Good morning. This is Jihye Kim, head of IR team at NHN. Thank you very much for attending our 2024 second quarter earnings conference call. NHN CEO, Ujin Chung, CFO, Hyun- Shik Ahn, and CEO of NHN Cloud, Dong-hoon Kim, are also present. CEO Ujin Chung will start off with a business update, followed by CFO Hyun- Shik Ahn's presentation on financial results before taking your questions. The earnings announced today have been prepared based on IFRS-consolidated financial statements and are subject to change depending on the results of the external auditor's review that's currently underway. Also, I remind you that the conference call contains forward-looking statements and the company's actual business results may differ materially. Now, CEO Ujin Chung will address some key business topics.
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Good morning. This is Ujin Chung, CEO of NHN. I would like to share some key updates for each line of business.
In Q2, overall game revenue decreased on a QoQ basis due to the base effect against earlier this year, which had benefited from the LINE: Disney Tsum Tsum 10th Anniversary event. However, Web- board Game revenue slightly increased on a QoQ basis and maintained solid traffic despite Q2 being a usual slow season. NHN will be focusing on rolling out NHN's outstanding Web- board Game operation DNA globally. Pebble City, which incorporates NHN's game currency management know-how, is scheduled for launch in target countries, including North America, within the year. Slot machine games with trendy designs and various meta games are expected to generate strong interest from social casino-loving users. And NHN's stable service operation know-how will enhance game experience. On August 8th, which is two days from now, Wooparoo Odyssey will be launched globally.
The launch includes Japan and Taiwan, where mobile games based on social networks have been strong and will support a total of eight languages. Just as Wooparoo Odyssey has already brought back the fun of SNG games to Korean users, it is expected to reintroduce the fun of SNG to the global market through the pure fun of collecting numerous Wooparoos and the strategic battle content based on trait combinations.
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DARKEST DAYS held its second CBT for seven days from July 25th with about 30,000 volunteer users. Many participants gave positive reviews about the dynamic content and also the shooting action, which are the key distinguishing features of DARKEST DAYS . I sincerely thank all the users who had participated in the CBT and gave us valuable feedback.
During the CBT, we confirmed that many users, given the nature of the game itself, wanted to see a PC version of DARKEST DAYS . And so, rather than launching a PC version after launching the mobile version first within the year, which was our original plan, we are positively looking into the launch of the mobile version simultaneously with the PC version. In order to make this happen, the launch schedule has been partially delayed to Q1 of next year. This decision was necessary to ensure a higher level of game completeness and also to create a game that is even more fun to play. And I hope you will understand the rationale behind the delay. We're also preparing several new titles for launch next year, including Stellar Fantasy, which is a subculture genre game, and Project G, which is based on a major IP.
Details, including timelines, will be shared with the market when available.
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NHN PAYCO continues its trend since last year of gradual growth and improving losses. However, there has been some impact from the issues tied to TMON and WEMAKEPRICE. In order to minimize damage suffered by customers, NHN PAYCO has set up an active response system, including a process for refund requests for payments involving the merchants at issue. We're also focused on full collection of any receivables at issue. PAYCO continues to focus its capabilities on revenue-linked businesses and has been delivering noteworthy results. In Q2, its corporate welfare solution revenue increased by 32% on a YoY basis, and the limited edition JOGUMAN and Kitty Bunny Pony point cards issued in April and May successfully recruited new users. The card features must-have designs appealing to collectors and the convenience as the only contactless card offered by easy payment service providers, making it a big hit.
In Q2, PAYCO point card issuance increased by 45% QoQ, and PAYCO point sales grew by 12%. External issues may have some impact on revenue from the merchants at issues in the second half, but PAYCO itself continues to grow its strategic businesses, including its B2B solution service as planned. In Q2, NHN KCP recorded its highest ever Q2 overseas transaction amount and continues to see increase in revenue generated from its major overseas merchants.
