GRAVITY Co., Ltd. Form 6-K Summary
Business Context and Reporting Period
Company: GRAVITY Co., Ltd. (NasdaqGM: GRVY), a South Korean online game developer and publisher.
Reporting Period: Third quarter ended September 30, 2013.
Filing Date: November 20, 2013.
Context: The company reported unaudited financial results prepared in accordance with U.S. GAAP, alongside significant business updates regarding its flagship title, Ragnarok Online II.
Key Financial Metrics
| Metric | Q3 2013 (KRW) | Q3 2013 (USD) | Q2 2013 (KRW) | Q3 2012 (KRW) |
|---|---|---|---|---|
| Total Revenue | 12,807 million | 12,072 thousand | 12,788 million | 14,012 million |
| Gross Profit | 3,689 million | 3,477 thousand | 4,349 million | 4,951 million |
| Operating Loss | (1,317) million | (1,241) thousand | (1,581) million | (2,500) million |
| Net Loss (Parent) | (1,804) million | (1,700) thousand | (1,617) million | (1,393) million |
| Cash & Equivalents | 49,709 million | 46,855 thousand | — | — |
| Short-term Instruments | 27,500 million | 25,921 thousand | — | — |
Note: USD amounts converted at KRW 1,060.91 to US$1.00.
Material Changes vs. Prior Periods
- Revenue Trends: Total revenue increased 0.1% quarter-over-quarter (QoQ) but decreased 8.6% year-over-year (YoY). The YoY decline was driven by lower online game revenues, partially offset by a 65.4% YoY surge in mobile game revenues.
- Segment Performance:
- Royalties/Licensing: Decreased 42.8% YoY due to lower Ragnarok Online revenues in Japan and currency fluctuations (KRW strengthening against JPY).
- Subscription: Increased 33.3% YoY due to Ragnarok Online II launches in the US, Canada, and Europe, though it fell 11.5% QoQ as revenues from these new markets declined in the quarter.
- Mobile Games: Increased 35.2% QoQ and 65.4% YoY, driven by third-party service revenues.
- Merchandising: Decreased 70.6% YoY due to lower sales of Ragnarok Odyssey and character merchandise.
- Expenses: Operating expenses decreased 32.8% YoY, primarily because the Q3 2012 period included a significant impairment loss on intangible assets for Dragonica, which did not recur in Q3 2013. QoQ expenses fell 15.6% due to reduced R&D spending on Ragnarok Odyssey Ace.
- Liquidity: Cash and short-term financial instruments totaled KRW 49,709 million as of September 30, 2013.
Outlook, Risks, and Business Updates
- China Partnership Termination: Gravity terminated its license and distribution agreement for Ragnarok Online II with Shanghai The9 Information Technology Co., Ltd. The total value of valid agreements for the remaining eight countries is now US$23.39 million. Gravity is seeking new partners for the Chinese market.
- Korea Service Suspension: The Korean service of Ragnarok Online II will be suspended on December 23, 2013, due to performance below expectations. The company will focus on overseas markets and may resume Korean service after further global releases.
- New Product Launch: The English version of the mobile game "Tower of Ascension" is scheduled for global release (excluding Japan) on the Apple App Store in December 2013.
- Forward-Looking Statements: The filing contains forward-looking statements regarding future game releases and market performance, which are subject to risks and uncertainties.
Investor Verification Checklist
- Verify the status of negotiations for a new Ragnarok Online II distributor in China following the termination with The9.
- Monitor the impact of the suspended Korean service on total subscription revenue in Q4 2013.
- Assess the performance of "Tower of Ascension" upon its December 2013 global launch.
- Review the sustainability of mobile game revenue growth, which currently offsets declines in traditional online game segments.
- Confirm the exchange rate impact on future earnings, given the sensitivity of Japanese Yen revenues to the Korean Won.