Good day, everyone, and welcome to NEXON's Third Quarter 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 condition, 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 statements. Information on some of these risks and uncertainties can be found in our earnings-related IR documents. We assume no obligation to update or alter any forward-looking statements.
Please note, net income refers to net income attributable to owners of the parent, as stated in NEXON's consolidated financial results. Furthermore, this 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. Unauthorized recording of this presentation is not permitted. With that, now I'll pass the call over to Patrick.
Thank you, Ara-san, and good afternoon to everyone joining online. I'll start with the transformation initiative that we laid out at the Capital Markets Briefing in the spring, because this is the first quarter where it shows in the numbers. Q3 came in well above our outlook. Operating income was close to 30% above the high end of our range, and 2026 is on track to be a record year for NEXON. Two franchises did most of that. MapleStory grew 72% year-over-year and set another quarterly record.
I can't think of another franchise that has grown like this more than 20 years after launch, so congratulations to the team. You've done it again. The growth comes from new experiences built on the franchise, MapleStory Classic, MapleStory: Idle RPG, and MapleStory Worlds. We call it the MapleStory playbook, and we're now applying it to Dungeon & Fighter. The FC team's work on gameplay brought the franchise back to growth with record quarterly revenue for FC ONLINE.
More games are contributing than a year ago. FC is back, and ARC Raiders, MapleStory Worlds, and MapleStory: Idle RPG now contribute alongside the core PC games. That is what we want, results to come from many games in many different markets. The transformation shows on the cost side and in what we choose to build. Costs came in below plan, even though higher revenue pushed up royalties. Headcount at the end of the quarter was essentially flat year over year.
The industry is cutting, and we choose to keep our people. Every new project now carries a financial target, and the greenlight process decides what goes into production and what stops. This year, that process has canceled six projects. Most of the people in the budgets moved to games with a better chance of becoming lasting hits. The people who make our games are the most valuable resource. We do not grow by cutting people. We grow by putting people and money behind the games that can carry the company.
This brings me to AI and where NEXON stands on it. People make our games. That is not changing. AI takes the repetitive work off their desk and makes it cheaper and faster to try an idea. A team can now build five versions of a mechanic in the time it used to take to build one, which allows us to test more ideas and take more creative risk before we commit. We want better and more ambitious games made by the people we have, not the same games made cheaper.
We have started where the gains are easy to measure, and nothing changes for the player. A shared localization platform, AI-assisted code review, and tools to find assets and run first quality checks. Each one is measured against a baseline before we expand it, and we release investment in stages against results. When we have the numbers, we will report them. We will be careful about how and where we use these tools. Players care about how their games are made, and so do we.
To sum up, the transformation initiative is showing in the results. The effect is small so far, and it will grow and carries into 2027. Change at this scale takes time, and we will report on it every quarter. Now, over to Junghun.
Thank you, Patrick, for sharing those insights, and good afternoon, everyone. Patrick has provided context on what the transformation initiative is delivering. I would like to offer more perspective on what drove our results and the next several months of releases. Uemura-san will then take you through the details on Q3 results and our Q4 outlook. NEXON delivered the third quarter above our outlook with revenue of JPY 138.4 billion and operating income JPY 41.8 billion, led by the MapleStory and FC franchise.
Year-over-year, revenue grew 17% and operating income 11%. Diversified revenue from new and existing games, particularly from the teams behind our MapleStory and FC franchises, demonstrates progress in our business fundamentals, making NEXON less dependent on the performance of a single franchise or market.
The MapleStory franchise once again set a quarterly revenue record, growing 72% year-over-year on results that include a strong showing for MapleStory Classic in China, the core PC game in Korea, and sustained momentum for new experiences, MapleStory: Idle RPG and MapleStory Worlds.
MapleStory Classic, a new experience within our existing PC service that captures the simple charm of the early game, is another validation of our expansion strategy that can spur growth and expand the global fan community in other established franchises like Dungeon & Fighter. Another strong contributor to our Q3 beat was FC. The franchise returns to solid year-over-year growth, led by FC ONLINE. Gameplay and progression improvements pushed average playtime to a record high, which carried through to strong reception for promotions.
