Some Hits, Some Misses: Q4 CY2024 Pre-Earnings Analysis

Things are finally beginning to look up for the global games industry after nearly two-and-a-half years of missed estimates, cancelled projects, mass layoffs, and studio closures. However, renewed interest in expanding to Asia and MENA, the fastest-growing regions in the world, is offset by little-to-no coverage of publicly listed games companies operating in these regions. Evaluating these companies means leveraging local insights to present accurate estimates of their competitive position without dependence on financial models.

Niko Partners, with its 23 years of covering the Asia and MENA video games markets, presents the first edition of its Pre-Earnings Analysis. This quarterly write-up presents our take on selected, publicly listed companies in Asia and MENA, with the aim of providing contextual direction to the financial performance they will declare. This Pre-Earnings Analysis forms part of the service set for institutional investors and companies subscribed to NikoIQ, our online knowledge base.

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Niko Partners Pre-Earnings Analysis: Japan

Niko Partners believes SEGA is set to record strong performance in Q4 CY2024 primarily because of the release of two major titles in the period, putting the company on track to achieve its full-year games business forecast of $2.16 billion in revenue.

During the quarter, SEGA released Metaphor: ReFantazio and Sonic x Shadow Generations, both of which saw positive reception; each has so far sold over a million copies. Metaphor was a milestone launch for SEGA, with the title recording the highest single-day sales ever for its developer Atlus, a company subsidiary. The game has received critical acclaim, while tying for the highest score for a 2024 game on Metacritic. Metaphor: ReFantazio has also won numerous awards, including three at The Game Awards 2024.

We note that SEGA has also continued to record strong repeat sales from past titles, in addition to solid performance from its live-service games, and substantial income from downloadable content for its Total War series. This, in combination with increased revenue following SEGA’s acquisition of Angry Birds developer Rovio, has seen SEGA exceed sales expectations in Q3 CY2024. Sega’s ability to leverage its robust back catalogue of games means it can achieve consistent games revenue even in quarters with minimal releases, particularly as game development pipelines have lengthened in recent years. We also expect the company to announce a slate of titles for the Nintendo Switch 2, which is expected to launch in the second half of 2025.

However, we also note that SEGA continues to remain exposed to currency fluctuations, particularly as the majority of sales are recorded from the North American and European markets. While a depreciated yen earlier made these sales more lucrative for the company, the Bank of Japan’s decision to end negative interest rates in an attempt to strengthen the currency could in turn reduce SEGA’s overseas revenue after exchange rate adjustments.

Niko Partners Pre-Earnings Analysis: Korea

Niko Partners believes Nexon’s Q4 CY2024 earnings will decline QoQ in line with the seasonal trend of quarterly declines resulting from seasonal gaming habits because of user numbers typically peaking in the third quarter of the year.

The company’s Q1-Q3 2024 revenues stood at KRW 3.3 trillion (approximately $2.3 billion), up 8% YoY. Q4 2024 earnings is expected decline QoQ based on past earnings trends because of a lack of major new content in Q4, thereby reducing player spending. However, we note that Nexon’s 2024 revenue is projected to exceed KRW 4 trillion for the first time in the company’s history.

The above-mentioned growth will primarily be recorded by action game Dungeon & Fighter Mobile, which was released in China with partnership with Tencent in May 2024. Nexon’s China revenues recorded a 138% YoY increase in Q3 2024 due to Dungeon & Fighter Mobile. The mobile release has generated over $2.5 billion in gross player spending this year according to Niko Partners estimates. We expect stable sales from franchise IPs including Dungeon & Fighter, EA FC Online, and The First Descendant.

Nexon announced several new games in Q4 2024, including The Kingdom of the Winds 2 and Project RX. The company also announced updates to its pipeline, including for titles such as The First Berserker: Khazan, Project OVERKILL, SUPERVIVE, Gensei Online, and ARC Raiders. Of these titles, SUPERVIVE’s officially launched on January 9 2025 following beta testing that began in October 2024. Nexon also debuted its new RPG, Dungeon & Fighter: ARAD, at The Game Awards 2024 in December.

Despite these developments, Nexon continues to record lower revenues in its home market of South Korea, with Q1-Q3 2024 earnings down 24% YoY; we note however that the 67% YoY increase in Q1-Q3 2024 China earnings made up for this domestic decline. The company also faces risks such as the uncertainty of pipeline performance, increasing operating and HR costs, weak domestic market sales, and the financial impact of the alleged misrepresentation of probabilistic items within some of its titles.

