Emerging Markets And Next Generation Gaming Will Unlock Value

Key Takeaways

• Expansion into emerging markets and self-publishing efforts are set to boost global reach, reduce distribution risks, and support long-term revenue and margin growth.
  
• Emphasis on live service content and next-gen technology enhances user engagement, product quality, and retention, stabilizing earnings and supporting sustained profitability.
  
• Heavy reliance on one game, delays in new titles, platform concentration, rising costs, and regulatory challenges threaten growth, margin stability, and global expansion.

Catalysts

Engages in software development for games.

• The expansion of broadband and mobile internet access in emerging markets presents significant growth opportunities for Pearl Abyss, especially as the company continues to localize and market its IPs like Black Desert and new launches such as Crimson Desert to a growing global audience; this is likely to support long-term revenue growth.
  
• Ongoing mainstream integration and cultural acceptance of gaming, combined with Pearl Abyss' commitment to live service content and continuous engagement (e.g., frequent large-scale in-game events and region/class updates), underpin persistent demand and higher average user spend, directly benefiting recurring top-line revenue and earnings stability in the coming years.
  
• Early adoption and technical expertise in next-gen gaming technologies (e.g., cross-platform support visible in simultaneous updates for PC, console, and mobile) enables Pearl Abyss to deliver high-fidelity, immersive experiences quickly to market, which can improve product quality and user retention, leading to margin expansion and sustained earnings.
  
• The upcoming launch of Crimson Desert, built on in-house technology and receiving increasing positive feedback, marks a diversification beyond legacy IPs and should reduce revenue concentration risk and drive higher top-line growth and potential margin uplift if launched successfully as anticipated.
  
• The company's shift to self-publishing and direct global distribution (noted by investments in regional marketing and content localization for flagship titles) reduces reliance on third-party publishers, letting Pearl Abyss capture a larger proportion of user spend and improve net profit margins over the longer term.

Pearl Abyss Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pearl Abyss's revenue will grow by 20.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.1% today to 22.8% in 3 years time.
• Analysts expect earnings to reach ₩136.9 billion (and earnings per share of ₩1717.19) by about August 2028, up from ₩48.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩187.2 billion in earnings, and the most bearish expecting ₩59.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, down from 37.9x today. This future PE is greater than the current PE for the KR Entertainment industry at 19.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.34%, as per the Simply Wall St company report.

Pearl Abyss Future Earnings Per Share Growth

Risks

• The continued delays in the launch schedule of major titles like Crimson Desert, along with management's repeated inability to meet promised timelines, could erode investor and consumer trust-this increases execution risk and may depress future revenue growth and earnings reliability if new game launches are further delayed.
  
• The high concentration of revenue from Black Desert (which accounted for a large majority of operating revenue) demonstrates a heavy reliance on a single major IP-any decline in Black Desert's user engagement, in-game monetization, or relevance to evolving gamer tastes could result in weaker top-line growth and greater volatility in future net margins.
  
• A significant majority (85%) of Pearl Abyss's revenue continues to be generated from the PC platform, while the mobile segment remains limited (12%), indicating underperformance in the faster-growing mobile gaming market. This strategic gap may restrict long-term revenue growth and reduce resilience against industry platform shifts.
  
• Ongoing increases in operating and marketing expenses (as shown by the 43.9% surge in marketing costs this quarter and higher total opex), coupled with decreasing operating revenues and persistent net losses, threaten to compress margins and constrain Pearl Abyss's ability to invest in new projects or return value to shareholders.
  
• The company's limited reference to expansion outside existing geographies, ongoing regulatory complexities (such as the negative impact from the removal of the China contract), and global geopolitical instability pose continuing risks to international revenue streams and could hinder the company's ability to scale earnings in new markets.

Valuation

• The analysts have a consensus price target of ₩38110.0 for Pearl Abyss 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 ₩53000.0, and the most bearish reporting a price target of just ₩23000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩599.2 billion, earnings will come to ₩136.9 billion, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of ₩29650.0, the analyst price target of ₩38110.0 is 22.2% higher.
  
• 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.