Morning and good evening. Welcome to the conference call for the fiscal year 2023 first quarter earnings results by NHN. Now, we shall commence the presentation by NHN.
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Good morning. This is Jihye Kim, Head of IR team at NHN. Thank you very much for attending our 2023 first quarter earnings conference call. NHN CEO Ujin Chung, CFO Hyun Shik Ahn, CEO of NHN PAYCO Yeon-Hun Jeong, CEO NHN Commerce Yoon-sik Lee, and CEO of NHN Cloud Dong-hoon Kim are also present. 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 that the company's actual business results may differ materially. CEO Ujin Chung will start off today's conference call with a look at major business topics.
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Good morning. This is Ujin Chung, CEO of NHN. Thank you analysts and investors for joining this call. I would like to start the call with key business updates for each of our business areas. First, in the case of our game business, thanks to the strong performance during the Lunar New Year holidays, Web- board Game continued solid growth. In Q1 Web-bo ard Game revenue increased by 27% YoY and 11% QoQ. Also, the regional competition content launched on mobile in late March has been delivering meaningful results, helping to offset the weak seasonality of web-b oard games, which in April saw only a 2% drop in revenue versus March and recorded an encouraging 27% increase YoY.
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The club regional competition and cafe system, which has become unique content that differentiates Hangame from others, increases interaction among players and creates another dimension of fun. It is also driving improvement in key game metrics and performance. This year, NHN will continue to unveil in-game content to refresh user interest and lead the growth of the web platform market. Meanwhile, LINE: Disney Tsum Tsum had its 9th anniversary event in January, driving up revenue by 65% QoQ. #Compass also unveiled a teaser video for an animation still in development at the Niconico Super Conference, which is a major Japanese game event on April 30th, driving up expectations. The new game, DARKEST DAYS , is planning to start pre-registration during third quarter and meet global users within the year. The detailed timeline will be shared with the market once details are decided.
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Next, the payment business. Q1 transaction volume was KRW 2.7 trillion, which is a 26% increase YoY. Offline payment increased by 54% YoY and grew to account for 26% of all payments. The transaction volume of Campus Zone and the Corporate Employee Benefit Solution , which is the B2B service, increased by 113% and 108% respectively YoY in Q1, acting as the main driver behind offline payment growth. In particular, about 70% of Campus Zone payments are being made in PAYCO points, and we expect Campus Zone to contribute to enlarging the overlap between offline usage and PAYCO point payments. Despite weakness in the overall advertisement market, Q1 PAYCO coupon revenue increased by 38% YoY, and the new business of providing PAYCO coupon service to major card companies is also gradually expanding its service scope.
During the second half of last year, PAYCO changed its organization and service to focus on its core business. And this year it has been focusing on driving up revenue of key PAYCO services while maintaining cost efficiency. This has resulted in a very meaningful level of improvement in PAYCO's operating loss in Q1. And the target for this year is to reduce PAYCO's operating line loss by more than 50% versus last year. PAYCO has managed to achieve visible bottom line improvement and continued volume growth at the same time, which is very encouraging. And PAYCO will continue to focus on delivering both profitability and volume growth by pioneering new services unique to PAYCO.
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In the case of the commerce business, even though China abolished its zero COVID policy, recovery of consumer sentiment remained slow in Q1. And even in the U.S., retailer demand remained subdued. As a result, the GMV of commerce business continued to decline by double digits YoY and also contracted QoQ. However, NHN Accommate has been focusing on expanding its global distribution channel to break through the current situation. For example, late March, late March, it was the only global commerce company to be selected as an imported product supplier for Douyin, and recently it signed MOUs with JAMBOLIVE, which is Taiwan's largest live commerce platform, as well as [Kuaishou], which is a major commerce platform in China. Even though uncertainties cannot be ruled out yet, we will actively respond to changes in the external environment and tap the recovery of consumer sentiment in China step by step.
