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Tuesday 14 February 2023

Pearl Abyss Fourth Quarter results

Pearl Abyss, the owner of CCP Games which develops and operates Eve Online had its Q4 results today.

The presentation is

(Q4 = fourth Quarter = October – December 2022).

There is a full transcript in English of the earnings call with management at the bottom of this post.

Overall – the news centers around Black Dessert continuing to decline (a core revenue generator for the group) and Crimson Desert (their anticipated new game) expecting to launch in December 2023.  Eve Online barely gets mentioned.

The summary of the below is that I think for Eve Online (which includes mobile) Q4 2022 vs Q4 2021 revenues declined 4.3% in Korean Won but in constant currency was likely only down 1.3%; Q4 2022 vs Q3 2022 revenues declined 9.3% in Korean Won but in constant currency was likely down by 5.3%.

No details on Eve profitability given.

Eve Online

In terms of Eve Online – it was barely mentioned.

Eve (online and mobile) Q4 revenues were down 4% vs Q4 2021 and down 9% vs Q3 2022.

The chart below shows the quarterly revenues of Eve (and Black Desert) going back to Q4 2021.


Firstly, it is in Korean Won so there is currency movements to think about.  The US Dollar has been strong over the 12 months to September 2022 and then gave back some of the strength during Q4.

In Q4 2021 there were around 1188 Korean Won to the US Dollar vs Q4 2022 1265 – so US Dollar revenues will benefit the Eve revenues by 6.5%.

On the other hand, in Q4 2021 there were around 1365 Korean Won to the Euro vs Q4 2022 1362 – so Euro revenues will be neutral.

In other words, the currency movements should be favourable to Eve numbers when reporting in Korean Won.   (warning – I hate talking about currency so I could have got this the wrong way round!).

Let assume therefore that currency benefitted Q4 2022 vs Q4 2021 by around 3%.

For Q3 2022, if others want to do the work, the average US Dollar rate was 1353 and the average Euro rate was 1400.  So Q4 on Q3 2022 the USD weakened by 6.5% and the Euro weakened by 2.8%.  So, lets assume there was a 4% currency headwind for Q4 vs Q3 2022.

In other words, the Q4 2022 vs Q4 2021 decline is worse than published by 3% given currency has relatively helped Q4 where as the decline Q4 2022 vs Q3 2022 is less than stated by around 4%.

What does this mean?  Q4 2022 vs Q4 2021 revenues declined 4.3% in Korean Won but in constant currency was likely only down 1.3%; Q4 2022 vs Q3 2022 revenues declined 9.3% in Korean Won but in constant currency was likely down by 5.3%.

The Rest

Black Desert continues to see falling revenues across PC, mobile and console.  This was weaker than expected.

Crimson Desert is still due to be launched in the second half of 2023, likely December.  This, I think, is going to be very important for Pearl Abyss – if it fails or delayed further then the business will need to take action on costs.

Pearl Abyss is ramping up its marketing costs which is odd given there are no new games being launched right now unless they are preparing for the Crimson Desert launch.

All in all, the company is basically running close to breakeven given the declining revenues and higher costs.

There was also a large write down in their investment business (Pearl Abyss Capital) which was established in 2019 as a new technology business finance company specializing in various ways of investing in new technology businesses and venture companies.  They are interested in various industries as well as games.  As far as I can tell, this has nothing to do with CCP / Eve online.  What on earth Pearl Abyss, a games developer, is doing with an Investment business is beyond me.  Pearl Abyss Capital (

One more thing

If you go onto the Pearl Abyss website, it does not mention Eve Online as one of its games.

Maybe nothing to it.




Pearl Abyss Earnings Call Transcript - translated


(Foreign Language) Good morning and good evening. First of all, thank you all for joining this conference call. And now, we will begin the conference call of the fiscal year 2022 Fourth Quarter Earnings Results by Pearl Abyss. This conference call will start with a presentation followed by a divisional Q&A session. (Operator Instructions) Now, we shall commence the presentation on the fiscal year 2022 fourth quarter earnings result by Pearl Abyss. (Foreign Language)

Unidentified Speaker, :

Greetings. First of all, I would like to express my deepest gratitude to the analysts and investors in and out of Korea for taking part in the 2022 Q4 and full year Pearl Abyss earnings presentation despite your busy schedules. (Foreign Language)

Unidentified Speaker, :

Before elaborating on today's business results, I'll like to add for year understanding regarding the following: The financial and business results contained in today's earnings release have been prepared for the convenience of investors and is subject to change depending on the final closing of our book. In addition, the accuracy and completeness of the financial and business results in the earnings results material are not guaranteed, and the company is not obliged to give updates of the accounts given after this date. So please take these factors into consideration.

