Pearl Abyss, the parent company of CCP, had its Q1 results on Friday 10 May.
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.
The shares have fallen 75% from their peak in part due to games developers getting ramped up during the pandemic but also because their next new title Crimson Harvest keeps getting delayed.
The good news is that no further delay was announced in the call.
Overall Results
Revenues were basically flat at 85.4bn won vs Q1 2023. There was a one-off revenue payment from China which is not quantified relating to Black Dessert mobile.
Black Desert revenue was 67bn won which was down 1% on Q1 2023 and up 11% on Q4 2023.
EVE revenue was 18bn won which was up 6% on Q1 2023 and down 10% on Q4 2024. It is the Q1 on Q1 we should look it because it removes seasonal distortions.
Labour costs were up 4% on Q1 2024 on flat headcount. Marketing also flat on Q1 2023.
And Pearl Abyss made a small operating profit of 0.6bn won.
How were the results taken?
Its worth saying that these results were weak but the stock rose 11% on the back of more commentary on the pipeline and no new delay being announced for Crimson Harvest.
The analysis
The market is aware that the existing main games (Black Desert and EVE) are continuing to be dull in PC, Mobile and Console and therefore struggling to cover the costs of the new game development.
That said, this time management gave more detail on Crimson Desert’s pre-marketing schedule. So for now, at least, the Q1 2025 launch date has not slipped. Hands-on test of Crimson Desert due at 2024 Gamescom (21-25 August).
And management are confident on getting a license in H2 2024 to launch the Black Desert in China in Q4 2024 in partnership with Tencent.
Eve Online
The revenues produced in Q1 for Eve Online were a little better than expected so analysts are now expecting 75bn won for 2024 and 75bn for 2026 (=$54.8m) and so flat in 2023. There is one or two analysts who actually expect Eve Online revenues to fall by 1-2% pa.
For Eve Online the earnings call was very quiet.
Management said Eve Online was stable in Q1 despite no new large scale content in the quarter.
They also highlighted the disclosure of the 2024 development roadmap, maintaining user expectations and continued EVE Vanguard playtest and started preparations to expand revenues.
They talked about EVE Vanguard launching new maps so that it can provide a richer FPS experience. And touch on it being in the Eve ecosystem.
And management then state that they plan to have a large scale test in May for EVE IP based on blockchain platform, Project Awakening.
In the case of EVE Galaxy conquest after soft launching for certain areas late last year, they have been reflecting the user feedback and are continuously upgrading the game. In addition, they plan to expand the soft launching regions in May.
Earnings Call Transcript
Operator:
Good morning and good evening. Thank you all for joining this conference call for the earnings results of Pearl Abyss. This conference will start with a presentation followed by a divisional Q&A session. (Operator Instructions)
Now, we will begin the presentation on Pearl Abyss' First Quarter Earnings Results of the Fiscal Year 2024.
Kim Jaehun, IR Team:
Greetings. I am Kim Jaehun 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 2024 Q1 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 and 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, 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, Chief Financial Officer:
Greetings, everyone. 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,
First, I will cover Q1 major management activities and achievements. Black Desert and EVE, based on the accumulated live service know-how, has been continuing consistent performance and has started communication for new titles including Project Awakening. Black Desert has shown diverse contents including Guild League, War of the Roses pre-season in Q1, and has focused on strengthening PvP and RVR. Through this, we were able to heighten the inherent fun of MMORPG, stimulate the user's growth needs, and bring about good responses.
In particular, although there weren't large scale updates in Q1 and thus only a low degree of marketing, based on our accumulated capabilities, we were able to achieve consistent performance. In the case of console, we were able to heighten user satisfaction by improving various system and user convenience, including Great Ocean renewal and item simplification. Apart from this, through new quest scholar update, revenues and DAU all increased, leading to stable performance at the level of the previous quarter. In case of mobile, with launching of the new quest, Letanas, and large scale existing content revamp, including Great Desert contents renewal and improvement of Black Spirit mode, we provided a better gameplay environment and contents. In addition, the user indicators which improved after the December ball have continued to be maintained and brought about stable performance.
EVE Online, despite no large scale content after the Havoc update which occurred in the previous quarter brought about stable performance. In addition, we disclosed 2024 development roadmap, maintaining user expectations and continued EVE Vanguard playtest and started preparations to expand revenues. Apart from this, we took part in the GDC 2024 and officially disclosed Project Awakening, our blockchain based project, and are preparing to enter into new markets.
Next, I will cover our company's Q1 results. Q1 operating revenue posted KRW85.4 billion, a 1.2% Q-o-Q increase, and operating profit and net profit each posted KRW600 million and KRW12.8 billion, respectively, turning a profit.
I will cover our operating revenue in more detail. First, I will explain about operating revenue of major IPs. Operating revenue from Black Desert IP in this quarter posted KRW66.8 billion and increased 11 points Q-o-Q. EVE IP operating revenue posted KRW18 billion and decreased 9.5% Q-o-Q. In case of operating revenue breakdown by region, it recorded 18% for Korea, 29% for Asia, and 53% for North America and Europe. Regarding operating revenue for platforms, 69% was for PC, 26% for mobile and 5% for console.
