Photographer: Kiyoshi Ota/Bloomberg

Nexon Surges to All-Time High as Annual Profit Outlook Doubles

  • Acquires Pixelberry, maker of mobile games popular with women
  • Boosts operating profit on strong performance in China, Korea

Nexon Co., one of Japan’s largest gaming companies, jumped to the highest on record after doubling its operating profit forecast for the current fiscal year and making its largest acquisition since 2012 to fuel expansion outside of Asia.

Shares soared as much as 10 percent, bringing their gains for the year to more than 100 percent. Most of the rally has occurred since April.

Operating income will be at least 91 billion yen ($801 million) for the fiscal year, up from 40.7 billion yen a year earlier, the company said. Net income is projected to be at least 70.2 billion yen this year, up from 20.1 billion.

Nexon is buying Mountain View, California-based Pixelberry Studios, which makes story-focused smartphone games popular with women in North America and Europe. The price was not disclosed, but Nexon’s Chief Executive Officer Owen Mahoney said it was his largest games acquisition since a 2012 deal worth 36.5 billion yen. He said Pixelberry was generating “tens of millions of dollars” in revenue per year and is "double-digit profitable."

“It grows our Western mobile business significantly,” Mahoney said in an interview. “The market for games targeting women is a vast blue ocean that hasn’t really been focused on by any of the major game players.”

Mahoney is betting the acquisition will add a new growth driver to a portfolio of profitable but aging games. Nexon, which pioneered the free-to-play model nearly two decades ago, develops fewer new titles and instead updates older ones to retain users. While investors have cheered that strategy, pushing market capitalization to almost $14 billion, Mahoney now needs to deliver growth to justify that valuation.

Pixelberry, founded in 2012, is best-known for mobile title Choices: Stories You Play, where players live out fictional tales like navigating social life at a university, or solving crimes. Instead of shooting or slashing enemies, players are prompted with dialogue options, such as selecting a romantic interest, which then significantly alters how the rest of the story plays out.

Since its release last year, Choices has consistently ranked among the top 50 most profitable iOS apps in the U.S., U.K., Australia and Canada. The title generated $5 million in September worldwide across iOS and Android, according to researcher Sensor Tower. Revenue has grown by about 20 percent each quarter this year, according to App Annie. Mahoney said his initial focus will be increasing users instead of trying to grow profitability.

“Early synergy isn’t going to come from monetization because they’re already doing that well,” Mahoney said. “We’re really thinking about acquiring customers more effectively and helping them retain them longer by adding features that are mainly focused on multiplayer.”

Nexon has continued to buy smaller studios to grow its portfolio, with a focus on smartphone games. Last year it bought Maryland-based mobile developer Big Huge Games, South Korean mobile studio wellgames, and Thailand publisher iDCC. Mahoney said Pixelberry’s acquisition was significantly larger than those deals and the biggest since 2012, when it bought Tokyo-based mobile developer Gloops.

Globally, video game publishers have rallied to records this year as the industry increasingly adopts a service-focused model, which Nexon says it pioneered. By encouraging players to continually spend money within the game instead of one up-front purchase, analysts say the model delivers higher profits.

For the July-September quarter, operating income was 22.7 billion yen, above expectations for 20.5 billion yen, according to analyst estimates compiled by Bloomberg. Net income came in at 19.6 billion yen, above expectations for 18.8 billion yen.

The company cited stronger-than-expected performance in China of its nine-year old game Dungeon&Fighter, which saw new content released at the end of September. In South Korea, performance of sports titles it operates on smartphones boosted growth.

    Before it's here, it's on the Bloomberg Terminal.