Good day everyone, welcome to NEXON's 2022 first quarter earnings conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Takanori Kawai, Team Leader of Investor Relations. Please go ahead, sir.
Hello everyone, welcome to NEXON's earnings conference call. Thank you for joining us today. With me are Owen Mahoney, President and CEO of NEXON, and Shiro Uemura, CFO. Today's call will contain forward-looking statements, including statements about our results of operations 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. 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. 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, www.ir.nexon.co.jp/en/, following this call. Unauthorized recording of this conference call is not permitted. I'd now like to turn the call over to Owen.
Thank you, Kawai-san, welcome everyone to NEXON's first quarter 2022 earnings call. On today's call, we will update you on the flawless launch of a new mobile virtual world. We'll tell you about incremental improvements to our biggest game in China, steadily increasing performance on several games in Korea. We'll update you on our plan for international expansion with the global launch of multiple new virtual worlds. We think our performance in the first quarter gives us momentum to deliver even better results in Q2, that the momentum will carry across our full fiscal year. Last quarter, we told you that NEXON is a loaded spring with multiple potential catalysts for growth. We believe the continuous improvements in our existing portfolio, compounded with new revenue from big launches in 2022 and 2023, will dramatically expand our trajectory for growth in the coming years.
With that context, I will now review highlights of our first quarter. On March 24, NEXON launched Dungeon & Fighter Mobile in Korea, the first of multiple new virtual worlds scheduled for release this year. While we measure success in years rather than weeks, we couldn't be more excited about the quality of this game and the flawless launch delivered by our team. Dungeon & Fighter Mobile significantly exceeded the high end of our estimates for both engagement and revenue. Players and critics praised the gameplay, content, and monetization strategy that distinguished Dungeon & Fighter Mobile from competitors. Since launch, Dungeon & Fighter Mobile has spent most of its time fluctuating between the number 1 and number 3 positions in rankings of top grossing games on both Apple and Google platforms. Importantly, Dungeon & Fighter Mobile did not cannibalize our PC game in either revenue or engagement.
Rather, the PC game experienced as much as a 20% increase in active users since the launch of the mobile game. We see this as another proof point, joining MapleStory, that mobile enhances rather than detracts from our PC business. Having now generated life to date revenue of well over JPY 20 billion worldwide, Dungeon & Fighter is one of the world's top grossing entertainment franchises. Its pattern of growth over the decades has been nonlinear. Sometimes it has dipped, sometimes it has grown robustly. That is a natural pattern in a long-lived virtual world. Over time it has grown, and we believe strongly that its best days are ahead of it on each platform.
Another of our blockbusters in Korea, FIFA ONLINE 4, significantly outperformed our expectations, achieving the highest sales on record. We think careful management of live operations and well-received promotions have been two keys to its success. Next is MapleStory. The game performed as expected, down double digits year-over-year in Q1 based on a very high comp in Q1 2021. Nonetheless, in Q2, we expect the game will be up by double-digit percentage in year-over-year growth, and that it will continue that growth trajectory for the balance of the current year, at least. In China, Dungeon & Fighter PC was slightly lower than our expectations in Q1, it nonetheless grew year-over-year as we expected. Going forward, our view is that its growth profile will continue or potentially accelerate despite or perhaps because of our care not to over-monetize. Next, I'd like to offer an update on new games in our pipeline.
We are very excited about our pipeline over the coming 12-24 months, as we've said before, several of our major new launches could represent step function growth in our revenue and earnings-generating capability, stacking on top of the strong performance of our existing games. First, we will shortly be releasing DNF Duel, a new action fighting game based on the DNF lore. DNF Duel is a one-on-one action fighting game and reflects our objective to introduce the DNF franchise to an even broader audience. DNF Duel is a departure from our free-to-play business model and will be offered via paid download for PC and consoles. The game is being developed in partnership with Arc System Works, a highly respected creative team in Japan, and is scheduled to launch on June 28th in key markets including Europe, Japan, Korea, and North America.
