Month end update - July 2024

I made 10bn profits in July 2024, increasing my wealth to 1.614 trillion isk.

It was a very slow month, real life was busy and holiday for the last part.

Distributions

These days, the aim is to distribute my profits to the Oz Tank Show or other ventures.

Watching numbers go up once i got to a trillion wealth is somewhat boring.  Hence, my wealth will barely increase and any monthly surplus will all be given away at some point.

So far i have given 260bn isk to the Oz Tank Show.

The show started in July 2023 and i have generated profits of 749bn in the July - July period and distributed 260bn.

So that leaves 489bn isk to distribute to some venture(s).

Six Omega Accounts to pay for

In June i went for the MCT / Omega deal and have now pre-funded 6 accounts (so the 4 omega accounts and 2 alpha accounts) for 12 months.

The way i am going to account for this is to first account for the Omega i bought previously and then start to account for the MCT/Omega deal.

Hence, for July and August i will amortise the remaining Omega bought forward pre MCT/Omega deal.  So thats 8bn in July and around 2 billion in August.

Accounting for the MCT / Omega Deal

I spent 130bn on getting a 12 month Omega for 6 of my accounts and 12 months of MCT for 2 characters per Acocunt.

As i skill farm i will generate revenues.

So, how to account for all this?

I will hold the 130bn on by Balance Sheet and as i sell the Skill Points into the market will will reduce the 130bn by the same value.

I.e. if in one month i sell 10bn of skill points then i will reduce the 130bn by 10bn, so net effect on my wealth will be zero.  So, the effect of selling skill points will not generate me any profits until the 130bn is used up and then it will generate profits.  I expect to generate profits in 6 months time from selling skill points.

The basic numbers for July

In July i had sales of 206bn isk vs June of 392bn.  So a fall of 47%.

That's a big fall and is due to rea life getting busy are real work and a holiday at the end of the month.

It comes to 6.7bn sales per day.

Item profits were 35bn isk which is a margin of 17% (35/206).  That is the first time i have missed the 25% target and i have to say i don't really understand why.  May be a data glitch.  Not sure.  Lets see if it irons itself out in August.

Alternatively, could have been me writing down a number of items for sale to more reasonable levels to get them sold.

Taxes and Courier fees came to 17bn isk.  That takes the Trading Profits to 18bn isk and so a trading margin of 8.8% (18/206).  so way below the 15% target margin.  I really can't explain that, may be a data glitch.  Lets see if it is ironed out in the August update.

Then add in the 8bn plex cost to Omega 4 accounts takes me to 10bn profits made in July.

What is needed to get wealth to rise to 100bn in a month?

Lets assume i only get the 25% item profit margin that i target . . . . 

To get 100bn isk of an increase in wealth before distributions i would need to make daily sales of 18bn isk.

I am pretty sure i wont get there sustainably on the current strategy so i am putting my mind to how else to earning isk.

What i am selling

For me, the market was slow in July.

My strategy is to Buy from Sell Orders in Jita to sell in the trading hubs in other Regions.

I don't sell consumable items such as ammunition given they tend to be high volume and very competitive.  That includes ships.

I rarely sell items used as components in manufacturing because the end buyer tends to be cost conscious (and armed with spreadsheets) and able to manufacture the items themselves if market prices are too high.

I sell items that are in low supply and sell very slowly.  These items tend to have very low competition - sellers want to get cash quickly and so don't bother in these items.  If i put an item on the market and it sells in 15 days that is fine with me.

I sell items that are typically bought to kit a ship as a player progresses or has to replace a destroyed ship / pod.

Each month i sell 20-30% of what i had to sell at the start of the month.

I have a rule that the minimum profits have to be 100m isk.  It is no use me buying items for 5m to sell them for 15m.  The profitability may be great but that won't move the dials.  That said, it is surprising how many items i can buy for 120m from Jita Sell Orders and sell for 220m in the other trading hubs.  At that isk level, players re-equipping don't care about spending an additional 100m isk to save time.

And in the secondary trading hubs Amarr / Dodixie / Rens / Hek buyers will not travel even one jump to buy a cheaper item.

Therefore, i mostly sell Implants, Blueprints, ship equipment and some structure modules.

Manufacturing

I do this opportunistically and i don't keep track of it.  I don't (yet) do it systematically but i need to get a grip.  I am sure there are many items i sell in the Trade Hubs that i could manufacture in Jita and so get a better in price vs buying them from Jita Sell Orders.

