GREE’s net sales, income decline Q-over-Q to $508.6M and $156.1M on kompu gacha ban

GREE’s record 2012 has come to a sour end in the fourth quarter. According to the company’s Q4 2012 earnings report, net sales dropped 13 percent quarter-over-quarter to 40.08 billion yen ($508.6 million), and net profit declined 8 percent quarter-over-quarter to 12.3 billion yen ($156.1 million).

The company’s fourth quarter also tainted its year end results — GREE’s total net sales for the year came in at 158.2 billion yen ($2 billion), a figure that was short of the of the 160 to 170 billion yen the company forecast with its Q3 results in May. That said, GREE’s net sales for the year still reached a record high, and were up 147 percent year-over-year. GREE’s total net profit for the 2012 fiscal year was 47.9 billion yen ($607.8 million), right in line with GREE’s previous predictions of net income between 44 and 50 billion yen ($578 to $657 million).

GREE’s weaker-than-expected results also meant that its net sales for the quarter fell behind those reported by arch-rival DeNA. GREE had been reporting higher sales and income than DeNA for the past several quarters, but GREE’s net sales of 40.08 billion yen ($508.6 million) in the quarter ending June 30 were 16.5 percent lower than DeNA’s revenues of 47.6 billion yen ($609 million) in the same period.

While GREE’s sales were lower, the company still managed to beat DeNA on a profit-basis. During the quarter ending June 30, 2012, GREE reported an operating profit of 18.9 billion yen ($239.8 million), slightly higher than DeNA’s operating profit of 18.4 billion yen ($233.4 million). DeNA’s net income of 10 billion yen ($127.1 million) was also 18.5 percent lower than GREE’s during the period.

Overall however, GREE must be disappointed by the results. As you can see in the chart below, it was the first time since Q1 2011 that GREE had seen net sales and operating profit decline quarter-over-quarter.

GREE indicated its global expansion plans and its user environment improvement plans had led to a shortage of major IP titles and new games, which in turn contributed to the drop in sales and income. Like DeNA, GREE has recently introduced monthly purchase limits for underage players, introduced measures to prevent real money trading of its virtual goods and most importantly, begun phasing out kompu gacha. While GREE did not specifically disclose the impact of the kompu gacha ban on its results, it seems like that elimination of the lucrative mechanic was a significant contributing factor to the company’s drop in sales.

GREE also outlined its global expansion plans in today’s earnings report. For its North American, European and Asian markets, the company’s goal is to improve average revenue per daily active user (ARPDAU) to approximately $1 in its card battle games, and release more card-battle and simulation games. GREE did report its global net sales had increased in the fourth quarter, but did not provide firm numbers, or indicate what percentage of its global sales have come from its acquisition of Funzio. GREE was also tight-lipped about the growth of its global network and the performance of its games outside Japan.

Overall, GREE is predicting it will see net sales between 195 and 205 billion yen ($2.4 billion to $2.6 billion) during its 2013 fiscal year, and net income of 46 to 52 billion yen ($583.7 million to $659.8 million).

The company’s shares declined on the news, and are currently trading at 1,457 yen ($18.48). GREE currently has a market capitalization of 340 billion yen ($4.3 billion), down 43.4 percent from its February valuation of 578.6 billion yen ($7.6 billion).