Look to Potential of Platform Business
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Despite high expectations for the P2E game market following MIR4’s success last year, Wemade’s share price has performed sluggishly due to an absence of new games and the falling price of the WEMIX cryptocurrency. Still, we expect that a gradual acceleration in the onboarding of new games will ultimately demonstrate the value of Wemade’s platform and deliver performance improvement.
Look to potential of platform business, which is to onboard 100 games within 2022
- We maintain a Buy rating on Wemade but lower our TP from W150,000 to W110,000. Delays in the launch of P2E games and weak sales at the platform business have pushed back overall sales and OP expansion. However, the launch of over 100 games within this year promises to strengthen the Wemix ecosystem and drive sales growth.
- Most game companies including Wemade announced a push towards P2E game launches after MIR4’s success. However, effects of the initial trial-and-error phase and cryptocurrency price decline have resulted in release schedule delays. At the same time, the P2E game market environment has worsened. Still, once new games begin launching in earnest, sales will be generated, and concerns should ease. In 1Q22, the Wemix platform logged sales of W1.06bn (+47% vs the 4Q21 level of W720mn) despite MIR4’s sales slowdown. In our view, this both confirms that once an adequate number of new titles are onboarded, related sales do climb, and demonstrates the potential for future business growth.
- Expectations for the onboarding of new games (10 in 2Q22 and 100 within 2022) remain valid. Bolstered by the launch of a wealth of new titles, related platform sales should grow in earnest.
1Q22 review: OP comes in tepid
- Wemade registered consolidated 1Q22 sales of W131.0bn (+72.3% y-y, +3.4% q-q) and OP of W6.5bn (-76.4% y-y, -74.5% q-q), with OP arriving well below our estimate of W23.8bn and the consensus of W26.5bn. Not only did sales fall for MIR4, but sales at the Wemix platform tumbled significantly below the market projection due to delays in the release of new P2E games and an overall weak performance for P2E titles. However, NFT transaction value for the platform rose 730% q-q (5.25mn WEMIX (cryptocurrency)) in 1Q22, with total DEX transaction value reaching 40.51mn WEMIX. In other words, platform related transaction indicators remain healthy.