[DigitalToday reporter Ho-jeong Lee] Major South Korean game companies are strengthening shareholder return policies in succession, including introducing dividends and increasing the scale of treasury share cancellations. The KOSPI has risen sharply over the past year and entered record-high territory, but game stocks have shown a relatively neglected trend, prompting the steps.

First dividends and mid- to long-term plans follow, with large companies joining in

The most notable change is that companies that had not paid dividends are moving to shareholder returns for the first time this year. Last year, Krafton, Neowiz and Wemade did not pay cash dividends, but this year they paid 99.6 billion won, 6 billion won and 10 billion won, respectively. Netmarble paid 71.8 billion won, NC 22.3 billion won, Webzen 20.3 billion won, NHN 15.4 billion won and Com2uS 14.9 billion won.

Cases are also increasing in which companies go beyond dividends and institutionalise mid- to long-term shareholder return plans. Krafton decided to pursue more than 1 trillion won in total shareholder returns over three years from this year through 2028, including 300 billion won in cash dividends and at least 700 billion won in treasury share purchases and cancellations. Netmarble also said it will cancel all treasury shares it holds, equivalent to 4.7 percent, and expand its shareholder return ratio to as much as 40 percent by 2028.

Pearl Abyss introduced its first cash dividend since its founding. It said it secured room for shareholder returns after posting first-quarter revenue of 328.5 billion won, operating profit of 212.1 billion won and net profit of 170 billion won this year on the success of "Crimson Desert". It decided to pay annually the larger of 10 billion won and 10 percent of net profit as dividends, and will cancel 1,403,945 shares, half of its 2,803,945 treasury shares, on the 12th, worth about 54 billion won. It also plans an additional 100 billion won in treasury share purchases in the second half.

Webzen is regarded as unusual even within the industry. After paying 20.3 billion won in dividends in March, with a dividend yield of 5.1 percent, it cancelled 3.63 million shares in May, equivalent to 10.5 percent of total shares in circulation, worth 52.9 billion won. On the 10th it disclosed a plan for an additional 10 billion won in treasury share purchases. Including an additional special dividend of 16.5 billion won planned within the year, this year's shareholder return 규모 is about 100 billion won, equivalent to about 31 percent of the current market capitalisation.

Wemade introduced a performance-linked structure that pays the larger of 10 billion won in cash dividends and 20 percent of consolidated operating profit. Neowiz disclosed in January a policy to use 20 percent of consolidated operating profit as resources for shareholder returns over three years from 2025 to 2027, while guaranteeing at least 10 billion won annually regardless of performance fluctuations, split into 5 billion won in treasury share cancellations and 5 billion won in cash dividends. Shift Up decided to cancel a total of 650,000 shares within the year, including existing holdings, along with a new 20 billion won treasury share purchase this year. Com2uS cancelled treasury shares worth 58.2 billion won along with paying 14.9 billion won in dividends, and Mgame plans to acquire treasury shares worth 2 billion won and cancel them all in addition to paying 4.3 billion won in dividends.

Game stock weakness and small-shareholder pressure converge

The direct backdrop to this trend is the prolonged weakness of game stocks. The KOSPI index hit a record high on the 2nd of this month and, as of the 15th, is trading around the 8,500 level. By contrast, most major game companies, including Krafton and Netmarble, saw their share prices flat or down over the same period. It is due to overlapping factors including uncertainty over new title success after the peak of COVID-19 benefits, regulations in the Chinese market and rising labour costs.

As weak share prices persisted, small shareholders at companies such as Devsisters and Wemade launched collective actions demanding treasury share cancellations and share price support. The government's corporate value-up policy stance and discussions on improving the treasury share system are also cited as factors influencing the trend toward expanded cancellations.

Given game companies' tendency to actively use stock options as a compensation tool for employees, another factor driving a rush to strengthen shareholder returns is the concern that internal compensation systems could become ineffective if share prices do not rise. It is also interpreted as reflecting a goal of protecting the value of compensation for internal members as well as for external investors.

The industry sees whether this expansion of shareholder returns takes root as a stable policy as the key issue going forward. Because the game sector has a structure in which earnings volatility is large depending on the success of new titles, criticism is emerging that stable cash flow must underpin sustained shareholder returns.

An industry official said, "It is a clear change that new dividends and treasury share cancellations have spread this year, but given the characteristics of the game sector, where results can swing 크게 depending on the success of new titles, whether it can be institutionalised as a mid- to long-term policy will be the real test for a re-rating of game stocks."