Business Context and Reporting Period
Company: GRAVITY Co., Ltd. (NasdaqGM: GRVY)
Reporting Period: First Quarter ended March 31, 2020
Filing Date: May 29, 2020
Business Overview: Gravity is a South Korean developer and publisher of online and mobile games, best known for the Ragnarok Online franchise. The company operates in 93 markets globally.
Key Financial Metrics
| Metric | Q1 2020 (KRW) | Q1 2020 (USD) |
|---|---|---|
| Total Revenue | 73,260 million | $60,102 thousand |
| Operating Profit | 10,356 million | $8,496 thousand |
| Profit Before Tax | 11,250 million | $9,229 thousand |
| Net Profit (Parent) | 9,263 million | $7,599 thousand |
| Cash & Short-term Instruments | 123,002 million | $100,911 thousand |
| Cost of Revenue | 48,874 million | $40,096 thousand |
| Operating Expenses | 14,030 million | $11,510 thousand |
Note: USD amounts converted at KRW 1,218.92 to US$ 1.00.
Material Changes vs. Prior Periods
- Revenue: Decreased 45.2% Year-over-Year (YoY) compared to Q1 2019, but increased 2.2% Quarter-over-Quarter (QoQ) from Q4 2019. The YoY decline was driven primarily by a 53.4% drop in mobile game revenues.
- Profitability: Operating profit surged 475.7% QoQ and Net profit attributable to the parent company increased 2,957.1% QoQ. However, both metrics remain significantly lower YoY (Operating profit down 56.2%; Net profit down 53.1%).
- Revenue Mix:
- Subscription: Increased 58.1% YoY, driven by Ragnarok Online and Prequel in Taiwan.
- Mobile Games: Decreased 53.4% YoY due to declines in Southeast Asia, North America, and Korea, partially offset by growth in Japan and Taiwan.
- Royalties: Decreased 4.8% YoY due to lower revenue from Ragnarok Online in Japan.
- Expenses: Operating expenses decreased 23.0% QoQ due to reduced advertising spend, but increased 60.4% YoY due to new game launches (Ragnarok Tactics) and R&D costs.
Outlook, Management Commentary, and Risks
Business Updates and Pipeline
- Ragnarok Origin: Scheduled for launch in Korea in July 2020 following a successful first closed beta test.
- Ragnarok X: Next Generation: Preparing for service in Taiwan, Hong Kong, and Macau in H2 2020.
- Ragnarok Tactics: Launched in Korea (March 31, 2020); global launch targeted for June 2020.
- Tactical Warfare: A new FPS game starting pre-registration for a June 2020 launch in the Americas.
Risks and Contingencies
- Forward-Looking Statements: The filing includes standard disclaimers that future results may differ materially from expectations due to changing events or circumstances.
- Market Dependence: Significant revenue fluctuations are tied to specific regional performance (e.g., Taiwan, Japan, Southeast Asia) and the lifecycle of specific titles like Ragnarok M: Eternal Love.
Key Facts for Investor Verification
- Revenue Volatility: Verify the sustainability of the QoQ revenue increase given the severe 45.2% YoY decline, particularly in the mobile segment.
- Profit Margin Expansion: Confirm if the massive QoQ increase in net profit (2,957%) is a one-time anomaly driven by expense reductions or a structural shift.
- Upcoming Launches: Monitor the performance of Ragnarok Origin (July 2020) and Ragnarok Tactics (Global June 2020) as key drivers for future growth.
- Liquidity Position: Note the strong cash position of KRW 123 billion, providing a buffer against operational fluctuations.
- Regional Concentration: Assess the risk associated with heavy reliance on specific markets like Taiwan and Japan for subscription and royalty revenue.