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A look at what’s behind Smilegate RPG’s IPO push

For the first time since it was founded in 2002, South Korean game developer Smilegate is out to list an affiliate in a bid to diversify its portfolio.

Smilegate is the developer of hugely popular shooting game “CrossFire,” which boasts about 650 million users in some 80 countries. Its accumulated overseas sales exceeded 10 trillion won ($8.78 billion) as of April 2018.

Contrary to company statements saying it is “simply testing the waters,” industry watchers confirmed that Smilegate has already chosen two candidates to manage the transaction for Smilegate RPG.

Founded by Kwon Hyuk-bin in 2002, Smilegate manifested steady growth until 2017. Most notably, the company’s signature game “CrossFire” became a mega-hit in China when it was introduced in 2008. 

Smilegate's mega hit shooting game Crossfire Smilegate
Smilegate's mega hit shooting game Crossfire Smilegate

The smash success made Kwon the eighth richest man in South Korea in 2018, according to Forbes. Smilegate has also grown into a formidable business group with more than 30 affiliates. Therefore, it saw no reason to raise funds in the capital market, leaving SundayToz as its only listed affiliate. Smilegate acquired the Kosdaq-listed game maker in 2014.

However, heavy reliance on “CrossFire” -- up to 90 percent of Smilegate’s sales come from this game -- has emerged as a key concern for the company amid declining revenues. In 2017, the company saw both sales and operating profit fall for the first time in five years. One of the reasons was the rise of rival PUBG Corp., which successfully launched survival shooter “PlayerUnknown’s Battlegrounds.”

The following year, Smilegate set up a board of directors to delegate business decisions. This enabled Kwon to focus on longer-term investments and management goals. In November, the firm also strategically unveiled “Lost Ark,” a new PC massively multiplayer online role-playing game that Smilegate RPG spent seven years and 10 billion won to develop. After some initial success, Smilegate began to mull an initial public offering, industry sources said, as the firm could further expand to overseas markets with the proceeds. 

In an effort to diversify its portfolio, Smilategate unveiled a new MMORPG game
In an effort to diversify its portfolio, Smilategate unveiled a new MMORPG game "Lost Ark" in November 2018 after spending seven years developing the game. Smilegate

But some argue that raising funds may not be the real push behind the IPO; the firm is looking to boost its image by debuting in the capital market.

Despite being one of the leading game companies in the country, the Smilegate brand is not as solid or well known as rivals such as Nexon, NetMarble and NCSoft, said one source who previously worked in the local game industry.

Others point out that Smilegate has a lot more ground to cover before trying to go public. For instance, they say “Lost Ark needs to gain more traction both at home and overseas to appeal to investors. “Lost Ark” posed a threat to “Battlegrounds” upon its launch, but now it ranks as the seventh most popular game here.

Other efforts Smilegate has made to diversify its portfolio include acquisitions to help reinforce its mobile games lineup amid a booming market. Last week, Smilegate Megaport, a publishing unit of Smilegate, acquired a 64 percent stake in New Creative Art, the maker of mobile RPG “Epic Seven,” for an undisclosed amount.

The global game industry grew to an estimated $135 billion market this year after rising 10.9 percent. The mobile game industry outpaced the growth by expanding 12.8 percent, accounting for 47 percent of the entire market, according to Newzoo, a game industry research company.

“Look at PearlAbyss. It had a single game, ‘Black Desert,’ but it still managed to get listed. To take a page from this example, Smilegate will have to show ‘Lost Ark’  has more potential overseas to see a successful IPO,” said another industry source.

By Park Ga-young (