(Foreign Language)

Unidentified Speaker, :

We have here with us in the earnings presentation today Pearl Abyss' CEO, Kyeong-In Jung; CBO, Kim Gyeong Man; and CFO, Cho Seok Woo. We will first hear the business performance presentation highlights from CFO, Cho Seok Woo and then engage in a Q&A session.

(Foreign Language)

Seok Woo Cho, Chief Financial Officer:

Greetings. I'm Pearl Abyss' CFO, Cho Seok Woo. Thank you once again for taking part in our company's earnings conference call despite your busy schedules.

(Foreign Language)

Seok Woo Cho, Chief Financial Officer:

First, I'll cover 2022 major business activities and achievements. In 2022, while strengthening the existing IP life cycle, we focus on developing new IP and concentrated on procuring our future growth engines. Thanks to these efforts. Despite the difficulties caused by the COVID endemic in 2022, Black Desert and E sales were able to maintain the previous year's level. In addition, as the Crimson Desert show remarkable development achievements since last summer, we have been conducting demos and marketing for B2Bs and have been getting ready for the launch. Next, I would like to talk about Q4 major business activities and achievements. Black Desert, celebrating the end of the year with Q4, further strengthen user communication. In particular, we wanted to meet more global users not just limited to Korean users and held various events in major service countries. Beginning with the offline user event in Taiwan in November, in December, we held a Calpheon Ball in LA and held a Voice of Adventurers event in Amsterdam and Tokyo and expanded user skinship.

In addition at the Ball, we have disclosed the recently updated twin classes, Maegu and Woosa and disclosed future plans, such as the plan Land of Morning Light. In particular, thanks to the Woosa effect, which was launched December. New and returning online users significantly increased by 330% and 430% respectively compared to the previous month and has led to formidable results. In addition to this, with Abyss One, the Magnus update, we were able to lower the entry barrier for new users and improve the playing environment. For Console, we updated the Woosa class and we were able to confirm a rebound in user indicators. For Mobile, we disclosed Great desert Shahzad, which adjusted the difficulty of the desert and introduced a new class Maegu. In particular, after the Maegu update, the December user index improved in all regions, and we could confirm that user trends also improved. EVE online through the Uprising expansion pack introduced a new type of warfare. With an interesting storyline added to a new combat system, we worked hard to give users a unique experience.

In addition, an event for North American users was held in Las Vegas, and we had a valuable time sharing opinions with users, such as sharing future roadmaps. Black Desert and EVE with steady communication with users and fresh content was able to continue great performance in 2022. Going forward, we will continue to listen to the stories of our users and provide fun and fresh games.

(Foreign Language)

Seok Woo Cho, Chief Financial Officer:

Next, I will cover our 2022 fiscal year annual and Q4 results. 2022 operating revenue posted KRW386 billion and operating profit posted KRW16.6 billion, and both decreased 4.4% and 61.4% respectively y-o-y. And net profit posted minus KRW41.1 billion and turned to loss. Q4 operating revenue posted KRW103.2 billion, up 6.1% q-o-q and operating profit posted KRW3.6 billion, down 70% q-o-q.

Net profit posted minus KRW100.3 billion. And due to FX-related loss and intangible asset impairment losses, it turned to a loss q-o-q. (Foreign Language)

Seok Woo Cho, Chief Financial Officer:

Next, I will cover the operating revenue in more detail. First, I will explain the operating revenue by major IP. The operating revenue generated from Black Desert IP for the quarter was KRW71.2 billion and decreased q-o-q. EVE IP operating revenue posted KRW17.6 billion, down 9.3% q-o-q. In the case of operating revenue by region, Korea recorded 19%, Asia 25%, and North America Europe 56%. In the case of operating revenue by platform, 77% PC, 16% mobile, and 7% console and maintained the level of the previous quarter. (Foreign Language)

Seok Woo Cho, Chief Financial Officer:

Next, I'll cover operating expenses. Q4 operating expenses posted KRW99.6 billion, up 17 -- up 16.7% q-o-q. For labor costs, we reported KRW42.9 billion, up 4.9% q-o-q. For your reference, as of the end of Q4, there is 1,452 headcount. There are 905 developers, which is 62% of the total headcount. In case of commissions, it increased by 19.8% q-o-q, posting KRW19.9 billion. In case of advertising expenses with a new update and large-scale user events held in December, it increased 35.2% q-o-q and posted KRW12.7 billion.

