NC Reports Q3 Operating Profit of 144.4 Billion KRW... "Cost Rationalization Effects to Appear from Next Year" (Comprehensive)

[Asia Economy Reporter Seungjin Lee] NCSoft raised its operating profit by 50% year-on-year in the third quarter of 2022, driven by efficient marketing expenditure and steady growth in the North American and European markets. With the new intellectual property (IP) Throne and Liberty (TL) scheduled for release next year, NCSoft plans to improve both revenue and operating profit margin through cost rationalization.

Cost Rationalization and Systematization Efforts Underway... Effects Expected from Next Year

NCSoft announced on the 11th that it recorded 604.2 billion KRW in sales, 144.4 billion KRW in operating profit, and 182.1 billion KRW in net profit for the third quarter. Compared to the previous quarter, sales decreased by 4%, while operating profit and net profit increased by 17% and 53%, respectively. Compared to the same period last year, sales grew by 21%, operating profit by 50%, and net profit by 83%.

Sales by region were 375.4 billion KRW in Korea, 140.8 billion KRW in Asia, and 44.8 billion KRW in North America and Europe. Royalty revenue was 43.3 billion KRW. Compared to the same period last year, North America and Europe grew by 62%, and the Asia region by 48%. Overseas and royalty revenues accounted for 38% of total sales.

Mobile game sales amounted to 437.3 billion KRW, down 8% from the previous quarter but up 32% year-on-year. By product, Lineage W generated 197.1 billion KRW, Lineage M 146.5 billion KRW, Lineage 2M 85.6 billion KRW, and Blade & Soul 2 8.1 billion KRW.

PC online game sales were 25.5 billion KRW for Lineage, 23.4 billion KRW for Lineage 2, 17.5 billion KRW for Aion, 5.9 billion KRW for Blade & Soul, and 24.8 billion KRW for Guild Wars 2.

Lineage W accounted for 33% of total sales in the third quarter.

Operating expenses decreased by 9% compared to the previous quarter. Marketing expenses were reduced by 35% quarter-on-quarter and 28% year-on-year to 38.9 billion KRW through efficiency improvements. Labor costs decreased by 8% quarter-on-quarter due to reduced welfare expenses and adjustments in the recognition scale of performance-linked long-term incentives.

NCSoft, which is currently rationalizing its cost expenditures, expects the effects of these efforts to become fully apparent next year.

Hong Won-jun, NCSoft’s Chief Financial Officer (CFO), said during a conference call, "We are conducting cost rationalization and systematization efforts, and the effects will be seen starting next year. We are making company-wide efforts, and these will be reflected in the mid to long term. From next year, you will definitely feel that cost control has changed significantly."

He added, "In the fourth quarter, marketing expenses will start to increase due to TL and other IPs launching next year. However, we plan to execute marketing expenses more rationally than previous trends."

NCSoft 'TL' Trailer Image

New Title 'TL' Is Different from Lineage

NCSoft expressed confidence in the success potential of the new title TL, scheduled for release in the first half of next year.

CFO Hong said, "TL will be released on PC and consoles, and the publishing entity will be announced soon," adding, "It will be launched globally."

Regarding the TL business model (BM), Hong explained, "We are actively reflecting the characteristics and preferences of global users, so we are pursuing it with global universality in mind rather than the specificities of Korean or Asian MMORPGs (Massively Multiplayer Online Role-Playing Games). The initial revenue concentration will be lower than previous results, but it will generate stable revenue over the long term."

Addressing concerns about cannibalization, NCSoft emphasized, "Existing games have an excellent loyal customer base and stable game system balance. Also, TL targets a new user base in the global market that has not experienced MMORPGs before, so there is no concern about cannibalization."

Regarding criticisms that TL, revealed earlier through videos, looks similar to the existing ‘Lineage M,’ the company firmly denied this.

CFO Hong said, "If it were the same, it would just be repeating what was done in the U.S. market," and added, "The business division will soon announce how it differs from Lineage."

He continued, "TL features enhanced narrative content that increases immersion and has different action elements compared to existing titles. Considering recent growth on Steam and acceptance of in-game item sales, there is growth potential in the RPG genre itself when PvE (hunting), action, and narrative elements are combined."