In a wide-ranging discussion, Alex Jensen and Genya Smagin from SK Telecom Strategic Investments, give us an insight into important parts of Korean business.
Genya begins by recapping the major acquisitions that have occurred and will occur in the gaming industry. Starting with Microsoft’s $68.7 Billon dollar acquisition of the Activision Blizzard stable. Titles from this stable include; Call of Duty, Guitar Hero, World of Warcraft, StarCraft, Diablo, and Candy Crush Saga. Alex and Genya discuss the short term, and long-term impacts of such deals on the Korean gaming industry.
The pivot from this to a discussion on how NFT gaming and meta gaming will also impact the broader gaming market. These new forms of playing, earning and not earning are going to strategically shift the market.
The next topic is the IPO market in Korea. 20 million people in Korea participated in IPO’s last year, a phenomenal amount. Koreans are looking at equity markets to hedge against inflation and avoid the low bank interest rates. But Genya’s concern is that there might be some people with out the internal fortitude needed to prosper in equity markets. He reminds us of Warren Buffet’s consistent purchases in Coca-Cola and Bank of America over flash stocks. He reminds us that there is no such thing as a good stick or a bad stock, there are just good prices and bad prices.
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Alex Jenson 00:08
You’re listening to Koreabizcast with KBLA. I’m your host Alex Jensen, and it is Thursday, February 10. This month is already flying past. So our guest today posted on LinkedIn this is huge to directly quote him. And that was in response to the recent announcement that Microsoft would be buying Activision Blizzard for $68.7 billion, one of the largest ever bids for a game studio. Genya Smagin works on strategic investment in the fields of metaverse and gaming at SK Telecom. And shortly we can get him on to elaborate. Let me also remind you about KBLA. We’re going to be doing loads of exciting things in the coming months in addition to Koreabizcast, so keep your eyes peeled at us on LinkedIn. That’s probably one of the best ways to keep in touch. Just search KBLA, or you can email anytime email@example.com. Without further ado, then we have Genya Smagin, from SK Telecom on the line. Thank you very much for joining us not for the very first time, I might add, but certainly for the very first time in 2022. And in this year of the tiger, how was your holiday period?
Genya Smagin 01:27
My whole day was amazing. And thanks, Alex. I’m really happy to be back. It’s always a great pleasure to share conversation a year, how was your holiday?
Alex Jenson 01:37
It was good. somewhat mixed, I suppose if you look at the raw facts, like for example, going to the UK, testing positive for COVID. Spending time in isolation in the UK, and then again in Korea, but actually family time wonderful and overall in hindsight, very positive. So
Genya Smagin 01:57
I hope you’re fully recovered by now.
Alex Jenson 02:00
Thank God it was actually quite mild. I think Omicron as we’re discovering in Korea as well, the number of critical cases have been relatively low or very low compared with the overall number of infections though great sympathy to anyone who has been more severely affected. Jenya I would like to also just quickly remind everybody that if you have interest in generous background, and it is really interesting, you can go back to our first interview. We’ve got now dozens of episodes in our backlog. If you search Koreabizcast through your favorite podcast provider, you’ll be able to find it there Genya Smagin. And hopefully you’ll find some inspiration in his story in Russian background and all the exciting work he’s doing here in Korea. So anyway, coming back to the topic of discussion for today particularly this massive deal, Microsoft buying Activision Blizzard. It’s just one of several big game industry m&a deals. And you are saying that these are really important. Can you explain why?
Genya Smagin 03:08
This really huge show from it starts from 2022. Looks like one of the biggest years in the gaming industry ever. We already have two enormous deal sufficiently announced this is a common Sony purchase of Bungie for of more than $3 billion and Microsoft purchase of Activision Blizzard for more than $68 billion. And finally Take Two Interactive, another big gaming company is acquiring Zynga for $12 billion. So these three deals are already bigger than all deals combined last year. And here I want to mention that the last year was quite enormous as well. It was three times bigger than 2020. Last year, we had exceptional $38 billion in m&a activities across all segments, which were driven by major players like Tencent take to Sony Electronic Arts and some private equity firms. Some money was raised by private blockchain entity gaming companies like any mocha brands, which which is behind a sandbox matters. 2021 was also a remarkable year for IPOs direct listings and even like Korean gaming company, Crafton went public last year. Let’s also not forget that Facebook was being re established as Meta and the big shift of Netflix into games as well. So last year was big and this year is going to be even bigger. This is amazing.
Alex Jenson 04:46
It just from a consumer point of view. I’ve seen these games popping up on my Netflix and so far I’ve not actually been tempted to delve in. It kind of confusing to me. Mixing my goal for Netflix generally seems to be a sit back, relax and watch. And then suddenly having these extra options, but but I guess it’s, it’s about other people than me who might be interested in that and also evolving our expectations.
Genya Smagin 05:13
Yeah, that’s gamification of basically everything. Now we go to this delivery application. And you should play some games to receive discount coupons. So we see gamification of brands, gamification of everything related to Internet.
