Netmarble Corp
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Q4-2024 Earnings Call
AI Summary
Earnings Call on Feb 13, 2025
Revenue Growth: Netmarble reported 2024 annual revenue of KRW 2,663.8 billion, up 6.5% year-over-year.
Profitability Surge: EBITDA rose sharply to KRW 370.0 billion, a 216.5% increase year-over-year, with EBITDA margin at 13.9%.
Q4 Results: Q4 revenue was KRW 649.0 billion (up 0.3% QoQ, down 2.5% YoY); EBITDA was KRW 73.4 billion (down 28.6% QoQ, up 19.3% YoY).
Net Loss: Q4 net loss was KRW 166.7 billion, driven mainly by a KRW 260 billion impairment of intangible assets related to SpinX and Kabam.
Game Pipeline: Nine new titles are planned for launch in 2025, emphasizing both genre and platform diversification.
Cost Discipline: Operating expenses and headcount were kept in check, with ongoing focus on marketing efficiency and stable personnel levels.
Dividend & M&A: No change in dividend policy or new M&A plans, but open to evaluating opportunities.
Netmarble's annual revenue grew 6.5% year-over-year, with a substantial jump in EBITDA—up 216.5%—thanks to higher revenues and ongoing cost-saving measures. Q4 revenue was stable quarter-over-quarter but declined year-over-year, while EBITDA saw a notable quarter-over-quarter drop due to increased marketing expenses.
A significant net loss in Q4 was mainly driven by a KRW 260 billion impairment of intangible assets, primarily from SpinX and partially Kabam. Management stated that SpinX has now seen three consecutive years of impairments but does not expect large-scale impairments going forward.
Netmarble maintains a diversified portfolio, with top titles like Marvel Contest of Champions, Jackpot World, and Solo Leveling:ARISE. For 2025, the company plans to launch nine new games, focusing on both genre and platform diversification, including MMORPGs and simultaneous mobile/PC releases.
Operating expenses in Q4 were up 5.5% quarter-over-quarter but down 5.1% year-over-year. Personnel expenses fell slightly due to reduced headcount post-COVID. Marketing costs increased in Q4 because of new launches but are being managed for efficiency. App commissions have decreased as more games are released on PC.
In Q4, 83% of revenue came from overseas markets, especially North America. Genre-wise, the revenue split was 40% casual, 39% RPG, and 13% MMORPG, reflecting a broad approach across regions and game types.
Netmarble confirmed there are no changes to its dividend policy and no current M&A plans, but remains open to future opportunities if they arise.
Solo Leveling:ARISE showed improved KPIs and revenue after recent updates, especially among global users. Marvel Contest of Champions drove higher IP commissions in the quarter. Seven Deadly Sins: Origin aims to differentiate with unique IP adaptation for open world gameplay, and new builds are planned for Steam releases.
[Interpreted] Good morning and good evening. Thank you all for joining the conference call for the earnings results of Netmarble. This conference will start with a presentation followed by a Q&A session. [Operator Instructions]
Now we will begin the presentation on Netmarble's Fourth Quarter Earnings Results of the Fiscal Year 2024.
[Interpreted] Greetings. I'm Dong Hwan Kim, Head of Finance Planning at Netmarble. I thank investors and analysts for taking the time off of your busy schedule to attend Netmarble's 2024 Fourth Quarter and Annual Earnings Conference Call.
On the site with us are CEO, Young-Sig Kwon and Byung Gyu Kim; and CFO, Gi-Wook Do. We will address any questions that may arise during the call after the main presentation. Please note that the contents of the earnings report have yet to undergo an independent auditor's review and could be subject to changes with the audit results.
And with this, CFO, Gi-Wook Do, will present the annual earnings.
[Interpreted] Greeting. My name is Gi-Wook Do, and I will present overall 2024 annual earnings. Please refer to Page 2.
Annual revenue for year 2024 was KRW 2,663.8 billion, up 6.5% year-over-year. EBITDA was KRW 370.0 billion, up 216.5% year-over-year. EBITDA margin rate marked 13.9% plus 9.2 percentage points Y-o-Y as a result of higher revenue and cost saving efforts.
The following page summarizes our Q4 financial results. Q4 revenues increased quarter-over-quarter by 0.3% due to seasonal boost in sales of overseas subsidiaries marking KRW 649.0 billion, which is down 2.5% year-over-year. EBITDA marked KRW 73.4 billion, down 28.6% quarter-over-quarter and up 19.3% Y-o-Y due to higher marketing expenses. EBITDA margin rates marked 11.3%.
Next page, we are looking at operating income and net income. Q4 operating income recorded KRW 35.2 billion and net loss of KRW 166.7 billion. Controlling shareholders' net loss marked KRW 162.7 billion. Net loss in Q4 was due to the recording of impairment of intangible assets.
