Gravity's 2024 Earnings: A Mixed Bag

Gravity Co., Ltd. (GRVY) has released its full-year 2024 earnings, and the results are a mixed bag. The company reported an EPS of KRW 12,221, a significant decline from KRW 18,999 in FY 2023. This 35.7% decrease in EPS has raised concerns among investors about the company's financial health and future prospects. However, there are several factors at play that could explain this decline and offer insights into Gravity's strategic direction.



Firstly, the decline in EPS can be attributed to several key factors. One of the primary reasons is the decreased revenue from key games. For instance, the company reported a 10.7% YoY decrease in Q4 2024 revenue, which was mainly due to decreased revenues from Ragnarok Origin in Southeast Asia, Taiwan, Hong Kong, and Macau. This decline in revenue from key games has a direct impact on the company's earnings and, consequently, its EPS.

Secondly, increased operating expenses have also contributed to the decline in EPS. Despite a decrease in advertising expenses for mobile game services related to THE RAGNAROK (Ragnarok: Novice Hearts) in Taiwan, Hong Kong, and Macau, the company still faced increased operating expenses. For instance, the third quarter of 2024 saw a 20.3% increase in operating expenses YoY, primarily due to increased advertising expenses for the launch of THE RAGNAROK in Korea and Mirren: Millennium Tour in Korea.

Thirdly, market competition and regulatory challenges have also played a role in the decline in EPS. The gaming market is highly competitive, and regulatory challenges, especially in key markets like China, can significantly impact revenue. For example, the company's efforts to enter the Chinese market with Ragnarok: Back to Glory and PROJECT ABYSS, despite receiving ISBN codes, still face regulatory hurdles that could affect revenue and earnings.



Despite these challenges, Gravity has several strategies in place to address these issues and improve its financial performance in the coming years. One of the key strategies is to diversify its game portfolio. The company should continue to diversify its game portfolio to reduce dependency on a single franchise. For example, the launch of new games like Ragnarok: Rebirth in Taiwan, Hong Kong, and Macau, and Ragnarok X: Next Generation in Japan, has shown positive results. Expanding this strategy can help mitigate risks associated with the performance of individual games.

Another strategy is to enhance marketing and promotion efforts. Increasing marketing efforts for new and existing games can help drive user engagement and revenue. For instance, the company's successful launch of THE RAGNAROK in Southeast Asia and Ragnarok: Rebirth in Taiwan, Hong Kong, and Macau indicates that targeted marketing campaigns can be effective.

Exploring new markets and partnerships is also a key strategy. Expanding into new markets and forming strategic partnerships can open up new revenue streams. For example, the collaboration with Kingnet Technology for Nobunaga's Ambition in Japan demonstrates a strategic move to diversify beyond the Ragnarok IP and leverage established partnerships for market entry.

Optimizing operating expenses is another important strategy. The company should focus on optimizing operating expenses without compromising on the quality of its games. This can be achieved through efficient resource allocation and cost management strategies. For instance, reducing commission paid for mobile game services and advertising expenses can help improve profitability.

Finally, leveraging blockchain technology is a strategic pivot that Gravity is exploring. The venture into blockchain gaming with Ragnarok Landverse represents an important strategic pivot. By exploring new revenue streams through digital asset monetization, the company can tap into emerging markets and technologies, potentially increasing its EPS.

In conclusion, while Gravity's 2024 earnings show a decline in EPS, the company has several strategies in place to address these challenges and improve its financial performance in the coming years. By diversifying its game portfolio, enhancing marketing efforts, exploring new markets and partnerships, optimizing operating expenses, and leveraging blockchain technology, Gravity can work towards stabilizing and potentially increasing its EPS, which in turn can positively impact its stock valuation and investor sentiment.