Good morning. This is Lily from Kakao Games IR team. Thank you all for joining our second quarter 2025 earnings presentation. Today, I am joined by our CEO, Michael, and CFO, Terry. We will first begin with our CFO's presentation on 2025 second quarter earnings. Also, please note as a disclaimer, today's earnings release includes estimates of KIFRS-based consolidated statements, which are subject to change upon the auditor's review.
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Good morning. This is Terry, Kakao Games CFO. During the first half of 2025, Kakao Games had focused on diversifying our platform and actively carrying out global strategies on monetization while laying the foundation for solid earnings from the underpinnings of operational performance from our core IPs. Titles that are currently serviced live are placed under a rigorous P&L management discipline with headcount reallocations and monitoring of marketing efficiency as part of our operational optimization efforts. For major titles such as Odin, we are building on earning stability through methodical life cycle management. Especially last April, we successfully carried out Odin's IP expansion in North America, Europe, and Southeast Asia, minimizing the impact of absence of new releases.
In the second half, there will be large-scale updates for the core live titles and global new release as well. With new added lineup in the pipeline, we're very much focused on securing earnings stability until the upcoming release of AAA titles. That being said, I will now move on to financial results for the second quarter of 2025. Second quarter consolidated revenue fell 24% year-over-year and 6% Q on Q, reporting KRW 115.8 billion due to the absence of new titles and major updates. There was KRW 8.6 billion of operating loss for the quarter. In terms of breakdown of Q2 revenue, for PC games, revenue declined 9% year-over-year and 45% Q over Q, reporting KRW 14.8 billion due to the dissipating effect of Early Access of Path of Exile 2.
PUBG has seen solid traffic trend thanks to on and offline marketing carried out in cooperation with the game studio, despite it being a low season. In the second half, we have many collaboration events that are upcoming, including ongoing aespa collaboration, which will be making steady contribution to the top line. Since its first season update back in April, Path of Exile 2 was met with both praise and concern from the market, but there was greater interest from not only the current user base, but also from new users as we gained positive feedback from the majority of users in regards to the massive content extension and the new direction. The game studio is also strengthening its communication with the user community. They are fine-tuning the game balance and enhancing the depth of the game in stages.
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For mobile games, despite robust metrics for domestic and global servicing of Odin and ArcheAge WAR, due to the absence of new titles, mobile revenue fell 26% year-over-year. On Odin's regional expansion, there was 5% Q on Q growth, with revenue increasing to KRW 101 billion. For Odin domestic, based on user-friendly servicing know-how, we focused meticulously on life cycle management, sustaining traffic and enhancing user activity. After the four-year anniversary update end of June, the title reclaimed its number one top grossing rank on Google. Global servicing, which rolled out in April, has successfully taken solid positioning in the market as well.
We expect it will expand the long-term value of the IP and contribute to stable financial performance. ArcheAge WAR had new server and launch of new classes for domestic game serving, and global service going through its first-year anniversary update helped keep the metrics quite stable. In the second half of the year, there will be an update to maximize the fun of large-scale combat, which is the biggest competitive advantage of ArcheAge WAR. Through this update, we plan to solidify the current core user base while facilitating inflow of new and returning users. Following the recent soft launch of Goddess Order, whose release is upcoming in September, its high-quality dot-style graphics and action elements optimized for the mobile environment have proven to deliver distinct gameplay experience to gamers.
Both the developers and servicing team are equipped with deep understanding of the global market for this genre and have experiences of achieving successes. We look forward to good results to come through from both domestic and global markets as well. We're also coming up with a new lineup of strategy RPG genre and subculture genre as well, targeting the global market on top of new MMORPG titles for the first half of the year. These efforts will further cement the basis for mobile revenue, and we will build a momentum for earnings rebound, leveraging new mobile games that have high market prospect.
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Next, moving onto operating expense. Consolidated operating expense for Q2 was down 18% year-over-year and 8% Q over Q, reporting KRW 124.4 billion. If we look at the breakdown, labor cost was down 2% year-on-year and 7% Q on Q, reporting KRW 37 billion on reallocation of headcount and controlled stance on hiring even though there were multiple number of new titles and global projects under development. During the second half, hiring will mostly be for global business and major projects, but labor cost will be more or less similar to what we've seen this quarter and will be managed efficiently. Although we ran marketing campaigns mostly for global projects, including Odin's global rollout and CBT of Chrono Odyssey, we were able to sustain thoughtful approach to marketing spend for the global business.
