Megazone Cloud Pursues IPO: Scaling Up Amid Profitability and Parent Company Risk Challenges

Sales Reached 1.7 Trillion Won Last Year, Operating Profit Turned Positive for the First Time
Still in the Red on a Separate Basis, Excluding Subsidiaries
Core Businesses like MSP Continue to Post Operating Losses

Megazone Cloud, a company specializing in artificial intelligence (AI) and cloud services, has begun preparations for an initial public offering (IPO), aiming to submit a preliminary review request within this year. However, the sustainability of its earnings and management stability have emerged as key variables in its IPO review. Although the company succeeded in turning a consolidated profit for the first time last year, its core business (on a standalone basis, excluding subsidiaries) failed to escape the red. Furthermore, the serious financial instability of its parent company, Megazone, is placing additional pressure on Megazone Cloud ahead of its planned IPO.

Donghun Yeom, CEO of Megazone Cloud. Megazone Cloud

According to industry sources on September 9, Megazone Cloud is conducting due diligence with the goal of applying for a preliminary review by the end of this year. The company has previously selected Samsung Securities, Korea Investment & Securities, and J.P. Morgan as its lead underwriters. In addition, it recently secured a pre-IPO investment from Neowiz Partners, the investment arm of Neowiz Holdings. The raised capital will be used to expand into new businesses such as AI and security.

While Megazone Cloud has been recognized for its business growth potential and future value through these new investments, it remains uncertain whether the company can resolve the longstanding profitability issues that have been the biggest obstacle to its IPO plans. According to its audit report, Megazone Cloud posted consolidated revenue of KRW 1.7496 trillion and operating profit of KRW 233.06 million last year, achieving its first annual profit since its founding.

However, its core IT services division—which includes cloud managed services provider (MSP) operations, IT consulting, and solutions—posted an operating loss of KRW 278.51 million. The overall profit was achieved only because the 'other business' division, which includes gaming and construction, generated an operating profit of KRW 436.24 million to offset these losses. Even on a standalone basis, excluding subsidiaries, Megazone Cloud reported an operating loss of KRW 1.46 billion.

This indicates that the expansion into new businesses such as AI has not been sufficient to fundamentally improve the chronic low-margin structure of its MSP business. Although last year’s consolidated operating margin improved to 0.013%, compared to -2.49% in 2024, industry observers say it is still premature to declare that it has become a true AI company. The company’s massive accumulated deficit of KRW 619.8 billion is also a significant concern. Such a large accumulated deficit could preclude the possibility of distributing dividends to investors after the IPO.

The parent company, Megazone, reported a consolidated operating loss of KRW 16.7 billion last year. Its current liabilities exceeded its current assets by KRW 234.1 billion, prompting auditors to express concerns that "material uncertainty exists about the company’s ability to continue as a going concern."

In June, Megazone acquired part of the existing investors’ stakes in Megazone Cloud, further strengthening the ties between the two companies. To this end, Megazone raised a total of KRW 800 billion—KRW 600 billion through loans secured by its Megazone Cloud shares and KRW 200 billion through exchangeable bonds. It remains an issue to monitor whether Megazone will be able to secure sufficient resources for repayment and whether its equity stake may change in the future. Megazone currently owns 72% of Megazone Cloud.

Lee Hyo Seop, a senior researcher at the Korea Capital Market Institute, stated, "For an AI company to be recognized for its profitability, it must demonstrate sustained growth, such as a steady increase and diversification of its customer base. The parent company’s financial instability could also complicate the IPO process, so addressing these risks is essential."

Meanwhile, Megazone Cloud announced that it is transitioning its profit structure with the goal of tripling its revenue and achieving an operating margin of 15% by 2030. To reach these targets, the company said it plans to expand AI business opportunities in industries such as finance and manufacturing, and to continue improving profitability by acquiring large new clients through its overseas subsidiaries. Megazone Cloud also aims to reduce the high personnel costs associated with managing MSP operations—where labor expenses are significant due to ongoing client management and continuous operation—by adopting enterprise-wide AI solutions.

A Megazone Cloud representative commented, "By deeply integrating AI across our entire organization, we are maximizing operational efficiency, and we expect profitability improvements to accelerate going forward. This will also have a positive impact on the performance of our parent company, Megazone."

This content was produced with the assistance of AI translation services.