Gravity Co. Annual Report on Form 20‑F for FY2020

Gravity Co., Ltd. reports a fiscal year 2020 that saw revenue rise 12.5 % to KRW 405,953 million (US$ 373.8 m), driven largely by mobile‑game micro‑transactions, which accounted for 73.5 % of total sales. The flagship mobile title Ragnarok M: Eternal Love contributed 43.6 % of revenue, while the online title Ragnarok Online saw a 111.6 % jump in sales after a successful relaunch in Thailand. Gross profit margin improved to 41.1 % from 26.4 % in 2018, and operating profit climbed 81.6 % to KRW 88.4 billion (US$ 62.6 m). Cash and cash equivalents rose to KRW 110.6 bn, supporting a strong liquidity profile with no long‑term debt.

The company’s financial statements comply with IFRS, yet an audit revealed material weaknesses in internal controls over financial reporting, primarily due to ineffective IT general controls that risk misstatement of deferred revenue. Management has outlined a remediation plan, but the weakness remains until fully addressed. Revenue is heavily exposed to foreign‑currency fluctuations—approximately 73 % of sales are earned in non‑Korean currencies—with no hedging contracts in place, creating potential exchange‑rate losses.

Operational risks extend beyond currency exposure. Gravity faces regulatory challenges across Korea, Taiwan, Thailand, and the United States, including strict data‑privacy laws (PIPA, PDPA, CCPA), gaming content regulations, and potential U.S. state restrictions on violent games for minors. Competitive pressures from licensees, third‑party developers, and platform providers further threaten revenue stability. Governance concerns arise from GungHo’s majority ownership, limited shareholder protections under Korean law, and the possibility of ADS price dilution or restricted capital‑raising.

Strategic initiatives focus on expanding into new markets, optimizing marketing and R&D spend, cross‑selling across platforms, and forming partnerships. Success is uncertain; risks such as limited insurance coverage, user migration to new titles, and regulatory uncertainties could materially affect profitability. Overall, Gravity’s 2020 performance shows growth but is tempered by significant financial, operational, and regulatory risks that could impact future earnings and shareholder value.