A wave of treasury share cancellations is sweeping the game industry. On the surface, it is a shareholder-return measure aligned with the government's “value-up” policy direction. Analysts say it is also a last-ditch move by game companies that have lost growth engines. As the “growth formula” of expanding through aggressive mergers and acquisitions and research and development has broken down, they are pouring funds meant for the future into defending their share prices.

“Even buybacks and cancellations” ... all-out defensive battle amid weak earnings

According to the industry on Jan. 22, major game companies are competitively cancelling treasury shares regardless of whether their earnings are up or down. NCSoft drew attention in March last year by cancelling 126.9 billion won worth of treasury shares in bulk despite being in the red.

Companies that posted profits are also acting with urgency. Com2uS this month cancelled 50 percent of its treasury shares, worth 58.1 billion won, or about 640,000 shares. It made the move as profitability worsened, with annual operating profit last year estimated at around 3.0 billion won, down more than 50 percent from a year earlier. W Games also cancelled 17.5 billion won worth of treasury shares in early January.

Mgame last month announced cash dividends, treasury share cancellations and stock rewards for employees at the same time as it sought to shore up its share price. It decided to cancel all of about 340,000 treasury shares, or 1.7 percent of shares outstanding, in addition to paying dividends for a third straight year of about 4.3 billion won.

The trend has gathered pace since the second half of last year. Wemade Play in October last year cancelled all treasury shares within the limit of distributable profits, worth 16.9 billion won, equal to about 8 percent of shares outstanding, showing a strong intent to boost its share price. Devsisters joined the line-up in November by cancelling 2.7 billion won worth. Devsisters said in a regulatory filing at the time it would cancel treasury shares funded within a limit of 10 percent of 2024 operating profit, suggesting it was deploying a substantial share of earnings to defend its stock price.

Companies normally reinvest surplus cash to raise future value. But the fact that even mid-sized game companies, as well as loss-making NCSoft, are simultaneously clinging to cash dividends and treasury share cancellations is read, paradoxically, as a signal that they lack confidence they can spend money to create growth.

The worrying point is the loss of opportunity cost. Critics say they are using up funds that should be put into areas global rivals are staking their survival on, such as artificial intelligence technology and developing the console market, to defend share prices. An industry official said, “With growth engines absent, including falling game usage rates and weaker earnings, simply relying on past success methods has limits.” The official added, “As they lose appeal as growth stocks, the tendency to rely on short-term prescriptions to boost share prices has intensified.”

Loss of value as a “shield” ... “strategic disposal” before a Commercial Act revision?

Some interpret the cancellation rush as a move that takes into account a revision to the Commercial Act being discussed in the National Assembly. The political sector is pushing to legislate a third revision to the Commercial Act that would require companies to cancel treasury shares within 1 year of acquisition.

In the past, treasury shares were a powerful “defensive tool” for management. They could be handed to friendly forces, or “white knights”, in management-control disputes to revive voting rights. But if the revision passes, this “shield” disappears. From a company’s perspective, the calculation is that it may be better to cancel treasury shares in advance before legal compulsion takes effect, and at least secure the pretext of being a “shareholder-friendly company”, rather than holding shares that can no longer be used to defend control.

The problem is the effect. Wemade Play and Devsisters, which carried out large-scale cancellations, did not recover their share prices from peaks even after the cancellations, and W Games is also still seeing its share price fall. NCSoft’s recent rebound was driven more by expectations for the new title “Aion2” than by cancellations.

Another industry official said game companies share concerns that a prolonged share-price slump could lead to reduced investment and capital outflows. The official added that focusing only on cancellations without fundamental improvements in corporate fundamentals would have a limited effect.