THE KOREA ECONOMIC DAILY, GLOBAL EDITION

Investors are paying close attention to the Korean game holding company Krafton as it is expected to be this year's hottest initial public offering. The company behind famous game titles PlayerUnknown's Battlegrounds (PUBG) and TERA is expected to go public this year to finance its portfolio diversification including new game release, IP business expansion, and more.

Krafton is currently in the process of selecting advisors, according to investment banking sources. The company has not officially announced IPO plans.

Krafton (initially named Bluehole until 2018) was founded in 2007 by current chairman Chang Byung-gyu, a veteran entrepreneur. It is the parent company of game studios PUBG, Bluehole, Pnix, Red Sahara, Delusion, and En Masse Entertainment. It released its first massively multiplayer online role-playing game (MMORPG) TERA in 2011, tapping into overseas markets including the US, Europe, and Japan. The game achieved solid success, taking home four categories from the 2011 Korea Game Awards.

But the company's worldwide success came in 2017 when it debuted PUBG, an online multiplayer battle royale game where 100 players compete to be the final survivor on a private island. The game - selling 65 million copies worldwide - was a huge hit, generating much-needed revenue for the company which had struggled from a financial decline months prior to its launch. The mobile version of the game released in 2018 further boosted its global success. In 2019, 50.2% of Krafton's sales stemmed from mobile users.

Mobile games 'PUBG Mobile: Battlefield' and 'Game for Peace' posted a combined $226 million in sales during May, a 41% year-on-year increase, according to SensorTower, a market research service. The two games accounted for the largest turnover among mobile games. 'Game for Peace' is a Chinese version of PUBG Mobile, launched by Tencent Holdings.

Between 2017-18, Tencent subsidiary Image Frame Investment became Krafton's second-largest shareholder with a 13.2% stake. Chairman Chang is the largest shareholder with a 17.47% stake, and a private equity fund created by IMM Investment and JKL Partners accounts for a 6.88% stake as the third-largest shareholder.

Ever since PUBG's success, there has been constant market chatter regarding Krafton's IPO. According to game industry sources, the game publisher is hoping for a valuation between 10 trillion won to 12 trillion won, which does not look too far-fetched given that the company is valued at 7.2 trillion won on 38 Communications, an OTC exchange.

On July 15, Krafton’s share price reached an all-time high of 897,500 won per share on the OTC exchange, a drastic jump from just six months ago when it had ranged around 400,000 won per share.

In 2019, Krafton posted 1.8 trillion won ($1.4 billion) in revenue and 359.2 billion won in operating profits. Its net profit was 278.8 billion won, which would justify a 10 trillion won valuation with the game industry's average price-to earning-ratio of about 40x.

From January to March of this year, the company posted 508.2 billion won in revenue and 352.4 billion won in operating profits, recording a 99% year-on-year growth in revenue and 256% year-on-year growth in operating profits from the previous year.