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NHN Commerce relaunched godomall last May and started to ramp up its SMB shopping mall business. Also, Shop by Premium successfully onboarded several large online shopping mall customers. IBT, which operates the commerce business in China, focused on enhancing business efficiency, including offloading of some loss-making businesses during the first half, which we hope will reduce the size of losses in the second half. The recovery of the Chinese market is still slow, but rather than passively waiting for external conditions to improve, starting from the second half, we will actively develop new products through our brand, W Lab, to target the Chinese market. For the tech business, revenue grew by 34% YoY, including the business results of NHN Cloud's successful operation of the Gwangju National AI Data Center in Q2.
Our public sector cloud business is expected to deliver meaningful revenue growth even in the second half, given that the native cloud conversion by public agencies has been ramping up this year. NHN Cloud continues to target the financial sector with its region type cloud service, which offers better stability and has been expanding differentiating vertical cloud platforms such as Notification, which ranks number one in Korean messaging platform market, and which will drive solid growth of our private cloud sector contracts as well. That completes my business update. Now CFO Hyun- Shik Ahn will take you through the financial results.
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Good morning, this is CFO Hyun- Shik Ahn. I would like to share our 2024 Q2 results. Our 2024 Q2 consolidated revenue was KRW 599.4 billion, which is an 8.7% YoY growth and 0.8% QoQ decrease. Q2 operating profit was KRW 28.5 billion, which is a 36.3% increase YoY and 4.4% increase QoQ.
Q2 operating profit margin was 4.8%, which is a 1 percentage point improvement on a YoY basis. Q2 game revenue was KRW 106.4 billion, which is a 0.7% YoY decrease and 12.7% QoQ decrease. Total Web- board Game revenue increased by 3.7% YoY and 2.9% QoQ, despite Q2 being usually a slow season. Thanks to the Web- board Game revenue growth, PC game revenue was KRW 42.9 billion, which is a 5.6% YoY and 3.1% QoQ increase. Mobile game revenue was KRW 63.5 billion, which is a decrease by 4.6% YoY and 20.9% QoQ. Even though the Japan mobile game maintained stable level of traffic in Q2, at least compared to the LINE: Disney Tsum Tsum 10th Anniversary event in January, there was a lack of major events and collaborations during Q2.
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For the payment and advertisement business, revenue was KRW 295.8 billion, which is a 14.7% increase YoY and a 2.6% increase QoQ. NHN KCP revenue increased 18% on a YoY basis, thanks to solid growth of transactions by both Korean and overseas merchants. NHN PAYCO's revenue increased 9.3% QoQ, thanks to a 22% increase in coupon transactions on a quarter-on-quarter basis. Commerce revenue was KRW 57.4 billion, which is a 10.7% increase YoY, mainly due to the consolidation of IKONIC, which started to be included in consolidation from second half of last year. On a quarter-on-quarter basis, commerce revenue decreased by 9.9% due to continued streamlining of IBT, which oversees commerce in China. Business streamlining has caused the size of our commerce business to decrease on a QoQ basis, but there was also a meaningful reduction in losses.
For the time being, the commerce business will be focusing on rebuilding a stable business structure rather than chasing near-term growth in size.
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Tech business revenue was KRW 98 billion, which is a YoY 4.7% increase and a QoQ 3% increase. When the effects of Diquest and Cloudnexa, which were sold in the second half of last year, are excluded, tech business revenue in Q2 grew by 20.3% on a YoY basis. NHN Cloud's revenue increased by 33.8% YoY and 5.2% QoQ, driven by growth in both public sector and private sector business. NHN Dooray's revenue also increased 16% on a YoY basis, reflecting the new public sector business, including businesses that use cloud computing services. Content revenue was KRW 53.4 billion, which is a YoY 5.8% and QoQ 18.7% increase. NHN Bugs B2B revenue increased QoQ and NHN Comico's subsidiary, WISDOM HOUSE , contributed to top-line growth with its successful publishing business. NHN Link's revenue increased 61.2% QoQ, reflecting peak season of various summer sports events.
In Q2, professional baseball set a new record in number of spectators, which helped NHN Link's Q2 revenue to increase by 48.1% on a YoY basis. In other businesses, revenue was approximately KRW 9 billion, which is a 24.6% decrease QoQ, which reflected the slow travel season for destinations such as Hawaii.
