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Gree Forecasts Profit Gain on New Games After Feature Ban

Gree Inc. (3632), the social network run by Japan’s youngest billionaire, forecast profit will rise as much as 8.4 percent this fiscal year as new games help replace revenue lost after abandoning a feature the government banned.

Net income will probably be between 46 billion yen ($585 million) and 52 billion yen for the 12 months ending June 30, compared with 48 billion yen last year, the Tokyo-based company said in a statement today. That compares with the 50.8 billion yen average of 20 analysts’ estimates compiled by Bloomberg.

Gree President and founder Yoshikazu Tanaka said today the company plans to offer its games in 12 more languages, including Korean and Chinese besides Japanese and English, as it invests in expansion outside Japan. Social-network operators including Gree need to replace revenue lost because a sales-generating “comp gacha” feature was abandoned after the government likened it to gambling.

“The end of comp gacha doesn’t mean the end of social games,” in Japan, Justin Weiss, an analyst at JI Asia in Tokyo, said before Gree’s earnings announcement. “In fact, these companies may find themselves on a healthier and more sustainable growth basis.”

Gree’s larger Japanese rival DeNA Co. said last week the government’s ban on comp gacha had little effect on its earnings and that it plans to expand abroad and add new social games features.

Development Delays

Dealing with “comp gacha” issues “delayed development of new games,” Tanaka told reporters today in Tokyo.

Gree and its biggest competitors plunged in Tokyo trading in May after the nation’s consumer agency said it would investigate comp gacha, a system that charges players about 300 yen apiece for virtual items that can be collected and converted into a rarer digital token once a complete set is acquired.

Gree gained 0.1 percent to 1,457 yen at the close of Tokyo trading, paring its decline to 45 percent this year, compared with a 3.3 percent drop for DeNA and a 5.6 percent gain in the benchmark Nikkei 225 Stock Average.

Gree is also using overseas acquisitions and alliances to fuel growth. The company bought Funzio Inc. in May for $210 million in its biggest acquisition to add games for mobile phones including “Crime City.” Gree also intends to offer two “Moshi Monsters” games this year through its partnership with Mind Candy, a London-based developer, it said in May.

Overseas Business

Gree’s “sales outlook looks bullish,” Eiji Maeda, a senior analyst at SMBC Nikko Securities Inc., said today by phone. “I want to see if the company’s overseas business is growing steadily.”

Revenue from overseas accounts for about 10 percent of the total, Jin Akiyama, senior vice president of Gree’s corporate department, said today in Tokyo. The company offers games in 169 countries, it said.

Sales may rise to between 195 billion yen and 205 billion yen from 158 billion yen, Gree said in the statement today. Operating profit may total as much as 84 billion yen, up 1.5 percent from last fiscal year, Gree said.

Net income rose to 12.3 billion yen in the three months ended June 30, the company said today, compared with from 5.7 billion yen a year earlier, according to data compiled by Bloomberg. Sales jumped 90 percent in the quarter to 40.1 billion yen, the company said.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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