KRAFTON, a leading game company in Korea, is seeing its stock fall even as its cumulative operating profit this year topped 1 trillion won for the first time since its founding and it is posting record results. KRAFTON's share price hit a peak of 393,000 won in May and has kept falling, dropping to 257,000 won on the 7th. The stock has fallen more than 30% over the past six months.
The market says KRAFTON has yet to roll out a next title to rival the Battlegrounds intellectual property (IP), and that its shareholder return policy is lacking, including sticking to no dividends, leaving the stock without a chance to rebound.
KRAFTON said in this month's earnings release that third-quarter revenue rose 21% from a year earlier to 870.6 billion won. Operating profit was 348.6 billion won, up 7.5% over the same period. Cumulative revenue through the third quarter came to 2.4069 trillion won and operating profit to 1.0519 trillion won, both at a record high.
The popularity of KRAFTON's flagship IP "PUBG: Battlegrounds" drove growth. In particular, in India, "Battlegrounds Mobile India (BGMI)," the India version of "Battlegrounds Mobile," posted a record quarterly revenue, continuing its performance. Launched in 2017, Battlegrounds became a global hit, making KRAFTON a global game company with a "cash-cow IP."
The stock, however, has struggled to gain strength, running counter to the steady revenue growth trend. KRAFTON shares hit this year's high of 393,000 won on May 7 and have been on a steady decline since. In July, they fell below 350,000 won, and in September they lost the 300,000-won level. This month, after it released third-quarter results on the 4th, the stock slipped into the 250,000-won range before a modest rebound on the 10th to close at 266,000 won. From this year's peak, the shares have fallen about 32% in roughly six months. Compared with the 498,000-won offer price at the 2021 listing, they are nearly halved.
Industry watchers analyzed that KRAFTON's third-quarter operating profit growth slowed and missed market expectations, and that the high reliance on a single IP, Battlegrounds, is weighing on the stock. Oh Dong-hwan, a researcher at Samsung Securities, said, "KRAFTON's revenue growth was solid, but operating profit fell short of consensus (market expectations) as outsourcing costs related to new title development and the revenue share of the PC institutional sector rose."
In particular, dependence on Battlegrounds is cited as a task KRAFTON must solve. The Battlegrounds IP is so large that it accounted for most of KRAFTON's approximately 2.7 trillion won in annual revenue last year. While it is a reliable "cash cow" for KRAFTON, there is no guarantee the growth shown by the Battlegrounds IP over the past eight years will continue, making it urgent to find new growth drivers.
The problem is that there is no new title in sight that can be nurtured into the next growth pillar. "inZOI," a life simulation game that KRAFTON released in early access in March, had a good initial response, but its official launch has been pushed to next year, suggesting it will take time to monetize. KRAFTON has put forward "Palworld Mobile," an open-world survival crafting title, and the ocean adventure game "Subnautica 2" as its main new titles for next year, but with release schedules undecided, uncertainty is high. In the case of "Subnautica 2," the launch has already been delayed once due to a conflict and ensuing legal dispute between KRAFTON and the former management of U.S. subsidiary Unknown Worlds Entertainment, which is developing the game.
Choi Seung-ho, a researcher at DS Investment & Securities, said, "Given the genre characteristics, 'Palworld Mobile' and 'Subnautica 2' are unlikely to single-handedly drive companywide growth, so the Battlegrounds IP is expected to continue to determine KRAFTON's results next year."
KRAFTON plans to boost profitability by accelerating franchising on the back of steady growth in the Battlegrounds IP. It is also increasing investment to diversify its IP and, as part of that, is running 11 new projects. It announced that a large number of new titles will launch in 2027. Bae Dong-geun, KRAFTON's chief financial officer (CFO), said on last week's earnings conference call, "We expect new IPs to increase explosively in 2027," adding, "In our five-year plan, 2027 will be a major inflection point."
However, market participants said momentum for new titles is lacking because no "AAA-grade" blockbuster development has been unveiled. Choi said, "It is true that until a clear pipeline (new title candidates) is revealed, it is hard to quantify it in valuation (corporate valuation)."
Among retail investors, criticism is growing of KRAFTON's stance of paying no dividends. They say that despite being a global game company that is breaking its own records every year, its shareholder return policy is weak, reducing its investment appeal. KRAFTON has never paid dividends since its 2021 listing. Retained earnings, the source of dividends, came to 5.2896 trillion won in the first half of this year, but the company is not paying dividends on the judgment that share buybacks and cancellations are an effective method of returning value to shareholders.