"KartRider: Drift" is the next generation of one of our most popular online game franchises. Unlike other kart racing games, "KartRider: Drift" will be available on multiple platforms, PC, console, and mobile, and be fully cross-platform. "KartRider: Drift" is fully free-to-play, and it is built from the ground up as an online experience, which means it benefits from sophisticated matchmaking and social features. Unlike other franchises in the space, "KartRider: Drift" allows for significant customization by the player. "KartRider: Drift" is scheduled for a global launch in the second half of this year. Next is "Arc Raiders," an all-new virtual world from NEXON's Embark Studios in Sweden. The development team is iterating on gameplay, developing out modes, and adding content. Later this month, Arc Raiders will be conducting its largest community test with external players. Another virtual world being developed by Embark is codenamed Discovery.
Discovery is a first-person shooter virtual world, and we expect to launch it within the next 12 months. We haven't yet released many details about Discovery, but the team recently completed a closed external play test that earned high marks from participants. I can tell you that development has been proceeding at a fast pace, thanks in part to the tech stack Embark has built for rapid game development. We think the game experience is unlike anything FPS players have seen. Finally, "Mabinogi Mobile" is a next-generation mobile version of one of our longest-running, most beloved MMORPG franchises. We are currently polishing the gameplay to provide great game experience to our players.
Mabinogi Mobile" will be a full MMORPG experience on mobile, similar to the approach we've taken to mobile " Dungeon & Fighter." We think it could have PC-level retention characteristics, but with a much bigger and more international total addressable market. Before Uemura-san runs you through the details of Q1 and our outlook for Q2, I'd like to close by reflecting the confidence our management team feels about both our current performance and the fundamental strategy that underpins that performance. As we've been saying previously, we set out two and a half years ago to narrow our focus to a fewer number of our key virtual world franchises, invest our resources much more heavily in those franchises, bring them to a much wider audience through mobile and other platforms, and leverage our unique technology stack for building and operating massive virtual worlds.
This strategy has been paying off, both in the operation of our existing virtual worlds, which have been performing very solidly, and in introduction of new virtual worlds, such as the success we've experienced in the introduction of mobile " Dungeon & Fighter" in Korea. In short, our strategy is working. More importantly, we believe we are in the early innings of a period of strong performance of live franchises, as well as very exciting new launches. In the coming quarters, we expect the result of this activity will be a step function growth in revenue and earnings profile. With that, I'll hand the call over to Uemura-san.
Thank you, Owen. Now I'll review our Q1 2022 results. For additional details, please see the Q1 2022 investor presentation available on our IR website. In Q1, group revenues were JPY 91 billion, up 3% year-over-year on an as-reported basis, and down 1% year-over-year on a constant currency basis within the range of our outlook. "Dungeon & Fighter Mobile," which launched on March 24th, is off to a good start, exceeding our expectations. In addition, "FIFA ONLINE 4" and "MapleStory" in the rest of world were also better than our expectations, while the performance of "Dungeon & Fighter" in China was slightly lower than planned. By region, revenues from Korea, North America, and Europe, and the rest of world each exceeded our expectations, and Japan was in the range of our outlook. Revenues from China came in slightly lower than expected.
Looking at the total company performance by platforms, PC revenues were in the range of our expectations, while mobile revenues exceeded our outlook. Operating income, which was down 11% year-over-year, was within our outlook at JPY 38.5 billion. As we explained in our last earnings call, the higher costs are due to increases in HR costs and marketing expenses. Net income was JPY 40.3 billion, exceeding our outlook while down 13% year-over-year. The outperformance was primarily driven by an FX gain of JPY 12.7 billion related to the depreciation of the Korean won and Japanese yen against the US dollar during the quarter, and its corresponding impact on US dollar-denominated cash deposits. Let's move on to results by region. Revenues from our Korea business exceeded our outlook as "FIFA ONLINE 4" and "Dungeon & Fighter Mobile," which launched on March 24th, significantly exceeded our expectations.
On a year-over-year basis, revenues decreased by 5% on an as-reported basis and by 6% on a constant currency basis. "MapleStory's" revenue decreased year-over-year as expected, but was at the high end of our outlook, driven by the well-received winter update. Since last year, we have continued to focus on strengthening our mid-to-long-term relationship with our players rather than seeking short-term revenues. As a result, Net Promoter Score continuously improved and recovered to almost the same level as the time when we had strong performance before the probability issue came up. "FIFA ONLINE 4" PC and mobile combined revenue significantly exceeded our outlook, driven by the well-received package offerings and sales promotions, achieving record-breaking quarterly review, rather, revenue. "Sudden Attack" grew by 18% year-over-year, while "Dungeon & Fighter's" revenue decreased year-over-year as expected.
