NCSoft financial report shenanigans

I have to call "shenanigans" on NCSoft's Q4 financial report. At first glance, the numbers look good for them. However, after a little digging...

NCSoft has ceased reporting their subsciption numbers. Previously they provided average monthly access numbers - now they only give highest concurrent users, which is useless to an investor who wants to know the health of NCSoft's games. Who cares what the largest number of people were for one day in the quarter?

Picking on City of Heroes (CoH) for a moment: NCSoft reports a slight uptick in highest concurrent users since last quarter. Good, right? But looking at past 4Q numbers, 4Q 2006 had a concurrent user high of 17,728 and 4Q 2007 had 17,056. Both are probably attributable to Winter Event in December. 4Q 2008, however, has a concurrent high of only 13,823 - a significant drop from past 4Q results. This is despite the fact that December had the triple play of a new issue release, a free weekend for returning veterans, and the Winter Event!

More important are the fininacial figures themselves. According to the report, sales are up for CoH from 6,193 million won to 6,865 million won. That's good, right? But wait! The won seriously spiked downward in the second half of 2008. About 1000 won = 1 USD at the end of July 2008, but 1318 won = 1 USD by the end of the year. In the NCSoft conference call, at the very end, they admit that gross revenues are inflated by as much as 40% because of foreign curreny exchange rates! (40-45% of all NCSoft revenue is from abroad).

If you crank the numbers and look at won values versus the dollar, CoH maybe - MAYBE - stayed even with its 3Q 2008 numbers, which were disappointing. (It's hard to tell since the won fluctuated wildly during this period and CoH brings in dollars, pounds, and Euros in unknown amounts.)

With the won in a state of dramatic fluctuation, what would be the best figure to determine the health of a given game? Why subscription numbers, of course - a headcount is an absolute number, not subject to exchange rates. But these are the very numbers that disappeared from the report this quarter. Hmmmm.

If I were an investor, I'd want subscription numbers to tell me how healthy these games really are.

I also think the CoH subscription slide is continuing.

However, I do not think CoH is the reason for the change in their reporting policy - the investors in the quarterly conference call seemed much more interested in how much the Korean release of Aion is cannibalizing numbers from Lineage I and II. Either way, invetors need to be asking more questions - NCSoft is hiding the ball, and the devaluation of the won is helping them do it.