GRAVITY Co., Ltd. Q1 2013 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports the unaudited financial results for GRAVITY Co., Ltd. (NasdaqGM: GRVY), a South Korean online game developer and publisher, for the first quarter ended March 31, 2013. The results are prepared in accordance with U.S. GAAP.
Key Financial Metrics
| Metric | Q1 2013 (KRW) | Q1 2013 (USD) | Q4 2012 (KRW) | Q1 2012 (KRW) |
|---|---|---|---|---|
| Total Revenue | 11,796 million | 10,756 thousand | 13,328 million | 16,357 million |
| Gross Profit | 4,399 million | 4,011 thousand | 4,001 million | 9,530 million |
| Operating Loss | (1,552) million | (1,415) thousand | (15,617) million | 1,351 million |
| Net Loss (Parent) | (1,629) million | (1,485) thousand | (10,833) million | 1,128 million (Income) |
| Cash & Equivalents | 24,039 million | 21,920 thousand | 36,455 million | N/A |
| Short-term Instruments | 27,500 million | 25,076 thousand | 17,500 million | N/A |
Liquidity: As of March 31, 2013, total cash and cash equivalents plus short-term financial instruments totaled KRW 51,539 million (US$ 46,996 thousand).
Material Changes vs. Prior Periods
- Revenue Decline: Total revenue decreased 11.5% quarter-over-quarter (QoQ) and 27.9% year-over-year (YoY).
- Royalty/Licensing: Down 8.6% QoQ and 23.6% YoY due to a stronger Korean Won against the Japanese Yen and declining revenue from Ragnarok Online in Japan. Partially offset by a relaunch in China.
- Subscription: Up 3.9% QoQ (driven by Ragnarok Online in Korea) but down 54.1% YoY due to the decline of Finding Neverland Online.
- Mobile Games: Down 29.0% QoQ but up 35.1% YoY.
- Merchandising: Up 48.0% QoQ but down 67.8% YoY due to lower sales of Ragnarok Odyssey on PS Vita.
- Cost of Revenue: Decreased 20.7% QoQ due to lower outsourcing fees, but increased 8.3% YoY due to salaries and amortization for Ragnarok Online II.
- Operating Expenses: Decreased 69.7% QoQ and 27.2% YoY. The QoQ drop was primarily due to a significant reduction in impairment losses on intangible assets compared to Q4 2012. The YoY drop was due to reduced advertising expenses for beta testing that occurred in Q1 2012 but not Q1 2013.
- Profitability: The company recorded a net loss attributable to the parent company of KRW 1,629 million, a significant improvement from the KRW 10,833 million loss in Q4 2012, but a reversal from the KRW 1,128 million net income in Q1 2012.
Outlook, Risks, and Commentary
The filing contains forward-looking statements regarding future performance but does not provide specific numerical guidance for future quarters. Management highlighted the relaunch of Ragnarok Online in China as a positive offset to declines in Japan. Key risks identified include foreign currency fluctuations (specifically the Korean Won vs. Japanese Yen) and the lifecycle of specific game titles such as Finding Neverland Online and Ragnarok Odyssey.
Investor Verification Checklist
- Verify the sustainability of the QoQ revenue decline in the Japanese market for Ragnarok Online.
- Confirm the impact of the Korean Won strengthening on future royalty revenues from Japan.
- Assess the growth trajectory of mobile game revenue following the QoQ decline.
- Review the status of Ragnarok Online II commercial performance post-launch to validate cost amortization trends.
- Monitor the cash burn rate given the continued net loss despite improved operating expenses.