Good afternoon. Let me thank the analysts and investors from home and abroad for attending our earnings presentation for the third quarter of 2023. I would like to remind you of the disclaimer message before moving on to the earnings presentation. This earnings presentation is based on the consolidated earnings results of Q3 2023, based on KIFRS. This presentation is provided for investors' convenience and has not been audited by an independent auditor. This presentation was also prepared based on objective criteria. However, this material may contain expressions based on expectations, anticipations, or subjective judgments. Please be noted that numbers and interpretations that are different from what is presented in this material could be drawn due to the future changes of business environment and different data collection criteria. Today's earnings presentation will be made by our CFO, Mr. Choi Jaeyoung.
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Good afternoon, ladies and gentlemen. This is Choi Jaeyoung from DoubleUGames. The conference call for DoubleUGames earnings presentation for Q3 2023 will begin now, and I would like to thank all of you for joining our conference call. Today, as described on page three, I will cover Q3 highlights, earnings summary, revenue analysis, cost analysis, and business update. After the presentation is over, we will have a separate Q&A session.
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First of all, let me explain about the Q3 highlight on page four. On November 1st, we finished acquiring SuprNation, and we expect to proceed with iGaming business focusing on the U.K. and Sweden market. Currently, we are developing a new app with SuprNation, and we are preparing to provide one of our internally developed exclusive slots through SuprNation.
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Secondly, the revenue of our franchise games, DoubleDown Casino and DoubleU Casino, rebounded from October, and the ranking on Sensor Tower is going up. Our user indicators based on competition and collection content are constantly increasing. In the fourth quarter this year, the U.S. has important holidays, and hence we expect that our revenue will grow in Q4 2023.
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Lastly, our operating income reached a record high level in Q3. Despite our efforts to reduce marketing, our operating income reached KRW 54.1 billion. Operating income margin recorded 38.8%, thanks to our efficient operation of game business, and it overall shows that our revenue indicators are growing as well.
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Let me present a summary of Q3 consolidated earnings.
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As of Q3 2023, our consolidated revenue is KRW 139.6 billion, which decreased by 3% compared to the previous quarter. Our operating income reached KRW 54.1 billion and a margin rate of 38.8%, which increased 7.6% compared to the previous year, while EBITDA reached KRW 56 billion with a margin rate of 40.1%, which increased by 7.3% compared to the previous quarter.
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Our net income is KRW 51.3 billion, with a margin rate of 36.7%, which has been stable.
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For Q3 2023, we operated our game business efficiently and reached the highest margin rate and EBITDA margin since 2020.
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Now, we're moving on to page six. I would like to present our revenue analysis.
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Our consolidated revenue for Q3 2023 recorded KRW 139.6 billion. In terms of platforms, the revenue from web is KRW 23.7 billion. The revenue from mobile platform reached KRW 115.9 billion, and mobile revenue takes up 83% of our total revenue.
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Meanwhile, our franchise games, DoubleDown Casino and DoubleU Casino, accounted for 97% of the total revenue. In terms of game-specific revenue, DoubleDown Casino recorded KRW 93.8 billion, which decreased by 2.9% compared to the previous quarter, and the revenue from DoubleU Casino reported KRW 41.8 billion, which decreased 2.8% compared to the previous quarter.
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Since October, the revenue of both DDC and DUC increased, and we expect that our revenue in Social Casino will grow in the fourth quarter this year, due to the seasonal peaks of the Thanksgiving Day in November and Christmas in December.
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In addition, as we finish the acquisition of SuprNation, its revenue of November and December will be reflected in our earnings. Therefore, we expect to see an increase in our consolidated revenue on a quarter-over-quarter basis.
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On the next page, let me explain our cost analysis for Q3 2023.
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Our platform cost is KRW 40.1 billion, which is a variable cost. We pay 30% of our revenue to the platform providers such as Google and Apple.