FIFA ONLINE 4" and "Sudden Attack" grew year-over-year, these were more than offset by revenue decreases from "Dungeon & Fighter" and "MapleStory," which performed extremely well last year. Consequently, PC revenues in Korea decreased by 9% year-over-year. As for the mobile business, revenues exceeded our outlook driven by the strong performances of "FIFA ONLINE 4 M" and "Dungeon & Fighter Mobile," which is off to a good start. Driven by high recognition of DNF IP built up through the long-running operation on the PC platform, "Dungeon & Fighter Mobile" attracted many brand-new players as well as sleeping players of the PC version. We offer high quality, rich content and prioritize delivering fun to our players over revenue gains. We also chose not to introduce an auto-play function, which prevails in the mobile market in Korea.
Instead, we provide fresh game experiences with manual play optimized for mobile devices. These initiatives were well received by players, and the game has continued to perform well since its launch. As we have explained in the past, entertaining players and being customer-centric would improve a game's retention and lead to the success of the business. We believe that the great start of "Dungeon & Fighter Mobile" proves our thesis. On a year-over-year basis, mobile revenues increased by 6%.
Contributions from "Dungeon & Fighter Mobile" and "Blue Archive," as well as the growth in "FIFA ONLINE 4 M" were partially offset by revenue decreases in "V4" and "The Kingdom of the Winds." On a quarter-over-quarter basis, mobile revenues increased by 34%, primarily driven by a contribution from "Dungeon & Fighter Mobile" and seasonal revenue increases in "FIFA ONLINE 4 M" and "MapleStory M." Revenues from our China business were slightly below our outlook, but increased 15% year-over-year on an as-reported basis and 5% year-over-year on a constant currency basis. For "Dungeon & Fighter," revenue increased year-over-year, driven by the well-received package offerings for the Lunar New Year update introduced on January 20th. We continue to focus on increasing user engagement rather than short-term monetization. As a result, user metrics trended stably while revenue was slightly lower than planned.
Quarter-over-quarter, MAUs, paying users, ARPU, and revenue increased due to seasonality. Year-over-year, MAUs and paying users decreased while ARPU and revenue increased, driven by well-received Lunar New Year package sales. Revenues from Japan decreased by 17% year-over-year. While there was a contribution from "Counter:SIDE," this was more than offset by revenue decreases from "TRAHA," "V4," and "Blue Archive." Revenues from North America and Europe decreased by 2% year-over-year due to revenue decreases from Choices and MapleStory, despite a contribution from Blue Archive and the growth in MapleStory M. Revenues from the rest of world increased by 42% year-over-year, driven by the growth in MapleStory and MapleStory M, as well as a contribution from Blue Archive. Moving on to our FY 2022 second quarter outlook.
We reiterated that our focus on user engagement will lead to stable growth of our major franchises in the mid to long term. This strategy is working well, and in Q2, we expect to see a turnaround and year-over-year growth in Korean MapleStory, which experienced year-over-year revenue decreases over several quarters. We also expect China Dungeon & Fighter and FIFA ONLINE 4 to grow as in the first quarter. As for Dungeon & Fighter Mobile, we expect it to maintain its strong momentum following the launch and to drive our group business significantly. Consequently, we expect our Q2 group revenues in the range of JPY 81.3 billion-JPY 87.3 billion, representing a 45%-56% increase year-over-year on an as-reported basis, and a 36%-45% increase year-over-year on a constant currency basis.
We expect our Q2 operating income to be in the range of JPY 22.7 billion-JPY 27.3 billion, representing a 47%-77% increase year-over-year on an as-reported basis, and a 30%-58% increase year-over-year on a constant currency basis. I'll discuss the details on this shortly. We expect net income to be in the range of JPY 16.1 billion-JPY 19.7 billion, representing an 80%-120% increase year-over-year on an as-reported basis, and a 55%-91% increase year-over-year on a constant currency basis. In Korea, we expect Dungeon & Fighter Mobile, which continues to maintain its strong momentum following the launch, to drive our business. Also, we expect year-over-year growth in FIFA ONLINE 4, MapleStory, and Dungeon & Fighter.
