Analysts cite greed and Chinese pushback against gaming as factors behind investor hesitation.
Following a bold promise to enter public markets with prices close to $500 per share, Krafton’s IPO saw share values for the PUBG developer close at 8.8% of the asking price.
“This was a classic case of the owners being a bit too greedy in their valuation assessment of the company,” Douglas Kim, analyst with Smartkarma, told Reuters. “Although the IPO price range was lowered, it was not lowered enough.”
Tencent, Krafton’s parent company, reduced the offering price by $870 million shortly after markets opened.
The disappointing debut might seem counterintuitive given Krafton’s market presence, particularly in the mobile sector. Sensor Tower mobile insight strategist Craig Chapple told GameDaily PUBG was 2020’s top app in global player spending.
“Across the App Store and Google Play combined, [it generated] $2.7 billion,”he said. “It ranked above the likes of Honor of Kings, TikTok, and Pokémon GO. To date, PUBG Mobile, localized as Game For Peace in China, has generated $6.3 billion in lifetime player spending globally from the App Store and Google Play.
“During the first half of 2021, PUBG Mobile generated $1.5 billion globally, representing a rise of approximately five percent year-over-year.”
However, it’s possible neither greed nor raw profit potential influenced Krafton’s abysmal IPO. Instead, Reuters suggested it was China, or more specifically, a recent outburst from Chinese state paper Economic Information Daily railing against video games as “spiritual opium.”
The article called for harsh regulations against games before it was retracted and re-published with a slightly more moderate tone. The new version asked the Chinese government to regulate access to online games for children.
Tencent’s stock fell after the article’s publication, and the media juggernaut issued a statement shortly after that promised both to curb how long minors can spend on its flagship title Honor of Kings and to prohibit users under 12 from spending money in the game.
That’s potentially bad news for those banking on PUBG Mobile’s continued success. 87% of Krafton’s revenue comes from Southeast Asia (excluding South Korea), and LightStream Research told Reuters 70% of sales are through Tencent publishing the game in China.
Any venture built around Tencent’s unfettered operations in China is likely to cause some concern among investors anyway. Recently, the Chinese government has subjected Tencent to sterner oversight and expressed a desire to keep it from growing too big in that nation.
Of course, the IPO’s disappointment is relative when the asking price began so high. Krafton shares might have dropped by 20% after the opening went live, but it still earned $3.75 billion and ranks as South Korea’s second largest offering behind Samsung Insurance. PUBG’s future vitality in China--and elsewhere around the world--aside, Krafton is investing in a number of additional ventures, including telecommunications and healthcare.
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