Good day, everyone, and welcome to NEXON's second quarter of 2026 online earnings presentation. Today's presentation is being recorded. You can listen to the audio in your preferred language by selecting it from the interpretation button on the screen. If you are using a smartphone app, please select your preferred language from the language interpretation button. We will now hand over to Maiko Ara, Head of Investor Relations and Corporate Communications. Please go ahead.
Hello everyone, and welcome to NEXON's online earnings presentation. Thank you for joining us today. With me are Patrick Söderlund, Executive Chairman of NEXON, Junghun Lee, President and CEO, and Shiro Uemura, CFO. Today's presentation will contain forward-looking statements, including statements about our results of operations and financial conditions, such as revenue attributable to our key titles, growth prospects, including with respect to online games industry, our ability to compete effectively, adapt to new technologies, and address new technological 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 statement.
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 presentation 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 presentation will be available on our investor relations website following this presentation. An authorized recording of this presentation is not permitted. With that, I'll now pass to Junghun.
Good afternoon, everyone, and thank you for joining our call. Earlier today, NEXON posted a letter, slide deck, and press release detailing our second quarter 2026 performance and our outlook for the third quarter. Today's call, we will update listeners on our second quarter performance, third quarter outlook, and a longer-term perspective from NEXON's Executive Chairman, Patrick Söderlund. But I will begin with some context on the special dividends announced earlier today. We believe NEXON is uniquely advantaged by the enduring strengths of our established franchises, deeply engaged player communities, and the blueprint for delivering both vertical growth from existing IP and the horizontal growth from all new games that can compete and win in global markets. Our balance sheet provides abundant resources for investing in new opportunities and for attracting world-class creative talent at a time when much of the industry is pulling back.
Recently, the diversity of our investments returned JPY 106 billion in principle and generated JPY 142 billion in gains, bringing our total cash reserve at the end of the Q2 to JPY 842 billion. Given the size of our reserve and the stability of our business, NEXON's board has concluded the most direct and equitable way to return that cash to all shareholders is a special dividend of JPY 415 per share, totaling approximately JPY 324 billion or $2 billion to our shareholders registered as of the end of this September. The special dividend is expected to be approved by our board in September and is supplemental to our established policy of returning more than 33% of the prior year's operating income to shareholders through buybacks and semi-annual dividends. With that, I will now review our second quarter.
Our Q2 results were better than expected, with revenue and operating income both above outlook. Revenue was JPY 121.1 billion, growing 2% year-over-year. Operating income was JPY 31.3 billion, down 17% year-over-year. The clear highlights of the quarter came from our MapleStory franchise and the ongoing contributions from ARC Raiders. The MapleStory franchise delivered another record-setting quarter, growing 63% year-over-year. A performance driven by a good showing from the core PC game alongside two extension offerings, MapleStory Worlds and MapleStory: Idle RPG. Our ability to extend the MapleStory franchise with new experiences is a playbook we are developing for other NEXON franchises, including Dungeon & Fighter. We are particularly pleased with the enduring strength of ARC Raiders, which recognized more than JPY 18.3 billion of revenue in the quarter, recently surpassing more than 16.3 million units sold.
ARC Raiders has generated revenue of more than JPY 88 billion since the launch in October last year. Later this year in October, Embark will release Frozen Trail, the largest content update since the launch, and one that players are excited about. Packed with a large amount of free content, including a new map, new weapons, enemies, and gadgets, and new outfits alongside our paid premium reward pass. Frozen Trail is designed to re-energize the core, bring back dormant users, and attract new players. Additionally, in July, our partners at Tencent conducted a closed beta test of ARC Raiders in China, which exceeded our targets for registrations, and early feedback on localization quality was very encouraging. Beyond the enduring commercial success, ARC Raiders stands as proof that NEXON's Embark Studios team has developed a roadmap for creating and publishing games that can break through in highly lucrative Western markets dominated by legacy franchises.
It's a new and potent capability for NEXON, and one we intend to replicate at scale. In short, NEXON's second quarter results came in better than expected. More broadly, our transformation initiative is delivering measurable progress, particularly in regards to cost management. We are managing our full-year HR costs to remain flat year-over-year, and we are in the processes of assigning profit targets for all products and projects while eliminating low-margin projects and reallocating resources to proven franchises. Together with improved productivity in our game studios related to the integration of new technology. Over time, our cost management exercises are expected to improve both margins and operating income. Looking now to the second half of the year, we have a steady stream of new content which will bring additional revenue into our full-year results. This includes ARC Raiders, large Frozen Trail updates coming in October.
