20-F: Gravity Co., Ltd. Reports 11.9% Revenue Growth in 2025

Gravity Co., Ltd. announced its annual results for the fiscal year ended December 31, 2025, reporting an 11.9% increase in total revenues, driven primarily by its mobile gaming segment.

Summary

• Gravity Co., Ltd. reported total revenues of Won 560,548 million (US$388,044 thousand) for the fiscal year ended December 31, 2025, an increase of 11.9% from Won 500,845 million in 2024.
• The mobile games segment was the primary driver of revenue growth, increasing by 12.2% to Won 455,235 million (US$315,140 thousand), largely due to new game launches like Ragnarok M: Classic and Ragnarok X: Next Generation.
• Online games revenue also saw a significant increase of 17.3% to Won 90,339 million (US$62,538 thousand), attributed to new launches in Latin America and Taiwan.
• However, gross profit margin decreased to 35.0% in 2025 from 38.7% in 2024, primarily due to higher platform service fees, royalties, and commissions related to the success of Ragnarok M: Classic.
• Operating profit decreased by 9.4% to Won 77,396 million (US$53,579 thousand), with operating profit margin falling to 13.8% from 17.0% in the previous year, impacted by increased advertising and operating expenses.
• Net profit attributable to owners of the Parent Company decreased by 20.6% to Won 67,464 million (US$46,704 thousand) in 2025 compared to Won 84,919 million in 2024.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as cautiously negative due to the decline in profitability metrics (operating profit, net profit, and gross margin) despite revenue growth, signaling increased cost pressures and competitive challenges.

Positives

• Total revenues increased by 11.9% to Won 560,548 million (US$388,044 thousand) in 2025.
• Mobile games revenue increased by 12.2% to Won 455,235 million (US$315,140 thousand) in 2025.
• Online games revenue increased by 17.3% to Won 90,339 million (US$62,538 thousand) in 2025.
• Ragnarok M: Classic, launched in February 2025, contributed 27.6% of total revenues in 2025.
• Ragnarok X: Next Generation saw revenue growth, representing 13.4% of total revenues in 2025.
• Cash and cash equivalents stood at Won 203,599 million (US$140,943 thousand) as of December 31, 2025, indicating strong liquidity.
• The company expects its available capital to be sufficient to meet its needs through at least 2027.

Negatives

• Gross profit margin decreased to 35.0% in 2025 from 38.7% in 2024 due to increased platform service fees, royalties, and commissions.
• Operating profit decreased by 9.4% to Won 77,396 million (US$53,579 thousand) in 2025.
• Operating profit margin declined to 13.8% in 2025 from 17.0% in 2024.
• Net profit attributable to owners of the Parent Company decreased by 20.6% to Won 67,464 million (US$46,704 thousand) in 2025.
• Selling, general and administrative expenses increased by 15.6% to Won 106,924 million (US$74,019 thousand) in 2025, primarily due to increased advertising expenses.
• Research and development expenses decreased by 32.3%, potentially indicating a reduced focus on new game development compared to the previous year.

Risks

• Dependence on the Ragnarok franchise for a significant portion of revenue.
• Failure to develop, acquire, license, launch, market, or operate commercially successful online and mobile games.
• Lower profit margins from mobile games compared to online games due to revenue-sharing arrangements with app stores.
• Reliance on overseas licensees for revenue and their ability to distribute, market, and comply with regulations.
• Intense competition in the online and mobile gaming industry from larger companies with greater resources.
• Potential for mobile platform providers (Apple App Store, Google Play Store) to unilaterally amend their policies, impacting distribution and revenue.
• Risks associated with publishing games developed by third parties, including operational, legal, and reputational risks.
• Vulnerability to network interruptions, security breaches, or computer virus attacks.
• Potential for unauthorized use of intellectual property rights and expenses incurred in protecting them.
• Exposure to claims of intellectual property infringement from third parties.
• Potential for additional regulatory requirements related to P2E and NFT features.
• GungHo Online Entertainment, Inc., the majority shareholder, has significant control and potential conflicts of interest.
• Reliance on the Korean market and potential impact of geopolitical tensions, economic conditions, and currency fluctuations.
• Potential for impairment losses on intangible assets due to rapid technological changes and market shifts.
• The company believes it was a PFIC for taxable years 2022-2025, which could result in adverse U.S. federal income tax consequences for U.S. investors.