(Foreign Language)

Seok Woo Cho, Chief Financial Officer:

Last but not least, I would like to cover 2023 Q1 major highlights. (Foreign Language)

Seok Woo Cho, Chief Financial Officer:

We have been showcasing steady live service of Black Desert and EVE, and we will do our best to prepare for a new IP. Black Desert in Q1 will also introduce a variety of new content. Recently, in January, Black Desert released twin class Maegu, following the twin class Woosa, introduced last month. As a class of Korean inspiration, we are seeing continued positive responses from domestic and overseas users.

In addition, we will soon update a new zone, Land of Morning Light with a motive from the Joseon Dynasty. We plan to showcase various contents based on various and legends that have been passed down in Korea. Mobile recently launched a new class Woosa with spectacular skills and action. Positive user reviews are continuing. And in addition, we plan to further increase our contact points with global users in Q1. In North America and Europe, we will hold Meet & Greet event to celebrate the 7th anniversary of service, and we plan to deepen our relationship with our users.

IVE celebrates its 20th anniversary this year. And we are establishing a long-term roadmap aiming for service of more than 30 years. In particular, so that users can enjoy the game more comfortably following the addition of Spanish language in the last quarter, we plan to add a simplified Chinese in Q1. In addition, by providing training programs and packages for new users, we plan to create an environment where new users can also settle into the game. I will now explain about the progress of our new IP.

We are focusing on developing Crimson Desert with a goal of completing development in the second half of the year. In addition, we are preparing for various types of marketing according to the progress of our development. So once the schedule is confirmed, we will let you know. A lot of time has passed since we showed footage of Crimson Desert at G-Star in 2019 and TGA in 2020. As many people have been waiting for a long time, in order to repay you with the best quality possible, the Crimson Desert team is doing their best until the end of development.

During the remaining time, we will do our best to improve the quality of development and thoroughly make preparations to have a successful launch. To be a better company, all come -- all employees from the CEO, are doing their best. We ask for your continued interest and support. Thank you very much. (Foreign Language)

Seok Woo Cho, Chief Financial Officer:

With this, we will conclude the Pearl Abyss 2022 full year and Q4 earnings release, and start the Q&A session.

Questions And Answers


(Question And Answer)


Now Q&A session will begin. (Operator Instructions) The first question will be provided by Jim-gu Kim [ph] from QM Securities. Please go ahead with your question.


Thank you very much for the opportunity. I have two questions. My first question is about when will you be ready to show us more in-game footage of Crimson Desert and DokeV and can you tell us about the progress of DokeV so far? My second question is about your business related to AI and can you tell us about any status or progress and do you think that you can actually apply that to your engine to have more synergy or do you think that it can reduce your times for development or have development efficiencies and how can it be applied to your business strategies? Thank you.

Heo, Jin-young, Chief Executive Officer & Director:

Thank you for your questions. I would like to update on the current progress for Crimson Desert and DokeV as you asked. Currently, for Crimson Desert, we have the goal of completing the development by second half of this year. So we are completely committed to development and currently we are -- we are in the stage of doing different work and tests in order to have a more completeness of the game.

In addition, we are actually consulting with many partners for pre-marketing preparation, and currently, we are pondering upon which would be the best direction for the company that can benefit the company out of the many proposals. Related to this, we will first make an internal decision. And after we have disclosure of more in-game footage, then we will have more strengthened marketing activities.

In the case of DokeV through the Blackspace Engine, we are currently getting -- sharing of all the resources and environment that is being developer for a Crimson Desert. So our development efficiency is heightening. Also, our DokeV development team is doing their best to show a better developed version of the game. However, because we are going to commit ourselves to marketing of Crimson Desert this year, I would like for your kind understanding that regarding when we will be able to disclose more in-game footage of DokeV. Well, it will be very hard to give you a fixed answer at this point. And I know that there is very heightened interest in our AI and that is why you probably asked the question. As you probably know, with the development of recent technologies, we are seeing more games developed using AI, and we are seeing more of the service areas expanding and our company is also very interested in this trend as well. In our case, although we have not been focusing on training and development of large-scale models such as chat GPT, we have been interested in generative models that have been showing great success and we have been engaging in R&D in this area so far.

