Good afternoon. This is Sophie Lee from KRAFTON's IR team. Thank you to all our investors and analysts in Korea and overseas for joining our third quarter 2026 earnings call. With us today are KRAFTON CEO CH Kim and CFO Dongkeun Bae. For the convenience of our investors in Korea and overseas, the CEO highlights and financial results will be simultaneously interpreted. The Q&A that follows will be consecutively interpreted. Today's results are based on preliminary consolidated figures under K-IFRS. Some figures may change during the external auditor's review. First, CEO CH Kim will present the CEO highlights.
Good afternoon. I am CH Kim, CEO of KRAFTON. Thank you to all the investors and analysts in Korea and overseas for joining KRAFTON's third quarter 2026 earnings call. In the third quarter of 2026, KRAFTON built on PUBG's strong results and kept taking on new challenges for growth. We made progress in all three areas: the PUBG franchise, new titles, and AI. The PUBG franchise is delivering new player experiences through more varied gameplay and expanded UGC. On PC and console, we expanded our collaborations through Jujutsu Kaisen, our first anime IP collaboration.
On PC and mobile, we kept expanding UGC. This strengthened PUBG's foundation as a gameplay platform. In the fourth quarter, we will expand major collaborations and make mobile more accessible. This will connect us with players across more regions and generations. Through our new titles, we are driving long-term growth for KRAFTON's core IPs, PUBG and Subnautica, and expanding into new markets. Our top priority is a successful full launch of Subnautica 2. At the same time, we are shaping a franchise strategy for the series' long-term growth and looking for collaboration opportunities.
DED.NET uses the PUBG IP to target the Western console market. We are also improving the game based on user feedback. In AI, we unveiled Raon, our in-house LLM. We confirmed top-tier performance among comparable models in Korea and high inference efficiency. Building on our own development capabilities, we will develop game-specific models and models for future businesses. Now, let me walk you through the key results and plans for each area. First, the PUBG franchise is on its way to becoming a global cultural icon beyond gaming, with lasting appeal across regions and generations. In the third quarter, we kept turning PUBG into a gameplay platform through UGC.
This strengthened the foundation for long-term growth. On PC, we introduced UGC last December. This August, we launched PUBG Playgrounds, a hub where players can discover and play a wide range of UGC. On mobile, we expanded global IP content in World of Wonder, our UGC mode. In August, we introduced Brainrot, a popular piece of global content. Since then, we have seen both playtime and World of Wonder usage go up. Going forward, we will keep expanding well-made modes and UGC on both PC and mobile. We will grow PUBG into a platform where players can enjoy many kinds of play. In the fourth quarter, we will broaden our player base through deeper IP collaborations, media expansion, and better mobile access.
We will strengthen PUBG's cultural presence with experiential IP collaborations that go beyond conventional approaches. We will also raise PUBG's cultural presence among a wider audience beyond game players. With the Netflix series we unveiled on October 30th, we will expand into media and grow PUBG into an IP loved by even more fans. In addition, we will expand the ways we connect with fans, such as merchandising as well as cultural events. To make PUBG easier to access for players in emerging markets, we plan to launch PUBG Mobile Flash and BGMI Air. These are lighter versions of PUBG Mobile and BGMI. BGMI Air is set to launch on December 10th.
In India alone, it has passed 14 million pre-registrations on Google Play. This confirms local demand for lighter versions. With these two titles, we will reach new players who found it hard to start playing because of data and storage limits. Next are major new IP titles. KRAFTON is scaling up proven IPs step by step. First, the Subnautica series. Subnautica two has sold more than 5 million copies since its Early Access launch on May 15th. It holds a 91% positive rating on Steam. Remaining wishlists stand at 4.45 million. This shows strong interest from players who haven't bought yet and potential for more sales ahead.