As a result, marketing expense went up 7% year-over-year, but it fell 33% Q on Q, reaching KRW 8.5 billion. For the second half, in time for the launch of Goddess Order, we will see expanded marketing activities to strategically win user base and key global markets, but will still be within the annual cost efficiency plans, which we devised at the beginning of the year. Commissions are inclusive of what's paid to the marketplace, game studios, and infrastructure fees, and are subject to change depending on the mix of game revenue and trends. This quarter, despite Q on Q rise in mobile revenue, solid performance from Odin, which is our in-house developed IP, drove down revenue share with development studios. As a result, total commissions paid declined 32% year-over-year and 8% Q over Q to KRW 57.5 billion.
Depreciation and amortization were up 3% year-on-year and 7% Q on Q to KRW 12.2 billion on the back of infrastructure expansion from development studios. Lastly, other expense inclusive of G&A expense fell 5% year-on-year, but up 3% Q on Q, reporting KRW 9.3 billion.
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Kakao Games is closely monitoring the buildup of competitive heat in the game market and have decided to revisit the timing of release of our major game projects because we felt the need to be more strategic and prudent in entering the market. Changes that we've made to the timeline may translate into delayed revenue growth in the shorter timeframe, but since we are almost at the end of the business rebalancing process around our core businesses and driving stepwise improvement in fundamentals as well as attaining efficient cost structure, we believe that this was a decision that was essential in bringing sustainable growth while laying the foundation for a more solid growth in the mid to longer term horizon.
Even if rollout timeline for certain new titles have changed, Kakao Games is strengthening the game pipeline with a focus on triple A titles back to back so as to thoroughly be prepared for not only short term results, but growth that is steady and lasting. The strategic choice that we've made is a temporary moderation of speed and in no way changes our goal of earnings rebound that is meaningful in size, powered by full-fledged release of triple A titles. Rather, improving the completeness of content and service competitiveness will translate into bigger results of top line growth and profitability improvements. Going forward, Kakao Games will actively share the status on how our major projects are going, and we will drive actionable results to live up to market expectations and the confidence.
Thank you all to shareholders and investors for your interest and support. This ends the earnings presentation of Q2 of 2025. We will now start the Q and A.
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Now Q and 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 and 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 Sunhwa Lee from KB Securities. Please go ahead with your question.
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I am Lee Sunhwa from KB Securities. I would like to ask you questions on the new title pipeline. I understand that the new releases have been delayed. Would like to understand as to the reason why that is the case. And would there be a likelihood of some other changes to the pipeline? And also if you could share the current development progress, that would be helpful as well.
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Hello, this is Michael Han. As our CFO has mentioned during the opening presentation, currently the progress for each of the game title is at different stages, but we are mindful of the fact that the global competition has gotten fierce and users or the gamers' expectations are quite high. We had to be mindful of the momentum from the so-called launch, because that is a chance you only get once. We decided that it may take us more time than the original plan that we've set for ourselves, but it's due to the higher threshold for building the depth and the differentiation of the game and really improving on the completeness of the game per se.
We expect to be able to achieve more stable and enhanced results by putting in more focused efforts. If I talk about each of the game titles in order, let me first talk about Chrono Odyssey. As you know, Chrono Odyssey recently had its CBT, and through that CBT, it really helped us to understand and recognize the highest level of interest and positive anticipation that's building up in the Western market, which as you know, is the market that we are targeting. It's highly likely that we can turn this market expectation into long-term commercial success. We decided that we should further dial up the game's level of completeness, the level of perfection, even if it were to require additional development time.
Through the CBT, we did receive positive feedback on the game's unique cosmic horror universe, its massive open world content, and distinctive combat system, which make up the core content of the game. But there were also weaknesses that were identified, such as in terms of the technical depth, the content layout, that people gave us the feedback that it should be much more gamer-friendly. We decided to take time to make changes until the official release date. Through the CBT, we were able to see and identify the potential for the popularity that this game could actually trigger in the global market. Kakao Games and the games studio, we really understand the responsibility that we have and the conviction that we can meet such market expectation. We are making our utmost effort to develop a game with the depth and the content for users to enjoy.