We have been utilizing AI technology for dialogue between the characters within the game or to help communication between the users that use different languages. In addition, we have been actually integrating AI technology to our and on unique engine so that we can provide higher quality games more rapidly to more users, which is the goal and have been increasing our development efficiency.

For example, we have our engine atmosphere processing technology and what they do is not individually process the different atmospheric phenomenon one by one. But they can actually at one time process all the different items that are needed to express the atmosphere such as sky, sun, mist and rain, and they can express it at once. In addition, we have automation of geometry and physics technology. So when there are large scale placements of entities in the game, you don't have to place individual entities, but you can simply have large-scale configuration by just setting an area.

Likewise, through our unique engine, we have had development automation in many areas and these are helping us very rapidly develop the game with high quality graphics.

Unidentified Speaker, :

It was our CEO Heo, Jin-young who answered your questions. We will take the next question.


The following question will be presented by Stanley Yang from JPMorgan. Please, go ahead with your question.

Stanley Yang:

I have two questions about Crimson Desert. Can you tell us what is the biggest difference between the trailer that you showed us for gameplay two years ago to the current version? And do you have any changes to the business model since then. Second question is about the development delay of Crimson Desert, but despite the delay, it seems that management still has very high expectations for Crimson Desert and you are anticipating it to be a global hit. So can you tell us more specifically about why do you think Crimson Desert will be a hit globally?

Heo, Jin-young, Chief Executive Officer & Director:

Well, to tell you what is different from the trailer that we showed you two years ago to our current version, well, to put it simply, we are now enabling everything that you see in the trailer to be actually playable and to have very high quality while doing so. And during the two years, we have seen a breathtaking development in graphics technology. So we have been working very hard to actually implement that high quality graphics technology to our version as well.

In addition, we are currently developing it as a single play game. So we are doing our best to make it very natural for NPCs, and for using AI, we want to make everything in the game seem very natural and complete. So that is what we are currently focusing our efforts on. And although, we are currently developing Crimson Desert as a single player game, we are also considering it at as a multiplayer game in the future. Accordingly, in the beginning of the launch, our current business model or the business model in the beginning actually saw the profits occurring from the sale of packages. But going forward, if we develop it as a multiplayer game going forward, then we are expecting additional revenues going forward.

Crimson Desert has a very strong narrative, spectacular visual effects. And with a very wide and vast open world, we are currently developing it as a AAA game. Since we are taking on a challenge of the traditional console market which has very fierce competition, we are repeating on research and upgrade for a very long amount of time, because we want to have the highest level of quality possible and to provide the best uniqueness, so that is why we have been making many efforts.

Although it has been taking more time than we had expected in the process, because we are making the first challenge in the major console market, we are thoroughly making preparations so that we can have results that can be rivaled with the major titles in the market. In order to meet the expectations and the anticipation of our users, we believe that this is indeed a process that is essential. So during the remaining amount of time, we will do our best to have the game more complete and perfect it so that we can bring about great results.

Unidentified Speaker, :

It was our CEO Heo, Jin-young who answered the question. It seems like that currently there are no other questions in the queue. Yes, we will take the next question. There is another question coming in.


The following question will be presented by (inaudible) from Citi Securities. Please go ahead with your question.


Thank you very much for the opportunity. I have a few questions related to expenses. In Q4, although, you did not have launching of new titles, I see your marketing expenses have gone up. So can you tell us about what you think will happen for these expenses, compared to your revenues in marketing for 2023? And I know that for your new title, you have been considering a publisher as a partner. So if you indeed partner up with a publisher, then will this lead to more our marketing expenses or not? Last question is about -- two more questions. You seemed to have more additional expenses, other expenses that have gone up in Q4. What is the reason for that? And can you give us your guidance for labor cost for 2023? Thank you.

Seok Woo Cho, Chief Financial Officer:

First, I will answer your question about marketing expenses. Q4 marketing expenses posted KRW12.7 billion and went up 35% Q-o-Q. This was because in Korea as well as in U.S., Taiwan and in other regions, we had user events and there was an increase in advertising expenses due to large-scale updates. Most of all, we had most of these events that were happening at the end of the year. So we will see how this adds to our revenues until the end of February because it tends to continue until then. And that is why we saw the percentage of marketing expenses compared to our revenues that was actually a bigger than usual in Q4.