Mabinogi Mobile, which launched in Taiwan, Hong Kong, and Macau on July 22 and will debut in Japan in Q4. Higan: Eruthyll, an all-new game that launched in Korea on July 23. Overwatch on PC in Korea in partnership with Blizzard Entertainment. Excellent service began yesterday. Dave the Diver, a mobile version for a surprising hit. Dave is taping for a global launch on September 17. Arad: Idle RPG is scheduled for a fourth-quarter launch using a franchise expansion strategy from MapleStory. Arad: Idle RPG is an extension of our Dungeon & Fighter franchise. Other releases planned for this year include Azur Promilia, a fantasy world RPG for PC and mobile in Korea, and Temppal: Overgeared , a new full 3D MMORPG based on a popular web novel and web IP, which will launch in Korea, Taiwan, Hong Kong, and Macau.
Our pipeline expands well into 2027 and beyond, including an expansion of the Dungeon & Fighter universe with three new titles, Dungeon & Fighter Classic, Dungeon & Fighter: Arad, and finally, Project Overkill. Other promising titles in development include a new expansion to the Mabinogi universe, Vindictus: Defying Fate, and four all-new titles, NAKWON: LAST PARADISE, Witcher of the Repairer, Drummer War, Project RX, plus two games in the early stages of development at Embark Studios. In summary, the success of our MapleStory expansion strategy and ARC Raiders in the West serve as proof points in our thesis that NEXON is advantaged with a growth strategy that can be applied across our larger IP portfolio. Backed by a strong balance sheet with abundant resources, a transformation initiative focused on improving efficiency and profitability, and world-class creative teams, we are positioning NEXON for long-term growth and profitability.
With that, I will turn the call over to Uemura-s an, who will provide more detail on our second quarter results as well as our third quarter outlook.
Q2 revenue was JPY 121.1 billion, and operating income was JPY 31.3 billion. Both metrics exceeded our outlook led by strong performance of the MapleStory franchise. Year-over-year revenue grew 2% while operating income declined 17%. This reflects the shift in our product mix with higher revenue-linked costs, which include creator fees tied to MapleStory Worlds strong results and user acquisition costs related to MapleStory: Idle RPG, as well as cloud service fees from growing in global live services and data usage, along with increased software service fees.
Turning to expenses related to our outlook, total costs came in lower than planned. Higher creator fees within the other line of costs, driven by outperformance of MapleStory Worlds, were more than offset by lower than planned HR costs on a non-recurring reversal of share-based compensation, as well as lower royalties on the softer than expected performance of the FC franchise, along with lower marketing costs. Much of our recent increase in expenses is variable costs that tie to revenue from new products. In essence, expenses like creator fees, PGP fees, performance-based user acquisition costs increase with the success of these new products. In Q2, net income was JPY 29.6 billion, which also exceeded our outlook, driven by the operating income outperformance and a JPY 5.5 billion valuation gain on funds.
Year-over-year, it was up 77%, primarily due to a JPY 1.7 billion FX loss recognized in Q2, compared to a JPY 17.5 billion FX loss recognized in the year ago quarter. Shifting to franchise performance in Q2, the collective revenue of our three major franchises was JPY 81.2 billion, down 5% year-over-year. Horizontal revenue, including new titles, was up 20% year-over-year to JPY 39.9 billion, driven by a continued contribution from ARC Raiders, which contributed at 15% of our revenue for the quarter. The MapleStory franchise delivered another exceptional performance in Q2, significantly outperforming our outlook with 62% year-over-year revenue growth, a record quarterly high. This was led by MapleStory Worlds and MapleStory: Idle RPG. In Korea, MapleStory delivered a Q2 record. Revenue exceeded our outlook, growing 7% year-over-year on top of last year's 91% growth, driven by strong sales tied to the June summer update.
