Thursday, January 21st, 2010
Time to Jump on the Online Gaming GRVY Train
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Gravity Co., Ltd. (NASDAQ:GRVY), an online gaming company similar to Activision Blizzard, Inc. (NASDAQ:ATVI) in the U.S. or Changyou.com Limited (NASDAQ:CYOU) in China, is not playing any games with substantial assets on its balance sheet, potential for future growth, and a multiple of just 5.47x.
Gravity Co. Ltd. (GRVY) is a Korean online gaming company that owns the popular Ragnarok Online along with other titles like Requiem and Emil Chronicle Online. While the company has risen more than 200% from its 52-week lows, it still trades near its liquidation value with a price-earnings ratio of just 5.47 times its trailing 12-month earnings.
Currently, the company owns and operates five games, including Ragnarok Online, R.O.S.E. Online, Requiem, Emil Chronicle Online, and Ragnarok Online 2 which has been in beta. Ragnarok Online is the company’s largest success, commanding 73.3% of its total revenues, but the number of players has gradually fallen over the years from over 100,000 to under 30,000.
Improving Growth Prospects
Since 2007, Gravity has been working on its sequel to Ragnarok Online that it hopes will reverse the trend. While in development and beta testing, the company experienced a series of setbacks, but it is now prepared to launch the game during the first half of 2010. And, investors are hoping that the extensive testing will make for a solid launch and resumed profitability.
The company also has many other irons in the fire going forward. For example, the company is attempting to mediate problems with FOX in the development of its Ice Age Online based on the motion picture franchise. If resolved, this title would be its first massively-multiplayer online role-playing game, and could generate significant revenues.
A Discounted Valuation
Perhaps most importantly, Gravity’s assets alone may warrant a closer look from investors. As of September 30, 2009, the company reported $64.36 million, or $2.31 per share, in cash and cash equivalents compared to a market capitalization of just $47.53 million. Meanwhile, net assets amount to $83.88 million, or $3.01 per share, compared to a market price of $1.71 per share.
The company’s financial ratios are also very strong, despite lackluster performance in the near-term. The company’s price-earnings ratio stands at just 5.59x TTM, while its free cash flow yield stands at 0.06%, according to data from MorningStar.com. Notably, these ratios would improve if the company is able to successfully launch its new projects.
The Takeaway…
- Gravity is trading at a deep discount to its intrinsic value, which can be attributed to concerns surrounding its sequel product.
- Gravity plans to launch its sequel product during the first half of 2010, according to its most recent 20-F filing with the SEC.
- Gravity is also working on a number of other projects, including a MMORPG based on FOX’s hit movie franchise Ice Age.
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-- Written by Rick Telfur