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For the technology business, NHN Cloud, which was established April 1st last year, marked its first anniversary and became a unicorn with over KRW 1 trillion in enterprise value. This year, NHN Cloud is planning to continue its drive for volume growth, especially from the public sector clients, and further solidify its position in the Korean market. While continuing to focus on cloud migration projects, it is preparing to open the Gwangju National AI Data Center in the second half, which will provide additional revenue growth. Furthermore, using the infrastructure secured from the National AI Data Center, NHN Cloud has been developing a customizable enterprise generative AI platform targeting the public and financial sectors. It has also plans to take on an active role in the Korean AI semiconductor project led by the Korean government.
Meanwhile, NHN Cloud is preparing to deliver meaningful performance from the financial sector on top of the public sector. Last year, NHN Cloud signed an MOU with Shinhan Investment Securities and has also signed up around 60 financial institutions, including Shinhan EZ General Insurance, the Korea Inclusive Finance Agency, Korea Investment Capital, and Sangsangin Savings Bank. Japan's Techorus MSP business also continues smooth sailing contract signs with major customers. Techorus plans to secure around 200 agencies around Japan within the year and will be focusing on acquiring new accounts.
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March of last year, NHN established the ESG committee under its board of directors and also created a dedicated organization for ESG to place greater emphasis on ESG management. Thanks to such efforts, NHN received an overall A rating from the Korea Institute of Corporate Governance and Sustainability last year, and was the only Korean company in the sector to have its ESG rating upgraded. In particular of last year, NHN focused on environmental management. It carried out a voluntary study of its greenhouse gas emissions, and in August, the NHN Pangyo main office and data center obtained the Environmental Management System ISO 14001 and Energy Management System ISO 50001 certification. This year, NHN will continue to strengthen its ESG management across environment, social, and governance aspects, and as part of such efforts, recently established an enterprise risk management system and officially appointed the company's CRO.
During the first half, NHN plans to publish its first sustainability report to share more details with the investor community. I hope you will continue to support NHN's ESG management efforts. That completes my business update. Now CFO Hyun Shik Ahn will take you through the business results of each business line.
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Good morning. This is Hyun Sh ik Ahn. I would like to share our 2023 first quarter results. 2023 first quarter consolidated revenue was KRW 548.3 billion, which is a 5.4% YoY growth and a 2.2% QoQ decrease. Operating profit was KRW 19.1 billion, which is a 23.1% increase YoY and a 90.5% increase QoQ. Q1 game revenue was KRW 117.0 billion, which is a 7.6% YoY increase and a 7.5% QoQ increase. Total Web- board Game revenue increased by 26.6% YoY, continuing solid growth. PC online game revenue was KRW 43.2 billion, similar to last year, but was up at 8.8% QoQ thanks to the Lunar New Year holiday effect. Mobile game revenue was KRW 73.8 billion, which is an increase by 12% YoY and 6.7% QoQ.
Mobile Web-b oard Game revenue, which has been setting new quarterly revenue records, increased by 46.6% YoY and 14.1% QoQ in Q1, despite more efficient marketing spend. Hangame Poker rose to number seven in the AOS daily grossing chart, once again setting a new grossing ranking record. For overseas mobile games, including Japan, revenue slightly increased QoQ thanks to Disney Tsum Tsum's 9th anniversary event in January, despite the reverse base effect against Q4, which included the #Compass collaboration in December.
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For the payment and advertisement business, revenue was KRW 249.4 billion, a 19.2% increase YoY, and 5.2% increase QoQ. NHN PAYCO reduced its marketing expense, which reduced deductions from the top line, resulting in a revenue increasing effect. NHN KCP also recorded revenue growth QoQ, even against Q4's peak seasonality, as large domestic merchants saw an increase in transaction volume.
