Tencent Partner Nexon Signals More Weakness in China Games

(Bloomberg) -- Nexon Co. foresees revenue from China dropping by a double-digit percentage this quarter, as the key partner to Tencent Holdings Ltd. awaits the release of a marquee title after Beijing ended a months-long freeze on game approvals.

Revenue from the country fell 22 percent in the December quarter and it forecast a “low teens” to “high teens” percentage drop in the January to March period. Nexon generates roughly half of its sales from the world’s second-largest economy, where Tencent distributes its popular PC title Dungeon & Fighter.

The results suggest only a gradual thaw in the world’s largest games market, which is slowly recovering from last year’s freeze. While Nexon doesn’t need Beijing’s approval to refresh existing games, the inability to release new titles could hurt profit growth. A backlog of thousands of games and potentially stricter standards suggest a lengthy delay before Tencent and rival NetEase Inc. can again rely on new content to reignite profit growth.

Nexon’s highly anticipated mobile version of Dungeon & Fighter is in the late stages of development after completing a month-long closed test in January, but doesn’t yet have a firm release date, executives told analysts after unveiling results in Tokyo. Jefferies analyst Karen Chan estimated in a recent note the mobile title may not emerge till the final months of 2019.

“I cannot give you any definitive date, but we are putting our very best effort to launch as soon as possible,” Chief Financial Officer Shiro Uemura said about the mobile version at a briefing.

Separately, the company provided more details about a sequel to the PC version of the title with improved 3D graphics, but said it isn’t expected to launch this year.

A weaker Chinese business hurt overall results at Nexon. Revenue fell 13 percent to 46.1 billion yen ($417 million) in the December quarter, below the 50.2 billion yen projected. Operating profit dropped 67 percent to 3.9 billion yen, hurt by a write-down of intellectual property. Analysts were expecting 7.7 billion yen.

Revenue is expected to slip 3 to 12 percent in the March quarter, while operating profit is expected to fall 13 percent to 26 percent, the company said.

Chief Executive Officer Owen Mahoney also acknowledged reports about the potential sale of part or all of Nexon’s parent company, but offered few details on the state of negotiations. “We’re very excited about our future. That’s just about all I can say.”

©2019 Bloomberg L.P.