Average 45% Decline Since Early Year Prolonged
NCSoft, Krafton, and Others Worth Watching
[Asia Economy Reporter Kwon Jae-hee] Game stocks, once considered representative growth stocks, are struggling. Game stocks have fallen by an average of about 45% compared to the beginning of the year, showing a prolonged downward trend. Due to a macro environment unfavorable to growth stocks, absence of new releases, new business risks, and cost burdens such as labor expenses, a rebound is expected to be difficult.
According to the Korea Exchange on the 20th, the average year-to-date stock return of major game companies was -44.77%. Most major game companies recorded their peak prices in November last year and have since been on a downward trend. As of the previous day's closing price, Krafton was at 237,000 KRW, down 59.14% from its peak on November 17 last year. NCSoft also fell 45.36% from its peak on November 11 to 429,500 KRW (closing price on the 19th). Netmarble, Kakao Games, and Pearl Abyss also dropped about 43% to 60% compared to their November highs last year.
The poor performance of game stocks is due to the macroeconomic environment, including global interest rate hikes, which is unfavorable for growth stocks, as well as increased labor costs caused by a developer shortage that has continued in recent years, increasing cost burdens. Furthermore, the absence of new releases and risks from new businesses such as cryptocurrencies make it difficult to find a breakthrough, leading the securities industry to share the view that the poor performance of game stocks is inevitable for the time being.
Accordingly, the securities industry is lowering its expectations for game companies. Samsung Securities gave Krafton a 'neutral' investment opinion and lowered its target price by about 9% to 300,000 KRW. Especially for Netmarble, which posted an operating loss in the first quarter, Ebest Investment & Securities lowered its target price from 146,000 KRW to 105,000 KRW (28%↓), Korea Investment & Securities from 140,000 KRW to 100,000 KRW (28.57%↓), Shinhan Financial Investment from 150,000 KRW to 80,000 KRW (46.67%↓), and Samsung Securities from 140,000 KRW to 100,000 KRW (28.57%↓), consecutively lowering target prices.
However, while maintaining a conservative view, it was suggested to approach mainly large-cap game stocks. Among the game industry’s large companies, NCSoft did not see any securities firms lowering its target price after its first-quarter earnings announcement because its performance greatly exceeded market expectations. NCSoft’s first-quarter revenue and operating profit were 790.3 billion KRW and 244.2 billion KRW, respectively, representing increases of 54% and 330% compared to the same period last year.
Kim So-hye, a researcher at Hanwha Investment & Securities, analyzed, "Large-cap stocks such as NCSoft and Krafton are worth watching. Large-cap stocks already went through a correction phase as their stock prices fell first in the third to fourth quarters of last year, and their valuations based on this year’s expected performance are not burdensome compared to competitors, so they are worth considering."
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