NCSoft's stock price, which had been sluggish since the beginning of the year, is showing signs of movement. This is because the massively multiplayer online role-playing game (MMORPG) 'Throne and Liberty (TL),' officially released on the 1st, is showing signs of success. Accordingly, the securities industry is cautiously raising target prices. Financial information provider FnGuide also shows that NCSoft has entered the top 10 in weekly search rankings, indicating growing investor interest.
Third Quarter Performance Falters
NCSoft's stock price has been on a downward trend for several years. The stock price, which hovered around 1 million KRW per share in 2021, plummeted to the 150,000 KRW range by August. The reasons for the stock price slump are analyzed as a decline in sales of existing games and the absence of hit new releases.
NCSoft is a mobile and online game development company. Its main mobile games include Lineage M, Lineage 2M, Lineage W, and Blade & Soul 2, while its online games include Lineage, Lineage 2, Aion, Blade & Soul, Guild Wars 2, and TL. Originally, online games using the Lineage IP (intellectual property) were the core business, but with the release of Lineage M in 2017, the mobile game segment surpassed online games in proportion.
As of the end of the first half of this year, 61% of revenue was generated from mobile games. In particular, the revenue share of Lineage M, Lineage 2M, and Lineage W accounts for 60%. Considering that the online game segment, royalties, and other revenues have remained at similar levels annually, the performance of these three Lineage titles largely determines NCSoft's overall performance.
The performance of these three Lineage titles is gradually declining. Like most game revenues, sales decrease over time. Lineage M, which has the highest revenue share, is seeing an annual 5% decrease in sales. Lineage W, which recorded 970.8 billion KRW in revenue in 2022, halved last year and also saw a 34% decrease in the first half of this year compared to the same period last year.
To offset the decline in existing game performance, a large-scale hit new release is necessary. However, NCSoft has not released any significant hit games since Lineage W at the end of 2021. In fact, industry consensus is that titles released in the first half of this year, such as 'Battlecrush' and 'Hoyeon,' received disappointing results.
The impact of declining existing game sales and poor new release performance is expected to continue into the third quarter of this year. According to FnGuide, NCSoft's third-quarter consensus is 393 billion KRW in consolidated sales and 9.9 billion KRW in operating profit, down 7.1% and 40% respectively from the same period last year. This consensus sharply dropped from 13.5 billion KRW on the 7th to about one week later. The consensus is the average of earnings estimates by securities firms. As the earnings season approaches, estimates are gradually being revised downward.
Some securities firms even expect losses. Researcher Jeong Ho-yoon of Korea Investment & Securities said, "NCSoft is expected to record an operating loss of 9.6 billion KRW in the third quarter," adding, "Although mobile game sales will increase significantly due to the new server effect of Lineage M, marketing expenses for new titles Hoyeon and Lineage W increased by 57% year-on-year to 43.4 billion KRW, resulting in losses."
TL Is Ongoing... Will It Break Out of the Bottom?
While there is no disagreement about poor performance through the third quarter, opinions are emerging that the situation could change from the fourth quarter onward. This is because TL, re-released last October, is showing signs of success. Recently, three securities firms that issued reports on NCSoft simultaneously raised their target prices.
As of the 14th, TL surpassed 3 million users in its first week after release. On the PC game platform Steam, it recorded a peak concurrent user count of about 320,000 on the first day of release and has maintained 200,000 to 300,000 daily since. Including users on console games such as PlayStation and Xbox, the concurrent user count is expected to reach 500,000.
NCSoft initially released TL in Korea in December last year but failed to attract gamers' interest. Consequently, NCSoft and Amazon Games excluded excessive business models (BM) and improved content such as combat, growth, and guilds before re-releasing it last October.
Researcher Kim Hye-young of Daol Investment & Securities said, "TL is recording excellent performance with a maximum concurrent user count of around 300,000 on Steam," adding, "Since it is still early after release, it is necessary to observe user trends over the next month, and if success is confirmed, additional valuation improvements are possible."
Researcher Ahn Jae-min of NH Investment & Securities said, "Through TL's global success, NCSoft's capabilities are being reaffirmed," and analyzed, "Even if TL's concurrent user count stabilizes at around 200,000 and assuming an ARPPU (average revenue per paying user) of 50 dollars, monthly royalty revenue exceeding 5 billion KRW will be reflected."
However, conservative forecasts about TL's success also exist. Researcher Jeong Ui-hoon of Eugene Investment & Securities judged, "Since games that initially showed high traffic often experience sharp declines over time, it is reasonable to conservatively reflect this in performance."
Especially, foreign securities firms have consecutively lowered their target prices for NCSoft. On the 10th, Goldman Sachs issued a 'Sell' rating on NCSoft and set a target price of 170,000 KRW, lower than the current stock price. Goldman Sachs analyzed, "Although TL showed initial success, its PvP (player versus player)-focused game content may cause user attrition," and "TL is unlikely to significantly improve NCSoft's overall performance."
On the 15th, Macquarie Securities downgraded NCSoft's rating to 'Underperform' and lowered the target price to 170,000 KRW. Macquarie Securities analyzed, "Although TL achieved initial success, it was supported by Amazon Games, so NCSoft has yet to prove its ability to service non-MMO games to global users," and "With expected 2025 revenue of about 101 billion KRW, this alone is insufficient to normalize NCSoft's performance."
While TL-related issues will influence NCSoft's stock price for the time being, attention should also be paid to the numerous new releases planned from next year. NCSoft released two new titles this year excluding TL, but plans to release seven anticipated new titles next year.
Researcher Kim Hyun-yong of Hyundai Motor Securities said, "Next year, there are many anticipated new titles such as 'Tactan: Knights of the Gaz,' 'LLL,' and 'Aion 2,'" and predicted, "As the decline in mobile Lineage stabilizes, sharp profit growth is possible next year due to the effect of new releases."
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