Quote:
Originally Posted by Xaston
Interesting. What other info do you have on these contracts they have to license the game? Has someone already given them the 40 million? Is someone contractually obligated to like it seems you're saying, or is it a plan that others have merely shown interest in?
Various companies in their big market areas (Japan, Philippines, Taiwan, Singapore and Malaysia) are contractually obligated to provide a total of roughly $40 million in cash + % of revenues in exchange for licensing and translation rights into their various countries, when the game is released. As it has not been released yet, they do not need to pay yet.
Quote:
You say the worst case scenario is that they do that and double their revenue (what about the cannibalized lost revenue from Ragnarok Online 1, wouldnt that make it less than double?) making it a double bagger plus. To call that the worst case scenario seems quite disingenuous.
I thought a stocks price had to double to call it a double bagger, not its revenue. There is a big difference, obviously. It looks like they had negative income in 2006 and 2007. What if this doubled revenue you're predicting comes at a negative profit margin?
I should've explained this a little more clearly. They are already making 40 million in revenue per year; the release of RO2 will give them an additional 40 million in licensing revenue + % of revenues. Even if the % of revenues just ends up being a cannibalization of RO1 subscriptions (meaning a net of zero), that's still roughly 80 million in total revenue. I believe that the effect of this alone should double their present stock price, though I suppose it's possible that nobody cares and the stock remains flat to trade at a P/E ratio of 2.5 as a result.
This should not come at any additional negative profit margin, as their present balance sheet and income statement already takes into account the costs of setting up RO2.
Quote:
Betting on a video games success seems quite random and with fickle and unpredictable outcomes, which is sort of the antithesis of value investing. Conversely, MMORPGs profit from a subscription service (the ones ive played at least) consistently which is the kind of predictability that is to be sought out by a value investor.
I guess if the games close to coming out (which it is) and they still have more cash than their market cap you really do have a solid amount of downside protection.
This is true. You are essentially betting on the outcome of one game, so it's not really value investing per se. However, the safety margin is rather high, and this is a very well known company on the cusp of releasing a game that has been highly anticipated for years now. The downside risk compared to its current stock price is pretty minimal.
Quote:
Originally Posted by Hielko
I think that's a bit symplistic of a view. Income from the older RO1 is presumably drying up, and the development of RO2 could continue to burn cash. Plenty of highly anticipated games that see delay after delay and dissapoint in the end. I have no insight at all in RO2, but you certainly have significant risks here.
It's not burning cash; the momentum of RO1 + revenues of their other games still gives them a positive net profit per quarter of 6-8c per share. Even without RO2, the stock is priced well below its NCAV and it's net net positive.
It's possible that RO2 can disappoint, but again, they are presently guaranteed $40 mil in licensing fees upon release of the game, which would double their revenue for a year.
Quote:
Originally Posted by FTPdelaysuck
I know this company fairly well, did some research on it. The catalyst is RO2 -- if it's a great game and generates tons of $$ you'll make a multibagger for sure. They are also making some small inroads on mobile gaming, social gaming and character licensing. It is a compelling investment, but there are things you have failed to mention.
People have been waiting for RO2 for years -- b/c well they were supposed to launch this game many years ago! Part of the reason the company is priced this way is that the RO2 launch has been delayed time and time again -- promised to be launched and then delayed. This is very very frustrating to investors.
Also RO1 was published initially in a time where MMORPG were relatively new. Now, RO2 will be facing much much stiffer competition. WoW, Netease games , etc.etc.
You also have the risk of RO2 being delayed again. Do you have good reason to believe that it will be launched on time this time other than it can't be delayed for a 11th time! (I don't know the actual exact number of times it's been delayed for). Finally, another risk (catalyst) is that GRVY keeps it's cash in South Korean Won. If i did jump it, it would be with a small position.
It's possible that the game will be delayed again pending the outcome of its upcoming CBT and OBT, however, this time it really looks like they are finalizing the game for release by first quarter 2012. The delay has been costly, as originally the guaranteed licensing revenues was supposed to be $60 million instead of $40 million, but companies backed out due to repeated delays. However, as long as the company is not losing money, further delays won't hurt all that bad, unless other companies drop out as well. Since it took 4 years in delays for the recent drop to occur, the risk of that isn't all that high.