Good day everyone, and welcome to Nexon's 2024 first quarter earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Takanori Kawai, Team Leader of Investor Relations. Please go ahead, sir.
Hello everyone, and welcome to Nexon's earnings conference call. Thank you for joining us today. With me are Junghun Lee, President and CEO of Nexon, and Shiro Uemura, CFO. Today's call will contain forward-looking statements, including statements about our results of operation and financial condition, such as revenues attributable to our key titles, growth prospects, including with respect to the online games industry, our ability to compete effectively, adapt to new technologies, and address new technical challenges, our use of intellectual property and other statements that are not historical facts. These statements represent our predictions, projections, and expectations about future events, which we believe are reasonable or based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Information on some of these risks and uncertainties can be found in our earnings-related IR documents.
We assume no obligation to update or alter any forward-looking statements. Please note, net income refers to net income attributable to owners of the parent, as stated in Nexon's consolidated financial results. Furthermore, this conference call is intended to provide investors and analysts with financial and operational information about Nexon, not to solicit or recommend any sale or purchase of stock or other securities of Nexon. A recording of this conference call will be available on our investor relations website following this call. An authorized recording of this conference call is not permitted. Now, I'll pass the call to Junghun.
To everyone joining our call, my first since being appointed CEO of Nexon in March. Before we take your questions, I would like to offer some perspective on our results and outlook, including our excitement about the launch of Dungeon & Fighter Mobile in China on May twenty-first. As you read in the earnings letter we posted earlier today, Nexon's performance in the first quarter was better than expected. Revenue came in at CNY 108.4 billion, driven by strong performance in FC Online, FC Mobile, and Blue Archive. Also, we made progress in enhancing the player engagement of MapleStory in Korea, while we have been sharply focused on improving the in-game economy and have developed a long-term roadmap for re-energizing growth in Dungeon & Fighter in China.
Our better-than-expected revenue, combined with careful management of marketing and HR costs, resulted in operating income of CNY 29.1 billion and net income of CNY 35.9 billion, both of which exceeded our expectations. In China, Dungeon & Fighter revenue came in at the high end of our guidance. Following an imbalance in the in-game economy, which arose late in Q4, we have been sharply focused on improving the game's economy, with recognition that it will take time to completely restore the balance and recover both revenue momentum and the number of active players. In the meantime, we are planning a content update in Q2 and onward, which we expect will further improve the in-game economy.
MapleStory in Korea, our ongoing focus on improving player satisfaction and engagement over monetization, majority in Q1, revenue slightly below our forecast, but enabled us to expect Q2 revenue to return close to the level of the previous year and to grow sequentially despite the typical weak seasonality in Q2. The biggest event in Q2 is the May 21 release of Dungeon & Fighter Mobile in China. Given the enormous popularity of this franchise and the current scarcity of quality action mobile games in China, getting this game into the hands of players has been a priority. The recent successful beta test and the strong marketing campaign planned by Tencent give us confidence that Dungeon & Fighter Mobile has the potential to energize our large base of existing players in China and bring new players to the franchise. Also-...
Q2 includes contributions from promising new titles, like HIT in Japan, The Finals, and the official launch of MapleStory Worlds in Korea. However, these are expected to be offset by weakness in PC Dungeon & Fighter in China, as well as year-over-year decreases from Wars of Prasia and FC Online due to tough comparison following strong performances in Q2 2023. Next, I will hand the call over to Shiro Uemura to discuss our financial results and outlook in more detail.
Thank you, Junghun. In Q1, we delivered stronger than expected results driven by FC Online and FC Mobile, as well as Blue Archive. On the other hand, revenue from The Finals was lower than expected. Q1 operating income was above our expectations. In addition to the revenue outperformance, HR costs, marketing expenses, and cloud service costs were lower than expected. In Q1, net income was also above our outlook, primarily due to better than expected operating income and an FX gain of JPY 10.7 billion on cash deposits. Looking ahead, we expect group revenues in Q2 to be in the range of JPY 92.3 billion-JPY 104.7 billion, representing a 2% decrease to 11% increase on an as-reported basis, or a 10% decrease to 2% increase on a constant currency basis year-over-year.
