Worth every won, Krafton insists ahead of pricey IPO
Krafton says it’s not playing games with pricing.
“We know that some people think our valuation is too high,” chief financial officer (CFO) Bae Sung-keun said. “But at the same time, some people say that we have been underpriced.”
Its assurances come as some investors wonder whether a company with one hit to its name should in an instant become the largest game company in Korea by market capitalization when it lists next month.
“There is a diverse range of investors in the market who assess us from different points of view on what they consider important. All the different views are taken into account and ultimately expressed in numbers to show our company value, so we understand that such concerns may come about,” he added during an online press conference.
Krafton, the developer of first-person shooting game PlayerUnknown's Battlegrounds (PUBG), initially submitted a securities registration statement last month to offer its shares at 458,000 won ($397) to 557,000 won. At the high end of the range, the company would have been worth 28 trillion won, more than Nexon and NCSoft.
With Krafton currently having only one megahit game, there were questions among market analysts if the valuation is justified.
Krafton CEO Kim Chang-han addressed concerns explaining that Krafton strives to be a content company, not just the “PUBG developer."
“Games generate the biggest revenue compared to any other media content, and they’re played repeatedly,” Kim said. “With PUBG, we will expand into other media and establish our own PUBG Universe to ensure a sustainable chain of intellectual property production.”
The company has in store a mobile game based on PUBG titled New State. It is set for release this fall. It also has PC-and-console-game The Callisto Protocol, readying for release in summer 2022, and it bought the intellectual property of “The Bird That Drinks Tears” (2002), a fantasy novel by Lee Young-do, and will make another game and universe using the story.
“We hope that people will look at us in the mid-and-long-term perspective,” said Chang Byung-gyu, chairman and founder of Krafton. “Just 10 years ago, nobody would have thought about releasing a short film on YouTube, but that’s the norm now. Media is expanding and converging in various ways. We are trying out various experiments, and successful creators around the world, such as Hollywood producer Adi Shankar, have recognized PUBG’s potential as global intellectual property and joined us."
CEO Kim also addressed concerns that Krafton depends heavily on Chinese capital. Shenzhen’s Tencent owns 16.4 percent of the company and is the publisher for PUBG Mobile in countries excluding Korea, Japan and India. In Krafton's earnings report, 71.8 percent of revenue in the first quarter of 2021 came from a publishing company that Krafton refused to name.
“PUBG has become the national games of India and northern African countries,” said Kim, adding that it has expanded its source of revenue to different parts of the world.
PUBG was the No. 1 selling game in the Indian mobile game market in 2020 with over 270 million downloads. It was also the top-selling game in 15 countries in the Middle East and North Africa.
“On paper, it could seem like we rely on China for revenue,” said Bae. “But that's because our publisher is based in China. Over half of the revenue actually comes from the games that we service. Chinese users are less than half our users."
"We’ve developed a new game, the New State, through which we hope to provide a new level of experience and technology to the consumers. We think that the concerns regarding our reliance on a particular country could be settled after we start servicing the new game,” he added.
Bookbuilding began two weeks ago, and Bae said he could not comment on whether the IPO will be successful or not, but remained "very confident" that the global institutional investors will recognize Krafton's value.
"Take the case of Samsung Electronics," Kim said. "If it had just taken into account the Korean market, then it couldn't have reached such a market capitalization or volume. Krafton is doing its part in the global game market. We want to emphasize that investing in Krafton would be an opportunity like none other. After going public as a Kospi company, we aim to secure our position as the one-and-only global game company."
Krafton will use the investment from the IPO to expand overseas. It plans to use 70 percent of the investment to make acquisitions. Fifteen percent will go into promoting the gaming and esports culture in India, Middle East Asia and North Africa, and the rest will go into improving its own infrastructure.
"We've been creating a database of promising intellectual property and capable developer studios around the world from two years ago," Bae said. "Mergers in the creative content business turn out to be difficult sometimes, because the same creative challenge continues even after the merger. But with Krafton's PUBG intellectual property and the recognition from global developers, we believe that we have the potential to make it happen."
Krafton will go public on Aug. 10. The game maker set its new price band to between 400,000 won and 498,000 won and also reduced the number of shares on offer from 10,060,230 shares to 8,654,230 shares. If it hits the upper end, Krafton could raise as much as 4.3 trillion won with a market cap of 24.6 trillion won. The price will be finalized on July 29. Shares will be offered to the public on Aug. 2 and 3.
BY YOON SO-YEON [firstname.lastname@example.org]