Thursday, February 25, 2021

Pearl Abyss' Final Purchase Price For CCP Games: $225 Million

On 6 September 2018, Pearl Abyss announced the purchase of CCP Games for the reported sum of $425 million. The $425 million figure included a cash settlement plus incentive bonuses for performance after the sale. The website provided coverage on a page that worked with Google Translate. The final purchase price after performance bonuses? $225 million.

The purchase price that the South Korean game company Pearl Abyss pays for CCP decreases by 47% from what it could amount to - from 425 million US dollars, equivalent to more than 54 billion ISK, to 225 million dollars, almost 29 billion ISK. This is stated in a news item in Viðskiptablaðið today.

The reason is that performance-related criteria in the operation did not work. Pearl Abyss bought CCP in 2018 and 225 million dollars were paid out immediately, but 200 million dollars were conditional on CCP's results in 2019 and 2020. It was reported in Morgunblaðið a year ago that the owners will be from the performance-related payment for 2019, that is 100 million dala.

In my reading of the situation, the peformance goals were not just monetary ones. At the time the sale was announced, CCP had three games in development. The big one was Project Nova, an first person shooter set in the EVE universe. Also under development was the mobile game under development with PlayRaven, EVE: War of Ascension. An augmented reality game, EVE: Infinite Galaxy, was under development by the giant Chinese game developer NetEase. None of the three games reached the market, although Project NovaEVE: War of Ascension did make appearances at EVE conventions. CCP did continue working with NetEase, releasing a regular mobile game, EVE Echoes, in August 2020.

I would even go so far as state CCP's failure to complete development of Project Nova hurt Pearl Abyss financially. When the Korean company purchased CCP, the game release schedule looked like this...

2019 - Black Desert Mobile, BDO migrating to consoles.
2020 - Project Nova
2021 - Crimson Desert
2022 - DokeV
2023 - Plan 8

Without a major release last year, Pearl Abyss' revenue dropped 8.8% (₩47 billion) in 2020. Also, without the presence of a major game, investors are pressing PA about how they will maintain and grow revenue until Crimson Desert launches sometime in the fourth quarter of this year. Pressure is even growing on the company's release schedule for DokeV and Plan 8, much less Crimson Desert.

Given what we know now, up to $200 million in performance bonuses was a worthwhile offer. Since the earnings call on 16 February, the value of Pearl Abyss stock has declined by 21.7%. While still 85.7% over the company's 52-week low, the drop in revenue hurt expectations. Imagine the stock's value if PA had rising revenue.

I don't want to dismiss any revenue goal. I imagine that Pearl Abyss was expecting the EVE IP to deliver the revenue it received in 2020 in 2019. Then, Project Nova would launch in 2020 and total EVE revenue would far exceed last year's ₩73.6 billion ($63.2 million). But for a publicly traded company like Pearl Abyss, I have to believe delivering games is just as important as delivering revenue. And Pearl Abyss didn't receive three games it thought it had purchased.

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