New Release 'Jungbak' Faces Tough Market... Continued Deficits
No Rush... Unicorn Watches Market
Pado Incident Dampens Public Offering Sentiment
The 'Initial Public Offering (IPO) big fish' has disappeared from the gaming industry. An IPO means a company is publicly listed on the market for the first time. Due to the economic downturn and intensified competition in the gaming industry, even moderate success has become difficult. Moreover, the shock caused by Pado, which attempted a 'puffed-up listing' by inflating expected sales, has increased concerns not only for deficit companies but also for unicorn companies valued at over 1 trillion won.
Operating Deficits or Parent Company Risks
Among companies that submitted new listing applications to the Korea Exchange in the past six months, only one game company, W Universe (formerly One Immers), a subsidiary of YJM Games, has applied. Among the top 10 listed game companies in Korea, the last to be listed within the past three years was Krafton in August 2021. Considering that about 40 domestic game companies entered the KOSPI and KOSDAQ markets one after another since the late 1990s, the recent atmosphere is quite different.
W Universe, which applied for preliminary review for KOSDAQ listing last November, is a metaverse and immersive content specialist company founded in 2011 by CEO Min Yong-jae, formerly of Nexon. After signing an underwriting contract with KB Securities in July 2022, it approached the stock market after 1 year and 2 months. Earlier, in May, it also conducted a free share issuance of 6,434,044 shares. Companies typically conduct stock splits or free share issuances before listing to increase circulating shares and lower the price per share. Choosing free share issuance is interpreted as an attempt to provide a premium to existing shareholders.
The problem lies in performance. W Universe recorded consolidated sales of 9.2 billion won, an operating loss of 9.9 billion won, and a net loss of 16.3 billion won in 2022. In the previous year, 2021, it also recorded an operating loss of 10.9 billion won and a net loss of 1.6 billion won. Considering the bubble burst in the metaverse and virtual reality (VR) market this year, a breakthrough in performance seems difficult. W Universe also raised an additional 4.5 billion won through a third-party allotment capital increase last October. YJM Games, the largest shareholder with an 18% stake, is also experiencing management difficulties. YJM Games recorded consolidated sales of 16.6 billion won, an operating loss of 2.7 billion won, and a net loss of 3.8 billion won from Q1 to Q3 this year. It has posted operating losses for three consecutive years from 2020 to 2022. The management and financial stability of the largest shareholder is one of the key points examined during the Korea Exchange review.
Line Games, a subsidiary of Naver Line, is in a similar situation. Line Games posted sales of 82.8 billion won in 2022, nearly double the previous year, but continued to incur operating losses. The operating loss decreased by about 11 billion won from 52 billion won in 2021 to 41 billion won. It has been in the red for six consecutive years since its establishment in 2017. The net loss also decreased significantly from 91 billion won in 2021 to 32.2 billion won in 2022 but remains burdensome. Although 'UnDecember' and 'Uncharted Waters Origin' initially drove sales, they have long since fallen out of the top ranks in the two major app markets. Attention is focused on the console new release 'The War of Genesis: Gray Residue' launching at the end of this year and the mobile game 'The War of Genesis Mobile: Asura Project' scheduled for next year.
Kakao Games' subsidiary Lionheart Studio also withdrew its plan for a new KOSDAQ listing in March. Lionheart announced its IPO plan in July 2022 after the game 'Odin: Valhalla Rising' became a hit in 2021 but stepped back citing market conditions. Subsequently, Kakao Group faced criticism for 'subsidiary splitting listings,' making a retry difficult. In fact, the parent company Kakao Games itself was listed in September 2020. Lionheart Studio recorded a net loss of 150.7 billion won in 2021 but posted a net profit of 122.5 billion won in 2022. The 2023 performance has not been disclosed.
Relaxed Unicorns... Ample Cash Reserves
Of course, there are companies with good performance and prospects that are waiting for the right time. A representative company is Shift Up, which created 'Goddess of Victory: NIKKE.' Shift Up selected Korea Investment & Securities and NH Investment & Securities as underwriters in May and is preparing for an IPO. NIKKE, a bishoujo-style subculture genre game, surpassed 10 million global downloads within six days of its release in November last year. It was also selected as the 'Best Game' by Google Play Korea this year. The company has received many overseas love calls. Chinese Tencent holds a 24% stake, becoming the company's second-largest shareholder. It also signed a memorandum of understanding (MOU) with the Saudi Arabian Public Investment Fund to cooperate on overseas expansion. The estimated corporate value of Shift Up in the industry is about 2 trillion won. The valuation increased during the sale of shares held by existing shareholder Wemade. A Shift Up official said, "Due diligence has not yet been conducted after selecting underwriters," adding, "We are watching the timing carefully."
Smilegate's subsidiary Smilegate RPG is also weighing the timing of its IPO. Its flagship title 'Lost Ark' has been successful, and the company has been regarded as a unicorn that could shake the market if it went public for several years. The company selected Mirae Asset Securities as underwriter in 2019 and changed to NH Investment & Securities in 2022. Various interpretations arose about the delay in the IPO during this process. Given the group's 'cash-rich' nature, some speculate that there is no urgent need for fundraising. Smilegate Group's consolidated sales in 2022 reached 1.5771 trillion won, with operating profit of 643 billion won and net profit of 63.3 billion won. Smilegate RPG also recorded an operating profit of 364.1 billion won in 2022, a 26% increase from the previous year. CEO Ji Won-gil of Smilegate RPG recently stated at the 'G-STAR 2023' event, "We are considering various factors including market conditions regarding the timing of the IPO." A company official said, "We have never fixed the IPO timing before. We are continuously monitoring market conditions."
Broken Trust... Visible Performance is Crucial
In the IPO market, the Pado incident has increased the importance of visible performance. Pado is a semiconductor design (fabless) company that entered the stock market last August. At that time, it was valued at nearly 1.5 trillion won and raised 194.8 billion won in public offering funds but caused controversy by disclosing results far below expected sales. The company's cumulative sales from Q1 to Q3 this year were 18.044 billion won, far short of the 120 billion won annual sales forecast presented before listing for 2023. There was a flood of criticism that the poor sales performance in the first half should have been disclosed to the market earlier. The technology special listing system, which supported the listing of deficit companies with technological capabilities, was also pointed out as a cause of the problem. Recently, specialized technology credit evaluation (TCB) agencies such as NICE Credit Information are examining items unrelated to technology evaluation, such as sales and cash flow.
A securities industry official said, "Due to bad precedents like Pado, sales and profitability have become key factors." A representative of a bio company preparing for listing said, "Nowadays, it's all about sales rather than technology," adding, "There is growing anxiety as cases of stock prices plummeting after listing based solely on sales forecasts have increased."
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