Pearl Abyss Q3 2023 Earnings Call

On Thursday morning Seoul time, Pearl Abyss held its earnings call for the third quarter of 2023. The South Korean video game maker posted revenues of ₩84.9 billion ($62.8 million). The amount was an 8.3% increase from the second quarter of 2023 but a year-over-year (YoY) drop of 12.7% compared to Q3 2022.

The big news is Pearl Abyss' return to profitability. In the third quarter, Pearl Abyss recorded an operating profit of ₩2.1 billion ($10.7 million) and net profit of ₩15.0 billion ($11.1 million) for the months of July, August, and September. For the first nine months of 2023, Pearl Abyss posted an operating loss of ₩10.9 billion ($8.3 million) but was in the black with a net profit of ₩20 billion ($15.1 million). 

The driver of the good financial news was Black Desert Online. The 21.1% quarter-over-quarter increase to ₩68.4 billion ($50.6 million) was the first quarterly increase in revenue since Q3 2022. Year-over-year, Black Desert IP revenue fell 10.7%. The executives on the call credited the Land of the Morning Light expansion. BDO saw a 36% increase in users during the third quarter.

On the other hand, EVE IP revenue fell 20.8% QoQ to ₩16 billion ($11.8 million). Year-over-year, EVE revenue fell 17.5%. Pearl Abyss blamed the decline of the "base effect" of the Viridian expansion. That is, returning to normal revenue levels following an expansion's launch.

A big reason for the return to profitability was a 10.5% decrease in operating expenses, led by an 18% decrease in labor costs. Pearl Abyss told analysts on the call the decline was due to a one-time, ₩8 billion incentive payout in the second quarter inflating labor costs.

The explanation does not sound entirely true. In the third quarter, headcount fell from 1,341 down to 1,293 compared to the previous quarter. Developer headcount fell 7.1% from 801 to 744 while business and other staff increased by 9 people. The decline is part of a longer term trend. Since the end of 2021, employee headcount has fallen from 1,572 down to 1,293, a decline of 17.7%.  The amount of development staff fell from 983 down to last quarter's 744, or 24.3%.

For upcoming content, Pearl Abyss could point to Black Desert Online's new "War of the Roses" and EVE Online's upcoming expansion Havoc, both releasing in the fourth quarter. The EVE IP is also expanding in Q4, with a 4x strategy mobile game EVE: Galaxy Conquest soft launching in the fourth quarter. An FPS project, EVE: Vanguard, will also hold an open beta test in December.

Of course, analysts asked about the long delayed Crimson Desert. After spending all year telling investors the game would launch in the second half of 2023, Pearl Abyss had to admit the game was not ready for launch. The good news about Crimson Desert is the game will make an appearance at the G-STAR games conference next week. From the answers on the call, I'm not sure Pearl Abyss will introduce a new trailer.