We expect contributions from Dungeon & Fighter Mobile in China and other new games to be offset by year-over-year decreases in PC Dungeon & Fighter in China, as well as Wars of Prasia and FC Online, due to tough year-over-year comparisons in Q2 2023. For PC Dungeon & Fighter in China, although we are sharply focused on improving the in-game economy, further adjustments are needed and will be made in the months ahead. Additionally, packaged item sales of the Labor Day update have not performed well compared to Q2 last year. Our content updates in Q2 and onward are expected to further improve the in-game economy. On the other hand, in Korea, our strategy of prioritizing the improvement of player engagement and satisfaction in MapleStory deliver early good progress. As a result, we now expect MapleStory's Q2 revenue to increase quarter-over-quarter and return close to year-ago levels.
We expect Q2 operating income to be in the range of JPY 17.3 billion-JPY 27.7 billion, representing a 37% decrease to flat on an as-reported basis, or 44%-9% decrease on a constant currency basis year-over-year. We anticipate higher HR costs, primarily due to increased headcount and annual salary hike. We also expect increased cloud service costs and fees to creators in MapleStory Worlds, as well as a one-time loss that is likely to occur due to reorganization in Q2. And these expenses are expected to be partially offset by lower royalties, platform gateway fees, and marketing costs. Accordingly, we expect Q2 net income to decrease year-over-year. Finally, I'd like to provide an update on our capital allocation.
Today, the board of directors authorized a JPY 2.5 increase to the JPY 5 semi-annual dividend, which represents a per share dividend of JPY 7.5 semi-annually or JPY 15 annually. Also, regarding our three-year, JPY 100 billion share repurchase policy, the board of directors authorized an execution of JPY 30 billion share repurchase in the market during the period of May fifteenth to July nineteenth. Looking ahead, we will continue to evaluate opportunities to enhance shareholder return. I will now return the call over to Junghun.
Thank you, Uemura-san. I want to take a moment to offer some perspective on the priorities I've set for my first months as Nexon's CEO. Much of the agenda for our first half of the year was set in January with a well-defined set of challenges and opportunities. In recent weeks, much of my time has been sharply focused on two near-term initiative: re-energizing Dungeon & Fighter in China and MapleStory in Korea, plus preparing for a successful launch of Dungeon & Fighter Mobile in China. We have also placed a high priority on the development of new games and IP, with the potential to become enduring pillars. This includes an exciting pipeline of new games scheduled for release in the coming quarters, including The First Descendant, a dynamic loot shooter scheduled for launch this summer.
The First, also called Khazan, are the hardcore action RPG based on Dungeon & Fighter IP, which aim to attract new players worldwide. Mabinogi Mobile, a mobile version of the beloved PC game, Mabinogi. And that's not all. Players and investors can expect much more new games and content in 2025. Longer term, we have also prioritized the development of our franchise management strategy aimed at driving greater efficiency, profitability, and fun for players from our global blockbusters. We are starting with the MapleStory franchise, which recently integrated teams and operation for greater alignment, efficiency, and quick synergy. We are also expanding the MapleStory franchise with new experience such as MapleStory M and MapleStory Worlds, with unique content creation features that appeal to players. And critical lessons learned in expanding the MapleStory franchise can be valuable in unlocking the enormous potential in our most popular IP.
Finally, we've established a long-term priority to improve Nexon's profit margins through top line growth, careful cost management, and operating efficiency as we sharpen our focus on franchise management and improve the speed of decision making. In the months ahead, we will provide a more comprehensive report on how new strategies will be integrated into our plans for delivering more engaging games for our players and strong results for our investors. With that, we are ready to take your questions.
Next, we would like to open up the lines to live Q&A. Q&A session will be conducted with Japanese/English or English/Japanese consecutive interpretation. Please be noted that interpretation will come between your questions and our answers. Please hold for interpretation before you hear our answers. Our answers will also be followed by interpretation, so please hold until the interpretation finishes before moving on to the next question. For those of you who have more than one question, we will take your questions one by one. Now, we'd be happy to take your questions.
