[Alpha Biz= Paul Lee] Meritz Securities has downgraded its investment rating for Nexon Games from “Buy” to “Sell,” citing weak performance of existing titles and rising labor costs, which are expected to widen quarterly losses. The target price was drastically lowered by 68.75%, from 32,000 KRW to 10,000 KRW.
On the 11th, a Meritz Securities analyst stated, “To enhance investment appeal, either workforce-related decisions must change, or existing titles need to rebound.”
Nexon Games entered a deficit in the fourth quarter of last year. Regarding this, the analyst explained, “Nexon Games recorded revenue of 48.3 billion KRW and an operating loss of 2.1 billion KRW in Q4 2023. Revenue fell short of our expectations, but due to weak performance, labor costs decreased quarter-over-quarter, aligning the loss with projections. Both The First Descendant and Blue Archive underperformed compared to expectations.”
Meritz Securities further noted, “The update effect for The First Descendant initially boosted it to 15th place in Steam’s revenue ranking but has since dropped to 23rd. A significant rebound before the first-anniversary update in July seems unlikely.”
The firm also pointed out that, in the absence of new releases, the rapid cash burn due to large-scale hiring is a growing concern.
Regarding the lowered target price and investment rating, Meritz Securities explained, “We reassessed Nexon Games’ fair valuation by combining its development value—based on its average market cap before the merger when it was purely a development company—with its asset value, arriving at a revised target price of 10,000 KRW and a ‘Sell’ rating.”
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