We expect this momentum to continue in Q4, positioning the franchise to finish the year on strong footing. Thank you to our FC team for the work behind this turnaround. Now to the Dungeon & Fighter franchise, which fell below our outlook and declined year-over-year. The September National Day updates for the PC and mobile games in China fell short of expectations. Having prioritized rebuilding engagements ahead of monetizations, we also expect Q4 revenue to be down year-over-year.
We take this situation seriously. Leaders from NEXON recently met with Tencent to align on a long-term plan for growing the franchise in China. We started with recognition that Dungeon & Fighter maintains a unique position in its genre with no comparable game. The current issue is execution, which we have narrowed down to a few key causes, including how we sustain the game, how we optimize operations, and how we communicate with players.
NEXON and Tencent are working closely on solutions to each and are committed to long-term improvements of these games. In addition to these efforts, we are expanding the Dungeon & Fighter franchise into new experiences. That includes brand extensions like Arad: Idle RPG, Dungeon & Fighter: Arad, and new experiences such as Dungeon & Fighter Classic, targeted for release next year. It also includes Project OVERKILL, announced today.
Developed by Neople and to be published by Tencent, Project OVERKILL evolves the franchise as an online action RPG and fully modernized combat physics and visuals. We expect the extended portfolio of new offerings to reshape and grow the franchise's long-term financial contribution while we stabilize the core PC and mobile offerings. Regarding the release schedule for new experiences, we have moved the launch of another idle RPG to first half 2027.
The recent soft launch helped us identify areas where we can further improve the experiences and enhance the overall quality of the game. The game remains a big step in applying the MapleStory playbook to Dungeon & Fighter. We believe these improvements will help us deliver a better overall experience for players. Looking ahead to the fourth quarter, we have a series of releases that expand NEXON's global profile. On October 8, Embark released Frozen Trail, the largest update to ARC Raiders since launch.
We have now sold more than 17 million units and are pleased with how the game has performed in the first year. Our goal now is to sustain this success with great content and support for the community. Packed with a large new map, new enemies, weapons, and outfits, Frozen Trail brought back lapsed players and grew the community with new players who bought the game a full year after its release. This is the kind of performance we see in a franchise, and it's why we built ARC Raiders to endure.
Our partnership with Chernin Entertainment to develop film and television projects based on ARC Raiders and THE FINALS shows these properties can grow and build communities beyond the games. Also in October, Mabinogi Mobile was launched in Japan, following earlier Q3 release in Taiwan, Hong Kong, and Macau.
We will close out the year with two new games on November 26: Azur Promilia, a fantasy world RPG for PC and mobile from China-based Manjuu Games, which NEXON will publish in Korea, and TEMPPAL: OVERGEARED, a full 3D MMORPG developed by Gray Games based on the popular web novel and webtoon, Overgeared. The game will launch in Korea, Taiwan, Hong Kong, and Macau. Other titles in development include Vindictus: Defying Fate and an all-new IP like NAKWON: Last Paradise, scheduled for a global release in 2027.
Also, there are two games in the early stages of development at Embark Studios. Together with the sharper focus and efficiencies introduced with our transformation initiative, NEXON's pipeline of new games provides a solid foundation for 2027.
In summary, our Q3 results and Q4 outlook demonstrate a clear implementation of our strategy: growth in established franchises with new experiences and all-new games with potential to become enduring hits. Now, I will hand the call over to Uemura-san.
In Q3, revenue was JPY 138.4 billion and operating income was JPY 41.8 billion, both above our outlook, led by strength in the MapleStory and FC franchises. Year-over-year, revenue grew 17% and operating income grew 11%. Turning to expenses, total costs came in below our plan. Royalties were higher than planned, reflecting the outperformance of FC ONLINE and MapleStory: Idle RPG, but lower costs elsewhere more than offset the increase. Marketing costs came in below plan, partly due to shifting promotional schedules.