It's not only Subnautica 2. The earlier titles, Subnautica and Below Zero, together keep selling steadily at more than 2 million copies every year. The new release and the steady sales of the earlier titles prove the strength of the IP across the whole series. With the large Early Access 2.0 update at the end of the year, we will improve the quality of Subnautica 2 and focus on the full launch. At the same time, together with Unknown Worlds, we're looking for ways to expand the IP both inside and outside the game for the series' long-term growth. Next is DED.NET, a new title based on the PUBG IP, first revealed at Gamescom this August.
Our core target is console shooter players in Western markets. DED.NET sets itself apart by combining PUBG's gunplay with roguelike growth elements. We confirmed the game's potential in the closed beta test from October 9- 12. We are quickly applying player feedback to improve the game and preparing for a 2027 launch. Finally, KRAFTON's AI development capabilities and our in-house LLM, Raon. By building Raon ourselves from scratch, we have developed strong model-building capabilities. Based on that, we are securing AI self-reliance. We built a game-specific model. It learns the unique grammar of games from the very start of training. Existing AI finds this hard to fully understand.
Building on this, we focus on making game AI, including PUBG Ally, more competitive. It will better understand the context of game and deliver a more advanced experience. We'll also keep strengthening our ability to apply the same training pipeline to each field. This lets us develop domain-specific models for future businesses. Raon-1 mini preview unveiled on October 21st proved top-tier performance among comparable models in Korea. In particular, we confirm strong Korean language performance and high inference efficiency. It also recorded the fastest results among comparable models in Korea in token generation speed, a measure of how fast responses feel.
These are key strengths for raising both user experience and cost efficiency when we apply AI to real games and services. Since this is still a preview version, we will keep improving its conversation understanding and task performance until the full release based on user feedback. This will raise its quality in real-world usage. Starting here, we'll expand our lineup to Raon-1, a scaled-up model, and a full-duplex voice model that can listen and respond naturally at the same time. That concludes my presentation. Thank you.
Next, CFO Dongkeun Bae will present KRAFTON's financial results for the third quarter of 2026.
Good afternoon. I am Dongkeun Bae, CFO of KRAFTON. In the third quarter of 2026, KRAFTON recorded revenue of KRW 971.4 billion and operating profit of KRW 225 billion. Cumulative revenue for the first three quarters was KRW 3.6 trillion, up 51% year-over-year. Cumulative operating profit was KRW 1.2 trillion, up 14%. PUBG franchise revenue grew 11% year-over-year. Revenue from new games, including Subnautica 2, also contributed to growth. This year, PUBG PC and console launched three new well-made modes. They offer gameplay experiences beyond battle royale. We also widened our collaborations.
After cars and K-pop artists, we worked with the anime IP Jujutsu Kaisen. PUBG Mobile introduced UGC monetization. This kicked off the full-scale growth of its UGC ecosystem. 2027 is PUBG's 10th anniversary. We are preparing our largest content update ever. Our new titles for next year, including the five shown at Gamescom, are being refined with continuous user feedback. Since announcing our three-year shareholder return policy on February 9, we have delivered KRW 917.2 billion in shareholder returns in 2026.
Through the third quarter, we acquired about KRW 400 billion in treasury shares and canceled all of them. We also canceled another KRW 117.7 billion in treasury shares we already hold. With a capital reduction dividend of KRW 99.6 billion, total shareholder returns through the third quarter were KRW 617.2 billion. We believe our share price is currently undervalued, so at this Board meeting, we decided to acquire another KRW 300 billion in treasury shares and cancel all of them. Including this, total shareholder returns in 2026 comes to KRW 917.2 billion. Next is revenue by platform.
PC platform revenue in the third quarter was KRW 238.9 billion. In the third quarter, PUBG PC and console MAU kept growing at a double-digit rate. In September, we debuted our first anime IP collaboration on PUBG PC, Jujutsu Kaisen. Players responded positively, which confirmed that IP collaborations can expand into new categories. PC platform revenue fell 33% year-over-year. This is because PUBG PC had fewer monetized content items than in the third quarter last year. Compared with the previous quarter, it fell 57% as the initial sales boost from Subnautica 2, launched in the second quarter, dropped out.
