[Click eStock] “Webzen, Weak Q3 Earnings Outlook”

No Short-Term New Release Momentum... Need Mid- to Long-Term Approach
EBest Investment & Securities "Webzen Target Price Lowered from 37,000 KRW to 35,000 KRW"

[Asia Economy Reporter Gong Byung-sun] Webzen's third-quarter earnings this year are expected to underperform market consensus estimates. The decline in sales of existing flagship games is interpreted as having a negative impact.

On the 19th, Ebest Investment & Securities estimated Webzen's third-quarter sales to be 68.2 billion KRW, down 4.8% from the previous quarter, and operating profit to be 17.5 billion KRW, down 24.3% during the same period. This falls short of the consensus estimates of 71.8 billion KRW in sales and 24.1 billion KRW in operating profit by 5.01% and 27.39%, respectively.

The poor performance of existing flagship games appears to be adversely affecting the results. Although ‘MU Archangel 2’ was released on the 9th of last month, royalty fees from China games based on the existing MU intellectual property (IP) and the declining sales of ‘MU Archangel’ and ‘R2M’ in Korea seem to have a greater impact.

Furthermore, the new release MU Archangel 2 is also expected to struggle. The first domestic quarterly average daily sales of MU Archangel 2 were expected to be around 580 million KRW, maintaining a Google sales ranking between 5th and 10th. The sales ranking was 7.2, consistent with previous forecasts. However, the average daily sales are anticipated to fall short of expectations due to revenue deferrals into the next quarter.

Seong Jong-hwa, a researcher at Ebest Investment & Securities, explained, “MU Archangel 2 recorded a somewhat meaningful hit,” but added, “The success in the domestic gaming market was not enough to offset the sales decline of existing flagship games, so no significant new title momentum was generated.”

In the short term, there is a gap in new releases. Currently, one or two new MU IP-based games for the Chinese market are expected to be released in the fourth quarter of this year or the first quarter of next year, but the schedule has not been finalized. Additionally, a new mobile game under in-house development is also expected to be released only next year. Nevertheless, researcher Seong said, “Although there is a short-term gap in new title momentum, it is necessary to view this from a mid- to long-term perspective,” adding, “With the company’s valuation currently undervalued, new title momentum could emerge in the mid to long term.”

Accordingly, Ebest Investment & Securities maintained its ‘Buy’ rating on Webzen. The target price was lowered from 37,000 KRW to 35,000 KRW. The closing price on the previous day was 25,900 KRW.