Nexon Fourth Quarter and Full Year 2016 Financial Results

Key insights

6 takeaways

01
Nexon reported 2016 full-year revenue of 183.1 billion yen, a 4% year-over-year decline, with operating income falling 35% to 40.6 billion yen.See it on page 2
02
Net income for 2016 dropped 63% to 20.1 billion yen, though fourth-quarter net income was bolstered by a 20.6 billion yen foreign exchange gain.See it on page 1
03
Fourth-quarter revenue reached 43.3 billion yen, a 6% year-over-year decrease, despite a 3.7 billion yen impairment loss on prepaid royalties.See it on page 1
04
Revenue performance was driven by the free-to-play model, specifically the winter update for Dungeon&Fighter in China and the performance of FIFA Online 3 in Korea.See it on page 1
05
Nexon projects first-quarter 2017 revenue to be between 62.4 and 67.1 billion yen.See it on page 2
06
Future growth strategy relies on a new title pipeline including LawBreakers, Durango, Dynasty Warriors Unleashed, and Dark Avenger 3.See it on page 1

Summary

Nexon’s 2016 financial results demonstrate the company’s reliance on long-term live game operations to drive revenue across its global portfolio. The primary thesis centers on the effectiveness of the company’s free-to-play business model and its ability to maintain engagement through consistent content updates. Despite a challenging fiscal year, the fourth quarter outperformed revenue expectations, largely fueled by the success of the winter update for Dungeon&Fighter in China and strong performance from the FIFA Online 3 franchise in Korea, alongside the expansion of HIT into Taiwan and Thailand.

For the full 2016 fiscal year, Nexon reported revenues of 183.1 billion yen, representing a 4% year-over-year decline. Operating income fell 35% to 40.6 billion yen, though adjusted operating income saw a marginal increase of 1%. Net income experienced a significant 63% decrease to 20.1 billion yen. The fourth quarter specifically saw revenues of 43.3 billion yen, a 6% year-over-year decrease, while operating income was impacted by a 3.7 billion yen impairment loss on prepaid royalties. Conversely, net income for the quarter exceeded expectations, bolstered by a 20.6 billion yen foreign exchange gain resulting from the depreciation of the Korean won and Japanese yen against the U.S. dollar.

The scope of these results covers Nexon’s global operations, which span over 190 countries and include more than 100 titles. The company maintains a positive outlook for the first quarter of 2017, projecting revenues between 62.4 and 67.1 billion yen. Management intends to sustain this momentum by leveraging a robust pipeline of upcoming titles, including LawBreakers, Durango, Dynasty Warriors Unleashed, and Dark Avenger 3, to further validate its differentiated approach to interactive entertainment.