Next, I would like to cover operating expenses. Q1 operating expenses posted KRW84.9 billion, a 5.6% Q-o-Q decrease. In case of labor, it posted KRW46 billion and due to factors such as increase in the number of employees and salary increase, it increased 13.2% Q-o-Q. For your reference Q1 end total number of employees stands at 1,351, developer headcount is 786, and take up 58% compared to the total number of employees. In case of commissions, it posted KRW17.1 billion, a 2% drop Q-o-Q and in the case of advertising through efficient marketing, it posted KRW5.6 billion, a 30.3% decrease Q-o-Q.
Lastly, I would like to cover Q2 and major highlights for the latter part of the year. In Q2, Black Desert along with diverse contents, will commemorate our 10th year of service and plan to hold large scale user events. In particular, with the 10th anniversary, we are planning to hold a ball in France which was the motif of the City of Heidel within Black Desert and through this event, we plan to further strengthen communication with global users.
In addition, in the case of War of the Roses, which had a pre-season in the previous quarter, based on the diverse feedback from users, we will showcase an upgraded version. In particular, we received positive reviews about the fact that it broke free from existing PvP rules and the form was refreshing, so we believe that we will have good results since the user expectations have been heightened.
Apart from this, we plan to disclose part two of Land of Morning Light which received many positive reviews with new adventures which were quite different from the past and the second part will be named Land of Morning Light Pt. 2: Seoul. We will showcase it in the summer and we expect that users can once again enjoy diverse adventures.
For Black Desert console, through continuous improvement of various contents and convenience updates, we will work so that consistent user indicators will be continued. In addition, we will drive development of versions for next generation devices so that we can provide better quality and improved game environment to users.
In the case of mobile in April, new hunting ground was added to Land of Morning Light in April and recently launched new quest, Asgia [ph]. In addition, expectations are high for licensed acquisition in the case of Black Desert China service, we are making preparations so that we can quickly provide official service after the license is issued. EVE is planning to launch the fourth new expansion pack, Equinox in June.
In addition, EVE Vanguard, which has monthly patch, will launch new maps so that it can provide a richer FPS experience. We will continuously work to improve the quality of the game and game playing experience based on user feedback until launch so that we can strengthen the EVE's ecosystem. We are smoothly progressing with preparations for new titles to secure new growth engines.
First, we plan to have a large scale test in May for EVE IP based on blockchain platform, Project Awakening. In addition, we plan to have regular tests within the year and polish and perfect the game until launch. In the case of EVE Galaxy conquest after soft launching for certain areas late last year, we have been reflecting the user feedback and are continuously upgrading the game. In addition, we plan to expand the soft launching regions in May and receive more diverse user feedback. We will continuously perfect it until the launching and make preparations so that we will have positive results.
For Crimson Desert, with development in its last stages, we plan to start full-fledged marketing. First, we will participate in Gamescom, the biggest global game event, and plan to hold demos for users. If we had focused on partner-focused marketing until last year, this year we are planning diverse types of marketing which can enable users to experience the game and heighten expectations about the game.
Black Desert celebrates 10th year of service this year, so including EVE IP with more than 20 years, now, we are a company which has two IPs which have been maintained for more than 10 years, respectively. In the game market, which has not only many market changes but also many changes in the regulations, we have secured solid basic fundamentals through consistent IP management capability that we have accumulated until now and we are also confident that we have the ability to grow new titles, including Crimson Desert from mid to long term.
In addition, with the completion of the development of Crimson Desert, the development speed of ladder titles, including DokeV, is accelerating. We will do our best to communicate the development progress consecutively. To be a better company, all employees from the CEO are doing their best. We ask for your continued interest and support. Thank you.
Kim Jaehun, IR Team:
With this, we will conclude Pearl Abyss' 2024 Q1 Earnings Release Presentation and start the Q&A session.
Questions And Answers
Operator:
Q&A session will begin. (Operator Instructions) The first question will be provided by Jin-Gu Kim from Kiwoom Securities. Please go ahead with your question.
Jin-Gu Kim, Analyst:
Thank you very much for the opportunity. I have two large questions. My first question actually refers to your new titles. And do you have any plans to release any in-game footage for Crimson Desert additionally and can you give us some color on the timeline if possible? And can you also let us know if you are planning to release more in-game footage for DokeV as well?
And my second question is about your expectations about when do you think Black Desert PC China service will be open? I know it's not easy to make predictions, but if you can give us a timeline that you're thinking of and can you also give us some of your thoughts on what kind of financial results you are expecting? Thank you very much.
Heo Jin-young, Chief Executive Officer:
Thank you very much. I would like to answer your question about the current situation for Black Desert -- for Crimson Desert. And regarding Crimson Desert, we are actually working hard so that it can be completely optimized and for us to actually perfect the game, so we are smoothly going ahead with the final stages and we are receiving feedback from customers and we also are targeting Gamescom for our marketing. So we are quite active in this area.
