GRAVITY Co., Ltd. Form 6-K Summary
Business Context and Reporting Period
GRAVITY Co., Ltd. (NasdaqGM: GRVY), a South Korean online game developer and publisher, reported unaudited financial results for the third quarter ended September 30, 2009. The company's principal product is Ragnarok Online, offered in 38 markets.
Key Financial Metrics
| Metric | Q3 2009 (KRW) | Q3 2009 (US$) | Q2 2009 (KRW) | Q3 2008 (KRW) |
|---|---|---|---|---|
| Total Revenues | 13,798 million | 11,818 thousand | 14,018 million | 12,782 million |
| Cost of Revenues | 5,396 million | 4,622 thousand | 5,441 million | 6,726 million |
| Gross Profit | 8,402 million | 7,196 thousand | 8,577 million | 6,056 million |
| Operating Expenses | 7,193 million | 6,160 thousand | 5,389 million | 5,815 million |
| Operating Income | 1,209 million | 1,036 thousand | 3,188 million | 241 million |
| Net Income | 16 million | 14 thousand | 1,938 million | 869 million |
| Cash & Equivalents (Sep 30, 2009) | 72,878 million | 62,418 thousand | - | - |
Revenue Breakdown (Q3 2009):
- Royalty and licensing fees: KRW 7,553 million
- Subscription revenue: KRW 3,122 million
- Mobile game revenues: KRW 2,324 million
- Character merchandising and other: KRW 799 million
Material Changes vs. Prior Periods
- Revenue: Decreased 1.6% quarter-over-quarter (QoQ) but increased 7.9% year-over-year (YoY). The QoQ decline was driven by lower Ragnarok Online revenues in Japan, while YoY growth was aided by the weakening Korean Won against the Japanese Yen.
- Mobile Games: Showed strong growth, up 32.6% QoQ and 44.0% YoY, driven by Ragnarok mobile sales and outsourced development for LG Electronics.
- Operating Expenses: Increased 33.5% QoQ and 23.7% YoY. The primary driver was a KRW 1,676 million accrual for a litigation settlement. Increased advertising for Ragnarok Online updates also contributed to the QoQ rise.
- Profitability: Net income collapsed to KRW 16 million from KRW 1,938 million in Q2 2009 and KRW 869 million in Q3 2008, primarily due to the litigation accrual and foreign currency losses.
- Cost of Revenues: Decreased 19.8% YoY due to the liquidation of the U.S. subsidiary L5 Games Inc. and the completion of amortization for intangible assets related to the NeoCyon acquisition.
Outlook, Risks, and Business Updates
- Ice Age Online Dispute: The launch of "Ice Age Online," previously expected in December 2009, is delayed due to a disagreement with 20th Century FOX Licensing regarding the game's development status. Gravity is seeking an amicable settlement.
- New Publishing Agreement: Gravity signed an agreement with Naru Entertainment Co., Ltd. to publish "Estar," an MMORPG targeting male users aged teens to thirties, worldwide.
- Litigation Contingency: The company recorded a significant expense for a litigation settlement expected to be incurred with reasonable certainty.
- Forward-Looking Statements: The filing includes standard disclaimers regarding forward-looking statements, noting that actual results may differ due to risks and uncertainties.
Key Facts for Investor Verification
- Verify the status and potential financial impact of the dispute with 20th Century FOX regarding "Ice Age Online."
- Confirm the final settlement amount and terms related to the KRW 1,676 million litigation accrual.
- Monitor the performance of the new "Estar" publishing agreement and its contribution to future revenue.
- Assess the sustainability of mobile game revenue growth following the LG Electronics outsourcing project.
- Review the impact of foreign exchange fluctuations on reported earnings, given the company's significant international exposure.