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. Unauthorized recording of this conference call is not permitted. Now, I'll pass the call to.
Thank you, Kawai-san. Good afternoon, and thank you to those joining today's call.
Earlier today, Nexon posted a letter and slide deck with details on our recent performance and outlook. On today's call, I will start with some context on our progress, then hand it off to Uemura-san, who will review the financials. Nexon's first-quarter revenue grew 5% year over year and came within our expectations at JPY 113.9 billion. Operating income increased by 43% to JPY 41.6 billion, exceeding our outlook. Nexon has begun the year with a clear demonstration of our commitment to our 2025 priorities and multi-year IP growth initiative. Last quarter, we identified the need to strengthen and regain momentum in key franchises while maintaining steady progress on developing and releasing new games. I am pleased to report that our progress to date in 2025 checks each of those boxes.
In Q1, our three biggest franchises, Dungeon & Fighter, MapleStory, and FC, together delivered a meaningful 21% year-over-year growth, up from 8% in Q4. This included a clear turnaround for PC Dungeon & Fighter in Korea and a strong performance for MapleStory. Dungeon & Fighter in Korea more than doubled its MAUs and PUs versus a year ago, achieving record-high quarterly revenue. Also in Korea, MapleStory achieved strong improvements to DAUs, pay rate, and ARPPU to deliver year-over-year revenue growth of 43%. Additionally, we launched two new games in the quarter. The first was Khazan, which is a strategic first step in our initiative for introducing the Dungeon & Fighter franchise to a global audience. Players around the world, particularly in the West, recognized the high quality and gave Khazan on PC a Metacritic score of 83. The game also earned an 88 on Steam and a 90 on OpenCritic.
Khazan delivered on our strategic goals and set the stage for two related games expected by 2027. The second new game, Mabinogi Mobile, outperformed our expectations in its debut in Korea. Enjoyed by a broad range of players, the game charted in the launch window as the number one most popular and number three grossing game on Android and the number one grossing game on iOS. This success creates potential for rollout in additional markets. Finally, we are excited about our progress on partnerships with Tencent, which includes new co-developed content for Dungeon & Fighter Mobile coming to China later this year. Additionally, last month, Tencent announced pre-registrations for Khazan and The Finals, specifically adapted to match the tastes of millions of players in the region.
Looking to our second-quarter guidance, we begin with the recognition of a difficult comparison, which includes the explosively successful launch of Dungeon & Fighter Mobile in China last year. Nevertheless, we expect our Q2 revenue to be largely similar to last year on a constant currency basis. This is attributable to strong growth expected from PC Dungeon & Fighter and MapleStory, plus a solid traction from new games, particularly Mabinogi Mobile. Our second quarter is also notable for updates on two new and highly innovative games, Arc Raiders and MapleStory N. Earlier this month, Embark Studios hosted a large global tech test for Arc Raiders, which for the first time revealed the game's intense, tactile PvPvE gameplay and progression system. The response to the test on player forums was deeply gratifying, and test metrics widely exceeded our expectations.
We set a goal for 5 million YouTube views and got more than 20 million. We set a goal to be a top 10-viewed game on Twitch and reached the top 6. We exceeded our wishlist goal on Steam by more than 50%. The game performed well, particularly in Western markets, and the early retention rate showed a 25-point improvement over the previous test in Q4 last year. The Embark team is now heads down on integrating test feedback and polishing the game. Next, MapleStory N, the first game in our MapleStory Universe initiative, which adapts blockchain technology to reward player engagement, is scheduled for release on May 15. MapleStory N features a user-driven economy with rewards based on digital ownership of NFTs rather than cash shop. The game will be available in select markets around the world.
To summarize the last four months, we achieved turnaround performances in our biggest franchises, successfully launched new games, built on partnerships, and continued to make steady progress in developing all new games with potential to break out as hits. Nexon is delivering on its promises to our players and to our investors. With that, I will hand it off to Uemura-san.
