ncsoft presentation

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ncsoft presentation

NCSOFT PRESENTATION
October 2013
NCSOFT Corporation
157-37 Samsung-dong, Kangnam-gu, Seoul 135-090, KOREA
Tel: +82-2-2186-3300 Fax : +82-2-2186-3550
Copyright ⓒ NCSOFT Corporation. All Rights Reserved
WWW.NCSOFT.COM
Global Online Game Publisher NCsoft
Disclaimer
Some of the information and data in the material have been prepared based on assumptions. There
can be no assurance that the assumptions used by NCSOFT are correct and even if they are, that
the effect of such assumptions on NCSOFT’s business and results of operations will be as projected.
Therefore, NCSOFT will not be responsible for individual investment decisions based solely on this
material.
The financial results for 2Q FY 2013 have been prepared on an un-audited basis,
and may be subject to change during independent auditing process.
※ Consolidated subsidiaries (K-IFRS based) :
NC West Holdings(100%, US), NC Europe(100%, UK),
NC Japan(60%, JP), NC Taiwan(85%, TW), NCSOFT Corporation(HQ, KR),
Next Play(80%, KR), NCSOFT Service(100%, KR), NC Dinos Baseball Club(100%, KR),
Hotdog Studio(58%, KR), Oraion Soft(100%, KR), Ntreev Soft(76%, KR)
2
Contents
I. Overview
1. Industry Overview
2. Company Overview
II. 2Q FY2013 Earnings
3. Financial Highlights
4. Sales Breakdown
5. Costs Breakdown
III. Investment Points
6. Opportunities
7. Catalysts
8. Strengths
Appendix
9. Summarized Financial Statements
10. Screenshots
3
1-1. Industry Overview(Characteristics & Categories)
General Characteristics of Online Game Industry
 Fast-growing industry
 High margin business
 Low cultural barriers
 Multi-year cycle business
Categories of Online Games
MMOG
(Massively Multiplayer
Online Games)
MOG
(Multiplayer Online
Games)
Web Board Games
Thousands of players play in an evolving
virtual persistent world simultaneously over
the internet
Online games with
limited number of
players in a single game
world at a time
Hardcore users
Male, young adults
Mid-core & light users
Male & female, from teens to 40’s
Product Life Cycle
Relatively long (5-10 years)
Generally shorter than MMOGs
Business Model
Mainly subscription fees,
box sales in some regions
In-game items sales,
optional fees for premium contents
High development cost over
long development period (4~5 years)
Relatively low development cost,
shorter development period
Definition
Main User Base
Development cost
Easy to play browser
games such as chess,
poker, etc.
4
1-2. Industry Overview(Global Market at a Glance)
Online is the fastest growing game platform with CAGR 21% 2009~2014.
China is the biggest online game market with CAGR 23% 2009~2014.
Breakdown of Online by Regions
Growth Projection by Platforms
(Unit : USD BN)
(Unit : USD BN)
120
108
101
100
3
102
3
80
3
3
118
25
21
48
20
9
13
16
2009
2010
Online
12
11
21
28
25
14
32
1
1
3
16
47
48
10
7
1
2
1
2
4
1
1
4
4
3
4
25
48
50
28
30
23
25
60
20
32
22
48
40
35
3
21
3
26
28
109
114
15
13
10
0
1
2
2
5
3
1
1
2
3
11
9
3
7
3
6
4
7
4
5
2009
2010
8
10
11
2012E
2013E
2014E
Japan
Others
-
Mobile
2011
Console
2012E
2013E
Arcade
2014E
PC Package
China
Korea
2011
Europe
N. America
(Source: DFC 2012, iResearch 2012, PWC 2012, Jamma 2007~2012, informa 2005~2007, Enterbrain 2012, Playmeter 2012, JOGA 2012))
5
1-3. Industry Overview(Global Market, Online platform)
Online is the fastest growing game platform.
China and MMORPG genre are one of the biggest growth drivers for Online games.
Growth Projection
Market Share Trend
(Unit : USD BN)
35
