Internet/Game Monthly
The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Earnings season for the sector is to begin on Aug 2 with Kakao Games. As earnings at Alphabet and Meta Platforms came in solid, Korean Internet companies are also expected to perform well. If the supply-and-demand concentration on certain sectors eases, a rebound in Internet and game share prices is likely.
August to be starting point for 2H23 rebound
Concerns over sluggish business conditions and tepid earnings in 1H23 are to be resolved little by little, as 2Q23 earnings announcements from Internet firms begin to indicate the direction of ad/commerce business conditions in 2H23. We expect that ad market conditions will improve relative to 1H23 and that earnings will recover. In the game industry, we recommend focusing on companies that are preparing to release large-scale new titles.
We maintain NAVER as our sector top pick. We also draw attention to Pearl Abyss and Netmarble in August.
Internet: Increased attention to AI business
NAVER and Kakao’s 2Q23 results (scheduled for the first week of August) should show q-q improvement. Although an economic rebound has yet to materialize, semi-peak seasonality effects on ad and commerce business, as well as cost-cutting efforts, are to be reflected in OP.
Since their 2Q23 earnings announcements, Alphabet and Meta have been enjoying share price rebounds in reflection of ad sales growth recovery. In line, we expect shares price recoveries for Korean Internet companies after their 2Q23 earnings announcements.
NAVER’s large-scale AI model (HyperCLOVA X) is scheduled to be unveiled on Aug 24. We expect that B2B and other services utilizing this AI model will resolve concerns and misunderstanding over NAVER’s AI competitiveness and falling domestic market share.
Game: Gamescom 2023 focus to be on awards for Pearl Abyss
Initial sales of Ares: Rise of Guardians and Tower of God: New World, which were released in July, seem healthy. As a result, interest in game companies should gradually recover in 2H23. On Aug 23, Gamescom 2023 is to kick off in Germany. At the show, we anticipate exhibitions from Neowiz (an award winner last year), Pearl Abyss (Crimson Desert), Nexon (Warhaven and The First Descendant), HYBE (Dragon Blaze 2), and Com2us (Dark Sword). If Pearl Abyss is able to win an award, we anticipate favorable impacts on sector share prices.