More Games to Be On-boarded on WeMix
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Going forward, we believe that there will be no repeat of the hefty operating losses that Wemade recorded for 2Q22, pointing out that sales of Mir M are to be fully reflected in the firm’s 3Q22 earnings, and noting that more games are to be on-boarded on WeMix.
Picture to be brighter in 2H22: Expect TTP, new games momentum
- Although sticking to a Buy rating, we lower our TP on Wemade from W110,000 to W80,000. Business expansion centered upon the WeMix platform should push up Wemade’s investment and recruitment costs for now.
- However, sales of Mir M are to be fully reflected in Wemade’s 3Q22 earnings, and the global version of the title is slated for launch in 4Q22. Also boding well, only 14 of the 100 on-boarding games that the company plans to roll out have been released thus far (as of 2Q22), with the majority being set for launch in 2H22. We expect new lineup momentum and accompanying earnings expansion in 2H22.
- Moving ahead, the scope of application for WeMix is to be further strengthened (including the additions of WeMix 3.0, WeMixDollar, Mainnet, and blockchain game platform WeMixPlay). These expansions of various services are to situate Wemade to evolve into a blockchain-based game platform company.
2Q22 review: Operating income disappoints
- Wemade booked consolidated 2Q22 sales of W109.0bn (+58.2% y-y, -16.8% q-q) and operating losses of W33.3bn (TTL), with operating income arriving well below our estimate of W22.8bn. Sales of MIR4 dropped, and only 8 days of sales for Mir M were reflected. Meanwhile, related marketing costs (W24.5bn, +81.8% q-q) upped significantly, and labor costs also increased notably on incentives related to the sale of shares in Lion Heart Studio. Labor costs widened to W56.2bn (+244.8% y-y, +26.6% q-q), with Wemade’s number of employees rising sharply in line with the expansion of the WeMix platform business.
- Assuming both full-quarter reflection of sales of Mir M in 3Q22 earnings and the absence of one-time labor cost items, the firm should turn to the black this quarter. We foresee 3Q22 sales of W145.1bn (+129.1% y-y, +33.2% q-q), with OP of W8.2bn (-53.1% y-y; TTP).