HR costs came in lower than planned as headcount tracked below expectations. Cloud service fees were also below plan. Year-over-year, operating income grew more slowly than revenue due to a comparison related to a one-time JPY 3.9 billion gain from liquidation of trust in 2025. In addition, costs linked to greater revenue, such as royalties, PG fees, and creator fees increased, as did cloud and software service fees and HR costs.
Net income was JPY 38.1 billion above our outlook, mainly driven by the operating income outperformance and a JPY 7.5 billion valuation gain on funds. Year-over-year, net income was flat. Higher operating income and the absence of the JPY 6.1 billion one-time equity method impairment loss recorded in the prior year period were offset by lower finance income.
Finance income was JPY 12.4 billion in Q3 2026, including the JPY 7.5 billion valuation gain, compared with JPY 25.7 billion a year ago, which included FX gains and security valuation gains. In addition, we recorded a JPY 1.9 billion FX loss in the current third quarter. Moving on to franchise performance. In Q3, the collective revenue of our three largest franchises, MapleStory, Dungeon & Fighter, and FC, was JPY 108.5 billion, up 24% year-over-year, with the MapleStory and FC franchises driving the growth.
The MapleStory franchise revenue exceeded our outlook and grew 72% year-over-year, setting a quarterly record for the second consecutive quarter. Growth was driven by MapleStory: Idle RPG, MapleStory Worlds, as well as the core PC business in Korea and globally. In Korea, PC MapleStory revenue exceeded our outlook, driven by the strong summer and autumn updates. Revenue grew 19% year-over-year on top of the exceptional growth in Q3 2025, which approximately tripled year-over-year.
Global MapleStory revenue significantly exceeded our outlook and doubled year-over-year. This was driven primarily by MapleStory Classic, which launched within our existing PC services in China and Taiwan in Q3. Revenue grew roughly 4x in China and 2x in Taiwan, and 33% in the West.
MapleStory: Idle RPG also exceeded our outlook, supported by a series of updates that reflected player feedback, as well as the September Chuseok update. MapleStory Worlds revenue was within the outlook and approximately doubled year-over-year, led by Korea and Taiwan, with solid performance throughout the quarter. Next, our Dungeon & Fighter franchise came in below our outlook, mainly because China's September National Day update fell short of expectations on both PC and mobile.
Revenue was down 33% year-over-year. Revenue from the PC Dungeon & Fighter in China fell short of our outlook, coming in approximately flat year-over-year as reported, but down in local currency. The September National Day update and the new raid had limited impact on re-engaging users. ARPU rose, but MAUs and paying users declined both sequentially and year-over-year.
In Korea, PC Dungeon & Fighter revenue was within our outlook, but declined year-over-year due to a difficult prior year comparison and continued softness since the new season update in March. Dungeon & Fighter Mobile revenue in China came in below our outlook and declined both sequentially and year-over-year. Revenue from the National Day update came in below expectations. Moving on to the FC franchise. Revenue exceeded our outlook and grew double digit year-over-year.
This was driven by the recovery of FC ONLINE, with revenue significantly exceeding our outlook and achieving its highest quarterly revenue. Gameplay and progression improvements pushed average playtime to a record high, and promotions, including the September Chuseok event, performed well. Horizontal revenue, including revenue from new titles, was JPY 29.9 billion, down 4% year-over-year, reflecting a difficult comparison against a high base of Q3 2025 driven by Mabinogi Mobile in Korea.
ARC Raiders Q3 revenue was within the outlook. Mabinogi franchise revenue increased sequentially, supported by Mabinogi Mobile, which launched in Taiwan, Hong Kong, and Macau in July. However, revenue declined year-over-year in comparison to Korea last year. Now, moving on to the Q4 outlook. In Q4, we expect revenue to be in the range of JPY 107.7 billion- 118.9 billion, representing a 13%-4% decrease on an as-reported basis, or a 20%-12% decrease on a constant currency basis year-over-year.
Our Q4 revenue outlook reflects a difficult comparison with the launch quarter of ARC Raiders and a decline in the Dungeon & Fighter franchise, while contributions from new releases come mainly from late November. Turning to our franchise outlook, we expect the MapleStory franchise to sustain its momentum with revenue growth of approximately 70% year-over-year, led by both Korea and global PC MapleStory, as well as MapleStory Worlds and MapleStory: Idle RPG.
