11bn ISK of monthly sales now needed for an Omega Account

Thinking about a fourth Omega account

With the cost of 500 Plex needed to get a 30 day Omega account then doing the maths assuming optimised sales tax, listing and relisting fees and spending 2% on courier fees, and not forgetting my 25% margin target means i need to generate 11bn isk of sales over 2 alts.

the maths: 11bn x 25% = 27.7bn isk, less 2% courier fees, 3.6% sales tax, 1.5% listing fees and 0.3% relisting fees gives me 1.9bn isk for the Plex.

So, I need 11bn isk of sales per month over two alts to make an Omega account work.  i like the third alt to be in Jita.

Progress to date

So far, of the current Alpha accounts the combination of Alentene and Arnon can get me to 6-10bn per month on 17 selling slots each.  So, not quite there yet.

I could just take the risk but currently i am still stocking up the six current locations i mainly operation from: Amarr; Dodixie; Rens; Hek; Sobaseki; and Tash-Murkon Prime.

Also, the market is slowing down since Fanfest - so i am a bit nervous in taking a risk for now.

May be time to look for other High Sec locations

May strategy is to have a trading location open in all High Sec regions.  With the hope that i can combine two locations at a time to Plex the account with the third alt in Jita.

I am still hopeful of making more progress on this front but i suspect i will have to find better locations in the remaining regions outside my six current ones (seven if include The Forge).

The high price of Plex is asking more of my business model

The Plex price is higher which means running Omega accounts is higher

The price of plex is now 3.7m isk and so to keep an Omega account going for another 30 days required 1.9bn isk= (500 x 3.7).

The high price of Plex is asking more of my business model

The financials of my business model are that i aim for 25% item profit (sales of 1bn generate profits of 250m) and then i pay 2% courier fees + 3.6% sales tax + 1.5% listing fee + 5x0.30 relisting fee.

Hence, a 1bn revenues gets me 164m profits.

I have three Omega accounts.

If i aim to make 1bn profits per day after Plex then i now need to aim for 30 + (1.9 x 3) = 35.6bn profits per month.  That equates to 217bn isk sales per month.

Prior to the Plex rise, was aiming for around 205bn isk sales per month.

That has been achieved in every month for the last 5 months.  It is though becoming harder to achieve as we enter the slower summer months.

My original aim of making 10bn isk profits after Plex requires me to make 95bn isk sales per month - that has been achieved in every month for the last 8 months.  And i bravely suggest it should be achievable in every month going forwards.

Hurdle rate for Omega higher

And to justify an Omega account i need to make 11bn isk of sales per month over two alts (i like the third alt to be in Jita) vs 9bn previously.

Month end update - April 2022

As at the end of April 2022 my wealth is 369bn ISK after paying 4.2bn to upgrade to Omega for another 30 days for three accounts.  My Wealth increased by 35bn in April.

Perhaps surprisingly, April came in better than March (34.5bn vs 33.4bn increase in wealth) though it did feel like April was slowing down towards the end.  Anyway, April 2022 is now my third best month and another month where the daily profits after all costs except Plex have exceeded 1bn ISK per day.

The best was in December 2021 where my wealth rose by 50bn followed by January 2022 where my wealth rose by 41bn.

The top level summary of April was that i made sales of 217bn ISK which were sold for a 60bn ISK profit and after 21bn of taxes and fees and the 4bn Plex the increase in my wealth was 35bn ISK.

In the last 12 months i have made sales of 2.0 trillion isk and profits after everything including Plex of 295bn isk having spend 33bn on Plex.

The overall aim of what i do is to increase my wealth by at least 10bn per month.  So far i have beaten that in 13 / 20 months i have been running this venture and indeed in all of the last 9 months.

Things i talk about below:

 - summary of my activity

 - the 1bn daily profit target which i achieved in April

 - Review of the aims i had for April which were mostly missed

 - reminder of how i do this

 - manufacturing efforts being nil this month

 - Alts in other secondary locations including the new omega account

 - normal discussion on Sales in my main trading hubs of Jita, Amarr, Dodixie, Rens, Hek, Sobaseki, Tash-Murkon Prime and a quick review of the alpha alt accounts

 - the Outlook and Aims for May

Activity

I continue to come on once a day to update Sell orders and replace items sold.  About 30-45 minutes.

