[Click eStock] 1Q Operating Profit Halved... Netmarble's Weak Stamina Revealed

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[Asia Economy Reporter Minwoo Lee] Netmarble's operating profit in the first quarter nearly halved compared to the same period last year. While most of the existing game revenues declined, the profit contribution from new releases was also low, clearly revealing weak fundamentals.

On the 14th, Daishin Securities maintained a 'Underperform' investment rating on Netmarble and set a target price of 75,000 KRW. This implies a drop to about 72% of the previous day's closing price of 104,000 KRW. This is due to the first-quarter results falling significantly short of market consensus and a bleak outlook going forward.

On the previous day, Netmarble announced first-quarter sales of 532.9 billion KRW and operating profit of 20.4 billion KRW. Sales increased by 12% year-on-year, but operating profit decreased by 40%. The operating profit was less than half of the market consensus of 49.3 billion KRW.

Most existing games, except for 'The Seven Deadly Sins: Grand Cross' and 'Blade & Soul Revolution,' saw a decline in sales compared to the previous quarter. The effect of new releases was also minimal. The new game 'A3: Still Alive,' released on March 12, recorded daily sales of about 80 million KRW, only 26.7% of the 300 million KRW estimated by Daishin Securities. Meanwhile, marketing expenses related to new releases rose 51% year-on-year to 95 billion KRW. This explains the operating profit margin of only 3.8%. The cost was greater than the benefit.

Minah Lee, a researcher at Daishin Securities, explained, "Revenues from existing games, which should be cash cows, are continuously declining, while marketing expenses for new releases are significantly higher than competitors. Also, most new releases are based on external popular intellectual properties (IP) rather than in-house IP, resulting in lower profit margins."

This structure is expected to continue negatively affecting the second quarter as well. The researcher noted, "In the second quarter, new release sales will be fully reflected and marketing expenses will be reduced, allowing for performance improvement. However, the operating profit relative to market capitalization remains very low, making it difficult to improve. This is why it is hard to be confident about performance improvement even if new releases perform well in the second half."

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