Hello, this is Kim Ellen, Head of IR. Today's earnings call will start with a review of our second quarter business results, followed by a Q&A session with CEO Lee Min-won and CFO Lee Byung-ho. Please be reminded that today's results are preliminary consolidated results that can be subject to changes after external auditors review. Let me begin with our financial results for the second quarter of 2026.
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In the second quarter, despite solid growth in our core platform business, one-off costs and seasonal factors led to a somewhat subdued performance in terms of profit. Platform revenue continued to grow quarter on quarter, driven by the strong performance of Minecraft content and the return of key streamers. However, profitability was affected by the recognition of the results of the tax audit conducted this quarter in its entirety to our financial statements, as well as an advertising off-season stemming from schedule adjustment in major game leagues. The impact from the one-off event and the seasonal factors is expected to be resolved from the third quarter onwards, and we anticipate improved momentum in both revenue and profit in the second half of the year compared with the second quarter.
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Total operating revenue for Q2 was KRW 103.8 billion, a decrease of approximately 2% from the previous quarter. The stable platform revenue, combined with the growth in commerce revenue of PlayD, our subsidiary, significantly cushioned the impact of the decline in advertising revenue. The revenue decreased by approximately 11% year on year, primarily due to a base effect arising from differences in league schedules.
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Next, let me turn to revenue by major business segment. First, platform revenue rebounded from the trough of the previous quarter, recording KRW 74.1 billion, a slight increase QoQ. Strong performance of Minecraft server content and the return of key streamers drove rebound in the traffic, which in turn increased our core metrics, donations and subscription revenue by approximately KRW 300 million QoQ. Although other revenues declined slightly due to the discontinuation of functional items and virtual merchandise, we believe the platform's fundamental traffic and donation metrics have bottomed out and entered a stable recovery phase.
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Advertising revenue stood at KRW 27.2 billion, down 11% from the previous quarter. This decline was driven not by a slowdown in the overall advertising market or any weakening of our competitiveness, but by timing differences from schedule adjustments in major game leagues and large-scale events. Large-scale event projects executed in the previous quarter created a sizable base effect in branded content advertising. Increased commerce revenue from our subsidiary, PlayD, lifted other revenues by KRW 1 billion on quarter, bolstering the overall framework for total revenue. In the second half of the year, as the game league schedules normalize, we expect advertising revenue to return quickly to its recovery trajectory.
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Q2 operating expenses were KRW 91.2 billion, an increase of KRW 6.4 billion from the previous quarter. This quarter's expenses reflected a combination of factors, including the execution of large-scale advertising campaigns, higher commission costs associated with business growth, labor costs, and one-time tax-related expenses. On the business activity side, advertising commission expenses rose by KRW 4.2 billion due to increased large-scale advertising production volume.
There was a slight overall increase in licensing outsourcing services, streamer support expenses, and paying charges. However, we also achieved cost savings through technological efficiency improvements, including completion of one-build integration and application of P2P technology. By doing so, we reduced network circuit expenses by approximately KRW 500 million, and the game league rescheduling brought down content production cost by KRW 4.6 billion. As all of these quarter's one-off costs are resolved in the second half, we expect greater predictability and efficiency in our cost structure.
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Operating profit was KRW 12.6 billion, down by KRW 8.6 billion from the previous quarter. When analyzed, excluding the temporary factors mentioned before, the profit structure of our core platform business remains solid. As the burden of these one-off costs will completely disappear from the third quarter, it is highly likely that operating profit will recover and return to normal in the second half.
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Net profit for the period was KRW 8.7 billion, due to slight reduction in operating income and incurring of one-time expenses. Non-operating income increased by KRW 1.4 billion QoQ, due to changes in gains from financial instruments and foreign currency translation, while non-operating expenses increased by KRW 2 billion as one-off tax related fees were reflected. Corporate income tax also rose by approximately KRW 1.7 billion on quarter to KRW 7.6 billion as a one-off tax added. All of these costs were one-off and recognized in full in the second quarter, and all related financial burdens will completely dissipate from the third quarter onwards.
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Please refer to the attached materials for the summary financial statements. This concludes the report on our Q2 financial results. Before moving on to the Q&A session, CEO Lee Min-won will briefly discuss
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Hello, I am Lee Min-won, CEO of SOOP. Before the Q&A, let me briefly touch upon Q2 results and our future business direction in the second half. First and foremost, the management team, including myself, takes the current situation facing the company very seriously. We believe this is the time to examine our current situation and embark on necessary changes, not only in terms of short-term shifts in results, but also for the growth of our streamers and content ecosystem.