Today, we will accept questions from the conference call participants. If you have a question, please press the star key followed by the digit one on your touchtone telephone keypad. Once again, if you have a question, please press the star key followed by the digit one on your touchtone telephone keypad. When we receive your input, you will hear the voice guidance. If you do not hear the guidance, please press the star key followed by the digit one on your touchtone telephone keypad once again. We will begin taking your questions shortly. Please hold on for a moment.
The first question is from Seyon Park from Morgan Stanley, please.
Thank you for the opportunity. I have two questions. The first is related to the Dungeon & Fighter online game in China. It seems that you have made it a priority to re-energize this game. I wanted to get a little bit more perspective as to where we are in terms of fixing you know some of the problems that you had mentioned in the prior quarter. In terms of this imbalance of currency whether that's now kind of been fixed. And then if so maybe some color on you know how or where we stand in terms of active users in terms of monetization. You know is it still meaningfully below where it was prior to December?
Or, you know, should we kind of take it to the point where a lot of it has normalized and, that is something that we can, see resolve with time? That, that's my first question. My second question is, relating to the guidance for Dungeon & Fighter Mobile in China. And I know it's very difficult to predict, you know, how well a game will do. But if I kind of look at your guidance and take Dungeon & Fighter PC revenues, which you are guiding down year-over-year, I, I kind of get to a range of JPY 15 billion-JPY 20 billion kind of revenue for, Dungeon & Fighter Mobile. And, I was wondering if maybe you could share, some of your assumptions in reaching this number. Thank you.
[Foreign language]
[Foreign language]
[Foreign language]
Thank you for your question. This is Junghun Lee.
[Foreign language]
I understand the question is in two parts. You asked about Dungeon & Fighter PC game in China as well as the Dungeon & Fighter mobile game in China.
[Foreign language]
So I think both Uemura-san and I will answer your question.
[Foreign language]
So first of all, with regard to Dungeon & Fighter, PC version in the Chinese market, first, in the last earnings call meeting, I talked about how we were going to double the amount of content that we provide to the market compared to the previous year, and these plans are currently being executed.
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However, balancing the in-game economy of a game is a very complicated process, and there are various aspects that we must consider.
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I still believe that this is the issue that we can resolve in the long run.
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So as you are well aware, Dungeon & Fighter PC is a very important major title for Nexon and also Tencent, and so we are investing vast resources as well as our best people.
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So I think from our experiences, we know that when the in-game economy balance is not right and you continue to implement initiatives to drive up the revenue, then that does not help the game. It actually hurts the game. So, Tencent and Nexon share the same thoughts, but we believe that rather than focusing our decision on improving short-term profits or monetization, it is better to actually promote the long-term steady growth of the game.
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I would like to briefly talk about the release of Dungeon & Fighter Mobile in the Chinese market.
[Foreign language]
First, I would like to mention two things.
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So I firmly believe that in the initial launch of Dungeon & Fighter Mobile, there will be explosive performance, but I'm also confident that we will be able to sustain performance for a very long time.
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So there are two reasons why I say this. First, briefly, please allow me to briefly touch upon the results of the beta test that we carried out in February and March.
[Foreign language]
So first of all, the key metrics regarding players, including retention rate, is very, very positive, and they have given us rave reviews about the stability of the game as well as the quality of the game.
[Foreign language]
So here I cannot disclose the actual number of pre-registered users, but some of you already know this. But in WeChat, Mobile QQ, and in major application markets in China, currently our game is number one in terms of pre-bookings.
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Since the initial response, we are seeing that after the beta test, there has been a lot of interest in this game. For these reasons we are very confident about the game, as well as having a lot of expectations for the game.
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Of course, some of you may already know this, but in Korea we have over two years of experience of servicing this game to the Korean market.
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And so through our experiences of servicing this game in Korea, we have been able to stably provide mobile services and create such an environment.
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We have already secured a lot of content so that we will be able to provide for the users. We will be able to provide lots of content for the long run, and so we are very confident about Dungeon & Fighter Mobile being released in the Chinese market.
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So my experience is to now have shown me that when you launch a title on the mobile platform and PC platform together, it creates a lot of synergy effect. And so I believe that Dungeon & Fighter mobile release in the Chinese market will help to expand the IP franchise and create synergy effect with the PC platform at the same time.