Commerce revenue reported KRW 50.6 billion, which is a 51.7% YoY decrease and a 31.6% QoQ decrease. While the global economic weakness continues, the commerce business in China faced weak consumer sentiment in Q1. And in the U.S., the Silicon Valley Bank crisis had a negative impact on the overall economy, resulting in a QoQ revenue drop. For technology, revenue was KRW 100.1 billion, which is a YoY 57.3% increase, but a 4.6% QoQ decrease. NHN Cloud revenue decreased QoQ against Q4, when there was a concentration of public sector revenue. However, on a YoY basis, NHN Cloud continued to report strong growth with some public sector cloud migration contracts signed during 2022, generating revenue in Q1. Meanwhile, Japan's NHN Techorus reported a revenue growth of 31% YoY and 10.7% QoQ, driven by acquisition of new large customers. Content revenue was KRW 41.8 billion, a drop by 10.9% YoY and 15.5% QoQ.
NHN Comico maintains stable traffic while keeping marketing efficient. NHN LINK saw its revenue decrease QoQ against Q4, which is a peak season for concerts and exhibits. In other, the NHN Doctor Tour saw its revenue increase by more than 3x QoQ, thanks to the steep recovery in travel demand.
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Next about our operating expenses and profits. Total operating expense was KRW 529.2 billion, which increased by 4.8% YoY but decreased by 3.9% QoQ. Commission expense was KRW 352.4 billion, a 3.2% QoQ decrease. Despite increase in revenue linked commissions of the payment business, the COGS decrease of the Chinese commerce business drove the decrease in commission expense. Labor cost was KRW 114.5 billion, which is a 0.4% QoQ increase. Despite the wage increase reflected in Q1, the QoQ increase in labor cost was limited due to the reverse base effects against Q4, including the year-end bonuses.
Advertisement and marketing was KRW 20.1 billion, which is a 28.4% decrease QoQ. Comico continues to maintain efficient marketing spend from last quarter, and on top of this, Hangame's brand advertisement ends and PAYCO has been executing its marketing more efficiently. This has decreased the marketing expense to revenue ratio to 3.7%, which is a decrease by 1.3 percentage points QoQ. Depreciation was KRW 21 billion, a 2.8% QoQ decrease, and other operating expense was KRW 14.7 billion, which is an 8.5% QoQ decrease. Operating profit was KRW 19.1 billion, which is a 23.1% YoY increase and a 90.5% QoQ increase. Net profit was KRW 25.6 billion, returning to a positive net profit as the year-end goodwill impairment loss and valuation loss of certain financial assets decreased versus Q4. That completes our presentation on the first quarter results. And we will now start the Q&A session.
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Now, Q&A session will begin. Please press star one, that is star and one if you have any question. 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 us many Q&A chances 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 Jaemin Ahn from NH Investment & Securities. Please go ahead with your question.
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Thank you for taking my question. It's good to see that the Web- board G ame and the company's overall performance is doing very well. You mentioned that the Web- board Game performance in first quarter was good. This comes at the end of a strong 2022. Throughout last year, the Web- board Game performance was strong. I'm, I'm asking about how sustainable do you think the Web- board Game performance would be this year? Can you provide on a full- year basis or guidance or the company's goals regarding, regarding w eb- board g ames for the full year? Also, in terms of marketing expenses, how low are you planning to decrease your marketing expense? Can you share with us, for example, the company's target in terms of marketing expense to revenue ratio for the year?
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Last year, one of the goals of our very aggressive brand advertisement campaign was to widen the demographic of our Web- board Game as users, especially towards the younger age group. I think that the increased marketing spend last year, which did cause some concern in the market, is returning the effect of this. And we're seeing that benefit starting to kick in from fourth quarter last year, and we expect to enjoy that benefit of, of the lowered age group of the Web-b oard Game demographic throughout this year. So in terms of the sustainability of the Web- board G ame performance, we expect that to be sustained as long as we're able to retain the younger audience that have been newly attracted into our Web- board G ame service. Regarding marketing expense, we have been maintaining that on a running basis around a 10% ratio, and we expect to sustain it around that level.
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Yes. To add a bit more information about the marketing spend, that 10% ratio that our CEO just shared is for the Web- board Game's level. And regarding the Web-b oard G ame, last year we did spend as marketing to a level that some from outside considered to be excessive, but we think that that is returning in terms of benefits such as better retention and also better loyalty from our user base. Because of the marketing spend that we executed last year, we expect to ride on that benefit this year and be able to sustain the business with less marketing spend. So for the entire year, we're targeting at the entire company level, around low 4% marketing spend to revenue ratio.
