Thursday, August 13, 2020

Pearl Abyss Q2 2020 Earnings Call

Pearl Abyss held its Q2 2020 earnings presentation for investors yesterday. The main item that struck me was the declining financial numbers the Korean game company posted during a quarter expected to produce higher numbers due to the COVID-19 pandemic. Instead, PA experienced a 1.1% quarter over quarter and 8.4% year over year declines in the second quarter.

Operating profits grew 9.5% from the previous quarter, but still fell 2.3% from Q2 2019. The big decline was in Pearl Abyss' net profits, which declined ₩24.7 billion, or 51.5%, from the first quarter. Pearl Abyss did not explain the reason for the drop in net profits, although a tax hit is not out of the question. We do know that increased operating costs were not the reason for the decline in net profits. Labor costs fell 3.6% as the COVID-19 pandemic inhibited the hiring of new employees.

Eagle eyed individuals may have noticed that the totals for 2019 changed from that disclosed in the Q1 2020 call. Pearl Abyss explained this was due to the accounting changes explained in the Q4 2019 call. The change was required to fall in line with the industry's standard practices.

The source of the revenue drop was Black Desert, specifically Black Desert Mobile. While Pearl Abyss does not break out individual games, the Black Desert IP experienced a ₩7.1 billion ($6 million USD) drop in revenues in the second quarter. The BDM decrease also showed up in the percentage of revenue by platform, with mobile games making up only 43% of PA's sales in Q2 compared to 54% in the first quarter. But all was not bad news for Black Desert. On 24 April, PA began self-publishing the game in Japan, achieving the highest peak concurrent user mark in BDO's 5-year history in the country.

Partially making up for the drop was EVE Online. The game experienced a 31.9% increase in revenue QoQ and a 26.8% increase compared to Q2 2019. The $3.9 million increase brought the total EVE IP revenue up to $16 million for the quarter. While Pearl Abyss credited efforts to shore up the player base as a leading cause of the increase, I would credit both the lockdowns associated with the CONVID-19 pandemic as well as the relaunch of EVE in China on 27 April as larger factors.

Concurrency on Serenity (China), August 5-12, 2020

The EVE IP could provide a bright spot in Q3 as well. EVE Echoes launches globally today, except for China. In response to analysts' questions, Pearl Abyss revealed that the company does not have a launch date for the game in China as CCP/Netease is still trying to get a license.

Overall, Pearl Abyss came out of the call looking good, with the company's stock price jumping 5.8% in morning trading. The market consensus of a ₩37.3 billion operating profit was smashed by the ₩50.1 revealed on the call.

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