[Foreign language]
And then I would like to give some more color to the situation of China Dungeon & Fighter.
[Foreign language]
As I have already mentioned in the previous earnings calls, there was excessive supply of gold in China's Dungeon & Fighter. Therefore, the value of gold decline. So in order to enhance the value of gold, we are providing content as at double speed, as compared to before, so that we can solicit more consumption of gold.
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We are implementing this procedure in a very steady manner, and we are providing content as scheduled and re-energizing the title itself so that users will spend more gold in the game. As a matter of fact, in the previous quarter, 100 million gold was worth CNY 100, but now it is at CNY 140. We believe that as we proceed with the normalization of the value of the gold, the value will be between CNY 170-CNY 200, which will be business as usual. We are heading toward that direction, and we believe that we will reach that range within a few months.
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We are still in the midst of making improvement, and we believe that in Q2, there will not be much of a momentum regarding the return of the light users, and we have factored that in coming up with the guidance of year-on-year decline. But having said that, we will steadily implement such measures so that the value of gold will be normalized, and once we reach that level, we will be able to return to the trajectory of further growth.
[Foreign language]
Now, as to your second question about a China Dungeon & Fighter Mobile, as it has been already explained by, Junghun Lee, we do not give you any details of the revenue per title, but just to give you some hint as to how it might evolve in Q2, we can say that the majority of the year-on-year revenue growth will be attributable to the contribution by this title.
Thank you very much for the detailed response.
The next question is from Miss Mori of JP Morgan. Please start your question.
[Foreign language]
Thank you for this opportunity. I have two questions. The first question is about the Chinese Dungeon & Fighter Mobile. Once again, I want to confirm what Uemura-san said earlier. He said that the majority of the year-on-year revenue growth is coming from this mobile title but does that mean that the, PC, version of DNF, Dungeon & Fighter, is it going to be flat year-over-year?
That's what, I would like to confirm. And also, if that is the case, and then, although in the past you said that the, PC version is larger than the mobile version, however, given this difference in take rate, is that the, is that going to be the case, that, mobile is going to be larger than PC sometime in the future? Because now the PC is not doing so well, the performance is not, at, at its best. So, but, in the past, you said that with the mobile release, there will be some synergy between PC version and mobile version.
Is it going to happen from now? So what is your expectation, about the relative size of, PC version and the mobile version going forward? That's the first question.
Hi, uh,
[Foreign language]
Thank you for your question. As I said earlier, the difference on a year-on-year basis, the growth is mostly coming from Dungeon & Fighter Mobile. And I also said that we expect the PC version, Dungeon & Fighter, is going to decline year-on-year. And for that portion, there will be some compensation from the MapleStory Mobile. That's what is compensating for the losses. And it may appear that Dungeon & Fighter Mobile because that is increasing, you may think that the PC version may be flat year-on-year. However, there is an contribution from MapleStory, so that is the case.
In terms of the relative sizes of PC and mobile versions, as Junghun said earlier, we are focusing on the franchise strategy. For the PC version, we already have a solid user base, the core user base. Although there was some softness in the recent months, we believe that there will be a solid recovery of the PC version on a medium to long-term basis. On the other hand, for the mobile version, our intent is to acquire brand new and different users going forward. Therefore, it would be ideal that we can grow both of the versions in the way that I just described going forward.
[Foreign language]
Thank you very much. I have the second question. This is about THE FINALS. There was some downside on the THE FINALS results, and looking at the guidance for the future, it seems that there is some weakness. So, is it and there was an explanation that the retention was somewhat weak. How about your outlook on this title going forward? And what kind of measures are you taking, and what is your outlook on the revenue? If not in terms of the numbers, if you could talk about the basic trend and the roadmap for this title, that would be great. And you will have a release of Arc Raiders as well. So in that sense, is there going to be any adjustment to the Embark Studios strategy going forward?
Thank you for your question, and I will answer your question.
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With regard to The Finals, we think on the PC and console platform as well as in the Western and European markets, the core users are holding firm and they are consistently playing the game.
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However, in the Asian market, which includes China and Korea, the drop rate is high.
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So as I mentioned in the last earnings call, Embark Studios and Nexon Korea are very closely working together.