April was technically a slower month across the board compared to March.  Sales fell 9% and were down or flat in every location except Tash-Murkon Prime (a new omega account location) and Alentene (an alpha account location).

In each of my four main trading locations Dodixie, Amarr, Hek and Rens sales fell on average by 15% vs rising overall in Sobaseki and Tash-Murkon Prime overall as i build these locations up.

The tertiary locations (non-omega secondary locations) rose slightly but there is always a limit on what 17 Sell Orders per location can get - Arnon (Essence), Motsu (The Citadel), Agil (Khanid), Alentene (Verge Vendor), Orvolle (Placid), Delve (NPC station).  Still no sign of combining any of these two locations to create a new Omega account though.

Manufacturing was nil - i did not have enough time to devote to it.  I suspect it will remain this way until i stop expanding into my current trade locations.

In all, i did an average of 7.2bn sales per day making 1.3n isk per day before buying the Plex.

Target 1bn profits per day after all taxes and plex costs

I have been talking about this aim though in the back of my mind i need to be sure i am not merely benefitting from elevated market activity following the changes made last year.

So far in April i kept to the target.  Hence, i have achieved an average of 1bn profits per day in October, November, December, January, February, March and now April.

On the new taxation levels to make 30bn ISK per month i would need to cover:

 - Plex costs of 1.4 x 3 = 4.2bn

 - Courier costs 2% of sales (i.e. = purchase cost + collateral)

 - Broker Listing fees 1.5% of sales

 - Broker re-listing fees 0.3% of sales (lets assume all sales changed at least five times per month)

 - Transaction Taxes 3.6% of sales

Bottom line is that each 1bn of sales creates profits of 164m and these go towards buying Plex for the Omega accounts and whatever is left is reinvested in the business.

So, 30bn increase in wealth means i need to generate item profits for 50bn and assuming i make a 25% margin then sales of 200bn.  Or, in other words, daily sales of 6.7bn are needed.

I have achieved this sales target in November, December, January, February, March and April.  Interestingly, i benefitted from the strong markets after the changes in Eve but more recently the markets are less biased to mining equipment but i am still managing to make over 1bn ISK profits per day.  So perhaps this target is achievable more consistently.

I now am trading in the five trade hubs, ramping up in two secondary locations and continuing to trial other highsec locations so the 1bn profits a day is not not impossible and may no longer be seen as a "tall order".

In December, it was not uncommon to have days where sales were over 10bn ISK and indeed on one day i had 10bn sales from one alt alone.  In January i had two such days towards the end of the month, in February i had three, in March two and in April i had four.  I was hopeful of getting over 20bn sales in one day in February but i merely achieved 18bn that day!

Review of the April aims

1) Plex the three accounts - aim number one all the time - achieved

2) Hold sales in Dodixie - missed, sales fell

3) Hold sales in Amarr - missed, sales fell

4) Hold sales in Rens - missed, sales fell

5) Hold sales in Hek - missed, sales fell

6) Ramp up Sobaseki - achieved though sales flat

7) Ramp up Tush-Murkon Prime - achieved

8) Pause Manufacturing for now - achieved

9) Develop the alpha alts to see which can be upgraded to Omega - ongoing

 

In all, the April aims were mostly missed.  The slower market prevented my from expanding my sales at the main trading locations.

Reminder of my Current Business.

For now i do inter-regional trading - buying from Jita to sell elsewhere.

I have expanded the business into other high sec regions.

My main business is operated with three omega accounts (paid for with plex) with nine alts.

The main Trading alts sit in Dodixie, Amarr, Rens and Hek.  Rens and Hek are still slowly ramping up.  I have also omega alts in the new Trading locations of Sobaseki (in Londtrek) and Tash-Murkon Prime (in Tash-Murkon).

