Global Gaming Expansion Will Face Saturation And Foster Renewed Engagement

Key Takeaways

• Heavy dependence on legacy titles and costly live-service investments may limit long-term growth if new games or markets underperform.
  
• Global expansion and monetization strategies face challenges from regulatory scrutiny, shifting demographics, and strong competition, posing risks to future revenue and earnings.
  
• Revitalizing core franchises, global expansion, live service investments, disciplined capital management, and alignment with gaming trends collectively position NEXON for sustained growth and profitability.

Catalysts

Produces, develops, distributes, and services PC online and mobile games in Japan and internationally.

• Investor optimism appears driven by the expectation that Nexon can continue expanding its addressable market via new global launches-such as ARC Raiders, MapleStory Idle RPG, THE FINALS in China, and Mabinogi Mobile globally-despite mounting evidence of saturation and competitive risks in mature regions, potentially overestimating long-term revenue growth.
  
• The strong reliance on legacy titles like MapleStory and Dungeon & Fighter, despite recent surges from updates and content expansions, leaves Nexon exposed to player fatigue and revenue concentration risk; this concentration may compress future top-line growth if new IPs or markets underperform.
  
• Intense investment in live-service games, frequent content updates, and global marketing are currently boosting user engagement and revenues, but also driving up recurring expenses (royalties, platform fees, creator payments, and marketing), which could pressure net margins as incremental returns diminish.
  
• Heightened expectations for in-game monetization and microtransactions may not fully account for increasing global regulatory scrutiny (e.g., loot boxes, data privacy), which threatens to constrain future monetization strategies and slow user acquisition-impacting both revenue and earnings growth.
  
• The assumption that Nexon's international expansion will counteract demographic headwinds in Asia downplays risks from shifting player demographics, growing competition from alternative entertainment, and the challenges of adapting to differing gamer preferences, all of which could slow MAU growth and dampen long-term earnings.

NEXON Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NEXON's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 22.8% today to 21.7% in 3 years time.
• Analysts expect earnings to reach ¥111.7 billion (and earnings per share of ¥143.48) by about August 2028, up from ¥102.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥139.1 billion in earnings, and the most bearish expecting ¥80.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.5x on those 2028 earnings, down from 26.1x today. This future PE is lower than the current PE for the JP Entertainment industry at 24.2x.
• Analysts expect the number of shares outstanding to decline by 3.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.24%, as per the Simply Wall St company report.

NEXON Future Earnings Per Share Growth

Risks

• NEXON is successfully revitalizing core franchises (like MapleStory and Dungeon & Fighter PC) with significant content updates, driving dramatic revenue growth (e.g., MapleStory up 60% YoY globally, 91% YoY in Korea, and Western sales up 36%) and record player engagement-this ongoing player enthusiasm and strong MAU/PU trends could sustainably support top-line revenue even as mature titles age.
  
• The company is demonstrating robust global expansion: new launches (such as MABINOGI MOBILE, ARC Raiders, and MapleStory Idle RPG), regional expansions (MapleStory World in Asia and the EU), and growth initiatives in the West and China are positioning NEXON to diversify its revenue streams, reduce market dependency, and access larger addressable markets, potentially driving long-term revenue and earnings growth.
  
• Investment in live operations, user-generated content (UGC) platforms, and steady pipelines of new titles and experiences (e.g., co-developed content with Tencent for Dungeon & Fighter Mobile and the transformation of MapleStory into a multi-experience platform) bolster player retention and recurring spending, supporting higher net margins and predictable earnings expansions over time.
  
• Operational discipline is underscored by a robust capital return program (¥100 billion buyback policy), careful cost management (including stable HR costs due to smaller bonuses and targeted hiring), and continued investments in R&D and talent to meet 2027 growth goals, all of which can help maintain strong free cash flow and shareholder value, positively impacting share price.
  
• NEXON's adaptation to long-term gaming trends-embracing mobile, expanding into cross-platform and global markets, leveraging live-service business models, and focusing on localization-positions the company to capitalize on secular industry growth, mainstream shifts toward digital entertainment, and new monetization avenues, which could drive sustainable improvements in both revenue and net income.

Valuation

• The analysts have a consensus price target of ¥2977.778 for NEXON based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥3700.0, and the most bearish reporting a price target of just ¥1900.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥515.1 billion, earnings will come to ¥111.7 billion, and it would be trading on a PE ratio of 23.5x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of ¥3339.0, the analyst price target of ¥2977.78 is 12.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.