Good morning and good evening. Thank you all for joining the conference call for the SOOP earnings results. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star and one on your phone during the Q&A. Now we will begin the presentation on SOOP's third quarter of fiscal year 2026 earnings results.
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Hello, this is Kim Jiyeon, Head of IR at SOOP. Today's earnings call will begin with a review of our third quarter business results, followed by a Q&A session. CEO Lee Min-won and CFO Lee Byung-ho will be answering your questions during the Q&A. Please note that the results presented today are preliminary consolidated results prepared in accordance with K-IFRS, and they are subject to change depending on the outcome of the external auditor's review.
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Let me walk you through our third quarter results. This quarter's revenue increased quarter-on-quarter on the back of a significant rise in advertising revenue. Operating profit and net income also increased from the previous quarter, showing a recovery in profitability. However, platform revenue declined due to factors such as reduced activity in major crew broadcasts and streamer attrition. With growth in the advertising segment partially offsetting the decline in platform revenue, total revenue increased slightly.
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Q3 total operating revenue was KRW 105.7 billion, an increase of approximately 1.8% from the previous quarter. Although platform revenue declined, overall revenue growth was driven by expanded advertising spend related to major game leagues and large-scale events such as FC Online and the VALORANT VCT Busan Roadshow, along with increased platform advertising spend by major game publishers.
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Next, let me turn to revenue by major business segment. First, platform revenue came in at KRW 66.1 billion, down 10.8% QoQ, showing an impact from reduced activity and departures among key streamers. Other revenue was KRW 2.7 billion, up slightly from the previous quarter.
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Advertising revenue was KRW 36.8 billion, up 35.4% from the previous quarter. Branded content ad revenue increased with expanded ad spend related to major game leagues and large-scale events. The inflow of large corporate advertisers from non-gaming sectors also made a meaningful contribution to growth. In platform advertising, continued spend by major game publishers on new title lineups and large-scale projects also supported revenue growth. Going forward, we will secure stable demand for branded content advertising based on proven major game leagues and large-scale events, while broadening our base of platform and corporate advertising in multiple ways to sustain our growth momentum.
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Next, let me go over our operating expenses. Operating expenses for Q3 were KRW 91.2 billion, remaining at a level similar to the previous quarter. Depreciation and amortization increased due to new capital expenditure for IDC infrastructure and data center right-of-use asset amortization. Content production expenses also rose with the execution of higher-scale ad campaigns. However, decreases in some line items such as labor and network line costs kept total operating expenses at a level similar to the previous quarter. We will continue investing in infrastructure to ensure stable platform operations and improve competitiveness while improving profitability through technological efficiency and cost management.
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Operating profit was KRW 14.5 billion, up 15% QoQ, and the operating margin improved by 1.6 percentage points on-quarter to 13.7%. Despite higher depreciation related to IDC investments and other business unit expenses, operating profit improved as ad revenue increased significantly and overall costs remained stable.
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Net income was KRW 10.6 billion, up 21% from the previous quarter. Despite changes in non-operating income expenses such as financial income reduction and foreign currency translation losses, net income increased as corporate tax expenses decreased from the previous quarter.
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Please refer to the distributed materials for the summary financial statements and our key metrics, including EBITDA. This concludes our report on the third quarter business results. Before the Q&A, CEO Lee Min-won will briefly share our future business direction and key initiatives.
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Hello, I'm Lee Min-won, CEO of SOOP. Before we move on to the Q&A, I'd like to share the key challenges we identified through third quarter results, our future business direction, as well as our shareholder return plan. The competitive landscape of the platform market is changing rapidly. With greater diversification in platforms for streamers, competition to secure content is intensifying, which is affecting our donation economy, our core business and revenue base. Although our ad business shows growth, a full-fledged recovery in platform revenue is taking longer than expected. Rather than resting on the temporary easing of costs, we will focus on restoring the competitiveness of our streamer ecosystem and translating it into user activity and revenue growth.
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Next, I will share the status of our business initiatives, and I will share the return policy. First, responding to market changes and revitalizing our streamer ecosystem. In October, we introduced partners mentoring program to prevent streamer attrition and to help new and returning streamer onboarding. Currently, about 20 major content partners are participating, and about 25% of eligible partner streamers have joined the program.
Going forward, we will broaden participation and reduce our dependence on specific content, laying the foundation for a more diversified streamer ecosystem and a recovery in donation-based revenue. In addition, we will unveil our platform UI/UX overhaul at the year-end SOOP Streamer Awards and boost user engagement through a phased rollout in the first half of the next year.
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Second, recovering our advertising business and integrated growth. SOOP is solidifying collaborative relationships with key partners from home and abroad in the field of branded content ads. We have completed the trademark application for SOOPHERE, an integrated brand that brings together the marketing capabilities of SOOP and its sister companies, and is establishing a sales and operation network and framework. We will complete the organizational setup within the year and officially launch the brand in the first quarter of the next year, accelerating the acquisition of new advertisers and expansion of ad business.
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Lastly, I will show the return policy and value-up plan. Starting with this earnings release, we have begun disclosing total MUVs to show the fundamental changes in our platform. In September, we completed the cancellation of 306,375 treasury shares worth approximately KRW 18.9 billion as planned. As for dividends, we will maintain our existing policy of paying out at least 25% of consolidated net income as cash dividends.