Consequently, we are looking for revenue in Korea to be in the range of JPY 49 billion-JPY 52 billion, representing a 50%-59% increase year-over-year on an as-reported basis, and a 43%-52% increase year-over-year on a constant currency basis. As for the PC business, we expect Seven Knights revenue to decrease, while FIFA ONLINE 4 to grow significantly year-over-year. We also expect year-over-year growth in Dungeon & Fighter. Its active users have increased, driven by a synergy effect following the mobile launch. As for MapleStory, we expect its revenue to increase in Q2 as planned. We will increase player retention and achieve mid to long-term growth by strengthening the relationship with our players and offering fun game experiences. As a result, we expect PC revenues in Korea to increase year-on-year.
Regarding the mobile business in Korea, we expect Q2 revenues to roughly double year-on-year. We expect a contribution from Blue Archive and year-on-year growth in FIFA ONLINE 4 M, in addition to significant contribution from Dungeon & Fighter Mobile. We expect this to be partially offset by year-on-year revenue increase in V4, The Kingdom of the Winds: Yeon, and KartRider Rush+. We expect revenues from our China business to be in the range of JPY 20.9 billion-JPY 22.6 billion, 55%-67% increase year-on-year on as-reported basis, and 36%-47% increase year-on-year on a constant currency basis. This will be driven by anticipated increase in Dungeon & Fighter's revenue. We introduced a Labor Day update for the Dungeon & Fighter on April 21st, including avatar package offering.
Since the update was well received by the players, paying users and ARPU were all up year-on-year in April. We expect its Q2 revenue to increase year-on-year. We also hope to increase active users and paying users following the level cap release scheduled in Q2, and to operate the game to achieve mid to long-term healthy growth. In Japan, we expect revenues in the range of JPY 2.2 billion-JPY 2.6 billion, 2%-20% increase year-on-year on as-reported basis, and 1% decrease to 17% increase year-on-year on a constant currency basis. We anticipate a contribution from Counter:SIDE to be partially offset by decreases from TRAHA and V4.
In North America and Europe, we expect revenues to be in the range of JPY 5.5 billion-JPY 6.1 billion, a 24%-38% increase year-on-year on as-reported basis, and 13%-26% increase year-on-year on a constant currency basis. We anticipate contributions from DNF Duel, which is scheduled to launch on June 28th, and Blue Archive, as well as growth in MapleStory M. These are to be partially offset by decreases from Choices and MapleStory. We expect revenues in the rest of the world in the range of JPY 3.7 billion-JPY 4 billion, 14%-23% increase year-on-year on as-reported basis, and 8%-16% increase year-on-year on a constant currency basis. We anticipate growth in MapleStory and MapleStory M.
In Q2 2022, we expect operating income to be in the range of JPY 22.7 billion-JPY 27.3 billion, representing a year-on-year increase of 47%-77%. Favorable factors compared to Q2 2021 regarding the operating income include the revenue increase. Next, we expect higher HR costs related to headcount for development and launch of multiple new virtual world, as well as bonus accruals to teams with great performances. Lastly, we expect higher marketing expenses, mainly associated with promotions for Dungeon & Fighter Mobile. The high end of operating income is expected to increase year-on-year, driven by significant revenue growth. Overall, in Q1 2022, player engagement steadily improved in major titles Dungeon & Fighter in China and MapleStory in Korea. Also, the launch of the Dungeon & Fighter Mobile significantly exceeded our expectations.
As a result, we are off to a good start in Q1 toward achieving growth in 2022 and beyond. In Q2 2022, we are pleased to expect significant growth. Existing franchises, including two major ones and FIFA ONLINE 4, are forecast to grow robustly. Also, strong contributions from new titles Dungeon & Fighter Mobile and DNF Duel. In addition, we are making good progress with KartRider: Drift, Arc Raiders, and other anticipated new titles for launch in the second half. As we have reiterated, we are excited to achieve the growth in 2022 and beyond by layering these highly anticipated titles on top of the stable revenue foundation of existing game business. Lastly, I would like to talk about the shareholder return strategy. Regarding our three-year JPY 100 billion share repurchase policy announced on November 10th, 2020, we have completed JPY 40 billion by April.
As for remaining JPY 60 billion, we plan to conduct the share repurchase by November 2023, based on the several factors, including investment opportunities, financial conditions, and the share price. That's all for me. Back to Owen.