The other three alts sit in Jita and buys from Sell Orders, has these items couriered to the alts in Dodixie / Amarr and Rens / Hek and Sobaseki / Tash-Murkon Pime who then put them onto these markets for sale.

The Jita alts also serve to sell items that i can no longer sell in my trading locations  Sort of clearance sales.

I also started in December to place alpha alts in other regions to see how it goes.  I just need two of them to demonstrate that they can combine to justify an Omega account.  Also, they need to take up very little of my time.  So far the Sobesaki and Tash-Murkon alts made the grade and were upgraded in one account.

The other regions so far are: Essence; Citadel and Khanid.  And i am in an NPC station in Delve.

I focus on slow moving but high margin items.  That keeps me away from fierce competition and i only need to sell an item once every 10 days to make good income.

For this side of my business, lets call it Merchanting or inter-regional trading, i want to generate profits of 10bn ISK per month after paying to Plex my account.  As i ramp up my Rens and Hek alts i would hope to see this 10bn comfortably beaten.  The addition of the alpha alts should help as well.

My business model evolves over time.  As my wealth increases i focus on higher value items.  I had evolved to only buying items in Jita for over 100m ISK but this restricted the items i could sell so now i am going back to 70m ISK.

Manufacturing

In November, i started down the manufacturing path.  I invested 12bn into it and made profits of 1.2bn after all taxes and costs.  December was slower and January even slower, February was nil as was March and April.

I spent more time focusing on the Trading business given it was going so well.

Hence, for now, Manufacturing is on hold.

It seems i am addicted to the allure of making profits of 1bn ISK per day and so that leaves no time to focus on activities outside of Inter-Regional trading.  That may prove to be a mistake if it leads to grind / burnout.

Other High Sec Trading Locations

I don't want to spend all my time on Eve doing Regional Trading (buying from one region, mainly Jita, to sell to another) but i do want to see if i can find really low competition but stable revenue streams of trading.

I have 6 other locations up and running and as i wrote in a prior blog post i have upgraded an account containing two of the alts to omega at the end of January.

These two locations: Tash-Murkon Prime and Sobaseki did have a poor February but a much better March and again in April,

Tash-Murkon Prime sales rose from 8.1bn ISK to 14.9bn ISK whilst Sobaseki was flat at 14.9bn given total sales in April of 30bn iSK which, once full skilled, would generate profits of 4.9bn ISK which is more than enough to cover the 1.5bn cost of the Plex.  And the competition here is very low that the time required to maintain these locations is minimal.

The other secondary trading locations made combined sales of 13.0bn which is slightly up on the March sales 12.2bn.

So far, no sign of any other two locations looking like they may be upgraded to Omega.  I don't mind that.  At some stage i may open up in other High Sec Regions and / or try and relocated to better places in existing High Sec regions.

I will now be buying enough Plex to upgrade to 3 omega accounts per month.  At current prices that is 4.2bn ISK per month.  (actually, it will be 30% higher now).

Delve

I want to experiment with selling in null/low Sec.  Hence, i have found an NPC station in Delve and started experimenting with items to sell.

It is not going well.  In April there have been no sales.  Over the last five months there have been 6bn sales in total.

I will have to rethink this.

Plex

I have started to invest in Plex.  In all i now have 4000 Plex.

That said, given how well my Trading is going i am investing everything back into the market leaving nothing to buy surplus plex for the last four months.

My rule is to buy Plex on the day it is needed to continue with the Omega account and that i will continue to do.

That said, i like to store Plex for a rainy day or unless i take a break.  I really need 6 months buffer.  So, to cover 3 accounts for 6 months is 9000 Plex required

Analysis of Trading Profits

In total i made 217bn ISK of sales in April which made me item profits of 60bn ISK.

(item profit is the simply difference between sales done vs costs spent buying products, so before fees and taxes.  Because i don't yet invest in items other than Plex i don't make any allowance for items still in stock - in part because i don't track the cost per item spent).

Overall, sales fell by 9% in April which reflects slower markets in my main trade hubs of Dodixie, Amarr, Rens and Hek.  

