20-F/A: Gravity Co., Ltd. Extends Ragnarok License with GungHo, Amends Financial Reporting

Gravity Co., Ltd. has extended its Ragnarok license agreement with GungHo Online Entertainment for two years and amended its annual report to correct a fiscal period reference.

Summary

• Gravity Co., Ltd. has extended its Ragnarok license and distribution agreement with GungHo Online Entertainment for an additional two years, from September 29, 2023, to September 28, 2025, without any license fee.
• GungHo will pay Gravity a royalty of a specified percentage of net revenue during the renewed term.
• Gravity will provide the same level of technical support as provided during the previous term from September 29, 2021, to September 28, 2023.
• The company has also filed an amendment to its annual report on Form 20-F for the year ended December 31, 2023, to correct an inadvertent reference to the wrong fiscal period in certifications under Section 906 of the Sarbanes-Oxley Act of 2002.
• The amendment also includes new certifications under Section 302 of the Sarbanes-Oxley Act of 2002, dated as of the amendment.
• The company's revenues in 2023 were Won 725,516 million, with mobile games contributing 86.8% of the total.
• Ragnarok Online revenues were Won 77,660 million, representing 10.7% of total revenues.
• Mobile game revenues increased by 75.5% to Won 629,604 million in 2023.
• Ragnarok Origin contributed Won 451,887 million, or 62.3% of total revenues, while Ragnarok X: Next Generation contributed Won 99,321 million, or 13.7% of total revenues.
• The company's net profit attributable to owners of the parent company was Won 132,019 million in 2023.
• The company's gross profit margin decreased to 33.2% in 2023 from 42.3% in 2022.
• The company's operating profit margin was 22.1% in 2023.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with strong revenue growth in mobile games and increased net profit, but also highlights some challenges such as decreasing gross profit margin and reliance on a single franchise. The sentiment is positive overall but with some caution.

Positives

• The extension of the Ragnarok license agreement with GungHo provides continued revenue stream for Gravity.
• The company's mobile game revenues increased significantly in 2023, driven by the success of Ragnarok Origin.
• The company's net profit attributable to owners of the parent company increased to Won 132,019 million in 2023.
• The company has a strong cash position with Won 184,082 million in cash and cash equivalents as of December 31, 2023.

Negatives

• The gross profit margin decreased to 33.2% in 2023 from 42.3% in 2022.
• Ragnarok Online revenues decreased to Won 77,660 million, representing 10.7% of total revenues.
• The company's operating profit margin was 22.1% in 2023, a slight decrease from 22.6% in 2022.

Risks

• The company's reliance on the Ragnarok franchise for a significant portion of its revenues.
• The company's ability to consistently develop, acquire, license, launch, market or operate commercially successful online and mobile games.
• The company's dependence on overseas licensees for a portion of its revenues.
• The company's operations are subject to laws, rules, and regulations in the countries in which its games are distributed.
• The company's businesses may be affected by geopolitical tensions between China and the United States.
• The company's businesses may be adversely affected by developments affecting the economies of the countries in which its games are distributed.
• Fluctuations in exchange rates could result in foreign currency exchange losses.

Future Outlook

The document does not provide specific forward-looking statements or guidance, but it does mention the company's intention to continue to diversify its product offering by developing online and mobile games in-house or through outsourcing as well as publishing additional games developed by third parties.

Management Comments

• The document includes certifications from the CEO and CFO stating that the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, not misleading with respect to the period covered by this report.
• The CEO and CFO also certified that the financial statements and other financial information included in the report fairly present in all material respects the financial condition, results of operations and cash flows of the company.

Industry Context

The announcement reflects the ongoing trend of game companies focusing on mobile gaming, as evidenced by the significant increase in Gravity's mobile game revenues. The extension of the Ragnarok license with GungHo also highlights the importance of established intellectual property in the gaming industry.

Comparison to Industry Standards

• Gravity's reliance on the Ragnarok franchise is similar to other game companies that leverage established IPs, such as Nintendo with Mario and Pokemon, or Activision Blizzard with Warcraft and Call of Duty.
• The shift towards mobile gaming is a common trend in the industry, with companies like Tencent and NetEase also deriving a significant portion of their revenue from mobile games.
• The decrease in gross profit margin from 42.3% to 33.2% may be a result of increased platform fees and royalty payments associated with mobile game distribution, which is a common challenge for mobile game developers.
• The operating profit margin of 22.1% is within the range of profitability for established game companies, but may be lower than some of the most profitable companies in the industry.

Corporate Governance

Related Party Transactions

• The company has a significant relationship with GungHo Online Entertainment, Inc., its majority shareholder and licensee of Ragnarok games in Japan.
• The company has entered into various agreements with GungHo, including license and co-development agreements.

Stakeholder Impact

• Shareholders will benefit from the continued revenue stream from the Ragnarok franchise and the company's growth in mobile gaming.
• Employees may benefit from the company's continued growth and profitability.
• Customers will continue to have access to the Ragnarok games and related services.
• Suppliers and creditors will continue to have business relationships with the company.

Next Steps

• The company will continue to provide technical support for the Ragnarok game during the extended license term.
• The company will continue to diversify its product offering by developing online and mobile games in-house or through outsourcing as well as publishing additional games developed by third parties.
• The company will continue to monitor and adapt to changes in the regulatory environment.

Key Dates

Keywords

Ragnarok, GungHo, license agreement, mobile games, online games, revenue, financial results, Sarbanes-Oxley Act, technical support, royalty payments