Cumulative revenue for the first three quarters was KRW 1.2 trillion, up 30% year-over-year. Mobile platform revenue in the third quarter was KRW 504.3 billion. In August, we introduced Brainrot, a popular piece of global content, to World of Wonder, our UGC mode. It drove higher World of Wonder usage. After the Brainrot update, World of Wonder's usage rate in BGMI rose from 11% at the end of last year to 17%. On revenue, global IP collaborations such as Naruto and Ferrari, released in the summer vacation peak season, drove growth.
Revenue rose 3% year-over-year and 12% quarter-over-quarter. Cumulative revenue for the first three quarters was KRW 1.7 trillion, up 15% year-over-year. Console platform revenue in the third quarter was KRW 8.6 billion. That is down 16% year-over-year and down 64% quarter-over-quarter. Cumulative revenue for the first three quarters was KRW 46.2 billion, up 40% year-over-year. Other revenue in the third quarter was KRW 219.6 billion, including KRW 198.4 billion in ADK advertising and content revenue. Next, key PUBG franchise content for the fourth quarter.
In the fourth quarter, the PUBG franchise will broaden its base around three pillars: diversifying gameplay experiences, growing mobile fandom in emerging markets, and PUBG branding. First, diversifying gameplay experiences. PUBG PC and console will keep releasing new well-made modes. This will strengthen its position as a gameplay platform that goes beyond battle royale. in October, we released SLB: Dawnbreakers of Rondo, a new PvE play experience. in December, we will add more new well-made modes. We will strengthen our core fandom with premium content and keep growing revenue. in October, we ran a collaboration with supercar brand Bentley.
Since November 4, we have been running a collaboration with K-pop artist IVE. Continuing from the second quarter, we will keep growing traffic and revenue structurally through varied play experiences and collaborations. Next, growing mobile fandom in emerging markets. PUBG Mobile Flash has been in CBT in many emerging countries since last September. We verified that it performs well and stays stable and can deliver the PUBG Mobile experience on many devices and network conditions. BGMI Air will also go through a CBT in November. We will polish it further and then launch.
With these two titles, more players in emerging markets will be able to experience PUBG. Lastly, PUBG branding. Following 2025, we will hold PUBG United again this year in Türkiye. It is a global esports tournament that brings together the PUBG PC and mobile competitions. By doing so, the PUBG experience can be offered in an offline environment. The IVE collaboration, underway since November 4, extends our earlier idol collaborations. It goes beyond in-game skins. We connected artists' music and visuals to content inside and outside the game, designed so fans can experience PUBG naturally.
By broadening IP expansion and fan touchpoints, we will strengthen the foundation for the PUBG franchise's long-term service. Next, the major operating expense items for the third quarter. Personnel expenses were KRW 209.7 billion , up year-over-year because ADK was consolidated. Quarter-over-quarter, they fell 12% as incentives linked to quarterly operating profit had declined. Platform fees and cost of revenue were KRW 102.8 billion , down both year-over-year and quarter-over-quarter. This reflects the base effect of the Subnautica 2 launch and lower PUBG PC and console revenue. Paid commissions were KRW 284.6 billion .
They rose year-over-year because ADK was consolidated and game production costs increased, including for PUBG 2.0 and new titles. They fell 17% quarter-over-quarter because of the base effect of the PNC Esports Tournament held in June. Marketing expenses were KRW 65 billion , up both year-over-year and quarter-over-quarter because we took part in Gamescom in August. Third-quarter operating profit was KRW 225 billion , down 36% year-over-year. Cumulative operating profit for the first three quarters was KRW 1.2 trillion . This is our highest ever for the first three quarters.