3%
3%
3%
3%
3%
2%
21%
18%
28%
24%
19%
25%
32
Online
CAGR 21%
(2009~2014)
30
25
28
25
21
20
Mobile
CAGR 14%
(2009~2014)
16
15
13
10
7
10
9
11
43%
47%
2011
Online
2012E
12
2013E
Mobile
45%
49%
5
2010
41%
14
7%
2009
42%
2014E
8%
9%
10%
11%
12%
23%
25%
12%
19%
27%
16%
2009
2010
2011
2012E
2013E
2014E
PC Package
Arcade
Console
Mobile
Online
(Source: DFC 2012, iResearch 2012, PWC 2012, Jamma 2007~2012, informa 2005~2007, Enterbrain 2012, Playmeter 2012, JOGA 2012))
6
1-4. Industry Overview(China Market)
Online will remain as the most dominant game platform in China.
MMORPG will be the most popular genre in China with 50% ~ 60% market share.
Breakdown of Online by Genre
16
(Unit : USD BN)
16
(Unit : USD BN)
-
14
-
1.2
13
14
12
1.0
12
0.8
-
0.7
10
8
8
8
0.3
6
4
7
8
10
10
0.4
12
11
10
13
6
2
11
12
-
7
1
2
2
1
4
4
1
4
3
2
2
4
2
2
4
5
5
6
2012E
2013E
2014E
6
7
2015E
2016E
-
2011
2012E
Online
2013E
2014E
Mobile
2015E
Others
2016E
2011
MMORPG
Casual Games
Web-based Games
(Source : GPC and IDC 2012)
7
1-5. Industry Overview(Korea Market)
In Korea, as in China, Online will serve as the most dominant game platform.
Online will make up 88% ~ 89% of Korean gaming market through 2014.
Market Share Trend
(Unit : USD BN)
12
100%
90%
10
1.0
7%
8%
9%
85%
89%
89%
89%
88%
2010
2011
2012E
2013E
2014E
6%
70%
0.7
8
80%
6%
6%
60%
0.5
6
50%
0.3
4
9
8
0.2
2
3
81%
30%
6
0.2
40%
5
20%
4
10%
-
0%
2009
2010
Online
2011
2012E
Mobile
2013E
2014E
Others
2009
Online
Mobile
Others
(Source : Game White Paper 2012, Ministry of Culture, Korea)
8
1-6. Industry Overview(US & EU Market)
While Console is shrinking, Online is expected to grow faster than Mobile(CAGR 17% vs CAGR 10%).
MMORPG is expected to expand continuously in EU on the back of strong user base in Germany.
Market Share Trend in EU
(Unit : USD BN)
80
100%
90%
70
3
3
60
17
50
14
3
15
3
3
3
12
12
11
80%
49
50
51
2007
2008
44
43
41
56
57
59
2009
2010
2011
70%
60%
40
50%
30
40
38
38
37
37
37
40%
30%
20
20%
5
4
4
5
4
4
5
6
6
7
8
2009
2010
2011
2012E
2013E
2014E
10
3
0
50
Online
Mobile
Console
Arcade
PC Package
10%
0%
MMORPG
Casual
(Source :DFC 2011, PWC 2011, IDC 2011, Informa 2007, Screendigest 2011))
9
2-1. Company Overview(NCSOFT at a Glance)
A leading game company boasting the finest development capabilities and global publishing network.
Services
Snapshot
MMORPG
□ Foundation :
March, 1997
□ CEO :
Kim, Taek Jin
□ BOD :
Kim, Taek Jin(CEO)
Lee, Hee Sang(COO)
Bae, Jae Hyun(CPO)
Jeong, Jin Soo(CLO)
Park, Byoung Moo
Oh, Myoung *
Seo, Yun Seok*
□ Employees** :
3,000
Casual Games
□ Global network : Korea, North America,
Europe, Japan, Taiwan
□ Ownership** :
Individual
20%
Mgmt
10%
Treasury
Stock
9%
Mobile Games
Nexon
15%
Domestic
Institution
22%
Foreign
Institution
* Outside Directors
** As of October 2013
Game Portal
24%
Game Portal
10
2-2. Company Overview(Annual Revenues Trend)
Legacy products remain solid. With the case of Lineage, sales actually increased.
B&S and GW2 will drive growth further via China launch in 2013.
(Unit : KRW BN)
900
B&S and GW2 in China(’13~)
Royalty
Casual & Mobile Games
800
700
600
500
GW2(‘12)
Guild Wars 2
B&S(‘12)
Blade & Soul
AION
39
Guild Wars
12
City of Heroes/Villains
13
Lineage2
Lineage
AION(‘08)
252
262
165
62
223
400
141
300
Lineage2(‘03)
123
200
111
100
7
0
1998
1999
2000
119
131
147
21
Lineage(‘98)
55
119
101
65
153
113
133
118
113
115
118
111
113
132
2001
2002
2003
2004
2005
2006
2007
2008
2009
183 196
205
2010
2012 2013(E)
2011
11
2-3. Company Overview(Growth stages)
