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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, and 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 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.
  • 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 briefly going through 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 in its 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.]
Takeaways
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 (DELL) has changed its image. After losing to HP (HPQ) in market share, Dell paid attention to the Voice of Customers, and Dell is no longer the boring, thick, underperforming PC.

For GRVY, 3 years of delays has already upset plenty of people, but with the current consensus by the stock market that GRVY is as good 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.
Valuation
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
Disclosure: Long GRVY
Source: Why I'm Holding On to Korean Game Developer Gravity