Thank you, Uemura-san. Before we go to your questions, I'd like to offer some thoughts on NEXON's bright future within the context of the larger entertainment world. As everyone on this call knows, the global entertainment industry is undergoing significant changes right now, and investors everywhere are justifiably struggling to decide which segment or which business model of tech and entertainment is likely to thrive in this changing world. It has been our view that a well-run virtual worlds company, deeply focused on great customer experience, has extremely robust growth potential no matter what is going on in the global business cycle, supply chains, or other disruptions. We believe we are proving this thesis out now. Let me briefly explain why.
First, we have significant catalysts upcoming in the form of product launches of highly appealing virtual worlds designed for global markets, delivered on platforms such as mobile and console that collectively represent an order of magnitude increase in our total addressable market. We have been laser-focused on making these products great. We think the launch of MDNF in Korea, while big, represents merely an early proof point, and we have multiple additional launches on the way. Any one of these catalysts could result in a step function growth in revenue and earnings. Second, our new launches stack on top of our existing virtual worlds business, which is robust and growing in its own right. We are often asked whether NEXON is a metaverse company. We struggle with a quick answer since the term is so undefined, but more importantly, misses the underlying business reality.
That is, a strong, well-managed virtual worlds business is incredibly robust and can in fact double in size over the course of a few years, even if we were not to launch any new virtual worlds. This aspect means the business of virtual worlds is highly distinct from a traditional games business, which relies specifically on new launches to even stay in place. Such longevity at scale, in fact, justifies the hype that all the talk of the metaverse has engendered. It is a unique, hard-to-replicate skill set, so we have focused on continuous improvement in both our live operations capability and our proprietary tech stack so that this unique set of capabilities can grow over time by compounding interest. Third, we think we are in very early innings. This is a massive global opportunity.
The U.S. and the Japanese markets are much bigger than some of our traditional markets, and several of our planned launches target these expansion markets. While we have traditionally been a PC-focused company, the installed base of mobile phones with high-end graphics and networking represent a 10x expansion from PC of our total addressable market. Finally, and especially important now, we have built a business designed to thrive in any economic climate. We have been disciplined in our cost control and amassed over $6 billion in cash and financial assets with no debt, and we generate $1 billion of additional cash each year. We are insulated from Forex concerns and inflation, and we have never been affected by supply chain issues. Our business has historically performed best in times of economic upheaval.
Since it's built on the idea of giving entertainment away for free, monetizing from a small percentage of active users, and avoiding over-monetizing those users in favor of getting more value for money than any other entertainment form. Net, we think we have one of the great businesses on the planet, not just in games or even entertainment, but of any type, anywhere in the world. We have a great runway ahead of us, and we are more optimistic about the future performance of NEXON than we have ever been. With that, operator, we're ready to take your questions.
Thank you, Owen. 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. 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. We'd be happy to take your questions.
Today, we will accept questions from conference call participants. If you have a question, press zero one on your touchtone telephone. Once again, if you have a question, press zero one on your touchtone telephone. When we receive your input, you will hear the guidance. If you do not hear the guidance, please press zero one once again. If you need operator assistance, please call the operator by pressing star zero. We will begin taking your questions shortly. Please hold on for a moment. [Non-English content]
The first question is from Fukuyama-san, from UBS Securities. Please, Mr. Fukuyama.
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Thank you very much. UBS Securities, Fukuyama speaking. I have two questions. Would you please turn to page four? This shows the new mobile launch and what will be the revenue growth. Over here I see a JPY 10.7 billion increase in the revenue. I want to know whether this is contributed by mostly Dungeon & Fighter Mobile. The second question is about Korea. Say, in iOS as well as Android ranking, suppose you rank number one. On the other hand, suppose you rank number three. Between the differences in these two rankings, what will be the monthly revenue impact?
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Thank you very much for your question. As to your first question pertaining to page four on new launch revenue, as you have mentioned, most of this increase in revenue is attributable to Dungeon & Fighter Mobile. Moving on to your second question about ranking number one in Korea. I cannot give you any details about the individual title, but by ranking in number one position, it contributed to the increase of revenue for sure. I would like to refrain from giving you any more details. Thank you.
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I have another follow-up question about Dungeon & Fighter Mobile in Korea. Regarding the breakdown between iOS and Android contribution to revenue, which has higher revenue contribution?
