Hot on the heels of the unexpected news that Line is establishing a US$100 million fund to solidfy its growing position in the gaming industry, DeNA (TYO:2432) announced its first quarter financial results for 2014. The company emphasized its many new businesses but that was not enough to ignore the gaping hole left behind by missing game revenue.
The basic numbers tell the story. Revenue down 31 percent (37 percent just for social media which includes games) from the previous year and operating profit down 59 percent. The downward trend is an extension from fiscal year 2013 when DeNA posted successively lower revenue and operating income in four successive quarters. The latest results make it five in a row.
The silver lining is that the company is still raking in a lot of money. Revenue hit US$358 million and operating profit topped off at a respectable US$70 million. It is a long way from the heady days of 2012 when the firm topped US$2 billion in revenue but the company still believes that it can produce games which can bring it back to the top.
The company’s report shows DeNA will double down on game production, dedicating 80 percent of domestic resources to developing new games. One game that it highlighted as a potential future hit is Final Fantasy Record Keeper. Though the title hails from a globally acclaimed brand, the upcoming mobile installment faces great pressure to turn around the domestic market.
There are signs of life in DeNA’s collection of alternative businesses which do not fall under social media or ecommerce. Quarter to quarter, revenue from those businesses was collectively up 452 percent to US$28 million and their operating profit increased 111 percent to US$3 million, the first profit since they eked out a US$1 million margin in the second quarter of 2013. The “others” category in the report does not specify which of the small businesses generated profit.
If the current trends are not reversed, DeNA will need these new businesses to sustain the company in the long term. Whether it is the digital manga magazine, the virtual live space, the DNA testing service, or even the baseball team, something has to catch fire to keep DeNA’s future bright.