[Click eStock] NHN Disappointed in 2Q, New Game Releases Key in Second Half

2Q Operating Profit 36.5 Billion Won... Up 4% YoY but 10.8% Below Consensus
Game Segment Sales Slightly Weak... Success of New Releases in Second Half is Key

[Asia Economy Reporter Minwoo Lee] NHN posted somewhat disappointing results in the second quarter of this year compared to expectations. Although revenues from related games increased due to the revision of the web board enforcement ordinance, mobile games underperformed. It is forecasted that the outcome of the second half of the year will depend on the success of new game releases.

On the 10th, KB Securities analyzed NHN's second-quarter performance as follows. NHN recorded sales of 405.1 billion KRW and an operating profit of 26.5 billion KRW in the second quarter of this year, representing increases of 10.6% and 4.0% respectively compared to the same period last year. Nevertheless, the operating profit fell short of market consensus estimates by 10.8%.

The underperformance in the gaming division's revenue was somewhat disappointing. Although the revision of the enforcement ordinance on April 7th, which lifted restrictions on web board payment amounts, led to a 40% increase in web board revenue compared to the second quarter of last year, mobile games lagged behind. Due to the impact of the novel coronavirus (COVID-19), collaborations and events for key games such as 'Line Disney Tsum Tsum' and 'Compass' were canceled, resulting in a decline in revenue compared to the previous quarter. Additionally, as payment and commerce revenues rose, payment fees increased by 3.4% quarter-on-quarter. Marketing expenses related to web board and commerce also increased by 21.2% compared to the previous quarter, which appears to have caused operating profit to fall short of expectations.

The significant contribution of new games to revenue is expected to begin from the fourth quarter. Most games, except for 'Yongbi Bulpae M' scheduled for release in the third quarter, are planned to launch in the fourth quarter or in 2021. Several games are slated for release, including 'Critical Ops,' 'Disney Tsum Tsum Stadium,' sports betting games, battle royale games, and new titles based on global animation intellectual property (IP), but development is delayed compared to initial expectations. Dongryun Lee, a researcher at KB Securities, commented, "It is positive that NHN, which has shown strength in the casual genre, is diversifying into core genres such as first-person shooter (FPS), sports betting, and battle royale. However, given the lack of many references in these genres, a conservative view is maintained."

Meanwhile, the simple payment service Payco is evaluated positively for diversifying its revenue model despite slow growth in transaction volume. In the second quarter, transaction volume was 1.7 trillion KRW, and monthly active users (MAU) were 4 million, both at the same level as the previous quarter. Although transaction volume grew 26% year-on-year, it remains low compared to Naver Pay (56%) and Kakao Pay (31%). However, offline transactions grew 20% quarter-on-quarter, indicating a recovery trend. The recruitment of merchants for key revenue models such as customized coupons, campus zones, and Payco Order is progressing smoothly. The pilot launch of Gyeonggi Province's public delivery application is scheduled within the year, and the business is expected to expand in the ordering and delivery sectors.