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Marketing cost is KRW 18.4 billion, which decreased 26% compared to the previous quarter, and 48% compared to the previous year. Marketing cost accounts for 13% of our revenue, and we made our cost expenditure more efficient by optimizing our marketing channel and improving the efficient management of our marketing activities.
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Rather, our cost for salary and benefit reached KRW 18 billion, which increased 1.1% compared to the previous quarter. The consolidated total headcounts are approximately 530 people. Among these headcounts, we have 350 employees in DoubleUGames and 180 employees in DoubleDown Interactive. Our office in the U.S. reduced the number of employees by around 30 persons, and the cost for salary and benefit will slightly decrease going forward.
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Royalty cost is KRW 2 billion, which is 1.4% of our revenue. This is the royalty we pay for using IGT Slot IP.
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Our D&A cost is KRW 1.9 billion, and there is no change compared to the previous quarter. Most of the D&A cost is related to the lease accounting of our office rent. D&A cost is expected to increase slightly due to the impact of PPA from our acquisition of SuprNation.
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We were able to minimize the reduction of our revenue while achieving the highest operating income and EBITDA by making our marketing expenditure more efficient and updating more competitive content.
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On page eight, I would like to update you on our business and plans.
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From the second half of 2023, we have pursued the following three strategies to grow our revenue.
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Firstly, as for the existing social casino business, we're spending marketing expenses in a more efficient way while improving the performance of our app. Especially from October, our VIP Race that stimulates competition among users, and our Wonder Card content, which is an attractive card content for collection, has been receiving positive response from users, and their rankings are going up in the app stores of Apple and Android. Funtastic Slots, which has been soft launched, is now going through continuous test marketing where we are checking the game ability and upgrading the game.
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Secondly, we are making an intensive investment in iGaming and skill game , where we can utilize our competitiveness. In the case of iGaming B2C, the review on the change of corporate governance was completed, and we completed the acquisition of SuprNation on November 1st this year. SuprNation will be included in our consolidated earnings from November, and as we acquired SuprNation as our affiliate, PMI will begin. In the case of iGaming B2B, we have almost finished the development of the first Slot, Ocean 777 to be supplied to SuprNation, and we will properly share with you our information about this once we fully begin the service.
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As for Skill game, we have been improving the game ability through the Tech Beta Launch in June 2023. Now we changed its name to Bingo Cash Me Out and are offering the service. We are also cooperating with other platform providers to adopt the credit card payment system. Once we complete the adoption of credit card payment service, we will carry out marketing activities at a full scale in the US market.
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Thirdly, we are continuously exploring M&A targets, focusing on the businesses that give us higher ROI, along with the potential to increase our revenue in order to secure our growth potential, even if we don't get the synergy with existing social casino. As for the M&A areas, we're considering not just games, but also non-game sectors without being confined to a specific sector. Currently, we have around KRW 400 billion as cash and plan to use free cash for possible M&A. In addition, based on every year, we plan to create additional growth engine for the company.
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Next, we are going to move on to page nine.
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Our marketing cost recorded KRW 18.4 billion as of Q3 2023, which decreased by 48% compared to the previous year, and decreased by 26% compared to the previous quarter. Our game ranking rebounded from October and is now on a positive flow, thanks to our core content VIP Race and Wonder Card. Moreover, we expect to see higher growth in our earnings in the social casino in Q4 this year, thanks to the improved retention of our users and seasonal peaks of Thanksgiving Day and Christmas. We expect that the marketing cost for Q4 2023 might change, depending on the SuprNation marketing cost, and depending on whether we launch a new game or not.
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Now, I would like to explain about our business update on page 10.
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As explained before, we completed the acquisition of SuprNation for iGaming, and we are preparing to offer the service at a full scale.
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First, we aim to grow our revenue by expanding our investment in marketing activities. We are preparing to use our marketing know-how for the marketing of SuprNation. So far, we have done marketing for SuprNation in a conservative way within limited financial resources, but we expect to expand and make SuprNation's marketing more efficient through our support and mutual collaboration.
