GRAVITY Co., Ltd. Form 6-K Summary
Business Context and Reporting Period
GRAVITY Co., Ltd. (NasdaqGM: GRVY), a South Korean online game developer and publisher, reported unaudited financial results for the third quarter ended September 30, 2010. The filing was submitted on November 17, 2010. The company's principal product is Ragnarok Online, which is offered in 80 markets.
Key Financial Metrics
| Metric | Q3 2010 (KRW) | Q3 2010 (USD) | Q2 2010 (KRW) | Q3 2009 (KRW) |
|---|---|---|---|---|
| Total Revenue | 13,668 million | 12,148 thousand | 11,326 million | 13,798 million |
| Net Income (Parent) | 2,646 million | 2,352 thousand | 465 million | 16 million |
| Operating Income | 3,474 million | 3,088 thousand | 272 million | 1,209 million |
| Cash & Equivalents | 43,267 million | 38,454 thousand | 51,333 million | 51,333 million |
| Short-term Financial Instruments | 24,500 million | 21,775 thousand | 16,000 million | 16,000 million |
| Total Liquidity | 67,767 million | 60,229 thousand | 67,333 million | 67,333 million |
Revenue Breakdown (Q3 2010):
- Royalty and licensing fees: KRW 9,359 million (42.4% increase QoQ).
- Subscription revenues: KRW 2,004 million (25.5% decrease QoQ).
- Mobile game revenues: KRW 2,163 million (17.6% increase QoQ).
- Merchandising and other: KRW 142 million (36.3% decrease QoQ).
Costs and Expenses:
- Cost of revenues: KRW 4,502 million (8.9% decrease QoQ).
- Operating expenses: KRW 5,692 million (6.9% decrease QoQ).
Material Changes vs. Prior Period
Revenue: Total revenue increased 20.7% quarter-over-quarter (QoQ) but decreased 0.9% year-over-year (YoY). The QoQ growth was driven by a 42.4% surge in royalty and licensing fees, primarily from Ragnarok Online in Japan and favorable currency exchange rates. Conversely, subscription revenues declined 25.5% QoQ due to lower performance in Korea, the U.S., and Canada.
Profitability: Net income attributable to the parent company surged to KRW 2,646 million, a 194.1% increase QoQ and a 207.7% increase YoY. This significant improvement was driven by reduced costs of revenue (due to full amortization of Emil Chronicle Online development costs) and lower operating expenses (reduced advertising and absence of employee separation costs incurred in Q2).
Balance Sheet: Total assets increased to KRW 106,270 million from KRW 102,438 million at year-end 2009. Total equity rose to KRW 87,371 million.
Guidance, Outlook, and Business Updates
Product Delays and Launches:
- Ragnarok Online II: Launch delayed to the second quarter of 2011 to incorporate user feedback and refine the game.
- War of Gods: A web browser-based strategy game licensed from Link China Entertainment, expected to launch in Korea in Q4 2010.
- Weapons of the Gods: A 3D MMORPG licensed from Shanghai Nineyou, expected to launch in Korea in Q3 2011.
Management Commentary: CEO Toshiro Ohno emphasized that the delay of Ragnarok Online II was a deliberate decision to ensure the highest degree of completion and immersion for users.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers regarding uncertainties in game development schedules and market reception. No specific new litigation or material contingencies were detailed beyond the historical settlement with Softstar Entertainment mentioned as a non-recurring item in the prior year.
Investor Verification Checklist
- Verify the sustainability of the 42.4% QoQ growth in royalty revenues from the Japanese market.
- Monitor the impact of the delayed Ragnarok Online II launch on future revenue projections.
- Assess the performance of the new licensed titles (War of Gods, Weapons of the Gods) upon their scheduled releases.
- Review the continued decline in subscription revenues in core markets (Korea, U.S., Canada).
- Confirm the exchange rate assumptions used for USD conversions (KRW 1,125.16 to US$ 1.00).