But so far i manufacture items that sell for over 1bn isk.  My favourite items are where the Blueprint Original costs >10bn and there are no Copies in the Contract Market.  Sort of makes me feel i have the market to myself.

Planetary Interaction

For now, i have stopped trying to make this work.

Research

For now, i have stopped trying to make this work.

Station Trading

All in Jita.  Even this was slow.  Only made sales of 16bn isk.

My idea of station trading is not buying items when they look cheap.  For me, station trading is about sticking to the slow moving items and quite often i am the only person in Jita trying to sell an item.  Almost always Selling for over 1bn isk.

What i don't do is Investing.  I.e. i don't buy an item now i think is cheap and hold onto it to sell it a few months later when the price has risen.

Alpha Accounts

I upgraded 2 of these accounts to Omega as part of the MCT deal.  So training them all hard to get to the 5m skill points to start the skill farm.

That leaves 1 Alpha account with a character in Venal left.

Current Wealth

Current wealth is 1.614 trillion ISK made up from:

• Plex held as an investment 0bn ISK
• Items in hanger for sale 173bn ISK
• Items in hanger for use in business 11bn ISK
• Omega brought forward 132bn ISK
• Buy orders on the market 34bn ISK
• items for sale 1.49 trillion ISK

• less a 20% provision 298bn ISK*

• ISK in wallet 72bn ISK

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

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

Pearl Abyss Q2 Earnings Call

Pearl Abyss, who are the owners of CCP, had their Q2 results today. 

Full transcript of the call is at the bottom of this post.

The presentation can be found https://irsvc.teletogether.com/pearlabyss/pdf/pearlabyss2024Q2_eng.pdf?2

And, if you speak Korean, the call recording can be found https://irsvc.teletogether.com/pearlabyss/pearlabyss.php?c=pearlabyss&y=2168

The Nosy Gamer also has done a review of the Q2 results https://nosygamer.blogspot.com/2024/08/pearl-abyss-q2-2024-earnings-call.html

Looks to me like revenue were a bit lower than expected and the operating profit loss higher than expected.

Revenues rose 4% in Won to 82bn vs Q2 2023 (always look back a year, rarely makes sense to compare to the prior quarter given seasonality effects)

Within this, Black Desert was up 6% to 60bn and Eve was up 7% to 22bn.

Labour costs were down 8% to 46bn with headcound down 1%, Commissions up 2% to 18bn, Marketing down 9% to 7bn, D&A costs down 3% to 6bn and Other Costs down 7% to 9bn.

Hence an operating loss of 6bn Won (some roundings in there).

This business will not make a profit until Crimson Desert is launched.

Do not forget the Tencent payments which end this year

Revenues were helped by payments from Tencent for terminating Black Desert Mobile in China.

 

Its all about the new games pipeline and launch dates

The market remains focused on the launch of Black Desert Online China and Crimson Desert.

On that matter, management are aiming to launch Black Desert Online China within a year (most are expecting Q4 this year).

For Crimson Desert we would expect marketing to kick off in Gamescom which is this month (21-25 August) where the launch date of Crimson Desert will be given (unless they wait for G-STAR in November to do that).  Therefore, brokers are now pushing back the launch of Crimson Desert to Q3 2025 (i.e. pushing back by 6 months).  This demo and user test at Gamescom will, I suspect, be an important milestone.

As an aside, that pushes back the launch of DokeV to 2026 or later.  Likely later.

There was no news on Plan 8.

 

Existing Games

Black Desert: not much said really.

EVE: Equinox was positive; management planning an expansion pack launch twice a year, and management expects the current positive momentum to continue (citing the launch of EVE Vanguard here).

 

Project Awakening

Which is an EVE IP based blockchain platform – the second test due in “the near term”.

Similarly for EVE Galaxy Conquest.

 

What was said about the Eve Online that we all play?

Firstly, the market barely talks about Eve Online.

That said, it was confirmed that there would be an expansion pack twice a year.

And in the call there was a specific question asking about the improvement in Eve Online revenues.

“The second question is related to EVE IP. And I think we can see that your revenues have been growing for EVE IP. That was quite pronounced. So do you think this trend will continue or do you think there will be a downward stabilization of the EVE IP revenues of below KRW20 billion in the future?”

The answer was:

“I would like to answer your second question about EVE IP revenues. For EVE, with the launching of Equinox, the expansion pack that was launched in Q2 had very good performance. And for EVE, we always plan a twice-a-year expansion pack launching.

