Good morning. This is Lily Cho. I am from the Kakao Games IR team. We would now like to begin the second quarter 2026 earnings presentation of Kakao Games. With me today, we have newly appointed co-CEOs, Tae-hwan Kim and Si-woo Lee, as well as CFO Kwon-ho Shin. I would like to turn it over to our CFO, Kwon-ho Shin to walk through the second quarter earnings. Also, please note that the consolidated numbers that we are sharing today are estimates based on K-IFRS standards, and they are subject to change upon the auditor's review.
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Good morning. I am Kwon-ho Shin, CFO of Kakao Games. Thank you all for joining the company's earnings conference call this morning. Today's call is particularly meaningful as it is the first official communication we are having with the market since the closing in June of the transaction that led to the change in control of the company. Due to various circumstances, we were unable to hold earnings call last quarter, thus failing to communicate with the market. We do not take this omission lightly. We will make sure it is not repeated and will continue to engage in transparent communications and make sure to hold regular earnings release calls and provide clear visibility.
Following the presentation on the financials, as we have newly appointed co-CEOs with us here today, they will brief you on new release pipeline including Odin Q: Valkyrie's Call, impact of governance change and new direction of business operations, and their thoughts on corporate value enhancement as well as other key issues.
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Let's begin with the earnings. Kakao Games reported in Q2 2026 consolidated revenue of KRW 75 billion and operating loss of KRW 23 billion. Revenue was down 35% year-over-year and 10% QoQ , while operating loss narrowed by KRW 2.5 billion QoQ a decline in one-off expense and other cost savings. Before going into the details, I would like to clarify earnings direction moving forward. We believe second and third quarter will be the trough in terms of top line revenue. We will start to see impact from new titles from the fourth quarter onwards and expect meaningful rebound in revenue. By the first quarter next year, with rollout of major new lineup of titles, we expect a possible profit turnaround. Co-CEO Si-woo Lee will present on the details of the release schedule for upcoming titles of Kakao Games.
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Moving on to revenue breakdown by business segment. Revenue from PC game fell KRW 5.6 billion QoQ, but up KRW 7.5 billion year-over-year, reporting KRW 22.3 billion. Despite weak seasonality of our main title PUBG and absence of collaborations, revenue and metrics were stable. Revenue from mobile game declined 48% year-on-year and 4% QoQ to KRW 52.7 billion, a natural erosion from live legacy titles and transfer of servicing rights for ROM to the developers. For Uma Musume, however, we saw QoQ revenue uptrend following the fourth anniversary event, and Odin domestic service reclaimed its number one top grossing position in both of the app markets powered by its fifth anniversary update end of June.
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Moving on to operating expense. Q2 consolidated operating expense was down 21% year-over-year and 10% QoQ, reporting KRW 98 billion. In terms of the breakdown under operation efficiency efforts ongoing at game development subsidiaries, there were one-off retirement related costs, which drove KRW 39.2 billion in labor cost, which is a rise of 6% year-over-year and 1% QoQ. We will continue to gain headcount efficiencies in the second half of the year, mostly from projects that are not profitable, and we expect labor cost savings to come through with a time lag after a one-time retirement costs are booked.
Commissions, which include fees paid to the platform and the game studios and payments for infrastructure, was down 36% year-on-year and 20% QoQ, coming in at KRW 36.5 billion. Marketing spend was down 59% year-over-year and 24% QoQ reporting KRW 3.5 billion on selective marketing support for major live titles in continuing stance and cost controls. In the second half, we expect marketing spend to expand ahead of the release of triple A titles such as Realm of Dokkaebi and Odin Q.
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Kakao Games for the quarter reported operating loss of KRW 23 billion. As mentioned, we are looking forward to top-line recovery following new title rollouts starting the fourth quarter of this year and working under the objective of a turnaround by first quarter next year. This goal is based on conservative assumptions on rollout milestone, expected performance and results of business efficiency measures. As such, we will do our utmost to accelerate the turnaround timing as much as possible.
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Using the proceeds from new share issuance and CBs amounting to KRW 300 billion from the deal, we are also planning on improving the financials through early repayment of portion of the debt in order to lower the financing cost. On July 8, Kakao Games canceled portion of its treasury shareholdings. We also made fair disclosure on the same day regarding the convening of the EGM to reduce capital reserve and transfer the same amount to retained earnings. These measures will allow for share buyback and dividend payout, securing financial resources for implementing various shareholder return policies. Such decision was made immediately after the new management took office, and it was intended to send a clear message to the market demonstrating management philosophy that prioritizes shareholder value.
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I will now hand it over to Co-CEO Si-woo Lee, who is most knowledgeable about internal workings of the company as well as the greater game industry as a person who led the business at Kakao Games for extended period of time to run through the new release update and to provide color on business direction forward.
