Upcoming Game Releases Will Tap New Markets Through PC And Console Expansion

Key Takeaways

• Expansion into new platforms and genres aims to unlock new revenue streams by tapping into broader markets.
  
• Utilizing globally recognized IPs is expected to strengthen the brand and boost earnings via increased in-game purchases.
  
• Heavy reliance on successful game launches and non-core activities in a competitive market poses risks to long-term revenue and profitability amidst high expenses.

Catalysts

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

• Netmarble's planned launches of King Arthur: Legends Rise and nine new titles in 2025, including Game of Thrones: Kingsroad, are expected to drive future revenue growth.
  
• The expansion into PC and console platforms, alongside new genre offerings, is anticipated to open additional revenue streams and markets.
  
• Successful leveraging of globally recognized IPs like Game of Thrones can enhance brand strength and potentially improve earnings through increased in-game purchases and engagement.
  
• The upcoming G-STAR Game Showcase and continued investment in development using advanced technologies such as Unreal Engine 5 aim to boost revenue through heightened gamer interest and improved game experiences.
  
• A strategic approach to resource allocation and potential cash flow investment in new titles can enhance long-term earnings and shareholder returns by driving sustainable growth.

Netmarble Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Netmarble's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.7% today to 9.3% in 3 years time.
• Analysts expect earnings to reach ₩280.4 billion (and earnings per share of ₩3351.02) by about January 2028, up from ₩19.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩456.9 billion in earnings, and the most bearish expecting ₩66.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, down from 196.1x today. This future PE is greater than the current PE for the KR Entertainment industry at 19.3x.
• Analysts expect the number of shares outstanding to grow by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.2%, as per the Simply Wall St company report.

Netmarble Future Earnings Per Share Growth

Risks

• Revenue and EBITDA decreased quarter-over-quarter due to the absence of major new game launches, highlighting potential volatility and dependence on successful game launches for revenue streams.
  
• Net income in Q3 was lower compared to the previous quarter partly due to the base effect of gains on disposal holdings in Q2, indicating dependence on non-core business activities for profit generation.
  
• A significant portion of the revenue comes from a diverse portfolio of existing games, which may face aging issues and competition, impacting long-term revenue potential if not adequately refreshed with successful new titles.
  
• Operating expenses, while reduced, still reflect high royalty costs and marketing expenses, indicating potential pressure on net margins if decreases in revenue continue without corresponding cost reductions.
  
• While there is a plan to expand to new platforms and genres, the execution risk related to entering PC and console markets and launching numerous new titles could strain resources and impact earnings if the releases do not meet expectations.

Valuation

• The analysts have a consensus price target of ₩64818.18 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 ₩96000.0, 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 ₩3008.0 billion, earnings will come to ₩280.4 billion, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of ₩47000.0, the analyst's price target of ₩64818.18 is 27.5% 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.