GRAVITY Co., Ltd. Q3 2019 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports the unaudited financial results for GRAVITY Co., Ltd. (NasdaqGM: GRVY), a South Korean developer and publisher of online and mobile games, for the third quarter ended September 30, 2019. The results are prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric | Q3 2019 (KRW) | Q3 2019 (USD) | Q2 2019 (KRW) | Q3 2018 (KRW) |
|---|---|---|---|---|
| Total Revenue | 77,566 million | 64,863 thousand | 78,127 million | 44,201 million |
| Operating Profit | 10,226 million | 8,551 thousand | 12,998 million | 7,084 million |
| Profit Before Tax | 11,213 million | 9,376 thousand | 14,037 million | 7,329 million |
| Net Profit (Parent) | 8,952 million | 7,485 thousand | 10,861 million | 6,312 million |
| Cash & Short-term Instruments | 120,259 million | 100,564 thousand | N/A | N/A |
Revenue Breakdown (Q3 2019):
- Mobile games and applications: KRW 61,238 million (79% of total revenue)
- Subscription revenues: KRW 10,564 million
- Character merchandising and other: KRW 3,181 million
- Royalty and license fees: KRW 2,583 million
Material Changes vs. Prior Periods
- Quarter-over-Quarter (QoQ): Total revenue decreased 0.7% primarily due to a 7.9% decline in mobile game revenues from Ragnarok M: Eternal Love in Southeast Asia, North America, South America, Oceania, and Taiwan. Operating profit fell 21.3% driven by a 36.4% increase in operating expenses, specifically advertising costs for new launches in Korea and Indonesia.
- Year-over-Year (YoY): Total revenue surged 75.5%, driven by an 83.4% increase in mobile game revenues and a 75.9% increase in subscription revenues. Net profit attributable to the parent company increased 41.8%.
- Cost Structure: Cost of revenue increased 88.1% YoY due to higher commissions on mobile game services, while operating expenses rose 54.3% YoY due to increased advertising and R&D spending.
Guidance, Outlook, and Business Updates
Management highlighted several strategic launches and upcoming releases:
- Ragnarok M: Eternal Love: Launched in Europe (excluding some regions) and Russia on October 16, 2019.
- Ragnarok Tactics: Launched in Thailand on November 8, 2019, ranking #1 in free downloads and #2 in gross rankings on the Apple App Store. Scheduled for Korea in H1 2020.
- Ragnarok Origin: Scheduled for launch in Korea in 2020.
- Ragnarok Click H5: Launched globally on November 13, 2019.
- Ragnarok H5: Preparation underway for launch in Indonesia in Q1 2020.
- The Color of Dream Fantasy Latele: Launched in Japan on October 16, 2019.
Risks and Contingencies: The filing includes standard forward-looking statements regarding future game launches and performance, noting that actual results may differ due to market conditions and other unanticipated events.
Investor Verification Checklist
- Verify the sustainability of the 75.5% YoY revenue growth given the 0.7% QoQ decline in total revenue.
- Monitor the performance of Ragnarok M: Eternal Love in Southeast Asia and Taiwan, which drove the QoQ revenue decrease.
- Assess the impact of increased operating expenses (up 36.4% QoQ) on future profit margins.
- Confirm the success of the new Ragnarok Tactics launch in Thailand and upcoming Ragnarok Origin launch in Korea.
- Review the liquidity position, noting cash and short-term instruments of KRW 120.3 billion as of September 30, 2019.