GungHo Online Entertainment reported a sharp decline in profitability for the second quarter, with net income falling 68.5% as existing mobile games including its flagship Puzzle & Dragons struggled against intensifying competition.
The Tokyo-based developer posted revenue of ¥50.59 billion ($344 million) for the six months ended June, down 5.7% from the previous year. Operating profit tumbled 58.9% to ¥5.02 billion ($34 million), while net income dropped to ¥2.46 billion ($17 million).
The results underscore mounting challenges for GungHo, which has faced criticism from shareholders for failing to replicate the success of Puzzle & Dragons, a 13-year-old mobile game that still drives the majority of company revenues. Investment firm Strategic Capital recently accused the company of spending over ¥100 billion developing new titles that generated less than ¥10 billion in returns.
Despite the financial decline, Puzzle & Dragons reached 63 million cumulative downloads in Japan by April, reflecting its enduring popularity in its home market. The company launched Puzzle & Dragons Zero in May, positioning the simplified version to attract newcomers while expanding to more than 15 countries globally.
GungHo’s mobile role-playing game Ragnarok X, launched domestically in November 2024, maintained steady user engagement through regular updates. The company’s subsidiary Gravity expanded the Ragnarok franchise into Latin America with the May release of Ragnarok Online America Latina, targeting markets beyond its traditional East Asian base.
The broader mobile puzzle game market has shown signs of maturation, with downloads declining from pandemic peaks and revenue growth slowing across the sector. Established franchises like Candy Crush continue to dominate, making it increasingly difficult for aging titles to maintain market share.
GungHo declined to provide full-year guidance, citing the volatile nature of content businesses and difficulty in making reasonable projections for an industry subject to rapid shifts in consumer preferences. The company has previously acknowledged the challenges of developing hit mobile games in an increasingly saturated market.
The stock has underperformed Japanese gaming peers over the past decade, with market capitalization declining while CEO compensation increased to ¥340 million, approaching levels comparable to Nintendo’s leadership despite significantly different scale and profitability.
