GRAVITY Co., Ltd. Q1 2018 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the unaudited financial results for GRAVITY Co., Ltd. (NasdaqCM: GRVY) for the first quarter ended March 31, 2018. The company is a South Korean developer and publisher of online and mobile games, primarily known for the Ragnarok Online franchise. Results are prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric | Q1 2018 (KRW) | Q1 2018 (USD) | QoQ Change | YoY Change |
|---|---|---|---|---|
| Total Revenues | 66,311 million | $62,499 thousand | -1.8% | +184.0% |
| Operating Profit | 4,820 million | $4,543 thousand | +63.9% | +46.1% |
| Profit Before Tax | 5,117 million | $4,823 thousand | +76.8% | +51.3% |
| Net Profit (Parent) | 3,549 million | $3,345 thousand | -27.5% | +63.5% |
| Cost of Revenue | 45,784 million | $43,152 thousand | -11.1% | +234.8% |
| Operating Expenses | 15,707 million | $14,804 thousand | +20.3% | +146.3% |
| Cash & Short-term Instruments | 57,397 million | $54,097 thousand | N/A | N/A |
Note: USD conversions based on an exchange rate of KRW 1,060.99 to US$ 1.00.
Material Changes vs. Prior Periods
- Revenue Composition: Mobile game revenues surged 537.4% YoY to KRW 51,396 million, driven by the launch of Ragnarok M in Taiwan and Korea. Conversely, subscription revenues declined 9.7% YoY due to lower performance in Taiwan, partially offset by growth in Korea and the Philippines.
- Profitability: Operating profit increased significantly QoQ (+63.9%) and YoY (+46.1%) despite a slight revenue dip QoQ. This was achieved through a 11.1% QoQ reduction in cost of revenue (lower commissions and outsourcing fees) which outpaced a 20.3% increase in operating expenses (primarily advertising for new launches).
- Net Profit Decline: Net profit attributable to the parent company decreased 27.5% QoQ. This decline is attributed to higher income tax expenses in Q1 2018 (KRW 1,593 million) compared to a tax benefit recorded in Q4 2017 (KRW 2,015 million).
- Liquidity: Cash and short-term financial instruments increased to KRW 57,397 million as of March 31, 2018, up from KRW 61,595 million (Cash + Short-term instruments) at year-end 2017, indicating stable liquidity.
Outlook, Risks, and Business Updates
- Product Launches: Ragnarok M launched in Korea on March 14, 2018, ranking #1 on Apple's App Store and #3 on Google Play at its peak. RO: Idle Poring launched in Korea in January 2018, and Ragnarok R launched in the US/Canada in January 2018.
- Future Plans: The company plans to launch Ragnarok M in additional markets during 2018 and expects to launch Spear of Odin in Southeast Asia in 2018. New versions of Ragnarok Online are also planned for various markets.
- Risks: The filing includes standard forward-looking statement disclaimers. Revenue recognition for royalty fees can be volatile, as seen in Q4 2017 where a specific agreement in China drove revenue that did not recur in Q1 2018.
Investor Verification Checklist
- Verify the sustainability of the 537.4% YoY mobile revenue growth as Ragnarok M matures in new markets.
- Monitor the impact of increased advertising expenses on future operating margins.
- Review the volatility of income tax expenses, which significantly impacted QoQ net profit.
- Confirm the timeline and market reception for upcoming launches of Spear of Odin and Ragnarok M expansions.
- Check the exchange rate sensitivity, as USD figures are derived from a specific KRW/USD rate (1,060.99) which may fluctuate.