NCSoft's Stock Soars on Historic 'Earnings Shock' Announcement Day

1Q Operating Profit Down 77% YoY... Worst Since 2Q 2017
Lineage Slump, Labor and Marketing Cost Burden
Foreign Investors Rush to Buy Cheap Ahead of New Release

[Asia Economy Reporter Minwoo Lee] Despite record-breaking poor earnings, NCSoft's stock price is holding up well as foreign buying pressure pours in. This is interpreted as a judgment that the stock can rebound by recovering earnings, given the continued anticipation for new releases.

According to the Korea Exchange on the 11th, NCSoft's stock price closed at 878,000 KRW, up 5.78% from the previous day. This was the largest increase this year since February 8, when it closed up 6.35% compared to the previous day. Compared to the intraday low of 801,000 KRW on the 6th, it rose nearly 10% in just two trading days. As of 11:05 AM that day, the price slightly retreated to 845,000 KRW, down 3.76% from the previous day.

Unlike the stock price, earnings were historically poor. The day before, NCSoft announced that its consolidated sales for the first quarter of this year were 512.5 billion KRW, and operating profit was 56.7 billion KRW. This was an 'earnings shock,' falling 29.90% and 76.50% respectively compared to the same period last year. The operating profit was 54.91% below market consensus. It was the lowest level in over four years since 37.6 billion KRW in Q2 2017.

The poor performance was largely due to the flagship game Lineage. First-quarter Lineage-related sales were 324.9 billion KRW, a sharp drop of about 41% from last year. This is the worst performance since the release of Lineage2M in 2019. Industry insiders pointed out that recent user boycotts related to 'Lineage M' content updates and controversies over 'probability-based item gambling' contributed to this decline. However, Jangwook Lee, NCSoft's IR Director (Executive Vice President), refuted this during the earnings conference call the day before, stating, "If there was an impact from the boycott, we would check all indicators and respond, but there was no impact on daily active users (DAU) or traffic."

In the securities industry, the decline was analyzed as being influenced by personnel expenses including special performance bonuses and marketing costs. Seungtaek Hwang, a researcher at Hana Financial Investment, said, "The market's concern about the boycott impact was limited. The Lineage series sales were weaker than expected due to base effects, and one-time costs such as special performance bonuses exceeding 50 billion KRW were reflected, along with marketing expenses surpassing expectations."

There is a forecast that earnings could rebound with new releases in mid-second quarter. The release of 'Trickster M,' which was postponed once, has been set for the 20th after surpassing 5 million pre-registrations recently. The highly anticipated 'Blade & Soul 2' is also expected to be released within the first half of the year. It is analyzed that earnings can recover as marketing costs from the first quarter decrease and new titles perform well.

This possibility is believed to have attracted foreign investors' sentiment. The day before, foreign investors net purchased NCSoft shares worth 76.2 billion KRW, ranking second in total for the day. Since 2016, there have only been two days when foreigners bought more NCSoft shares than on this day: February 8 (87.3 billion KRW) and September 7, 2017 (93.6 billion KRW).