GRAVITY Co., Ltd. Q2 2017 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the unaudited financial results for GRAVITY Co., Ltd. (NasdaqCM: GRVY) for the second quarter ended June 30, 2017. The company is a South Korean developer and publisher of online and mobile games, with its principal product being the Ragnarok Online franchise.
Key Financial Metrics
| Metric | Q2 2017 (KRW) | Q2 2017 (US$) | Q1 2017 (KRW) | Q2 2016 (KRW) |
|---|---|---|---|---|
| Total Revenue | 27,028 million | 23,631 thousand | 23,352 million | 9,057 million |
| Operating Income | 4,373 million | 3,823 thousand | 3,298 million | (1,506 million) Loss |
| Net Income (Parent) | 3,555 million | 3,108 thousand | 2,170 million | (1,605 million) Loss |
| Cash & Equivalents | 17,070 million | 14,925 thousand | 16,720 million | N/A |
| Short-term Instruments | 28,502 million | 24,920 thousand | 22,000 million | N/A |
| Total Liquidity | 45,572 million | 39,845 thousand | 38,720 million | N/A |
Note: US$ amounts are converted at the rate of KRW 1,143.75 to US$ 1.00.
Material Changes vs. Prior Periods
- Revenue Growth: Total revenue increased 15.7% quarter-over-quarter (QoQ) and 198.4% year-over-year (YoY). Mobile game revenue was the primary driver, surging 51.8% QoQ and 290.0% YoY due to the launch of Ragnarok R in Thailand and Korea.
- Profitability Turnaround: The company returned to profitability, recording an operating income of KRW 4,373 million compared to an operating loss of KRW 1,506 million in Q2 2016. Net income attributable to the parent company turned from a loss of KRW 1,605 million to a profit of KRW 3,555 million.
- Cost Structure: Cost of revenue increased 10.7% QoQ and 125.9% YoY, driven by higher platform commissions (App Store/Google Play) and royalty payments for Ragnarok R. Operating expenses rose 18.2% QoQ, primarily due to increased advertising for Ragnarok R.
- Subscription Revenue: Subscription revenue decreased slightly (0.7%) QoQ due to lower performance in Taiwan, though it grew 321.3% YoY.
Outlook, Management Commentary, and Risks
CEO Hyun Chul Park highlighted strong financial results and a commitment to providing innovative content. Key business updates include:
- Ragnarok M: An agreement was reached to launch this MMORPG mobile game in Taiwan in Q4 2017, with Korea and Thailand launches to be announced later.
- Ragnarok R: Planned for launch in the United States and Canada in Q4 2017, with further Asian market expansion expected in 2018.
- Ragnarok Online: Successfully re-launched in the Philippines in June 2017; plans exist to expand to more Asian markets.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. The company notes that future results depend on the successful execution of game launches and market reception. No specific litigation or unusual items were detailed in the text provided.
Investor Verification Checklist
- Verify the sustainability of the 290% YoY growth in mobile game revenue as new titles launch in Q4 2017.
- Monitor the impact of rising platform commissions and royalty payments on future gross margins.
- Confirm the specific launch dates for Ragnarok M in Korea and Thailand, as these are currently undetermined.
- Review the full Form 20-F for detailed risk factors regarding foreign exchange fluctuations and regulatory changes in key markets like Taiwan and China.