So we know that it might not be enough for us to just show you some footage from the game. So that is why we are planning to have some demos so that our users can actually participate and experience the game. And starting with Gamescom, we plan to participate in diverse global game events like G-Star so that we can expand our Crimson Desert marketing activities until we launch and to strengthen those activities, and if needed, we will of course release some of the footage from the game.
And regarding the timeline, I know that many of you are very curious. So in the process of our marketing, we will consecutively give you more information about more detailed timeline, including our pre-signups or pre-registrations. For your reference, at this Gamescom, we plan to concentrate on letting the users know about our game and to heighten their expectations. So we plan to focus on that. So regarding the pre-registrations and our launch schedule, well, we are planning to do so with an opportune event that can actually lead to many pre-sales. So according to the different stages of marketing, we plan to give you more information consecutively so that expectations can become more heightened and so that it can lead to many pre-sales. So we are making those preparations.
And for DokeV, as you probably know, through our Black Space engine, we are heightening our efficiency and productivity. However, I want to tell you that because we are currently in the latter stages of finishing off the development of Crimson Desert, well, we will be able to and we are able to put in the extra manpower into the development of DokeV.
However, and regarding all the footage that you've asked for, for DokeV, we are thinking of actually showing you the footage if possible, so we are actually internally discussing those possibilities. But as I mentioned, because we are focusing on Crimson Desert now, in order for us to showcase it to the public, we will probably find an opportunity after it is released. And we are well aware that there are heightened expectations in the market about DokeV. So we will do our best to give you more information about DokeV as well.
Kim Gyeong-man, Chief Business Officer:
I would like to cover what is currently going on in China related to Black Desert license. (Foreign Language). Regarding Black Desert Chinese license, we have submitted all the relevant documents to the authorities and we are waiting for their response.
Currently, internally, we have high expectations about issuing of the license, so we are doing our best so that we can service -- provide a service as soon as the license is given. So we are currently working very close with our partners so that we can have the pre-preparation work done for the game and the service.
For Black Desert China, we are actually preparing for it as a global version that we are currently servicing. In order for our Chinese users to enjoy the rich contents of our global version, as soon as it is launched, we are going to showcase many different contents very quickly. And regarding the expected results, well, for Black Desert China, we have already a great deal of service experience through our mobile service. So we have many data regarding the Chinese users and the Chinese market and we have analyzed the data so we are expecting very good results.
Kim Jaehun, IR Team:
We have had the answers from CEO, Heo Jin-young; and CBO, Kim Gyeong-man. We will take the next question.
Operator:
The following question will be presented by Jaemin Ahn from NH Investment and Securities. Please go ahead with your question.
Jaemin Ahn, Analyst:
Thank you very much for the opportunity. I am Ahn Jaemin from NH Securities and I have several questions. Well, I'm curious about what is your marketing budget for Crimson Desert? I know it's a AAA game so I believe that the amount of marketing will probably be sizable. So can you give us some numbers and do you have any plans to have any exclusive contracts or publishing contracts with Sony or Xbox? Because to my knowledge, I think Shift Up recently had that kind of arrangement with Sony which actually lessened their marketing burden and heightened their global recognition.
My next question is about your headcount. I know that you have had headcount increase following Q4 and you have mentioned that you have 30 plus headcount increase for this quarter. So do most of the increased headcount go toward working for Crimson Desert or what kind of work do they do?
Heo Jin-young, Chief Executive Officer:
Thank you very much for your questions. I would like to elaborate on the marketing budget for Crimson Desert.
So for Crimson Desert, it has been being developed as AAA game. So regarding our marketing budget, it already has been included in our business plans so far. So it is at a certain level and I don't think you need to be concerned about the level of our marketing budget. And we already have many fan base, a lot of the fan base at this point. So our marketing, I believe, will be very efficient.
And we already have accumulated vast amount of experience with Black Desert, with diverse partners and overseas partners as well. So we have had a lot of these cooperation and collaborations via diverse activities and we are currently in discussion with many of them. So as soon as the marketing begins, I'm sure that we can reap the benefits through these relationships and have very efficient marketing.
Regarding the exclusive partnerships that you have asked about, yes, actually we are thinking of diverse ways of collaboration in depth, through many methods, and we are actually discussing many opportunities in detail. But related to the exclusive partnerships, there are many considerations to have, so that is why we don't have any confirmed cases yet.
And of course we will take into consideration our company's benefits or profits as the first priority. So we will make the best choice that can lead to great results in the market.
And you also asked us about our employees and we actually have a very efficient way of managing and operating our staff numbers, and we have seen some increase in the numbers, but according to the different situation, they can actually be utilized for development and also for other roles if they're needed.
And regarding the development numbers that you have actually asked about, well, in diverse development processes, we have automation and we have made these processes very efficient. So even though we are simultaneously developing many titles at once, we have the strength to have high efficiency in these operations.
Kim Jaehun, IR Team:
It was our CEO, Heo Jin-young, who answered your questions. (Operator Instructions)
It seems that there are no other questions. So with this, we will conclude Pearl Abyss' 2024 Q1 Earnings release presentation. Thank you very much.