Our first quarter result offered a clear reflection of our priorities and longer-term IP growth initiatives, with turnaround performances in Dungeon & Fighter and MapleStory, as well as strategic progress in IP expansion, which included successful launches of two new games, the first, Khazan and Mabinogi Mobile. Q1 revenue came within the expected range at JPY 113.9 billion. Year-on-year, it was up 5% on an as-reported basis and up 9% on a constant currency basis, driven by the collective growth in our three largest franchises and contributions from new games. Operating income was JPY 41.6 billion, exceeding our outlook. Stronger-than-expected performances of our major titles like Dungeon & Fighter PC and MapleStory drove higher margins, plus costs came in below our plan.
Year-on-year, operating income increased by 43%, driven by the collective strong growth of our three key franchises and a Q1 2024 one-time impairment loss of JPY 6.2 billion, which did not repeat this year. This was achieved while investing to expand our IP portfolio. Despite the operating income outperformance, net income came within the expected range at JPY 26.3 billion due to an FX loss of JPY 4.2 billion and an impairment loss of JPY 1.6 billion on an investment accounted for using the equity method, year-on-year. It was down 27% due to an FX loss of JPY 4.2 billion recorded in Q1 2025, while recording an FX gain of JPY 10.7 billion in Q1 2024.
Turning to performance by franchise, in Q1, our Dungeon & Fighter franchise grew 60% YOY, driven by contributions from Dungeon & Fighter Mobile in China and The First Berserker: Khazan, which released in March, plus strong growth from PC Dungeon & Fighter in Korea, which nearly doubled revenue from a year ago. In China, PC Dungeon & Fighter came in at the high end of our outlook, driven by the new year update, which provided solid improvements to the in-game economic balance and generated an increase in DAUs throughout the quarter. In Korea, the new year updates more than doubled both MAUs and PUs, driving record-high quarterly revenue. For Dungeon & Fighter Mobile, DAUs tracked below our expectations in China, resulting in Q1 revenue, which fell short of our outlook. The First Berserker: Khazan made a global debut on March 28, with great ratings from both players and critics.
While revenue in Q1 was below our outlook, the game achieved our objective as a strategic first step to introduce and expand Dungeon & Fighter IP to a global audience. Next, our MapleStory franchise returned to growth, increasing 8% YOY, driven by the strong performance of its PC version in Korea and the West. In Korea, the successful large winter update introduced in December drove strong improvements to player engagement, represented by key metrics including DAU, pay rate, and RPU. As a result, Q1 revenue in Korea marked 43% year-over-year growth, exceeding our expectations. Global MapleStory also exceeded our outlook, but declined YOY compared to the record-high sales in Q1 2024, driven by a large and highly anticipated update. However, servicing the Western markets continued to demonstrate strength, with a 35% YOY revenue growth, driven by the hyper-localized content developed by our team in Los Angeles.
For MapleStory, walls of Q1 revenue increased by 11% YOY as we expanded the service region into Europe. Turning to our FC franchise, FC Online exceeded our outlook, driven by the well-received Team of the Year feature, while FC Mobile fell short of expectations. Overall, franchise revenue declined YOY, but came within the expected range. Finally, Mabinogi Mobile, a new experience on established franchise, launched on March 27 and significantly outperformed our expectations, demonstrating broad appeal with strongly positive feedback. Mabinogi Mobile is a cross-platform game available both on PC and mobile. Moving on to our second quarter 2025 outlook, we expect FX to negatively impact revenue by roughly 10%. Our Q2 revenue is expected to be in the range of JPY 99.6 billion-JPY 110.3 billion, representing a 19%-10% decrease on an as-reported basis or 9% decrease to 1% increase on a constant currency basis YOY.
Despite an extremely high comparison with Q2 2024, driven by the explosively successful launch of Dungeon & Fighter Mobile in China last year, we expect our Q2 revenue to be largely similar to last year on a constant currency basis. This is attributable to strong growth expected from PC Dungeon & Fighter and MapleStory, as well as solid contributions from Mabinogi Mobile. We expect the Dungeon & Fighter franchise to decline by about 40% this year versus last year. This is due to the difficult comparison with last Q2 when the franchise revenue increased by 162% with the launch of Dungeon & Fighter Mobile. However, the result will be partially offset by the growth from PC Dungeon & Fighter and a contribution from The First Berserker: Khazan. Dungeon & Fighter Mobile will host a one-year anniversary event to energize the base and attract new players.