Revenue from MapleStory Worlds outperformed our expectations, growing 123% year-over-year. This was driven by two new user-generated worlds launched in late April, Maple Planet in Korea and MapleStar in Taiwan. MapleStory: Idle RPG also exceeded our outlook, driven by the April half-anniversary update. Another strong contributor to our quarter was ARC Raiders, which recorded JPY 18.3 billion in revenue. By the end of the second quarter, the game had sold in excess of 16.3 million units since launching late last year and continues to generate strong interest with a vibrant player community in Western markets. Next, our Dungeon & Fighter franchise performed as expected, with revenue declining 44% year-over-year as the mobile game outperformed and the PC service tracked our outlook. Revenue from PC Dungeon & Fighter in China was within our guidance range, but declined year-over-year, reflecting a soft start to the April new season update.
The June anniversary update delivered solid retention among the core. In Korea, PC Dungeon & Fighter's revenue declined year-over-year, reflecting a tough comparison with the prior year and a soft reception to the new season update in March. Dungeon & Fighter Mobile revenue in China, which was down year-over-year, exceeded our Q2 outlook, driven by the May anniversary update and monetization from a new feature. Moving on to the FC franchise, revenue came in below our outlook and declined versus the year ago quarter, owing to softness in both FC Online and FC Mobile. For FC Online, the World Cup did not translate into the traffic lift we had anticipated, and our user acquisition efforts also fell short of plan. As for FC Mobile, an April update overhauling UI, UX, and graphics led to some technical quality issues, which affected traffic and monetization.
Service quality has since stabilized, with traffic recovering since June, alongside ongoing UX improvements. Mabinogi Mobile revenue declined year-over-year against a strong launch quarter based on Q2 2025, and also moderated sequentially. Now, moving on to the Q3 outlook. In Q3, we expect revenue to be in the range of JPY 120.7 billion- JPY 133.4 billion, representing a 2%-12% increase on an as-reported basis, or a 3% decrease to 7% increase on a constant currency basis year-over-year.
Our Q3 revenue outlook reflects ongoing growth from the MapleStory franchise, as well as contributions from ARC Raiders and Mabinogi Mobile, launched in Taiwan, Hong Kong, and Macau on July 22nd. Turning to the franchise outlook. We expect the MapleStory franchise to sustain its momentum, with revenue growth of approximately 40% year-on-year, led by MapleStory Worlds and MapleStory: Idle RPG. For PC MapleStory in Korea, we expect revenue to track close to Q3 2025, which grew about three times year-on-year, as the summer update continues with additional content drops. For global MapleStory, we expect double-digit year-on-year growth, supported by the hyper-localized summer update in Western MapleStory. MapleStory Worlds revenue is expected to approximately double year-on-year, driven by continued strength in Maple Planet and MapleStar. For MapleStory: Idle RPG, we expect an ongoing contribution to the franchise year-on-year, while moderating sequentially. Next, on Dungeon & Fighter franchise.
Overall, we expect Q3 franchise revenue to decline year-on-year. In China, sales tied to the July summer update for Dungeon & Fighter PC started strong, but have since slowed. However, combined with the September National Day update and new raid content, we expect the revenue performance to improve. Year-on-year, revenue is expected to rise, though this is primarily driven by favorable FX translation, with underlying local currency performance expected to remain roughly flat. In Korea, we expect year-on-year decline. We will focus on the retention and re-engaging lapsed players with August anniversary updates and new raid content. For Dungeon & Fighter Mobile, we are planning to release a series of content updates, including new farming dungeon and multi-character legion content, as well as a new raid timed for National Day holiday, while expecting revenue to decline year-on-year. Next, turning to the FC franchise.
For Q3, we expect franchise revenue to slightly decline year-on-year. Following the June Team of the Season update, we expect FC Online's revenue to recover sequentially and return close to prior year levels. Also, following the July launch of FC Mobile's Team of the Season class content, we expect both traffic and revenue to improve sequentially in Q3, while declining year-on-year. For Mabinogi Mobile, we expect Q3 revenue to decline year-on-year against a difficult comparison with strong launch quarter performance in Korea, but to grow at strong double-digit rates quarter-on-quarter, supported by a solid start to our Taiwan, Hong Kong, and Macau service, which launched on July 22nd. Japan launch will follow in Q4. Turning to ARC Raiders, sales are expected to further normalize more than nine months after launch, with the revenue contribution expected to decline sequentially from Q2.
