Good morning. This is Jihye Kim, IR [team leader] at NHN. Thank you very much for attending our 2023 full year and fourth quarter earnings call. NHN CEO Ujin Chung, CFO Hyun- Shik Ahn, and CEO of NHN PAYCO, Yeon-Hun Jeong, and CEO of NHN Cloud, Dong-hoon Kim, are also present. CFO Hyun- Shik Ahn will start off the presentation with our financial results, followed by CEO Ujin Chung's business updates 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 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, CFO Hyun- Shik Ahn will start off today's conference call with a look at financial and business results.
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Hello, this is CFO Hyun- Shik Ahn. I'd like to share with you our 2023 full year and fourth quarter business results. The annual revenue was KRW 2,269,600,000,000 , up 7.3% YoY, and operating profit was KRW 55.5 billion, up 42.2% YoY. Q4 consolidated revenue was KRW 598.3 billion, 6.7% increase YoY and 4.7% growth QoQ. However, in Q4, operating income was a loss of approximately KRW 7.8 billion, swinging to red both on quarter and on year. Excluding the impact of one-time bad debt expense at NHN Commerce and the revenue deduction related to public sector business at NHN Cloud, Q4 operating profit is estimated to be about KRW 20.2 billion. NHN Commerce recognized long-term uncollectible accounts of KRW 15 billion, induced by prolonged economic downturn in China, as one-off bad debt expense.
While it is still uncertain whether the Chinese economy will recover in the near term, over the past year, NHN Commerce has focused on improving its fundamentals by drastically reducing fixed costs and has already discontinued transactions with potential risk of non-payment. Therefore, we expect an improvement in its profitability in 2024. Due to temporary delays in service delivery to domestic public cloud business last year, NHN Cloud deducted, in the fourth quarter, approximately KRW 13 billion from already recognized revenue. Limited revenue growth coupled with increased fixed costs resulted in temporary reverse leverage. But this year we will improve P&L drawing on a more favorable public sector market environment and expansion in private sector sales led by financial services industry.
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I'd like to discuss Q4 performance of our business divisions. Game revenue was KRW 111.8 billion, up 2.7% YoY and 1.4% QoQ. Revenue from PC online games was KRW 39.2 billion, a 1.1% drop YoY and 1.5% decrease QoQ. Revenue from mobile games was KRW 72.5 billion, a 4.9% increase YoY and 3% lift QoQ. Web board games maintained robust traffic, showing 2.4% YoY increase on last year's already elevated base from deregulation. The revenue was on par with the previous quarter, despite the impact of Chuseok holidays in Q3. Mobile game revenue, excluding web boards, grew 3.2% YoY and 3.9% QoQ, thanks to stable sales of Wooparoo Odyssey and the effects of the #Compass collaboration in December.
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Revenue from the payment and advertising business was KRW 293 billion, up 23.6% on year and 10.5% on quarter. NHN PAYCO continued to narrow operating losses in the fourth quarter, posting the lowest quarterly operating loss ever. As a result, annual operating loss was KRW 15.7 billion in 2023, reducing operating loss by KRW 33.9 billion from the previous year. NHN KCP continued to grow rapidly with rising transaction volume with key merchants in and outside Korea in Q4, and with partial reflection of revenue from the recently expanding Chinese commerce platform. Commerce revenue was KRW 73.4 billion, down 0.8% YoY due to sluggish Singles' Day performance, but up 20.9% QoQ thanks to a change in the commission system at NHN Global in the U.S.
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Tech business revenue was KRW 78.9 billion, a 24.8% decrease YoY and 17.3% drop QoQ. As previously mentioned, it is largely because of the revenue deduction due to delay in service delivery in public cloud business. CSP business, including NHN Cloud, decreased 35.9% YoY and 9.6% QoQ, and the deconsolidation of Cloudnexa, which was sold in September, also contributed to the decrease in tech business revenue. Content revenue was KRW 49.7 billion, up 0.4% YoY but down 0.6% QoQ . NHN comico enjoyed consistent traffic and posted revenue increase of 5.5% QoQ . Despite a decrease in sports ticket sales, NHN LINK revenue increased 2.1% QoQ , thanks to peak season for concerts. NHN Bugs revenue dropped 9.1% QoQ due to intensified competition. Other business revenue surged by 243% YoY and 29% QoQ to KRW 13.2 billion, driven by increased travel sales.