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Good morning. I am Si-woo Lee, newly appointed Co-CEO of Kakao Games. I am happy to address the market for the first time through this quarter's earnings release. To date, as a CBO, I was directly involved in the game business at Kakao Games and have been named the Co-CEO. Together with CEO Tae-hwan Kim, who is a seasoned expert in business development and M&As, I look forward to implementing wide range of corporate value enhancement measures. Today, I will mainly delve into new lineup and rollout milestones.
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Frankly speaking, with delays in release of new titles, I am aware that the market has lost confidence in the company's new rollout schedule. I take this seriously, and in looking back after the big success of Odin, I believe the company tried to make too big of a leap by working on too many large-scale projects all at the same time. While starting early this year, we revisited company's pipeline. We separated projects to pursue and those to scrap, and the ones that survived the test are now in their final stages. These new games are now waiting to be released as planned, with no major changes required and development complete. Thus, we do not expect to see any major changes to the revised timeline that we are sharing today.
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In Q4 and Q1 of next year, we are planning on unveiling at minimum five new titles. This is much more than new introductions over the past two years, and the scale of development this time around is clearly different to the titles of the past. As mentioned by the CFO, based on the new pipeline, we expect to see revenue recovery gradually driven by impact of new releases starting from the fourth quarter. By Q1 next year, we expect to see growth in top line accompanied by profit enhancements.
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There are three titles upcoming in Q4 which are Realm of Dokkaebi, ArcheAge Chronicle, and Dungeon Arise. October release date for Realm of Dokkaebi was already unveiled. It is K- Fantasy MMORPG game developed by Kakao Games and Supercat, who is a well-regarded studio known for The Kingdom of the Winds: Yeon. Development work is complete, and the team is now focusing on preparations for servicing the game. There was recent release of the original IP of Realm of Dokkaebi, which is Tale of Cultivation and Demon Extermination, and it was met with raving reviews. Since this will be the first title release under the new management, we are paying special attention for a successful launch, and we expect a lot of gamers will end up loving the game as Supercat has proven capabilities in developing game titles.
The ArcheAge Chronicle underwent a number of global user tests validating its gaming and business feasibility. We made changes so that XLGAMES, equipped with its own publishing capabilities, would be in charge of directly serving the game. XLGAMES will unveil the new title in Q4 through Steam's early access. For mobile action-adventure RPG game, Dungeon Arise, upon its release, we plan to showcase collaboration with a popular IP to maximize initial user acquisition.
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There are three titles that are slated for release in Q1 of next year, including much anticipated Odin Q, and God Save Birmingham. I expect you would have biggest interest in Odin Q, and we are working under the goal of January release. We also have high hopes for Odin Q as we went through multiple tests and expectations are running high.
Kakao Games and Lionheart chose the timing best suited for the game to settle in the market in light of the MMORPG's competitive landscape. As Odin Q is a project most important to myself as well as to CEO Kim, we will continue to communicate with the user groups and prepare methodically until the release date. Although Odin Q shares the same universe as Odin, it will be the follow-up title in the franchise that expands the IP. While Odin offers immersive, vast open world experience true to MMORPG games, Odin Q will deliver distinctive gameplay experience through new content such as quarter view-based, fast-paced combat, and nation versus nation PVPs.
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In the first CBT in June, God Save Birmingham received positive user feedback and interest, heightening expectations in the market. We will do our best to incorporate user feedback from the CBT to bring the best possible performance from early access release in the first quarter next year. There are other upcoming titles which include ArcheAge S, which forms part of the ArcheAge franchise, and our strategic title, Chrono Odyssey, carrying the legacy of the Odin series, and Guardian Maiden by the Kong Studios, all slated for release as early as end of the year or by the first half next year at the latest.
Concrete timeline for these titles will be unveiled by the business divisions in due course. In line with the timeline shared today, we will firmly position these new games in the market and expand our business one step at a time, guided by the outcome. Now I will turn it over to Tae-hwan Kim, the Co-CEO, to walk through the impact of the governance change and new business direction forward. Thank you.
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Good morning, I am Tae-hwan Kim. I am reassured to have CEO Lee, who has deep understanding of the game business with me at the helm of the company. I personally have been with Nexon and LINE Games, tasked with business development and M&A endeavors, and now with Kakao Games, my role will be focused on finding new growth engine and ways to enhance corporate value. The new management believes that what the company needs now is to regain trust by going back to the basics and implementing rigorous execution rather than merely presenting a rosy vision. Accordingly, we set out several principles which will help the company get back on the growth trajectory.
