GRAVITY Co., Ltd. Q1 2016 Financial 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 first quarter ended March 31, 2016. The company's principal product is Ragnarok Online, which is commercially offered in 81 markets.
Key Financial Metrics
| Metric | Q1 2016 (KRW) | Q1 2016 (USD) |
|---|---|---|
| Total Revenue | 9,094 million | $7,984 thousand |
| Cost of Revenue | 6,619 million | $5,812 thousand |
| Gross Profit | 2,475 million | $2,172 thousand |
| Operating Expenses | 3,036 million | $2,665 thousand |
| Net Loss (Parent Company) | 1,701 million | $1,493 thousand |
| Cash and Short-term Instruments | 35,881 million | $31,506 thousand |
Material Changes vs. Prior Periods
- Revenue: Increased 4.5% quarter-over-quarter (QoQ) and 0.3% year-over-year (YoY). Royalty and license fees rose 13.9% QoQ and 34.1% YoY, driven by Ragnarok Online in Japan and a stronger Japanese Yen. Conversely, mobile game revenues fell 34.8% QoQ and 37.8% YoY due to declines in Ragnarok: Path of Heroes. Subscription revenues surged 128.3% QoQ and 25.9% YoY, primarily from the U.S. and Canada.
- Costs and Expenses: Cost of revenue decreased 17.5% QoQ and 13.8% YoY, largely due to the cessation of amortization for Ragnarok Online II (fully impaired in Q4 2015). Operating expenses dropped 69.8% QoQ and 23.2% YoY, mainly because significant impairment losses on intangible assets recorded in Q4 2015 did not recur in Q1 2016.
- Profitability: The company recorded a net loss of KRW 1,701 million, a significant improvement from the KRW 9,113 million loss in Q4 2015 and the KRW 2,628 million loss in Q1 2015.
- Liquidity: Cash and short-term financial instruments totaled KRW 35,881 million as of March 31, 2016.
Outlook, Risks, and Unusual Items
- Unusual Items: The Q4 2015 results were heavily impacted by impairment losses on capitalized R&D costs for Ragnarok Online II and goodwill of NeoCyon. These non-recurring charges significantly reduced operating expenses in Q1 2016, improving the reported loss.
- Foreign Exchange: The strengthening of the Japanese Yen against the Korean Won positively impacted royalty revenues. However, the company reported a foreign currency loss of KRW 858 million in Q1 2016.
- Forward-Looking Statements: The filing includes standard safe-harbor language regarding forward-looking statements, noting that actual results may differ due to risks and uncertainties. No specific numerical guidance for future periods was provided in this text.
Investor Verification Checklist
- Verify the sustainability of the 128.3% QoQ growth in subscription revenues from the U.S. and Canada.
- Assess the long-term impact of the 37.8% YoY decline in mobile game revenues.
- Confirm the status of the fully impaired Ragnarok Online II project and future R&D capitalization policies.
- Monitor foreign exchange exposure, specifically the volatility of the Japanese Yen and its effect on royalty income.
- Review the balance sheet for the increase in accounts payable (from KRW 2,971 million to KRW 8,269 million) and deferred revenue.