Next page, we're looking at game portfolios. At Q4 end, we are seeing a diversified portfolio of game titles, evenly generating revenue with Marvel Contest of Champions marking 13% of the total revenue, followed by Jackpot World 8%, Lotsa Slots 8%, Cash Frenzy 7%, Solo Leveling:ARISE 6%, Raven 2 5% and Seven Deadly Sins: GRAND CROSS 5%.
Next is revenue ratio by geo and genre. Q4 regional breakdown of revenue contribution was 46% in North America, 17% in Korea, 15% in Europe, 9% in Southeast Asia, 6% in Japan and other regions 7%. Overseas revenue share was 83%, plus 6 percentage points quarter-over-quarter. Revenue contribution breakdown by genre consists of casual games 40%; RPG 39%; and MMORPG 13% and others 8%.
Next is on major cost structure. Q4 operating expenses was KRW 613.8 billion, up 5.5% Q-o-Q and down 5.1% year-over-year. Commissions increased by 3% Q-o-Q at KRW 231.6 billion, 8.6% lower than the previous year, largely due to increase in sales of licensed IP title. Personnel expense marked KRW 178.7 billion, down 0.2% Q-o-Q and down 2.2% Y-o-Y due to lower head count. Marketing expenses marked KRW 120.5 billion, up 15.2% Q-o-Q and down 5.6% Y-o-Y due to new launches in Q4.
Next, I would like to announce our new game pipeline. Netmarble plans to launch 9 new titles starting from RF Online Next, followed by Game of Thrones: King’s Road and The Seven Deadly Sins: Origin.
In previous year, Netmarble was able to make meaningful turnaround through launching new selected titles and driving success while continuously making efforts to improve our financials. Netmarble will take a new leap in the year 2025 through launching a variety of competitive titles on multi-platform. We ask for your continued support and interest in Netmarble as we continue to strive our best in the remaining year ahead.
This concludes our earnings presentation. Should you have any questions, we would be happy to address them now. Thank you.
[Interpreted] [Operator Instructions] The first question will be provided by Kim Junhyun from HSBC.
[Interpreted] I have two parts to my question. My first question is, what are the main focuses for the game development strategies for Netmarble? I understand that there are many MMORPGs within Korea. Does Netmarble has plans to expand within the Korean market or do you have other strategies?
My second part of the question is, I believe that you have announced 9 new titles. Among the 9 new titles, what is the one title that you have the most highest expectations on?
[Interpreted] Thank you for your questions. This is CEO Kwon addressing your first question on our game strategies. I believe that you are asking this question because 3 of the 9 titles that we have announced as new launches in 2025 are of the genre MMORPG. However, as we explained, our main development strategy has not changed, and it remains as genre diversification and platform diversification as well as expansion in the global market. We plan to remain -- retain our development strategy as it is, and we look for your continued support.
And as for the second part of your question on which game out of the 9 new titles -- we have the highest anticipation on, I would like to say that we have our most -- our highest anticipation towards all of our 9 projects, and we will do our best to work relentlessly to concentrate on bringing the success of all of these titles.
[Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question will be presented by Dan Kim from Morgan Stanley.
[Interpreted] I have just one question. I believe that there were some expenses in the nonoperating side of KRW 216 billion. Could you explain what impairment of intangible asset this was? And what is the size of this asset? I believe that there was some effect due to the foreign exchange rate. Does this also have effect on the operating side?
[Interpreted] This is CFO, Do, addressing your questions. First, thank you for your question. I would like to explain that the majority of the impairment of intangible assets is related to SpinX. So SpinX has already performed 3 impairments, 3 years in a row. And based on the projections right now, we believe that there will not be any large-scale impairments in the future.
In terms on your questions on liabilities, so because we have already converted everything to Korean won -- converted all the liabilities to Korean won, there would be -- we do not expect any risk due to the exchange rate.
[Interpreted] The following question will be presented by Kang Seokoh from Shinhan Investment Securities.
[Interpreted] There are 3 parts to my questions. My first question is with the reduction of app commissions, I believe that Raven -- products like -- titles like Raven 2 and Arthdal Chronicles, last year, they have been -- you've also moved on to the PC platform. I'd like to know whether the number of users on PC platform is also being maintained, and also if there's any change in user behavior on PC?
My second question is, I believe that the personnel expenses have been controlled severely in the past year. I'd like to know whether there is any increase in the cost this year and what plans you have in terms of cost?
My third question and my last question is regarding the dividends. Is there any change in Netmarble's return to shareholders' policy? And do you have other financial activity plans, such as M&A and returning back to the shareholders this year?
[Interpreted] This is CEO, Kwon, addressing your first question. So as you have mentioned already starting from year 2024, commissions for apps have decreased and the ratio of app commissions have also decreased. Also, because we are launching games not only on mobile, but also on PC simultaneously, and we are remaining our strategies this way, we believe that there will be some cost saving effects this year.
