Nomura downgrades Krafton stock rating to Neutral on weak mobile revenue

Nomura/Instinet downgraded Krafton Inc. (KS:259960) to Neutral from Buy, significantly cutting its price target by 36% to KRW360,000, following the company's weaker-than-expected Q2 2025 results. The downgrade was primarily driven by a 20% quarter-over-quarter decline in mobile revenue, leading to 6% and 13% misses on revenue and operating profit consensus, respectively, and prompting substantial cuts to 2025 and 2026 EPS forecasts. While new IP delays like Subnautica 2 present headwinds, potential upside could stem from increased PUBG monetization via second-half collaborations.

Analysis

Nomura/Instinet has downgraded Krafton Inc. (KS:259960) to Neutral from Buy, accompanied by a significant 36% reduction in its price target to KRW360,000. This action is a direct response to the company's weak second-quarter 2025 performance, where revenue and operating profit missed consensus estimates by 6% and 13%, respectively. The primary driver of the earnings miss was a substantial 20% quarter-over-quarter decline in mobile revenue, attributed to a soft content cycle and fewer collaborations for its key asset, PUBG. Consequently, Nomura has materially revised its earnings forecasts, cutting its 2025 earnings per share (EPS) estimate by 22%. The downgrade is further justified by a valuation reset, with the target price-to-earnings multiple being lowered from 21x to 16x—a level aligned with the stock's 2022-2023 mid-cycle average and below its current trading multiple of 17x 2025 forecasted EPS. The outlook is further clouded by the delay of Subnautica 2 to 2026 and postponed momentum for new intellectual properties, with potential, yet uncertain, upside hinging on the success of second-half PUBG monetization efforts.

Key Decisions for Investors

• Investors should re-evaluate any bullish thesis on Krafton, as the downgrade is supported by a material 22% cut to 2025 EPS forecasts and a valuation multiple contraction, suggesting the near-term growth story has weakened.
• Monitor near-term catalysts closely, particularly the performance of second-half PUBG collaborations, as this represents the primary potential upside against a backdrop of delayed new IP launches like Subnautica 2.
• Given the stock currently trades at 17x revised 2025 EPS, above Nomura’s new 16x mid-cycle target multiple, it may be prudent to await a more attractive entry point or clear evidence of a turnaround in mobile revenue before increasing exposure.