Pearl Abyss, the parent company of CCP, had its Q4 results on Thursday 15 February.
The earnings call transcript is at the bottom of this post.
To us we are interested in what they are saying about EVE Online.
To everyone else Pearl Abyss is a South Korean game developer known mostly for Black Desert Online which is the most successful Korean massively multiplayer online role-playing game outside of Korea.
In recent times the company has been pushing back the launch date of its new games (Crimson Desert and DokeV) whilst at the same time its existing games are facing revenue pressures and the costs are seeing inflationary pressures.
On the day of these results, the shares rose 6% which I suspect reflects a launch into China for their main game Black Dessert Online, so that’s near term additional revenues, and their new game Crimson Desert being close to completion.
Overall Results
Its Q4 results saw ongoing declining revenues and an operating profit loss.
Revenues fell 18% to 84 billion Won vs Q4 2022 (always best to compare to a year ago rather than the last quarter to iron out seasonal effects) which was a bit less than what was expected due to lower than expected Black Desert Online revenues.
Black Desert Online revenues fell 16% vs Q4 2022 to 60 billion Won.
Eve Online revenues (includes mobile) rose 15% vs Q4 2023 to 20 billion Won.
On costs: labour fell 5% to 41 billion Won with staff numbers down 9% to 1,324 (developers are 58% of all employees); Commissions fell 12% to 17 billion Won; Marketing fell 36% to 8 billion Won.
Pearl Abyss Capital (which I have never really understood what it does) had a 6 billion Won impairment charge.
The Operating Loss of 5 billion Won was higher than expected.
For Black Desert Online, management believe that their efforts in 2023 to make it easier for new players and new content added is having a positive effect citing at 17% rise in actual PC sales in Q4 and 13% rise in annual PC sales.
Management not really telling us when Crimson Desert will be launched though did say that the game test would be in the summer. Saying that game development is almost completed and now working on polishing it out.
The market is starting to think that the Q1 2025 launch date is under threat.
There are also question marks on the Black Desert Online China launch. The closed beta test has been done. Awaiting a Chinese license (to launch games in China you now need a license). However, the mobile version did not do well in China when launched.
Putting all this together, the market is reducing its profit expectation for Pearl Abyss for 2024 and increasing expectations for 2025.
Eve Online / CCP in general
This is what we are interested in.
Mentioned once by the analysts that cover Pearl Abyss. However, management talked about Eve Online a lot more in the call than before and expanded more in the Q&A section.
On revenues, it was better than expected. Question marks remain over profits and i suspect we are not quite there yet - we will learn more when we get the full year Accounts in May.
Much more focus given on the call to the health of Eve Online and to new launches based off he Eve Online IP.
Revenues in Q4 2023 were 19.9 billon Won vs 17.3 billion Won in Q4 2022, a rise of 15%. Best to compare to a year ago rather than the prior quarter to iron out any season effects.
. . . . . and that is literally all the numbers data on Eve given in the presentation slides.
To me, that was a surprising positive. Not sure what i was expecting but probably not a 15% rise. It has to be player volume related, the Eve Game price went up in May 2022 and so is long gone as a driver of revenues in our case here.
In the call, in answer to a question, management did hope that Eve will be making profits in 2024 which suggest 2023 was still in losses or at best low profits.
“Until now, our CCP game has been servicing EVE Online and also has been developing games based on the EVE IP. From this year, there will be consecutive launchings of the games that have been developed, that have been in development and we have expectations that this will be a year where we can make profits.”
The good news is that all this was better than what the market expected and so the analysts are pushing up their CCP revenue expectations for 2024 from 70 billion Won of revenue to 74 billion, a 6% increase.
In the call, management highlighted the 20 year length of the game (vs Black Desert at 9) and the CCP management working to attract new players by making it more convention and adding new missions for new players.
The Call mentioned the Havoc launch and Vanguard having its first play test in Q4.
Management noted that these efforts led to the highest numbers of EVE daily concurrent users in November during the past five years based on the same dates, and the daily revenues also recorded the highest peak during the past five years.
For CCP generally, the management are focusing on costs (closing down the Canadian studio, moving the London office to a lower cost location, reviewing their marketing suppliers).
And for CCP focusing on the global launch of EVE Galaxy Conquest this year, which is a casual mobile game. Soft launching the mobile game EVE Galaxy Conquest in some regions.