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Generally speaking, we can say that the revenue contribution from Android is higher in Korea, but I cannot give you any particulars about the ratio of the contribution between iOS and Android.
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My second question is on DNF Duel. I understand that the revenue contribution is expected in North America as well as Europe. What is your expectation in Japan as well as Korea in which you are scheduled to launch DNF Duel? If you can give us some idea about the volume of sales by region or any other information that you can disclose, I will appreciate it.
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Regarding DNF Duel, we are scheduled to launch this title in Q2, and we expect to have revenue contribution from each region. We are looking at the numbers internally by going into the numbers that we have. This is a global launch, so as you have said, we have scheduled to launch in Korea, Japan, North America, as well as in Europe. We anticipate the most contribution from North America.
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Thank you very much.
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Thank you.
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Next question comes from Mr. Yij ia Zhai of Macquarie Capital Limited.
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I have two questions. First question is about the Dungeon & Fighter in China. The revenue has been very strong. In Q2, with the Labor Day update in the past, it has struggled to some extent. This time you are showing us a very bullish, strong guidance. I'd like to know the background behind it. Is it the changing in the user trend from the past? Do you think that the current trend is sustainable?
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Yes, the question was about the China Dungeon & Fighter. As we explained in previous quarter and also two quarters ago that we have a new person in charge of this business, and we have been trying to listen to the voice of the user, what they want and clarify that. We have tried to lessen the burden on the part of the users. As a result of this, we have realized the year-on-year growth in Q1. We think that we have already bottomed out and the Labor Day update was well received. If we can maintain this momentum, we think that we can realize the recovery. Right now, we are still seeing that the main users to be the core users. With the level capabilities planned for Q2, we would like to reactivate the sleeping users. We believe that is important.
We are seeing this sign of turnaround of the Dungeon & Fighter. We believe that trend to continue in Q2. At the same time, we like to be very prudent and cautious and focus on the daily operation as well.
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Second question is about the Dungeon & Fighter Mobile. You made a comment before the launch that you have prepared the development of the various content. How long do you think that the current situation or status would continue? With the case of The Kingdom of the Winds, there was a shortage of the content that led to the quick decline after the launch. Unlike or in comparison to The Kingdom of the Winds, how do you think that you can maintain this sales trend and how do you see that happening?
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Yes. About the Dungeon & Fighter Mobile, as I mentioned earlier, the strength is, first of all, very popular and strong IP, and it's a very well-developed title. You can have the same experience as PC with the mobile devices. High quality content is provided, as you mentioned, and we have sufficient content and optimization has been done. As you pointed out, in the case of The Kingdom of the Winds, we were short of the content. Unlike that, we have the high quality content for Dungeon & Fighter Mobile. The third aspect or the factor is that when you see the mobile market in Korea, it's mainly MMORPG, and there is a heavy monetization, and mostly it's auto-play. But in the case of Dungeon & Fighter Mobile, it's action RPG, and it's just like the experience of the PC.
We do not apply the auto-play, it's manual play. This can be differentiated from the other titles, and that is being highly evaluated by the users. If we can maintain this momentum, as I mentioned earlier, we have already gained the long-term know-how through the Dungeon & Fighter PC. We can replicate that with the mobile, and we will fully utilize our know-how so that we can sustain this current momentum and trend.
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Thank you for the answers.
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Thank you.
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The next question is from Mr. Seyon Park from Morgan Stanley. Please, Mr. Park.
Hi. Thank you for the opportunity. I actually have a bit of a larger, I guess, view question, and I guess it's really for Owen. You've started to kind of, I guess, use the expression that NEXON is operator of virtual worlds. I'm just trying to understand, as most investors now are calling a game publisher kind of business, how you are aiming to define this market differently. I guess you've mentioned how the entertainment business is changing. I do realize that a lot of the popular games that are being run by NEXON are, I guess, in what we used to call persistent world kind of formats. Although not every game is in that way. I think games like KartRider are not persistent worlds in some ways.
Could you kind of share maybe your thoughts on when you are citing it's a virtual world operator, how we should be thinking about this business and whether you are, I guess, over the longer term planning to expand the business scope beyond games? That would be my first question.
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Sure. Seyon, this is Owen. I'll take a stab at answering your question, and you can maybe tell me or calibrate me if I'm off base on what you're asking. Traditionally the games business has been, you think about a game experience as a discrete experience, and when I started in the games business about 22 years ago, we used to think about it putting boxes through the channel.
