[MarketING] Game Stocks Struggling Amid Poor Earnings Performance

KOSPI Declines for Third Day
Late Session Drops Amid Option Expiry and Supply-Demand Concerns

The KOSPI closed lower for the third consecutive day. Due to factors such as supply and demand instability on the options expiration day, it failed to maintain its upward trend and turned downward near the end of the session. As the index struggled to find a clear direction and a stock-specific market continued, sensitivity to earnings increased, and gaming stocks showed weak price performance due to deteriorating earnings.

KOSPI Turns Down Amid Supply and Demand Instability on Options Expiration Day

On the 11th, the KOSPI closed at 2,491.00, down 5.51 points (0.22%) from the previous day. The KOSDAQ ended the session at 824.54, down 5.20 points (0.63%). Both the KOSPI and KOSDAQ started higher following the U.S. Consumer Price Index (CPI) report that met market expectations the previous day, but failed to maintain the gains due to supply and demand instability related to the options expiration day and concerns over slowing inflation indicators in China, turning downward before the close.

Individual and foreign investors led the index decline. Individuals sold 84 billion KRW in the KOSPI market and 64.3 billion KRW in the KOSDAQ market. Foreign investors ended with a slight net buying advantage of 2.2 billion KRW in the KOSPI market by purchasing near the end of the session but sold 56.9 billion KRW in the KOSDAQ market. Institutions were the sole buyers, purchasing 84 billion KRW in the KOSPI market and 133 billion KRW in the KOSDAQ market, but their buying was insufficient to prevent the index decline.

Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The domestic stock market started higher as concerns over rising U.S. CPI eased, but gains were limited and the market turned downward due to U.S. debt ceiling concerns, slowing Chinese April inflation indicators, supply and demand instability on the options expiration day, and the release of secondary battery sell-offs."

The inflation indices of the U.S. and China had opposite effects on the stock market. The U.S. April CPI eased inflationary pressures, positively impacting the market, whereas China's CPI inflation rate hit its lowest level in 2 years and 2 months, raising deflation concerns and acting as a negative factor. On this day, China's National Bureau of Statistics announced that the April CPI rose 0.1% year-on-year. This figure was below the previous month's 0.7% and the expected 0.3%, marking the lowest level since February 2021 (-0.2%) in 2 years and 2 months. The April Producer Price Index (PPI) also fell 3.6% year-on-year, below the previous month's 2.5% and the expected 3.2%.

Gaming Stocks Weaken Amid Earnings Deterioration in Stock-Specific Market

As the stock-specific market continued recently, the divergence in stock prices based on earnings became clear, with gaming stocks showing weakness due to poor earnings.

On this day, NCSoft closed at 372,500 KRW, down 3.75% from the previous day, continuing its three-day losing streak. Com2uS fell 5.44%, also extending its three-day decline, and Netmarble dropped 2.55%, marking its fourth consecutive day of weakness. Pearl Abyss declined 3.22%.

The previous day, NCSoft announced that it recorded sales of 478.8 billion KRW and operating profit of 81.6 billion KRW in the first quarter of this year. Sales decreased 39% year-on-year, and operating profit dropped 67%. Lee Chang-young, a researcher at Yuanta Securities, analyzed NCSoft, stating, "Operating profit exceeded market expectations due to decreases in labor costs, marketing expenses, and one-time costs compared to the previous quarter, but the absence of new releases and significant sales declines in existing games compared to the same period last year and the previous quarter meant actual performance fell short of market expectations."

Netmarble, Com2uS, and Pearl Abyss, which also announced earnings on the same day, posted disappointing results. Netmarble reported sales of 602.6 billion KRW and an operating loss of 28.2 billion KRW in the first quarter. Sales decreased 4.6% year-on-year, and the operating loss widened significantly from 11.9 billion KRW in the same period last year. Com2uS recorded sales of 192.7 billion KRW in the first quarter, a 45% increase year-on-year, marking its highest quarterly sales ever, but continued to post an operating loss of 14.8 billion KRW. Pearl Abyss reported sales of 85.8 billion KRW and operating profit of 1.1 billion KRW in the first quarter, with sales down 6.1% and operating profit down 78.9% year-on-year.

Among gaming stocks, companies with solid earnings showed differentiated stock price performance. NHN, which posted first-quarter sales and operating profit increases of 5.4% and 23.1% year-on-year respectively, rose 3.07% on the day. Com2uS Holdings also rose 3.03% after successfully returning to profitability in the first quarter.