NCSoft and Kakao Smile at Staying Home, 1Q Triple-Digit Surge

NCSoft 1Q Operating Profit Expected at 258.5 Billion KRW, Up 257% YoY
Kakao Also Grows 188%... "Unaffected by COVID-19"

[Asia Economy Reporter Minwoo Lee] Despite growing concerns over economic slowdown due to the novel coronavirus infection (COVID-19), NCSoft and Kakao are expected to achieve triple-digit growth in the first quarter of this year. Analysts attribute this to the synergy effect created by their online-centered revenue structures aligning with the trend of reduced outdoor activities.

According to financial information analysis firm FnGuide on the 3rd, NCSoft's consensus forecast for the first quarter of this year shows sales of 704.7 billion KRW and operating profit of 283.5 billion KRW. Compared to the same period last year, sales increased by 96.4% and operating profit by 256.6%. This represents an overwhelming growth rate even among the top 20 KOSPI companies with market capitalization and at least three securities firms' earnings estimates. Changkwon Kim, a researcher at Mirae Asset Daewoo, explained, "Lineage M did not maintain its initial sales level after launch, but Lineage 2M is different," adding, "Since its release on November 27 last year, it has shown a stable sales flow with an average daily revenue of 5.1 billion KRW over 35 business days and about 4.1 billion KRW daily in the first quarter of this year."

The impact of COVID-19 was also avoided. Unlike other companies whose monthly earnings estimates declined, NCSoft is expected to maintain solid performance. Jaekwon Ahn, a researcher at NH Investment & Securities, analyzed, "Due to the impact of COVID-19, people's outdoor activities have decreased, leading to increased game usage time and payment frequency," and added, "With global game shows canceled due to COVID-19, new releases have been delayed, so NCSoft's 'Lineage dominance' is expected to continue for the time being."

Kakao is also expected to show remarkable growth. Its operating profit for the first quarter is estimated at 79.7 billion KRW, a 188.2% increase compared to the same period last year. Among the top 20 companies by market capitalization, only NCSoft and Kakao are projected to have triple-digit growth in operating profit. Younghoon Joo, a researcher at Eugene Investment & Securities, stated, "Negative impacts related to COVID-19 are concentrated in advertising; although some major advertisers have withdrawn from KakaoTalk's advertising (TalkBoard) business, the proportion of small and medium advertisers has increased, so the negative impact is not significant," and diagnosed, "As the domestic online retail market rapidly grew in February due to avoidance of face-to-face contact, Kakao's commerce and online paid content sectors are expected to benefit."

Meanwhile, among the top 20 KOSPI companies by market capitalization, 11 are expected to see an increase in operating profit compared to the same period last year. Besides NCSoft and Kakao, Celltrion and Samsung C&T ranked high with increases of 68.8% and 68%, respectively. On the other hand, battery companies such as Samsung SDI and LG Chem are expected to see operating profits decrease by 52% and 44%, respectively, compared to the previous year. This appears to reflect the reduced demand for small batteries and the prolonged supply disruption of electric vehicle batteries to automakers due to the spread of COVID-19 in Europe and the United States.