The best performing location remains Dodixie, followed by Amarr then Rens and then Hek.

i am still ramping up Sobaseki and Tash-Murkon.

Jita, which is where i sell items that won't sell in the Regions i now also sell some Blueprints in.  Trade is slow and competitive - so sales were only 8bn but i don't mind that.  I rarely have more than 5 items for sale in Jita these days.

From all these sales i made item profits of 60bn.

This therefore was an item margin of 27.6% (60/217) vs my target of 25%.  So a good result.

Manufacturing sales were nil.

This continues the trend of my trading margins being in the 25-27% range since April 2021 having before that been in the 28-32% range.

From this I then need to take a whole series of costs off before i get to my Business profits:

Courier Fees: i aim to pay 2% of sales value to the Courier = 2% x 217= 4.3bn

Sales tax cost me 8.2bn ISk (=3.78% of sales) - the Dodixie, Amarr, Rens and Hek characters are level 5 in Accounting (=sales tax of 3.6%), the new omega accounts are in the process of taking the skill to level 5 and of course all the alpha alt accounts are only Level 1 (=sales tax of 8%).

Broker Fees costs me 8.7bn (=4.0% of sales).  Now, i can break this down into the initial listing fee of 1.5% (because i am Level 5 Broker Relations on both main characters and lets to make the sums easier and include all the alpha alts) and therefore the rest is the cost of changing the price which is 0.30% a shot (i may have that 0.30% completely wrong!).

So, Listing Fee = 1.5% x 217= 3.3bn and so the Relisting Fee = 8.7-3.3 = 5.4bn which is 2.5% of sales.  That shows that i do change prices quite often, bias to Amarr.

This takes my 'Business Profits' to 38.7bn ISK for April vs 37.6bn in March.  This is what 20-30 minutes a day in April gave me.

And interesting to note that despite sales being down 9% profits are up because my margins are better.

So, the post-tax margin is 17.8% (39/217) is down from the 20s when the tax rates were lower but remains above the 15% target.

The rest of the alpha alts will be high tax payers until i decide which to Omega.

And then from those 'Business Profits' i buy Plex for 4.2bn isk to extend the Omega by 30 days for three accounts.

That, therefore, is the roadmap from making 217bn of sales and seeing my wealth increase by 34bn as a result.

Items i am selling in Dodixie, Amarr, Rens and Hek

I sell blueprints, skill books, implants and ship equipment.  Blueprints are making a steady come back.  As are implants and ship equipment.  Mining equipment is slowing as more traders enter this market.

Implants are still doing ok - i am slowly expanding into more types and moving up the ISK value curve.  I now keep to implants costing over 100m ISK and up to 1.5bn ISK.

Skill books are a low income generator for me but there are still a few nice sellers.  I suspect skills books are now my lowest income generator.

Ship Equipment is doing well though the mining equipment sales have clearly slowed as it has become more competitive and demand does not feel as strong anymore.  But equipment that related to general PVE/PVP is doing well.

Rigidly sticking to the 25% margin target.  Courier fees and taxes now take 7% of that to bring me to a theoretical 18%.

Dodixie Seller character

This remains my main character and has regained its slot as the largest seller.

I have now trained all the relevant skills to Level 5.  The skills relevant to Trading that i have are:

Accounting: Level 5; means i am charged 3.6% of the sales price on completed sale vs the normal 8%.  The base used to be 5% and i used to be able to get it down to 2.25% - so Sales Tax (Transaction Tax) has gone up.

Broker Relations: Level 5; means i am charged 1.5% to list an item for sale vs the normal 3.0%.  The base used to be 5% and i used to be able to get it down to 3% - so the Broker Listing fees have gone down.

Advanced Broker Relations: Level 5; means i can reduce the cost of changing the price of items i already have for sale.  With no skill i would be charged 1.5% to change every price.  Level 5 has brought this down to 0.30%.

Trade: Level 5; increases the number of items i can list for sale by 4 per level.

