Good morning. This is Jihye Kim, the IR Team Leader at NHN. Thank you very much for attending our 2023 third- quarter earnings conference call. NHN CEO Ujin Chung, CFO Hyun- Shik Ahn, CEO of NHN PAYCO Yeon-Hun Jeong, CEO of NHN Commerce Yoon-Sik Lee, and CEO of NHN Cloud Dong-hoon Kim are also present. CFO Hyun- Shik Ahn will start off with a presentation on our third quarter financial results, followed by CEO Ujin Chung's business update before we take 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, which is currently underway. Also, I remind you that the conference call contains forward-looking statements and that 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 third quarter financials and business results.
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Good morning. This is CFO Hyun- Shik Ahn. I would like to share with you the third quarter results. 2023 third quarter consolidated revenue was KRW 571.5 billion, which is a 9.4% YoY growth and a 3.6% QoQ increase. Operating profit was KRW 23.4 billion, which is 181.5% increase YoY, and an 11.8% increase QoQ. Q3 operating profit margin was 4.1%, which is a 0.3 percentage point improvement QoQ and a 2.5 percentage point improvement YoY. Third quarter game revenue was KRW 110.2 billion, which is 4.9% YoY decrease, but a 2.8% increase QoQ. PC online game revenue was KRW 39.8 billion, which is a 10.8% decrease YoY, and a 2.1% decrease QoQ.
Mobile game revenue was KRW 70.4 billion, which is a decrease by 1.2% YoY, but a 5.8% increase QoQ. Web board games maintained solid traffic even against last year's elevated levels, driven by the deregulation introduced as of July 1st last year. Q3 web board game revenue decreased by 2% on a YoY basis. In Q3, Yo-kai Watch Puni Puni's event celebrating 10 years of the Yo-kai Watch IP was a huge success among users, and its revenue more than doubled on a QoQ basis, setting a new quarterly revenue high.
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For the payment and advertising business revenue was KRW 265.1 billion, which is a 16.8% increase YoY, and a 2.8% increase QoQ. NHN PAYCO continues to successfully improve its top and bottom lines, including a YoY 65% improvement in its operating loss YTD as of third quarter. NHN KCP also continued volume growth, thanks to increased transaction volume of large Korean merchants and major global merchants, including global OTT and Tesla. NHN KCP has been meaningfully gaining market share in the payment gateway market. Commerce business revenue was KRW 60.7 billion, despite the full quarter effect of the Iconic acquisition in July. NHN Commerce China underwent business streamlining for the sake of better long-term profitability, including the discontinuation of Jamie, which is a platform specializing in Chinese consumers purchasing fashion goods from Korea. Overall, commerce business revenue decreased by 8.4% YoY and increased by 17% QoQ.
Even though the China commerce business environment is yet to see clear signs of improvement both domestically and externally, we are working with major players in China to widen our coverage and increase our business capabilities.
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Tech business revenue was KRW 95.4 billion, which is a YoY 33.8% increase and a 1.9% QoQ increase. Revenue of the CSP, including NHN Cloud, increased by 13.3% YoY and 6.0% QoQ, thanks to the recognition of some new revenue from public sector clients. The MSP business led by Japan's NHN Techorus, saw a revenue growth of 28.1% YoY and 0.2% QoQ with a continued acquisition of new customers. Sales of Cloudnexa of the U.S., which was classified as our MSP business, was completed as of end of September, and therefore Cloudnexa is no longer a consolidated subsidiary. The focus of our MSP business development going forward will therefore be Japan. Content revenue was KRW 50 billion, which is a YoY 1.9% decrease and a 0.9% QoQ decrease. This is in part due to some revenue decline at NHN Bugs and NHN Edu.
NHN comico maintained stable traffic with efficient marketing, and NHN LINK set another quarterly revenue record driven by growth in both sports tickets and concert ticket sales. NHN LINK's third-quarter revenue grew by 74.7% YoY and 14.4% QoQ. In other businesses, NHN Doctortour increased by more than 5x YoY and 3% on a QoQ basis as it focuses on adding greater diversity to its product portfolio and on attracting new travelers.
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Next, about our operating expenses and profits. Total operating expense was KRW 548.2 billion, which is an increase by 6.6% YoY and an increase by 3.3% QoQ. Commission expense was KRW 367.9 billion, which is a 3.4% QoQ increase. Even though NHN KCP's revenue linked commissions increased and the commerce sector COGS increased following the acquisition of consolidation of Iconic, this was accompanied by revenue growth and therefore commission to revenue ratio in Q3 was 64.4%, which is a 0.1 percentage points drop QoQ. Labor cost was KRW 115.7 billion, which is a 0.1% QoQ decrease. Even though consolidated headcounts increased by 39 persons QoQ, and NHN KCP's fixed amount bonuses were reflected, the size of the increase was limited to reflecting the reverse base effect from the bonus payments made by certain subsidiaries during the prior quarter.
