[Click e-Stock] "Disappointing 2Q for Krafton... Must Aim for Rebound in 3Q"

Base Effect from Last Year’s Q2... Mobile Revenue Continues to Grow
Delay in 'Enjoy' Upgrade and Exchange Rate Decline Weigh on Results
Stronger Collaboration with Tencent Expected in Q3

Krafton posted results for the second quarter of this year that fell short of expectations. While PUBG Mobile performed well, revenue growth from package games did not meet forecasts, and the company was also affected by a decline in the won-dollar exchange rate.

On July 3, Meritz Securities maintained its 'Buy' investment rating and a target price of 5.1 million won for Krafton, citing these factors. The previous day's closing price was 358,500 won.

For the second quarter of this year, Krafton's consolidated revenue was 682.3 billion won, and operating profit was 261 billion won. These figures represent declines of 3.5% and 21.4%, respectively, compared to the same period last year.

The main reason cited for the underwhelming performance is the base effect. Technology-related one-off revenue for the second quarter of last year was estimated at 100 billion won, but it appears the actual figure was even higher. In addition, the upgrade of the package game 'Enjoy' was delayed, which postponed revenue recognition. The decline in the won-dollar exchange rate at the end of the second quarter also posed a burden.

However, excluding the one-off effect in the second quarter, mobile revenue increased by 22% compared to the same period last year. With strengthened collaboration with Tencent, there is analysis that mobile performance could further improve in the third quarter.

Krafton acquired Japanese advertising and animation company ADK for 75 billion yen (approximately 700 billion won), but it is expected that this will not significantly contribute to the company's overall valuation. ADK's EBITDA (earnings before interest, taxes, depreciation, and amortization) last year is estimated at 160 billion won. Since there are no significant amortization expenses, this is likely to be similar to operating profit. While the acquisition is expected to improve consolidated performance, it is likely to weigh on the company's overall valuation. This is because most of ADK's revenue comes from advertising, and its revenue growth rate is not high.

Lee Hyojin, a researcher at Meritz Securities, explained, "Considering PUBG's entry into its peak season, the launch of 'Subnautica Mobile' on July 7, and the release of 'Subnautica 2' in the second half of the year, domestic institutional demand, which declined until 2023, is expected to return," adding, "If Krafton can secure Western market revenue through new initiatives in the PC and console markets, the company's valuation could be reassessed."