Global expansion costs drag GREE’s profit down 9% to $151 million, despite revenue increase

Japanese mobile social games firm GREE has posted its second quarter 2013 financial results which continue to be some way down compared to last year.

The cost of international growth and repercussions of regulation in Japan led profits in Q1 to drop by 17.5 percent quarter-by-quarter and that theme continues. Net sales in the latest three-month period reached 39,407 million yen ($418.55 million), up 4 percent, but operating profit fell 9 percent quarter-by-quarter to 14,258 million yen ($151.44 million).

The introduction of a ban on ‘kompu gacha’, a gambling-like gaming mechanism, within its titles in Japan was a key loss of revenue for GREE, and its Q2 revenue is down 5 percent year-on-year. However, the increased cost of growing its business overseas — particularly in the US — has seen GREE’s spending rise, and operating profit is down 37 percent on that of Q2 2012.

When compared sequentially to recent quarters, it is clear to see when the effects of the kompu gacha ban game into effect: during Q4 2012, but Q1 2013 was the first full quarter.

The recent financial results do include the $173 million acquisition of Pokelabo in October, although GREE is frank in admitting that its games did not perform as anticipated. “KPIs for overseas games fell short of our expectations and sales were thus lower than our forecast”, it says.

The firm has cut its predictions for the 2013 financial year accordingly. Its estimate for sales has been reduced by 17 percent to 160,000-170,000 million yen ($1.7-$1.8 billion), with its operating profit estimate cut to 50,000-60,000 million yen ($532-$637 million), that’s down 28-32 percent.

GREE has a number of initiatives that is working on to encourage growth. It says it will continue to “hire aggressively” to increase its development capabilities and it is looking to increase its mobile services.

It already launched a Line-like messaging app in beta last year, and it is planning to release photo sharing apps and ‘social viewing’ apps in Japan. The chat app will be global and is expected to link up with its GREE games service, so it stands to reason that the other apps will do the same.

GREE is optimistic about the growth of its virtual currency, and it says that use of it is growing outside of Japan on a monthly basis. In its homeland, transactions using the currency have almost doubled since July 2012, though no raw figures are disclosed.

The company is beginning a full scale launch into Korea which, alongside its continued efforts to grow market share in the US, where it recently made 25 redundancies following a business realignment. GREE has seen some success with card games overseas but it is also investing in genres that are more traditionally popular in the West.

The company has made significant North American purchases, in addition to opening new games studios there. It bought Funzio for $210 million last year and Openfeint for $109 million back in April 2011, though the latter business has since been transitioned to Japan.

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