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Going forward, Kakao Games will make its decision on new investment and whether to continue the project on the basis of return on capital. Rather than being held up on sunk cost, our decision will anchor on whether we can generate enough earnings from the capital injection. First, we will revisit business feasibility and priorities of inefficient businesses, and if necessary, will undertake bold realignment. Resources secured will then be used and be focused on our key projects.
Second, by limiting organizational scale expansion, we will operate our business efficiently, focusing on high value-add businesses. By expanding joint global development partnerships and outsourcing, we will also enhance our cost structure. Third, we will also consider expanded adoption of different payment methods in order to alleviate commission burden in the mid to longer term. We also plan on gradually improving cost efficiencies by diversifying vendors for cloud infrastructure.
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I will now talk about the topic many of you are interested in, which is the cooperation with LINE Games in the wake of the change in the governance structure. One of the questions that I often get, both officially and informally, is the relationship between LINE Games and Kakao Games. As mentioned by our CFO during the recent extraordinary general meeting of shareholders, there is no plan to merge or do a comprehensive share swap between Kakao Games and LINE Games, and that stance remains unchanged even today.
However, we can explore opportunities to cooperate to create synergies for the business. Such cooperation is within the realm of typical alliance, and I reemphasize that the management's decision making will always be based on shareholder value enhancement of Kakao Games. Also, LINE Yahoo has made significant investment into this Kakao Games deal, so they also have great interest in enhancing the value of the company.
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Lastly, let me share the new management's commitment to shareholder value enhancement and accountable management. As mentioned by the CFO, by reducing the capital reserve of the company, we will secure additional room for share buyback. Independent of such efforts to show our commitment to corporate value, stock price recovery and responsible management, the executives of Kakao Games is planning a share buyback amounting to a total of KRW 500 million . We will also put in place RSU scheme for employees in order to align company's long term performance with corporate value enhancement under a solid compensation framework. Top management will directly purchase shares, while RSU scheme will be used for employee compensation so that we can align the interests of the management, employees and the shareholders.
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Now to sum up, first, Kakao Games is gearing up for a rebound with new releases upcoming in the fourth quarter as we move through the trough. Second, new management will re-earn confidence of the market through execution more so than making mere promises. Third, foremost priority will be placed on corporate value and shareholder value enhancement of Kakao Games in the course of our decisions making. These plans that we share today will be shown through tangible results going forward.
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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. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant.
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The first question will be provided by Seung-hoon Lee from IBK Investment & Securities . Please go ahead with your question.
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Thank you very much for taking my question. On behalf of the analyst and the investor community, I would like to share my view that we really have high expectations for the incoming new management, and we look forward to good performance going forward. I have two questions that I would like to ask. The first is since you already have Odin, if you are releasing Odin Q, will there be any cannibalization between these two game titles? My second question is that I would expect that with regards to the new title milestone, there will be less of a risk for an additional delay. But depending how things play out in the fourth quarter after the newest release, will there be any circumstances where you would have to push back the release timeline? If so, could you share with us what those causes or reasons could be?
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First, responding to your question about potential cannibalization. The way we view Odin Q is that it is not a title that is competing against Odin, but it actually is a part of a strategy for us to expand on the Odin's IP. Odin Q, you are correct, it does carry on the legacy of Odin IP, but in terms of the gameplay method and the targeting user group, it is completely different.
Existing Odin, it actually provided an immersive and vast open world experience, whereas for Odin Q, it is quarter view based large scale combat content that is at the very center. We are planning on offering a totally new play experience. In terms of the combat and the play style, these two game titles also have very distinct user groups who would prefer such games. Hence, we believe that the two titles will be complementary to one another.
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In terms of the milestones, the Odin Q release date. Development of Odin Q is in its final stages, and it is ready to be released. We were originally thinking of releasing the game title during the fourth quarter, but Kakao Games and Lionheart, at this point, they are working together to further notch up and refine the game so that we can outperform Odin. Considering where the market is, we believe the best timing for release is actually January of next year. At this point, we are not considering making any additional timeline changes. Also, starting with Realm of Dokkaebi, which is slated for October release, our plan is to spread out the launching dates for our major strategic titles in order to make sure that each game can generate sufficient interest and drive results.
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So because today's earnings call is the first time that the new management is addressing the market, we have really put in a lot of thoughts and we were very prudent in coming up with these planning. I can assure you that including Odin Q as well as other projects, there will not be any further delays.
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Next question, please.
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The following question will be presented by Hee-seok Lee from Mirae Asset Securities. Please go ahead with your question.
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Thank you for taking my question. Up to now, the company has focused on MMORPG genre, and the mix of that MMORPG game is more significant across your total game. Would like to understand as to under the new management, whether you will continue to have that focus, but would you also start to look into other game genre?