The Frozen Trail, the largest update since launch, is on track for October release. Moving to the operating income outlook, we expect Q3 operating income to be in the range of JPY 22.6 billion to JPY 32.3 billion, 40% to 14% decrease on as reported basis, or 48% to 24% decrease year-on-year on a constant currency basis. Other income for Q3 2025 included JPY 3.9 billion and gain from the liquidation of trusts, which will not repeat in Q3 2026, affecting the year-on-year comparison. Similar to Q2, Q3 expenses reflect higher revenue link costs, including PGPs, royalties, along with the cloud and software service fees, as well as marketing costs for user acquisition and new title promotions. These are primarily the cost of product diversification, both for Q3 releases and launches ahead in Q4.
Our Q3 outlook also includes a one-time cost of JPY 1.5 billion for the adjustment of outstanding stock options in connection with the special dividend subject to board approval. Net income is expected to be in the range of JPY 18.2 billion-JPY 25.6 billion, a 52% to 33% decrease on as reported basis, or 60% to 43% decrease on a constant currency basis year-on-year, compared with Q3 2025, in which we recorded an FX gain of JPY 9.2 billion. Finally, an update on our capital allocation and shareholder returns. The renewed focus outlined in our transformation initiative extends to how we manage our balance sheet. Steady cash flow from established franchises, fresh cash flow streams from new games and experiences, and a recent influx of cash from divestiture of the investments, have generated excess liquidity that led to our announcement of special dividend.
Our plan to pay a special dividend of JPY 415 per share, totaling about JPY 324 billion, or $2 billion , is subject to board approval, expected in September, and marks a significant step forward in improving our capital efficiency. This is aligned with our standing target of minimum ROE of 10%, with an aim to grow this to 15% over the mid to long term, and with a policy of returning more than 33% of the prior year's operating income to shareholders. Alongside our regular dividends and the buybacks since our IPO in December 2011, this special dividend will bring our total capital return to the shareholders to more than JPY 900 billion by the end of 2026.
Looking ahead, we will continue to return capital through dividends and buybacks while managing our balance sheet effectively and efficiently, and preserving the flexibility to fund strategic investment whenever a compelling opportunity comes along. Now, I hand over to Patrick to talk about the perspective on our industry and our positioning.
Thank you, Uemura-san. Before we go to Q&A, I would like to take a step back and share some thoughts on where I see NEXON and the game industry moving in the next three years. I stepped into the chairman's role in late February with recognition of a growing realization we need to fundamentally change our processes to capture the advantages of new technology and avoid the challenges forcing a contraction in our sector. At our Capital Markets Briefing in late March, I presented investors with a series of commitments. We promised a review of our product portfolio and pipeline with the intention of creating fewer but bigger, better games, each of which is responsible for a minimum contribution margin. We committed to a better process for faster decision-making and for the adoption of new technology in every element of our business.
Importantly, we committed ourselves to renewed discipline with top-to-bottom cost management. Our transformation initiative was met with skepticism by investors, and rightly so. NEXON had not yet earned the benefit of the doubt. We need to build trust. Today, we are in the early stages of a multi-year transition, still building trust, but the early evidence is on the table, and it looks promising. Q2 revenue and operating income both ahead of our outlook. Fixed costs, particularly HR costs, are tracking to be flat with the prior year. MapleStory is setting revenue records 23 years after launch and continues to grow with diverse new experiences like the UGC hit, MapleStory Worlds. ARC Raiders has sold more than 16 million units, primarily in Western markets dominated by legacy franchises, and established a vibrant player community.
Now, one quarter doesn't make a fiscal year, but by many measures, the plan is working. By no means is everything working the way we want. Dungeon & Fighter is in a rebuilding year with a plan that prioritizes getting it right over getting it fast, and it remains one of the biggest and most resilient franchises the game industry has ever produced. While the current challenges are not easily overcome, nothing has changed our view that we can and will return this franchise to dynamic growth. Rest assured, we plan to intensify our focus on cost management in the months ahead. On a much larger scale, the game industry is witnessing its most challenging period in close to 30 years. The Western market is contracting, the console market is in decline, and the $60-$100 price point is collapsing under the weight of rapidly escalating production costs.
The result has been canceled games and projects, multiple closures of credentialed studios, and tens of thousands of talented developers laid off. This is painful and we take no satisfaction in the misery of others, but we should be clear about what this means for our own company. NEXON is a company many others in our industry are trying to become. A business model that is heavily indexed toward recurring revenue rather than one-time sales. Owned IP build on massive, loyal communities that grow generation after generation over decades. Efficient development with each product assigned a targeted contribution margin, as opposed to betting a five-year development cycle, chewing up 500 million budget. Finally, a balance sheet that doesn't need venture, PE or a big hit to make payroll. Today, many companies are desperately transitioning to a model that NEXON has operated for decades.
