(Exclusive) GRVY Video Conference Notes

Gravity (GRVY) remains as one of my favorite ideas at the moment with tested and proven downside protection and a huge short term catalyst. By short term, I mean within 1 year of today. Not 1-2 months.

New to the GRVY situation?

Quick Recap

GRVY is a Korean developer of online MMORPG (Massively multiplayer online role-playing game). Plagued by the delay of the sequel to the hugely successful Ragnarok Online (RO) game, GRVY’s stock has been clobbered down to levels below liquidation value.

You can review the initial articles on GRVY in the following links for valuations and additional background.

Recent Events

Ever since the failed launch of the RO sequel (RO2), GRVY has completely re-engineered the game from the ground up. New gaming engine, graphics, gameplay, maps, characters, quests. The whole works.

September 2010 saw the start of the closed beta testing. Closed beta is where the game is closed to the public. Only invited gamers can participate in the beta version of the game.

With the completion of the first round closed beta test, GRVY voluntarily hosted a live video webcast to communicate with gamers the plan for RO2.

Exclusive Translated Notes from the Video Conference

You sure won’t find these notes from any analyst. I’ve written a few comments in brackets [ ].

To view the video yourself, follow the link (link broken).

  • 140 people joined the live webcast. [I assume it is mostly the hardcore Korean gamers only]
  • [Just a lot of fooling around until the 17th min where the CEO discusses the Closed Beta Test (CBT)]
  • CEO’s opinion of 1st CBT was “somewhat successful”.
  • CEO spends time going through briefly the issues from the 2007 RO2 beta tests and what it has taken to get to this point.
  • In the RO2 1st CBT there were server issues such as lag and authentication.
  • There was a lot of expectation and hype going into the CBT, but due to the limited contents in a CBT (characters, graphics, maps not finalized) they could sense some disappointment from the gaming community.
  • What was important for GRVY however, was that bugs and server issues were clearly identified and fixed.
  • Received a lot of feedback from the gamers at the completion of the CBT.
  • Feedback related to graphics and gameplay from the 1st CBT is already being implemented. They are also making character design changes to address feedback.
  • The 2nd CBT to occur in Dec 2010 or Jan 2011.
  • Aiming to increase server reliability. The main purpose of the 1st CBT was to stress test the servers.
  • 2nd CBT will address issues and feedback from CBT 1. [Moves onto discussing gameplay, game system etc]
  • They are taking feedback very seriously and have assigned additional development schedules to be included after CBT 2, which is to be completed before OBT [Open Beta Testing. More testing before the game is released.]
  • A big part of RO2 is also the community aspect and they are working on a new chatting system that will allow for gamers from all over the world and across servers to interact with each other.
  • The CEO states that the vision for RO2 is to be the “best game possible that will last a lifetime”. [In other words, an addictive game with good gameplay that will not be outgrown quickly. RO1 is on it’s 10th year and revenues still come in. Aiming to top this feat.]
  • In Korea, RO1 was the most internationally serviced game to date in the genre.
  • [Remaining video discusses the game in more detail and the changes they are making.]


I found the video interesting on many levels.

I haven’t seen too many companies that go out of their way to create a sort of event based video conference to discuss and address game development to the general public.

In the video, there was a hamburger eating contest in the next room, an attractive woman in a character costume, people wearing funky hats and writing handwritten letters to randomly selected gamers.

All this while the CEO was in the room and later, he mentioned that he had no idea that this had all been prepared.

The attention to feedback and the agility to attend to and implement the feedback was a pleasant surprise. In the end, it is always the end user that decides the fate of a product.

Look at how Dell has changed it’s image. After losing to HP in market share, Dell paid attention to the Voice of Customers, and Dell is no longer the boring, thick, under performing PC.

For GRVY, 3 years of delays has already pee’d off plenty of people, but with the current consensus by the stock market that GRVY is the same as dead, how bad could another year of making the game better be?

I certainly got the impression that GRVY is intent on producing the best game possible.

I’ve personally commented several times in my portfolio updates and in the GRVY forum that if there is another delay I will sell out and see how things continue, but with this video as well as another game in the beta testing pipeline, I’ll be holding and waiting patiently.

RO2 Beta Testing Timeline

  • 1st Round CBT complete
  • 2nd Round CBT estimated start: Dec/Jan 2011
  • 2nd Round CBT estimated end: Jan/Feb 2011
  • Implement and fix things from 2nd CBT
  • OBT estimated start: Feb/Mar 2011
  • OBT estimated end: Mar/April 2011
  • add in X factors
  • My estimated launch date for RO2: Mid way through 2011. About 7-8 months from now.


Current NNWC and NCAV of GRVY is $1.60 and $2.01 respectively. Current price is $1.48.

The current discount to NNWC is 6% while the discount to NCAV is 25%. Quite a handy margin of safety.

GRVY isn’t burning cash so the current market valuation is a head scratching mystery.

Based upon different outcomes of RO2, these are my rough valuations.

