Upcoming Game Launches Will Drive Substantial Global Expansion This Year

Key Takeaways

• Regional expansion, new game launches, and live-service updates are increasing Netmarble's global user base and supporting sustained revenue and earnings growth.
  
• Greater focus on self-developed IP and improved cost efficiencies are driving down expenses and strengthening profitability and margins over time.
  
• Heavy dependence on new hits, rising competition, elevated costs, one-off gains, and tightening global regulations all heighten risk to growth, profit stability, and monetization.

Catalysts

About Netmarble

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

What are the underlying business or industry changes driving this perspective?

• Expansion of high-speed internet/mobile infrastructure and the global rise in digital entertainment spending continue to increase Netmarble's addressable market, as seen by successful regional expansion plans for titles like RF ONLINE NEXT and Seven Knights Re:BIRTH, directly supporting future revenue growth.
  
• Planned launches of seven new titles in the second half of the year, alongside further regional rollouts for existing successful games, position Netmarble to capture a growing global user base, boosting both revenue and recurring earnings.
  
• Increasing share of revenue from self-developed intellectual property and the rollout of PC payment options are driving down commission fees, supporting improvement in net margins and overall profitability over time.
  
• Strong execution on cost structure efficiencies-demonstrated by stable marketing spend as a percentage of revenue and controlled labor costs-suggests that rising scale from new launches can deliver higher EBITDA margins and more stable long-term earnings.
  
• Adoption of live-service updates and ongoing user engagement strategies for top games, aligned with trends in social gaming and higher global engagement, enhance user retention and drive higher average revenue per user, supporting sustained revenue growth and earnings stability.

Netmarble Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Netmarble's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.5% today to 10.5% in 3 years time.
• Analysts expect earnings to reach ₩324.7 billion (and earnings per share of ₩4091.25) by about August 2029, down from ₩359.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩646.6 billion in earnings, and the most bearish expecting ₩226.7 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 20.5x on those 2029 earnings, up from 8.9x today. This future PE is greater than the current PE for the KR Entertainment industry at 10.0x.
• Analysts expect the number of shares outstanding to decline by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.11%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Heavy reliance on successful new game launches and legacy IPs introduces significant volatility to revenue streams, as underperformance or delays in upcoming titles or failure to continuously generate "hit" games could lead to stagnant or declining revenues and increased earnings volatility.
  
• Intensifying competition in core genres, particularly MMORPGs in the Korean market, poses ongoing risks to Netmarble's ability to maintain user engagement and market share, potentially eroding future revenues and squeezing net margins.
  
• The growth strategy driven by frequent new launches and aggressive regional expansion results in high ongoing development and marketing costs; if user acquisition costs increase or monetization underperforms, EBITDA margins and profitability could decline over time.
  
• The company's recent strong earnings were materially boosted by nonrecurring nonoperating items, such as gains from PRS contracts tied to HYBE share price fluctuations; a decrease in such gains or negative swings could decrease net income and earnings predictability.
  
• Growing global regulation of game monetization models (e.g., loot boxes, gacha mechanics) or tightening data privacy laws could require costly compliance adjustments and restrain future monetization strategies, negatively impacting long-term revenue and margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₩61033.33 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 ₩93000.0, and the most bearish reporting a price target of just ₩39700.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be ₩3092.5 billion, earnings will come to ₩324.7 billion, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 10.1%.
• Given the current share price of ₩39000.0, the analyst price target of ₩61033.33 is 36.1% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
• 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.