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Let me now turn to operating expenses. Total operating expenses amounted to KRW 606.1 billion, up 10.1% YoY and 10.6% QoQ. Commission fees increased 12.6% QoQ, reaching KRW 414.3 billion, impacted by NHN KCP's revenue-linked commission and higher costs at Ikonic, our Italian commerce subsidiary. Labor cost was KRW 112.4 billion, a 2.8% decrease QoQ. This is mainly because 278 were removed from the consolidated headcount following the sales of NHN Diquest in November last year. Advertising and marketing expenses decreased 3.5% QoQ to KRW 19.1 billion, and Q4 marketing to revenue ratio was 3.2%, down by 0.3 percentage point on quarter. Depreciation increased 51.4% QoQ to KRW 31.9 billion, reflecting right of use asset amortization due to the lease accounting treatment of tech subsidiaries, IDC servers and inter-accounting treatment of telecommunications cost.
The combined expense of depreciation and communication increased 5.8% QoQ, to which operation of Gwangju National AI Data Center and subsequent depreciation was reflected. Other operating expenses were KRW 31.7 billion, an increase of 77.9% from the previous quarter. As mentioned earlier, this was due to the recognition of bad debt expense for long-term uncollectible receivables in the Chinese commerce business.
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The overall operating losses for the fourth quarter was KRW 7.8 billion, swinging to red YoY and QoQ, and the net loss was KRW 57.9 billion. Included in non-operating income were impairment losses on intangible assets such as goodwill worth KRW 30.9 billion and valuation loss and asset measured at fair value through profit or loss worth KRW 24 billion, which widened the net loss. Despite the annual net loss on a consolidated basis, NHN decided to pay cash dividends. This is a decision made by the board of directors as we expect to realize stable profits in the long run, despite non-recurring deterioration in profitability in the short term. This concludes my presentation on 2023 full year and Q4 results. Now CEO Ujin Chung will discuss major business topics.
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Hello, this is Ujin Chung from NHN. Last year, NHN focused on improving corporate-wide profitability through aggressive cost control, particularly in marketing expenses. As a result, annual marketing expenses in 2023 were KRW 78.3 billion, down 38.2% YoY. As mentioned by CFO Hyun- Shik Ahn, although the improvement in annual operating profit last year fell short of our expectation due to the one-off factors in Q4, we will continue with the cost control initiatives from last year and revamp the very fabric of commerce and tech business, and devote ourselves to the goal of achieving a record high annual operating profit. NHN's separate operating profit last year was KRW 96.4 billion, up 67.7% YoY. NHN's minimum resources for shareholders' return in 2024 will increase to approximately KRW 31.7 billion.
NHN plans to conduct a special retirement of 1.17 million shares of treasury stock and a share buyback worth KRW 20 billion. NHN has decided to pay a closing dividend of KRW 500 per share for the first time since its foundation. Our corporate value will be adequately appreciated gradually through fundamental ROE improvement, and we will further strengthen our shareholders' return policies so that the company's profit growth can benefit shareholders further. Regarding the three-year shareholder return policy starting in 2025, we will review the best way to link it to profits and share more details as soon as the decision is made this year.
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First, let me discuss the game business. NHN has been promoting the growth of mobile web board by introducing differentiated content unique to Hangame over the past two years without relying on regulatory environment. And in 2023, the annual revenue of web board games increased 11% YoY. This year, we are planning to conduct more effective targeting for each game to attract more users to enjoy web board games. In celebration of 10th anniversary of Mobile Poker, we will showcase diverse events in the second half of the year. In June this year, Wooparoo Odyssey will be launched globally, building on the great response from Korean users since its domestic launch in October last year. Given the popularity of the social network genre and the Wooparoo Mountain, we expect it to be well-received in the Japanese market.
