NCSoft investment thesis Archives

NCSOFT (KRX:036570) seems to be a rather interest bet on Korean MMORPG aspirations in Western Markets. The stock is currently trading 70% below its 2021 peak and around 12% lower than its 52-week high. And that is despite the recent partnership between Thorne & Liberty and Amazon Games, which generated around 44 billion Korean won in royalty revenue during the fourth quarter of 2024. The stock has a strong buy rating with a 12-month price target of 320,000 won or around $238 with a 40% upside and that is largely due to the ability of Throne & Liberty Western revenue to be stabilizing at around 15% to 20% of the company’s overall revenue. The company’s valuation multiple should eventually converge towards or closer to its western contemporaries who are trading at 20.25x earnings, unlike the Korean 12-15x earnings. So what are the catalysts that support a BUY rating? Royalty Revenue Trajectory Dictated by Throne & Liberty During Q4 2024, royalty revenue came in at 73.5 billion won, with Throne & Liberty accounting for 44 billion won of the total. If the company is able to sustain this growth, T&L Western’s revenue could be around 176 billion won, which would be about 12% of the company’s revenue in 2025 (1.51 trillion won). Leveraging Western Distribution Through Amazon Games In 2022, Lost Ark, which was published via Amazon Games, logged $490 million in Western revenue and boasted 1.3 million steam players. T&L on the other hand, booked 336,000 users at its launch. However, NCSoft’s does not require marketing spend and carries a minimal operational risk due to its royalty model. Potentially, this is a title that can generate around $200 million in annual western revenue. Unjustified Valuation Discount Compared to NCSoft, Electronic Arts trades at 60-70x P/E while Nexon trades at 23-32x. It is safe to say that NCSoft is trading at a P/E which is more about the skepticism of the market and Chinese regulatory risk. However, compared to Nexon’s 50% plus concentration, the company’s revenue exposure in China is far lower. Company Overview: Korea's Live-Service Looks at the West MetricValueNoteMarket Cap₩4.42T (~$3.3B USD)As of March 20, 2026FY2025 Revenue₩1.51T ($1.13B USD)-4.5% YoY decline52-Week Range₩134,600 - ₩258,500Current: +69% from lowAnalyst Consensus Target₩275,958+21% upside (19 Buy, 1 Sell) The company’s revenue breakdown highlights a key structural challenge. Its mobile games accounted for 53% of its Q4 2024 sales, while PC online games accounted for 23%. Meanwhile, the major shift was in royalty revenue which was up 140% year over year, backed by the T&L launch. Historically, western revenue was taken more as a rounding figure – today however, it is a material one. The question though, is whether the company will be able to sustain it. Since April this year, there has been a 98% decline of Steam concurrent players. However, most MMORPG’s experience such retention curves post-launch. For instance, Lost Ark peaked at around 1.3 million concurrent users at its launch before falling to 200,000 to 250,000 monthly active users by 2025, and still generated a decent annual revenue. Another key point to be highlighted here is that Steam data only accounts for PC players on one distribution channel. T&L features full cross-platform play and was launched on PS 5 and Xbox Series X|S. On top of that, Amazon Games has its own game distribution platform. This means that the 6,300 Steam concurrent statistic does not account for console players, players on the Amazon Games launcher and players from the Korean and Asian region. So if we were to adjust the numbers based on platform diversity, the western monthly active users could be somewhere between 400,000 to 600,000 as of the first quarter of this year. The Bull, Base and Bear Scenarios In Q4 2024, NCSoft’s revenue attributable to T&L was around 44 billion yuan. This implies that the company generated a gross western revenue of 176 billion. Under its partnership with Amazon Games, the company receives a percentage of gross revenue, meaning that the T&L western gross revenue is at around 440 billion won to 585 billion won on an annual basis. Lost Ark reported a western revenue of around $490 million in 2022 with a stabilized MAU of around 250,000. T&L on the other hand, at an MAU of 500,000 can have a minimum revenue of 440 billion yuan, thus validating the model. ScenarioWestern MAUAnnual