Are Game Stocks Entering a Supercycle?... Rosy Outlooks Pour in for This Stock

Netmarble and NCSoft See Target Prices Raised This Month
Despite Missing Out on Policy Momentum, New Releases in the Second Half Drive Optimism

Recently, the securities industry has been issuing a series of rosy outlooks, raising target prices for major Korean game stocks. Analysts predict that game stocks, which had previously been excluded from policy benefits such as revisions to the Commercial Act, will enter a full-fledged growth trajectory in the second half of the year, driven by momentum from new releases.

According to the Korea Exchange on July 21, NCSoft closed last week at 209,500 won, down 1.18%. While the KOSPI has surged more than 32% since the beginning of the year, NCSoft's rise has been limited to 15%, about half that rate. On the same day, Netmarble ended up 2%, but its stock price has been moving sideways for the second consecutive week this month.

Despite the recent boom in the domestic stock market, with record highs being set in sectors such as semiconductors, holding companies, and securities, investors in game stocks have not seen much excitement. This is due to the saturation of the mobile game market and the fact that game stocks have largely been excluded from policy benefits such as revisions to the Commercial Act.

Netmarble and NCSoft both drew attention at the end of last year as safe havens from US tariff risks, consecutively hitting 52-week highs. However, as the global stock market plunged, both stocks hit new lows in April. Since then, as the KOSPI has rebounded, both stocks have recovered 70% and 60% from their lows, respectively, but have failed to break through their previous highs. In the case of Krafton, it set a new high in May but quickly retreated and has remained in a trading range for two months.

However, with the momentum from new releases approaching in the second half of the year, a turnaround in sentiment for game stocks is imminent. Leading the way is Netmarble. In just this month, eight securities firms have raised their target prices for the company. Netmarble's operating profit forecast for the second quarter stands at 91 billion won (up 83.2% quarter-on-quarter), marking a surprise performance for the sixth consecutive quarter. Choi Seungho, a researcher at DS Investment & Securities, said, "A rush of new titles such as 'Vampyr,' 'Stone Age,' 'Seven Knights Rebirth Global,' and 'MonGil Star Dive' is expected from the third quarter. We anticipate the start of a supercycle, beginning with the success of these games," raising his target price from 70,000 won to 79,000 won.

NCSoft is also preparing to launch about five new titles between the fourth quarter of this year and the first half of next year, including its most highly anticipated release, Aion 2. In particular, at Gamescom in August, the company plans to unveil two first-person shooter (FPS) games, and at the Tokyo Game Show in September, it will showcase a new subculture genre title called Breakers, thereby increasing its external exposure and maximizing new release momentum. Nam Hyoji, a researcher at SK Securities, said, "Until now, NCSoft's target user base has been concentrated in Korea and Asia, but the new titles coming out from the end of this year will target a global user base. Therefore, the success of these new releases could be an opportunity to expand valuation," raising her target price from 230,000 won to 250,000 won.

However, there are still challenges to overcome. Korean game companies have focused on developing online mobile games, which have been a guaranteed box office hit, but have failed to achieve meaningful results in the MMORPG (Massively Multiplayer Online Role-Playing Game) market outside of Greater China. Lee Hyojin, a researcher at Meritz Securities, pointed out, "Netmarble's strong second-quarter performance was the result of limiting new releases to mobile RPGs and focusing on the domestic market, where marketing channels are best established. To escape undervaluation, the company needs to make attempts in the global PC and console markets as well."