Advertisement and marketing was KRW 19.8 billion, which is a 1.9% increase QoQ. During Q3, we practiced efficient marketing across all lines of business, and the marketing to revenue ratio in Q3 remains at 3.5%, similar to Q2. Depreciation was KRW 21.1 billion, which is a 5.3% QoQ increase, reflecting NHN Cloud's additional investments in cloud computing infrastructure. Other operating expense was KRW 17.8 billion, which is a 37.2% QoQ increase. Our office management costs have increased as we reduced working from home, and there was some one-off bad debt expenses related with the tech business.
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Out total operating profit was KRW 23.4 billion, which is a 181.5% YoY increase and an 11.8% QoQ increase. Net profit was KRW 8 billion, which is a 62.7% decrease YoY and a 48.2% decrease QoQ. Our subsidiary Cloudnexa sale was completed during Q3, resulting in an investment disposal loss of roughly KRW 4.7 billion.
Also, our corporate income tax expense increased KRW 7.8 billion QoQ against second quarter, when there was recognition of deferred corporate tax on some investment securities. That completes my presentation on third quarter financials, and now our CEO, Ujin Chung, will talk about major business topics.
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Good morning. This is Ujin Chung, CEO of NHN. Let me start off with an update of our game business and the new game lineup. Wooparoo Odyssey, serviced by NHN and developed by Highbrow, was successfully launched in the Korean mobile market on October 5th. Wooparoo Odyssey gained positive responses by successfully attracting the strong fan base of Wooparoo Mountain and new audiences who love great casual games. It's off to a great start, ranking number one in the Apple App Store popularity chart and also number five on the daily grossing chart.
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NHN currently has 11 new games in its pipeline, six of which are scheduled for launch next year in 2024, including the global launch of Wooparoo Odyssey and the zombie apocalypse game DARKEST DAYS . Marble Slot, a blockchain social casino game, will be launched under the official name of Pebble City, starting with the onboarding of Pebble City on our own blockchain game platform Pebble, based on the Mainnet Sui, during the first half of next year. We will follow with development and launch of new social casino games. Our goal is to create a full blockchain-based social casino game lineup to appeal to global users, leveraging NHN's unique game item management know-how. There's also the Project G, which is a mega IP-based mobile game being developed by Japan's NHN PlayArt, targeting release for next year.
For DARKEST DAYS , given its launch somewhat being postponed, we will use the time to add even greater variety of fun and perfection to the game. Project RE and Project BA, both based on different high-profile Japanese IP, have gone into the polishing stage, targeting release in 2025. As you can see from our pipeline, we plan to continuously strengthen the engine driving our game business by launching new games across casual games, mid-core, and social casino.
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Next about our payment business. This year, PAYCO has proved its monetization potential by focusing its capabilities around its core business and [inaudible] services. It maintains an emphasis on operational efficiency. The internal goal was a 50% improvement of operating loss each quarter, which PAYCO has been overachieving throughout this year. As of YTD third quarter, its operating loss has improved by 65% compared to the same period last year. The competitive landscape of Korean easy payment market has become better defined. And P AYCO will continue to focus on increasing revenue and improving its loss, rather than pursuing transaction volume expansion. Standing by this approach, PAYCO will remain focused on what it does best through continuous improvement of its fundamental capabilities. PAYCO 's third quarter transaction volume was KRW 2.6 trillion.
And among this KRW 2.6 trillion, KRW 1.4 trillion or 54% was RTPV, or volume that is actually contributes to revenue. Such as corporate employee benefit solutions, PAYCO Point payments, and coupons. In the third quarter, such revenue contributing transaction volume or RTPV increased by 29.3% YoY, outpacing the growth of overall Transaction Volume and steadily gaining its share within the revenue . In order to focus PAYCO's capabilities on transactions that contribute to revenue, PAYCO 's support of Samsung Pay will end as of end of this year. However, we will continue to deliver greater user convenience by promoting the use of PAYCO Point card that is accepted anywhere and also offers great user rewards.
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NHN Cloud started the official operation of the National AI Data Center last October. The operation of this AI specialized data center is very meaningful not only for the cloud business operated by NHN Cloud, but also as the heart of developing Korea's national competitiveness in AI. The AI data center is based on NVIDIA H100, the highest spec GPU to date, and will help boost the cloud business as the platform for bringing Korea's AI technology to life. Cloud migration of Korean public sector institutions has slowed down versus expectations we had at the start of this year as the current government newly announced a cloud-native migration program and allocated budget for this as part of its Digital Platform Governance Committee implementation plan. However, NHN Cloud has maintained its high market share in the public sector cloud migration projects this year and remains the market leader.