Retail: Level 5; increases the number of items i can list for sale by 8 per level

Wholesale: Level 5; increases the number of items i can list by 16 per level

Marketing: Level 3; this allows me to set up Sell Orders in stations other than the one i am in; it also allowed me to look to increase my Contracting skills which i will need to sell my BPO copies from invention

Given the level 5 Trade, level 5 Retail and level 5 wholesale, i am able to post 145 items for sale (5 + (5x4) + (5x8) + (5x16)).  With no Trading skills you can post up to 5 sell orders

Amarr Seller character

This is the most competitive location but the sales and profits remain good.

I have now trained all the relevant skills to Level 5.  The skills relevant to Trading that i have are:

Accounting: Level 5; means i am charged 3.6% of the sales price on completed sale vs the normal 8%.  The base used to be 5% and i used to be able to get it down to 2.25% - so Sales Tax (Transaction Tax) has gone up.

Broker Relations: Level 5; means i am charged 1.5% to list an item for sale vs the normal 3.0%.  The base used to be 5% and i used to be able to get it down to 3% - so the Broker Listing fees have gone down.

Advanced Broker Relations: Level 5; means i can reduce the cost of changing the price of items i already have for sale.  With no skill i would be charged 1.5% to change every price.  Level 5 has brought this down to 0.30%.

Trade: Level 4; increases the number of items i can list for sale by 4 per level.

Retail: Level 5; increases the number of items i can list for sale by 8 per level

Wholesale: Level 4; increases the number of items i can list by 16 per level

Marketing: Level 2; this allows me to set up Sell Orders in stations other than the one i am in; i don't use this really

Given the level 4 Trade, level 5 Retail and Wholesale Level 4, i am able to post 125 items for sale (5 + (4x4) + (5x8) + (4x16).

Rens and Hek characters

I still think of these two locations as really the same - but i am finding they have different dynamics.

In Rens:

Accounting: Level 5; means i am charged 3.6% of the sales price on completed sale vs the normal 8%.

Broker Relations: Level 5; means i am charged 1.5% to list an item for sale vs the normal 3.0%.

Advanced Broker Relations: Level 4; means the relist fee is just over 0.3%

Trade: Level 5; increases the number of items i can list for sale by 4 per level.

Retail: Level 5; increases the number of items i can list for sale by 8 per level

Wholesale: Level 3; increases the number of items i can list by 16 per level

Marketing: Level 2; this allows me to set up Sell Orders in stations other than the one i am in; i don't use this really

Given the level 5 Trade, level 5 Retail and level 3 Wholesale, i am able to post 113 items for sale (5 + (5x4) + (5x8) + (3x16)).  That is plenty for now but i am still trying to expand the number of items for sale.

In Hek:

Accounting: Level 5; means i am charged 3.6% of the sales price on completed sale vs the normal 8%.  The base used to be 5% and i used to be able to get it down to 2.25% - so Sales Tax (Transaction Tax) has gone up.

Broker Relations: Level 5; means i am charged 1.5% to list an item for sale vs the normal 3.0%.  The base used to be 5% and i used to be able to get it down to 3% - so the Broker Listing fees have gone down.

Advanced Broker Relations: Level 5; means i can reduce the cost of changing the price of items i already have for sale.  With no skill i would be charged 1.5% to change every price.  Level 5 has brought this down to 0.30%.

Trade: Level 5; increases the number of items i can list for sale by 4 per level.

Retail: Level 5; increases the number of items i can list for sale by 8 per level

Wholesale: Level 3; increases the number of items i can list by 16 per level

Marketing: Level 2; this allows me to set up Sell Orders in stations other than the one i am in; i don't use this really

Given the level 5 Trade, level 5 Retail and level 3 Wholesale, i am able to post 113 items for sale (5 + (5x4) + (5x8) + (3x16)).  That is plenty for now but i am still trying to expand the number of items for sale.

New omega alts: Lonetrek, Tash-Murkon

I am slowly building up the items for sale and trading skill levels.  Will take at least 2-3 more months to complete - perhaps longer, i am taking my time and being careful.