Alex Jenson 05:28
And coming back to the financial side, as well as the overall impact. How do you see the effect of these deals on the Korean gaming industry?
Genya Smagin 05:38
So the question here is, as you said, is how it can and is going to affect the gaming industry in Korea? Let’s start from mentioning the fact that gaming industry is seriously big in Korea with four or five major companies, which are Netmarble, Nexen, NCSoft and Krafton which I mentioned, most of them are producing games for mobile devices. So the revenue usually comes from in game purchases. And the deals we have been talking just before are mostly console games related, or strategically, they mean much more for sure, as we move from dividing games into device categories to something combined, like matters and gamification of of everything in internet, which I just mentioned. So overall, I would say that the impact on Korean gaming industry will be relatively small, and not easily recognizable in the short term. But it sends a big tsunami wave to the industry in general. And, as I mentioned, green gaming companies are mainly collecting revenues in the market, which is not actively touched by Activision, Blizzard, Microsoft, or Sony Entertainment studios, both genre and geographic wise, but the situation might change because not only the companies are shifting their strategic focus, but the market, like customers themselves, for example, might shift their focus as well. Also NFT gaming and metaverse gaming is a good illustration of where the market goes. That’s that’s the direction their goals right now. So in short term, no big change. But in the long term, for sure the there is going to be a big shift in Korean gaming industry too.
Alex Jenson 07:32
Does seem to place a lot of power in the hands of say Microsoft, for example, as well as now controlling, potentially it looks like anyway for the future. Candy Crush Call of Duty, those types of games that have been very popular, but also be able to shape the direction of the metaverse and you mentioned before Facebook, changing its identity in the meta direction. What’s going on there at the moment? What’s your assessment of the whole Metaverse field?
Genya Smagin 08:02
So metaverse is going to be extremely big this year. A lot of companies are joining the race and some companies are trying to concentrate on some research and development of technical part. And some companies are thinking about monetization strategies. I see that a lot of companies still struggle with monetization part. Because this is not just technical difficult, but there are a lot of regulations on how transactions should be completed on how the companies can join this one big open world metaverse. So I think it’s gonna take a little bit more time to the moment they see something which is, which is like playable lievable. But certainly via going into that direction.
Alex Jenson 08:57
I sometimes wonder should I just be sticking some random picture that I’ve either drawn or taking a photo of on an NFT platform and hoping to become an instant millionaire, that you see stories like that in the media all the time. And it feels a little bit wild, like the wild west of investment. And it doesn’t seem sustainable. We talked about NF T’s months ago now and the situation has only perhaps become more extreme since then. And the metaverse seems very much associated with that. Can you elaborate on your assessment on the financial soundness of NFT’s in the metaverse?
Genya Smagin 09:40
so the volume of NF T’s are is extremely big right now. But if we see that the number of transaction, it’s not really large. So there are certain transactions which are extremely expensive. Draw a lot of capital but number of these transactions is low but then they add to each other it’s it’s a very huge number. So a lot of people get the inspiration from that and get their perspective that everything is sellable on if it’s an NFT. However, it’s certainly not and a lot of for advertisement of what you see in internet about this digital art about taking your own selfie and uploading it as an NFT and selling for those 1000s of dollars is actual scam in many cases, just a lot of platforms and companies trying to draw attention trying to attract users using this this artificial stories. However, in real life, it doesn’t really work like that. And in the future, I think regulators will introduce some regulations which will make it make some scrutiny at about the types of NFT’s you can upload, there will be some process of verifying what kind of digital art, what kind of pictures can be uploaded to be traded, which cannot be and so on and so on. So, the industry will be extremely regulated with less and less scam.
Alex Jenson 11:30
We’ll get to hear also, perhaps a slight dampener on my millionaire dreams could have posted just about anything. So let’s maybe shift our focus to something a bit more solid, the upcoming IPOs here in Korea, can you preview them for us?
Genya Smagin 11:52
I have a sense that 2022 is going to be a very special year not only for gaming, but in terms of quality and size of IPOs as well. The exit market in Korea is in its best shape, probably the best shape ever. And I talked a lot about that on my LinkedIn page. You can go and see. From my conversations to VCs, I can see how impressed they are about the growing exit opportunities in Korea. Last year, more than 20 million people have participated in public offering markets in Korea. That’s almost half the population. Right. So everybody’s trading stock. Thanks to the surge in engagement public offering for 114 companies brought in the record high amount of some 20 trillion won. It’s around $17 billion. That’s tremendous figure. Out of the total, about 2 million investors subscribing to IPOs, so a lot of people just happen to check what kind of companies are going IPOs and and subscribe for their stocks. Historical events have been free IPO booms and on KOSPI in 70s there were some government interventions in the financial market in the late 80s. And crude oil prices, interest rates were all very low in latter half of 2000s. Then the surge of popularity of installment funds and the emergence of raw materials super cycles occurred. And now I think there is some sort of fourth boom of IPOs on KOSPI, and just some astonishing numbers of IPO which just happened. LG energy went IPO and they were supposed to have a market value of just around $60 billion. However they surpassed it by far and now the second largest company in Korea by market gap after Samsung Electronics. They were supposed to be just filled after Samsung and SK Hynix. However they surprised by far now their second and their market cap is is more than $100 billion. This enormous. Another IPOs which are waiting for us to see this year is Market Kurly. You probably know Market Kurly is an application that you can order groceries. So they closed our Series F with $2.2 billion valuation and they confirmed that they’re going public this year probably around June. Now another might be one store. SK Telecom, by the way, is the major shareholder of one store to one store is filed to go IPO this year as well. And it will father our companies are going IPO this year as well. So it’s gonna be an enormous year as well.
