Major South Korean game companies are expected to post mixed results in the third quarter this year. Krafton, Nexon and Netmarble are expected to see operating profit fall despite higher revenue. NCSoft is expected to return to profit, while Kakao Games is forecast to post wider losses.

Krafton, Nexon see profit decline on cost burden despite top-line growth

Based on earnings forecasts compiled by financial information firm FnGuide on Oct. 27, Krafton’s third-quarter revenue consensus is 1.13 trillion won and operating profit is 280.0 billion won. Revenue is estimated to rise 29.4 percent from a year earlier, while operating profit is expected to fall 19.7 percent. As a result, its operating margin is forecast to drop 15.2 percentage points to 24.8 percent from 40 percent in the third quarter last year.

Krafton expanded its top line on the back of 'PUBG: Battlegrounds', 'Subnautica 2' released in early access in May, and the effect of consolidating Japanese advertising agency ADK. In the third quarter, however, the early sales boost from Subnautica 2 is expected to fade and major collaboration schedules for the PC segment of Battlegrounds are concentrated in the fourth quarter. That is expected to push game revenue down from the previous quarter, according to an analysis.

The cost burden is expected to persist even as game revenue declines from the previous quarter. Mirae Asset Securities estimated Krafton’s third-quarter PC game revenue at 385.0 billion won, down from 560.0 billion won in the previous quarter, while operating costs are projected to stay at a similar level of about 879.0 billion won. Higher marketing expenses and commissions tied to participation in global game shows are also expected to weigh on profitability.

Nexon is also expected to post higher revenue alongside lower operating profit. Nexon’s own guidance for the third quarter puts revenue at 120.7 billion to 133.4 billion yen and operating profit at 22.6 billion to 32.3 billion yen. It forecast revenue rising 2 to 12 percent from a year earlier, while operating profit is expected to fall 14 to 40 percent.

The 'MapleStory' franchise and 'ARC Raiders' are expected to support revenue, but higher payment gateway fees, royalties, marketing costs for new titles, and increased cloud and software usage fees are expected to weigh on profitability. A one-off gain of 3.9 billion yen related to trust liquidation reflected in the third quarter last year will also disappear. The company is also expected to reflect about 1.5 billion yen in costs to adjust stock options following a special dividend this year, another factor weighing on profit.

NCSoft returns to profit; Netmarble faces uncertainty over new-title staying power

NCSoft is expected to improve results from a year earlier. Its third-quarter revenue consensus is 703.7 billion won and operating profit is 103.3 billion won. Revenue is forecast to jump 95.5 percent and operating profit is expected to swing to a profit. Compared with operating profit of 173.9 billion won in the second quarter, however, it would be down 40.6 percent.

NCSoft’s recovery was influenced by performance from 'Aion 2' released in November last year and 'Lineage Classic' introduced in February this year. Cutting fixed costs through workforce efficiency measures and reorganisation of development teams also helped improve profitability. Mirae Asset Securities forecast NCSoft’s labour cost ratio to revenue falling to 36 percent this year from 57 percent in 2024.

In the third quarter, revenue from major games is expected to fall from the previous quarter, and base effects from China-related contract payments reflected in the second quarter are also expected to weigh. Daol Investment & Securities estimated that about 30.0 billion won in one-off revenue will be reflected due to the transfer of global service operations for 'Throne and Liberty (TL)'. Whether revenue from existing games can be maintained is cited as a variable for future profitability.

Netmarble is also expected to post higher revenue but lower operating profit. Its third-quarter revenue consensus is 731.3 billion won and operating profit is 83.1 billion won, up 5.1 percent and down 8.5 percent, respectively, from a year earlier. Compared with the previous quarter, revenue is estimated to fall 2.4 percent while operating profit is expected to rise 3.7 percent.

The securities industry points to slowing revenue from existing games such as 'Marvel Contest of Champions' and 'Seven Knights Re:Birth' and the absence of new releases in the third quarter as key reasons. It also sees revenue from 'Sol: Enchant', released in the second quarter, declining faster than expected.

As the share of revenue from games using external IP rises, the burden of commission payments is also expected to grow. Kyobo Securities estimated that Netmarble’s third-quarter commission payments would reach 33 percent of revenue, up 1.6 percentage points from the previous quarter. It also sees slowing revenue from existing titles and a higher commission rate limiting any improvement in profitability even as marketing expenses decline.

Kakao Games widens losses; fourth-quarter new titles a variable

Kakao Games is expected to remain weak as revenue from existing games falls and new releases are absent. Its third-quarter revenue consensus is 78.0 billion won, down 38.8 percent from a year earlier, and operating loss is expected at 26.1 billion won, widening from 5.4 billion won a year earlier.

Kakao Games is pursuing cost structure improvements by winding down non-core businesses and improving organisational efficiency. 'Dokkaebiui Segye', released on Oct. 8, posted strong early performance, raising the possibility of a revenue rebound in the fourth quarter. Hanwha Investment & Securities said new-title success and an expanded earnings base through the acquisition of MeetOn would contribute to future earnings improvement.

New-title performance by major game companies in the fourth quarter is expected to determine whether results improve. NCSoft’s 'Aion 2', released in global markets on Oct. 5, will be fully reflected in revenue. KB Securities estimated fourth-quarter global revenue for Aion 2 at about 184.0 billion won and cited the key variable as whether traffic can be maintained after initial user inflows.

Nexon and Netmarble will also seek new revenue by releasing new titles in the fourth quarter. Krafton still faces the task of managing costs tied to maintaining revenue from existing IP and developing new titles.

An industry official said game companies are focusing on securing growth engines through new titles while maintaining revenue from existing ones. The official said early success of new titles is important, but how stably revenue can be maintained and how development and marketing costs are managed will determine future profitability.