That said, we believe the live streaming competitiveness and the foundation of our streamer ecosystem that SOOP has built over many years remained rock solid. Rather than merely cutting costs or improving short-term performances, we will focus more on expanding the inflow of new streamers and users, and on increasing engagement of our existing users. In the second quarter, performance of donation-based economy began to rebound, and the traffic recovered to the level of the same period last year. However, our overall results fell short of expectations as one-off costs from the tax audit coincided with our strategic investment for second half growth.
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Let me share three directions the company is pursuing to drive the growth of our business and services. First, we are preparing a range of policies and programs to increase the inflow and activity of streamers, thereby revitalizing the donation economy ecosystem. To attract new streamers, we are putting together a program that enables streamers, our strongest partners, to directly discover and nurture new streamers. In addition, to boost engagement and motivation of existing streamers, we are also preparing to introduce a performance-based ranking system based on their activities and achievements. The overall direction is to transition from a company-led growth to a structure where the ecosystem grows on its own. We plan to announce more details in the third quarter.
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We are preparing a UI/UX overhaul to make our service easier and more convenient for streamers and users. We plan to advance the platform beyond the existing function-centric UX and UI to offer new enjoyment and content experience. A variety of AI features will be applied, such as AI-powered personalized recommendations, subtitles, and chat translations to improve convenience for streamers and users while lowering the language barrier for global users. We intend to unveil the new UI/UX at the SOOP Streamer Awards, which is our largest annual event.
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Last but not least, we will bring together the advertising capabilities of SOOP and its sister companies to establish an integrated marketing brand. SOOP and our three sister companies are preparing a marketing consulting brand that can be recognized as a single integrated brand in the market, while maintaining each company's expertise. In the short term, it will pool each company's capabilities together to secure stronger buying power and expand the scale of the platform advertising ecosystem. In the long run, we plan to build an advertising ecosystem that provides more benefits to users and enables streamers and brands to grow together. We are looking to launch this new brand within the year.
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Next, I would like to make three commitments to enhance shareholder value. First, starting from Q3 earnings report, we will transparently disclose key metrics so that investors can assess the platform's growth potential and business trends more clearly. Through this, we will strengthen our communication with the market and enable investors to verify the company's changes and performances more objectively. Second, as previously communicated, we will finalize and announce concrete plans for the use of treasury shares within the new year. Third, above all, we will restore the competitiveness of our core business and generate sustained growth. Placing the growth of streamer and user ecosystem as our top priority, we will execute the necessary changes and investments to drive meaningful increase in corporate value.
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It may take some time for the changes we are preparing to materialize into actual results. However, all our executives and employees recognize the magnitude of the current situation, and we will carry out the necessary changes with a sense of urgency. Rather than being swayed by short-term numbers, we will focus on restoring the competitiveness of our core business and bring SOOP back onto a growth trajectory. With that, we'll now take your questions.
[Non-English content] Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone.
[Non-English content] The first question will be provided by Junh yun Kim from HSBC. Please go ahead with your question.
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Thank you for the opportunity. I have two questions. First question has to do with platform. It is fortunate that we haven't seen any additional reduction in platform related revenue. Although you have explained future plans for growth for platform business, from an external observer's perspective, it is difficult to see any substances in the current movement, and we are not seeing any visible results right now. Adding to that, the competition with CHZZK is even fiercer than the one you had with Twitch in the past. In the current environment, it is increasingly more difficult to gain broadcasting rights, and there are some new coverage related to top streamers. Amid this background, I would like you to share your projection for the rebound in the Star Balloon revenues in the second half of the year and the next year as well.
Can you share more details about this? Second question has to do with advertising. Platform advertisement shows contraction, and it is understandable because it is linked to the release of new titles from different game developers. As you have put forward an annual objective, an annual target earlier this year, first half performance was a little bit sluggish. What is your prediction for the second half performance? There were a lot of rescheduling and schedule adjustments in key leagues and major events. Can you specify what those changes are? Do we need to see this as a cycle of different esports leagues? What are the key milestones you have in mind, and do you see if there is extra room for growth going forward?
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Thank you for the questions. There are a lot of elements in your questions. Let me first answer the one regarding competition with CHZZK and the market landscape. Of course, we are always keeping a close eye on the movement of the market and the competitive landscape. Competition in the platform business is nothing new. There has always been competition. Instead of responding to every action a competitor is making, what is more important is to strengthen our own competitiveness, which is centered around our long-built relationship with our streamers and users, our accumulated experience in live content business, and the power of ecosystem. As was mentioned before, we will focus on bringing in more newer streamers and working with existing streamers to re-galvanize their engagement activities.