Alex Jenson 14:56
Really interesting stuff. Jenya maybe we can finish with Smith Advice for individual investors in the stock market,
Genya Smagin 15:04
Not just one advisor have a lot of advisors for individual investors.
Alex Jenson 15:08
Right and ready pencil or pen, whatever it is and a blank page.
Genya Smagin 15:14
So as market is recovering from pandemic dive and central banks are keeping low interest rates. A lot of people see stock investment as a good hedge to keep their savings afloat. But what really strikes me as an investment professional is that most of people start their journey by buying individual stocks. So the question I typically received from my friends and family is, which stock is good to buy? So the question is, which stock is good to buy? I usually respond by saying that first, I don’t think that picking individual stocks, and especially shorting them is a good strategy for people who didn’t start the capital markets. Because investment is all about predicting the future. And there are very few people who are repeatedly successful in doing that. I want to highlight the words are repeatedly successful. There is such thing and finance is mathematics as well as compounded interest, which can produce a lot of magic in the long run. But in exchange, there shouldn’t be a big loss in the middle. So lower compounded interest for years, will win over higher ones, with let’s say, loss in the middle. That’s why such people as Warren Buffett are known by everyone, everyone, not because they just delivered good result once but because they deliver it consistently and there are very few people who can do it. The second thing is that there are no such thing as a good stock. So let’s return to the question which stock is good to buy. There is no such thing as a good stock, there is a good price to buy and the bad price to buy. And nobody can really say with certainty when the price is good or bad. So I can say from my experience is that a certain stock, if it’s a certain stock is noted to be a good buy, it turns out to be a bad buy, in many cases, because the consensus that it’s a good stock already makes it overpriced, there is a lot of optimism applied to the price of the stock. So to find real bargains on the market, you should look for stocks, which are not actively seen by public as good ones. In many cases, they become the real winners. And what I lastly want to highlight is that the first question that a potential investor should ask himself or herself is Who Am I? Am I a professional who just started Korea and have some money to save every month? Or am I approaching to remote retirement? Let’s say have a family, which depends on my savings? Or what amount of freeze can I carry? Am I okay? Leaving with a fourth that my account fluctuates a lot and some positions can get extremely heat? Or am I a person who is extremely risk averse and cannot stand to watch minus my account. This is what people should really ask themselves first, and only then decide if they want to put money in mutual funds, or just by exchange traded funds and take care of ETFs and take care of them themselves. Or try to buy some blue chip stocks and hold them long or maybe buy some crypto and take real risks of major fluctuations. And maybe last words, if you don’t mind. You might have heard of buy low sell high motor, right? That’s what you hear a lot on the news and reading the books, in my experience is just wise versa for the absolute majority of individual investors. Because people just cannot control themselves cannot stand watching loss. So I would say that psychology is crucial here investment. For example, know that most of mutual funds participants on average perform worse than the original fund itself. You can wander like how how is that happen? It’s very easily. People put money into mutual funds, the market is on its high and start to be dropped withdraw money then the market goes down. So the best performers are those who simply forgot that they put in money. It’s very sad reality. So my advice for many people is that buy something and just forget about it and then just open your account couple years later and find out that you got you got a good plus.
Alex Jenson 20:06
Thank you so much for the excellent rundown. They’re completely unexpected, actually, and I’m sure many of us will benefit from that. Genya Smagin, always a pleasure when it was the first time it has been the second time and we look forward to many more.
Genya Smagin 20:22
Oh yeah. Thanks so excited. I always ready to come and talk more.
Alex Jenson 20:28
I’m gonna look forward to speaking with your brother or leg as well say hi to him from us.
Genya Smagin 20:33
Hi, Alec. I can say hi to today is all here and
Alex Jenson 20:37
You’re confident he’ll be listening then. Seriously, have a great few days or weeks so we speak to you next and good luck with everything at SK Telecom.
Genya Smagin 20:48
Oh, thanks a lot Alex and have a good day as well.
Alex Jenson 20:51
Well in addition to Jenya and his twin brother, Alec, maybe you’d like to come on the show as well. Let us know more about you and what you’re doing via email firstname.lastname@example.org or you can search KBLA via LinkedIn. See again, same time tomorrow.