In terms of items for sales, in Rens and Hek i have c60bn vs c35bn in each of Sobaseki (Lonetrek) and Tash-Murkon Prime.  So more to go.  It is slow work trying to work out what will sell.

alpha alts: Essence, Citadel, Khanid, Verge Vendor, Placid and Delve

The only relevant skills i can train are Broker Relations to Level 5 and Trade to Level 3.

Therefore, i can post 17 items for sale and pay Transaction Taxes of 8%, Listing Fees of 2.4% and re-listing fees of 1.2%.

Now, so far there is no competition so no re-listing fees.  hence, my costs of sale are the courier fees of 2% + 8% transaction fees + 2.4% Listing fees = 12.4%.

Assuming i stick to my 25% item margin target then my bottom line profit margins are 12.6%.  i.e. every 1bn sales generates 126m profits vs 180m for the Omega accounts.  That is, 70% of Omega levels.  And i am limited to 17 sales slots - so at best they are alts that are trying out to see if they are good enough to be upgraded to Omega!

Courier Contracts

Each night, i get home from work and determine what i need to sell in all the locations.

The time is taken changing prices were necessary (especially Amarr given it is competitive) and then figuring out what to sell with the ISK made from the prior 24 hours sales.

I have a list of items that feature regularly and i add to this list as time goes by.  So is a case of checking Jita prices vs current location prices.

It takes a minute to check all the alt accounts.

To look up prices in Eve I am using Eve Tycoon which seems to have more of the latest items in its market browser.  I used to use evemarketer but i just got used to Eve Tycoon.

Each night i courier about 5 to 15bn ISK of items from Jita.  Used to be 2-10bn but things are better these days.  The total cargo volume is 10-250m3 per shipment.  So small but valuable items.  But this allows the couriers to use small, fast ships with much less chance of being ganked.  So there is always someone willing to pick up the contract quickly.

I pay a generous 1.5 to 2.0% of collateral as fees.  I am more interested in getting my items onto the market quickly than penny pinching on distribution costs.

Eve Economy Data Charts

Nothing, yet, todo with my Eve Business ventures but just noting that i set up a website site eveeconomy.com which takes the monthly economic data provided by CCP and visualises it in chart form.

Loads of charts and more i can add.

The data inputs changed a bit in February so i need to redo the code . . . . 

I need to work out how to render the charts faster - right now they are accessed from a google drive given that is the way i have worked out how to update multiple charts at once quickly.

Let me know what you think and what else i should add.

Outlook

May will have ten aims - and i am going to be more realistic as i was in April.  I feel the market is slowing so i want to aim to hold my sales levels.

1) Plex the three omega accounts - aim number one all the time

2) Hold sales in Dodixie

3) Hold sales in Amarr

4) Hold sales in Rens

5) Hold sales in Hek

6) Ramp up Sobaseki

7) Ramp up Tush-Murkon Prime

8) Pause Manufacturing for now

9) Develop Planetary Interaction

10) Develop the alpha alts to see which can be upgraded to Omega

 

The daily sales in April averaged 7.2bn.

If i assume i need to make 10bn + 4.2bn income per month (=14.2bn) and i assume i can achieve 15.0% margin then i need to make monthly sales of 95bn and so daily sales of 3.2bn.

So far i have achieved this in December 2020, January, March, April, August, September, October, November, December 2021, January 2022, February 2022, March 2022 and April 2022.  I started in August 2020.

Current wealth is 369bn ISK made up from:

• Plex held as an investment 13bn ISK
• Items in hanger for sale 1bn ISK
• Buy orders on the market 0.0bn ISK
• items for sale 428bn ISK

• less a 20% provision 85bn ISK*

• ISK in wallet 12bn ISK

When i add up my wealth, I don't count assets I use in the course of my business such as ships, fittings etc nor do I add back any expenses such as skills purchased etc.  The wealth I disclose is made up of items that are ISK or are in the process of being converted to ISK or are used to generate isk that can be readily resold back onto the market.  Any ships or skills or fittings etc i buy are counted as expenses in that month.