And of course, depending on the different timing, for example, of the expansion packs or seasonality factors, there could be some ups and downs, but as you've mentioned, regarding the KRW20 billion or so of revenue level for EVE, we plan to actually maintain that level. And it is true that our user base has been positively affective with the linkage to EVE Vanguard and with the expansion packs. So we will work very hard for us to maintain our revenue level.”

Therefore the brokers expect revenues to grow from here.  About 15% in 2024, 7% in 2025 and then 1-2% onwards.

These growth rates were an increase on prior expectations given the stronger than expected performance of Equinox.  To put this in perspective, the market now thinks Eve Online revenues will be 10% higher in 2024 that was the view before and 7% higher in 2025 and 2026.

I.e. some numbers I can see aimed for Eve Online to have revenues of 78bn Won in 2024, 84bn in 2025 and 84bn in 2026.  These were moved to 84bn, 90bn and 91bn.  And all the uplift comes from Eve Online PC, not Eve Echoes which I note has slightly lower expectations now for 2025.  To put Eve Echoes in perspective, for the 2024 84bn Won hopes in 2024, 21bn is Eve Echoes with 63bn being Eve Online PC.

  

The transcript of the call (translated to English)

 

Q2 2024 Earnings Call

Greetings, I am Kim Yoon from the 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 2024 Q2 Pearl Abyss earnings presentation despite your busy schedules.

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.

We have here with us at the earnings presentation today, Pearl Abyss, CEO; Heo Jin-young; 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.

Seok Woo Cho  

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

I would like to cover Q2 major business highlights and performance. Black Desert and EVE, thanks to our accumulated live service know-how, continued consistent performance, and tests for new services, including Black Desert China and Project Awakening, were carried out.

Black Desert, celebrating 10 years of service, held a Ball in Beynac, France, a real city which appears in Heidel. Around 200 players gathered and enjoyed diverse events, and news about second half major updates, including for Land of the Morning Light; Seoul, was announced.

In addition, at the Ball, updates and episodes during the past 10 years were shared, and participants expressed high satisfaction and positive responses, thanks to our close attention paid to even the smallest details of user feedback. Other than this, in Q2, Guild War content's Siege War and Ancient Anvil was updated to offer a pleasant game-playing environment. In case of Mobile, Askeia Class was launched, and new server Oasis was added, and we worked hard to provide a better game-playing environment and content.

For EVE Online, a new expansion pack Equinox was launched, with a new narrative and stable performance continued. In particular, through this expansion pack, sandbox experience was expanded, including new tools that enable you to make your own spaceships, which allowed you to more strengthen your user identity. In addition, EVE Vanguard showcased the second new map, Solstice, so that users can directly participate in the game before official launching, enabling them to experience major improvements and system changes.

Apart from this, we thoroughly prepared for new services to expand our revenues. First of all, in case of Black Desert China, after the Chinese game license was issued in June, we recently carried out technology tests for smooth service. We also carried out the playtest for Project Awakening, a blockchain-based project and we had the second soft launching based on the first soft launching feedback for our mobile strategy game, EVE Galaxy Conquest, and we are doing our utmost to prepare for its launching.

Next, I will cover Q2 performance. Q2 operating revenue posted KRW81.8 billion, a 4.2% drop Q-o-Q. Operating loss recorded KRW5.8 billion, turning a loss, and net profit posted KRW9.1 billion, a 28.9% drop Q-o-Q.

I will now cover operating revenue in more detail. First, the operating revenue for the major IPs. Black Desert IP operating revenue for this quarter posted KRW60 billion, a 10.2% drop Q-o-Q.

EVE IP operating revenue posted KRW21.6 billion, a 20% growth Q-o-Q. In case of operating revenue for regions, domestic was 18%, Asia was 26%, and North America and Europe posted 56%. In case of operating revenue for platforms, 75% was for PC, 21% for mobile, and 4% for consoles.

Next, I will cover operating expenses. Q2 operating expenses increased 3.2% Q-o-Q and posted KRW87.6 billion. In case of labor expenses, it posted KRW45.7 billion, a 0.6% drop Q-o-Q. For your reference, as of end Q2, the headcount is 1,331. There are 759 developers among them, which is 57% of the total headcount. In case of commissions, it posted KRW18.4 billion, a 7.7% increase Q-o-Q. In case of advertising expenses, with Heidel Ball, which was held in Q2, it posted KRW7.3 billion, a 29.3% increase Q-o-Q.