However, we anticipate a sequential decline in revenue due to seasonality. For the PC version of Dungeon & Fighter, we expect revenue to return to growth year-over-year in China and momentum to continue in Korea. Moving to MapleStory, we expect the franchise to accelerate growth to roughly 20% year-over-year. For the PC version of MapleStory in Korea, we expect a revenue increase year-on-year. In April, we celebrated its 22nd anniversary with a major content update and event. In the coming months, we will release a rich pipeline of new content, including a large-scale summer update. We also expect year-over-year growth in global MapleStory and MapleStory World. The May 15 launch of our innovative blockchain project, MapleStory N, will generate valuable learnings about player rewards, but is not expected to deliver significant revenue in the second quarter. Revenues from our FC franchise are expected to decrease year-over-year.
However, we anticipate increased player excitement as we get closer to the World Cup in the summer of 2026. Mabinogi Mobile is expected to make a significant contribution in Q2, although we anticipate its momentum to settle down following a successful launch. We expect the Q2 operating income to be in the range of JPY 22.5 billion-JPY 31.1 billion, representing a 50%-30%, a 31% decrease on an as-reported basis or 45%-24% decrease on a constant currency basis year over year. Regarding costs, we anticipate increased royalty expenses and platform fees due to Mabinogi Mobile, which is developed by our joint venture studio. Also, we expect increased marketing expenses associated with the promotions for new titles and increased fees to creators tied to revenue growth in MapleStory World. However, we expect a decrease in HR costs due to lower performance-based bonuses.
We anticipate net income to be in the range of JPY 16.8 billion-JPY 23.3 billion, representing a 58%-42% decrease on an as-reported basis or 54%-36% decrease on a constant currency basis year over year. In Q2 2024, we record an FX gain of JPY 8.2 billion. Finally, I would like to provide an update on our shareholder return. We started the execution of a JPY 50 billion share repurchase from February 14 as a part of the one-year JPY 100 billion share repurchase policy. Through the end of April, we have acquired approximately 14.8 million shares for JPY 30.3 billion. We are scheduled to complete the purchase of the remaining JPY 19.7 billion worth of the shares by June 30, 2025.
After the acquisition of the first JPY 50 billion of the plan, we intend to buy the remaining JPY 50 billion by February 2026, with the consideration of factors including investment opportunities, financial conditions, and the market environment. I'll now turn the call over to CEO Junghun Lee for a quick summary ahead of taking your questions.
Thank you, Uemura-san. Before we take your questions, I want to offer some perspective on how Nexon plans to navigate the volatile economic climate that is currently disrupting global markets. We believe Nexon is insulated from much of the economic volatility and positioned for stability and growth. To start, games have been historically resistant to macroeconomic challenges, and our portfolio of digital entertainment is not expected to be impacted by tariffs. More importantly, our company is anchored by recurring revenue from multiple established franchises, a clearly defined growth plan, a robust pipeline of new games in development, strategic partnerships for capturing new growth opportunities in large markets, world-class live operations, and a balance sheet with approximately JPY 600 billion in cash that can be used to drive new opportunities and to enhance shareholder returns. Come what may, our company is well-built, resilient, and positioned for sustained growth.
Nexon can and will continue to deliver on our promises to players and to our investors. Operator, we are ready to take questions.
If you wish to ask a question, please press the raise hand button on the screen. When the hand icon is displayed on your screen, that means you have raised your hand. When it comes to your turn, you will receive an unmute notification on your screen. Please unmute yourself and proceed with your question. This earnings presentation is conducted with consecutive interpretation between Japanese, English, and Korean. Even if the translation for your selected language has finished, the translation on the other language channel may be continuing. Please wait until the permission is displayed on the screen when you ask a question. We will begin taking your questions shortly. Please hold on for a moment.
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Hello.
The first question we have received from Mr. Seyon Park from Morgan Stanley.
Hi, can you hear me?
Yes, I can hear you.
