WeMade struggles to launch next big hit

WeMade Entertainment, once a dominant game developer and publisher, is facing a slowdown as it struggles to release a game that can be a hit at home and abroad.

The KOSDAQ-listed gamer, which brought fans blockbuster games such as “Candy Pang” and “Wind Runner,” performed below expectations in the first half of this year, with its highly anticipated role-playing action game “Soul & Stone” flopping early this year.

The company spent about 6 billion won ($5.17 million) marketing the game, but the market ruled that the game “failed,” analysts said.

“With continuous flops of its new games, the company is expected to be conservative in game development,” said Kong Young-gyu, an analyst at Shinhan Investment, recommending “neutral” over WeMade shares.

“Given that there are no clear signs of momentum by the end of June, its shares are not likely to perform well, further beset by the (lower) valuation of Kakao. (Investors need to) be conservative before the release of its new game based on ‘Legend of Mir 2’ intellectual property.”

WeMade Entertainment posted consolidated sales of 32 billion won in the first quarter of this year, down from about 36 billion won a year ago. It had an operating turnaround reaching 482 million won, but was 60 percent below market consensus. It had a net loss of about 30 billion won in the first quarter, according to its financial statements.

Its first quarter loss reflects a valuation loss over its investment in Kakao, which had a 52 week high of 145,200 won and a low of 90,600 won. WeMade, with a market cap of 412 billion won, has a 3.89 percent stake in Kakao. WeMade invested in Kakao for strategic ties in mobile games in 2014. WeMade also holds equities in notable game companies including 4:33 and Joymax.

The company noted in its audit report that the Korean mobile and PC game market is facing slow growth, forecasting around 5 percent growth over the next three years.

Entering the gaming market has become harder for companies, including start-ups with lack of capital, due to rising marketing and promotion costs, it added.

WeMade said that it is seeking to release diverse games such as role-playing games and social network games to create new trends in the market.

“We will continue to invest to bring satisfactory results both at home and abroad by establishing ties with social network platforms and providing entertaining content including midcore games,” the company said.

WeMade’s midcore games -- for players who are enthusiastic about playing a variety of games but do not necessarily finish the games -- account for about 35 percent of its annual sales, with casual games making up 18 percent.

“Legend of Mir 2” – a massively successful multiplayer online role-playing martial arts game – is the company’s cash cow, accounting for 14 percent of its sales.

“Although ‘Legend of Mir 2’ and ‘Legend of Mir 3’ do not have a high number of users with significant sales at home, they are bringing in steady royalties from overseas including China,” the company said.

By Park Hyong-ki (hkp@heraldcorp.com)[KOSDAQ Star] This is the 13th in a series of articles analyzing major companies by market capitalization traded on the tech-heavy KOSDAQ market. -- Ed.