Mirae Asset Securities logo

Buying opportunity

Weaker-than-expected traffic rebound following Aug. 29 update

The Season 1 update for The First Descendant (released on Aug. 29) received a lukewarm response, with daily peak concurrent users only rising to 50,000-60,000 (from around 40,000). The firm plans to release additional updates incorporating user feedback.

We now assume that The First Descendant will generate gross revenue of W340bn in 2H24 and W410bn in 2025. We estimate the title’s daily revenue at W1.9bn in 2H24 and W1.1bn in 2025 (vs. previous estimates of W2.3bn and W1.4bn, respectively). Of note, even when traffic was at its lowest before the update (daily peak concurrent users of 35,000-40,000), the game is believed to have generated daily revenue of over W1bn.

Full value of The First Descendant has yet to be priced in

Nexon Games’ market cap has increased by approximately W250bn compared to the period before the launch of The First Descendant. However, we think the game’s value is still not fully reflected. With The First Descendant, Nexon Games has proven its ability to develop a globally successful multi-platform game. We also believe the game provides a strong profit pipeline (potentially contributing around W100bn to annual operating profit).

We expect The First Descendant to generate revenue of W340bn in 2H24 (including W220bn in 3Q24), which is higher than: 1) our first-year revenue estimate for the highly anticipated title Crimson Desert (W320bn; assuming 4mn copies sold); and 2) the 2H23 PC revenue of the global hit PUBG (W280bn). This figure is also significantly higher than our annual revenue estimates for other successful Korean PC/console titles such as Dave the Diver (W100bn), Lies of P (W100bn), and Stellar Blade (W140bn).

Stock oversold; still our top pick among small/mid-cap game companies

We lower our target price for Nexon Games to W28,000 (from W32,000), as we revised down our 2025 earnings estimate in light of weaker-than-expected traffic for The First Descendant. However, Nexon Games remains our top pick among small/mid-cap game companies. The stock is trading at a 2024F P/E of 21x and 2025F P/E of 17x. We believe the recent sharp pullback offers an attractive entry point.

We believe Nexon Games deserves to trade at the highest valuation multiple in its domestic peer group, given its proven ability to develop games across various genres (encompassing subculture, first-person shooter, third-person shooter, and MMO games) and platforms (mobile, PC, and console) and diverse geographical exposure (Korea, Japan, and Western markets). New title momentum from 1H25 also looks strong, with Project DW currently under development (target release in 2025).