GRAVITY Co., Ltd. Q3 2017 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 third quarter ended September 30, 2017. The company's principal product is the Ragnarok Online franchise, which is commercially offered in over 80 markets.
Key Financial Metrics
| Metric | Q3 2017 (KRW) | Q3 2017 (US$) | Q2 2017 (KRW) | Q3 2016 (KRW) |
|---|---|---|---|---|
| Total Revenues | 23,723 million | 20,762 thousand | 27,028 million | 15,746 million |
| Operating Income | 3,422 million | 2,996 thousand | 4,373 million | 3,546 million |
| Income Before Tax | 3,621 million | 3,169 thousand | 4,560 million | 3,524 million |
| Net Income (Parent) | 2,696 million | 2,359 thousand | 3,555 million | 3,087 million |
| Cash & Short-term Instruments | 50,819 million | 44,477 thousand | N/A | N/A |
Revenue Breakdown (Q3 2017):
- Subscription: KRW 9,126 million
- Royalty and License Fees: KRW 3,492 million
- Mobile Games and Applications: KRW 9,730 million
- Character Merchandising and Other: KRW 1,375 million
Liquidity: As of September 30, 2017, cash and cash equivalents plus short-term financial instruments totaled KRW 50,819 million (US$ 44,477 thousand).
Material Changes vs. Prior Periods
- Quarter-over-Quarter (QoQ): Total revenues decreased 12.2% primarily due to lower mobile game revenues from Ragnarok R in Taiwan and Thailand. Operating income fell 21.7%, and Net Income dropped 24.2%. Cost of revenue decreased 7.3% due to lower commissions and outsourcing fees, while operating expenses decreased 17.0% driven by reduced advertising spend for Ragnarok R in Korea.
- Year-over-Year (YoY): Total revenues increased 50.7%, driven by strong growth in mobile games (up 243.8%) and subscription revenues. However, Net Income decreased 12.7% YoY. Cost of revenue surged 112.9% YoY due to increased mobile platform commissions and outsourcing fees for new titles.
Outlook, Management Commentary, and Risks
Business Updates and Guidance:
- Ragnarok Online: Successfully re-launched in the Philippines; re-launches in Singapore and Malaysia are planned for Q4 2017. Ragnarok Zero is expected to begin service in Korea in Q4 2017.
- Mobile Titles: Ragnarok M launched in Taiwan, Hong Kong, and Macau in October 2017, ranking first on app stores at peak. Launches in Korea and Thailand are planned for 2018. RO: Idle Poring commenced global service in September 2017. Ragnarok R is scheduled for launch in the US and Canada in Q4 2017.
- New IP: Sword and Fairy: Mirror's Mirage is planned for publication in Korea in Q4 2017. Spear of Odin is expected in Asian markets in H1 2018.
Risks and Contingencies: The filing includes standard forward-looking statements regarding future launches and market performance. The company notes that forward-looking statements are subject to risks and uncertainties, and they assume no duty to update them. No specific legal contingencies or unusual items were detailed in the text provided.
Investor Verification Checklist
- Verify the sustainability of mobile game revenue growth given the 20.5% QoQ decline in the mobile segment.
- Confirm the execution timeline for Q4 2017 launches (Ragnarok Zero, Ragnarok R in US/Canada, Sword and Fairy).
- Monitor the impact of the 112.9% YoY increase in cost of revenue on future gross margins.
- Review the performance of the Philippines re-launch of Ragnarok Online as a key growth driver.
- Check for any updates on the launch schedule for RO: Idle Poring in Korea, which was not specified in the filing.