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Thursday 11 May 2023

Pearl Abyss Q1 is out - for Eve Online declining trend though recent improvement

Today, 11 May, Pearl Abyss in Korea had is First Quarter earnings update.

Overall, Pearl Abyss saw revenues fall 6% vs First Quarter 2021 (better to look back at the prior year for a fairer comparison - less distorted by holidays).  Operating Profits were down 79% whilst Net Profit was up 62%.  The reason Net Profits are higher than Operating Profits is due to Pearl Abyss Capital generating some gains.

But we are here to look at the Eve Online data

The narrative was very light on Eve numbers - actually, nothing about the financial performance of Eve was said at all.  The full text of the earnings call is below in this post.

The only numbers we have for Eve in Q1 23 is revenues.

The below chart is from their presentation and is in Korean Won (KRW).

The Eve part will include Eve Echoes and China, as well as of course the Eve Online we all love and play.

Stripping out the Eve part and converting it to USD using an average quarterly currency rate gives:

Always best to compare Q1 23 to Q1 22 - and in that case revenues for Eve are down 13% (which is what they were down overall in 2022 vs 2021).

Now, recall that Q1 22 was before the 30% subscription price rise where as Q1 23 has it all in.

At a simple level therefore, if prices are up 30% and revenues down 13% then that suggest player numbers are down 40-45% since Q1 2022.  But that is too simple and ignores Omega accounts and players staying in the game but reducing their number of accounts.

Actually, we may be seeing some improvement

But, in USD Q1 2023 is up on Q4 2022 by 3%.  Both these periods will have the May 2022 price rise in them so we can perhaps deduce from this that player numbers rose a bit vs Q4 2022.

Write downs?

In the Balance Sheet, i don't see any further write downs - but i would not expect to see any either.  Such decisions would likely be made at the end of the year.

The text from the earnings call is below:

(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 2023 First-Quarter Earnings Results by PearlAbyss. (Operator Instructions) (Foreign Language)

Unidentified Speaker
Greetings. First of all, I express my deepest gratitude to the analysts and investors in and out of Korea for taking part in the 2023 Q1 PearlAbyss Earnings Presentation despite your busy schedules. (Foreign Language) Before elaborating on today's business results, I would like to ask for your 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 books. 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) we have here with us at the earnings presentation today CEO; Heo, Jin-young, CBO; Kim Jong Man[ph] and CFO 2 togo. We will first hear the business performance presentation highlights from CFO (inaudible) and then engage in a Q&A session.

(Foreign Language) greetings. I am (inaudible) of CFO to thank you once again for taking part in our company's earnings conference call. Despite your busy schedules.(Foreign Language)

(Foreign Language) First, I'll cover Q1 major management activities and achievements. Black Desert in Q1 released (inaudible) the twin of the Husab class, which was introduced last December and showed solid results with a significant increase for both new and returning users. In addition, a new zone land of morning light which showcase the beauty of Korea was introduced in March and while receiving unprecedented acclaim is continuing to be popular.

However, the update was made in Korea at the end of March and it takes time to adjust the (inaudible) manner of the lines, the global releases scheduled for Q2. So the effect of the update is expected to appear and earn it from Q2. For a console in celebration of the third anniversary of cross-play, we held various events and user invitation events.

At the event, we disclosed the next content schedule including the release schedule of (inaudible) and along with raising the expectations of users, we were able to confirm the transition to a positive trend. For mobile, new Classics (inaudible) igneous were introduced and along with user indicators performance improved across all regions.

As a result, relevant revenues increased by more than 21% Q-o-Q contributing to the long lifecycle. In addition, Black Desert was selected as the most popular game in Middle Eastern countries including Saudi Arabia, United Arab Emirates, and in Egypt. And one the Games Star Award 2022 at the Type A Game Show and achieved a record of 5 consecutive awards solidifying its global presence.

For EVE Online, the last update of the rising content introduced in the previous quarter improved the factional warfare function and continued user-friendly service, simplified Chinese character was also added in an environment where more users can enjoy the game was implemented. In addition, we announced the development of a new Triple-A Web 3 Game project, not only the game but also third parties are being considered for the new project and it is attracting the attention of domestic and foreign companies including global BCs such as A16 D and makers fund and have also raised about $40 million investment through seed investments.