We will also introduce enhanced UI, UX and sophisticated AI-powered features and capabilities to bring more strength to our competitiveness, and bring the robust foundation for future sustained growth in our platform business. The best way to strengthen our competitiveness is making our service even better. To repeat your second question regarding advertising business performance: in the first half, we were affected by a combination of factors, including a sluggish market situation and the seasonal factors. In the second half of the year, there is expected execution by different advertisers and large-scale events, but still there are a bit of elements or reasons for variability.
Overall sentiment in the market is more conservative execution of budget. Nonetheless, we cannot attribute everything to the market situation. We also are looking to improve competitiveness of our advertising products and create greater synergy effect with our affiliated companies, including subsidiaries and affiliates, including PlayD, expanding our basis for the advertisers. As was mentioned in the presentation, we are also intending to launch our integrated marketing brand in the second half of the year, and we will do our utmost to satisfy the annual goal we have presented earlier this year.
The following question will be presented by Hyok Joong Lee from Daiwa Securities. Please go ahead with your question.
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Thank you for the opportunity. I also have two questions. First question has to do with UI/UX overhaul. In 2024, there was a rebranding at a large scale which was accompanied with an improvement in UI. In a short span of two years, we are seeing another UI/UX overhaul. I was wondering what challenges or issues are you looking to address with this UX overhaul, and what is the direction of new UI/UX that will be revealed in the award ceremony? Second question is about content or branded content advertisements. You talked about how esports rescheduling created a base effect. I was wondering, it pertains specifically to VCT rescheduling or change in role of SOOP, or are there any other key elements or reasons at play that I cannot really figure out? Can you share more specifics about that?
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Regarding the revamp of UI, of course, like you mentioned, there was a comprehensive change two years ago, but that was the first revamp since the initiation of operation of SOOP. The general feedback was it was difficult for users and streamers to feel tangible benefits. Because of the long-running services, there were different data points, different information and pages thrown out in a mixed fashion. This time around, we will clearly discern what is needed and what is not needed. The general direction is to enable users to find and discover the streamer they would like to see. Continuing on about the UX revamp, this improvement will not be a one-off event. After the unveiling in the later part of December, you will be able to see consistent improvement in UI and UX, and we will continue on the journey of iterative improvements of our UI and UX.
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I will answer the second question. I am CFO Lee Byung-ho. Compared to last year, the schedule of the Valorant Pacific, PUBG ninth year anniversary, and Nexon FC Online League all experienced scheduling adjustments. That led to the decrease of KRW 1.54 billion in revenue, and that created a sizable base effect.
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[Non-English content] The following question will be presented by Jaemin Ahn from NH Investment & Securities. Please go ahead with your question.
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Thank you for the opportunity. You acquired a volleyball team, which required an annual cost or expenses of almost KRW 5 billion- KRW 7 billion. Can you elaborate on the potential impact on P&L and revenues, and what synergy effect we can expect?
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The acquisition will cost about running expenses of KRW 5 billion-KRW 6 billion, of which in part are started to be captured in the financial report starting from June. This acquisition is not just a cost center. We are receiving municipality and local government subsidies and sponsorship offers, and also potential revenues from ticket sales and the sales of related goods and merchandise. That can generate a diverse source of revenues going forward, which will offset the burden of costs going forward. This endeavor is not just a purely costing query, but a systemized monetization initiative that can bring forward more sports-related content business and platform traffic. We will also look to create more synergy effects with other commerce business areas.
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[Non-English content] Currently, there are no participants with questions. Please press star one, star and one to give your question.
[Non-English content] The following question will be presented by Hyojin Lee from Meritz. Please go ahead with your question.
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Thank you for the opportunity. The overall performance is below expectation, of course, and there are many different elements mainly attributable to the one-off impact of the tax audit. Can you please separate the impact of the tax audit to give us more clarity regarding the future potential?
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If you look at the preliminary financial report, there was also a reflection of labor cost that is also one-off in fashion. The majority of impact was due to one-time tax audit related costs and expenses. Regarding that, because of the delicate nature with the tax authorities and pursuant to the relevant laws and regulations, we are unable to share specific numbers of additional tax assessments and related figures. I kindly ask for your understanding. Please note that this amount does not surpass the legal threshold that requires a public disclosure requirement.
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[Non-English content] Currently, there are no participants with questions. Please press star one, star and one to give your question.
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If there are no further questions, we will conclude the Q&A session and the Q2 earnings conference call. Thank you for your attendance today. And if you have any further questions, please feel free to contact the IR team at any time. Thank you.