To Expand into Metaverse and NFTs
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Riding on steep sales growth for Odin, Kakao Games has unveiled its ‘Kakao Games Season 2’ vision, embarking in several promising new directions. We positively view the initiative as being a strategic response to a rapidly unfolding paradigm shift in the global game market.
Enjoying earnings growth; to expand into metaverse and NFTs
- We maintain a Buy rating and a TP of W130,000 on Kakao Games. Odin: Valhalla Rising continues to deliver outstanding sales performance, and the recent acquisition of Lionheart Studio (developer of the hit title) is to drive 2022F earnings growth. We also favorably view Kakao Games’ initiatives to advance into the global game market, and into new business arenas such as non-fungible token (NFT) and metaverse ventures.
- On Nov 1, the company publicly announced its acquisition of a majority stake in Lionheart Studio. Backed by Odin’s ongoing solid sales, Kakao Games aims to launch the title in Taiwan. In turn, expectations are building towards significant earnings growth next year—we see 2022F OP of W409.9bn (+197.7% y-y).
- In a recent shareholder letter, Kakao Games announced the advent of its ‘Kakao Games Season 2: Beyond Korea, Beyond Game’ vision, unveiling plans to channel all new future titles towards the global market, and to diversify platforms on which its games are serviced.
- Striving for growth beyond its game business, the firm plans to tap into areas of metaverse, NFT, and sports activity ventures that merge on-offline experiences.
3Q21 review: Sales top expectations, but OP misses
- Kakao Games posted consolidated 3Q21 sales of W466.2bn (+209.7% y-y, 260.1% q-q) and OP of W42.7bn (+101.3% y-y, +427.6% q-q), with OP arriving below both our estimate of W52.8bn and consensus of W71.5bn.
- Reflecting full-quarter sales for Odin, sales significantly beat the market projection. We estimate that the smash title contributed W320bn to the overall top line of W466.2bn. Despite downward sales stabilization and competitors’ new game releases, Odin’s robust sales performance should sustain in 4Q21.