* I take a 20% provision against the items I am selling.  Eve calculates wealth by adding up the value of the sell orders hence it is possible to increase your wealth by buying an item for 100m ISK and putting a sell order for 120m ISK (in this case your wealth would increase by 20m ISK).  For me, I want my wealth to be calculated at cost.  I know that the value of my sell orders will likely fall over time as I update my orders downwards as competition reduces their prices before my items are sold.  Hence the 20% provision is my best guess as to what the maximum reduction I would need to make to my sell orders as a whole before they are sold.  In an ideal world I would value my sell orders at the value which I bought the items for.

The Rise in the Subscription Price

Much has been said but my take is quite simple.

CCP is loss making for now

When i look at look at the CCP accounts for the year to 2021 in this post, it is clear that the business is loss making.  It lost $8m this year vs a loss of $2m the year before.  Before tax the loss was $12m (CCP gets a tax credit) vs a loss of $4m the year before.

Wage pressures on developers are going up everywhere including gaming.

But CCP needs to become profitable again like any company

So, something has to be done.  The losses are also cash flowing out of the door.

Now, i don't know the profits from Eve Online vs the costs of expanding into new games but i am pretty sure the revenues from Eve Online are around $54m.

Lets assume for now the cost base is not tackled.  So to cover those losses before we even think about wage pressures needs revenues to be around $66m from Eve Online (and thats me ignoring any costs directly )against those revenues.

That $12m rise is a 22% rise in Eve Online revenues.  The player base will never rise 22% in one year so the only near term lever to pull is price and a straight 30% gives room for some players leaving and this years wage pressures.

And there will be pressure from the Pearl Abyss management

There is another reason of course.

CCP is now owned by Peal Abyss in Korea and they paid around $425m though it looks to me that was $225m at the time and $200m if certain earnings achieved in 2019 and 2020 (which appears not to have occurred) - so only $225m paid.  Might even have been only $200m.

(the earnout required profits of over $25m in 2019 and over $40m in 2020).

In the Accounts of Pearl Abyss that $225m is split between the CCP assets and the rest if called Goodwill / Intangible Assets which sits on the Pearl Abyss balance sheet unless it has to be written off.  and a $190m write off would not look good.  In fact, it would look very bad and would not be taken well by their shareholders.

Looking into the 2021 Report & Accounts they say that there was no need to make any write downs and therefore that assumes that somehow CCP can get the cashflows over the next few years back to strongly positive to justify all this.

The summary calculation is that taking their assumptions of a WACC of 11.4% and terminal growth rate of 2% then CCP needs to grow earnings by at least 30% pa for the next 5 years to stand any hope.

Of course, other CCP games could come through and expansion into China could also come through.  There is more to CCP than Eve Online.

Rushed price rise suggests pressure already there

The Pearl Abyss Q1 2022 results are due on 12 May - that may have been the pressure for CCP to announce its price rise and therefore the apparent haste in the announcement.

It may have been pressure from the Auditors on Pearl Abyss to demonstrate they can justify the carrying value of CCP (i.e. the goodwill / intangibles on their balance sheet).

Who knows.

. . . . . . . .the only thing we do know is that CCP needs to return to a profit, and fast.

Review of the 2021 CCP Report & Accounts

The CCP Report & Accounts for the year to December 2021 came out on 30 April 2022.

Much more relevant, the Pearl Abyss Iceland 2021 Report & Accounts also came out on 30 April 2022.  This includes CCP Iceland as well as the subsidiaries in the UK.

Therefore, it is the Pearl Abyss Iceland 2021 Report & Accounts that i will focus on here.

You can access the Pearl Abyss Iceland 2021 Report & Accounts here. They are also available for free from the Internal Revenue Directorate (RSK) in Iceland.

Summary:

• Revenues rose 2.4% to $63.9m
• But looks like Eve Online revenues fell 3.6% to $53.8m
• It was the NetEase business rose strongly from $6.5m revenues to $10.0m
• CCP made a loss of $8.0m vs a loss in 2020 of $1.7m
• Cash generated was negative $7.0m vs a positive $0.6m last year
• 301 people are employed at CCP (actually, i think it is nearer 330, not sure)

Tucked away in there on page 32 is the total remuneration of the Directors and i would imagine you can safely assume the Korean directors are not paid by CCP therefore it looks like to me you can see the combined remuneration of the two CCP directors.  But i will let you dig into the Accounts to see that rather than me plastering it here.

