GRAVITY Co., Ltd. Q3 2015 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, 2015. The company's principal product is Ragnarok Online, which is commercially offered in 71 markets.
Key Financial Metrics
| Metric | Q3 2015 (KRW) | Q3 2015 (USD) | Q2 2015 (KRW) | Q3 2014 (KRW) |
|---|---|---|---|---|
| Total Revenue | 8,671 million | 7,603 thousand | 9,217 million | 9,545 million |
| Cost of Revenue | 7,185 million | 6,300 thousand | 7,401 million | 7,808 million |
| Gross Profit | 1,486 million | 1,303 thousand | 1,816 million | 1,737 million |
| Operating Expenses | 4,135 million | 3,626 thousand | 4,481 million | 4,644 million |
| Operating Loss | (2,649) million | (2,323) thousand | (2,665) million | (2,907) million |
| Net Loss (Parent) | (2,460) million | (2,157) thousand | (2,763) million | (3,035) million |
| Cash & Equivalents | 38,864 million | 34,076 thousand | N/A | N/A |
Note: USD amounts are converted at an exchange rate of KRW 1,140.50 to US$ 1.00.
Material Changes vs. Prior Periods
- Revenue Decline: Total revenue decreased 5.9% quarter-over-quarter (QoQ) and 9.2% year-over-year (YoY).
- Royalties & Licenses: Down 0.4% QoQ and 14.2% YoY, driven by decreased revenues from Ragnarok Online II in Thailand/Vietnam and Ragnarok Online in Japan.
- Subscription: Up 2.2% QoQ due to growth in Korea and the US/Canada, but down 9.1% YoY due to declines in Taiwan and the US/Canada.
- Mobile Games: Down 14.7% QoQ and 4.1% YoY, primarily due to reduced third-party application development services and lower revenues from Ragnarok: Path of Heroes.
- Merchandising: Down 4.2% QoQ and 9.9% YoY.
- Expense Reduction: Cost of revenue decreased 2.9% QoQ and 8.0% YoY due to lower outsourcing fees and depreciation. Operating expenses decreased 7.7% QoQ and 11.0% YoY, attributed to reduced R&D, advertising, and salaries.
- Profitability: The net loss attributable to the parent company narrowed to KRW 2,460 million, an improvement from KRW 2,763 million in Q2 2015 and KRW 3,035 million in Q3 2014.
Outlook, Risks, and Commentary
The filing contains forward-looking statements regarding future performance but does not provide specific numerical guidance for future quarters. Management highlighted that the QoQ revenue decrease in royalties was influenced by the recognition of deferred revenues in the prior quarter due to terminated license agreements in Thailand and Vietnam, which did not recur in Q3. The company maintains a strong liquidity position with cash and short-term financial instruments totaling KRW 38,864 million as of September 30, 2015.
Investor Verification Checklist
- Verify the sustainability of the QoQ revenue decline in the mobile gaming segment, specifically regarding third-party application services.
- Monitor the impact of terminated license agreements in Thailand and Vietnam on future royalty revenues.
- Assess the trajectory of the net loss reduction; while improving, the company remains unprofitable with a cumulative retained earnings deficit of KRW 39,647 million.
- Review the composition of short-term financial instruments (KRW 25,000 million) to understand liquidity flexibility versus potential investment risks.
- Confirm the exchange rate sensitivity, as USD reporting is based on a specific rate (KRW 1,140.50) which may fluctuate.