For our Live Services, we have been maintaining an appropriate level of marketing proportion versus our revenues -- expected revenues, so we will do our best to have more efficient and effective marketing going forward. In the case on new titles, well, even if we're considering partnering up with new partners, it doesn't mean that we are going to use partners for our publishing. That is why for 2023, because we are also anticipating new IP marketing. We expect to see related expenses increase.

I would like to answer your question about other expenses. In Q4 other expenses posted KRW17.7 billion and increased 54% Q-o-Q. Most of this divided from the evaluation losses about the investment assets of Pearl Abyss capital. Pearl Abyss is an investment company, so at the end of the year, there are assessments about their invested assets. We had an increase in the other expenses, because in this case, for the gains on valuation, they are included in operating profit. On the other hand, the evaluation losses are included as additional expenses in the operational expenses part. So that is why we have those.

Lastly, I would like to answer your question about labor expenses in 2023. As of end of Q4, we had 1,452 headcount at our company. And like other companies, because of the situation this year, we have planned very conservatively have the labor management this year.

Unidentified Speaker, :

It was our CFO, Cho Seok Woo, who answered your questions. We will take the next question.


The following will be presented by Tong Jun Kim [ph] from CLSA. Please go ahead with your question.


Thank you for the opportunity. I have two questions. First regarding your mentioning having global partner, the possibility of having global partner. We know that we are console of the games, well, you need to pay more than 30% for fees to platform companies. So if you have a partner on top of that, then how do you think it will affect you in your profit? So can you explain more about what kind of partners you are or partnership that you are thinking of? And my second question is about the competitive landscape. During the past two years, we have many delays in the game launches. So it seems that in 2023, we're going to have all many major titles that will be launched. So in this type of competitive landscape, can you tell us about what is the management's view on how your game will play out in this fierce competition? And my third question is about the commercial viability of your company because we do know that you have a genuine great game playing capability, graphics and quality. But it seems that you have seen a lot of commercial delays. So I think the visibility of games such as Crimson Desert, DokeV and even Plan 8 have gone down. So can you tell us about how you're going to go forward and improving your commercial capabilities so that you can show more of yourselves to investors who are thinking of investing in you for the mid to long-term?

Heo, Jin-young, Chief Executive Officer & Director:

For your questions, I would like to answer them subsequently. You asked us the first question about the possibility of global partnerships and how it will affect us in our profits or revenues. For Crimson Desert, we are considering simultaneous launching of PC and console. And for console, it is true that we have been considering the possibility of having a global partnership for -- but for the direction of the partnership, as we had just aforementioned, it doesn't just limit itself to publishing, we also have market exclusivity deals or other types of partnerships that we are also considering, and you have voiced some concerns about profitability at with these types of partnerships.

But we are of course considering on what will be most beneficial to our company in terms of profits as well when we consider the possibility of partners. So I understand that investors may have some concerns, but please be reassured that we are, of course, thinking about having partnerships, not just for the marketing success, but also for the profit of the company as well.

You also asked the second question about the competitive landscape with major titles. So as we had mentioned in our plans going forward for our games, well, in developing our new titles, we don't have our short-term goal of just having short term developing of the game and targeting the market for the short term. For a Crimson Desert, we had given you notice that we want to take a sufficient time to develop so that we can enjoy the fruits of the game like Black Desert, which has been maintaining 10 to 20 years of the game popularity even after it has been launched for a long term and not there just thinking of the short-term.

And we have been developing our game based on our top-notch quality graphics and technology, fully knowing the fact that we are going to have a competition with major titles, but we will do our best to make the best game ever. So that we can win the battle with these types of new major titles. Third question was about some concerns about the long time that it's taking for us to develop our new title and the fact that the launching has been delayed. For Pearl Abyss, we are not a company that just makes a large number of games, we are a company that has to go off developing a game and maintaining services for a long time. That is why we believe that the commercial success of our games that we launch will also depend on how long we can maintain the game service after it launches.

And although it's taking a lot of time to -- for us to develop the game and to launch it, we are going to do our best so that we can service the game for a long time, so that we can have commercial success as well as.

Unidentified Speaker, :

It was our CEO Heo, Jin-young who answered your question. It seems that there are no other queues in the line.

With this, we will conclude the 2022 full-year and Q4 earnings release presentation and Q&A session. Thank you for your participation.


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