Worth noting that had CCP put price rises of 30% for Eve Online on 1 January 2021 and assuming they had stuck and no players cancelled subs then additional revenues would have been around $15m give or take small related costs.  In other words, Profits before Tax would be around $3m and that is in danger of being pressured in 2022 by wage inflation.

Review of Revenues

Revenues grew 2.4% to $63.9m.

However, we can go one step further:

the $63.9m is made up from $10m Royalties / Licences and $53.8m from Subscriptions / in-game sales.

the $10m comes from one customer so i am going to guess this is NetEase in China.

Within the $53.8m is Eve Online, Valkyrie, Gunjack, Sparc - but i suspect Eve Online is almost all of it.

Therefore, we can say that the revenues from Eve Online fell 3.6% to $53.8m

Turning to how Eve Online revenues looked around the world:

North America fell 6.6% to $31.4m whereas Europe rose 1.1% to $17.2m.  Most of Asia will be the Net Ease but if we strip that out then Asia fell 5.2% ($3.0m to $2.9m) and the "Other Regions" fell 5.1% to $2.4m.

But, overall, everything included, revenues were up 2.4%

. . . . . . so what deepened the loss in 2021?

Review of Costs

total operating costs were $73.9m which was a 18% rise on 2020.  Right here is the pressure.

Salaries, as you would expect, are the biggest item at $41.5m which is an increase of 20% on 2020.  However, the average number of employees rose 11% and therefore  the underlying wage rise & mix combined was 9%.  From what i know of other Games Developers, the cost of the coding staff is rising strongly.

In all, Salaries rose from $34.5m to $41.5m, an increase of $7m.

Depreciation and Amortisation (that is expensing the cost of buildings, software etc over time came to $8.8m vs $8.3m in 2020 - that is expected, the business did not splurge out on new computers / premises last year.

There is no other disclosure on costs so we must infer from what we have:

Research and Development, which will include a large Salary element was the largest rise by 36.6% (=$10m), followed by Marketing which rose 15.4% (=$2m).  So fair to say the business is investment for growth.

Publishing was flat and General & Administrative was down by around $0.5m to $18.1m.

I will call this right out - $18.1m is a huge number for General & Administrative.  I would expect a number closer to $3.2m (i.e. 5% of revenues).  There is no sign of any "management fee" from Pearl Abyss so the extra $15m has to be something else.  Going back in my notes, the General & Administrative fee has always been large.  Interesting.  I don't really know what it could be.

Other Income

There was $5m-$6m of Other Income in each year which is Government Grants

Operating Profit

And therefore, before we think about paying interest and tax, the business had made a loss of $9.4m vs a small profit of $64.6k in 2020.

Finance costs

On top of all that, the business pays finance costs of around $2m in 2021 vs $3m in 2020.

Now, it appears in 2018 banks loaned the business $50m at an interest rate of 1.57% (=$0.8m pa) and it was due for repayment in 2021.  It now looks like the lender is The Korea Development Bank, the loan is extended to 2024 and the business pays $0.2m warranty fees ($1.0m).

The business also has leases (i.e. like most businesses, they do not own their buildings, the lease them) which costs $0.7m ($0.5m) of interest.

Profit before Tax

Those additional finance costs there take the Profit before Tax was a loss of $11.8m compared to a loss of $4.0m in 2020.

Profit after Tax

Its a loss make business so it gets a tax credit.  Hence the final loss is reduced to $8.0m in 2021 vs $1.7m in 2020.

Review of the Balance Sheet

Nothing jumps out - i would need longer to go through this in dept.

Review of the Cashflow Statement

As we would expect, given the nature of the business that earnings are close to cash then there was a $8.5m cash outflow in 2021 vs $0.3m outflow in 2020.