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Long-term perspective needed

4Q24 review: Earnings miss consensus

For 4Q24, Krafton reported revenue of W618bn (+16% YoY; 8% below the consensus of W672bn) and operating profit of W215bn (+31% YoY; 18% below the consensus of W263bn). PC revenue came in at W233bn (+39% YoY), falling 13% short of expectations. Notably, no meaningful QoQ traffic growth has been observed since 4Q24.

Mobile revenue was also 13% lower than expected at W362bn (+6% YoY), likely due to a dip in in-game purchases ahead of major updates scheduled for 1Q25. Operating expenses totaled W402bn (+9% YoY), in line with expectations, as higher marketing costs were offset by a decline in stock-based compensation expenses.

Large-scale, medium/long-term investment plans announced

Krafton unveiled plans to invest W300bn annually over the next five years to develop a new flagship game (with a budget on par with that of PUBG). This marks a significant increase compared to the W140bn spent on new title development in 2024. We expect the ramp-up of investments in new flagship IPs to lead to aggressive hiring initiatives.

The company also set a goal of reaching W7tr in revenue and doubling its corporate value within the next five years. While PUBG currently accounts for the lion’s share of revenue, the company aims to raise the revenue contribution of new large-scale titles to 40%.

Maintain Buy, but lower TP to W450,000 (from W470,000)

We maintain our Buy rating on Krafton but lower our target price to W450,000 (based on a 2025F target P/E of 21x) to reflect higher labor expenses stemming from aggressive development initiatives. The stock is currently trading at a 2025F P/E of 17.8x. Given weak earnings momentum, we recommend approaching the stock from a medium/long-term perspective.

Krafton plans to launch various titles in 2025, including the simulation game inZOI (set for an early access release on Mar. 28), Dark and Darker Mobile (scheduled to begin a soft launch in the US and Canada in February), and the survival adventure game Subnautica 2 (being developed by Unknown Worlds; set for an early access release on Xbox Game Pass sometime this year). While the firm’s diversification into various genres is positive, these titles are unlikely to contribute meaningfully to 2025 earnings.