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The following question will be presented by Jingu Kim from Kiwoom Securities. Please go ahead with your question.
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I have two questions. First is it's for the cloud business. Is it possible for you to share the operating margin of the cloud business in Q1? Also, on a mid- to long-term basis, do you have a target running or a normalized margin that you're targeting? And what timing would that targeted normalized margin be applied to? Second question is, I think previously the company had mentioned possible adjustment or restructuring of its non-core businesses. Does the company have plans of going forward with it? And if so, can you share some plans regarding restructuring or adjustments of your non-core businesses?
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To answer your first question about the cloud, even though it's difficult for us to share the exact number, in, in Q1, our cloud business did report a slight loss. This is because the cloud business by nature required some upfront investment, and also seasonality-wise, Q1 is the slow season versus Q4. We do expect that as we move throughout the year towards Q2 and Q3, our operating margin of the cloud business will improve. In terms of the operating margin on a running basis that we target, the plan that we have as well as what we communicate when attracting investment is we do expect to bring up the operating margin of our cloud business to around 15% of revenue in the long run.
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Regarding your second question of, of our subsidiary. In terms of our restructuring, we have been able to bring down the number of subsidiaries that are consolidated onto ourselves to around seven now. We shared before that we have a long-term plan of reducing the number of subsidiaries to around 60 companies by 2024, and we are moving ahead with that plan as we speak. That said, on the other hand, we may need to make new companies or make new investments in order to drive the cloud business and other new business opportunities. So, these new companies would then be set aside from that 60 company count. Also, aside from just reducing the sheer number of companies or subsidiaries, we are continuing to pursue better business efficiency.
As we have mentioned during the presentation, PAYCO continues to increase the efficiency of its business, including its marketing spend, and Comico has also been focusing on better efficiency of expenses, including its marketing expenses. Also, we're currently working with the restructuring of certain companies and businesses. It's too early for us to share the details at this point, but I think we'll be able to share more information in the second half.
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The following question will be presented by Soyun Shin from Credit Suisse. Please go ahead with your question.
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There's two questions regarding PAYCO. First is, PAYCO reported quite strong GMV growth rate. Given the fact that offline traffic is on an increasing trend, is it possible for us to assume, would we be correct to assume that this growth rate of PAYCO GMV will continue in the second and third quarters this year? Second question is regarding the advertisement. Even though overall advertisement market is not in a good state, offline advertisers are seen to be increasing their budget. So I'm wondering if PAYCO has any advertisement product or advertisement strategy it is introducing to target the increasing offline advertiser budget.
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Now, now, regarding the offline merchants, actually in, in the overall offline merchants, we're seeing a decrease of consumption year-over-year basis. So, it's still a bit too early to ensure an overall growth of the business itself or the transaction volume itself. That said, within the offline merchants, we do see that there's a shift of usage to certain merchants, and it's very positive and encouraging to see in terms of user metrics that the ratio of PAYCO users using PAYCO service in these merchants where—which is attracting more of the consumption, is increasing. And so overall, considering all of these factors, in Q2, we expect there to be more growth in offline versus the offline growth we saw in Q1. Regarding coupon PAYCO coupon advertisement, as we mentioned during the presentation, we have been reporting growth on a year-over-year basis despite the decline in the overall ad market.
That said, we are seeing an increase of advertisers, but we do cautiously, carefully, we are carefully watching the decline and some contraction that we see on the consumption end. So, even though it is very encouraging to see that there is an additional in introduction and attraction of offline, offline advertisers, we are also introducing new scripts with our advertisement to prove the performance that PAYCO can provide. And so, with this new service, we expect there to be a gradual pickup in our growth rate.
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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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Since there's no further questions, we will end the [earnings] conference call here. Thank you very much for joining today's conference call. If you have any further questions, please forward them to the IR team.