And plan to showcase Project Awakening within the first half of this year, following a recent confidential test.
There was a comment that may be nothing or very interesting (I added bold for effect):
“In addition, in the case of EVE Vanguard, which was already introduced and tested, we, through continuous development and content updates, plan to not only lengthen more time for user enjoyment, but also are considering a proprietary business model line.”
Earnings Call Transcript
Company Participants
Heo, Jin-young
Joh Seokwoo, CFO
Kim Geong Man, CBO
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 out of Fiscal Year 2023 Fourth Quarter Earnings Results by Pearl Abyss. This conference call will start with the presentation, followed by a divisional Q&A session. (Operator Instructions) Now we shall commence the Presentation on the Fiscal Year 2023, Fourth Quarter Earnings Results by Pearl Abyss.
Kim Geong
(Foreign Language) Greetings. I am Kim Geong from Pearl Abyss IR team. First of all, I express my deepest gratitude to the analysts and investors in and out of Korea for taking part in the 2023 Q4 and full year Pearl Abyss earnings presentation despite your busy schedule.
(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 the state, so please take these factors into consideration.
(Foreign Language) We have here with us at the earnings presentation today, Pearl Abyss CEO, Heo Jin-Young, CBO, Kim Geong Man, and CFO, Joh Seokwoo. We will first hear the business performance presentation highlights from CFO, Joh Seokwoo and then engage in a Q&A session.
Joh Seokwoo
(Foreign Language) Greetings. I am Pearl Abyss CFO, Joh Seokwoo. Thank you once again for taking part in our company's earnings conference call despite your busy schedules.
(Foreign Language) I would like to first cover the 2023 overview. The game industry in 2023 on the whole went through challenges due to the reopening after the end of the pandemic. In this situation, we made significant changes to our live service, made management more efficient, and implemented new pipeline investment. Black Desert implemented diverse changes with nine years of service. We changed and reinforced many outdated contents, which were more enjoyable in the past, but not anymore. Through diverse patches for user convenience and new user support, we tried hard to lower awareness that this was a game with a high entry barrier. In addition, we introduced new characters with new concepts that we did not attempt before and also introduced diverse character costumes, from oriental costumes to modern costumes.
Moreover, through the land of the Morning Light update, which had a Korean ambiance that was not attempted in the past, many users were able to experience a new landscape. Land of the Morning Light also changed the gameplay style and introduced a console type of raid combat, that was quite refreshing. In Q4 as well, we have been continuing these efforts through new class scholar updates and continuous convenience patches for our users. For consoles, we have also been overcoming many limitations, which occurred due to the console or console device limitations through technical enhancements, and have worked hard to provide joy of playing on a similar level to the PC version. Through these efforts, excluding the accounting deferral, we are seeing a solid revenue upward trend, including 17% Y-o-Y increase in Black Desert PC Q4 actual sales, and also 13% Y-o-Y increase in the annual total Black Desert PC actual sales as well.
EVE Online also implemented diverse changes with 20 years of service. We continuously work hard to attract new users not only by implementing diverse devices in order to improve the game's convenience to users, but also gave many missions so that new users can easily adjust. The havoc expansion pack which improved new contents and diverse game environments with a new battle system which breaks away from the existing framework and an interesting storyline provided immersive experiences to users that were playing. In addition, EVE Vanguard, which was developed as EVE online based FPS with the 20th anniversary of EVE, had the first play test in Q4. It was able to appeal to the gamers who were waiting for SF and EVE based FPS and attracted many returning users.
These efforts led to the highest numbers of EVE daily concurrent users in November during the past five years based on the same dates, and the daily revenues also recorded the highest peak during the past five years, leading to firm financial performance. Under the robust basis of live service, we continued investment in new IP and new titles. Crimson desert, through many demos for partners and media, is predicting the possibility of success. We are receiving many favorable reviews through actual demos and internally, we are confident that we can achieve significant results. In addition, through reflecting the abundant feedback that we have received, we are heightening our possibility of the game's success. After showcasing the mobile casual game, EVE Galaxy Conquest, which was made by utilizing EVE IP by the CCP of Shanghai office at the EVE fan fest in Q4, we have been implementing actual live tests in some regions through soft launching.
