Business Context and Reporting Period
Company: GRAVITY Co., Ltd. (GRVY)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Gravity is a leading developer and publisher of online and mobile games, primarily based on the "Ragnarok" intellectual property. The company operates globally with significant revenue streams from Taiwan, Indonesia, Thailand, the United States, and the Philippines. Mobile games accounted for 81.2% of total revenue in 2025.
Key Financial Metrics
| Metric | 2025 (Won) | 2025 (US$) | 2024 (Won) | Change |
|---|---|---|---|---|
| Total Revenue | 560,548 million | 388,044 thousand | 500,845 million | +11.9% |
| Gross Profit | 196,280 million | 135,877 thousand | 193,942 million | +1.2% |
| Gross Margin | 35.0% | - | 38.7% | -3.7 pts |
| Operating Profit | 77,396 million | 53,579 thousand | 85,384 million | -9.4% |
| Operating Margin | 13.8% | - | 17.0% | -3.2 pts |
| Net Profit (Parent) | 67,464 million | 46,704 thousand | 84,919 million | -20.6% |
| Cash & Equivalents | 203,599 million | 140,943 thousand | 228,898 million | -11.1% |
| Short-term Financial Instruments | 415,034 million | 287,310 thousand | 324,304 million | +28.0% |
| Total Liabilities | 105,296 million | - | 118,096 million | -10.8% |
Note: US$ amounts are converted at the rate of Won 1,444.55 to US$ 1.00 as of December 31, 2025.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 11.9% to Won 560.5 billion. This was driven by a 12.2% increase in mobile game revenue (Won 455.2 billion) and a 17.3% increase in online game revenue (Won 90.3 billion).
- Mobile Drivers: New launches of Ragnarok M: Classic (Won 154.6 billion, 27.6% of total revenue) and expanded distribution of Ragnarok X: Next Generation offset declines in Ragnarok Origin and revenue decreases in Brazil and Korea.
- Online Drivers: Growth was fueled by Ragnarok Online America Latina and Ragnarok Zero launches.
- Profitability Decline: Despite revenue growth, Net Profit attributable to owners decreased 20.6% to Won 67.5 billion.
- Margin Compression: Gross margin fell to 35.0% from 38.7% due to higher platform service fees, royalties, and commissions associated with new mobile game launches.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 15.6% (primarily advertising), while Research and Development (R&D) expenses dropped 32.3% following the completion of several mobile game developments.
- Cash Flow: Net cash inflow from operating activities decreased slightly to Won 76.1 billion. Net cash outflow from investing activities increased significantly to Won 96.7 billion, primarily due to a Won 89.6 billion net increase in short-term financial instruments.
Guidance, Outlook, and Risks
- Outlook: Management expects internal cash flow and existing cash equivalents to be sufficient to meet capital needs through at least 2027. The company plans to continue diversifying its portfolio through in-house development and third-party publishing.
- Key Risks:
- Concentration Risk: Approximately 96.6% of 2025 revenue was derived from the Ragnarok IP (including Ragnarok Online and derivative mobile games). Ragnarok M: Classic alone accounted for 27.6% of total revenue.
- Third-Party Dependence: The company relies heavily on overseas licensees (e.g., GungHo in Japan, Nuverse in Southeast Asia) and third-party developers (e.g., Dream Square/Xindong) for distribution and technical support.
- Regulatory & Geopolitical: Operations are subject to evolving regulations in key markets (Korea, China, US, EU) regarding data privacy, loot boxes, and P2E/NFT features. Geopolitical tensions between the US and China pose risks to distribution channels.
- Currency Risk: 93.1% of revenue is denominated in foreign currencies. A 10% depreciation of these currencies against the Won would have reduced 2025 revenue by approximately Won 46.7 billion.
- PFIC Status: The company believes it was a Passive Foreign Investment Company (PFIC) for 2022-2025, which may have adverse tax consequences for U.S. investors.
Investor Verification Checklist
- Revenue Concentration: Verify the sustainability of Ragnarok M: Classic revenue, which drove the majority of 2025 growth, and monitor the decline of legacy titles like Ragnarok Origin.
- Margin Trends: Monitor gross margin compression caused by high platform fees and royalties for new mobile titles versus the higher margins of legacy online games.
- Third-Party Relationships: Assess the status of technical support agreements with key developers (e.g., Dream Square/Xindong) and the renewal terms of major licensing agreements (e.g., GungHo, Nuverse).
- Regulatory Compliance: Review compliance with new regulations in key markets, specifically Korea's amended Personal Information Protection Act (PIPA) and regulations on probability-based items (loot boxes).
- Currency Exposure: Evaluate the impact of Won appreciation on future earnings, given the high percentage of foreign-denominated revenue.