GRAVITY Co., Ltd. — 2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. This is an audited annual report, not a standalone fourth-quarter report; the filing text does not provide clear Q4-only financial results. 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
Gravity develops and publishes online and mobile games, with the Ragnarok franchise central to its business. Mobile games generated 77.4% of 2022 revenue. The company reported 6,948,900 common shares outstanding at year-end; controlling shareholder GungHo beneficially owned 59.3% as of the filing date.
Key financial metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | KRW 463,618 | KRW 413,938 | +12.0% |
| Gross profit / margin | KRW 196,253 / 42.3% | KRW 189,765 / 45.8% | Profit +3.4%; margin down 3.5 percentage points |
| Operating profit / margin | KRW 104,708 / 22.6% | KRW 96,719 / 23.4% | Profit +8.3%; margin down 0.8 percentage points |
| Profit for the year | KRW 83,058 | KRW 65,880 | +26.1% |
| Profit attributable to parent owners | KRW 83,162 | KRW 65,947 | +26.1% |
| Net cash from operating activities | KRW 98,278 | KRW 74,183 | Increased |
Revenue mix: mobile games KRW 358,772 (+12.1%), online games KRW 89,256 (+18.4%), and other revenue KRW 15,590 (-15.3%). Ragnarok Origin contributed KRW 164,787, or 35.5% of total revenue, up from KRW 66,385 in 2021. Ragnarok M: Eternal Love contributed 20.1% of revenue, down from 27.2%; Ragnarok X: Next Generation contributed 16.7%, down from 30.5%. Ragnarok Online contributed 18.7%, up from 17.4%.
Liquidity and debt: Year-end cash and cash equivalents were KRW 169,877, and short-term financial instruments were KRW 167,000. Current assets were KRW 421,767 versus current liabilities of KRW 105,710. Total liabilities were KRW 113,914 and equity KRW 330,180; the company reported a liabilities-to-equity ratio of 35%. It reported no long-term debt obligations. Lease liabilities totaled KRW 5,963, including current and non-current amounts.
Investing cash outflow was KRW 22,340, mainly reflecting KRW 19,000 of net additions to short-term financial instruments. Financing cash outflow was KRW 3,918, primarily lease-liability repayments. Basic and diluted EPS were both KRW 11,968 per share.
Material changes versus FY2021
- Revenue growth was led by Ragnarok Origin’s launch in Taiwan, Hong Kong and Macau in September 2022. Mobile micro-transaction revenue rose, while mobile royalties and license fees fell to KRW 97,150 from KRW 155,518.
- Cost of revenue rose 19.3% to KRW 267,365, faster than revenue, mainly because of platform commissions, royalties and outsourcing costs associated with Ragnarok Origin. Gross margin consequently declined.
- Online-game revenue increased, including stronger Ragnarok Online results in Taiwan and Thailand. Mobile operating profit declined 10.0% to KRW 58,357, while online operating profit increased 46.6% to KRW 45,832.
- SG&A increased 2.6% to KRW 77,614, while R&D expense fell 16.7% to KRW 13,797. Advertising expense declined to KRW 29,898 from KRW 35,948.
- Profit growth also reflected lower income tax expense: KRW 26,824 versus KRW 33,421, with the effective tax rate declining to 24% from 34%. Net finance income was KRW 5,174, including substantial foreign-exchange gains and losses.
- Revenue concentration shifted geographically: Taiwan revenue rose to KRW 175,664 from KRW 77,462; Thailand fell to KRW 75,498 from KRW 94,475; and Korea fell to KRW 46,719 from KRW 73,751.
Outlook, commentary and risks
Management said available cash and expected operating cash flow should be sufficient to meet capital needs through at least 2024, while noting that investments, acquisitions or changing business conditions could increase cash requirements. The filing gives no quantified revenue or earnings guidance. Management’s stated priorities include launching games in additional markets, developing and publishing new titles, and improving game features and profitability.
- Franchise and product concentration: Ragnarok Online and games based on its content represented large portions of revenue; mobile games are also generally shorter-lived and subject to changing user demand and competition.
- Platform, developer and licensee reliance: 56.4% of revenue was generated through third-party mobile platforms. The filing highlights reliance on third-party-developed games and overseas licensees, including Nuverse. The prior technical-support agreement with Dream Square expired in March 2021; Gravity said it did not plan to renew it and was discussing future service arrangements.
- Cybersecurity and continuity: The company disclosed database/server access incidents in 2022 and DDoS attacks that temporarily disrupted services. It reported no personal information was compromised in the database incidents and no material losses from the cited attacks, but warned future incidents could have greater effects.
- Regulatory and digital-asset exposure: Game ratings, privacy, consumer-protection and other rules vary by market. P2E and NFT products may face evolving regulation and cybersecurity risks.
- Foreign exchange: 89.9% of revenue was denominated in currencies other than Won, and no foreign-currency forward contracts were outstanding at year-end. A hypothetical 10% depreciation of relevant foreign currencies against the Won was estimated to reduce revenue by KRW 39,169.
- Control and governance: GungHo’s 59.3% ownership gives it significant control; Gravity relies on controlled-company exemptions from certain Nasdaq governance requirements. The filing also identifies potential conflicts because GungHo is a licensee and game operator.
- Tax and accounting: Gravity believed it was a PFIC for U.S. tax purposes in 2022, potentially creating adverse U.S. federal tax consequences for U.S. investors. Revenue recognition depends in part on management’s estimated mobile-game user life cycles; the auditor identified this as a critical audit matter. Mobile-game deferred revenue included KRW 6,869 associated with unsatisfied performance obligations.
- Other matters: The company reported no lawsuit or proceeding it believed could individually or collectively have a material adverse effect. It had recognized KRW 293 of intangible-asset impairment in 2022. No dividends had been paid, and the company stated it had no intention to pay dividends in the near future.
The independent auditor issued an unqualified opinion on the 2022 IFRS financial statements and on internal control over financial reporting. Management and the auditor concluded that internal controls were effective as of December 31, 2022.
Important facts for investors to verify
- Whether Ragnarok Origin’s Taiwan/Hong Kong/Macau launch can sustain revenue, and whether declines in Ragnarok M and Ragnarok X continue.
- Whether revenue growth can translate into margins, given rising commissions, platform fees, royalty costs and dependence on mobile storefronts.
- Future service, update and publishing arrangements for third-party-developed games, including titles associated with Dream Square, and the ongoing contribution and terms of Nuverse arrangements.
- Cash-flow conversion, accounts-receivable growth and the composition, accessibility and counterparty concentration of cash and short-term financial instruments.
- Foreign-exchange sensitivity, PFIC status for the relevant tax year, and the estimates used to determine game-user life cycles and deferred revenue.
- GungHo’s influence, related-party transactions and the practical implications of controlled-company governance exemptions.