Last, I will cover Q3 major highlights. In Q3, Black Desert, celebrating its 10-year anniversary, is preparing content full of more interesting adventures. First, we updated Land of Morning Light: Seoul, which had the Joseon representative areas as its motif, to the Korea server yesterday. Land of Morning Light has a background of Old Seoul, including places such as Gyeongbok Palace and Gyeonghoeru, and has updated unique Korean characters like Janghwa Hongryeon and Bulgasal, and will showcase exciting stories.

We plan to update Land of Morning Light; Seoul to the global server in autumn. In addition, we launched the Dosa Class with unique Korean characteristics in July and received positive responses from users. In particular, since Dosa Class was designed to meet the Land of Morning Light concept, swordsmanship and Taoism is used by the character, showing the unique style of Joseon.

In the case of Black Desert console, along with continuous content improvement, there was recent update of Mountain of Eternal Winter. In order to create a better quality and game-playing environment for users, we are accelerating next-generation device version development as well. In case of mobile, Dosa Class was launched in July, and we will soon showcase Azunak War, new survival content combining PvP and PvE.

Black Desert China, after acquiring Chinese game license in June, is thoroughly preparing for its launching. In July, large-scale technology tests were carried out, and there was a service inspection process, and through participating in ChinaJoy, the biggest game event in China, user expectations were heightened. EVE will also showcase diverse content. In particular, there will be an alliance tournament where the best members of each alliance will be in combat, which will make the game more fun.

EVE Vanguard, based on the test of the previous quarter, is continuously making improvements to the game. We will do our best until the end so that we can provide a richer FPS experience until launching and strengthen the EVE ecosystem.

We are also smoothly making preparations for our new titles to secure our new growth engines. First, in the case of Project Awakening, an EVE IP-based blockchain platform, we will carry out the second test so that we can perfect the details of the game.

In the case of EVE Galaxy Quest, while adding to the fun of the game by adding new server and content, we will begin pre-reservations for the official launching. In the case of Crimson Desert, we will participate in diverse game events in the second half to actively promote the game. At Gamescom, which will take place in two weeks, we're planning to have B2C demos where users can directly play the game.

We are preparing for demo events so that we can sufficiently satisfy the heightened expectations of many people, and we will look forward to your keen interest. After first disclosing Crimson Desert in 2019 by our company, we had been making challenges to the AAA market and went through many trials and errors. However, we can now say that Crimson Desert's quality and gameability goes beyond the currently existing open-world games, making the around seven years of development worth the time.

Currently, since we're at the stage when the game is being completed, starting with Gamescom, we will now focus on marketing. We will make thorough preparations so that using our accumulated know-how, it can lead to a successful-launching. To be a better company, all employees from the CEO are doing our best.

We ask for your continued interest and support. Thank you for your attention.

Questions And Answers

 

Question

Thank you very much for this opportunity and I have three questions. The questions are related to Black Desert China, EVE, and related to the second half outlook for your operational losses or profits. So actually, my first question is about your user feedback you got for Black Desert China.

Can you tell us more about the feedback you got and can you also give us any of your information related to when it will be launched? Do you think it will be launched within the end of this year or can you give us more color to the launching date?

The second question is related to EVE IP. And I think we can see that your revenues have been growing for EVE IP. That was quite pronounced. So do you think this trend will continue or do you think there will be a downward stabilization of the EVE IP revenues of below KRW20 billion in the future?

The third question is about your operating expenses. It seems to me that it will be quite challenging for you to have more efficiency in your operating expenses. So there might be some more room for operating losses going forward. So can you give us your guideline for operating profits or losses in the second half of the year or further after that? Thank you very much.

Answer

First of all, I would like to answer your question about Black Desert China Service. For Black Desert China Service, after the Chinese game license was issued in June, we have had the technology test in July, and we participated in China's biggest game event, ChinaJoy, and have been heightening our marketing.

And at ChinaJoy, we had many users visiting us, and we could find out that people had very high expectations about our game. In addition, we had completed well our technology test as of yesterday, and regarding the launching, as was announced by the publisher, we believe that it will be possible within the second half of this year.

And taking into consideration the last optimization work and the schedule of the launching of our competing titles, we have some plans that we will probably have a very fast launching after the Chinese holidays of Chinese Thanksgiving.

Answer

I would like to answer your second question about EVE IP revenues. For EVE, with the launching of Equinox, the expansion pack that was launched in Q2 had very good performance. And for EVE, we always plan a twice-a-year expansion pack launching.

