New Game Launches And Platform Diversification Will Attract Global Audience

Key Takeaways

• Diversifying games and platforms is expected to stabilize revenue by capturing a wider audience while reducing app commission costs for better net margins.
  
• Global expansion and strategic marketing outside Korea aim to significantly enhance revenue growth by engaging a broader international audience.
  
• Netmarble faces financial instability due to impaired intangible assets, high marketing costs, foreign exchange risks, and challenges in a saturated market.

Catalysts

Develops and publishes PC, mobile, and console games in South Korea and internationally.

• Netmarble plans to launch 9 new competitive game titles in 2025, including high-profile titles like RF Online Next, Game of Thrones: King’s Road, and The Seven Deadly Sins: Origin, which is expected to drive revenue growth through increased game sales and player engagement across multiple platforms.
  
• The company is diversifying its game portfolio by focusing on both genre (e.g., MMORPGs, RPGs, casual games) and platform diversification (e.g., mobile, PC, Steam), which can lead to improved revenue stability by capturing a wider audience and enhancing user experience.
  
• The reduction in app commissions due to platform diversification is anticipated to result in cost savings, likely boosting net margins by decreasing operating expenses related to platform fees.
  
• SpinX's impairment issues have been addressed, with expectations of no large-scale impairments in the future, potentially leading to more stable earnings as impairment charges are reduced.
  
• Global market expansion, especially outside Korea with 83% of revenue already coming from overseas, and increased focus on effective marketing strategies are likely to enhance revenue growth by reaching and engaging a broader audience internationally.

Netmarble Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Netmarble's revenue will decrease by 0.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.7% today to 9.6% in 3 years time.
• Analysts expect earnings to reach ₩257.0 billion (and earnings per share of ₩3103.58) by about March 2028, up from ₩19.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩419.7 billion in earnings, and the most bearish expecting ₩84.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, down from 164.0x 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 10.07%, as per the Simply Wall St company report.

Netmarble Future Earnings Per Share Growth

Risks

• The net loss recorded in Q4, primarily due to the impairment of intangible assets from SpinX, indicates financial instability which could affect Netmarble's future earnings.
  
• Increased marketing expenses amidst new game launches could strain profit margins, potentially impacting net margins adversely.
  
• Over-reliance on overseas revenue, with 83% of revenue from international markets, exposes Netmarble to foreign exchange risks and geopolitical factors that can affect its revenue stability.
  
• The competitive and saturated MMORPG market limits Netmarble’s growth potential in its home market, which could hinder revenue diversification and growth.
  
• High historical costs related to PPA amortization and repeated impairments at SpinX signal underlying operational challenges and could continue to affect earnings and net margins.

Valuation

• The analysts have a consensus price target of ₩60304.348 for Netmarble 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 ₩90000.0, and the most bearish reporting a price target of just ₩33000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩2678.4 billion, earnings will come to ₩257.0 billion, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of ₩39300.0, the analyst price target of ₩60304.35 is 34.8% 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.