For Korea MapleStory, we expect revenue to grow by strong double digits year-over-year, driven by the favorable impact of the autumn update, the Blue Archive collaboration, and the start of the winter update in December. For global MapleStory, we expect revenue to grow approximately 2x year-over-year.
Growth will be supported by continued momentum from classic experiences, including MapleStory Classic World, a hyper-localized classic experience for the Western service from our Los Angeles team that got off to a strong start in October. For MapleStory: Idle RPG, we expect revenue to grow year-over-year, driven by the first anniversary update. MapleStory Worlds revenue is expected to grow approximately 3x year-over-year.
In Q4, new worlds from our global developer contest will launch, bringing new genres for players to enjoy. Next, for the Dungeon & Fighter franchise, we expect the Q4 franchise revenue to decline year-over-year. For our PC game in China, we expect revenue to decline both sequentially and year-over-year as we focus on stabilizing the player base through promotional events and updates ahead of the Q1 new year update. In Korea, we also expect a year-over-year decline.
Multiple content updates and events are planned through year-end. For Dungeon & Fighter Mobile in China, multiple hyper-localized content releases are planned to address an expected sequential and year-over-year decline in revenue. Next, turning to the FC franchise. In Q4, we expect franchise revenue to grow double digits year-over-year. FC ONLINE revenue is expected to grow double digits year-over-year again, supported by new player class and year-end promotions.
For FC MOBILE, we expect updates and winter promotions to increase revenue sequentially and narrow the gap to prior year levels. For Mabinogi Mobile, we expect Q4 revenue to remain broadly flat sequentially, supported by the Japan launch on October 7, but to decline year-over-year. Turning to ARC Raiders, we expect revenue to decline year-over-year against the launch quarter in 2025 and to be broadly flat sequentially.
Compared with Q3, this reflects lower revenue per unit from promotional discounts, less revenue recognized from earlier deferrals, and more revenue deferred to future periods, while we expect additional unit sales and contributions from the premium reward pass and the collector set DLC package. Moving to the operating income outlook.
We expect Q4 operating income to be in the range of JPY 4 billion-JPY 11.7 billion, representing a 44% decrease to 63% increase on an as-reported basis, or a 53% decrease to 46% increase year-over-year on a constant currency basis. This reflects a decreased cost set against lower revenue. The cost decrease comes from lower HR cost, PG fees, and marketing cost versus Q4 2025, which included the launches of ARC Raiders and MapleStory: Idle RPG.
Net income is expected to be in the range of JPY 4.7 billion-JPY 10.6 billion, representing a 57%-2% decrease on an as-reported basis, or 62% to 11% decrease on a constant currency basis year-over-year against Q4 2025, which included a JPY 16.6 billion finance income from FX and securities valuation gains.
This concludes our Q4 outlook. Now, I would like to add some perspective to Junghun comments on how new games and franchise expansions strengthen NEXON's fundamentals, making our result less vulnerable to variance in a single large franchise. This strategy will change the shape of our performance in 2027. Historically, our results have been weighted towards the first half, when new year updates and promotions generate high-margin revenue in China.
However, in 2027, we expect that less deferred revenue in the first half and the large number of game releases scheduled for the second half will result in broader distribution of earnings across four quarters. In short, it is less likely our first quarter result will define full year 2027. Finally, I will provide an update on our capital allocation and shareholder returns. As announced in September, the board of directors approved a special dividend of JPY 415 per share, totaling approximately JPY 324 billion, or approximately $2 billion.
Shareholders of record as of September 30th will receive the dividend on November 25th. We are also planning for the year-end dividend of JPY 30 per share, bringing the regular annual dividend for 2026 to JPY 60 per share. Our policy is unchanged.
We return more than 33% of the prior year's operating income to shareholders, and we expect the returns to grow with profit. Following payment of a special dividend, our balance sheet remains strong with the flexibility to respond to growth investment opportunities. Going forward, we will strive to raise ROE to 15% over the mid-to-long term through strong execution and disciplined financial management. With that, I will hand the call back to Patrick.