We'd make a discrete experience, we'd burn it onto a CD or then to a DVD, and then we would stick it in a box with some documentation. We would sell it for $50, $60. That sort of transitioned online with downloadable content, but it was still basically considered a discrete experience. The thing that struck me when I entered the games business, I'd come from online technologies, is it basically looked kind of similar to the movie business. That's sort of the way that the game companies thought of their business. Why don't I pause there for translation and then answer more directly your question, but that is context.
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Go to where we are today. As you mentioned, we use the word virtual worlds. We've never liked the word metaverse. It's too undefined. It can mean anything and nothing. We consider ourselves an operator of virtual worlds rather than a publisher of a discrete experience, a discrete box. The first place to start in how to think about this is from the experience of the user. We think of it, because we all play virtual worlds ourselves, we think of it as a world you go to. It's a virtual world, but it's a world that you go to, and you'll have virtual experiences with other avatars, and it's got a society and a currency. We think the first lens to look at it from is this view of the user and how they experience the world over time.
The second thing to viewpoint is you go back and say, "Okay, I'm going to deliver a really compelling experience for the user. Okay, what do we need to do as operators?" Well, number 1 is we need to ensure the long-term continuation of the user experience. Longevity is key to our business model. That immediately leads us to questions like how does the economy work and how do the interactions between the players work in this virtual world? That is sometimes called the games business, sometimes it's called the metaverse, but we call it virtual worlds because we think those questions are much more precise, and that term is more precise for the questions we need to answer on behalf of our users.
We think this frame of reference is very helpful to us, not only in deciding how we operate our business, but also the things that we're not going to do, like super casual games or offline games, those sorts of things. I hope that answers your question.
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Thank you. That gives a better view of how you're approaching it, which I actually do agree with. Given the perception from a lot of investors is that games is a hit-or-miss business. As NEXON has proven, you now have multiple franchises which have been now for many years. I do think that's probably one of the reasons the stock has been able to outperform most of your competitors over the last five years, and I do expect that to continue. I guess my follow-up question is a little bit more narrow. As we look forward to the launch of the new games from Embark, would these games also embed the virtual world concept? Which, given, Arc Raiders, please correct me if I'm wrong, appears to be a PVE sort of game, and obviously just given the history of the Battlefield franchise and the like.
Would this be something similar to kind of put it the box kind of games, or should we actually now be expecting this to be another potentially forever franchise virtual world where the content would continue to get updated and you could even potentially have a very massive PVP function as well.
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Seyon, this is Owen again. First of all, just to sort of finish off the last thought that we had or the last question which actually leads this, it's important to remember. Thanks for your nice comments. On both MapleStory and Dungeon & Fighter, both these games are coming up on two decades of operation. It's important to remember that. Despite how big they are, two decades has never been done before. It's pretty extraordinary. That kind of leads to your next question about Embark and Arc Raiders and the other games in their portfolio. I'm not going to describe it really beyond what we've shown publicly so far.
I apologize for that, but we really need to let marketing take the lead on that, and we've been reasonably tight-lipped on that to this point for the purposes of having the right launch and the right management of our marketing expectations. What I can tell you is we are definitely thinking longevity. So longevity is the keyword. To describe why that is, let me back up and just remind everybody how we got together with Embark in the first place. As you mentioned, that's the team that, among other things, created the Battlefield franchise. They chose us. They chose NEXON over a number of other really good companies to work with. I had had a personal relationship with the founder, Patrick, and we went way back, and we had other factors that they liked.
Really what it came down to was they looked at franchises like Dungeon & Fighter, MapleStory, Sudden Attack, KartRider, other franchises that we made, and they said, "Longevity is what we want. As much success as we've had with Battlefield, what we really want is the longevity that you've been able to garner. Nobody's ever done that before." Our approach to how to make a virtual world last and grow indefinitely, what we call a forever franchise, is what was most appealing to them about us. You can imagine the yin and yang of NEXON and Embark is to take their capability in AAA games in the West and combine that with our capability in making forever franchises that have indefinite length. We both thought that was really powerful. That's the thesis of what we're trying to do with these franchises.
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Thank you for your answer. I do really look forward to seeing Arc Raiders when it comes out. Thank you.
