[This Week's Industry Insight] Devsisters Escapes Deficit, Runs Again with 'Cookie Run New Release'

Upcoming Release 'Cookie Run: Tower of Adventures' Receives Positive Feedback in Closed Test
Initial Daily Sales Expected to Exceed 800 Million KRW, Anticipated Significant Growth in Second Half

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Interest in game developer Devsisters is heating up ahead of the global launch of 'Cookie Run: Tower of Adventures.' After the success of its previous title 'Cookie Run: Kingdom,' Devsisters experienced deficits over two years due to the absence of new releases and business expansion. After streamlining non-core businesses and appointing new key executives in 2024, the company is undergoing restructuring, and there is widespread expectation that it will improve profit margins by leveraging the globally recognized 'Cookie Run' brand. Unlike at the time of 'Cookie Run: Kingdom's release, the accumulated know-how in operations and marketing is seen as a positive factor.

Successful Turnaround to Profit through Cost Efficiency

Devsisters has undergone rapid growing pains and trial-and-error over the past few years. Labor costs increased from 31.38 billion KRW in 2020 to 79.22 billion KRW in 2023. Several factors contributed to the rise in labor costs: salary increases for game industry developers due to COVID-19, workforce expansion and performance bonuses following the success of 'Cookie Run: Kingdom,' and increased hiring for multiple new projects. The securities industry interprets the workforce expansion for new projects as a strategy to become a mid-to-large company capable of releasing one to two new titles annually. The cash secured from the global success of 'Cookie Run: Kingdom' in 2021 was used to start multiple new projects and expand the business scale.

However, the business expansion was considered too rapid relative to the company's size. As 'Cookie Run's global recognition surged, the company expanded its workforce massively in a short period to pursue not only games but also ancillary businesses such as merchandise and animation. The number of employees grew from around 400 in 2020 to about 900 in 2023. Considering the downward stabilization speed of 'Cookie Run: Kingdom's revenue, this was a steep increase in costs. As a result, from the end of 2023, restructuring of non-core business units became necessary, and by the end of Q1 2024, the workforce was reduced to around 720 employees. Since then, the company has focused on game projects and has executed labor and marketing costs at their lowest levels in years to improve profit margins. Thanks to these cost efficiency effects, along with content updates and overseas expansion, Devsisters succeeded in turning a profit in Q1 2024. Under these circumstances, the soon-to-be-released 'Cookie Run: Tower of Adventures' is expected to generate significant profit growth in the second half of the year.

Expectations for New Release Success... Positive Performance Outlook

The new title 'Cookie Run: Tower of Adventures' received positive feedback from the global closed beta test (CBT) conducted earlier this year. 'Cookie Run: Tower of Adventures' is a casual cooperative action mobile game emphasizing real-time cooperation between users and direct control combat experience. Players can enjoy a solo adventure following the story or engage in team play. Researchers Seok-oh Kang and Jun-hyuk Go from Shinhan Investment Corp. stated, "If successful, it could achieve quantum leap-level growth," predicting that it will record initial daily sales exceeding 800 million KRW with more initial users and higher average revenue per paying user (ARPPU) than 'Cookie Run: Kingdom.' The success of 'Cookie Run: Tower of Adventures' is expected not only to boost performance but also to replicate a 'planned hit' through mobile casual content and business model design capabilities. More than half of the CBT participants were overseas users. Although no special overseas advertising was conducted, marketing effects from existing 'Cookie Run' games and viral effects from YouTubers and influencers appear to have been significant. Unlike its predecessor 'Cookie Run: Kingdom,' 'Cookie Run: Tower of Adventures' requires direct user control rather than an auto-battle system. Given the immersive nature of single-player content, simple repetitive gameplay or uncomfortable controls could quickly lead to negative reviews. However, considering CBT user feedback and other indicators, responses have been better than the previous title.

Positive signs of success are also seen in marketing support from Google Play. Devsisters participated in 'G-Star 2023' last year through a Google Play Games booth with minimal costs. Around the G-Star venue, many Google Play ads featured 'Cookie Run: Tower of Adventures,' interpreted as Google Play expecting high sales and providing marketing support. Higher 'Cookie Run' sales also increase Google Play's commission revenue. 'Cookie Run: Tower of Adventures' plans global simultaneous marketing excluding China and Japan, with Yostar recently selected as the game distributor for Japan. Typically, publishing contracts for specific regions are decided after evaluating intermediate results during game development. Sometimes publishing is decided based on the game's concept or original artwork, which favors distributors during early development stages when concrete results are lacking. In contrast, this contract was made after confirming high expectations through the global CBT. Yostar, the distributor, took a cautious stance. It can be interpreted that Yostar wanted to handle distribution of commercially viable titles even while maintaining favorable terms for Devsisters. Japan is the third-largest global game market after the US and China and is known for a strong preference for casual games featuring cute characters like Cookie Run. Given the need for delicate localization tailored to the target market, it is analyzed that Devsisters chose a professional distributor with multiple successful track records.

'Cookie Run: Tower of Adventures' plans a global simultaneous launch and marketing campaign. The securities industry expects the initial user count to significantly surpass that of the previous title. User ARPPU is also projected to increase. Pre-registrations for 'Cookie Run: Tower of Adventures' have exceeded 2 million. The broad target gamer demographic raises high expectations for success. In the second half of the year, a competitive shooting game, 'Cookie Run: Oven Smash,' is also scheduled for release. The momentum from new game releases is expected to continue. Seunghoon Lee, a researcher at IBK Investment & Securities, said, "With newly established management, results from business and cost efficiency improvements are appearing quickly," adding, "As management reform continues, past mistakes of rapid financial deterioration due to inefficient business structures after game hits are not expected to recur."

The future performance outlook is generally positive. Devsisters ended seven consecutive quarters of losses and returned to profitability in Q1 this year. The company had recorded operating losses for seven consecutive quarters from Q2 2022 through Q4 last year. Q1 revenue rose 18.3% year-over-year to 59.5 billion KRW. 'Cookie Run: Kingdom' recorded 65 million cumulative global users (excluding China) with average active users and new users increasing 40% and 225% respectively compared to the previous quarter. Devsisters' 2024 performance consensus (securities analysts' forecasts) projects revenue of 288.5 billion KRW and operating profit of 53.2 billion KRW. Cost efficiency efforts started in the second half of last year still affected operating expenses, including severance pay and restructuring costs, through Q1 this year. With restructuring costs nearly eliminated in Q2, labor costs are expected to decrease further compared to Q1. Excluding performance bonuses from new release success, the workforce of around 700 employees and labor costs of 15 billion KRW are expected to be maintained for some time. Shinhan Investment Corp. researcher Seok-oh Kang noted, "If 'Cookie Run: Tower of Adventures' achieves global blockbuster success, there may be workforce additions for new pipelines, but this is positive for fundamentals as it prepares to increase sales and operating profit in two to three years."