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Secondly, iGaming mobile app will be developed at a full scale. We are jointly developing a differentiated iGaming app with SuprNation based on our certified slots and experience in social casino game business. Currently, we are optimizing this app by working together with SuprNation.
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In terms of B2B, our short-term target is to launch one of the slots developed by DoubleUGames in the SuprNation app. Then we will check the performance of this slot, and in the mid to long-term perspective, we plan to prepare a content provider business to offer DoubleUGames exclusively developed slot IP, and that is unique and differentiated from others.
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We are going to page 11, the last slide.
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As of 2022, SuprNation's revenue was KRW 32.7 billion, of which 46% was generated from the U.K., 25% from Sweden, and 29% from other countries. We expect that this business will grow further centered around the U.K. and Sweden.
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We plan to expand the license we have in the U.K., Sweden, Isle of Man and Malta, and expand the service of SuprNation around the EU regulated markets.
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Let me conclude the earnings presentation for Q3 2023, and we'd like to move on to 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 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.
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The first question will be provided by, Oh Dong-hwan from Samsung Securities. Please go ahead with your question.
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This is the question from Samsung Securities. I have two questions. First of all, the first question is about marketing cost. Your marketing cost has decreased compared to the amount of your revenue. As I heard, the CPI in the online advertising market has not significantly decreased. Do you expect that your marketing cost will continue to decrease compared to your revenue? What is your expectation for the trend of your marketing cost next year? This is the first question. The second question is related to the social casino business. What is the scope of countries that you expect you will get licensed for this online casino game? What is your expectation regarding the relevant marketing cost in consideration of the countries you are reviewing to get licensed?
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I would like to answer the first question. As you mentioned, it is true that there is no big change in the level of CPI. After the adoption of IDFA, we have analyzed the data by using an AI model. By doing so, we were able to reduce redundant advertising and focus more on the advertising that help us retain our users more. In this way, we were able to enhance the efficiency of our marketing activities and at the same time enhance the level of our revenue. For next year, I expect that 15% of revenue would be our marketing cost. This is our expectation, but it could change depending on the market situation.
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As for the second question for the iGaming business, we are not currently planning to increase additional licenses for other countries, but rather we are trying to focus more on the U.K. and Swedish market by making a bit more aggressive investment in those two markets because they have higher visibility of our business. In terms of the consolidated earnings perspective, we have just 5% of marketing cost being spent for these activities. As for next year, even if we spend some more marketing costs for the U.K. or Swedish market, we don't think there will be a big change in our overall stance on our marketing expense.
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The following question will be presented by Seung-h oon Lee from IBK Investment & Securities. Please go ahead with your question.
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I have two questions. The first question is that you had reduced the marketing expense and had a positive situation in terms of your revenue and operating income in the third quarter. And if you consider the overall revenue level, I guess that the competition in the social casino market might have decreased, or the growth of the social casino market itself might have decreased. What is your view on the social casino market? This is the first question. The second question is related to the target revenue for iGaming business for next year. How much do you think the revenue from iGaming will take up in your total revenue next year?
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I would like to answer the first question. The size of the social casino market has slightly decreased by around 2% in the third quarter of 2023 on a quarter-over-quarter basis. The market size for social casino is around $1.8 billion, and this is because after the COVID-19 entered the endemic period in July, August, and September this year, many people increased their outdoor activities, and this is why there was a slight decrease in the size of the social casino market. In terms of market share, from the top ranking, the first to the top 15 companies are taking up 90% of the total market share, and we don't think there will be additional entry of competitors into the market.
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In the fourth quarter, you might have to see the results, but we expect that the revenue of our company and the competitors might increase based on the records or results you could see from Sensor Tower, for example. Our DoubleDown Casino has very good ranking and favorable level of revenue compared to other competitors. We think that this is an encouraging sign for us.
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I would like to answer your second question, our target revenue level for iGaming next year. This is not to give you a guidance on the revenue of iGaming for next year, but we expect that and we plan that the target revenue for iGaming will be around 10% of our total revenue in two to three years. Now iGaming takes up about 5% of our total revenue, and we are planning to increase the size of the revenue from iGaming by around two times after the M&A.