  • Game failure: $1.20 (absolute worse case to try and scare you)
  • Mild success: $3-4
  • Above average success: $4-5
  • Huge success: $7-10



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15 responses to “(Exclusive) GRVY Video Conference Notes”

  1. Bart says:

    Thanks for the very interesting notes Jae, I’m currently also holding till I know how this pans out. It’s a long wait, but if it’s succesful it could be very profitable, and I’m not willing to sell out below NCAV as long as they’re not losing money hand over fist…



  2. Pete says:

    I have read the book Quality of Earnings a couple of times and one thing struck me about GRVY. They have 21,96 per share in short-term investments. Will these investments have any affects on GRVY’s profits? If so, then this should also be a catalyst for the share!

    What’s your view on this Jae?

  3. Parker Bohn says:

    Well, its no mystery why the market doesn’t like GRVY.

    Over the last 5 years, they have burned off 40% of their equity, without returning any money to shareholders.

    Still, the downside should be limited for the near-future, and the potential upside is quite large, if they manage to get a hit game.

    Unfortunately, my circle of competence doesn’t extend to knowing anything about Korean video-games, so I’ve labelled GRVY as “possible value trap” and moved on.

  4. Jason Sarasin says:

    @ Jae

    How does it feel to have the influence on the market?

    Keep writing articles. lol

  5. Jae Jun says:

    @ Pete,
    The short term investments won’t do much. The investments are usually bonds so no chance for it to be a catalyst.

    @ Parker,
    GRVY numbers are all incorrect on financial websites due to the currency difference. Another point why GRVY is mistaken.
    They have just released a renewal of RO1 and more countries in Europe now servicing RO1, so it is still going strong.

  6. tim kang says:

    Jae Jun,

    Appreciate the excellent analysis on Gravity.

    After reading your anaylsis, I’ve looked up several user reviews of the recent beta tests on Naver (korean search portal) and the reviews were pretty brutal to put it mildly.

    Granted it’s only at the closed beta testing stage but unless they carry out some major changes in time for the open beta, it may be wise to temper expectations on the success of RO2.

    At current prices though, I agree that GRVY would still be a buy, especially leading up to RO2 launch, but coming up with a good exit strategy would be the tough part.

  7. Jae Jun says:

    Which review did you look at?
    There doesn’t seem to be many unless you read the old RO2 reviews.

  8. Jon says:

    Thank you for the great site and helpful posts.

    “The current discount to NNWC is 6% while the discount to NCAV is 25%. Quite a handy margin of safety.”

    “handy margin” seems to be insufficient for a company in this state if you are going on discount on asset.

    As an IT company they can easily keep burning what they have with nothing to show for it other than potential. Especially if it’s cash/short term.

    This is in fact speculation, speculating that this one product will succeed and than everything will be OK and the company will shoot up.

    “Still, the downside should be limited for the near-future, and the potential upside is quite large, if they manage to get a hit game.”

    And if not? How is this value investing?

  9. Jae Jun says:

    Hi Jon,

    Benjamin Graham clearly invested in companies because it was selling cheaper than the asset value. This in itself is a handy margin of safety.

    GRVY isn’t an IT company and the financial statements show that FCF is positive and it will likely be again this year. So no cash burn there. Plenty of cash to last the company as well.

  10. Jon says:

    “Benjamin Graham clearly invested in companies because it was selling cheaper than the asset value. This in itself is a handy margin of safety.”

    He did not invest blindly in a company because it appears there’s a discount. He clearly writes about this in his book and mentions companies, industries and situations that should be avoided.

    “GRVY is a Korean developer of online MMORPG ”

    How is this not an IT company? IT stands for Information Technology. They are not manufacturing chairs. If you have another name for it, than fine, the idea is the same.

    Anyhow, I don’t think there’s need to continue this discussion as it’s all in the book Security Analysis which every investor should read at least twice and understand it well. Numbers cannot replace a deep understanding of the difference between value investing and speculation. Again, thank you for your article.

  11. jsarasin says:

    @ Jon

    Security Analysis was written in 1940 I believe. Times have changed in regards to what industries to avoid. Are you sure Benjamin Graham would not be investing in the gaming industry if he was alive today? Or even a younger Buffett? Does it really have the same aspects as the standard technology companies?

    Yes GRVY is categorized under Technology but couldn’t you also put it under Consumer/recreational products? Or am I just thinking too outside the box?

    Speculation vs Investing

    “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” — Ben Graham

    I see where you are coming from in regards to the future success depends on one game. But I ask you to do a GOOGLE search of “Ragnarok Online”. Once you complete your thorough analysis of this game please let us know when you have invested in GRVY.

    Jason Sarasin

  12. Assaf says:

    I wrote you on SeekingAlpha but i don’t know if you read comments there, so here is a copy:

    You forgot to mention the embezzlement of the management that caused huge legal costs and major restatements, as well as their competitor is their largest shareholder.

    Even after the fraud, they specifically state that they do not have sufficient control on their subsidiaries and monetary policy, so it may very well be that the numbers (cash?) you are looking at are not accurate. (at the very least…)

    Those are the reasons why this stock is cheap, in my opinion.

    Personally, i would not put into this stock more than 2-2.5% of my PF at any time, although it looks like an interesting opportunity.


  13. Jae Jun says:

    Sorry I dont go to seekingalpha often and I check messages on that site even less.

    I dont agree that those are the reasons for why GRVY is so cheap. I’ve mentioned the embezzlement in previous posts but dont see it being a cause for concern anymore. New CEO has been doing a great job and really cleaned things up. I have very high doubts that GRVY is misstating their numbers.

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