Nexon FY2018 Q1 Earnings Conference Call: Q&A Summary

Key insights

6 takeaways

01
Nexon is prioritizing long-term title longevity over short-term revenue, accepting suppressed operating income in Q1 2018 due to increased upfront marketing and HR investments.See it on page 6
02
Operating costs are rising due to a three-year commitment to stock option programs aimed at talent retention and strategic marketing spend for major launches including EA SPORTS FIFA ONLINE 4, OVERHIT, and KAISER.See it on page 5
03
The flagship title Dungeon&Fighter in China is shifting its strategy from high ARPPU to a focus on user engagement and game balance to prevent user fatigue and ensure long-term stability.See it on page 7
04
Nexon is transitioning to a decentralized studio model to grant creative leaders more autonomy and improve responsiveness to the user base.See it on page 2
05
The company plans to launch 10 new titles in the Japanese market throughout 2018 to bolster its product pipeline.See it on page 6
06
Management is evaluating the mobile title Durango: Wild Lands through a multi-year lens, prioritizing long-term design goals over immediate post-launch performance metrics.See it on page 4

Summary

The Nexon FY2018 Q1 earnings conference call provides a strategic overview of the company’s operational focus, emphasizing long-term title longevity over short-term quarterly revenue fluctuations. The primary thesis centers on balancing aggressive talent retention and upfront marketing investments with sustainable game development. Management identifies the transition toward decentralized studio autonomy as a key structural shift intended to empower creative leaders closer to the user base, thereby fostering innovation and long-term product health.

Key financial findings highlight a deliberate increase in operating costs, specifically regarding human resources and marketing. HR expenses are rising due to stock option programs designed to retain key talent, with these costs expected to remain fixed over a three-year horizon. Marketing expenditures are characterized as strategic, upfront investments intended to support major product launches, such as EA SPORTS FIFA ONLINE 4, OVERHIT, and KAISER. While these costs temporarily suppress operating income, management maintains that they are essential for future revenue growth.

Performance data for the flagship title, Dungeon&Fighter in China, reveals a strategic shift in Q1 from high average revenue per paying user (ARPPU) toward a focus on user engagement in Q2. Despite year-over-year declines in monthly active users (MAUs) compared to an exceptionally strong prior-year period, the game remains stable. Management emphasizes that they do not seek continuous monetization, which could lead to user fatigue, but instead prioritize game balance to ensure the title’s longevity. Similarly, for the mobile title Durango: Wild Lands, the company views initial market performance through a multi-year lens, prioritizing long-term design goals over immediate post-launch metrics. The company maintains a robust pipeline, with plans to launch 10 titles in the Japanese market throughout 2018.