Krafton Proposes 35 Trillion Won Price... Can It Break the 3N System? [Buaeri's Game Dictionary]

[Asia Economy Reporter Buaeri] As Krafton officially begins its initial public offering (IPO) process, the gaming industry has been abuzz over the emergence of this 'big fish' during the week. There is also interest in whether Krafton will threaten the positions of the major game companies Nexon, NCSoft, and Netmarble, known as the 3N, which have formed the three-strong structure in the domestic gaming industry.

Krafton's Valuation at 35 Trillion Won?

According to the securities registration statement submitted by Krafton on the 19th, the desired public offering price per share ranges from 458,000 won to 557,000 won. The total number of shares to be listed is 50,304,070, and even applying the lowest desired offering price of 458,000 won, the market capitalization easily exceeds 23 trillion won. Krafton presented a market capitalization of 35 trillion won in the securities registration statement, which is much higher than Nexon (23 trillion won), NCSoft (18 trillion won), and Netmarble (11 trillion won).

However, some have pointed out that Krafton may have inflated its valuation. When calculating its corporate value, Krafton included companies such as Walt Disney and Warner Music Group as comparables. But these companies have different business structures from Krafton. Walt Disney generates 63.5% of its revenue from media entertainment, and Warner Music earns 85.8% from music recordings. In contrast, most of Krafton's revenue comes from the game Battlegrounds. Nevertheless, Krafton has announced plans to build a portfolio that includes not only game intellectual property (IP) but also content entertainment businesses in the future.

What Kind of Company is Krafton?

Krafton is a company that achieved global blockbuster success with 'Battlegrounds (Baeg)'. The game Battlegrounds, which made today's Krafton, was born out of crisis. Chairman Jang Byung-gyu approved the 'Baeg Project' despite repeated failures in game development at Zino Games (now PUBG). Judging that Baeg's uniqueness had potential, Chairman Jang took a risk even when employees had only two months' salary left, and his judgment proved correct.

Since its release in 2017, Baeg has sold over 75 million packages. Baeg Mobile has been downloaded over 1 billion times across more than 150 countries worldwide (as of March). According to market research firm Sensor Tower, Baeg Mobile ranked first in global revenue last year. Krafton's revenue last year was 1.6704 trillion won, with an operating profit of 773.9 billion won. In the first quarter of this year, revenue was 461 billion won and operating profit was 227.2 billion won, surpassing NCSoft (56.7 billion won) and Netmarble (54.2 billion won) in operating profit alone.

With the listing, founder Chairman Jang will also join the ranks of stock billionaires. Chairman Jang holds 7,027,965 shares of the company, and even at the lowest desired public offering price, his post-listing net worth amounts to 3.2188 trillion won.

Tencent's 'Hua Ping Zheng Ying' Controversy... China Risk

However, Krafton's high dependence on the Baeg IP is a weakness. Krafton released Elion and Tera after Baeg but failed to achieve success. There is also controversy over the mobile game 'Hua Ping Zheng Ying'. Krafton officially acknowledged receiving fees related to 'Hua Ping Zheng Ying', which is operated by its second-largest shareholder Tencent.

'Hua Ping Zheng Ying' has long been called a copycat of Baeg Mobile. Baeg Mobile's service was suspended in 2019 after failing to obtain a Chinese game license (pan-ho). Subsequently, 'Hua Ping Zheng Ying' was launched in China, sparking controversy over a backdoor license, and Krafton had denied any connection with the game until now. This could damage Krafton's corporate credibility. There is also a possibility that the Chinese government may take action against the game. Professor Wi Jeong-hyun of Chung-Ang University, president of the Korea Game Society, said, "The Chinese government might apply a 'grudge crime' charge," adding, "In the worst-case scenario, expulsion is possible."

Krafton also stated in its securities registration statement, "If game-related regulations in China expand or political uncertainties increase, we may be affected by these changes," and "This could negatively impact our business, financial condition, and operating results."

Editor's Note The goal of 'Game Dictionary' is to understand and clearly convey game-related issues every weekend. We always listen to incidents and various voices arising from games. Any tips are always welcome.