I have two questions. Thank you for the opportunity. The first question is on DNF. My impression is that the company and management feel a little bit more confident on the progress DNF has made when comparing with the commentary from the previous earnings call. Can you confirm this? If so, maybe elaborate a little bit on where you are seeing better engagement with players? I know Korea seems to be more apparent, but a little bit of color of what you're seeing on the ground in China would be much appreciated. The second question is I was originally planning to ask on ARC Raiders, but given that you've already provided some color, I wanted to ask on the Q1 results. The revenue was within your guidance, but the operating profit was meaningfully above guidance.
I wanted to see, or I'm curious whether this is due to maybe lower spend on OPEX, or it's more a function of the higher margin services doing better than some of your lower margin services. Thank you.
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Thank you very much, Seyon, for your question. I understood that your question is mostly about Dungeon & Fighter as well as the cost in the second quarter.
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I think for the Dungeon & Fighter PC in China, I will be able to provide some colors on that. Uemura-san will also be able to add some comments on that, he will be able to give some more explanations on the cost aspect.
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Now, to begin with, when it comes to Dungeon & Fighter PC in China, our first quarter results and the second quarter outlook all begin with the recognition of a clear improvement in the PC game in both Korea and China.
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While the Korea service delivered immediate growth, we do expect gradual improvement for China as we are just recovering from challenges that we faced last year.
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I would like to maybe take a note on one factor that we are also taking a close look at, which is the market size difference in China and Korea. When it comes to China, the user volume of those who enjoy Dungeon & Fighter PC is around or more than 10 times bigger than that in South Korea, which obviously represents how big the China market is. Therefore, we believe it will take some time physically to have our content that we produce throughout the year to have its momentum spread throughout this entire community.
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However, what we believe is clear is that the content that we have prepared very carefully throughout last year, throughout the past one year, this update that we provided for Dungeon & Fighter was greatly loved by Korea users. It was received very well, and we believe that it is clear evidence that the content itself is a great content.
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Therefore, we do hope to maintain a favorable trend in China as well. In addition, as we have shared during our last earnings call, we have the co-developed content with Tencent, which will be introduced later this year. All in all, we will continue to make our best effort to make sure that we maintain this great momentum and continue to deliver good performance.
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Now, that will be it for my inputs for the Dungeon & Fighter. I would like to ask Uemura-san for his inputs for the second question.
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With respect to the Dungeon & Fighter, it is for what the CEO said, I shared his viewpoint. If I may add some comment, towards the second half of the year, we find that in Korea, Dungeon & Fighter shows a healthy growth. When we look into all the KPIs, it shows a very good result. I do believe that it is a very solid performance.
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Now, if I may talk about the Dungeon & Fighter in China, we see there is a sign of improvement. According to the KPI analysis, in Q1, the number of users is not coming back as we thought, not to the extent that we assumed. Through the content update, as well as the progression system improvement, and also in-game economic balance improvement, this will be contributable to the uptick of our outlook.
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With that, if I talk about the current situation, including the trend, including DAU, we find a turnaround. Also, there is an update during the Labor Day period. I do believe that sales is quite strong. With that, we think that there will be an expansion in the second quarter. That will be helpful for idle users or the users who have not returned, would come back.
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The second question is around cost. Now, in the first quarter, there is a better result in terms of the profit. It was not just contributed by the revenue mix, but this is because of the marketing cost or expenses that we did not spend as we thought. In addition to that, due to the lower result of the Dungeon & Fighter than what we expected, we did not spend as much as for what we thought in terms of the performance-based bonus. This is the Dungeon & Fighter Mobile.
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This concludes my response.
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Hi everyone, this is Takanori Kawai from NEXON Investor Relations. We would appreciate if everyone would ask questions one by one going forward. Thank you for your understanding.
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Next question is from Ms. Yijia Zhai from UBS Securities. Please do ask questions.
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Thank you very much for designating my name. I do have three questions, but two questions are actually a little bit overlapping with what earlier question by Mr. Park said. Even that is the case, let me add some questions. First question is in regards to the Dungeon & Fighter Mobile in China. I do believe that the first anniversary is nearing, and I was wondering how the revenue will be tied to with what background. For example, is it that the user activities are more galvanized or there is an increased number of users who are not utilizing at the moment but coming back? Coming back users number is going up or the number of users per se is increasing. How are you focusing on monetizing this service?