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Yes, thank you for a very good question, and that really is a topic that the new management is really focusing on at this point. In terms of our new title development endeavors, it is actually based on three important pillars. First, for MMORPG, we are going to focus on continuing global market and platform expansion based on the IPs of Odin, ArcheAge, where we are quite competitive.
And also at the same time we will strengthen our competitive edge by delivering content that caters to global users' taste and also by adopting appropriate business models. For Odin Q, we will be focusing on expanding the Western markets. When it comes to ArcheAge S, it will be used to target the Steam platform.
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Yesterday we announced our MOU signing with Grim Entertainment. This relates to our second pillar, which is that we will actively leverage globally acclaimed webtoon and animation IPs. Securing third-party IP is actually more than having just a well-known IP, but it actually helps to lower our new acquisition cost and it increases the likelihood of successful global expansion.
Starting with the Realm of Dokkaebi, whose universe is based on Red Eye's popular webtoon IP called The Tale of Cultivation and Demon Extermination, we entered into MOU with the Grim Entertainment, who is Korea's well acclaimed webtoon producer. We will continue to cooperate with such companies, and we are in the process of talking about IPs with global film studios as well as entertainment companies. By jointly developing games with such developers who are strong in their respective genres, we will be able to maximize our competitiveness in IP.
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Our third pillar is that we will expand our portfolio with sports and casual games, catering to the popular taste, and using the proven game titles on the Steam platform. New management team has extensive experience in publishing global games across different genres and successfully developing and growing businesses both domestically and globally. Based on this know-how, we will discover and nurture competitive titles from sports and other mid-core genres.
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We are planning on conducting studies and research into games that could effectively target the gamers in their 50s, and we will be able to drive some tangible results starting the third quarter. Now while MMORPG will remain our core pillar, we do not intend to rely solely on this genre for the company's overall growth. By continuously expanding our portfolio with games across different platforms and different segments, we aim to increase their revenue mix and global share, ultimately building a more balanced business portfolio.
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Next question, please.
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The following question will be presented by Jin-gu Kim from Kiwoom Securities. Please go ahead with your question.
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Thank you for taking my question. I would like to ask two questions. First, what is the plan of the company to use the current capital or the proceeds that you have? If you could shed some light on your investment strategy going forward, that would be helpful. My second question relates to ArcheAge S: The Strait of Freedom. How is its gameplay like, and what is its distinctive differentiation?
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So once again, thank you very much for a good question, because we also consider that aspect to be one of the key aspects of our core strategy. I think it would be helpful if I share with you some of our plans regarding how we will make use of the capital and the funds that we have.
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To respond to your question, fortunately, when I was working with Nexon, I had an opportunity to lead actually most number of M&As at the time in the game industry, and I was also able to drive some meaningful results. Already after joining Kakao Games, we are, and I am looking into around 10 or more investment and M&A opportunities at this point, but no concrete details that we can share at this point because individual transactions have not yet been confirmed.
Having said that, our investment criteria has become much more clear-cut. Investing into games in their earlier stages, I believe the probability of success is low. So we will prioritize finding games or studios whose games have actually demonstrated proven gameplay and also have supportive metrics. We see the greatest investment opportunity in taking these types of titles and scaling their success by several fold, or even by orders of magnitude. In order to achieve this, we will continue to enhance our live operations capabilities, which will allow us to unlock the full potential of such titles.
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At this point, rather than jumping into M&As that worth hundreds of billions of won , because we do not feel that we are at this point, we have that capacity to do so. We will first start looking into opportunities that is in the amount of about tens of billions, and we will focus and prioritize on business normalization and gaining financial stability. We will be very closely looking at selective opportunities.
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Responding to your question about ArcheAge S: The Strait of Freedom. When we look at the ArcheAge IP, ArcheAge Chronicle is the one that takes that IP and makes a modern interpretation, whereas for ArcheAge S, it actually carries on the legacy of the ArcheAge original IP, and it further builds upon it. The initial producer, Mr. Kim Kyung-tae, who was part of the initial development, has rejoined this initiative, and we believe that ArcheAge S hence will be able to live up to the expectation that its core fan base has. ArcheAge S basically is a traditional MMORPG competition-based PVP game title. It actually uses the maritime resources, and it is all about combat and competing in order to gain, and it is a very cutthroat PVP game.
Basically, we are currently undertaking an internal test in June of 2026, and we are working under a release timeline of second quarter of next year. We still believe that on the global market, there is still a market segment for such conventional and traditional PVP MMORPG games. With the release of this game title, we believe that we can amply satisfy what the fans have been waiting for.
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Next question, please.
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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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This ends the second quarter 2026 earnings call of Kakao Games. Thank you all for joining.