Lineage pioneered online games and still remains solid on the back of social network effect
Lineage2 and AION expanded NCSOFT’s domestic presence via product diversification
B&S and GW2 will accelerate global expansion thanks to differentiated quality and target marketing
(Unit : KRW BN)
900
Stage 3 : Global Expansion
GW2(‘12)
800
B&S(‘12)
700
600
165
Stage 2 : Dominance in Korea
500
AION(‘08)
252
262
223
400
62
141
10
300
Lineage2(‘03)
200
100
123
Stage 1 : Pioneer
111
0
7
1998
1999
2000
119
131
147
21
Lineage(‘98)
55
119
101
153
113
133
118
113
115
118
111
113
132
2001
2002
2003
2004
2005
2006
2007
2008
2009
65
183 196
205
2010
2012 2013(E)
2011
12
2-4. Company Overview(Hybrid Biz Model)
Lineage, one of the legacy games, is now stronger than ever thanks to hybrid business model.
Hybrid biz model(subscription + in-game item sales) will be expanded to other existing titles.
Quarterly Revenue of Lineage
Annual Revenue of Lineage
(Unit : KRW MN)
(Unit : KRW MN)
90,000
300,000
84,791
80,000
250,000
70,000
200,000
60,000
In-game item
sales
66,287
In-game item
sales
66,038
64,861
58,449
50,951
50,000
150,000
51,618
40,000
42,459
50,050
47,95540,915
38,512
205,261
100,000
195,702
30,000
43,646
39,952
38,306
132,847
50,000
0
132,033
118,050
112,602
117,641 115,012
113,265
112,800
111,401
54,605
6,640
200
29,351
28,88727,481
28,088
25,151
26,605
20,000 29,023
10,000
-
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13
13
2-5. Company Overview(Development & Publishing Network)
Top talented developers in Korea and U.S.
Well-organized publishing arms in major markets such as Japan, Taiwan, Europe, U.S.
Europe
NCSOFT Europe (100%)
Innova System (LineageII)
Gameforge (AION)
China
Shanda (AION)
Tencent (B&S, Lineage, LineageII, Punch Monster )
KongZhong (Guild Wars 2)
Japan
NC Japan (60%, JV with Soft Bank)
Korea
NCsoft Corporation
(Headquarters)
North America
NC Interactive (100%)
Carbine Studio (100%)
Arenanet (100%)
Taiwan
NC Taiwan (85%, JV with Gamania)
Gamania (Lineage)
Development Studio
Publishing Entity
First Party Studio
License Partner
14
2-6. Company Overview(Never-Ending Innovation)
To be launched
Lineage Eternal
In service 
...
Wildstar
Guild Wars 2
Epic scale combats
Blade and Soul
Drag skill
MMO + SNG
AION
Proprietary
graphic engine
Lineage2
Differentiated action
Lineage
Flying characters
Wide range of
customization
Seamless
instant dungeons
Never seen before
adventures
Smart view
Interactive object
Personalized story line
Dynamic quest system
Smart UI
The first 3D MMO in Korea
Seamless world
Users get to create their
own contents
Large scale PvP
called ‘Gong Sung Jeon’
15
3. Financial Highlights
Revenues grew on the back of historical high L1 and stable GW2
OP also increased reflecting solid revenues and limited increase in expenses
Sales
Operating Profit
283,353
300,000
250,000
100,000
184,875
182,189
200,000
150,000
192,014
80,000
146,808
55,512
60,000
100,000
↑ 4% QoQ
↑31% YoY
50,000
↑ 12% QoQ
0
2Q 12
3Q 12
4Q 12
1Q 13
2Q 13
(20,000)
2Q 12
(11,108)
3Q 12
Pre-tax Income
120,000
4Q 12
1Q 13
2Q 13
Net Income
113,591
101,933
110,000
100,000
90,000
80,000
65,272
54,204
60,000
58,677
70,000
↓10% QoQ
20,000
(3,233)
2Q 12
3Q 12
4Q 12
1Q 13
2Q 13
52,330
47,152
50,000
40,000
(20,000)
62,248
36,787
40,000
20,000
-
0
(Unit : KRW in MN)
113,194
120,000
34,218
30,000
↓35% QoQ
10,000
(7,820)
(10,000)
2Q 12
3Q 12
4Q 12
1Q 13
2Q 13
16
4. Sales Breakdown
Korea and Royalty rose thanks to robust L1 and strong AION in China respectively
L1 marked an all-time high via healthy user base coupled with in-game item promotions
