The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
With the launch of Crimson Desert having been postponed to 2025, operating losses appear inevitable for Pearl Abyss in 2024. However, as Crimson Desert is an AAA-grade new game targeting the global market and console market, new title expectations should pick up again once marketing intensifies from the summer.
Full-scale marketing for Crimson Desert to start in 2H24
Although maintaining a Buy rating, we lower our TP on Pearl Abyss from W70,000 to W50,000. Due to the pushing back of the release of Crimson Desert to 2025, operating losses in 2024 are looking inevitable. In turn, the firm’s share price has dropped significantly as of late amid deteriorated investor sentiment. However, once the marketing for Crimson Desert intensifies from the summer, new title expectations should reignite.
Reflecting the delay of Crimson Desert (which has previously been planned for rollout in 2024), we have significantly trimmed down our earnings estimates for 2024. However, we anticipate a rebound in the firm’s bottom line upon the release of the new game in 2025. Our TP is calculated by applying a target P/E of 22x to 2025F EPS.
4Q23 review: Post weak results
Pearl Abyss announced consolidated 4Q23 sales of W84.4bn (-18.0% y-y, -0.6% q-q) and operating loss of W5.5bn (TTL y-y, TTL q-q), with operating loss meeting both our estimate of W7.1bn and consensus of W10.1bn.
Black Desert revenue totaled W60.1bn (-15.6% y-y, -12.1% q-q), with the figure continuing to slide alongside the fading impact of a Land of the Morning Light update. Considering that the IP is aging, an overall earnings decline appears inescapable for 2024, but we believe that the firm will seek a sales recovery through both a 10th-anniversary event for the Crimson Desert IP and the Land of the Morning Light Part 2 update.