And of course, depending on the different timing, for example, of the expansion packs or seasonality factors, there could be some ups and downs, but as you've mentioned, regarding the KRW20 billion or so of revenue level for EVE, we plan to actually maintain that level. And it is true that our user base has been positively affective with the linkage to EVE Vanguard and with the expansion packs. So we will work very hard for us to maintain our revenue level.

Answer

I would like to answer your third question about making our operational expenses more efficient. We're working very hard to have cost savings of our expenses and that is currently ongoing as well. We're actually expanding our use of machine learning and AI in terms of development and our labor cost burden is going down.

And regarding live services, we are also trying to have more of its transition to AI as well. And we're trying very hard to cut our costs and expenses by making some services internalized and outsourcing some of them when it is more efficient.

And despite all of these efforts, we are having an operating loss because according to our accounting standard, regarding the expenses that go into the development of our new titles, it is not being yet capitalized and it is actually being posted on our account as our expenses.

So that is why, regarding these expenses, even after the launching and when we have higher revenues, we believe that there will not be a great change.

And we believe that our earnings will improve in the second half with more revenues that are going to come into being through the launching.

Question

Thank you very much for the opportunity. Can you tell us more about what is the degree of completion of Crimson Desert? And how much of the remaining development is still there? And can you tell us about to what extent are you going to disclose Crimson Desert at Gamescom and what is its differentiating points? And can you tell us with the launch of Crimson Desert what is the direction of your company aims to go forward?

 

Answer

Thank you very much for your question. For Crimson Desert, we're actually heightening the degree of completion and optimization, and we're smoothly engaging in the last-minute stages.

And since we are nearing the completion of the development, starting off with Gamescom, we will do our best to actually promote our game in earnest and have plans to heighten our degree of marketing.

First of all, at Gamescom, which will take place in two weeks, we are preparing for a 30-minute portion of our demo build where users can directly play the game. Last year, what we did was actually show a three-minute video or trailer at ONL, which is the night event of the Gamescom, and concentrate on marketing with our partner companies. However, for this year, what we're preparing for is the user demo that I aforementioned as well as about a one-hour long, our demo video or trailer, so I believe that you will get a chance to see this through our own channels and through media.

We will do our best so that the users at the Gamescom will play the game. And even for the users that are not there, we will do our best so that they can actually get a taste of Crimson Desert through videos.

Also, after Gamescom, we want Korean users to also experience the game. So we are planning to have B2C demos at G-STAR in Korea in November as well.

And related to the differentiating aspects of Crimson Desert, Crimson Desert will actually show a very high degree of leeway, which will overcome the different open world games that have existed so far. And we have been working hard, so that we can show off game quality that is of a higher level, compared to others.

In addition, we have very immersive stories and graphics, and the degree of completeness is very high. So we are making many efforts, and we believe the results will actually rival that of other AAA games or higher.

And we are committed to actually heightening the degree of completeness or perfection of the game playing until the end of our preparation phase, right before our launching, and strengthen our marketing, so that we will do our best for the best performance of the game.

Question

Thank you for the opportunity. I am Ahn Jaemin from NH Investments and Securities. And I know that you can't exactly pinpoint when exactly the date of when Crimson Desert will be launched, but do you think that it will be similar to the same time next year, in the summertime of next year?

And my second question is that are you considering signing contracts with large-scale global publishers like Sony, Microsoft, or Tencent? Are you in negotiation with any of them? Thank you.

Answer

Well, regarding our launching schedule, since we are smoothly completing the game, I think that regarding when we will launch the game, the visibility is getting clearer and clearer. However, at this Gamescom, we will focus on user marketing. And regarding the more detailed launching date announcement, we will communicate this more to you in the process of our marketing, which will be done in the second half of this year.

And we do know that it's very important for us to have a launching as soon as possible. So all of our developers are doing their best. So we will do our utmost to complete the perfection of our game as soon as possible, so that we can complete the development and prepare for launching as soon as possible as well.

In the case of publishing, well, we thought of many different ways of publishing. However, since we are considering the benefit of our company as our first priority, including having simultaneous launching with PC version, we are now thinking of a direction where we will directly service.

Since we have been directly servicing Black Desert in all different global areas for the last 10 years, and accumulating marketing capability and know-how, we have the confidence that we can successfully service Crimson Desert as well.

Actually, during the last few years at Gamescom and other global events, we were able to successfully promote Crimson Desert and get huge interests from users.

Going forward, we will utilize the accumulated know-how and make thorough preparations that Crimson Desert can get the right result that will be fit its status as a AAA game.