Niko Partners Pre-Earnings Analysis: China

Niko Partners believes Tencent is set to maintain its growth trajectory in Q4 2024, driven by robust performance of new titles launched during the year, which will result in higher annual growth than recorded in 2023. We note that Tencent released fewer new titles in Q4 2024 than prior quarters, with launches including Pokémon Unite and One Piece Ambition in China, as well as Path of Exile 2 globally, being the main releases. Pokémon Unite and One Piece Ambition have performed moderately well, while Path of Exile 2 was the standout release during the quarter, reaching nearly 600,000 concurrent players on Steam.

Legacy titles have continued to perform strongly this year with Honor of Kings, League of Legends and Valorant recording revenue increases. Dungeon & Fighter (DnF) Mobile revenue continued to trend downwards through most of the quarter, but has begun to stabilize. According to Niko Partners’ China Games & Livestreaming Tracker, Naruto Mobile has also recorded strong domestic performance, ranking as the #6 most-viewed Tencent game on Chinese game livestreaming platforms in Q4 2024. The squad RPG has also seen record revenue performance this year, which is notable given the game originally launched in 2016.

WeChat Mini Games have also seen continued growth in 2024, and we expect this platform to account for nearly $5 billion in IAP and advertising revenue. Tencent has had a positive year overall with renewed domestic gaming growth thanks to the launch of DnF Mobile in China. Tencent received nearly 20 game approvals in 2024 (ISBNs), including high profile titles such as Rainbow Six (Ubisoft) and Final Fantasy XIV Mobile (Square Enix), which are set to launch in China and could drive additional domestic growth in 2025.

However, we note that there are several potential risks that could impact future earnings, chief among which is the US’ Department of Defense designating Tencent a Chinese military company. While this designation does immediately impact the company, it will lead to it being removed from US government supply chains among other possible restrictions. Another risk is Tencent’s continued re-evaluation and restructuring of its studios. During 2024, the company cancelled several projects and shut down many studios in the process, which may impact the company’s pipeline and performance in 2025.

Niko Partners Pre-Earnings Analysis: India

Niko Partners believes Nazara Technologies will record positive performance in CY Q4 2024 (fiscal Q3) owing to the company typically recording its highest quarterly revenue during the three months to December. We expect Nazara to record growth in all three segments it operates in – media, gaming, and advertising.

Within media, which includes esports, publishing, and industry events, we expect that the company will continue to leverage the reach of its subsidiary, Nodwin Gaming. Nodwin has evolved from a Indian gaming-focused tournament organizer to a division that executes domestic and international events across games, culture, and trade industry conferences, thus expanding the pool of sponsor and revenue sources from gaming-specific ones, which have typically been fewer in number in India. During Q4 2024 for example, the company organized events including DreamHack x Hyderabad and the 2024 PUBG Mobile National Championship Uzbekistan. We expect its continued partnership with established companies including Krafton, Sony (which are investors in Nodwin), and Google to positively impact Q4 2024 performance.

Within gaming, we expect the company to record further dividends from key acquisitions including UK-based developer Fusebox Games, which develops licensed interactive titles contributed a little over 11% of the segment’s calendar Q3 2024 revenue (approximately $24.7 million). We also expect continued growth from the children-focused Animal Jam, though increased user acquisitions spending by the company may impact profitability at the title-level. Segmental performance is also likely to be positively affected by the appreciation of the US Dollar against the Rupee, with North America accounting for 39% of the company’s overall revenue as of Q3 2024 (approximately $37.8 million).

Nazara Technologies has also continued to execute its stated strategy of acquisition-led growth, with the company continuing to adopt a platform-based approach to its operations. Acquisitions during Q4 2024 included an additional 10.26% stake in Absolute Sports (which operates sports and media content websites), the remaining 93% stake in games media company AFK Gaming, and Trinity Gaming, an India-based creator service provider, via Nodwin.

While Nazara has raised significant capital from new and existing investors to fund these acquisitions (over $100 million in 2024 alone), we believe the company will now need to start showing significant increases in revenue and market share across segments to justify these outlays. Organic growth from internal IPs remains a concern, with a significant portion coming from non-gaming verticals. We also note that a consortium of investors, including its CEO and Chairman, have launched an open offer to acquire up to an additional 26% stake in the company from the open market. This process is expected to close in April 2025.

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