On non-operating income and expenses, the cost narrowed from the previous quarter thanks to the base effect of non-operating expenses related to Unknown Worlds booked in the second quarter, but a weaker dollar caused foreign currency losses that had led to a non-operating loss of KRW 305.8 billion . As a result, net loss for the third quarter was KRW 68.4 billion . Lastly, shareholder returns. First, what we executed through the third quarter of 2026. Through the third quarter, we acquired KRW 400 billion in treasury shares and paid a capital reduction dividend of KRW 99.6 billion . We also canceled treasury shares, both a total of KRW 517.6 billion .
That includes the roughly KRW 400 billion acquired this year and the KRW 117.7 billion we already held. This is 4.4% of total shares issued. Next, our shareholder return plan for the fourth quarter of 2026. In our three-year shareholder return policy announced in February, we said we would decide on acquiring and canceling treasury shares after viewing market conditions and the share price level as a whole. We believe our share price is currently undervalued, so at this Board meeting, we decided to acquire another KRW 300 billion in treasury shares and cancel all of them.
As a result, share buybacks and cancellations in 2026 total KRW 700 billion, including the roughly KRW 400 billion already executed through the third quarter, and add the KRW 99.6 billion dividend and the KRW 117.7 billion cancellation already held, and the total shareholder returns in 2026 comes to KRW 917.2 billion. We will keep reviewing further shareholder return measures considering business performance and market conditions. That concludes my presentation. Thank you.
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We will now begin the Q&A session. If you have any questions, please use the raise hand icon at the bottom of the screen.
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The first question will be from Eric Cha of Goldman Sachs. Please go ahead.
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Thank you for taking my question. I have two questions. My first question is in regards to PUBG's 10th anniversary. Next year is PUBG's 10th anniversary. What is currently being prepared to celebrate that occasion with players? Second, it was mentioned before that the Raon-1 mini preview has a competitive edge, but compared to other comparable models, exactly what edge does it have? KRAFTON is a game company, so I would like to know the rationale behind developing a model from scratch.
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This is the CFO. I will first take your first question on the PUBG 10th anniversary.
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For 2027, we are currently preparing a historical amount of content to be unveiled throughout the year, and especially in March, when it will be PUBG's 10th anniversary, and when the anniversary date falls, we are preparing a large-scale update.
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We are not able to share all of the content that we are preparing for next year, but what I can say for now is that for next year, we will have major content items, very large and small seasonal items, and collaborations on a monthly basis. We are geared to making 2027 a year when we can really celebrate the 10th anniversary of PUBG with our players.
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This is the CEO. I will answer your second question. The Raon-1 mini preview is the first model that KRAFTON has developed from scratch, and because it is currently in its first version, it is of a relatively smaller size, a 30 billion MoE model. Raon's edge is that of the comparable size 30 billion models in Korea, it has outperformed in the knowledge, STEM, multi-turn, tool calling, and other benchmarks. The preview will be further developed based on feedback until we have the release of the Raon-1 mini full version.
As to why we are developing from scratch the Raon LLM model, we have been developing AI for games, and we have found that we've accumulated a lot of research capabilities in the domain, and so we seek to expand our capabilities and abilities into domains outside of gaming. That is why we have decided to develop this model. The Raon has very good performance in Korean language and has also optimized inference speed and cost. In Korea, we believe there is demand for LLMs, and so we aim to meet that demand with this model. These low cost-efficient models will be used to meet that demand. This is the first version of the model that we have released. We will continue to develop on the model to release a bigger version that is the Raon-1.
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The next question will be from Junhyun Kim of HSBC. Please go ahead.
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Thank you for taking my question. I have two questions. The first is in regards to the shareholder return policy of 2026. It was announced that in 2026, the scale of shareholder returns would be KRW 1 trillion. But as of to date this year, you have already executed KRW 900 billion in shareholder returns. Does that mean there might be an adjustment in the scale of shareholder returns? My second question is in regards to ADK. For ADK, we have seen some top-line pullback. What are some strategies that you are planning to counter this phenomenon?