Next year, public sector budget is expected to increase 3x than this year as a result of this cloud-native migration project, and we expect to see friendly market environment given that this is the start of an initiative driven by the current government. Meanwhile, even in the private sector, we will add further know-how by carrying out Shinhan Investment Securities' Project Meta, which is the largest cloud migration project in the financial sector. That completes my update on our key business topics, and I will be happy to 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 this 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] Currently, there are no participants with questions. Please press star one and, star and one to give your question.
[Non-English content] The first question will be provided by Ha-jung Kim from Daol Investment & Securities. Please go ahead with your question.
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I have two questions. The first question is about the cloud business and how there are two different approaches. When we look at the global cloud service providers, they're actually very active in aligning with the major software, the AI software provider, whether it's OpenAI or Anthropic, and somehow trying to connect their cloud services with these AI-related software. But I think NHN's focus is more on the hardware side. As you mentioned during the presentation, I think your focus is, for example, getting enough H100 GPUs to get the hardware ready. Now, many people are saying that this boom in generative AI will also drive up demand for cloud. When there is that AI-related cloud demand, where do you think will be the key differentiating competitive edge among Korean cloud service providers?
Do you think the cloud service provider with the upper hand in software would be better in terms of competition or hardware or do you think that the competitive factor is somewhere else, not even hardware or software? Second question is about PAYCO. What do you think will be the impact of your discontinuation of support for Samsung Pay? Also, you've mentioned that actually your losses are improving faster than originally planned. So, given that, when do you think you'll be able to turn around?
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To answer your first question, it is correct that whereas the global companies are, for example, working with OpenAI that's launching various services, NHN Cloud has been focusing more on providing the capable infrastructure to support the LLM services rather than going about developing our own LLM-based service. That said, while we prepare the infrastructure, we're also actively reaching out and talking with various Korean startups as well as Korean large corporations to build alliances that are related with OpenAI.
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To answer your question regarding PAYCO, first about the implications of discontinuing our support for Samsung Pay. It is true that Samsung Pay initially did help us increase the overall growth volume of the Payco service. However, in hindsight, looking back at the past five years, we've realized that even though Samsung Pay had benefit of driving up absolute volume, it wasn't helping us either on top line or bottom line. It was a service that was actually making us incur expenses without any benefit or contribution to our top or bottom lines. Also, when we looked into the users, our user base, actually, there was a very limited number of our users who only used Samsung Pay. Most of our users who do use Samsung Pay also used our other services.
And based on all of that, we've decided to not extend the agreement that is in place and to end the Samsung Pay service as the current agreement comes to the end of its term. And we will be actually using our resources to focus more on revenue, the revenue contributing or revenue based TPV , or other transactions volume that directly has an impact on our revenue. About when we expect turnaround of our PAYCO service, I am still very cautious, but I think during this year we've been able to very strongly confirm the possibility of our performance throughout the year. And so, b ased on our experience this year, I cautiously would say that we're expecting turnaround possibilities within the next two-year timeframe, and we will be executing our strategies based on that expectation.
[Non-English content] The following question will be presented by Seoko Kang from Shinhan Investment Securities , please go ahead sir.
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I have two questions related with your cloud business. First question is, you've also recently opened the Gwangju data center, and you have other data centers in the pipeline. What kind of financial contributions can we expect from that? I think that point is a bit unclear from where I stand. What kind of implication or contribution do these data centers have on the financials of the company as a whole? Can you give us some rough guidance on that? The second question is more of a mid- to long-term question regarding the cloud business. We expect the government to continue its cloud migration. Private sector cloud demand is also expected to continue to grow. Given that, what kind of CAGR growth rate do you expect or target for your cloud business on a year-over-year basis until, for example, 2025 or 2028 or 2029?
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To answer your question, the Gwangju data center, we actually think that the revenue growth would start visibly from mid- 2025 once HVAC actually starts to be supplied. Right now, the Gwangju data center has been fully leased out by the government, and the government is providing that resource to, for example, startups. We expect there to be around 2x growth in revenue once it becomes around mid- 2025. Regarding our long term growth rate targets, we think that our cloud business on a mid to long term basis will be able to grow at an average 15% on a year.
[Non-English content] Please press star one and star and one to give your question.
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Since there are no further questions, we will end the conference call here. Thank you very much for joining us this morning, and if you have any further questions, please forward them to our IR team. Thank you.