GRAVITY Co., Ltd. — FY2023 Form 20-F Summary
Reporting period: Year ended December 31, 2023; filed April 26, 2024. This is an annual report, not a standalone Q4 filing, and the provided filing text does not give a clear Q4-only financial breakdown. Financial statements are prepared under IFRS as issued by the IASB; amounts below are in Korean won (KRW), generally millions unless stated otherwise.
Business context and results
Gravity develops and publishes online and mobile games, principally based on the Ragnarok intellectual property. The business is increasingly concentrated in mobile games: they generated 86.8% of FY2023 revenue. Ragnarok Origin alone accounted for 62.3% of revenue, up from 35.5% in 2022. GungHo Online Entertainment owns 59.3% of the company.
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | KRW 725,516m | KRW 463,618m | +56.5% |
| Gross profit / margin | KRW 240,558m / 33.2% | KRW 196,253m / 42.3% | Profit +22.6%; margin down |
| Operating profit / margin | KRW 160,367m / 22.1% | KRW 104,708m / 22.6% | Profit +53.2%; margin slightly down |
| Profit attributable to parent owners | KRW 132,019m | KRW 83,162m | +58.7% |
| Basic and diluted EPS | KRW 18,999 | KRW 11,968 | Increased |
| Net cash from operating activities | KRW 132,430m | KRW 98,278m | Increased |
Revenue drivers and material changes
- Mobile game revenue rose 75.5% to KRW 629,604m, mainly reflecting Ragnarok Origin’s Southeast Asia launch in April 2023 and Ragnarok X: Next Generation’s Korea launch. Mobile revenue from Origin increased 174.2% to KRW 451,887m.
- Online game revenue fell 9.2% to KRW 81,017m, primarily due to weaker Ragnarok Online revenue in Taiwan and the Philippines. Ragnarok Online revenue was KRW 77,660m, or 10.7% of total revenue, compared with 18.7% in 2022.
- Ragnarok M: Eternal Love revenue declined to KRW 69,773m from KRW 93,203m. Ragnarok X: Next Generation revenue increased to KRW 99,321m from KRW 77,278m.
- Cost of revenue increased 81.4% to KRW 484,958m, outpacing revenue growth, mainly due to commissions, platform fees, royalties and outsourcing costs associated with Ragnarok Origin. This compressed gross margin by 9.1 percentage points.
- Selling, general and administrative expenses declined 14.9% to KRW 66,066m, largely because advertising expense fell 54.3% to KRW 13,661m. R&D expense decreased 2.3% to KRW 13,486m.
- Net finance income was KRW 8,332m, compared with KRW 5,174m in 2022. Income tax expense increased to KRW 36,717m; the effective tax rate was 22%, versus 24%.
Cash, liquidity and obligations
- Cash and cash equivalents were KRW 184,082m at year-end, and short-term financial instruments were KRW 277,215m, for a combined KRW 461,297m. The increase in short-term instruments largely reflected transfers from cash.
- Operating cash inflow was KRW 132,430m; investing cash outflow was KRW 116,579m, mainly from a KRW 110,179m net increase in short-term financial instruments; financing cash outflow was KRW 4,083m, principally lease-liability repayments.
- Total liabilities were KRW 114,453m and equity KRW 463,728m; the reported liabilities-to-equity debt ratio was 25%. The company reported no long-term debt obligations. Lease liabilities totaled KRW 6,562m.
- Known contractual obligations totaled KRW 11,660m: KRW 6,718m of lease obligations and KRW 4,942m of purchase obligations. Management said available cash and expected operating cash flows should meet capital needs through at least 2025, while noting that changed conditions, investments or acquisitions could increase funding needs.
Outlook, commentary and risks
The filing provides no specific revenue, earnings or margin guidance. Management says future growth and profitability depend on improving existing games and successfully introducing new titles. It describes plans to broaden offerings through in-house development, third-party publishing, expansion into new markets and other initiatives. This outlook is subject to substantial execution and market uncertainty.
- Concentration and durability: Results depend heavily on Ragnarok titles, especially Ragnarok Origin; the company also warns that the mature Ragnarok Online franchise faces shifting user preferences and competition.
- Platform and developer dependence: 78.4% of FY2023 revenue was generated through third-party mobile platforms, whose terms or policies may change. Many games are developed by third parties; the company noted service arrangements involving Dream Square were due to expire in March 2024 and that it was discussing replacement service partners.
- Geographic and currency exposure: Taiwan, Thailand, the Philippines and Korea contributed 24.3%, 18.9%, 14.1% and 11.9% of revenue, respectively. About 88.1% of revenue was denominated in currencies other than won; no foreign-currency forward contracts were outstanding at year-end. A hypothetical 10% depreciation of foreign currencies against the won would have reduced 2023 revenue by KRW 59,721m.
- Ownership and governance: GungHo’s majority ownership and commercial relationship with Gravity may create conflicts of interest. Gravity is a Nasdaq “controlled company” and relies on exemptions from certain governance requirements.
- Regulation and cybersecurity: The company identifies changing game, privacy, consumer-protection, loot-box, P2E/NFT and tax rules as risks. It reported past unauthorized-access attempts and DDoS incidents, but said it was not aware of a material cybersecurity incident in 2021–2023.
- Taxes and unusual items: Gravity believes it was a passive foreign investment company (PFIC) for 2022 and 2023, potentially creating adverse U.S. tax consequences for U.S. investors. It recorded KRW 1,531m of intangible-asset impairment in 2023, related to WITH: Whale In The High and Lost Saga. The filing says there were no legal proceedings believed likely to have a material adverse effect.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The auditor identified revenue recognition—particularly the estimated mobile-game user life cycle used to defer revenue—as a critical audit matter. Management and the auditor concluded internal controls were effective as of December 31, 2023.
Important facts for investors to verify
- Whether Ragnarok Origin’s growth and launches in new markets can continue, and how revenue and profitability evolve as launch effects normalize.
- Whether elevated commissions and platform costs continue to pressure gross margin and whether lower advertising expense is sustainable.
- The status and terms of replacement technical and publishing support for games affected by Dream Square service-term expirations.
- Revenue concentration by game, geography, licensee and mobile platform, including Nuverse’s role in mobile-game license-fee revenue.
- Current foreign-exchange sensitivity, liquidity available after short-term investments, and any changes to debt, lease or purchase commitments.
- Annual PFIC status and the implications for U.S. holders; consult individual tax advisers.
- The assumptions underlying deferred revenue and the estimated user life cycle, a significant management estimate highlighted by the auditor.