Nexon levels up with $100m Bitcoin play

On 28 April, gaming publisher Nexon [3659.T] became the first publicly traded Japanese company to invest in Bitcoin.

The bid was an effort by the company to generate profits and growth by leveraging capital. However, while companies like Tesla [TSLA] have previously seen a positive share price reaction to purchasing the cryptocurrency, the stock’s Japanese-listed shares were flat on the news. 

On 28 April, the day of the announcement, Nexon’s share price initially jumped 0.8% to an intraday high of JPY3,640 before closing at JPY3,610 — unchanged from the previous day’s close. As of 30 April, the stock had regained its composure slightly and climbed 0.4%, but closed at the same level as it had on the 26 April.

Despite a volatile January, shares in the gaming publisher began to pick up momentum throughout February and March to end the first quarter up 12.9%. Nexon’s share price went on to hit a 52-week high of JPY3,740 on 6 April, but has since dropped off that mark.

The stock’s year-to-date climb of almost 14% (through 30 April) has outperformed gaming-focused funds. The Global X Video Games & Esports ETF [HERO] and the VanEck Vectors Video Gaming and eSports ETF [ESPO] — which had weightings of 4.66% and 4.62%, respectively, in Nexon shares as of 30 April — were up 5.6% and 2.7% in the same period.

Gaining exposure to Bitcoin

In an article published on Medium, Owen Mahoney, CEO of Nexon, announced that the South Korean-Japanese company had bought circa 1,717 Bitcoins at an average price of $58,226.

The purchase was worth JPY11.1bn, less than 2% of its total cash and equivalents. The price of Bitcoin against the dollar [BTC-USD], it was up 83.6% in the year to date (through 29 April) and 505.6% over the past 12 months. 

As a cash-rich company — Nexon had JPY253bn in cash and equivalents at the end of 2020 — Mahoney justified the expense as being a worthwhile way of generating a few percentage points of interest on its cash holdings amid historically low interest rates.

With the forecast for interest rates remaining unclear alongside concerns of a potential currency debasement, he believed Bitcoin offers more buying power, liquidity and convenience over traditional currencies.

“In this environment, we see BTC [Bitcoin] as a form of cash likely to retain its value, even if it is not yet widely recognised as such. While we won’t go into every feature of BTC (others do that better), some attributes stand out,” Mahoney said.

"we see BTC [Bitcoin] as a form of cash likely to retain its value" - Own Mahoney, Nexon CEO

He went on to highlight the fact that only 21 million Bitcoins will ever exist and with 85% of that already mined, Mahoney believes it creates a significant scarcity value.

While there are risks when investing in the cryptocurrency, he suggested that the case for it and for blockchain were increasing alongside corporate and government adoption.

Long-term stability?

Founded in 1994, Nexon has been a part of the entertainment industry’s transition to an online, virtually connected world. The company makes the majority of its revenues from PC games, but with a growing mobile segment it understands how technologies can quickly go from niche followings to the mainstream market.

Nexon joined a growing list of global companies, including Tesla, Square [SQ] and MicroStrategy [MSTR], that have made Bitcoin purchases in recent months. Tesla’s $1.5bn investment into the cryptocurrency helped to generate $101m in income for the first quarter of 2021, which contributed to its record earnings beat.

In a note to clients seen by Forbes, analysts at Goldman Sachs noted that the 19 companies it found to have the highest blockchain and cryptocurrency exposure had significantly outperformed the broader market so far this year.

“Given the still-nascent and volatile nature around Bitcoin, we believe less than 5% of public companies will head down the Bitcoin investment path over the next 12 to 18 months, but that could move markedly higher as more regulation and acceptance takes hold further down the road,” said Dan Ives, an analyst at Wedbush.

"We believe less than 5% of public companies will head down the Bitcoin investment path over the next 12 to 18 months" - Dan Ives, Wedbush

According to Bloomberg, firms in Japan have been slow to join the trend.

Nexon shares had an overweight rating based on 12 analyst ratings compiled by theWall Street Journal, with an average price target of JPY3,841.08, representing a 6.4% gain from its 29 April close.