As announced in the ad hoc disclosure today, for the 2026 year-end dividends, we plan to implement a plan that meets the requirements for high dividend companies. We will announce our corporate value-up plan, which will include our mid- to long-term capital allocation plan regarding remaining treasury shares and dividends, around our Annual Shareholders Meeting in March 2027.
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Dear shareholders and investors, the platform market will continue to evolve. Simply responding to each change in the external environment cannot guarantee sustained growth. What matters is building the fundamental strength of the platform that can stay competitive in any environment. Starting in the fourth quarter, we will double down on executing our key initiatives. In 2027, we will show you the results of these changes through a recovery of competitiveness and improved business performance. We'll continue to communicate our progress and results transparently, and we'll reward you for your trust by restoring our core business competitiveness and delivering sustained growth. Thank you very much, and we will now take your questions.
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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.
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The first question will be provided by Junhyun Kim from HSBC. Please go ahead with your question.
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Thank you for the opportunity. I have two questions. First, in this quarter, the number of users are increasing year-on-year, as we see in July and September. Can you first share a little bit about why the number of users increased? The second part of the first question is, when you look at the entire revenue composition, the share of content that has high ARPU is on the decline. As the competition with CHZZK is intensifying, do you have any ways to monetize on the increasing number of users?
You've talked about a plan, a recovery plan for the platform's competitiveness. Can you share more details about this strategy? The second question is about the advertisement. The rebound QoQ is quite encouraging, but YoY, the decline is continuing. I think one of the two strengths is production of esports leagues. But I believe the growth driver on this front is diminishing. So do you have any strategy to foster any other engine for growth?
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In the third quarter, MUV numbers increased, particularly thanks to the popularity in different esports games, esports and games. And there is increasing inflow of international users, which showed YoY increase. As you can see, the pattern of watching and payment is different from one category of content to another, and game is not closely associated with monetization or the payment activity on the platform.
The most active donation economy is visible in visible radio, and because of the attrition, the visible radio is being impacted slightly. However, as we start to launch mentoring programs with numerous agreements with MCNs and partner streamers, starting from early November, we'll be able to see inflow of new streamers who will bring along with them users and communities from outside, and we will be able to have more active engagement.
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For advertising business, on the basis of a consolidated partnership, solidified partnership with existing large game publishers and other big corporate advertisers, we are continuing to expand our business base for advertisement. As was mentioned in the presentation, we have made thorough preparations to launch SOOPHERE as a brand. Because we judge that with the previous structure, it is difficult to expand our advertising business. We have converged capabilities of SOOP and our sister companies into a brand, SOOPHERE, to secure greater growth in advertising business.
By the year end, we will organize our organization and operational framework and officially launch SOOPHERE in the first quarter next year and make the brand operational. By doing so, we will invite more new advertisers and expand our business and orders from our advertiser base, and we will be able to see the strength of SOOP's content and streamers with the greater performance in the advertising business.
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The following question will be presented by Jinwoo Kim from CGSI. Please go ahead with your question.
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Two questions. First, when you look at this quarter's performance, the ratio of commission as per revenues and the number of users are all increasing with advertisement. Can you offer some guidance going forward? Second question is, in the fourth quarter, can you also give us some projection regarding branded ad content or content-related expenses?
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As you can see from the document, in the third quarter, we had a number of games produced like VALORANT and Nexon FC Online, and it led to an increase in branded content ads. Relative to the first half of the year, where content or branded content advertisement was a little bit sluggish, we had an increase in production of these, which in turn led to higher revenues.
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The next question has to do with the projection regarding content production expenses in the fourth quarter. Unlike other platforms, our strength lies in game and league production. When more branded contents are produced, which we expect to, the expenses linked to revenues will increase in tandem with the revenues. As we receive more orders related to AGF or other large name game branded contents, production expenses will increase accordingly. As was mentioned, if the trend in the fourth quarter is similar to what we had in the third quarter, expenses will increase accordingly.
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Currently, there are no participants with questions. Please press star one, star and one to give your question.
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Currently, there are no participants with questions. We will wait for a second until there is another question.
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The following question will be presented by Junhyun Kim from HSBC. Please go ahead with your question.
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So I have another question to the management. Going forward, out of platform business and advertising business, in the mid and long run, which do you think will take a larger share? Because when the advertising revenues increase, with production expenses entailed, it might be quite difficult to reach the previous operating margin level of upper 20% and above 30% in the year 2027 or 2028. I was wondering if you can offer some guidance.
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Of course, both platform and advertising business are important to us. But right now, as was mentioned, we are doubling down on recovering the competitiveness of our core business, which is platform. But as you know, this is not something that can happen overnight. It might take some time. In the interim, we are expanding advertising business to supplement the recovery process. Both will be pursued in parallel in two-track fashion. In the short run, advertising business can make up for the recovery period of platform business. But in order to get the OP margin level to the previous level, we will focus on improving our core business, the platform business competitiveness.
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Currently, there are no participants with questions. Please press star one to give your question.
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Currently, there are no participants with questions. We will wait for a moment until there is another question.
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This concludes our conference call regarding SOOP's financial results. Thank you all for your participation.