Black Desert and EVE in Q1 with fresh content and user-friendly services was also able to continued steady performance going forward. We will strive to manage our IP life cycle and work hard to provide fun and fresh Games. (Foreign Language) I will now cover Q1 operating performance. Operating revenue for this quarter was KRW85.8 billion and operating profit was KRW1.1 billion, the revenue, which was generated from the previous quarter's Pearl Abyss capital valuation gains decrease, since there was not a separate evaluation conducted in this quarter and accordingly. Operating revenue and operating profit decreased by 16.9% and 69.4% respectively Q-o-Q net profit posted KRW9.4 billion a positive turnaround into the black compared to the previous quarter.

(Foreign Language) I will explain the operating revenue in more detail. First, I will break down the operating revenue by core IP. The operating revenue generated from Black Desert IP for this quarter, (inaudible) KRW67.5 billion a 5% decline Q-o-Q, Eve IP operating revenue posted KRW16.9 billion down 2.3% Q-o-Q, in the case of operating revenue by region, the biggest was 55% in North America, Europe, then 23% in Korea and 22% in Asia. In the case of operating revenue by platform 74% was for PC, 20% for mobile, and 6% for console. (Foreign Language)

(Foreign Language) Next I will cover operating expenses, Q1 operating expenses posted KRW84.7 billion down 14.9% Q-o Q. For labor expenses, it recorded KRW44.3 billion of 3.2% Q-o Q. For your reference, as of the end of Q1, the numbers of employees stands at 1,355 and among them the number of people in the development is 793, which is about 60% of the total employee. In the case of commissions, it recorded KRW19.1 billion, down 3.3% Q-o Q. For advertising expenses, through effective marketing it recorded KRW5.6 billion down 55.6% Q-o-Q.

(Foreign Language) Lastly, I would like to cover Q2 major highlights. (Foreign Language)

Unidentified Participant
(Foreign Language) we will continue to show steady live service of Black Desert and EVE and do our best to prepare for our new IP Black Desert in Q2 will also introduce a variety of new contents Black Desert is planning for not only new class (inaudible) and awakening versions but also planning a global update of land of the morning light, which was first introduced in Korea last March. The story of land of the morning light, which is composed of Careers unique emotions is a sad but touching story, and we expect it to make a strong impression for Western users who like a well structured story.

For console, we are planning to update the New crest (inaudible) which was hugely popular online and on mobile and on mobile, we are planning to have a class balanced patch and characteristic strengthening. In addition, also in Q2 in order to further increase contact points with global users along with the recently held at venture (inaudible) and Japan fan meeting, we will further deepen our relationship with our users with such events.

Eve following the uprising expansion pack released last quarter plan to release that Viridian new expansion pack in Q2 by providing enhanced content on the social side with more personalized options. We plan to further strengthen the relationship between users

Unidentified Speaker
And implement an environment where they can cooperate with each other. In addition, we are preparing a large-scale update to celebrate the 20th anniversary of the release, the fan fest to be held in September is going to be very commemorative and this event is already receiving great attention from our users. We will prepare thoroughly to achieve successful results. I will now cover the progress of new IP, Crimson Desert with the goal of completing development within the second half of this year is focused on development.

In addition, we are preparing for the various types of marketing, according to the development progress. As the release date approaches, we are preparing to have diverse marketing methods with different strengths. The development of (inaudible) is also in full swing. As I aforementioned, when developing Crimson Desert since a lot of our development was carried out considering (inaudible) in mind, we believe that after the release of Crimson Desert, it will not take a long time until the release of (inaudible)

We are also proceeding with the development of the east-based web 3 project as it is a AAA project that has received great attention since the seed round by solving problems that occurred in existing Web 3 blockchain-based games. We are working hard to create a net-level ecosystem. We will further strengthen Black Desert and EVE live services and we are thoroughly preparing for new titles increased including Crimson Desert and 2 JV. In particular, in line with the development of Crimson Desert, which will be completed in the second half of the year, we are doing our best. So that we can showcase the game on the global stage where we can best publicize our Game.

As many people happened to be waiting for a long time, we will do our best to repay you with the best quality. To be a better company all employees from our CEO, are doing their best, we ask for your continued interest and support. Thank you very much.

(Foreign Language) With this we will conclude the PearlAbyss 2023 Q1 earnings release presentation and start the Q&A session.