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So through this, collaboration or cooperation, I think one of the outcomes that we can expect is that we will be able to recover the drop rate that we see here in the Asian market in the next few quarters.
[Foreign language]
So when we released or launched The Finals at the end of last year, there was a lot of users interest in the title, and so I believe that there is great potential to bring this title back up.
[Foreign language]
With regard to The Finals, Nexon and Embark Studios is making a lot of effort. They are investing a lot of resources, and within this year, we will have more than two large updates. And then in between these updates, of course, we will have a continuous stream of updates, and we will do our best to realize rebound.
[Foreign language]
Next, I would like to touch on Arc Raiders.
[Foreign language] .
The Arc Raiders is from Embark Studios. It's a third-person shooter, PVPVE extraction shooter game.
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The title has been designed for the global audiences, and it can be actually played on both console and PC platforms.
form to the market. Internally, we also have quite high expectations, and from the early stages, through the strong collaboration between Nexon and Embark, to increase the success probability a little more, we are preparing very diligently.
As with Arc Raiders, I'm sure that in the very near future, we will be able to showcase the title to the market. Internally, I think we have very high expectations for Arc Raiders. We are making the necessary preparations together with Embark Studios and Nexon to ensure the success of this title.
[Foreign language]
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The next question is from Yijia Zhai-san of UBS Securities, please.
[Foreign language]
[Foreign language]
Thank you very much for allowing me to ask you questions. The first question is yet again about Dungeon & Fighter China. And, in the comment you mentioned about the, PC version and how it is, proceeding. And I got this impression that, most probably it might be difficult to fix the problem within a short period of time, but rather it might take a longer time to fix the problem. And, I think that in the last earnings call, you mentioned that you will be able to, return the title to the previous situation within this year. But are you saying that the timeline of how you're going to fix this problem has changed?
If so, I would like you to talk about what is the difference between what you have mentioned in Q4 and what you have mentioned for at this earnings call. In other words, after Q4, you have implemented different measures, and upon implementing those measures, you had some assumptions. So are you saying that there has been some differences in the assumptions that you've made, and you realize that after implementing the measures that you have mentioned in the previous earnings call? Also, the next question is about Dungeon & Fighter Mobile. I'm looking at the guidance that you gave back in 2020, and it seems that the range of the figures that you are providing to us are pretty much the same as the ones that you have provided us in 2020.
I know that you cannot comment on the details about the pre-registration number, but can you talk about what has been the response of the users? Is the response the same as back in 2020, or is there any difference between the current response and the response that you received back in 2020? If so, can you give some color to the similarities or the differences that you have discovered?
[Foreign language]
So in the previous earnings calls, we've mentioned that we are seeing some softness in our major titles, namely MapleStory Korea and Dungeon & Fighter China. And based on that, we gave you the guidance for Q1. And regarding MapleStory, relatively speaking, the revamp is quick, and therefore, in this time's earnings call, I mentioned that in Q2 we will be able to go back to the year-on-year same level.
[Foreign language]
Next, about China, Dungeon & Fighter. Back in the earnings call of Q4, we did mention that it will take a few quarters to return, and the level of China Dungeon & Fighter to the level before. So having said that, we are in the midst of that journey. And, regarding the value of the Gold, we are getting closer to the target that we are aiming at. So we will be very cautious and try to introduce new content and see the trend of the users to re-energize the title, and try to reach the Gold value target that we are aiming at.
So, simply put, I do not think that we have changed the tone of how we speak to these titles, because from the very beginning, we've mentioned that it will take a few quarters, to re-energize, Dungeon & Fighter China.
[Foreign language]
[Foreign language]
Now, next about Dungeon & Fighter Mobile. We have already mentioned the launch date that was scheduled back in our earnings call for Q4 and in Q1's earnings call, we have not made any changes. We've been mentioning that Dungeon & Fighter is a very popular IP in China, and there are users who are highly anticipating the launch of this very game. As mentioned by our CEO, Junghun Lee, we have been conducting different tests and received feedback from the users, and we factored in those results in coming up with a guidance for Q2, and we are scheduled to launch this title on May twenty-first.
[Foreign language]
I did understand it, very well. Thank you very much.
The next question is from Mr. Bokyung Suh from Sanford C. Bernstein, please.