Thank you, Uemura-san. Positive contributions to our strong third quarter performance came from many places, not one. New and established games, several markets, and platforms. This is the business we have been building for more diverse and durable results. Beyond the positive financial metrics, the quarter is recognized as the first to show the focus and discipline from our transformation initiative. It is early, and we have more work to do, but it is a good start, and the direction is right. With that, operator, we are ready to take questions.
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The first question is from Seyon Park from Morgan Stanley, please.
Hi, can you hear me?
Yes, we can.
Thank you for the opportunity. I have two questions. The first is relating to the Dungeon & Fighter franchise, which seems to be in a sustained decline over the years. I wanted to ask whether, as the company assesses the situation, is this coming as the franchise ages, the players who used to play this franchise are starting to turn away, or are some other factors playing a part?
The company typically has done a very good job of revitalizing the game whenever it went through these down cycles. That seemed to be a little bit more tricky nowadays. So, I wanted to get management's assessment of how you are looking at this. My second question is relating to the new titles slated for next year.
Given the multiple titles that are currently slated, which titles the company thinks could be some of the bigger titles that could hit? I think you have announced the new Dungeon & Fighter title potentially for China, and I guess somewhat overlapping with the first question, do you feel that this could be maybe a new franchise that can turn things around for that franchise in China? Thank you.
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Hello, this is Junghun, and I will be answering both questions that you have asked.
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First, I would like to offer some views on the Dungeon & Fighter franchise.
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First off, for the PC version, we are now working on the turnaround performance of the title through major seasonal updates and ongoing live operations. However, the season that began in April was not well received by our players, and the performance has remained weak since then.
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Right now, the team is currently focusing our full efforts on the next season updates, which we will be preparing for early next year.
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For Dungeon & Fighter Mobile, since the part of development was taken over by our Tencent team, we have been rolling out a much wider variety of content updates at a significantly faster pace. That said, the impact has not yet been evident in our results.
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In order to address the severity, the executives of Tencent and NEXON, as well as all the relevant teams surrounding the franchise, recently held an in-depth workshop where we gathered together to align on a long-term direction of the PC and mobile live services in China.
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I think the most important takeaway from this workshop was the fact that we identified some structural changes and action plans so that we can optimize our live services. We aim to increase the content production beyond the current model, where we largely rely on one or two major updates per year. With that, we will be gradually expanding the content available to our users starting next year.
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We also plan to improve our player community management policies and change how the team communicates with how we communicate with players. We believe we will be able to provide further details on these changes at the Dungeon & Fighter player event in China, which will be held on November 20th.
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Above all, actually, I think what is most important here is that NEXON and Tencent are on the same page in terms of recognizing that the franchise is such a distinctive brand in China that it can be considered a genre in its own right. We believe there is currently no competitor in the market that can match the action RPG gameplay experience that Dungeon & Fighter has established.
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The executives, the leadership from both NEXON and Tencent have seen eye to eye in a view that over the years, there have been many competitors who sought to capture Dungeon & Fighter's market share, but none really have succeeded.
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Going forward, on top of the recovery in our live service of Dungeon & Fighter services, we plan to successfully expand our IP by delivering good services for our multi-portfolio pieces, including Dungeon & Fighter Classic, which aims to launch in China next year, as well as OVERKILL, a new title that is based on the IP that we unveiled for the first time in this earnings announcement.
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I believe the second piece to your question was related to our new titles that we are preparing for 2027, and let me also answer that question.
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First, I would like to kick off by noting that our new release slate for 2027 is actually far more extensive than in 2026.
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In 2027, we are preparing for whole new IPs like NAKWON: Last Paradise, as well as an expansion of the Mabinogi IP, Vindictus: Defying Fate, as well as Arad: Idle RPG and Dungeon & Fighter Classic. We, of course, are also planning to bring MapleStory: Idle RPG to new regions. As such, it will be such a year where a diverse range of new releases will come to fruition. I look forward to introducing them to our community, and that will conclude my answer.