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Next is about our operating expenses. Total operating expense was KRW 570.9 billion, which increased by 7.6% YoY and decreased by 1.1% QoQ. Commission expense was KRW 400.4 billion, a 1.6% QoQ increase. NHN Cloud's Notification revenue increased on a QoQ basis, which led to some increase in revenue-linked commissions. Labor cost was KRW 111.3 billion, which is 2% QoQ decrease. The effects of NHN KCP's regular bonus that was reflected in Q1 was no longer present in Q2, and also the total consolidated head count decreased by around 60 persons versus the first quarter. Advertisement and marketing was KRW 14.7 billion, which is a 13.9% decrease QoQ. Marketing expense to revenue ratio in Q2 was 2.4%, once again, the lowest quarterly ratio yet. All lines of business continues to focus on controlling their fixed costs, and the Web- board Game marketing expense also decreased due to the slow season.
Depreciation was KRW 25.4 billion, which is a 3.3% increase QoQ, reflecting depreciation related with the Gwangju National AI Data Center. Other operating expenses was KRW 15.5 billion, which is a decrease of 35.4% QoQ. In the previous quarter, there was a bad debt expense of around KRW 8 billion that had been recognized in connection with the Chinese commerce business, which did not occur during Q2.
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Q2 operating profit was KRW 28.5 billion, which is a 36.3% increase YoY, and 4.4% increase QoQ. Even though the game business revenue, which is a strong contributor to our profits, decreased by double digits on a QoQ basis due to the slow seasonality, the company's overall profitability has improved thanks to the positive effects of business streamlining of the commerce business and greater profitability of the content business.
Q2 net profit was KRW 4.6 billion, a 70% decrease YoY, but returning to a profit from the loss-making Q1. In the non-operating expenses, about KRW 10.2 billion of NHN PAYCO's receivables due from TMON have been reflected as bad debt expenses. NHN PAYCO's bad debt write-off is subject to change depending on how the issue unfolds in the future, but we have preemptively recognized bad debt expense based on the receivables as of end of June. That completes the presentation on our 2024 second quarter financial results, and now, we will 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. In order to allow as many Q&A chances as possible within the limited time, we would have appreciated only two questions for each participant. [Non-English content]. The first question will be provided by Seoko Kang from Shinhan Investment Securities. Please go ahead, sir.
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I have two questions regarding your cloud business. First question is, what is your outlook and guidance for government budget execution in the second half? I ask that question given that actually last year, when you recall, due to changes in government's budget execution, the growth of the cloud business wasn't as strong as you had originally expected. I'm wondering what the situation looks like second half of this year. Also, what kind of investment sentiments do you sense from the private sector regarding cloud? Second question is about your Gwangju National AI Data Center. Depreciation regarding that data center, how much of an increase do you expect to see going forward?
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This is Dong-hoon Kim of NHN Cloud. Let me answer your question. First, regarding the public sector project. In terms of government budget on a YoY basis, cloud related government budget has increased by around 2x versus last year. Also, as you mentioned last year, some of the existing budgets had been reduced or were not carried out. This year, all of the government budgets that we have been seeing are making progress and being carried out as planned. Regarding the Cloud- Native Conversion Project, currently most of the consulting phase projects have been completed. That means now they are ready for the actual cloud- native conversion, which will take place during the second half of this year.
So, given that on a YoY basis, the government budget itself has increased double, we do expect that there is a good possibility of our top line also growing by double versus last year. And we also see the actual demand to support that.
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Well, now to answer your question about the private sector. As you know, there are many drivers that are increasing demand for Korean local private cloud service providers such as us. Recently VMware, which is used by many private companies to create their clouds. The prices of the VMware has been increased, which is increasing the burden. As you would recall, there was the CrowdStrike related MS Azure issue, and this has caused many private sector companies to seriously consider various alternatives, including preparing redundancy for their cloud service. This issue regarding MS Azure was caused by software update and also delays in technical support, which has highlighted the shortcoming of global cloud service providers in terms of speediness of response and has highlighted the strengths of local cloud service providers.
