NCSOFT Q2 2023 Earnings Release

Key insights

6 takeaways

01
NCSOFT experienced a significant financial downturn in Q2 2023, with total sales falling 30% year-over-year to KRW 440.2 billion and operating profit plummeting 71% to KRW 35.3 billion.See it on page 2
02
The mobile gaming segment, the company's primary revenue driver, declined 10% quarter-over-quarter to KRW 296.9 billion due to underperformance from the Lineage W and Lineage 2M titles.See it on page 5
03
Legacy PC online game revenue dropped 4% quarter-over-quarter to KRW 88.2 billion, reflecting ongoing adjustments in business activity.See it on page 5
04
While total operating expenses decreased 20% year-over-year to KRW 405.0 billion, marketing expenses saw a 152% quarter-over-quarter spike to KRW 12.2 billion driven by game updates.See it on page 7
05
Domestic sales in Korea fell 6% quarter-over-quarter, while royalty and overseas sales combined accounted for 35% of the company's total revenue.See it on page 6
06
Labor costs, the largest component of operating expenses, saw a modest 2% reduction quarter-over-quarter to KRW 208.5 billion.See it on page 7

Summary

NCSOFT’s Q2 2023 earnings release details a period of significant financial contraction for the company. Total sales reached KRW 440.2 billion, representing an 8% decline quarter-over-quarter and a 30% decrease year-over-year. Operating profit experienced a sharper downturn, falling to KRW 35.3 billion, which marks a 57% drop from the previous quarter and a 71% decline compared to the same period in the prior year. Net income followed a similar downward trajectory, settling at KRW 30.5 billion.

The decline in revenue was primarily driven by the mobile gaming segment, which generated KRW 296.9 billion, a 10% decrease quarter-over-quarter attributed to weaker performance from the Lineage W and Lineage 2M titles. Legacy PC online games also saw a 4% decline, totaling KRW 88.2 billion due to adjustments in business activity. Geographically, the company’s domestic market in Korea remained the largest contributor, though sales there fell by 6% quarter-over-quarter. Royalty and overseas sales combined accounted for 35% of total revenue.

Operating expenses for the quarter totaled KRW 405.0 billion, a slight 2% increase from the previous quarter but a 20% reduction year-over-year. While labor costs decreased by 2% to KRW 208.5 billion, marketing expenses surged by 152% quarter-over-quarter to KRW 12.2 billion, largely due to game updates. Despite this quarterly spike, marketing expenditures remained 80% lower than the previous year, reflecting a broader corporate focus on enhancing marketing efficiency. The financial data is presented on an unaudited, consolidated basis in accordance with K-IFRS standards.