conference call, "Our goal is for TL to achieve the highest performance among Korean games released in Western markets."

TL will enter a closed beta test (CBT) at the end of this month with 10,000 participants. This test will be conducted at a level equivalent to the official service. TL has signed a global publishing contract with Amazon Games in the U.S. and plans to hold events targeting global users. NCSoft will have Amazon Games operate TL in the global market, but the service policies will be consistent domestically and internationally.

Updates on another anticipated title, 'Aion 2,' were also shared. Lee Jang-wook, IR Director, said, "Aion 2 is a next-generation MMORPG based on Unreal Engine 5 and a project that consolidates our development capabilities. The schedule will be announced later."

While keeping the possibility of blockchain business open, NCSoft drew a line on P2E (Play To Earn). The company recently invested in Mistin Lab, known for its Sui token.

CFO Hong said, "There are many considerations when integrating blockchain technology into games. The most important factors are the impact on in-game economics and game balance."

He added, "Given the various market conditions related to blockchain, we need to approach this cautiously. Until we have confidence, we are not currently considering applying blockchain externally to our games."

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