Pearl Abyss, the owner of CCP Games which develops and operates Eve Online had its Q4 results today.
The presentation is https://irsvc.teletogether.com/pearlabyss/pdf/pearlabyss2022Q4_eng.pdf
(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 (pacapital.co.kr)
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
Operator:
(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
Operator:
(Question And Answer)
Operator:
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.
Analyst:
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.
Operator:
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.
Operator:
The following question will be presented by
(inaudible) from Citi Securities. Please go ahead with your question.
Analyst:
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.
Operator:
The following will be presented by Tong Jun Kim [ph]
from CLSA. Please go ahead with your question.
Analyst:
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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