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We have a request. If possible, please limit yourself to one question at a time. Thank you.
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The next question is from Munakata-san from Goldman Sachs Japan. Please.
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Thank you very much for giving me the opportunity to ask you questions. I have total two questions. My first question is related to MapleStory. It is quite encouraging to know that you are continuously seeing the good and strong performance of MapleStory franchise. My question is that are you expecting this growth momentum to continue into the next fiscal year?
I understand that you are expecting another strong growth with the collaboration in Q4, and this is a very popular IP, and I was wondering if you are expecting further upside on the engagement through various initiatives. Or do you believe that this franchise growth will somewhat stabilize into the next fiscal year, but you are expecting more contribution from the other franchise? I would like to understand your approach or how you look into the total portfolio performance into the next fiscal year.
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[Non-English content] Hello, this is Junghun again. Let me answer the question that you asked.
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First, I would like to encourage our investors to note how in our Q3 earnings, in many different pieces of our MapleStory franchise, MapleStory Classic has outperformed our initial expectation.
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To share the bottom line first, we believe the MapleStory franchise will continue on with this good momentum, with this performance that started with Classic and MapleStory Worlds in the second half of this year, continuing its solid performance in 2027.
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Let me provide some views towards individual components of the MapleStory franchise, first starting with our MapleStory PC service. For MapleStory PC live service, we have a solid pipeline of high-quality content updates that we have in plan, as we did this year, and we aim to maintain our player engagement.
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Then on top of that, I would also highlight how the "Classic" playbook in China, Taiwan, and Western markets is still in its early stages following the recent launches and showing strong performance recently. We plan to sustain the launch momentum by adding more content more actively.
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Moving on to our "MapleStory Worlds," which is a platform that relies on user-generated content, our immediate focus right now is on strengthening its service infrastructure. We also recently held a global competition on "MapleStory Worlds" experiences, and we also plan to conduct an open beta for "MapleStory Worlds 2.0" in Korea, in which we will include some webtoon creation features.
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Lastly, to give a note on "MapleStory: Idle RPG," following its launch in Korea, our current goal is to sustain its retention while preparing for an expansion into additional regions.
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Right now, we have no additional new "MapleStory" titles to announce at this point. For 2027, however, we believe the franchise will carry on with this strong performance so that the franchise can grow even as solidly as it did in this year in 2027. That concludes my answer.
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Thank you very much for quite a detailed answer. Well understood. My second question is related to the AI utilization and its cost implication as well as the expected sales contribution. I do understand that you have already actively using AI, and I do at the same time understand that you have a 30-year equivalent context data being reflected into the live operation, and you are now in a phase to expand the AI support to cover broader titles.
This could potentially increase the cost, but at the same time, we can expect a positive impact on the revenue and improvement of the retention rate. So I would like to ask how you see all those elements all together, and I would like to at the same time understand timing-wise, when do you expect the revenue contribution impact will start to be materialized? Is it coming in a couple of years, or are we talking about more like mid to long-term timeframe of about three to five years?
I can take that. This is Patrick. I assume you see this with multiple companies. For us, we believe that AI and new tools are bringing in significant efficiency gains, for sure. But we also have an approach on artificial intelligence where we try to look at the repetitive elements of making a game, allowing developers to focus on more creative work. It also makes it obviously cheaper and faster to validate ambitious new ideas. But what goes into a game is still a product of people who build it.
This is a creative industry. We are seeing results already in our live titles. For example, AI has made the process of converting designers' artwork into pixel art more than 10x faster, allowing us to produce more art assets for games such as MapleStory and Dungeon & Fighter. We are also using AI to accelerate hyper-localization, making the process several times faster while maintaining the quality needed to reflect local cultures.
Recognizing the cost of using and refining AI, we invest carefully and in stages, measuring results before committing to larger and larger amounts. Our aim is not to make games with fewer people, like we said before, but to make better games with the people we have.
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Thank you very much for your thorough explanation. I came to understand that now you are able to validate more ambitious new ideas by using AI, and I am looking forward to your exciting new creations in the future. Thank you.
Thank you so much.
