GREE’s Q1 2013 sales dip 5.4% Q-over-Q to $466.7M, but sales in “recovery trend” after kompu gacha ban

The heavy costs of GREE’s international expansion and the lingering effects of the kompu gacha ban have taken a bite out of the Japanese giant’s profits. The company’s net profit for Q1 2013 fell 26.3 percent quarter-over-quarter and 3.6 percent year over year to 9.06 billion yen ($111.5 million).

Q1 2013 is GREE’s second straight quarter of declining revenues. Net sales for the period were 37.9 billion yen ($466.7 million) down 5.4 percent from Q4’s 40.08 billion yen ($508.6 million), and 17.9 percent from Q3 2012’s record high of 46.2 billion yen ($578.1 million).

According to GREE’s earnings release, the company’s “monthly net sales bottomed in July” — the month that coinsides with complete phase-out of the kompu gacha sales tactic. The practice, which heavily incentivized the purchase of random virtual goods, was banned by Japan’s Consumer Affairs Agency for encouraging gambling like behavior. However, GREE also reports its monthly net sales are gradually recovering. GREE’s paid services sales were 34.6 billion yen ($426.1 million) for the quarter, up 26 percent year-over-year, with sales increasing month-on-month during the period.

The company’s net profit fell for the second straight quarter, hitting 9.06 billion yen ($111.5 million), down 26.3 percent from Q4 2012’s 12.3 billion yen ($151.4 million), and down 32.4 percent from Q3‘s 13.4 billion yen ($165 million).

The numbers also meant that GREE’s net sales and operating profit have fallen behind arch-rival DeNA, which reported record sales of 50.3 billion yen ($627 million) during the same period. GREE’s operating profit was 15.7 billion yen ($193.3 million) in the quarter ending on September 30, 2012, 23 percent lower than the 20.4 billion yen ($254 million) DeNA earned during the same period.

The company’s advertising sales were 3.3 billion ($40.6 million) during Q1 2013, an increase of 14 percent year-over-year, but lower than they were in Q4 2012, a factor GREE blamed on declining feature phone sales.

GREE’s overall costs were also dramatically higher year-over-year, a factor the company attributed to its aggressive international expansion. GREE’s cost of sales for the quarter was 4.6 billion yen ($56.6 million), up 123 percent year-over-year. Sales, general and administrative costs were 17.4 billion yen ($214.3 million) for the quarter, a 50 percent increase year-over-year due to increased staff and marketing costs.

The company’s forecasts for the 2013 fiscal year are unchanged. GREE expects to see net sales of somewhere between 195 and 205 billion yen for the full year ($2.4 to $2.5 billion), with net profit in the range of 46 to 52 billion yen ($566 to $640 million).

The company’s shares fell 3.65 percent after the news. They are currently trading at 1,373 yen ($16.91).