GungHo sales and profit drop, prompting stock price fall. What’s going on?

Dr. Serkan Toto is a gaming expert and independent consultant based in Tokyo. You can follow him on Twitter and his blog. This article is republished with his permission.

GungHo (3765.OS), the company behind Japan’s biggest smartphone game Puzzle and Dragons, has published its financial report for Q3 (July-September 2013) yesterday. Things are not looking as good as last quarter.

GungHo’s sales in Q3 reached $424 million (down five percent quarter-on-quarter), while operating profit dropped to $238 million (down 12 percent).

This is the first time GungHo saw these numbers drop after Puzzle and Dragons became a mega-hit in Japan late last year.

Social Game Info posted this graphic of how sales and profit developed for GungHo since 2010:

As a consequence, GungHo’s stock dropped like a rock and was down around 19 percent at one point, limit-down.

The company has a $9.3 billion market cap, but that number was much higher just a few days ago. That’s how brutal Japan’s mobile gaming market can be: it’s strange though, as the dip in sales and profit shouldn’t have come as a big surprise to anybody in the industry over here. It was known that Puzzle and Dragons is running out of steam, not only in terms of user growth.

GungHo expects sales in October to reach $132 million: the company has so far disclosed monthly sales in the past for January, April, July and October 2013.

GungHo’s performance so far has been all about Puzzle and Dragons

Social Game Info used that information to visualize the correlation between downloads for GungHo’s flagship title Puzzle and Dragons and monthly sales:

And here’s how daily downloads for Puzzle and Dragons in Japan have been dropping since the game hit 12 million users in April this year:

What’s next for GungHo?