DeNA sets new earnings record with $529M in sales and $234M in operating income during its fourth quarter

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By Kathleen De Vere Comment

Japanese mobile-social gaming giant DeNA has reported a record quarter for sales and income. Net sales increased 32 percent year-on-year to $529 million, and operating income increased by 19 percent to reach $234 million in the company’s fourth quarter.

Unfortunately for DeNA, uncertainty over the now-illegal kompu gacha monetization mechanic in the company’s top grossing card battle games overshadowed the results. DeNA’s shares declined 1.33 percent following the news, dropping to 1,935 yen. The company’s shares have lost 20.9 percent of their value since the beginning of the month.

Overall DeNA posted a very strong quarter, but is still behind arch-rival GREE. DeNA’s net income increased by 77 percent quarter-over-quarter, rising to $134.5 million (10.7 billion yen). During the same three month period GREE was able to generate net sales of $578.1 million and a net income of $167.6 million.

DeNA credited its growth to increased consumption of its platform-wide Moba-coin currency, which exceeded $640 million for the quarter with 40 percent of sales coming from smartphones. The company also highlighted its international expansion initiatives. During its 2011 fiscal year DeNA launched the Mobage network in China, South Korea, Europe and North America.

While DeNA didn’t break out performance by region, it did reveal that implementing Japanese style monetization methods has been an effective revenue driver outside of Japan. DeNA was able to boost the average revenue per daily active user (ARPDAU) by five times in Ngmoco’s SkyFall and by 15 times in the first-party title Ninja Royale by incorporating time-limited in-game events, a common monetization tactic in Japan.

The results bode well for DeNA’s plans to replicate its lucrative business abroad. So far western players have shown to have much lower conversion rates than Japanese ones. Ngmoco head Neil Young told us in March that on average, 10 to 15 percent of DeNA’s Japanese users convert on a daily basis, compared to Ngmoco’s 1.6 to 2 percent daily conversion rate.

Like GREE did in its earnings report, DeNA also addressed the Japanese Consumer Affairs Agency’s widely anticipated ban on kompu gacha. On the whole DeNA downplayed the news, reporting that in its farming, collection, real-time battle and royale games, gacha is not the main driver of Moba-coin consumption.

It is important to note, however, that card battle games (like the No. 1 ranked Google Play title Rage of Bahamut) do rely heavily on the mechanic, and the popularity of card battle games has been a major driver of growth for both DeNA and GREE. DeNA revealed it plans to increase multi-player and social content in its card battle titles in order to reduce its reliance on gacha in the games.

Tellingly, DeNA did not include a performance forecast for Q1 2013 in its earnings slides, stating it was “unable to make a reasonable estimate on the impact [of a kompu gacha ban] as the range of the issues in question remain unclear at this moment.” DeNA also revealed it is currently in discussion with the Consumer Affairs Agency regarding the matter.

Overall DeNA finished its fiscal year with $1.82 billion in sales and $794 million in operating income. Net income was up 9 percent year-over-year, increasing to $432.3 million (34.4 billion yen). The company currently has $721.6 million (57.4 billion yen) on hand in cash and cash equivalents. As of March 31, DeNA’s Mobage platform now has 39.9 million registered users in Japan.