Forming Squads and Briefing with AI... Krafton "Discovering Gameplay through Deep Learning"

[Asia Economy Reporter Seungjin Lee] Krafton has unveiled its blueprint. Having devoted efforts to artificial intelligence (AI) research and development, Krafton is now embarking on discovering new gameplay utilizing AI. There is a possibility that a battleground world where players enjoy real-time conversations with AI instead of humans will emerge.

Operating Profit Increases by 16%... Successful Full-Scale Challenge in the Console Market

On the 8th, Krafton held a conference call to announce its full-year 2022 performance. Krafton recorded sales of 1.854 trillion KRW, operating profit of 751.6 billion KRW, and net profit of 500.2 billion KRW last year. Although total sales slightly decreased compared to the previous year, annual operating profit increased by 16% year-on-year, achieving an operating profit margin of 41%. In the fourth quarter of last year, sales reached 473.8 billion KRW and operating profit 126.2 billion KRW, growing 7% and 179% respectively compared to the same period last year.

Last year, Krafton made a full-scale challenge in the global AAA-level console market by releasing 'The Callisto Protocol.' Based on this, sales in the PC and console sectors grew 17% and 430% year-on-year to 465 billion KRW and 104.1 billion KRW respectively. ‘PUBG: Battlegrounds,’ which has continued to grow by acquiring about 45 million new users since becoming free-to-play, and ‘The Callisto Protocol,’ released in Q4 2022, increased the contribution of PC/console sales.

The mobile sector achieved annual sales of 1.2528 trillion KRW, a 12% decrease compared to the previous year. Overseas sales accounted for 94% of total sales, solidifying its position as a global game company.

Krafton Virtual Human 'Anna'

Focus on AI and Open-World Game Platform in 2023

Krafton plans to expand its business beyond gaming this year, focusing on AI and open-world game platforms. However, this is expected to lead to improved gameplay and generate future synergies.

CEO Changhan Kim said during the conference call, "Krafton has been developing technology focused on generative areas such as audio and vision that can expand game production. We pride ourselves on having the highest level of emotional expression in Korean voice synthesis."

He continued, "The deep learning modules developed in-house are being developed as engine plugins so they can be used directly in game production. Krafton's Deep Learning Division is accelerating technology development not only for generative technology but also to improve overall efficiency in game production."

CEO Kim also revealed the blueprint for the open-world game platform. The open-world game platform is a platform where users can enjoy game content created by users together in a 3D space.

Kim explained, "The open-world game platform can effectively utilize Krafton's game development and platform development technologies and aligns with the new trend of the creator ecosystem. As AI technology becomes widespread, it will become easier for individual or small teams of developers to create high-quality games. The open-world game platform will help these creators meet users and secure income."

Krafton has been developing this platform for the past year and aims to conduct small-scale testing in the first half of the year and release it within the year.

Regarding AI, it is expected to help players experience new gameplay. CEO Kim gave an example: "By applying AI deep learning, it is possible to discover gameplay that breaks classical gameplay formulas. For instance, a player can play a squad of four alone but interact in real-time via text and voice briefings as if playing with three friends."

Shareholder Return Policy Announced... Conservative Hiring This Year

Chief Financial Officer (CFO) Donggeun Bae announced during the conference call that Krafton will implement a shareholder return policy for three years from 2023 to 2025 to enhance shareholder value. He said, "We will secure separate funds over the three years from 2023 to 2025 to acquire treasury shares, and 100% of the shares acquired this year will be canceled, with more than 60% of subsequently acquired shares to be canceled. The purpose is not short-term stock price boosting but long-term shareholder value and trust enhancement."

This year, Krafton will take a conservative approach to hiring and reduce marketing expenses to strengthen internal stability. CFO Bae said, "We have a more conservative hiring plan than in the past for 2023. From a labor cost perspective, it is similar to 2022 but slightly increased." He added, "The company grew significantly in 2019-2020, and compared to that, we plan to hire much more conservatively."

He also said, "Marketing expenses increased in 2022 due to TCP and Moonbreaker Early Access, but we expect a significant decrease in 2023. Ultimately, we aim for simultaneous growth in sales, operating profit, and profitability by growing sales centered on the PUBG IP and actively improving cost efficiency."

Meanwhile, Krafton will open a new studio, ‘Krafton Montreal Studio,’ in Montreal, Canada, to discover new IPs. Led by CEO Patrick Methe, who has developed numerous games, Krafton Montreal Studio will accelerate the development of the game ‘The Bird That Drinks Tears.’ Additionally, major game pipelines such as Project Black Budget, Project Gold Rush, and the Subnautica sequel were disclosed.

CEO Kim said, "In 2022, we internalized production and service capabilities while continuing challenges toward the global market. In 2023, based on this experience, we will increase opportunities to showcase a lineup with high gameplay quality to the market and focus on strengthening efficiency."