Nexon Q3 2019 Earnings Prepared Remarks

Key insights

7 takeaways

01
Nexon reported Q3 2019 group revenues of 52.4 billion yen, representing a 24% year-over-year decline.See it on page 6
02
The company is pivoting toward high-quality online multiplayer games, resulting in the cancellation of numerous underperforming projects to focus resources on core franchises.See it on page 4
03
Korea served as the primary growth engine, with MapleStory achieving record quarterly revenue on both PC and mobile platforms and FIFA ONLINE 4 exceeding expectations.See it on page 8
04
The China business underperformed due to lower-than-anticipated engagement with the Dungeon&Fighter franchise, with a mobile version now slated for release in the first half of 2020.See it on page 7
05
Operational restructuring included the consolidation of Embark Studios, a strategic investment in Wonder Holdings, and the divestiture of the browser-based mobile business in Japan.See it on page 11
06
Management expects continued revenue pressure in China and Western markets for Q4 2019, though they anticipate growth in Korea driven by the launch of the MMORPG V4.See it on page 10
07
Nexon initiated a 30 billion yen share repurchase program in September 2019 to prioritize shareholder returns.See it on page 12

Summary

Nexon’s third-quarter 2019 earnings report details a period of strategic transition characterized by strong performance in its Korean market, offset by underperformance in China and significant shifts in its global development pipeline. The company’s primary thesis centers on a pivot toward high-quality, fully online multiplayer games and virtual worlds, necessitating the cancellation of numerous underperforming new projects to concentrate resources on core, long-term franchises.

Financial results for the quarter showed group revenues of 52.4 billion yen, a 24% year-over-year decline on an as-reported basis, falling within the company’s expected range despite foreign exchange headwinds. Korea served as a primary growth engine, with MapleStory and FIFA ONLINE 4 exceeding expectations; notably, MapleStory achieved record quarterly revenue on both PC and mobile platforms. Conversely, the China business underperformed due to lower-than-anticipated engagement with the Dungeon&Fighter franchise. Management is actively addressing these challenges through content updates and increased resource allocation, with a mobile version of Dungeon&Fighter expected to launch in the first half of 2020.

The company’s strategic scope encompasses a global portfolio with a heavy emphasis on Asia and emerging Western opportunities. Key operational developments include the consolidation of Embark Studios, a strategic investment in Wonder Holdings, and the divestiture of the browser-based mobile business in Japan. These moves reflect a broader effort to streamline operations and focus on titles with higher margin potential.

Looking ahead to the fourth quarter, Nexon anticipates continued revenue pressure in China and Western markets, though it expects growth in Korea driven by new MMORPG launches like V4. The company maintains a neutral to positive outlook regarding operating income, citing reduced marketing and variable costs as key drivers for potential year-over-year improvement. Throughout this period, the company continues to prioritize shareholder returns, evidenced by a 30 billion yen share repurchase program initiated in September 2019.