Friday, May 10, 2024

Pearl Abyss Q1 2024 Earnings Call

On Thursday in South Korea, Pearl Abyss held its earnings call for the first quarter of 2024. The big news was the performance of the Black Desert intellectual property, with a revenue increase of 11.1% to ₩66.8 billion ($50.2 million). But overall, the company's operating revenue only increased by ₩1 billion to ₩85.4 billion ($64.2 million), a 1.2% quarter-over-quarter increase. Compared to the first quarter of 2023, the company recorded a 0.5% decrease in revenue.

From the presentation

Pearl Abyss returned to profitability in the first quarter, recording a net profit of ₩12.8 billion ($9.6 million) and an operating profit of ₩600 million ($500,000). Year over year, net profits were up 36.2% while the operating profit declined 45%. The percentage made the operating profit decline sound scarier, as the decline in won was only ₩500 million ($400,000).

From the presentation

To tell the story of the Black Desert IP, we need to look at the EVE IP revenue first. As pointed out by Pearl Abyss Chief Financial Officer Joh Seokwoo, the EVE IP suffered a quarter-over-quarter revenue decline of 9.5%, down to ₩18 billion ($13.5 million).  Puzzlingly, he did not point out the year-over-year increase of 6.5%, a total increase of ₩1.1 billion ($200,000). The switch of CCP Games' strategy of releasing two expansions per year may establish a pattern of revenue peaks in the second and fourth quarters of every year, falling back in the first and third quarters. If so, then looking at revenue year-over-year may have more relevance than the quarter-over-quarter numbers.

Now to the improved performance of the Black Desert IP. Quarter-over-quarter, Black Desert revenue increased ₩6.7 billion ($4.7 million) up to ₩66.8 billion ($50.2 million). Year-over-year, Black Desert revenue declined slightly, down ₩700 million or 1%.

What raises eyebrows is the platform data. Converting the percentages to currency totals, mobile revenue increase from ₩9.6 billion ($12.7 million) in Q4 2023 to ₩22 billion ($29.3 million) in the first quarter of 2024. Most, if not all, of the increase is attributable to Black Desert Mobile.

Looking at PC revenue, performing the percentage to actual conversion results in a quarter-over-quarter revenue decline of 11.9%, from ₩66.4 billion ($87.7 million) down to ₩58.5 billion ($77.8 million). Assuming all of the EVE IP revenue decline occurred on PC platforms, then Black Desert Online on PC saw a decline of ₩6 billion ($4.5 million). The question is why? Is the answer similar to the EVE IP's? That is, no new content while the mobile version received more due to new content pushed to mobile after the PC and console versions received the updates? 

Upcoming highlights according to Pearl Abyss

Perhaps one of the most important points came from what the investment analysts on the call did not ask. No questions about Project Awakening, despite the presentation trying to highlight the Web3 project on the call. Is this an indication that this type of project is no longer the flavor-of-the-month?

The analysts seemed interested in two subjects. The first is the progress of introducing the PC version of Black Desert Online into the People's Republic of China. The latest progress report is that all paperwork was turned into the authorities and the waiting begins for approval.

Stepping outside the presentation, Pearl Abyss' optimism in not misplaced. In January, the Chinese government approved 115 new video game titles, the largest amount in 18 months. Pearl Abyss' partner in the People's Republic, Snail Games China, is not the biggest player in the Chinese market but has not incurred the wrath of the regime either. 

The other topic of interest was the development of Crimson Desert. Marketing efforts will begin as the game finishes development. Expect a big marketing effort to begin at GamesCom in August. Not only will the company reveal a new gameplay video but also provide demos for attendees to play as well.

The analysts were also informed that the marketing plans include an appearance at G-Star, a major video game event held in South Korea in mid-November. If the marketing team is including G-Star in their plans, Crimson Desert will probably not launch before December 2024. Given Pearl Abyss is a South Korean company, I suspect the announcement of Crimson Desert's launch date occur then.

One question an analyst asked was whether Crimson Desert would launch as a console exclusive, like Final Fantasy XVI launched as a Sony Playstation exclusive last year. The representatives from Pearl Abyss neatly sidestepped the question, but I received the impression the answer was no. Then again, that was just an impression.

I should add one last item of interest. While the analysts did not ask about ongoing projects currently in public testing like EVE: Vanguard or EVE: Galaxy Conquest, questions were asked about DokeV. The project was mentioned unprompted in the main portion of the call, but during the Q&A portion of the call Pearl Abyss reiterated development of the game will not really ramp up until Crimson Desert is released.

A note about currency conversions.

All currency conversions in this blog post were performed using the rates displayed on the Federal Reserve Bank of St. Louis website using the average quarterly exchange rate. As a check on the accuracy of the methodology, I compared the revenue amounts listed on the quarterly investment calls of 2023 with the actual figure from the tax filings released by the Icelandic taxing authority this week. For 2023 I came up with revenues of $55,865,000 and the actual game revenue reported to the Icelandic government was $55,735,000. The difference was 0.2% more, in case the accuracy of the methodology is a concern.

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