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In regards to your question on shareholder returns, the new shareholder return policy that we announced in 2026 was aimed toward reducing volatility and enhancing the predictability of the shareholder return policy. It was aimed toward making yearly dividends, buyback, and cancellation more predictable.
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The reason this execution might seem to be accelerated is because we believe that the share prices are much undervalued than expected. In order to maintain consistency, we have been implementing these policies to enhance shareholder value.
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The KRW 700 billion buyback that we mentioned from the beginning refers to the maximum amount of treasury share buybacks, not the maximum share limit of treasury share buybacks, but the minimum. For buyback and cancellation, we plan to continue to make flexible decisions based on market conditions and strategic priorities.
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Regarding your second question for ADK, to zone in on the ADK's top line, anime performance is in line with expectations. However, we have been seeing some sluggish performance in terms of ads.
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There might also be the factor that in Japan, the traditional ad market is kind of recognizing sluggish performance. KRAFTON is a Korean company, and in the process of working with this legacy company from Japan, it is taking more time than expected to understand and actually coordinate joint efforts.
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But we are in the process of understanding the situation and also ironing out some solutions, and we are in the process of organizing a strategy. So I cannot share any specifics today, but near the end of the year or early next year, we might be able to announce some changes that might be applied.
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Next question will be from Donghwan Oh of Samsung Securities. Please go ahead.
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Thank you for taking my question. I have two questions. I believe in the fourth quarter, we will see some enhanced performance due to the Bentley collaboration and IVE collaboration. The goal will be probably to enhance revenue in the latter half of this year. But in order to do that, I believe you may need to record historical levels of revenue in the fourth quarter. Do you believe that would be possible? Second, you mentioned that there will be about five to six titles that will be launched in 2027. Is there a specific launch window that these titles are aiming for? Internally, which titles are the most anticipated?
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In regards to your first question, in the fourth quarter, on a yearly basis, of course, we are anticipating double-digit growth. You touched upon PC revenue in the third quarter. What I can say is that our traffic is at a healthy level. Like you said, in the third quarter, there was some pullback because the number of content was relatively small. But in the fourth quarter, we have items of content that are prepared, so we expect to see growth.
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To add one more point, the fourth quarter is important, but life will continue after the fourth quarter. It will not be the apocalypse. 2027 is our 10th anniversary for PUBG. For the fourth quarter, we are preparing many things that will happen in early next year. We do our targeting growth for next year, and we do believe we can achieve it.
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For next year's titles, we have DED.NET, NO LAW, Age Twisters, TARAE, and Project ZETA in the pipeline and geared for release, inZOI will also have its full release and PlayStation 5 release next year, and Palworld Mobile as well as Waltz and Jam are geared for release as well.
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At Gamescom, the titles that garnered the most interest and attention based on user responses was DED.NET and NO LAW.
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As for the release timing, as you know, the momentum after release is very important, so there is a need for extensive tests and refinement before the launch. I hope for your understanding when I say that I cannot provide any specific dates at this time.
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The last question will be from Min-Joo Kang of Bernstein. Please go ahead.
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Thank you for taking my question. We are viewing the recent efforts for KRAFTON to enhance shareholder value in a very positive light, and the investments that it is making in AI and many future markets is very encouraging, and we believe that it is needed. Investors can't help but wonder when the harvesting moment of these efforts would be. When do you believe we will see the monetization from these efforts, and when will we be able to see them in the performance record?
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Yes, I will take that question. I am well aware of the concerns regarding the possibility that recovery cycle for AI investments might be prolonged.
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For some businesses, we understand that it might be some time before we see returns, but we are putting efforts toward thinking about more small and quick attempts that we can make in terms of business.
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Regarding the overall strategy, we are currently finalizing the details internally, and we plan to announce it officially on another occasion. So we would appreciate it if you could wait a bit longer with patience.
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This concludes KRAFTON's third quarter 2026 earnings presentation. We sincerely thank all the investors and analysts for your continued support.