[Click eStock] "NCSoft, 4Q Earnings Significantly Below Consensus"

Despite Lineage W's strong performance... Existing game revenue down due to Carnival effect
EBest Investment "NCSoft target price lowered by 29.7% to 830,000 KRW"

[Asia Economy Reporter Gong Byung-sun] NCSoft's fourth-quarter earnings last year are expected to fall significantly short of market consensus. As a result, Ebest Investment & Securities has lowered NCSoft's target stock price by nearly 30%.

On the 17th, Ebest Investment & Securities maintained its "Buy" rating on NCSoft but cut the target price from 1.18 million KRW to 830,000 KRW, a 29.7% decrease. The closing price on the 14th was 583,000 KRW.

The earnings falling short of consensus led to the downward revision of the target price. Ebest Investment & Securities estimated NCSoft's fourth-quarter revenue last year at 749.8 billion KRW, a 33.6% increase year-over-year, and operating profit at 170.4 billion KRW, up 8.7% from the same period. These figures are 6.73% and 25.07% below the respective consensus estimates.

The newly released "Lineage W" in November last year appears to have performed well. Lineage W's estimated average daily revenue in the fourth quarter was in the 5 billion KRW range. However, other existing games showed sluggish performance. Ebest Investment & Securities expects all existing games, including "Guild Wars 2," to see revenue declines compared to the previous year.

Seong Jong-hwa, a researcher at Ebest Investment & Securities, explained, "Mobile games' existing flagship titles have all been affected by the carnival effect (self-cannibalization effect) related to Lineage W." The carnival effect refers to a phenomenon where a newly launched product does not contribute to overall revenue growth but instead reduces sales of existing flagship products.

Recently, the stock price has been on a further decline. Although the stock price surged due to irregular supply and demand issues involving a specific individual, there was no additional news about the blockchain-based Play-to-Earn (P2E) game business at the time of the third-quarter earnings announcement last year. The momentum from the new Lineage W title was exhausted without properly taking effect.

However, there is also speculation that a concrete strategy will be revealed at the showcase in the first quarter of this year. Researcher Seong said, "The showcase should not be just a venue to unveil a few new titles but also a place to disclose specific strategies for operating the P2E game business," adding, "To create meaningful short-term growth momentum, it is realistic to present a strategy for P2E and have the phased progress evaluated."