Crimson Desert Launch And Platform Expansion Will Diversify Revenue In 2025

Key Takeaways

• Strategic regional expansions and new game launches may drive long-term revenue growth and geographic diversification.
  
• Developing new titles and console releases are key to expanding user engagement and revenue streams.
  
• Delays in Crimson Desert's launch and reliance on new titles risk impacting revenue amid mature game competition and rising operating expenses.

Catalysts

Engages in software development for games.

• Pearl Abyss is planning to launch the highly anticipated game Crimson Desert in Q4 2025, with aggressive marketing efforts and participation in global gaming events, which could drive significant revenue growth.
  
• The company's strategic expansion into new regions, such as the recent launch of Black Desert in China, is expected to provide long-term stable revenue and geographic diversification.
  
• Advancements in game development, such as the introduction of new classes and expansions for existing games like Black Desert and EVE Online, are anticipated to enhance user engagement and boost recurring revenue.
  
• Pearl Abyss is in the final stages of developing new titles like DokeV and PLAN 8, which could serve as additional revenue streams and diversify the company's IP portfolio.
  
• The introduction of Black Desert on new console platforms like PlayStation 5 and Xbox XS in 2025 could expand the user base and increase platform revenue diversification.

Pearl Abyss Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pearl Abyss's revenue will grow by 19.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 35.9% in 3 years time.
• Analysts expect earnings to reach ₩201.6 billion (and earnings per share of ₩2141.4) by about March 2028, up from ₩9.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, down from 200.5x today. This future PE is lower than the current PE for the KR Entertainment industry at 28.7x.
• 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 8.71%, as per the Simply Wall St company report.

Pearl Abyss Future Earnings Per Share Growth

Risks

• Pearl Abyss has encountered significant delays in launching Crimson Desert, first announced in 2019 and still in preparation. This could lead to further delays or cost overruns, impacting future revenues from this anticipated title.
  
• Black Desert and EVE Online are mature games, with Black Desert being more than a decade old. Sustained revenue growth may be challenging due to the increasing competition from newer games and changing player preferences, impacting long-term revenue.
  
• The company experienced a rise in operating expenses, including labor and commissions, which could pressure net margins if revenues do not increase proportionally.
  
• While Black Desert China was launched, its performance is not as high as new titles, indicating potential market saturation or regional challenges that could dampen expected revenue growth in China.
  
• Pearl Abyss relies heavily on the success of upcoming titles like Crimson Desert and DokeV. Any underperformance or failure to meet market expectations could significantly impact overall earnings and financial health.

Valuation

• The analysts have a consensus price target of ₩36444.444 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 ₩562.0 billion, earnings will come to ₩201.6 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of ₩31100.0, the analyst price target of ₩36444.44 is 14.7% 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.