Internet/Game Monthly
The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
With another earnings season to begin in July, and with a semi-peak season for ad and commerce having begun, we examine whether Internet firms have achieved q-q earnings growth in 2Q23. Although game companies are forecast to report sluggish earnings, expectations are running high towards China momentum and new game launches.
Earnings season just around the corner
With an earnings season just around the corner, we believe that Internet/game firms are well-positioned to enjoy share price rebounds in July. In line, we maintain a Positive stance towards the Internet/game industry. In achieving share price recoveries, sales rebounds and cost control are to be key for Internet firms, while new game momentum, rather than earnings, is to be the catalyst for game companies.
In addition to presenting NAVER as our sector top pick, we draw attention to Kakao Games, Netmarble, Neowiz, and Pearl Abyss, noting the new game launches set for July.
Internet: Time for rebound, following excessive share price decline in June
Considering that 2Q is a semi-peak season for advertising and commerce, higher sales growth is forecast for 2Q23 versus 1Q23. Despite slowing ad business conditions, search ads have likely driven earnings growth in 2Q23, thanks to their steady market advance.
In June, concerns towards NAVER losing market share in the search engine arena have weighed upon its share price. In our view, however, the data pointing to NAVER’s market share decline is somewhat questionable, given that: 1) the data came from a survey by a non-industry institution; and 2) the survey was PC website-based. We note that while NAVER’s ad sales have been climbing steadily over the past few years, Google’s presence in the Korean search ad and commerce markets is relatively less dominant than in other countries.
Of note, NAVER’s debut of its generative AI service ‘HyperCLOVA X’ on Aug 24 could serve to add some momentum by boosting traffic and escalating AI-related market expectations.
Game: New titles deserve attention
We foresee overall sluggish 2Q23 results for the game industry due to limited new title roll-outs. That said, we draw attention to game companies which are slated to release new games in July. Kakao Games is to roll out Ares: Rise of Guardians, one of the most anticipated titles of this year, and Netmarble is to debut Tower of God: New World. In addition, with Smilegate RPG’s Lost Ark and other games which obtained a game license in early-2023 set to be launched in July, China-related momentum is ready to return.