Game stocks discover gravity in 2022

Games stocks are dropping this year after defying gravity in 2021 thanks to its connections to the metaverse and non-fungible (NFT) tokens, two fads that impressed gamers last year.

Investors are generally concerned about potential interest rate increases and are particularly concerned about the weakness of the cryptocurrency market, on which both the metaverse and the NFT depend. Metaverse games have their own crypto codes that players can purchase and use online. NFT is often traded using cryptocurrencies.

Shares of Krafton, the developer of Battlegrounds, are down more than 20 percent this month while shares of NCSoft are down more than 10 percent. They are the two largest game developers in Korea by market capitalization.

The impact on junior developers was even stronger.

Shares of Wemade are down more than 20 percent this year, while its subsidiary Wemade Max, a blockchain-based game developer, is down nearly 20 percent. Devsisters, better known as Cookie Run, fell 17 percent and Com2uS Holdings more than 30 percent over the same period.

said Kim Tae-gi, a former professor of economics at Dankook University. “Increasing interest rates raises the cost of borrowing.”

Goldman Sachs said on Monday it expects the Federal Reserve to raise interest rates four times this year amid rising inflation and a tightening labor market. Fitch Ratings expects two rate increases this year and four in 2023.

The latest metaverse platform for Com2uS Com2Verse. [COM2US]

The latest metaverse platform for Com2uS Com2Verse. [COM2US]

Last year, game developers loudly announced ambitious expansion plans into the metaverse and blockchain.

Com2uS Holdings subsidiary Com2uS unveiled the metaverse platform in December, while Wemade launched its blockchain game, GalaxyTornado on Wemix, to the global market late last month. Mir4, Play to Earn (P2E), also launched in August.

P2E games allow users to collect or collect cryptocurrencies and NFTs that can be monetized in the real world.

Wemade shares are up more than 800 percent last year, and Wemade Max is nearly 1,500 percent. Shares in Com2uS Holdings grew nearly 500 percent.

The collapse of the crypto market is horrific for gaming stocks as many of them plan to expand services based on the metaverse and NFT, which runs on the blockchain, the technology that enables cryptocurrency to exist.

Bitcoin fell below $40,000 on Monday to its lowest level since September.

Dankook’s Kim said, “Gaming companies are trying to find new sources of revenue by releasing NFTs or releasing P2E games rather than focusing on developing the game itself. Hence, the decline in the value of cryptocurrencies [that are the foundation for NFTs and P2E games] lowers their profits. The ban on P2E games in Korea is also affecting investor sentiment in the gaming sector.”

The Games Evaluation and Management Committee, under the Ministry of Culture, Sports and Tourism, declined to give an age rating for P2E games, citing concerns about gambling. An age rating is required to distribute a game in Korea. The committee also requested that existing P2E games be removed from Google Play and the Apple App Store.

Despite the risks and regulations, investors should pay more attention to the gaming industry this year because “domestic game developers plan to release P2E games relatively faster than global competitors,” said Jong Ho Yoon, certified financial analyst with Korea Investments and Securities. . The early release of P2E games is important because early movers can enjoy word of mouth without spending a lot on marketing.

Wemade launched a P2E version of its Mir4 game globally in August. Netmarble and NCSoft are some of the other game developers who launched P2E games this year.

Written by Jin Min Ji [jin.minji@joongang.co.kr]