NEXON Q2 2016 Earnings Conference Call Transcript

Key insights

7 takeaways

01
Nexon reported stagnant as-reported revenue for Q2 2016 due to foreign exchange headwinds, despite underlying growth in the Chinese market driven by Dungeon&Fighter.See it on page 5
02
The company projects year-over-year declines in both revenue and operating income for Q3 2016, citing currency depreciation against the Japanese yen and softening performance in China and Korea.See it on page 6
03
Nexon discontinued Sudden Attack 2 following its failure to meet market expectations, signaling a strategic shift to streamline the development pipeline toward more viable PC and mobile projects.See it on page 7
04
The mobile version of Dungeon&Fighter is scheduled for testing in late 2016, with revenue contributions anticipated to begin in 2017.See it on page 11
05
Net income for Q2 2016 was negatively impacted by non-operating factors, specifically goodwill impairments and currency-related losses.See it on page 5
06
Monthly active users declined during the quarter, primarily due to performance drops in legacy titles including Counter-Strike Online and FIFA Online 3.See it on page 12
07
Management plans to maintain investor confidence by utilizing share buybacks as a primary mechanism for capital management.See it on page 11

Summary

Nexon’s financial performance during the second quarter of 2016 reflects a complex interplay between robust operational growth and significant macroeconomic volatility. While constant currency metrics indicate underlying strength, particularly within the Chinese market driven by the enduring popularity of Dungeon&Fighter, as-reported revenue remained stagnant due to substantial foreign exchange headwinds. Net income faced additional downward pressure from non-operating factors, including goodwill impairments and currency-related losses. Despite these fiscal challenges and the legal complications surrounding the company’s founder, management maintains a commitment to operational independence and a long-term global expansion strategy.

The outlook for the third quarter of 2016 remains cautious, with projections for year-over-year declines in both revenue and operating income. This anticipated contraction is attributed to the continued depreciation of foreign currencies against the Japanese yen and expected revenue softening in the core markets of China and Korea. Strategic adjustments are already underway, most notably the discontinuation of Sudden Attack 2 following its failure to meet market expectations. This pivot underscores a broader effort to streamline the development pipeline and reallocate resources toward more viable PC and mobile initiatives.

Looking ahead, the company is prioritizing the expansion of its mobile portfolio, with testing for the mobile iteration of Dungeon&Fighter slated for late 2016 and revenue contributions expected in 2017. Although recent data shows a decline in monthly active users, primarily linked to legacy titles like Counter-Strike Online and FIFA Online 3, the core franchise performance remains stable. To bolster investor confidence amid these transitions, leadership has reaffirmed its commitment to shareholder returns, emphasizing the flexibility of the board to authorize share buybacks as a mechanism for capital management.