Future Outlook

The company expects its available cash and cash equivalents, along with net cash from operating activities, to be sufficient to meet its capital needs through at least 2027. However, it may require additional capital for future developments, investments, or acquisitions, potentially through the sale of additional equity or debt securities.

Management Comments

• The company intends 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.
• The company believes that its existing facilities are adequate for current requirements and that additional space can be obtained on commercially reasonable terms to meet future requirements.
• The company believes that its internal cash flow from operations, together with its cash and cash equivalents, will be sufficient to satisfy its working capital requirements through at least 2027, including new game development expenditures.

Industry Context

StockSavvy.ai notes that Gravity Co., Ltd.'s performance reflects the ongoing shift in the gaming industry towards mobile platforms, with mobile games now constituting the vast majority of the company's revenue. The increased competition and the need for continuous investment in new game development and technology are key challenges, as highlighted by the company's reliance on the Ragnarok IP and the lower profit margins in the mobile segment.

Comparison to Industry Standards

• The company's gross profit margin of 35.0% is lower than the industry average for successful game publishers, which can range from 50% to 70%, likely due to higher platform fees and royalty payouts.
• The decrease in operating profit margin to 13.8% indicates potential pressure on profitability from increased operating expenses, particularly advertising, which is a common trend in the competitive gaming market.
• The company's reliance on a single IP (Ragnarok) for over 80% of its revenue is a significant concentration risk, contrasting with more diversified publishers who spread revenue across multiple franchises and platforms.

Corporate Governance

Legal Proceedings

• No material legal proceedings are currently pending that could have a material adverse effect on the company's business, results of operations, or financial condition.

Related Party Transactions

• Transactions with GungHo Online Entertainment, Inc. (controlling shareholder) include licensing agreements for game services and merchandise, and co-development agreements.
• Several executive officers hold positions at GungHo Online Entertainment, Inc., indicating potential conflicts of interest.

Stakeholder Impact

• Shareholders: Potential for reduced returns due to lower profitability and concentration risk on the Ragnarok IP. Reduced governance protections due to controlled company status.
• Employees: Increased advertising expenses may impact future hiring or compensation budgets. The company believes it maintains a good working relationship with its employees.
• Licensing Partners/Developers: Reliance on overseas licensees and third-party developers for game operations and updates carries risks related to their performance and potential changes in agreements.
• Creditors: The company has no long-term debt obligations and maintains a strong liquidity position, suggesting low risk for creditors.

Next Steps

• Continue to diversify product offerings by developing in-house games and publishing third-party games.
• Focus on enhancing game experience and developing new games with the latest technologies and innovative designs.
• Expand global publishing footprint across PC and console platforms.
• Seek opportunities to license out existing intellectual properties or license in third-party intellectual properties for game development and publishing.
• Expand the 'Ragnarok' IP through strategic collaborations and partnerships across additional content and merchandising channels.

Key Dates

Recommendation

While revenue growth is positive, the decline in profitability metrics and increased operating expenses, coupled with the significant reliance on the Ragnarok IP and competitive pressures, warrant a cautious approach. The company's ability to successfully launch and monetize new titles and manage its cost structure will be critical for future performance. Therefore, a 'hold' recommendation is appropriate pending further clarity on these factors.

Keywords

Gravity Co., Ltd., Form 20-F, Annual Report, Gaming, Online Games, Mobile Games, Ragnarok Online, Ragnarok M: Classic, Ragnarok X: Next Generation, Financial Results, Revenue Growth, Operating Profit, Net Profit, Korea