NC Reports Q1 'Earnings Shock'... Performance Bonus Burden and Lineage Slump (Comprehensive)

[Asia Economy Reporter Buaeri] NCSoft, which had been maintaining soaring sales, posted results below market expectations in the first quarter of this year. The impact of paying incentives to all employees due to the competition for talent acquisition in the gaming industry was significant.

NCSoft announced on the 10th that it recorded sales of 512.5 billion KRW and operating profit of 56.7 billion KRW in the first quarter. These figures represent decreases of 29.9% and 76.5% respectively compared to the previous year. Both sales and operating profit declined year-on-year.

Impact of Increased Labor Costs

An NCSoft official explained, "Operating profit decreased due to rising operating expenses such as labor costs and marketing expenses." Labor costs increased by 26% compared to the previous quarter to 232.5 billion KRW, due to increased personnel, regular incentives, and one-time special performance rewards. In March, NCSoft paid 8 million KRW each to all employees as a 'Special Incentive from CEO Kim Taek-jin.'

NCSoft expects labor costs to increase by double digits this year. Lee Jang-wook, NCSoft's IR Director, said during the conference call, "The phenomenon of supply and demand for IT personnel is appearing comprehensively," adding, "Since we have always maintained the industry's top position, a double-digit increase in labor costs this year is certain."

Marketing expenses rose 23% compared to the previous quarter to 55 billion KRW, due to overseas regional launches and increased marketing activities for new domestic games.

Sales by region were 416.9 billion KRW in Korea, 24.1 billion KRW in North America and Europe, 13.8 billion KRW in Japan, and 12.2 billion KRW in Taiwan. Royalty sales recorded 45.5 billion KRW.

Lineage Series Also Shows Poor Performance

The performance of the 'Mobile Lineage siblings,' NCSoft's core revenue sources, was also sluggish. In the first quarter, sales of 'Lineage M (172.6 billion KRW)' and 'Lineage 2M (152.2 billion KRW)' totaled 324.8 billion KRW, sharply down from 553.1 billion KRW in the first quarter of last year. Sales decreased by 18.5% and 55.3% year-on-year, respectively.

In particular, Lineage M recently faced a boycott campaign by users. However, Lee said, "Considering all traffic, we cannot find any impact from the boycott," and added, "With the 4th anniversary update and as the second and third quarters pass, there will be a moment when we drive the business forward."

Unlike the sluggish mobile game performance, PC online game sales rose 14% year-on-year and 6% quarter-on-quarter to 129 billion KRW. This is the highest quarterly performance since 2018. Sales were 48.9 billion KRW for 'Lineage,' 26.2 billion KRW for 'Lineage 2,' 23.4 billion KRW for 'Aion,' 14.1 billion KRW for 'Blade & Soul,' and 16.3 billion KRW for 'Guild Wars 2.'

NCSoft plans to rebound with new releases. NCSoft will launch the mobile massively multiplayer online role-playing game (MMORPG) 'Trickster M' on the 20th. 'Blade & Soul 2' is currently accepting pre-registrations aiming for a second-quarter release. Lee explained, "The increase in labor costs can be offset by revenue growth from new releases."