**Quarterly Operating Loss of 14.3 Billion Won, Turned into Deficit**
Increased Operating Costs and Underperformance of New Releases
Sales Decreased by 5% to 401.9 Billion Won
CFO: “Sorry for Disappointing the Market”
Plan to Restructure Operational System Within the Year
Bet on ‘TL’ and Announcing M&A
[Seoul Economic Daily]
NCSoft, experiencing ongoing performance challenges, reported a quarterly deficit for the first time in 11 years, marking an “earnings shock.” The company apologized for disappointing the market and emphasized their commitment to reducing chronic operating costs to achieve significant performance improvement by the fourth quarter.
NCSoft announced on the 4th that it recorded an operating loss of 14.3 billion won on a consolidated basis in the third quarter. Sales decreased by 5% year-on-year to 401.9 billion won. The operating deficit was attributed to increased marketing and other operating expenses. The net loss for the period stood at 26.5 billion won, marking the first quarterly deficit since the second quarter of 2012.
The performance fell significantly short of market expectations. According to financial information provider FnGuide, the consensus for NCSoft’s third-quarter operating profit was 7.9 billion won. The market anticipated a downturn but did not foresee a deficit in the hundreds of billions. In response to the underperformance exceeding expectations, Hong Won-jun, NC’s Chief Financial Officer, apologized, stating, “We sincerely apologize for not meeting market expectations” during a conference call following the earnings announcement.
NCSoft’s performance deterioration was driven by a surge in operating costs coupled with the underperformance of some anticipated game releases. Operating expenses rose to 416.2 billion won, increasing 16% from the previous quarter and 2% year-on-year. Marketing expenses surged 76% year-on-year to 48.7 billion won. Despite the increased costs, newly released games did not perform well. The brawler game “Battle Crush” declared an early termination within a year of release due to underperformance, and the anticipated RPG “Hoyen” failed to meet market expectations.
CFO Hong stated, “We are working to reduce the chronic impact of operating expenses on company performance,” and explained, “We will complete this restructuring process in the fourth quarter and reorganize the company’s operational system with a new cost structure starting next year.”
As part of its strong management efficiency efforts, NCSoft is pushing for voluntary retirement for the first time since 2012 and is actively working on management renewal. Recently, the company announced an organizational restructuring plan involving the establishment of four new legal entities through simple material division to allocate company resources more efficiently. Additionally, they halted the development of games like “Project E” and “Dokuri Adventure” alongside the termination of “Battle Crush.” In a recent email to employees, Co-CEOs Kim Taek-jin and Park Byung-moo explained, “There will be immediate pain, but it is an unavoidable path to improve our structure and make a comeback.” Beyond establishing simple legal entities, NCSoft plans to transition to a system where new game developments are handled by specialized studios.
NCSoft aims to rebound after the fourth quarter by leveraging the newly released globally successful game “Throne and Liberty (TL).” Having launched global services on the 1st of last month, TL surpassed 4.52 million global users and hit number one in global sales on Steam immediately after release, achieving impressive success. They plan to secure the company’s core competitiveness by releasing six new titles by next year, including “Journey of Monarch” set for release within the year. Continuous progress in mergers and acquisitions for global competitiveness enhancement will also be pursued.
CFO Hong expressed confidence, stating, “We are confident in the success of ‘Journey of Monarch,’ launching in the fourth quarter, and expect meaningful financial results from it. We are making significant progress in M&As as well, and will disclose to the market immediately when we are able to do so.”