At a time when investments in the game sector have slowed, our business in Asia funds our growth initiative in the West without the need for outside capital. We don't make games that get bought, played, and replaced. We build worlds that people want to live in for a long time. MapleStory players who joined at 15 are still in the game at 40. NEXON's player communities and the revenue they contribute are sustained by updates of fresh content that keep the experience fresh and fun year, after year, after year. More recently, ARC Raiders has shown how the fewer, bigger thesis can work. Offering a new model for development. A small team working with new technology, a fresh idea, over 16 million units in nine months. The next three years are simple to visualize.
The downturn separates companies that need time and money to radically change their model to survive from companies like NEXON with a model and strategy that is perfectly attenuated to what the players, the talent, and the investors want. Now, in our fourth decade, NEXON's best, most exciting, and successful years are in front of us. I have been in this role for six months and recognize the amount of work in front of us is enormous. I am not asking you to trust us. Trust is earned, but I am saying we are in the early chapters of a story that begins in 2026, and chapter after chapter, quarter after quarter, we will report progress on a transformation and results that we expect will show growth, revenue, operating profit, and more return to our investors.
Thank you for your insights and vision, Patrick. 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. The first question is from Munakata-san of Goldman Sachs. Please go ahead.
I have three questions altogether, and first question is related to guidance. I understand that in Q3 forecast, you have incorporated the investment that you plan to make. Is it correct to understand that the cost increase is one-off aspect? In March CMB, you mentioned the importance of cost management, and I want to know how you plan to balance out the cost control as well as the growth investment.
Thank you very much for your question. Regarding your question about the cost aspect that I have delineated in the guidance of Q3, instead of looking it as a one-off element or not, please do understand it as the impact of the change in revenue mix. As already explained, MapleStory: Idle RPG or MapleStory Worlds, these titles are trending very well.
As the revenue from those titles increase, because of the nature of these titles, variable costs tend to increase as well. Because of that, we had factored in some cost in our guidance. As you have mentioned, Munakata-san, it is true that we have incorporated the upfront investment, such as marketing that is being required. That cost is not only for Q3, but it also covers Q4 as well. In Q4, we already have four titles in the pipeline, so we have factored in some element of marketing costs in the guidance that I have given to you. Once again, please do understand that that does not only cover Q3, but Q4 as well. By developing new titles, we would like to provide returns in the future to the investors and also provide fun element to the players at large.
We will be very stringent in monitoring the cost structure and we will be allocating more resources to, for example, all new titles as well. Please do understand that because of the change in revenue mix, there will be some changes in the variable cost. In the end of the day, because of the change in the revenue mix, we believe that we will be able to contribute in the improvement of operating income margin going forward.
Thank you very much. Does it mean that as compared to before, it is true that your portfolio has been diversified and so we have to factor in cost in different ways? Are you suggesting that on our end, we should be trying to read what will be the performance going forward from a different angle as compared to years ago?
It is indeed true that we are seeing some moderation of Dungeon & Fighter title. In that context, what you have mentioned is true, but we are diversifying our source of revenue mix. In the long run, we plan to stabilize our business as a whole. We will try to manage the cost so that we will be able to enjoy the increase in profit in the future.
Thank you very much. My second question is related to FC. I understand that during World Cup you planned to increase the user engagement and that was your focus, but unfortunately you were not able to capture the increase of users as you had expected. I want to know what is your take of the analysis of what has happened. Regarding the FC franchise, what will be the timeline and what will be the initiatives you will be undertaking to bring back FC on track?
Hi, this is Junghun Lee. I will be able to answer this question. First off, in Korea, the World Cup lift that we initially anticipated did not fully materialize at this time. The enthusiasm around the tournament itself in South Korea was lower than we have expected. As a result, the return of last players, new user acquisition, as well as traffic growth we had expected from our in-game World Cup events fell short of plan.
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That said, traffic and revenue trends have improved since the Team of the Season update that was released in late June. Taking this into account, we do expect our Q3 revenue to be roughly in line with prior year level.