(Foreign Language) Next, I would like to walk you through our 2023 full year and Q4 operating performance. 2023 operating revenue posted KRW333.5 billion, decreasing 13.5% Y-o-Y. Operating loss posted KRW16.4 billion and turned to loss. Net profit posted KRW15.4 billion and turned to profit Y-o-Y. Q4 operating revenue posted KRW84.4 billion, decreased 0.6% Q-o-Q and operating loss and net loss each posted KRW5.5 billion and KRW4.4 billion and turned to loss, respectively.
(Foreign Language) I would like to explain in more detail regarding operating revenue in Q4. First, I will cover operating revenue for major IPs. Operating revenue for black desert IP in this quarter posted KRW60.1 billion, a 12% decrease Q-o-Q. Eve IP operating revenue posted KRW19.9 billion, an increased 24% Q-o-Q. In case of operating revenue by region, it posted 21% domestically 20% in Asia and 59% in North America and Europe. In case of operating revenue by platform, 83% was for PC, 12% for mobile and 5% for consoles.
(Foreign Language) I would now like to elaborate on operating expenses for Q4. Q4 operating expenses posted KRW89.9 billion, a 8.6% increase Q-o-Q. In case of labor expenses, it posted KRW40.6 billion and maintained the level of the previous quarter. For your reference, the numbers of employees as of NQ4 are 1324, and there are 765 developers, which is 58% of the total. In case of commissions, it posted KRW17.4 billion, a 21.4% increase Q-o-Q. In case of advertising, through efficient implementation of Cybers user events and banquets, we were able to post KRW8.1 billion, a 19.6% decrease Q-o-Q
(Foreign Language) Lastly, I would like to cover 2024 major highlights.
(Foreign Language) We plan to continue our performance through Black Desert and EVE's continuous changes and at the same time, improve profitability through efficient company operations. At the same time, we plan to focus intensively for successful launching of our new IP. For Black Desert, we will work to make an environment which is newer and can provide more enjoyable environments. In Q1, we are newly reorganizing PvP content through Guild League that you can enjoy 15 to 15, and through updates of siege wars with new rules. In addition, we are continuing to update user convenience improvements, that we have been doing from last year to promote the influx of new and returning users, and we plan to help them stay and settle.
In addition, we plan to accelerate the development of Land of the Morning Light Part Two, which was indeed very beloved. We will support also next generation console devices and we're working hard so that we can go beyond the limitation of existing devices, so more contents can be enjoyed on the console platform. We also have heightened expectations for China game license for Black Desert Chinese service, which recently had confidential tests. We are working with our publishing partner thoroughly, so that fast results can be derived when official service begins. EVE IP also is continuously changing. We are preparing for two new expansion packs for EVE Online. In particular, for these expansion packs, we plan to introduce user generated contents where users can directly generate contents, and we're preparing so that users can enjoy games in more diverse ways.
In addition, in the case of EVE Vanguard, which was already introduced and tested, we, through continuous development and content updates, plan to not only lengthen more time for user enjoyment, but also are considering a proprietary business model line. At the same time, we will work hard to improve the company's income through efficient operations. After closing down factorial games last year, we have our Canada studio, which is also closing down, which was preparing for indie game this year, and we're working hard to improve our company's cost structure. In addition, we will find areas and make improvements so that day-to-day costs can be efficiently saved, including changing the CCP London office location, so that more efficient work can be done in a bigger and more reasonably priced space. In case of marketing costs, we will also work with diverse partners so that our financial burden does not increase.
We plan to prepare to secure new pipelines. We plan to have the global launching of EVE Galaxy Conquest this year, which is a casual mobile game which meets the recent trends by improving based on the feedback, which came in during the soft launching period. In addition, we plan to showcase project awakening within the first half of this year, that we recently had confidential test for. We expect that these new projects will enhance the profitability of EVE IP based games, which have high loyalty. Most of all for a crimson desert, we will increase the possibility of success by expanding our contact points, including through user demos at diverse events in 2024.
In addition, since the development is being completed, we are considering appropriate launching time and we will prepare, so that we can have significant results, considering that you have been waiting for a long time. With stable service of live service, we made many preparations to create new IP. The global game market competition has heightened. Regulations for the labor market and game market has become more strengthened and it has become more challenging to secure developers than before. We are fully aware that many investors are concerned, since the preparation time has become longer than expected. We believe that in 2024, we will showcase and launch new titles that we had been preparing so far, and that this will be a year when we will significantly leap forward.
