[This Week's Industry Insight] NCSoft's Turnaround Depends on New Game Success

New Releases, Earnings, and Stock Prices All Plunge
Lineage's 'One Game Risk' Holds Back
Stock Price Falls from 240,000 KRW Early This Year to 170,000 KRW Range
New Game 'Hoyeon' Launches on 28th in Korea, Japan, and Taiwan
If Successful, Stock Price Expected to Rise Alongside

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NCSoft, which has suffered from poor new releases, weak performance, and sluggish stock prices, drew attention by avoiding a loss in the second quarter of this year, raising hopes that it might escape the slump. With active efforts to find a breakthrough through structural improvements, new releases, and full-scale investment expansion, there are expectations that signs of improvement will appear in the second half of the year and beyond.

According to the Korea Exchange on the 7th, NCSoft's stock price fell 33.31% from the beginning of this year to the 5th. Starting the year at 240,000 KRW, NCSoft showed a continuous downtrend, lingering in the 170,000 to 190,000 KRW range. Although it seemed to recover to 200,000 KRW in May, it declined again and has been moving in the 170,000 KRW range since the end of last month. The stock also repeatedly hit 52-week lows several times this year.

Stock Price Slumps with Repeated 52-Week Lows This Year... Structural Improvements Underway

NCSoft's slump is due to declining sales of existing games and the failure of new releases to gain popularity, leading to poor performance. In particular, the underperformance of 'Lineage,' which has driven NCSoft's growth, has become a significant 'one-game risk' that has seriously hindered NCSoft.

Hyojin Lee, a researcher at Meritz Securities, said, "NCSoft left its mark on the domestic online game market in 1998 with Lineage but experienced early difficulties as mobile games blossomed in 2010. The release of 'Lineage M' in 2017 successfully evoked nostalgia among the online Lineage generation, and as their incomes increased, the mobile Lineage series brought high profits to NCSoft." She added, "However, over time, the core demand base aged, and the increase of similar games within the same genre caused NCSoft's sales to decline rapidly. Over the past decade, sales increased by 112%, while labor costs rose by 246%."

NCSoft's operating profit shrank from 81.6 billion KRW in the first quarter of last year to 3.9 billion KRW by the end of last year. It increased to 25.7 billion KRW in the first quarter of this year but decreased again to 8.8 billion KRW in the second quarter. The market had expected NCSoft to record a loss in the second quarter, but it managed to avoid it. Changyoung Lee, a researcher at Yuanta Securities, explained, "Operating profit exceeded market expectations, but due to poor new release performance and natural decline in existing games, sales fell 7% and operating profit dropped 66% compared to the previous quarter. The company avoided an operating loss thanks to reductions in labor and marketing costs."

As the prolonged slump continued, the company has been making efforts to overcome it. In March, NCSoft switched to a co-CEO system and has been working on structural improvements. It is reducing personnel through spin-offs and voluntary resignations and is pushing for the sale of the Samsung-dong NC Tower as part of asset liquidation. On October 1, two spin-off companies responsible for service business divisions, NC QA and NC IDS, which handle application software development and supply, are also scheduled to launch.

NCSoft is actively engaging in equity investments and mergers and acquisitions (M&A) to diversify its game portfolio and expand globally. Recently, NCSoft completed a 37 billion KRW investment in rights and equity in Big Game Studio, a subculture game specialist developer, and also invested 4.8 billion KRW in Moonrover Games, a Swedish shooting game specialist developer. Heeseok Lim, a researcher at Mirae Asset Securities, said, "While showing a strong will for structural improvement, the results of personnel reductions need to follow. The expansion of the publishing business and genre diversification through investments are positive aspects. However, short-term re-rating through small to medium-sized investments will be difficult."

Despite NCSoft's efforts to improve its structure, the market remains cautious. There is a consensus that sales growth through successful new releases must be confirmed. Sohee Kim, a researcher at Hanwha Investment & Securities, said, "NCSoft's stock price has fallen to the level before the first mobile game Lineage M was released seven years ago. The third-quarter sales rebound of Lineage M is highly visible and reflects all negative sentiments, including performance concerns, but there is still no point to increase the weighting." She added, "I maintain the view that only meaningful sales growth through successful new releases will lead to a reversal in stock price trends."

Jieun Lee, a researcher at Daishin Securities, said, "NCSoft's stock price is expected to remain in a dull sideways range because the sales fluctuations of existing Lineage IP games and the release of new games, which are expected to contribute little to performance, will not move the stock. I maintain a 'Marketperform' rating until the results of unexpectedly successful new releases become visible or the release schedules of relatively anticipated 2025 new games are concretized."

What Is Most Needed for Stock Price Reversal? 'Successful New Releases'

Ultimately, successful new releases are crucial for NCSoft's stock price reversal. NCSoft plans to release the new switching role-playing game (RPG) "Hoyeon" on the 28th in Korea, Japan, and Taiwan. It is also preparing for the global service of "Throne and Liberty (TL)." The company is preparing for the Chinese service of "Blade & Soul 2" and the Southeast Asian service of "Lineage 2M." "Project G" and "Aion 2" are scheduled for release in the first and second halves of 2025, respectively, and "LLL" aims for a fourth-quarter 2025 release. After 2026, NCSoft plans to introduce a new global IP-based massively multiplayer online role-playing game (MMORPG).

Although multiple new releases are scheduled for the second half, expectations for these new games remain low. Researcher Jieun Lee said, "Although many new releases are planned for the second half, expectations are low due to the disappointing performance of the recent new release 'Battlecrush.'"

Seungho Choi, a researcher at Sangsangin Securities, said, "Frankly, the quality and performance of NCSoft's recent releases have not matched the title of Korea's number one market capitalization game company in the past. Accordingly, the stock price remains in the 52-week low range, and expectations for upcoming NCSoft games remain low."

Despite low expectations, if a new release succeeds, it is expected to lead to a strong stock price rally. Researcher Choi said, "Since current stock prices hardly reflect expectations for future new releases, an unexpected hit could trigger explosive stock price gains. Ultimately, a game company must prove itself through its games. It is a challenging period where the company must show a changed image and prove its performance simultaneously."

Particular attention is focused on the success of "Hoyeon," which will be released on the 28th. Hoyeon is an RPG where players select five characters from over 60 to form a team. During the second-quarter earnings conference call on the 5th, NCSoft CFO Wonjun Hong said, "Hoyeon is currently undergoing final adjustments with great care. Although reactions in some communities are mixed, feedback from users who have actually played the game is positive. We expect better-than-anticipated results with good service and content."

Researcher Hoyoon Jung of Korea Investment & Securities said, "If NCSoft's new attempt, Hoyeon, succeeds, it could instantly raise expectations for the 2025 new releases. Conversely, if Hoyeon fails amid harsh user reviews, expectations for future new releases will disappear. Therefore, Hoyeon's performance is the most critical factor for investment decisions regarding NCSoft in the second half of the year and beyond."