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I look forward to playing with you online. It'll be fun.
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Next question comes from Miss Junko Yamamura of Citigroup Global Markets Japan.
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This is Yamamura speaking. Thank you very much for this opportunity. I have two questions. I was not in the call in the first half, so maybe you have already explained on this point. Some of them is already explained during the Q&A session earlier. My question is about the user mix of the China Dungeon & Fighter. In Q1, the paying user number is down, but ARPU is significantly higher. As you mentioned, you might have bottomed out. It seems that there is a concentration on the core users. There is a level cap release in Q2. We have the impression that it's an event for core users. In Q2, again, ARPU might go up, then you would achieve the target numbers. How do you revitalize the casual users?
Because this is the event for the core user, and it seems that such an event is being accelerated. If you have too much concentration of the core users, how do you reactivate the sleeping or dormant users, and how do you try to strike the balance? If you can explain on that as much as possible.
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I'm not sure from which point Yamamura joined us. Let me repeat myself about the China Dungeon & Fighter. About the China Dungeon & Fighter, we think that we have already bottomed out in Q1. Since the end of last year, we have tried to lessen the burden of the users to reinvigorate and activate the in-game situation. We realized the year-over-year growth in Q2. It might appear that this has been driven by the ARPU increase, but we see the increase of the paying users as well. The Labor Day update also stimulated some of the increase of the paying user. Right now, current recovery or upturn, you say, is driven by the core users still. We think that we are starting to see some of the middle users and also the sleeping users come back.
It's not really the full-fledged regrowth, but we are seeing the signs of the turnaround and recovery. You mentioned that the level cap release is more for the core users, but that is not the case. It just happened that in the previous level cap release, there were many core users. It might have appeared that way, but that is not the case. With the level cap release, we are trying to activate the gate. This time, we are starting to see a gradual recovery of the sleeping users. If this level up cap release is effective, then we will see more recovery and increase of the sleeping users as well as middle users. That doesn't mean that we are being too optimistic in Q2, and also half of the quarter is already over, and we see the potential for the growth.
It's not full-fledged growth, but as I mentioned earlier, if I may repeat myself, we believe that we have bottomed out, and we are seeing the signs of the recovery. We would like to make sure that we can realize that with the level cap release.
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Next question is about the KartRider. This is going to be the cross-platform. In your view, I think there are no really clear borderlines between the different platforms. As of now, the current situation, we still see the difference between the mobile and PC and how the consumers consume and so forth. How do you plan to enable this cross-platform? This is the first time, I think, you are doing this. What kind of simulations have you done, and how do you see the trend of the users, and what about the monetization? Do you think that you can differentiate? From the future titles, would there be an assumption that this will be also cross-platform?
Sure. This is Owen. I'll take an answer to this question. Look, I think the lesson of the last five or 10 years in mobile is that most games on mobile have been constructed very differently than they've been constructed on PC or console. Now, today, and certainly since the iPhone 10, the power of a mobile device is perfectly adequate to deliver a really great online gameplay experience. Today, an iPhone GPU is better than an Xbox One and much better than a Nintendo Switch if you measure it in teraflops, which is a measurement of GPU speed. Our view is where the world is going is a mobile device is simply a workstation, or a supercomputer in your pocket. Today, billions of people own these workstations in their pocket, and they carry them around all day long.
In the future, everybody on the planet will have one, in the near future. The approach we've taken to it is just treat it like a PC or treat it like a mobile device. That's in fact exactly what we did with Dungeon & Fighter Mobile. We think it's one of the reasons why, for example, its retention numbers are so good. Although many companies treat mobile as a very different platform, up to now, we've taken the approach that these are just all windows into a virtual world that is rendered in the cloud. If we take that approach, then our business virtual worlds is virtually the same between PC and mobile and console. There's some important differences in interface and a couple other things, but they're basically the same.
We think we're starting to really prove out this thesis. A year or two ago, this would've been heresy to say or very unusual to take it this way. There's been some early examples from other companies as well, and we think it's where the world is going. That's one of the reasons why we're very excited about mobile, because the total addressable market is 10 times what the total addressable market is on PC. I hope that answers your question.
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Understand. Thank you very much.
Thank you.
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Thank you. Time is up, so 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. That concludes today's conference. Thank you for your participation. You may now disconnect.