Kakao Games continued to post a loss in the second quarter this year due to a gap in new releases and declining revenue from existing games. The company plans to launch at least five new titles from the fourth quarter to the first quarter next year to turn a profit in the first quarter. It also plans to pursue mergers and acquisitions (M&A) based on 300 billion won secured from Line Yahoo, while diversifying its portfolio, which is concentrated in massively multiplayer online role-playing games (MMORPG), into external intellectual property (IP) and sports and casual genres.
Kakao Games said on the 5th that on a consolidation basis it posted revenue of 75 billion won and an operating loss of 23 billion won in the second quarter this year. Compared with the same period a year earlier, revenue fell 35%, and the operating loss widened 167%.
By business segment, PC online game revenue was 22.3 billion won, down 20% from the previous quarter but up 51% from a year earlier. Mobile game revenue was 52.7 billion won, down 48% from a year earlier and 4% from the previous quarter. The company said weaker revenue from existing live games and a lack of new releases affected results.
◇ Aiming to return to profit in the first quarter next year with five new titles
To rebound, Kakao Games said at its second-quarter earnings conference call that it will release at least five new titles from the fourth quarter this year to the first quarter next year. That outpaces the number of new titles released over the past two years.
First up, "World of Dokkaebi" has completed development targeting an October launch and is preparing for service. "ArcheAge Chronicle" has shifted to a structure in which developer XL Games directly handles publishing and will debut in the fourth quarter through Steam Early Access. "Dungeon Arise" will unveil collaboration content with a popular intellectual property (IP) at launch to boost early user acquisition.
In January next year, the most anticipated title "OdinQ: Valkyrie's Call" will be officially released, and the open-world zombie survival simulator "God Save Birmingham" is also set to appear in Early Access in the first quarter.
Shin Gwon-ho, chief financial officer (CFO) of Kakao Games, said, "The company views the second and third quarters as the bottom for revenue," and added, "We expect a meaningful response in revenue as the effect of new releases begins in earnest from the fourth quarter, and in the first quarter next year, as most of the major new lineup hits the market, we expect a turnaround to profit."
The market has also raised concerns that OdinQ could cannibalize users of the existing title "Odin: Valhalla Rising." Kakao Games said that while the two games share the same universe, their gameplay and target users differ, making user cannibalization unlikely. While the original Odin focused on the core immersion of MMORPG and the large-scale open-world experience, OdinQ centers on large-scale battle content based on a quarter-view.
It also drew a line against the possibility of further delays to OdinQ's release. Kakao Games said the game has already been developed to a releasable level and a fourth-quarter launch had been considered, but it decided to release it in January next year after comprehensively considering completeness and market conditions.
Lee Si-woo, co-CEO of Kakao Games, said, "As of now, we are not considering any additional schedule adjustments," and added, "Starting with World of Dokkaebi, we will stagger the release timing of key strategic games so that each title can receive sufficient attention in the market and deliver results."
◇ Kakao Games secures 300 billion won, reviewing about 10 M&A deals at home and abroad
Along with new releases, it is also moving to secure external growth drivers. Kakao Games raised a total of 300 billion won from Line Yahoo in the process of the change in largest shareholder in June, including 240 billion won through a paid-in capital increase and 60 billion won in convertible bonds (CB). It plans to use the funds for M&A, investments, and early repayment of debt.
It is currently reviewing more than about 10 M&A and investment opportunities at home and abroad. It will start with M&A deals worth hundreds of billions of won and gradually expand the scale of investment within a range that does not undermine financial stability.
Co-CEO Kim Tae-hwan said, "We will avoid investing in games at the early development stage, as we see a low probability of success," and added, "Our top priority will be acquiring games or developers whose performance or key metrics have already been verified."
It dismissed the possibility of a merger or comprehensive stock swap with Line Games that had been raised by some. Although the large-scale investment by Line Yahoo prompted speculation about a potential business combination between the two game companies, Kakao Games reaffirmed that it has no such plans.
Kim said, "We have no plans to pursue a business combination such as a merger or comprehensive stock swap between Kakao Games and Line Games, and our position remains unchanged," and added, "Opportunities for cooperation that can create business synergy can be reviewed within the scope of ordinary business partnerships."
◇ Lowering reliance on MMORPGs… expanding into external IP and sports
Kakao Games also plans to diversify its game portfolio, which had been focused on existing MMORPGs. While maintaining MMORPGs that leverage its own IP such as Odin and ArcheAge as a core business, it plans to use external IP from webtoons, animation, and films and expand games in sports and casual genres.
Kakao Games on the previous day announced cooperation with The Grim Entertainment to develop and service games using well-known domestic comics and webtoon IP. It is also discussing ways to use IP from global film studios and entertainment companies. In addition, it will discover and nurture competitive games in midcore genres, including sports. It is reviewing games and content targeting users aged 50 and older worldwide, with a goal of delivering visible results from the third quarter next year in related businesses.
It will also strengthen shareholder return policies. Kakao Games will repurchase treasury shares totaling 500 million won. It will also operate a restricted stock unit (RSU) program for employees, linking the company's long-term performance and corporate value enhancement to compensation. Kim said, "The new management will regain the market's trust through execution rather than simple promises," and added, "We will show concrete results in line with the direction shared today."