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The next question is from Yijia Zhai-san of UBS Securities. Please.
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I am Zhai of UBS Securities. I have three questions altogether. The first one is related to the promotion cost, which was below the planned figure, and I want to understand what was the backdrop of that occurring in Q3. Also, in terms of Q4, I understand that you are trying to allocate much promotion cost, but what will be the criteria that you will be using in deciding whether you are going to actually spend that amount or not?
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Yes, regarding the marketing expense for Q3, we planned mainly for the new titles, but of course, we need to do some marketing for the existing IPs as well. But mainly, we have allocated for the new titles, and we plan to conduct the most efficient and effective marketing as much as possible. It so happens that in Q3, the plan of those marketing activities had slipped. Given that backdrop, we plan to robustly go with the marketing and promotions in Q4.
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Thank you very much. My second question is related to ARC Raiders: Frozen Trail. Just looking at the concurrent users, after the update, I see the increase and return of the users, but then afterward, the numbers started to decline.
Looking at your guidance for the revenue for the upcoming quarter, it seems that you factor in that there will be some limitation in terms of securing new players. I want to know what is the overall direction that you are planning to head towards? Are you going to give up on increasing the user base and focus on increasing the paying users? Can you tell me if you have any definitive plan?
This is Patrick again. I can reply to this. Based on our own experience and data from competitors in the same genre and using the same or similar business model, we believe that two major high-quality updates a year is a good cadence to sustain the core and attract new sales. That's number one. I think we believe that Frozen Trail is tracking much as we anticipated.
After strong reception from players in October, both in-game and unit sales have slowly normalized. We will, of course, continue to develop the player community with events and promotions. Like I said, we are committed to developing and delivering major updates to ARC Raiders at least 2x a year.
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Thank you very much for your response, and I have a follow-up question for the previous one. I do fully understand that you plan to have two major updates a year. But overall, in terms of the direction to secure further increase in sales/revenue, which do you plan to go for? One being the effort to further expand the user base, and another one being concentrating on the existing players so that they can become a paying user. Which is the case?
Well, everyone that is playing ARC Raiders is already a paying user because the game is a premium title. Of course, we are going to try and do both. Of course, attract new paying players, but also the ones that are playing the game, give them enough reasons to continue playing the game, and hopefully continue buying things that we offer to them in the game as well.
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My third question pertains to the KPIs that you disclosed. Looking at your Q3 figure, your revenue is increasing year-on-year, but MAU-wise, it seems to be declining year-on-year. On the other hand, ARPU is increasing year-on-year. You might have some difficulty disclosing the numbers by each title, but if you can you explain to me the reason why your revenue is going up?
Are you increasing the paying users? If that is the backdrop upon which your Q3 revenue went up, we are, or I am concerned whether it is sustainable going forward or not. With that as a backdrop, can you explain to me about the reason why the revenue went up in Q3 and the overall direction that you plan to proceed in the future?
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Before I respond, I would like to confirm one point. Are you talking about Korea MapleStory PC?
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No, I am referring to your briefing note, page 32. At the bottom, you see the breakdown between PC and console, and you have the year-on-year comparison. Looking at the KPIs, namely MAU, paying users, and ARPU, MAU is going down while ARPU is going up. These are the points that I would like you to further elaborate.
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I understood your question. In terms of the KPIs that you are looking at, these are the numbers that summarize the entire situation of PC online games. This is the aggregate for all the titles. It does not necessarily mean that for each and every title, the similar trend of MAU declining and ARPU increasing are being followed.
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Having said that, in terms of ARPU, it goes up, but it means that the in-game activities are being vitalized. As you know, we do not aggressively push for monetization. It is true that ARPU is rising, but we do not think that it is at the risky level.
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Did I answer your question?
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Yes, I understood very well. Those are all the questions I have. Thank you.
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Next question is from Robin Zhu-san from Sanford C. Bernstein, please.
Hi, thanks management for taking my question. I will stick with one. Really curious your thoughts on MapleStory Classic. It was a big contributor this quarter. Would be curious if management thinks that this is now a permanent new addition to the MapleStory franchise going into 2027, or should we think about it as a kind of more one-time nostalgia thing?