This is again CEO, Kwon, addressing your second question on personnel costs and marketing costs. So we cannot say that we have controlled our personnel cost to a strong degree last year. We have to say that the number of headcount increase after COVID has come down to a level that is more sustainable. And so it's been a reflection of the headcount's reduction -- natural reduction after COVID. And we plan to remain the number of personnel within this year as well.
In terms of marketing expenses, we must say that ever since we began robust marketing starting from 2024, the marketing costs have been well controlled. However, I must note that the marketing costs is also subject to increase due to new launches this year, and we plan on running our marketing effectively and efficiently as possible this year.
[Interpreted] This is CFO, Do, addressing your final question on our dividend plans and also plans for M&A. In terms of our dividend policy, we have decided on the amount of dividend within our existing policy, and we do not have any specific plans to change our existing policy as of now. And if we do have any plans to change, we will be addressing this separately. In terms of M&A, we do not have a specific target at this point of time. However, we must say that if there are any opportunities in the market, we are open to review possible M&As. But currently, we do not have any specific plans at hand.
[Interpreted] The following question will be presented by Yixin Hu from Hana Securities. Please go ahead with your question.
[Interpreted] I have two questions. The first one is, amongst your lineup for the second half of the year, there's a game Seven Deadly Sins: Origin, which is an open world based subculture game. I'd like to know what differentiates this game amongst all of the other subculture open world game?
My second question is you also have plans to launch Solo Leveling:ARISE on Steam this year. We'd like to know if this game on Steam will be operated on a separate build from the one that is operating now and also on Steam if this is a different build?
[Interpreted] This is CEO, Kwon, addressing your first question on Seven Deadly Sins: Origin. So the main differentiated point for our game Seven Deadly Sins: Origin, as an open world subculture game is our interpretation of IP. Our plan is basically to interpret this game, this IP well so that it fits into the open world theme and to be able to really incorporate all of the contents within the game. I believe that not many companies, including ourselves, have experience with this specific genre. Therefore, we are placing in a lot of efforts and as well as personnel into this game in order to be able to provide the players with sufficient content that makes the players be able to engage in the game more and to have fun within the game. In the end, we do want users to be able to play this game for -- in the long term.
This is CEO, Kwon, again addressing your second question on Solo Leveling:ARISE. The theme built for this game is basically the same genre, but just a different build from the mobile one. We are targeting these Steam users with differentiated content and an improved BM that fits the users on Steam.
[Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question will be presented by Dan Kim from Morgan Stanley.
[Interpreted] I have two questions. My first question is, do you have any content updates for the increase in revenue in the first half of 2024 for the game Solo Leveling:ARISE?
My second question is, you have explained -- you have shared that commissions have increased due to the increase of sales of external IPs. Is this mainly due to Solo Leveling:ARISE? And I'd also like to know whether this commission comes in every -- does it affect every quarter? Or does it come in every year?
[Interpreted] This is CEO, Kwon, addressing your first question on Solo Leveling. Ever since the large scale updates and the improvement of user experience in last December, I can say that all of the KPI is right now rising, particularly amongst the global users and global active users. The DAU has recovered to a point that is 7 months back and also revenue is in a recovering state. Most of this recovery is centered around global users.
This is CEO, Kwon, addressing your second question on increase in commissions. The increase in IP commissions, IP royalty fee in the fourth quarter is primarily due to Marvel Contest of Champions sales in December and seasonal sales of Marvel Contest of Champions. And basically, as for commissions, this is primarily affected by the revenue and sales of a particular gain in that quarter. And I hope this answers the questions that you have.
[Interpreted] The following question will be presented by Wunxun Ge from Baring Asset Management. Please go ahead with your question.
[Interpreted] I have just one question. So I'd like to know about the size of impairment due to intangible assets this quarter and also in terms of SpinX's PPA amortization, I believe that the cost is around KRW 2.5 billion every quarter. Is this also affected -- incorporated into this quarter as well?
[Interpreted] Thank you for your question. This is CFO, DO, addressing your question. As I have explained previously, the majority of the impairment of intangible assets is due to SpinX and partly some due to -- and partly from Kabam. And the total size of impairments is KRW 260 billion. And this is also offset by gains of disposal of HYBE shares.
Also in terms of amortization, yes, the amount is also impacted -- the PPA amortization of SpinX has also impacted the quarter impairments. But I have to say that if there is a reduction of impairments, then this will also reduce the amortization as well. And so in 2024, we are expecting that the amortization fee will also decrease.
[Interpreted] Currently, there are no participants with questions. [Operator Instructions]
[Interpreted] This concludes 2024 Q4 and Annual Netmarble Earnings Conference Call. Thank you for your attendance. And should you have any additional questions, please do not hesitate to contact the Netmarble IR team.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]