Sales by Games
(excluding royalty)
Sales by Region
250,000
200,000
174,134
180,000
184,875
200,000
150,000
100,000
146,808
17,126
3,120
16,898
699
5,783
10,741
2,530
13,012
14,679
24,721
192,014
13,027
2,530
15,894
13,319
18,801
Royalty
Taiwan
103,182
119,192
N. America
Korea
36,382
140,000
129,682
120,000
17,954
-
16,504
36,367
28,284
178,987
13,591
28,899
14,152
100,000
Japan
128,443
12,708
160,000
Europe
50,000
(Unit : KRW in MN)
80,000
60,000
16,912
Others
23,257
GW2
14,298
B&S
AION
14,218
L2
L1
84,791
40,000
58,449
66,038
2Q 12
1Q 13
20,000
2Q 12
1Q 13
2Q 13
-
2Q 13
L1 : Lineage 1
B&S : Blade and Soul
L2 : Lineage 2
GW2 : Guild Wars 2
17
5. Costs Breakdown
Labor costs remained flat QoQ with limited change in headcount
Variable expense shrank due to decreased royalty expense
No meaningful changes in Marketing expense, D&A, and Others
(Unit : KRW in MN)
2Q 12
3Q 12
4Q 12
1Q 13
2Q 13
QoQ
YoY
Labor Cost
92,578
73,551
85,484
76,543
76,426
0%
-17%
Variable expense
13,386
18,225
18,528
12,758
11,591
-9%
-13%
- Payment processing fee
6,437
8,093
8,130
6,584
6,902
5%
7%
- Royalty expense
4,307
3,695
4,030
3,462
2,750
-21%
-36%
- Box production fee
1,479
5,011
2,437
580
1,163
101%
-21%
- Other variable
1,163
1,426
3,931
2,132
776
-64%
-33%
6,829
10,819
15,463
4,006
4,875
22%
-29%
D&A
11,524
11,944
5,611
8,458
8,472
0%
-26%
Others(*)
33,600
30,863
45,073
27,598
28,403
3%
-15%
157,917
145,402
170,159
129,363
129,767
0%
-18%
Marketing expense
Sub Total
* 2Q13 Others: Bandwidth costs(4,617), Rent(2,283), Wage for outsourced staff(3,643), Outsourced R&D(1,538), etc
18
6. Opportunity
Online is the fastest growing game platform (CAGR 21%).
Great potential for growth is ahead, but there are only a handful of players in the market.
Annual Revenue Trend of Blizzard
Game Markets by Platform
60
1,800
(Unit : USD in BN)
1,646
(Unit : USD in MN)
1,600
50
50
48
48
CAGR -1%
48
47
48
40
30
1,196
1,200
1,243
1,082
CAGR 21%
28
CAGR -6%
25
25
23
22
1,000
800
21
696
600
458
16
13
32
28
26
21
20
10
1,420
1,346
1,400
CAGR 14%
12
11
14
7
9
10
3
3
3
3
3
3
2009
2010
2011
2012E
2013E
2014E
400
200
160
-
Online
Mobile
Console
Arcade
PC Package
CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012
(Source: Hudson Square Research)
(Source: Game White Paper 2012, Ministry of Culture, Korea)
19
7-1. Catalysts (China)
MMO genre is the largest segment in Chinese online game market and
successful MMOs in China are reported to generate USD 400 MN ~ 500 MN revenues per year.
B&S and GW2, the most anticipated games in China, are expected to launch in 2H 2013.
Breakdown of Chinese Market by Genre
16
(Unit : USD BN)
(Unit : USD MN)
600
13
14
12
10
10
8
8
7
6
1
500
2
11
12
2
400
2
1
4
4
1
4
300
3
2
2
200
4
2
Annual revenues(FY11) of leading MMOs in China
4
5
5
6
6
2012E
2013E
2014E
2015E
7
100
2011
MMORPG
Casual Games
2016E
Web-based Games
(Source : GPC and IDC 2012)
0
FWJ
Netease
Mir2
TLBB
WoW
Zhuxian
Shanda Changyou Netease Perfect World
(Source : duowan.com, companies)
20
7-2. Catalysts (Platform expansion)
Not only existing games but also new titles will be ported to a variety of platforms.
*
HQ focuses on premium mobile games, while subsidiaries specialize in light and trendy ones.
.....
.....
* Hotdog Studio(58% ownership, KR), Ntreev Soft(76% ownership, KR)
21
8. Strengths
World-class development capabilities and a strong pipeline
Global publishing network
To be launched
15 years of operational know-hows and skills
Lineage Eternal
In service 
...
Wildstar
Guild Wars 2