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The following question will be presented 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 related to the delay in the launch of the game you are planning to come after the DoubleU Casino 2.0. Do you need to update further this game? And what would be your answer regarding the schedule of launching this game? The second question is related to the revenue target for iGaming for next year. You said that your target is to make iGaming take up 10% of the total revenue. Do you refer to B2C or B2B? And what would be the proportion of the revenue from iGaming between B2C and B2B?
As I understand, there are existing companies that are already providing iGaming business and services, and there is quite some level of competition in the iGaming market. I guess you might have to input some marketing expense for your iGaming business. Although you mentioned that it will not give much big impact on your overall marketing expense spend, do you think you will have to make some initial investment for iGaming for next year?
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I would like to answer the first question regarding the Funtastic Slots. We did a soft launch of Funtastic Slots in the U.S., Canada and the U.K. In terms of the retention of users on Day 1 and Day 7, for example, the results were not really up to our expectation based on our KPI. We are planning to make a secondary soft launch of Funtastic Slots in the fourth quarter this year. If the user indicators or index meet our target within the scope of our target, then we are willing to make more investment in these areas.
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I would like to answer your second question. We are planning to focus more on B2C. As you mentioned, it is true that there are many competitors in the U.K. and Swedish market. However, we have confirmed that in the iGaming market, the marketing expense payback period is shorter than other game items, other game businesses. We think that based on our experience and know-how in social casino business, and based on our proven experience here, we will be able to differentiate ourselves from other competitors in the iGaming market. Even if we make further investment for marketing activities, the investment in the marketing cost will be made in a level that can be absorbed at a bearable level at SuprNation. We plan to refrain from making excessive, overly large amount of intensive investment in the marketing activities.
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The following question will be presented by Hak-j oon Kim from Kiwoom Securities. Please go ahead with your question.
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I have two questions. The first question is how do you expect the earnings and the volume of revenue or operating income will be for the iGaming business you're planning? For SuprNation related business, you said you're planning to launch the business also on the mobile channel. How do you expect that the revenue will increase in the mobile channel of the game that you're planning to launch through SuprNation? How do you expect the growth potential of the iGaming business you're planning? What is the proportion of mobile in the iGaming business of other competitors? This is the first question.
The second question is related to the marketing expense. As I understand, it seems that you are focusing more on existing users on an ARPPU growth basis rather than focusing on securing new users. How do you expect the additional growth potential is for that business? Could you explain also about your expectation for the growth potential of social casino for next year as well?
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For the first question, in the case of SuprNation, the earnings from January till October show that there was a 5% increase in revenue compared to the previous year. There was some EBITDA margin as well. The competitors also have the mobile service in terms of their iGaming business, but they're focused on HTML5-based web service. In the market of iGaming, the user-optimized mobile app and service have just begun. We have our technological competitiveness that has been accumulated for the past 10 years. We guess that in the iGaming mobile sector, that technology will make us differentiated from other competitors. In the market, the revenue from mobile takes up about 50% of the total revenue of iGaming in the market.
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For your second question, we are not just focusing on increasing ARPPU for the existing users. We're also optimizing the app and trying to increase the pay ratio. We are also considering to spend marketing expense for acquiring new users. Both our DUC and DDC have over 100 million users and we are going to remind them of our games and services through marketing activities in an optimized way. We have actually dual strategies in our marketing cost expenditure. One is to increase the ARPPU and the other is to increase the new users. After the IDFA change and in terms of marketing ROI, we are trying to reduce redundant marketing expenses and optimize the marketing channel. In this way, we are trying to retain or increase the existing users and also acquire new users as well.
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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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With this, we would like to conclude our earnings presentation Q&A session for 2023. I would like to pay my sincere apology for the delay in our acquisition of SuprNation and delay in the launch of new games. We are going to make better preparation for these games. In Q4 2023 and in 2024, we will show you a better performance. Thank you very much for joining us in our earnings presentation.