We believe that this is also another positive factor that would help increase demand for local cloud service providers.
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Regarding the depreciation of ties to the Gwangju Data Center. Actually, the large part of the CapEx investments have already been made. The depreciation is being recognized according to the number of durable years as scheduled. I think that you can safely assume that the depreciation level has already stabilized.
[Non-English content]. The following question will be presented by Ji-hyun Kim from Heungkuk Securities. Please go ahead, your question.
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I have two questions. First question is about your game release schedule. It seems based on the presentation, your new game launch schedules have been postponed. Can you give us a bit more detail about that? For example, Project G, have you stopped the development process or is it still going to be released as scheduled? When will that be? Would it still be sometime in 2026? Also, can you give us a rough timeline of when you can disclose what IP Project G will be based on? Second question is about the TMON impact. TMON impact, you said that you have recognized a bad debt expense of KRW 10.2 billion regarding the receivables due from TMON that second quarter. Given that especially TMON had been escalating its business scale toward the end of that situation, how much of additional bad debt expenses is the company expecting to recognize in Q3?
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To answer your question about the game and the release schedule adjustments. First of all, to give you a bit more detail about the DARKEST DAYS , as we mentioned during the presentation, during the CBT, we found that users strongly wanted to have a mobile/ PC cross-play opportunity and experience. That's why rather than releasing one or the mobile first, the PC later, we have decided to do a concurrent launch of both PC and mobile platforms in the first quarter of next year. Regarding Project G, that schedule has been postponed, delayed, not due to our internal situations, but some circumstances at the publisher end. That said, our relationship with the publisher and also the overall sentiment in the internal production studio remains very strong. Both publisher and the studio is very focused on further enhancing the completeness of the game with the additional time.
And also regarding the IP that will be used for Project G, we will be announcing that after talking with the publisher, and we will be announcing that at the right time.
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Regarding your second question about the exposure related to the TMON situation, as we mentioned during the presentation, NHN PAYCO had recognized KRW 10.2 billion of bad debt expenses related with that. This was a preemptive recognition to cover the outstanding receivables due from TMON. But that is up till June. And as you mentioned, the transaction volume that we have with TMON did increase in July versus June. That said, these June receivables have not yet come due. And the TMON situation, as you know, remains fluid. So, given that, it's difficult for us to give you exact number of expected losses that we're expecting to see from that situation in Q3.
I think as the third quarter progresses, there will be more clarity in how to recognize it accounting-wise, and we'll be making also related public disclosures as necessary. At the same time, we're focused on maximizing any collection of our receivables outstanding, and we will be updating the market when information becomes available.
[Non-English content]. The following question will be presented by So-hye Kim from Hanwha Investment & Securities. Please go ahead with your question.
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I have two questions. One is in connection with the share buyback program that you had announced recently. Are there any additional plans regarding shareholder return that you plan to disclose? Second question is asking for some guidelines, guidance for your labor cost and advertisement and marketing cost in second half.
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First, regarding the question about our shareholder return, the company's commitment and plan for shareholder return does not change. That said recently we have come face to face with the unexpected TMON situation. Definitely, despite that unexpected factor, we will be unveiling our shareholder return plan within the year, including, for example, the Value-Up program elements and other aspects that are in line with the government policies.
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Regarding the second question about ad and marketing, as we mentioned, Q2 is usually the very low point of our ad and marketing. Given that, we are expecting there to be a slight uptick in our ad and marketing in Q3, but we're not expecting there to be any major increases in ad and marketing since we are focused on efficient management of our advertisement and marketing expenses with the advertising and marketing to revenue ratio in mind. You've also asked about our labor costs in the second half. As you know, the fourth quarter usually is the quarter where there is a bit of an increase in labor costs given factors such as bonuses. The company has continued to focus on managing its labor costs also efficiently, for example, by refraining from increasing headcounts. And we do not expect any major increases in labor costs either in second half.
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That completes our second quarter earnings conference call. If you have any additional questions, please reach out to the IR team. Thank you very much for attending.