Blade and Soul

AION

Lineage2

Lineage







Launch: Sep. 1998
Accumulated Sales:
KRW 2 TN
(launch~2012)


Launch: Oct. 2003
Accumulated Sales:
KRW 1.5 TN
(launch~2012)


Launch : Nov. 2008

Accumulated Sales:
KRW 1 TN (launch~2012)
Internal tests expected
in 2013
Hands-on demo at PAX
and GamesCom in 2013
To be launched in US/EU in 1H 2014

Launched in US/EU on August 28 2012

To be launched in China via KongZhong in 2H 2013
Launched in Korea on June 30 2012
PCU in Korea : 230K
(PCU: Peak Concurrent Users)
To be launched in China via Tencent in 2H 2013
Service Country: 7 countries
(EU counted as one)
Latest Quarterly Sales: KRW 25 BN
(EU counted as one)


22
Appendix
9. Summarized Financial Statements
10. Screenshots
23
9-1. Summarized B/S
Consolidated
Parent
(Unit : KRW in MN)
2012
Current Assets
(Unit : KRW in MN)
2012
1H 2013
674,304
742,487
Cash & cash equivalents
123,041
161,006
Cash & cash equivalents
Short-term financial instruments
313,035
352,899
Short-term financial instruments
76,702
65,475
161,525
163,106
642,522
671,016
45,522
42,663
Tangible assets
425,828
470,305
Intangible assets
133,317
120,682
37,855
37,366
1,316,826
1,413,503
Account receivables
Others
Non-current Assets
Investment assets
Others
Total Assets
Current Liabilities
235,652
256,632
Borrowings
12,174
10,933
Payables
25,474
42,574
5,317
24,839
8
9
192,679
178,277
60,610
64,425
35,284
43,512
Current tax liabilities
Other provisions
Others
Non-current Liabilities
Defined benefit obligations
Long-term employee benefits
Others
Total Liabilities
Capital Stock
Other Paid-up Capital
Other Components of Equity
Retained Earnings
4,550
4,834
20,776
16,079
296,262
321,057
10,949
10,957
117,910
118,937
991
(56)
Current Assets
Account receivables
Others
Non-current Assets
1H 2013
534,191
589,250
26,372
36,551
301,000
342,000
48,209
43,766
158,611
166,933
666,323
703,458
Investment assets
226,207
214,676
Tangible assets
399,739
446,167
Intangible assets
29,692
28,465
Others
10,685
14,150
1,200,514
1,292,709
127,559
153,113
12,201
32,744
5,068
22,736
108,290
97,633
Total Assets
Current Liabilities
Payables
Current tax liabilities
Others
Other Provisions
Non-current Liabilities
Defined benefit obligations
Long-term employee benefits
Derivatives Liabilities
Other Account Payble
Total Liabilities
Capital Stock
Other Paid-up Capital
2,000
-
34,132
41,370
29,576
36,888
4,205
4,458
351
24
-
-
161,691
194,483
10,949
10,957
127,935
129,275
2,533
1,409
870,734
942,619
Non-Controlling Interests
19,979
19,989
897,406
956,584
Total Stockholders Equity
1,020,564
1,092,446
Total Stockholders Equity
1,038,823
1,098,225
Total Liabilities
and Stockholders Equity
1,316,826
1,413,503
Total Liabilities
and Stockholders Equity
1,200,514
1,292,709
Other Components of Equity
Retained Earnings
24
9-2. Summarized P/L
Parent
Consolidated
(Unit : KRW in MN)
(Unit : KRW in MN)
2012
2012
1H 2013
1H 2013
Sales
753,520
376,889
Sales
475,302
261,458
Cost of Sales
226,176
105,580
Cost of Sales
123,441
60,519
Gross Profit
527,344
271,310
Gross Profit
351,861
200,939
Selling & Administrative Expense
376,092
153,550
Selling & Administrative Expense
250,852
98,482
Operating Income
151,252
117,760
Operating Income
101,009
102,457
Other Income
50,229
22,553
Other Income
42,079
18,456
Other Expense
18,574
16,364
Other Expense
52,067
16,239
182,907
123,949
Income before Income Tax Expense
91,021
104,674
29,240
37,400
Income Tax Expenses
22,272
31,277
153,667
86,549
Net Income
68,749
73,397
Income before Income Tax Expense
Income Tax Expenses
Net income
Non-Controlling Interests
(2,136)
408
Equity Attributable to the owners of the Parent
155,802
Company86,141
25
10-1. Screenshot(Blade & Soul)
26
10-2. Screenshot(Guild Wars 2)
27
10-3. Screenshot(Wildstar)
28
10-4. Screenshot(Lineage Eternal)
29
Thank you
30

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