GRAVITY Co., Ltd. Form 6-K Summary
Business Context and Reporting Period
GRAVITY Co., Ltd. (NasdaqGM: GRVY), a South Korean online game developer and publisher, reported unaudited financial results for the second quarter ended June 30, 2011. The filing was submitted on August 12, 2011. The company's principal product is Ragnarok Online, which is commercially offered in 80 markets.
Key Financial Metrics
| Metric | Q2 2011 (KRW) | Q2 2011 (US$) | Q1 2011 (KRW) | Q2 2010 (KRW) |
|---|---|---|---|---|
| Total Revenue | 14,584 million | 13,837 thousand | 13,810 million | 11,326 million |
| Cost of Revenue | 6,234 million | 5,915 thousand | 5,383 million | 4,942 million |
| Gross Profit | 8,350 million | 7,922 thousand | 8,427 million | 6,384 million |
| Operating Expenses | 6,398 million | 6,070 thousand | 5,779 million | 6,112 million |
| Operating Income | 1,952 million | 1,852 thousand | 2,648 million | 272 million |
| Net Income (Parent) | 1,721 million | 1,633 thousand | 2,408 million | 465 million |
| Cash & Equivalents | 57,954 million | 54,985 thousand | N/A | N/A |
Note: US$ amounts converted at KRW 1,054.0 to US$1.00.
Material Changes vs. Prior Periods
- Revenue Growth: Total revenue increased 5.6% quarter-over-quarter (QoQ) and 28.8% year-over-year (YoY). Royalty and licensing fees drove growth, up 37.4% YoY due to performance in Japan, Taiwan, Hong Kong, and Macau, as well as the acquisition of Gravity Games Corp. (developer of Dragonica).
- Subscription Decline: Subscription revenue fell 11.7% QoQ due to decreased performance of Ragnarok Online in Korea, though it rose 8.6% YoY driven by European markets.
- Mobile Expansion: Mobile game revenue surged 45.2% QoQ and 34.2% YoY.
- Profitability: Net income attributable to the parent company decreased 28.5% QoQ (from KRW 2,408 million to KRW 1,721 million) but increased 270% YoY. Operating income declined 26.3% QoQ primarily due to higher operating expenses.
- Expense Increases: Cost of revenue rose 15.8% QoQ due to higher salaries, commissions, and outsourcing fees. Operating expenses increased 10.7% QoQ driven by commissions and advertising.
Outlook, Risks, and Business Updates
- Product Delay: The launch of Ragnarok Online II has been delayed to the first quarter of 2012. Management cited the need for final tweaks and polish following the second closed beta testing in July 2011.
- Liquidity: As of June 30, 2011, the company held KRW 57,954 million in cash, cash equivalents, and short-term financial instruments.
- Forward-Looking Statements: The filing includes standard disclaimers regarding forward-looking statements, noting that actual results may differ due to risks and uncertainties.
Investor Verification Checklist
- Verify the impact of the Ragnarok Online II delay on future revenue projections and development costs.
- Monitor the sustainability of mobile game revenue growth, which showed significant acceleration.
- Assess the trend in subscription revenue for the core Korean market, which showed a QoQ decline.
- Review the integration progress and financial contribution of the acquired Gravity Games Corp. (Dragonica).
- Confirm the exchange rate sensitivity given the company's significant international revenue exposure (Japan, Europe, Taiwan).