Global expansion costs Japan’s GREE: As revenues fall, net profit crashes 17.5% QoQ to $197m

Japan’s GREE, one of the world’s top mobile social gaming firms, has posted its fiscal 2013 Q1 earnings and, as expected, the figures are disappointing with revenue and profits both falling, the latter due to the cost of its international growth and the effect of new regulation in its domestic market.

The company’s net sales of $467 million (37,900 million yen) represent a 25 increase on a year previous but, looking at things quarter-by-quarter, that figure is down 8 percent from $504 million (40,080 million yen).

Its operating profits of $197 million (15,700 million yen) are less positive and represent a 5 percent annual decrease, and a fairly substantial 17.5 percent drop from the $238.8 million (18,996 million yen) reported in the final quarter of its 2012 financial calendar.

The company had been expected to post less impressive figures due to a number of reasons, but, chiefly, they relate to its ongoing plans to globalize its already-mainstream Japanese service.

GREE’s efforts to expand overseas and the rising cost of user acquisition saw cost of sales grow 123 percent, year-on-year, which GREE puts down to “higher labor costs and other costs concomitant with our expansion.” On top of that, expenses for “sales, general and administrative costs” jumped 50 percent on the same time last year.

The firm very much needs its international business to grow as it looks to offset a loss of revenue from its domestic market, where it is feeling the effects of a government decision to ban a lucrative gambling mechanism called kompu gacha. This was the first full quarter since to remove the lucky dip-like element — which is reported to have accounted for up to half of its revenues from Japan, its largest source of revenue — from all games, and that goes some way to account for the revenue losses.

GREE has been working to increase its US presence this year and, by virtue of its $210 million acquisition of developer Funzio, revenues are growing Stateside and neared $30 million for the year as of August. The firm spent big on another acquisition during the last quarter, buying Pokelabo for $173 million, and combining its offering with the newly bought entity is among the immediate business priorities set out in its earning report.

Back on the domestic front, it hopes that a recent deal with Yahoo Japan — which will see the two set up a range of joint content and gaming initiatives — will help grow its visibility and sharpen its competitive edge with arch-rival DeNA – which itself inked fresh terms with Web giant Yahoo Japan.

Elsewhere, GREE says it is working to develop more simulation and card battle games for Europe and US users, in addition to its local content push. DeNA has already seen its Japanese-themed titles do well in the US, two currently of its flagship titles currently sit atop the list of Google Play’s top grossing apps, while a third has cracked the top ten.

GREE is also aiming to introduce carrier billing to a range of global markets, having inked its first deal outside of Japan today, in partnership with Singapore-based Singtel.

The results are particularly sore for GREE as DeNA last week announced record quarterly revenues of $627 million and profits of $254 million.

Also read: Breaking away from the app store model, games giant GREE launches HTML5 service

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