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For the remainder of this year of 2026, our top priority is not short-term revenue growth, but continuing to strengthen traffic and engagement, and rebuild quite a solid foundation for the franchise. Basically, our goal is to ensure that the FC franchise exits this year on a more solid and stable footing.
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Lastly, at our previous earnings call, if you remember, we announced a long-term agreement with EA regarding the FC franchise. We believe this stands as a proof point that both companies share confidence in the long-term growth potential of the franchise. NEXON and EA are actively discussing concrete action plans, with which we will be able to see the FC franchise maintaining its category leading position in Korea and to expand its scale even further going forward.
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I understood it very well. Thank you. Let's move on to the third question, which is on contextual capital, which you have pointed out to be a very important element in your CMB as well. In the day and age of generative AI, I understand that contextual capital will be the element that will provide you with a competitive edge. I know that Dungeon & Fighter is weakening right now, and I was wondering how you can leverage on contextual capital to revive this title. I am sure that you have some learnings as well as insight from contextual capital, and I want to know how you plan to leverage on that knowhow/insight in order to bring Dungeon & Fighter on track.
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This is Junghun again. To answer your question, let me first put this concept of contextual capital in a simple word. Basically, contextual capital is the capital of time that our development teams and player communities have built together by sharing moments over many decades.
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We may have entered an era where AI helps humans write code and generate artwork. However, the context that NEXON's multiple long running live service titles have accumulated so far over decades is not something our competitors can quickly replicate and follow.
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Yeah. Basically, the same is true for Dungeon & Fighter, MapleStory, or all of other NEXON's long term live service titles. Building on this kind of contextual capital, we are working to produce a wider range of content that closely matches and reads players tastes and delivering it at a greater speed. We do expect the results to come through steadily as a sustained long-term upward trajectory going forward.
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I understood it very well. Thank you very much.
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Next is Mr. Seyon Park of Morgan Stanley. Go ahead.
Hi. Thank you for the opportunity. Can you hear me?
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I have two questions. The first is on the ARC Raiders upcoming update. The second will be on the capital return. The first question, as we look forward to the Frozen Trail update, what kind of expectations does the company have in terms of monetizing this? Can we expect additional units sold, I guess, from those players who have not played the game so far? Or would it be more a monetization of your existing gamer base? Would it be a combination of the two? Maybe if you can give us a little bit more color on what kind of impact you're expecting from this is my first question. Thank you.
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This is Patrick. I will reply to the first question. Can you hear me?
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Yeah. I can hear very well.
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Good. So, obviously having sold more than we anticipated to be honest, which is a good thing. We obviously have leveraged a great launch into what's become a global hit. The team has been focused on building a substantial update and a large update, which is Frozen Trail. It's actually by far the biggest content drop that we will have had since the launch of the game. Like you said, we've tried to design it to re-energize the existing core, but also to bring new players into the ARC Raiders ecosystem. Right now, I think we have looked at other similar games in a similar situation from other companies that have had success with updates like this. Obviously we hope it's going to work and we hope it's going to work well. I think it's a very strong package that we will deliver.
Like I said earlier, it's on track for an early October. What we need to do right now is obviously to work through multiple scenarios on what's next for ARC Raiders. But the plan currently is, like we've said before, that we believe that two major updates per year, followed by an ongoing updates of the game that are more continuous, that we have been doing more or less on a weekly or bi-weekly basis. That will be smaller in nature, but the larger content drops twice a year. That's the plan.
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Thank you for that. If I can go on to my second question. It is relating to the special dividend that you announced, which was, I think, it is positive. Also, I think unexpected by the market. Can you maybe share your thinking on the timing, the size of the dividend, which I think, once you pay this out, your cash balance will be closer to about $4 billion, $5 billion. Can we get a sense as to how we should think about this going forward? Does it come on the back of maybe a year where you are going through this transition?
Is it more where, if you feel you have excess cash in the balance sheet, is maybe that JPY 5 trillion number something we can Sorry, JPY 500 billion number, maybe something that we can think as some kind of a line in the sand? Anything that we can take from that would be most appreciated. Thank you.
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Yes, let me answer your question on the special dividend. It is going to be a bit long answer, but I would like to give you a comprehensive answer.
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First of all, at the background and about the size of this special dividend, we have built a very stable revenue source based upon this building of the franchises until now.
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And more recently, by selling the investments that we have invested in, we have generated JPY 140 billion or more. At the end of the term, we have a cash on hand of JPY 842 billion.