Hi, this is from Bernstein. I'm Bokyung Suh. This is a question to the CEO, Mr. Lee. I think there is no big concern on short-term performances this year, but as a new group CEO for now, so number one, what do you think are the toughest parts or key challenges in your mind for the 3-5-year long-term growth? And number two, simply, what is your new Nexon future or blueprint in 2026 or 2027 in the long term, different from today? That's it. Thanks.
Hi, Bernstein, Bokyung Suh. CEO Lee, in this performance, like a performance, like a commercial growth performance. So can she talk about it? So from a new Nexon future or blueprint in 2026 or 2027 in the long term, different from today?
So first of all, thank you, Bokyung, for your question. It seems like a long ago, long time ago that I became CEO, but in reality, it's only actually been a month. With regard to your question, I think I can answer the first question and the second question together at once.
Nexon, so this year marks the 30th anniversary of Nexon, and for me personally, I think it's been 23 years at this company. So this year marks the 30th anniversary of Nexon, and for me personally, I think it's been 23 years at this company.
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So actually, if you look into the 30-year history of Nexon, you will find that Nexon has actually realized steady, if not linear, growth. So in this journey, past journey, you will find that certain IPs actually mutually complemented each other to increase the size of our portfolio. So Dungeon & Fighter would do well, and then MapleStory did well, and then KartRider did well. And so overall, these IPs worked together to increase the overall size of the pie or the portfolio. So I believe that Nexon, that has a very multi, I think Nexon, that has a very diverse portfolio of multiple IPs, is a very stable and solid company. So when I think about Nexon in 2027, I envision what will happen at Nexon.
I see Nexon as a company having a very strong and firm portfolio, that has numerous IPs that are very strong and enduring, including, of course, our biggest IPs that have a history of over 20 years.
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In order to attain this goal, I would like to now briefly touch upon some of the action plans that I've been executing for the past month.
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The first thing I did was to, in order to expand the MapleStory franchise, I actually integrated the organizations relating to MapleStory.
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So of course, the benefits of these initiatives will show up as we move forward. But at the same time, even right now, I think the MapleStory franchise is already showing solid progress.
[Foreign language]
I would now like to kindly ask for your attention on some of the few indicators. In the first quarter, MapleStory PC generated 33% year-over-year growth outside of Korea.
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The mobile version, MapleStory M, worldwide, delivers 65% year-over-year growth.
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Using the MapleStory IP, we created MapleStory Worlds, which is a Sandbox game. I think some of the concerns that some people might have is that with a IP with a very long history, sometimes the fans also grow old together with the IP. But with MapleStory Worlds, we have seen a huge influx of young gamers and users to the platform.
of Maple IP, I would be greatly thankful. This can be a case study in the IP expansion strategy for all the IPs that Nexon holds. Please show much interest.
I would greatly appreciate if you could pay interest in our strategy to expand the MapleStory IP franchise. And of course, I believe that the MapleStory case can become a reference point as we continue to expand Nexon's IP moving forward. We look forward to your interest.
[Foreign language]
In line with the growth of the company, I hope that Nexon, as a company, as well as the IP that it possesses, will be very much beloved by our society and our community of users. So moving forward, as CEO, I would like to also make efforts, not only on the business itself, but also on areas outside of the business as well.
Great to hear that. Thank you!
Ladies and gentlemen, once again, if you would like to ask a question, please press the star key followed by the digit one on your touchtone telephone keypad. This concludes the question and answer session. Mr. Kawai, at this time, I'd like to turn the conference back over to you for any additional or closing remarks.
Thank you. If there are no further questions, I would like to take this opportunity to thank you for your participation in this call. Please feel free to contact the Nexon Investor Relations at investors@nexon.co.jp, should you have any further questions. We appreciate your interest in Nexon and look forward to meeting with you, whether it is here in Tokyo or in your corner of the world.
Thank you. Since there is no further question, I would like to take this opportunity to thank you for your participation in this call. Please feel free to contact the Nexon Investor Relations at investors@nexon.co.jp, should you have any further questions. We appreciate your interest in Nexon and look forward to meeting with you, whether it is here in Tokyo or in your corner of the world.