Internet/Game Industry
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
The investors we met with in Hong Kong and Singapore were cautious towards the Internet sector amid lingering uncertainties over the economic recovery. However, they were bullish towards the release of new games and reissuance of publishing rights in China.
Hong Kong and Singapore marketing tour review
We conducted an Internet/game sector marketing tour of Hong Kong and Singapore over April 17~20, during which we highlighted the possibility of share price and earnings turnarounds for the sector from 2H23. Although they largely agreed, investors also expressed concerns towards uncertainties over Internet business conditions and the success of new games.
Internet: Ad turnaround signals and earnings recovery needed
While there is a consensus that stock prices have fallen heavily over the past two years, there is still uncertainty over the economic recovery and concerns about slowing revenue growth. Investors remain unconvinced by the lack of clear indicators that ad and commerce are turning around. Sentiment could turn faster than expected if an ad recovery is seen during 2Q23.
Another concern is that sales growth is slowing, with Naver and Kakao booking 2022 sales of W10tn and W8tn, respectively. In our view, the Internet sector will only regain interest as a growth sector once ad and commerce earnings rebound significantly or new businesses (such as fintech, webtoon, content, mobility) start to drive overall top line.
Game: Expectations grow over new titles and China momentum
Overall, the outlook for the game sector remains positive, with expectations rising for new titles (scheduled to be released in 2H23) and the reopening of the Chinese market. We recommended keeping an eye on upcoming releases in 2H23, including NCSOFT’s Throne and Liberty, Neowiz’s Lies of P, and Netmarble’s Arthdal Chronicles and Solo Leveling: ARISE, while also noting NHN’s likely earnings rebound from 3Q23. We also confirmed rising expectations for the success of Throne and Liberty not only in North America, but globally, following the release of sound 2022 earnings for Smilegate RPG (the developer of Lost Ark), which had huge success in North America last year.