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Nexon's IPO Signals Growth

Richard Aihoshi Posted:
Columns The Free Zone 0

When companies go public, they are required to release information that usually wasn't available before, at least not easily.  Sometimes, they put out even more.  Accordingly, I've had an eye on Nexon during the run-up to its IPO last week.  It was reportedly the largest this year on the Tokyo Stock Exchange, raising a very tidy sum, $1.17 billion.  This apparently represents a total market value in the range between $7.7 and $9 billion.

As one possible yardstick, even the lower of these figures exceeds EA's current market capitalization by a full $1 billion.  The latter has significantly higher sales - nearly $3.6 billion in the year ended this March 31 compared to $856 million for Nexon in 2010.  So why the higher valuation?  One seemingly obvious reason is a profit of about $282 million versus a loss of $276 million in the same periods.  Another likely one is that the investment community foresees a more rapid rate of growth. 

In this regard, Nexon has already been on the acquisition trail for a while now, making three highly noteworthy purchases in the last seven years.  The most familiar here is probably Ndoors (Atlantica Online, 2010), but it can be argued that both Wizet (MapleStory, 2004) and Neople (Dungeon & Fighter aka Dungeon Fighter Online, 2008) were more important overall.  We can also note that Nexon wasn't exactly strapped for funds.  As of this Sept. 30, it had over $577 million in cash and time deposits.  If its war chest wasn't overflowing then, it is now.  From the portion of the prospectus dealing with how the proceeds will be allocated, we can deduce that approximately 70% will be used to "expand our game portfolios and enhance our online game development capabilities, including through strategic investments in third-party game developers..."

I was also very interested to see Nexon's regional revenue breakdown.  In the first nine months of 2011, the total was $853.5 million, a healthy 26.5% gain over the same period in 2010.  This year has seen China ascend into the top spot, bringing in $319.7 million or 37.5%.  Korea dropped to second ($279 million, 32.7%), followed by Japan ($121.7 million, 14.3%).  North America fell to fifth and last in the list ($64.3 million, 7.5%).  In fourth is "other" ($68.8 million, 8.1%).

Although I was aware Nexon had a large portfolio, I wouldn't have said it was 57 games.  In terms of genres, there are 32 RPGs, six FPS and 19 "other" including social.  One might think they'd all be offered in Korea, but that's not so; the actual number is a mere 37.  Next is Japan with 28, while North Americans have access to 14.  And what about China?  Rather surprisingly, just nine, this despite lower item costs due to the standard of living, and also the fact that Nexon, being a licensor there, only receives a portion of the proceeds.

Notwithstanding the extensive selection, two titles generated the majority of the company's consolidated 2010 revenues.  Dungeon & Fighter led the way with 30.9%, while MapleStory weighed in at 26.3%.  Since they launched in 2005 and 2003 respectively, they have generated over $1.5 billion apiece.  What's more, neither is declining.  To the contrary, both produced higher takings last year than ever before.  

The same is true of two other significant offerings, Mabinogi, which was released in 2004, and 2008's Counter-Strike Online.   These two also have substantial lifetime revenues, over $300 million apiece.  KartRider didn't break its record, which was set in 2007.  However, its cumulative total since launch in 2004 has topped the $400 million mark.  Although not part of the family until 2010, Atlantica Online has reached $100 million in its three-plus years.  Neither was named, but a seventh title has hit $300 million, and an eighth one $100 million.

Regarding its audience, Nexon stated that it has over 1.2 billion total registrations.  I don't put a lot of stock in this statistic, but some others did get my attention, such as the 77 million users reported as active this Sept.  In 2010, the company's overall player base reportedly put in over 500 billion minutes, and bought more than 600 million virtual items, even though it appears over 90% didn't purchase anything at all.  Last year's PCU averaged 4 million, and it hit 4.6 million three months ago.

The entire prospectus is 229 pages, so not surprisingly, it has much more information than I've pulled out for this column.  Quite a lot is dull reading, such as the seemingly unending financial statements and notes.  However, I was pleased to get a broader insight into a leading international F2P publisher that will undoubtedly surpass $1 billion in revenue this year.  Anyone who is interested enough to wade through and learn more can find the document online.


Richard Aihoshi

Richard Aihoshi / Richard Aihoshi has been writing about the MMOG industry since the mid-1990s, always with a global perspective. He has observed the emergence and growth of the free to play business model from its early days in both hemispheres.