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As we mentioned at the CMB in March, our transformation initiatives encompasses all the aspects of the business.
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In consideration of all the factors, in order to make sure that we have a sufficient, the necessary fund for the growth opportunities, we have made the decision at the board level to pay this special dividend using this excess cash that we have right now.
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I'd like to share further view on the future business development as well as the opportunities for the future M&As.
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First of all, I would like to mention once again that we have built the established business, which gives us the sustainable cash flow. That is the background of this special dividend.
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On top of that, through our transformation initiative, we are trying to change the cost structure and the profit structure in the long term so that we are working on the diversification of the revenues and through those initiatives.
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Even after paying out this special dividend, we believe that we have sufficient level of the capital for our businesses and we would like to continue to make the organic growth going forward.
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Same goes for the M&A strategy. We believe that even after this special dividend is paid out, we have sufficient capital to secure the potential M&A possibilities in the future. After paying out the special dividend, we will have a cash balance of about JPY 500 billion. Therefore, based on that, our future M&A possibilities will not be impacted from this payout of the special dividend.
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Going forward, if we again have a very high level of the balance of the capital, which goes beyond the necessary level to secure the strategic opportunities, we would once again consider the return of such excess fund to the shareholders in a progressive way.
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Thank you. That is all the answer to your questions.
Thank you very much for the detailed explanation. I am supportive of the changes management has brought in, and I look forward to see the operating leverage play out as the new titles start kicking in. Thank you.
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The next question is from Yijia Zhai-san of UBS Securities. Please.
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My question is a follow-up to the question pertaining to special dividend. From what I heard, I understand that at the end of this fiscal year, you believe that the cash balance will be more than JPY 500 billion. Is it correct to understand that that will be the ballpark level of cash at hand that you expect to have? If so, if there is excess of JPY 500 million, do you think you will be providing yet another shareholders return? I guess in the past, when you consider how to return to the shareholders, you went for share buyback, but this time around you came up with special dividend. Now I think that you are considering two ways to return to the shareholders, one being the share buyback and another one being the special dividend.
If there is any criteria within your company in deciding which path to take, can you shed a light on that as well?
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Regarding the shareholders policy, we have already mentioned that we will aim at providing the return of more than 33% of the previous year's operating income. Also, we have mentioned that we will aim at more than 10% of ROE, aiming at reaching 15%.
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If we use the very same amount that we have allocated for a special dividend to share buyback, and if you consider the past pace at which we conducted the share buyback, it will take about 25 months to actually consume all the allocated amount. That will cover about 18% of the outstanding share, which means that our share buyback will reduce the balance by 18%. We believe that might impact the liquidity of the stocks that we have already issued.
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In order to pursue in a robust manner the shareholders return policy that I have delineated at the outset, we believe that the usage of this excess should be the special dividend, because that will not negatively impact the liquidity of the outstanding shares. At the same time, we will be able to quickly and in a fair way, provide return to each and every shareholder. That is why we decided to go for the special dividend.
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Given the current business environment as well as other conditions, we believe that given the reserve of capital that we have at hand, it makes sense for us to use some portion for the shareholders return. We will of course, be flexible in choosing what kind of path we will trod depending on the environment that we will be in. Simply put, we will keep controlling our balance sheet and try to combine in the dividend payout as well as share buyback in order to come up with the most optimal scenario.
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Thank you very much. My second question is related to Dungeon & Fighter franchise, which you have mentioned how it did in Q2. I know that in July you had a major update as well, but I want to know how you look at the recovery of the user base. You did recover some of the user base, but it seems that there is some question related to the sustainability of that level. Can you elaborate on the details of how sustainable do you think the current user base is? I know that moving on to Q4, you will have a joint endeavor with Tencent. From that, I understand that mid to long term wise, your outlook regarding this franchise has not changed. But I still have some questions about the sustainability of this title.
Can you elaborate on what is your outlook for the full year for Dungeon & Fighter franchise?
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Hello, this is Junghun again. Let me answer your question. First, I would like to offer the overall outlook or overall view for the full year of 2026.
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First off, consistent with what we have discussed earlier at the Capital Markets Briefing, we expect the PC service to remain relatively stable year-over-year, while for the mobile service, we expect it to decline year-over-year.