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The second game I would like to mention is Project Q. It is being developed by Lionheart. Project Q offers distinct gameplay, and based upon the know-how that we were able to accumulate through live servicing, actually the fourth year of live servicing that's been proven through Odin. There is diversity of combat using various different types of gimmicks, and all of these development capabilities, as you know, were already proven by Odin. It is based on Northern European mythology, and it's actually rendered at art quality. Gameplay is very competitive, and it is already developed to a larger extent. Under the leadership of the newly hired CAO, Chief Art Officer, who most recently joined, we are focusing on refining and further polishing up the game and enhancing the gameplay to really drive it up to art quality.
Like Odin, we want to be able to rewrite a record inside the MMO genre. We decided to change the release schedule to make its distinctiveness much more prominent by expanding the content volume and achieving epic visual quality optimized under Unreal Engine 5.
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Now lastly, if I could just talk about ArcheAge Chronicles. ArcheAge Chronicles is currently under development. It is in line with the current timeline that we have set. We will need to go through the user test before the end of the year, and the schedule that we have currently in place was set based upon the feedback process in mind, incorporating the need to really reflect on the feedback on the content and the combat balance. We can basically leverage our business and marketing know-how, which we gained from Chrono Odyssey CBT, and minimize unnecessary trial and error. We thus expect to deploy effective global servicing going forward.
We're already incorporating various different technical elements and optimization leads, which we learned from the CBT to ArcheAge Chronicles CBT build. We expect to not depart too much from the current timeline. With regards to your question on whether there is likelihood of additional changes in the timeline for Chrono Odyssey, as we go through some additional CBTs, there may be slight adjustments. However, from the original CBT that we ran, we already were able to reflect in our development plan certain key elements regarding the quest path as well as technical elements that is already incorporated in the plan that we have. We believe that we will be able to initiate with the servicing within next year.
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Next question, please.
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The following question will be presented by Hoyun Jung from Korea Investment & Securities. Please go ahead with your question.
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Thank you for taking my question. I have just one question on Chrono Odyssey. I would like to gain some color on what the user feedback were like on the closed beta test, any positive points as well as some points that were identified as requiring certain improvement. And internally within Kakao Games, what do you assess as to be the perspective or global outlook for Chrono Odyssey?
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Through the global CBT that we ran, we were able to identify two important implications, and we are currently coming up with our strategy to respond to those two identified implications. The first is CBT was an opportunity for us to really see that there exists global competitiveness for this game title. Because the concept is unique, graphic is unrivaled, and there is open world adventure, which is quite immense. We released wide-ranging content in sequence and were able to build up anticipation coming from our base of core fans and general followers, and expanding that to global masses as well.
I say that because the result is actually close to about two million across geographies, the number of people signing up for CBT, and landing on Steam wish list of more than one million, which actually translates into ranking 20th on the Steam platform. And on top of such good acquisition metrics, cosmic horror inspired dark fantasy universe and the layout or the configuration of the play, and soul-like, a single battle design within the MMO world, received many positive feedback. And despite it being a mere CBT, retention numbers were very high. Also, metrics from the Western market, which is our core target market, were the highest beyond Asia. So we clearly saw the potential for there being more than just interest from global gamers, but that it can truly translate into real demand.
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This was also a really good opportunity for Kakao Games to really expand on its already built up service and operational knowhow and also gain further understanding of the global markets and the users. Actually, this was the biggest CBT by a domestic game company. We actually had 65,000 peak concurrent users at certain points, and it was really a good opportunity for us to validate Kakao Games' potential as a global publisher in terms of both servicing and operations. We also built extensive service infrastructure and through global marketing strategies and expanding the reach to the gamer base, we really were able to identify that there was great prospect for this game to position itself as a trending game.
Based on our understanding of the market, we can effectively respond to global communities that is multiple degrees larger in size. We've also gained knowhow on how to communicate with these different communities with segmented requirements, using different languages and having different culture. Through the CBT, we now have clearer direction for Chrono Odyssey as a well-made game, verifying its potential for commercial success as well, and seeing that its contents are very competitive. Kakao Games and the studio alike are committed to making improvements, really leveraging on that prospect for success and improving on the completeness and the depth of the game so as to deliver a game that is of utmost quality.
As you can see from the patch note that was made in collaboration with the development studio, and if you look at the details, you would also be able to see that the two companies are really exerting their efforts and share the same and clear direction forward, and we are currently working towards that common goal.
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Thank you very much for joining us. This ends the second quarter 2025 earnings conference call of Kakao Games. Thank you.