Questions And Answers
(Foreign Language) (Operator Instructions) (Foreign Language). The first question will be presented by Jin Young Kim from HSBC. Please go ahead with your question.

Q - Jin Young Kim{BIO 20909169 <GO>}
(Foreign Language) Thank you for the opportunity. I believe you talked about your new title development and I see that in Q1, you have seen I think decrease in the numbers of development people in your company, and it is on the downward trend. So regarding the numbers of developers in your company. Do you think this will affect your preparations for a new title development, do you have any plans to add to your developers going forward. And can you tell us more about its effect on the lineup of the development.

A - Unidentified Speaker
(Foreign Language) Thank you for your question. I would like to answer your question about development number increase. (Foreign Language) actually regarding the numbers of our development staff as of end of Q1, it is 1,355. And regarding the two main reasons behind this, first we had the ending of our internship program as of end March, and we have been going through the business closing of our subsidiary factorial Games. So we also had a decrease in our development due to this.

(Foreign Language) we have actually acquired factorial Games in 2021 which is famous company for being developer of loss kingdom but afterwards, taking into consideration the business environment and because of our strategic selection. We decided to close the business.(Foreign Language)

(Foreign Language) Regarding the amount of our losses stemming from this, the closing of the business, we already have recognized the full amount of the impairment late last year and currently we are smoothly going through the procedures of the finalization. (Foreign Language) So that is why regarding the numbers of developers needed for our new title development. We have no deficiency in the numbers that are needed. We have sufficient numbers of developers. (Foreign Language) However, taking into consideration the internal and external environment, we are planning to have a conservative number of developers going forward.(Foreign Language) It was our CFO (inaudible) who answered your question.

(Foreign Language) For those who have questions, please press star and one and ask your question. (Foreign Language) The next question will be presented by Stanley Yang from JP Morgan. Please go ahead with your question.

Q - Stanley Yang{BIO 6631617 <GO>}
(Foreign Language) Thank you for the opportunity. I would like to ask for some of your comments regarding your new titles and I'm curious about the updates for Crimson Desert. And can you tell us about any plans you have with your console partners? Can you tell us about how much progress the development has been making? And can you maybe update us or give us more details on

Q - Unidentified Participant
Your estimate release schedule and apart from Crimson Desert. Is there any catalysts or any major event. Do you think that can help your situation stock prices and give us a direction going forward.

A - Unidentified Speaker
(Foreign Language) I would like to thank you very much for your attention, because after our last disclosure, you have been showing much interest.(Foreign Language) as was mentioned for Crimson Desert we are smoothly going on with the development with the goal of completing development within the second half of this year.(Foreign Language) also, in order for pre-marketing, we have been participating in the recent GTC, and we have been consulting with many partners.(Foreign Language) in addition, in order to disclose our Crimson Desert to the public on the global stage.

Now we are in the preparation stages for us to actually disclose Crimson Desert going forward.(Foreign Language) after the previous disclosure Crimson Desert has been making great development progress, not only the well-known graphic technology but as Open world games. We have been successful in implementing the high degree of freedom. And we have very long play time and very immersive story. So it has all the characteristics needed for a triple AAA title. (Foreign Language) since we have been making very thorough preparations for a long time in all details regarding the Game quality and story. We are going to do our best. So that we can meet the expectations by our users and by the market.

(Foreign Language)

(Foreign Language) Actually, internally at our company, we are actually really feeling that our development has been making great progress going forward. However, until the last moment when we have finished the development of the game, we are going to do our best. (Foreign Language) As I mentioned previously, now we are in the preparation phase for the disclosure of Crimson Desert going forward. So with of disclosure that will happen, we are going to be stepping up the strength of our marketing.

(Foreign Language) Regarding our pre-sign-ups and these releases well, this will need to be decided with the consultation of our partners and with the degree of marketing development. So it is quite difficult for us to give you a very definite release date at this time. (Foreign Language) However, after we have finished development, we are going to make preparations, so that we can release the game without a very large gap.

(Foreign Language) It was our CEO, Heo Jin-young, who answered your question.

(Foreign Language) Currently, there are no participants with questions please press star and one to give your question. (Foreign Language) It seems that there are no other questions in the queue. With this, we will conclude 2023 Q1 PearlAbyss Earnings Presentation and Q&A session. Thank you for your participation.

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