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When it comes to the Dungeon & Fighter franchise, the annual performance is usually and heavily influenced by how our users react to major updates at the beginning of the year, as well as at the start of each season. Of course, metrics could also move around quarterly or semi-annual seasonal events and updates. But the most important drivers are the major seasonal updates.
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In the first half of 2026, the key seasonal updates for both the PC service and mobile service performed below our initial expectations.
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Let me offer a view on a long term perspective in regards to the two key areas that we are now focused on addressing for the Dungeon & Fighter franchise.
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First of all, we want to increase both the variety and the overall volume of the content that are delivered through major seasonal updates. We are now working to increase our underlying content production capacity so that instead of centering each major update around a single type of update, as we have historically been doing, we can offer a broader range of content within each season.
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Next, and secondly, in parallel, we will have to continue creating new ways of playing the game. Familiar updates that our community has been experiencing for many years, including the level cap increase or raids, they will remain important going forward as well. But while we preserve the core action gameplay, that is the key identity of the Dungeon & Fighter franchise, we will also need to introduce new gameplay experiences that players have not seen before.
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Creating these kinds of new play experience would be particularly more important for mobile experience because the player base has a relatively higher share of casual users compared with the PC.
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There is one area that I would like to draw investor community's attention to, which is that on the mobile, the transition of development is now started in Q3 by Tencent. It is now beginning to translate into a meaningful flow of content from the team.
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Starting from the second half of this year, as a result of this, we are already seeing a denser content cadence coming in. It may take some time for this collaboration model to become fully established and be translated into visible performance improvements.
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That said, as we work through the priorities that I have just mentioned earlier, we do expect this closer and more firmly established partnership with Tencent will play an important role in accelerating the pace of change going forward.
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As Uemura-san has mentioned earlier, when it comes to improving the operating income across the entire NEXON Group, we do believe both managing the transition costs associated with portfolio diversification and gradually recovering the performance of Dungeon & Fighter China are both important. We intend to pursue both pillars in parallel as we work to improve the overall profitability of the company. From that lens, Dungeon & Fighter still remains an important priority for the company, and in the upcoming Q3, we are preparing updates and events around China's National Day holiday, which is an important seasonal moment for the market. Finally, the development of Arad: Idle RPG, which is our new next title of the Dungeon & Fighter franchise, is progressing well toward the launch within this year.
We also plan to begin rolling out additional franchise expansion experiences including Dungeon & Fighter Classic and Project Overkill, which will start next year. Basically for the Arad: Idle RPG, the overall direction of it is similar to the franchise expansion strategy we are now pursuing with the MapleStory franchise. One difference, however, here is that the major Dungeon & Fighter expansion experiences are being developed internally, which means we will have the potential to support a relatively more attractive profitability profile. That concludes my answer. Thank you.
Thank you very much for the detailed answer. I have one follow-up question, which is yet again related to Dungeon & Fighter. You mentioned that you are going to increase more content, and I was wondering whether increase of content will translate into the increase of human resources, or are you going to use AI to generate more content? I am worried about whether what you have narrated will link to the cost increase or not.
When it comes to the China service for the co-dev structure with Tencent team or the transfer of the development initiative, our key team at Neople, who controls the creative of the team, still remains the same. Of course, this may appear as an addition of the direct workforce that is working on development of Dungeon & Fighter experiences. Of course, when it comes to adding the content volume, we will be able to take some initiatives in parallel, such as reducing the mundane or repetitive work of working on the pixel art assets with the help of AI solutions, so that our creative minds can focus and spend more time on the more creative side of the work. Right now, I do not think you will have to be concerned too much about the potential increase of cost tied to the content volume increase.
I would like to say that we are now well managing this whole process.
Thank you very much. Understood it very well. One last quick question related to Blizzard Entertainment and Overwatch, that you will be handling it as a publishing title starting from Q4. I want to know what kind of revenue contribution as well as operating income that you are expecting.
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Yes, as you have mentioned, we started providing Overwatch as of August 12. This title has very high awareness. We were able to do a very good launch. It is too early to mention much about how it will contribute. In our Q3 outlook, we did not factor in much contribution from this title, but rather a modest contribution. But for sure, we plan to steadily grow this title.
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Thank you. That's all from me.
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 Q&A session. Ms. Ara, I would like to turn the call over to you for any 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 online earnings presentation. 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.
That brings us to the end of the meeting. Thank you for your participation.