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With respect to Dungeon & Fighter Mobile in China, we did the release of the level cap at the end of last year, that is the last quarter, in order to stave off for those users to leave the game. Also, we did a New Year update. With that, we were expecting to have an expansion. Having said that, such update was not working in the way that we thought.
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Given such a situation, the result of the Q1 was lower than our expectations. Under such circumstances, it is very clear that what we need to do with Dungeon & Fighter Mobile.
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Now, first point is in order to make sure we will accommodate the changing Chinese market, we are going to implement a hyper localization. With respect to the game, we will add some other languages in order to expand diversity so that we'll be able to attract more users.
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In order to address those two issues, currently we are under discussion with Tencent, and also co-development is underway with Tencent. Since the first anniversary is nearing, we would like to focus on improving or elevating user engagement and also try to stave off the users to leave our game.
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The second question, this is the additional question, but I'd like to ask on cost. You mentioned that the marketing expenses were controlled and it was lower than your plan in the first quarter. In the second quarter, I think that you provided guidance on cost too, but are there any factors that would be turning into upside or downside?
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With respect to the marketing expenses, and of course we have in our mind how it would generate effect or how return will be generated, always we are thinking about that. Now, we are working over the marketing expenses, not just the new titles, but also existing titles, and evaluating whether or not it is exerting a sufficient impact and effect. If we find that it is not necessary to spend further marketing expenses, then we will refrain from doing so.
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Now the question over how you can interpret the cost for the second quarter. As I said earlier, the performance-based bonus titles show some calmness, and with respect to the marketing expenses going up or down, we see in the second quarter's marketing expenses, there is no such massive upside or downside factors.
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Let me quickly ask this question. For a title called Mabinogi, is it also linked to the performance-based bonus?
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With respect to Mabinogi Mobile, it is the joint venture developed title, and what we, NEXON, is involved is for publishing services. Therefore, there is no performance-based bonus in place with this Mabinogi.
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This is my last question. This is regarding the first Khazan, and I do believe that it is very highly received, even though the score shows that it is very well received, but did not reach to the unit sales. It is not so high as the unit sales. I would like to know the reason for that, and have you analyzed the reason for that? In addition to that, if I tell you the competitors are new IPs, and also they enjoy a high score or high review result, but their sales are not growing as the review score shows. Do you think that you'll be able to improve this situation, or do you have some leeway to improve this situation through marketing activities?
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Hello, Zhai. I'll be able to give answers from my end.
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Now, as we have constantly communicated through our earnings communications throughout last year, Khazan is our strategic project that is designed to introduce the Dungeon & Fighter franchise to a global audience, especially those in the West.
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As such, since this title was a very strategic project for us, as mentioned, internally, rather than the volume of sales itself, for us, our higher priority actually was on user reception in the Western market as well as the global market.
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As I have mentioned during the call, a lot of great and positive ratings on the rating platforms really exceeded our internal anticipation that we set initially.
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We believe that Khazan was able to deliver on its objective as the very first step, its very first strategic step for the franchise, and we also believe that the title has successfully set the stage for two upcoming new titles, which will follow by 2027, Project Overkill and Dungeon & Fighter Arad.
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I would like to also reiterate on two further aspects, first of which is our partnership with Tencent in regards to the localization of Khazan. We have initiated pre-registration since April.
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With that, we are looking forward to these vast opportunities within this large market of China.
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We remain highly committed to our fans and community as we continue on with updating Khazan with quality improvements as well as some future content updates to increase the overall value of the specific title.
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Moreover, in order to expand our user base, we plan to, and we are exploring some sales and marketing strategies, full-on sales and marketing strategies for the second half. That would be it for my answer. Thank you.
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Thank you.
Ladies and gentlemen, once again, if you wish to ask a question, please press the raise hand button on the screen. When the hand icon is displayed on your screen, that means you have raised your hand. Also, please wait until the permission is displayed on the screen when you ask a question. This concludes the question and answer session. Mr. Kawai, I'd like to hand 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.