Meanwhile, DARKEST DAYS will recruit CBT testers in Korea from the end of February, and up to two rounds of CBT will be conducted to improve the quality of the game. As we verify its gameplay through the first CBT at the end of March, we will gear up for official launch in Q3 this year. In January, we signed a publishing agreement for Stella Fantasy, a new title developed by Ring Games. We plan to introduce it to the Global market within the year, expanding on the fun of the subculture genre. We are also accelerating the development of many other new games being prepared by NHN and NHN PlayArt.
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With PAYCO, we are focusing our capabilities on revenue-contributing businesses, such as corporate employee benefit solutions, points, and coupon services. In Q4, revenue-contributing transaction volume reached KRW 1.4 trillion, up 11% YoY. In 2023, PAYCO's annual transaction volume exceeded KRW 10 trillion for the first time, up 10% year-on-year. However, Samsung Pay payment support ended in January this year. A decrease in offline transaction volume is inevitable. However, PAYCO will continue to focus on improving profitability. So from this year onward, we will report revenue contributing transaction volume as a key indicator. With a goal of turning an annual operating profit in 2025, we will continue to narrow the loss by expanding sales this year.
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NHN Cloud will continue to contribute to the creation of an AI ecosystem and advance in technological prowess in Korea based on our strong AI infrastructure capabilities. NHN Cloud has industry leading AI infrastructure and experience from the H100 GPU powered Gwangju National AI Data Center, which has begun full-scale operation and cloud migration projects for public sector intranets of Jeonnam and Gwangju Onnara 2.0. Following the agreement with Saltlux last year on February 5th, we signed a partnership agreement with NAVER Cloud for joint AI projects. As the demand for high-end infrastructure gradually increase in Korea, NHN Cloud will continue to actively respond to the emerging AI market through multifaceted cooperation model. In addition, NHN Techorus, an MSP in Japan signed a strategic collaboration agreement with Amazon AWS in January and pledged to grow AWS resale revenue to JPY 50 billion cumulatively over three years.
NHN Techorus posted a 27.5% YoY increase in annual revenue in 2023. And we expect to see over 30% uplift in revenue this year, driven by the strategic alliance. With that, I would like to conclude my sharing of major business topics and answer any questions you might have.
[Non-English content] Now, the Q&A session will begin. Please press star one, that is, star one, if you have any questions. Questions will be taken according to the order you have pressed the numbers star one. For consolation, 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 appreciate it only two questions for each participant. [Non-English content] The first question will be provided by Jingu Kim from KIWOOM SECURITIES. Please go ahead sir. Please.
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Thank you for the opportunity. I have a number of questions regarding commerce. Can you share with us some of the market landscape trends in China commerce market? Also tell us your target for top line growth and the margin for Chinese commerce business. And in the process of achieving that target, how much do you think Ikonic business will contribute to that?
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This is CFO Hyun- Shik Ahn. I will answer questions regarding commerce. In fact, the Chinese commerce market was expected to recover after reopening according to many analysts, but we haven't seen any remarkable changes yet. As you might have read from the news, many Chinese players are also struggling. So we do not expect any dramatic recovery in the short run. We are focusing on introducing and bringing more efficiency to our business.
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In the short run, we are seeking to bring more diversity to the items and assortments we are offering. So, expanding from the Korean providers that we are transacting with currently, we are going to add more diverse and various providers and suppliers. And we are working on expanding the transaction volume, not just on operating margin.
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So, you also asked a question about the contribution of Ikonic to top line. And t he revenue of Ikonic is basically linked to the performance of the Chinese market. So because of the uncertainty in the Chinese market, it's quite difficult, and I'm a little bit cautious to offer any specific forecast. But I can reiterate that with the efficiency in cost control and diversification of items, we will seek to expand our revenues of Chinese commerce business.
