GRAVITY Co., Ltd. Form 6-K Summary
Business Context and Reporting Period
GRAVITY Co., Ltd. (NasdaqCM: GRVY), a South Korean developer and publisher of online and mobile games, reported unaudited financial results for the second quarter ended June 30, 2015. The company's principal product is the Ragnarok Online franchise, which is commercially offered in 71 markets.
Key Financial Metrics
| Metric | Q2 2015 (KRW) | Q2 2015 (USD) | Q1 2015 (KRW) | Q2 2014 (KRW) |
|---|---|---|---|---|
| Total Revenue | 9,217 million | $8,248 thousand | 9,069 million | 10,248 million |
| Cost of Revenue | 7,401 million | $6,624 thousand | 7,676 million | 8,882 million |
| Gross Profit | 1,816 million | $1,624 thousand | 1,393 million | 1,366 million |
| Operating Expenses | 4,481 million | $4,010 thousand | 3,952 million | 4,069 million |
| Net Loss (Parent) | (2,763 million) | ($2,473 thousand) | (2,628 million) | (3,031 million) |
| Cash & Short-term Instruments | 40,424 million | $36,179 thousand | N/A | N/A |
Revenue Breakdown (Q2 2015):
- Royalty and license fees: KRW 2,777 million
- Subscription revenues: KRW 1,922 million
- Mobile game and application revenues: KRW 3,703 million
- Character merchandising and other: KRW 815 million
Material Changes vs. Prior Periods
- Revenue: Increased 1.6% quarter-over-quarter (QoQ) but decreased 10.1% year-over-year (YoY). The YoY decline was driven by lower revenues from Ragnarok Online in Japan and a stronger Korean Won against the Japanese Yen.
- Subscription Revenue: Increased 13.2% QoQ and 21.0% YoY, primarily due to growth in Korea, the U.S., and Canada.
- Mobile Revenue: Decreased 11.9% QoQ and 10.1% YoY, largely due to declining revenues from "Ragnarok: Path of Heroes."
- Cost of Revenue: Decreased 3.6% QoQ and 16.7% YoY, attributed to reduced outsourcing fees and lower employee salaries.
- Operating Expenses: Increased 13.4% QoQ and 10.1% YoY, driven by higher advertising costs for new mobile games and increased R&D expenses.
- Net Loss: The net loss attributable to the parent company narrowed slightly to KRW 2,763 million compared to KRW 3,031 million in Q2 2014, despite the revenue decline.
Outlook, Risks, and Business Updates
- China Expansion: "Ragnarok Prequel," a web game launched in May 2015, has acquired over 3 million registered users in China. A new MMORPG mobile game developed by partner Dream Square is expected to launch in China in early 2016.
- Forward-Looking Statements: The filing includes standard disclaimers regarding forward-looking statements, noting that actual results may differ due to risks and uncertainties.
- Liquidity: As of June 30, 2015, the company held KRW 40,424 million in cash and short-term financial instruments.
Investor Verification Checklist
- Verify the sustainability of the 21% YoY growth in subscription revenue versus the 10% YoY decline in mobile revenue.
- Confirm the timeline and market reception of the new "Ragnarok Prequel" mobile game launch in China scheduled for early 2016.
- Monitor the impact of the strengthening Korean Won on future revenues from Japanese markets.
- Review the trajectory of operating expenses, specifically R&D and advertising, to ensure they align with future revenue generation.