Royalty Revenue% of Total RevenueBull Case800,000 to 1,000,000280-350 billion won18-23%Base Case400,000 to 600,000140 to 210 billion won9-14%Bear Case150,000 to 250,00050 to 88 billion won3-6% NCSoft Discount Makes Little Sense The company’s stock is currently trading at a discount to both Western and Korean peers which is largely due to the maturity of lineage mobile franchise, Chinese regulatory approval rates for new titles and the sustainability of Throne & Liberty’s monetization with a focus on concerns regarding western player retention. But if we look at the following comparable valuations, the discount arguments seem to be standing on weaker legs. NCSoft vs Nexon: While both are Korean MMORPG publishers operating on similar margins, Nexon’s trading at 23-32 P/E despite having a 50% revenue concentration from China. NCSoft on the other hand, is less than 25% exposed to the Chinese market, which makes the 10-20x valuation gap questionable. Therefore, it is safe to say that the current valuation is largely borne out of market sentiment and not due to structural risk. NCSoft vs EA: EA is currently trading at 60 to 75x with minimum operating margin of 13%, similar to EA. Theoretically, if the T&L western revenue stabilizes at minimum of 15%of the total revenue, the company should be trading at at least 20x, not 12x. NCSoft vs Pearl Abyss: Trading at 12 to 14x, Pearl Abyss is dependent on a single IP, Black Desert. NCSoft on the other hand, has a far diverse catalogue and therefore, should not be traded at a discount. Catalysts and Triggers Strong Buy The company discloses western MAUs above 750,000 in Q1 Royalty revenue stable at above 70 billion won Potential second western title Stock crosses 270,000 Hold T&L royalty revenue falls below 50 billion won Lineage mobile franchise revenue falls Sell Chinese regulator freezes approval T&L revenue contribution declines below 5% of total revenue Stock breaks under 180,000 on high volume Potential Risks to Thesis Throne & Liberty Stream Concurrent Number Declines Steam concurrent player count collapses by 98% from peak and is followed up by console and launcher MAU. This will have an impact on western revenue, which could slide further by Q2 2026. Lineage Mobile Franchise Revenue Declines The Lineage franchise accounts for 53% of the company’s revenue. The ageing of these titles means that Lineage mobile revenue is likely to degrade year over year, which could have an impact on T&L Western growth. Change in Amazon Games Revenue Split Deal While the company has not disclosed the royalty percentage, if Amazon has a 65% stake in the gross revenue, it could impact NCSoft’s economics. Chinese Regulatory Risk There is a lot of unpredictability over Chinese gaming approval pipeline. NCSoft, just like its peers, relies on regulatory approval and any delays going beyond 2026 could impact the company’s growth and keep its stock at a discounted position. Foreign Exchange Exposure Lastly, the appreciation of Korean won against USD will reduce the company’s royalty revenue. A 10% strengthening of the won will have a 10% reduction on Western revenue contribution. Risk/Reward Pointing Towards Long Positioning NCSoft has a 40% upside to its 320,000 price target. The stock price has been re-rated by 69% from its 52-week low of 134,600 won but is still below its 52 week high and 28% below the analyst consensus of 275,958 won. At the heart of our thesis is either Throne & Liberty demonstrates its ability to stabilize its western revenue at 10-15% of the total company revenue, and improves the company’s P/E to 18-22x, or the game retention nosedives and the stock falls to 180,000 won. We assign a 60% probability to the base case, 25% to the bull case and 15% to the bear case. Our analysis supports a BUY rating for the stock. Next Catalyst: The company’s Q1 earnings take place on May 13 and the key data points to look out for would be: Q1 Royalty Revenue Lineage Mobile Revenue Trend Management Commentary on T&L Western Player Numbers BUY with ₩320,000 price target. Position sizing: 3-5% of portfolio given medium-high risk profile. Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. The author may hold positions in securities discussed. Conduct your own due diligence before making investment decisions. Past performance does not guarantee future results.

Tag: NCSoft investment thesis

NCSoft Stock a Strong Buy Ahead of Q1 2026 Earnings