[Non-English content] The following question will be presented by DongHyun Kim from Kyobo Securities. Please go ahead with your question.
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So, in this year, because of the delay in service delivery in public cloud business of NHN Cloud, CSP revenue was deducted. How big is the risk for the year 2024? And can you share any budgets or government budget for related business for public cloud business in the public sector? And the second question has to do with the partnership agreement you have. There was an announcement of Saltlux MOU and other strategic alliance and partnership. And how much would it contribute to the competitiveness and the performance of the company? And the third question is about amortization. The depreciation in the fourth quarter increased by KRW 10 billion compared to the quarters of one to three. How would the server lease cost will be treated in the accounting going forward? And how much depreciation impact will be experienced from the Gwangju IDC center?
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Because of the quality of the line, I could not hear the question clearly. If my answers are a little bit off the target, off the mark, please let me know. To answer your first question regarding the revenue impact of delayed service delivery, that happened as a one-time event this year, and we cannot really confirm what's going to happen next year or this fiscal year. If there is delay in service delivery, the revenue might decrease, but it is quite difficult to estimate exact amount.
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I am CEO Kim Dong-hoon of NHN Cloud. I will answer the remaining question. Last year, because of the delay in the project delivery, there was a little bit of revenue deduction. The revenue of projects that are planned will be recognized in the year 2025 and early 2025. So in case of 2022, all the public cloud migration revenues were to recognize in 2023. But that has been changed. So in 2023, the revenues will not be recognized in FY 2023, it will be recognized in FY 2024. So in terms of our remaining order, there is already 20% revenues for FY 2024 secured under our belt.
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So you asked a question about the impact of partnership with NAVER and Saltlux. NHN has the biggest level, biggest scale AI infrastructure that are operational already based on NVIDIA's GPU, Graphcore's IPU, and Sapeon's GPU. We are seeking diverse strategic alliance and MOUs with diverse players, including the domestic generative AI players, to make available new infrastructure and bring new services to the market.
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To answer your third question, there was a little bit of confusion because of inter-account replacement regarding the telecommunication cost and the lease accounting when it comes to depreciation. Of course, AI data center in Gwangju and other cloud infrastructure created depreciation, which is about KRW 2.5 billion in this quarter. There was an increase of KRW 2.5 billion on a quarterly basis.
[Non-English content] Next question will be provided by Donghwan Oh from Samsung Securities. Please go ahead sir.
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Two questions. There are high expectations in the market regarding deregulation for web board games. So can you share the latest developments? And if there is no addition of new regulation, how much do you think the revenue will grow organically? And second question has to do with reorganization or deconsolidation of different subsidies. Last year, you focused on controlling marketing costs strategically. And can you share more details about your plan of deconsolidating consolidated subsidiaries?
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Regarding web board deregulation, we are always having more conservative approaches. We are not giving up our hope, but we are always cautiously waiting on the decisions from the part of the government. And there is a very positive trend regarding transition from PC to mobile. The user demographics have become much younger in terms of generations. Games like Mobile Poker and Sutda now are welcoming 20-something users as well. So because of this, in 2024, we are expecting a robust growth.
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To compare to 2022, in 2023, we reduced the number of consolidated subsidiaries by 12, through the means of selling off and liquidation, and also mergers. So we originally communicated that we were going to bring down the number of subsidiaries below 70 by 2024, and we are executing different measures in line with that goal.
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As I have communicated enormously. So basically, we are going to streamline our subsidiaries, even when they are profitable, if they are outside of our five core businesses without creating any synergetic effect. That will be our philosophy and framework going forward this year as well.
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We do have plans to deconsolidate more than 10 subsidiaries this year, and we will seek ways of sales as much as possible, because they would not create any synergetic effect within our group, but they can have another opportunity elsewhere.
[Non-English content] If you have any additional question please press star one, star and one to give you a question.
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With no further question, we will conclude the annual and the fourth quarter 2023 earnings release conference call. Please let us know if you have any additional questions, and IR team will be happy to answer your question. Thank you for your participation today.