NCSoft's 2021 profit halves on labor, marketing costs

South Korea's NCSoft Corp., the publisher of the popular mobile game Lineage series, on Tuesday reported a worse-than-expected operating profit in 2021, weighed by higher labor costs and marketing expenses on the back of its new game releases and hefty pay increase. 

NCSoft joined its local rivals that posted a double-digit drop in 2021 earnings, sharply missing analysts' forecasts, after they bumped up employee incentives to win the talent war amid the industry's pandemic boom. 

Their poorer-than-expected earnings cooled the hype around their new games and forays into play-to-earn (P2E) and non-fungible-token (NFT) games, sending their share prices sharply lower last Friday.

Operating profit at NCSoft dropped 30% on-year to 109.5 billion won ($91 million) in the fourth quarter of last year, despite a 35% on-year rise to 757.2 billion won in revenue.

For all of 2021, its operating profit tumbled by 55% on-year to 375.2 billion won, with sales down 4.4% to 2.3 trillion won.

NCSoft launched Lineage W, the latest massively multiplayer online role-playing game (MMORPG) and Blade & Soul, a fantasy martial-arts MMORPG, in the second half of last year.

To promote the new games, it spent a total of 282.6 billion won in marketing, a 122% surge from the year previous. Labor costs rose 18% to 849.5 billion won in 2021.

Korean game developers have been leading wage growth across industries. Last year, NCSoft and Krafton Inc. each raised annual salaries per employee by 13 million won and 20 million won from a year earlier.

Krafton is the developer of the popular battle royale game PlayerUnknown’s Battlegrounds (PUBG).

Their smaller rivals, including Nexon Co., Netmarble Corp., Com2uS Corp and PearlAbyss Corp., followed suit with an annual pay increase of 8 million won.

Com2uSCorp and PearlAbyss Corp both suffered a more than 50% tumble in 2021 operating profit. Netmarble Corp. reported a 43% drop in 2021 operating profit.

KAKAO GAMES, NAVER

Kakao Games Corp. and the country's dominant online portal Naver Corp. are working on generous compensation packages.

Kakao Games plans to boost employee compensation by 15% from a year earlier, its CEO appointee Namkoong Whon said in an internal memo on Feb. 13. A Kakao official said the company has yet to finalize the pay increase plan.

Its archrival Naver is considering a 6% increase in 2021 employee salaries from last year's, alongside the introduction of a new stock option program for employees, according to a Naver official.

Since 2019, Naver has provided 10 million won worth of stock options to all employees per year. Its average wage amounted to 102 million won in 2020, just shy of 108 million won for Kakao, according to their regulatory filings.

"If Kakao confirms the pay increase, Naver will swiftly follow suit," said an IT industry source.

Last year, Kakao and Naver each suffered a sharp increase in operating expenses by 50% and 34% to 5.54 trillion won and 5.49 trillion won. 

Shares in NCSoft inched up 0.6% to close at 513,000 won. Year-to-date, the stock has lost 20% of its market value, compared with a 10% decline in the wider Kospi market during the period.

The company said on Tuesday it plans to launch the mobile game Lineage W in Europe and the US in the second half of this year.

Write to Min-Ki Koo at kook@hankyung.com
Yeonhee Kim edited this article