How do you plan to maintain the update content cadence for both the base MapleStory and MapleStory Classic? How do you keep them separate? We will be curious your thoughts on the overlap of the user base and, yeah, how do you grow both at the same time going forward? Thank you.
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This is Junghun again. Let me answer your question.
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I would like to first start by noting, as mentioned earlier, how MapleStory Classic received a far stronger response than we initially anticipated across Taiwan, China, and Western markets.
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So when it comes to the performance that we have observed in Taiwan and China, they definitely were significant contributor to the performance. In China, for instance, player inflows reached up to 9x the level of the local live service. And of course, when it comes to cannibalization between the core live service, it was insignificant and very small.
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So going forward in Q4, we will expand to the Western markets in earnest, where we believe the initial response has also been pretty positive. So in order to sustain this momentum, we are placing a very strong focus on updates for classic and on maintaining our player engagement.
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Lastly, before I conclude, I would like to offer how NEXON as a company views this classic playbook approach, not going beyond simply the MapleStory franchise.
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So as you are already aware of, NEXON has multiple portfolio pieces which has been providing PC online live service for more than 20 years, which include Dungeon & Fighter, MapleStory, and Mabinogi, which are still successfully providing live service at this point.
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So obviously, as a company which owns multiple IP pieces with such a long history of live service, this kind of classic playbook is such a useful strategy that can be leveraged in multiple different ways. Obviously, those franchises have a tremendous amount of accounts and users who have registered to play the game for the past 20 years or more.
And obviously, each user has different memories that they cherish the most out of their entire experience of playing the game. So they are all different, and that is why we are not going to pursue only an identical form of classic playbook for our games, but rather leverage it in multiple different ways as our strategy, and we already have plans for that. So that would conclude my answer.
Thank you, Junghun.
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The next question is from Taguchi-san from Nikkei. Please.
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The next question is from Taguchi-san of Nikkei. Please go ahead.
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Unfortunately, we cannot hear Taguchi-san, and we will wait for a few more minutes. But if we cannot still hear you, I am sorry, but we have to move on to the next question.
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The next question is Nagao-san of BofA Securities Japan Research.
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I have one question regarding the cost aspect of Q4, and I would like you to share with me Q on Q comparison. When I look at the guidance for the Q4 that you have given, it seems that revenue-wise, there will be a decline of JPY 20 billion- JPY 30 billion. When you try to do the math by subtracting the operating income and other factors, it seems that there will be an increase of SG&A and COGS by JPY 7 billion- JPY 10.5 billion.
Why are you saying that the cost is increasing despite the fact that you are expecting a decline in revenue? Is it something to do with the increase in HR cost and other expenses? If you can kindly tell me the breakdown of the increase in cost Q on Q, I would appreciate it.
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Regarding the Q on Q comparison and in relationship to the revenue, cost increases or decreases depending on each quarter. Talking about the Q4, the major increase in the cost is attributable to the marketing expense. As I mentioned before, we were planning to conduct marketing activities in Q3, but there has been some slip in the schedule, so that will be incurred in Q4.
That is the major factor. Another point is related to PG fees, as I have mentioned before. Depending on the sales of different titles, we expect the PG fee to increase. In particular, as mentioned before, if the trend of FC ONLINE goes as is, then we believe that we will encounter an increase in PG fee.
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Hello, this is Junghun Lee. I would like to add a little bit of more perspective onto that. What I would encourage our investors to particularly look at is how our revenue mix is shifting and changing.
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When it comes to the revenue from Dungeon & Fighter China, which is highly profitable in terms of its composition, it is expected to decline year-over-year. But in the meantime, the titles and new services that we expect to drive growth in the fourth quarter.
With that, I include FC, MapleStory: Idle RPG, MapleStory Worlds, as well as other new titles being prepared for our Q4 releases of TEMPPAL: OVERGEARED, Azur Promilia, and of course, Mabinogi Mobile in Japan. They incur revenue-linked costs such as royalties and creator fees.
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Thank you very much. Both of you, I understood it very well.
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.