Utilizing ten years of Black Desert service and 20 years of EVE service know how, we will do our best so that our new titles will also be loved for a long time by many people. We will look forward to your continued interest and support. Thank you.
Unidentified Speaker
(Foreign Language) With this, we will conclude the Pearl Abyss 2023 Q4 and full year earnings release and start the Q&A session.
Questions And Answers
Operator
(Foreign Language) (Operator Instructions)
(Foreign Language) The first question will be presented by (inaudible) from Kiwoom Securities. Please go ahead with your question.
Q - Unidentified Participant
(Foreign Language) Thank you very much for the opportunity. I am (inaudible) from Kiwoom Securities and I have three questions. First, I would like to know in more detail about all the information that you can disclose about Crimson Desert, that you can't disclose to the market. Secondly, I would like to know about your top line gross goals for Black Desert. And third, if you have any new titles that you are planning to launch this year, I would like to know about them. Thank you.
A - Heo
(Foreign Language) Thank you very much for your question. For Crimson Desert, since we are developing it for single play, we are concentrating on heightening our optimization and completeness and are making our final touches. It has very vast contents and a very free playing area or a free degree of freedom, so it has taken a little more time than expected. However, currently, the development is very smoothly being done and we are making great progress in our finishing touches.
(Foreign Language) In addition, based on the feedback that we had actually acquired from many partners for the past year or so, we have been actually completing the game playing experiences continuously and we believe that now, we are at the level of quality that we had targeted. Accordingly, regarding the Crimson Desert demos that we had for our partners until now, we plan to actually expand them to B2C from this summer and start our full fledged marketing.
(Foreign Language) Regarding our launching period, we will start our full fledged marketing from the second half of this year, and we will heighten it until the end of this year, as we are currently planning. We know that you have been waiting for a long time and we also have been thoroughly making preparations for a long time. So we will do our best for a successful launch till the end.
(Foreign Language) Regarding more details about our launching period. In the process of our marketing within this year, we will do our best, so that we can give you more detailed schedule as time progresses.
(Foreign Language) Development time is taking a little more than expected, but all the people in our development team are doing their best in the environment that we're given for this long period of time. We are also truly wanting to launch as quickly as possible and we are focusing on our finishing touches intensively, so that we will do our best, so that we can come up with satisfactory results, and we will ask for the kind understanding from our investors as well.
(Foreign Language) I will answer your question about Black Desert. Regarding our 2024 forecast for Black Desert, we have been celebrating the 10th year and we will do our best so that we can reaffirm our basics, and also come up with some changes with the know how that we had accumulated for the past 10 years. We will go through full fledged changes, so that we can provide more enjoyment to our global users. First of all, during the last year, we know that Land of the Morning Light was very popular and we are currently preparing for Land of the Morning Light Part Two Seoul. And apart from this, we plan to add many diverse new contents, so that we can continue with our consistent performance.
A - Kim Geong Man
(Foreign Language) To answer your questions about new titles for this year. Well, our company has been concentrating our efforts on developing Crimson Desert and also CCP gains has been doing very well. And they have been well maintaining their live service so far. And in order to secure new growth engines, have been developing EVE IP based new titles.
(Foreign Language) We are also seeing the new titles, new title development that is being completed. And from Q4 of last year, with the open test of EVE Vanguard, we have had the soft launching of EVE Galaxy Conquest. So we are making preparations for the launching in 2024.
(Foreign Language) And you can see that for EVE Vanguard, it is like the sister program of EVE. And for EVE Galaxy Conquest, we plan to have global launching within this year.
(Foreign Language) Apart from this, for the new blockchain project, we have actually received a lot of feedback, because we had countless tests in the previous year and we have been actually reflecting these feedbacks to our games, and we are also planning to showcase or disclose this game within this year as well.
(Foreign Language) Until now, our CCP game has been servicing EVE Online and also has been developing games based on the EVE IP. From this year, there will be consecutive launchings of the games that have been developed, that have been in development and we have expectations that this will be a year where we can make profits.
(Foreign Language) In addition, because we have high expectations that we can receive Black Desert online Chinese game license within this year, if we do, we plan to launch this within this year as well.
Operator
(Foreign Language) It was our CEO, Heo Jin-Young and CBO, Kim Geong Man, who answered your questions. (Operator Instructions)
(Foreign Language) It seems that we have no questions on the line, so we will conclude Pearl Abyss 2023 Q4 and full year earnings release. Thank you for listening.
