Subscription Failure but Performance is 'Clear'... Krafton 2Q Operating Profit Up 139% YoY

New Release Success Expected to Drive Operating Profit to 1.4 Trillion Won Next Year

Jang Byung-gyu, Chairman of the Board of Krafton, is presenting the company's future growth strategy and vision at Krafton's initial public offering (IPO) press conference held on the 26th of last month.

[Asia Economy Reporter Minwoo Lee] Krafton’s operating profit in the second quarter of this year surged significantly compared to last year, exceeding 170 billion KRW. Although the company failed in its public offering subscription and showed a stock price trend below the offering price in the early stages of listing, its performance is considered to be on a steady course. Having also moved away from reliance on Chinese sales, it is expected to drive success with the release of a new Battlegrounds title.

On the 15th, Shinhan Financial Investment gave Krafton a 'Buy' rating and set a target price of 510,000 KRW. The closing price the previous day was 437,000 KRW. Despite a sluggish performance, including a drop to 400,000 KRW during trading on the first day of listing, well below the public offering price of 498,000 KRW, the company’s growth potential is still considered sufficient.

Krafton recorded consolidated sales of 459.3 billion KRW and operating profit of 174.2 billion KRW in the second quarter of this year. These figures represent increases of 106.0% and 139.0%, respectively, compared to the same period last year. The operating profit was in line with the market consensus of 174.4 billion KRW, and sales significantly exceeded the consensus of 399.5 billion KRW.

PC sales amounted to 88.6 billion KRW, up 34.0% from the previous quarter and 23.1% from the same period last year. This was due to in-game content updates and collaborations. In particular, the average revenue per user (ARPU) increased by 80% quarter-on-quarter due to the strong performance of growth-type items. Mobile sales were 354.2 billion KRW, down 6.5% from the previous quarter but up 4.3% year-on-year. Senior researcher Ilmoon Jong of Shinhan Financial Investment explained, "We expected a significant sales decline due to the Chinese peak season base in Q1, but overseas sales of PUBG Mobile increased by about 30% quarter-on-quarter, offsetting the decline in Chinese sales."

The success of 'Battlegrounds: New State,' expected to be released at the end of next month or early October, is crucial. As of the 11th, pre-registrations excluding China, India, and Vietnam have already surpassed 27 million. Pre-registration for iPhone users is scheduled for the 19th, and the second alpha test is planned for the 27th. Reflecting the new title’s performance, operating profit next year is expected to reach 1.398 trillion KRW, a 59.6% increase compared to this year’s forecast.

Researcher Ilmoon Jong stated, "There are concerns that sales cannibalization with PUBG Mobile might occur, but since PUBG Mobile, serviced by Tencent in China, recognizes a portion of sales as net sales, whereas the new title New State recognizes total sales, Krafton can expect higher sales even if cannibalization occurs. Also, considering that the battle royale genre is a steadily growing game, the growth potential is certain," he explained.