This is a business analysis from korean website BusinessKorea made by analyst NH Investment & Securities.
Pearl Abyss’s share price has dropped sharply as of late on poor sales of Black Desert M (China). But, we look forward to new sales momentum from planned 4Q22 releases of Crimson Desert and Black Clover.
Lower sales estimates on failure of Black Desert M (China)
– Although maintaining a Buy rating, we lower our TP on Pearl Abyss from W125,000 to W70,000. Released in April, Black Desert M (China) has been showing weak sales. Reflecting such, we have significantly trimmed down our earnings estimates for 2022 and beyond.
– But, we maintain a Buy rating, noting that the company’s share price has already been adjusted by more than 40% due to the failure of Black Desert M (China). Furthermore, we point out that expectations towards the planned end-year launches of Crimson Desert and Black Clover should re-ignite in 2H22.
– Although sales of Black Desert M (China) have disappointed predictions, upcoming new titles should still have a positive impact upon the firm’s share price once launch schedules are specified. Crimson Desert is a console-based big new game that has been receiving favorable reviews following the release of several game-related videos. In addition, the metaverse concept-based DokeV is slated to be rolled out in 2023—related earnings momentum should gradually come to be highlighted.
1Q22 review: Earnings arrive sluggish
– Pearl Abyss announced consolidated 1Q22 sales of W91.4bn (-9.4% y-y, -22.5% q-q) and OP of W5.2bn (-60.4% y-y, -79.8% q-q), with OP matching consensus of W4.4bn but showing a sharp y-y decline.
– Sales of Black Desert totaled W70.9bn (+5.8% y-y), with sales remaining solid even though the game has long been on the market. Also, advertising expenses decreased notably to W8.2bn (-45.9% y-y, -42.6% q-q), proving cost-effective compared to sales.