NEXON Co.,Ltd. Q3 FY2026 earnings call

• Transformation Initiative: The first quarter showing results of the transformation initiative, with operating income ~30% above the high end of the range. Costs came in below plan despite higher royalties.
• Strategic Focus on People: Headcount remained flat YoY; NEXON prioritizes retaining talent over cuts. New projects require financial targets, leading to the cancellation of 6 projects this year to redirect resources to higher-potential games.
• AI Integration: AI is used to handle repetitive tasks (localization, code review, asset checks) to allow developers more creative freedom. It enables faster iteration (5 versions in the time of 1) without replacing human creativity. Investment is staged based on measured results.
• Product Pipeline & Releases: Strong performance from ARC Raiders (>17M units sold) and new releases like MABINOGI MOBILE (Japan). Upcoming titles include Azur Promilia, TEMPPAL: OVERGEARED, Vindictus: Defying Fate, and NAKWON: LAST PARADISE (2027).
• Financial Health & Shareholder Returns: Approved a special dividend of JPY 415 per share (~JPY 324 billion total) plus regular dividends. Policy remains returning >33% of prior year's operating income to shareholders.

• MapleStory Franchise: Revenue significantly exceeded outlook, growing 72% year-over-year to set a quarterly record. Growth driven by MapleStory Classic (China/Taiwan/West), MapleStory: Idle RPG, and MapleStory Worlds.
• FC Franchise: Revenue exceeded outlook with double-digit year-over-year growth. FC ONLINE achieved record quarterly revenue due to gameplay improvements and strong promotions. FC MOBILE saw sequential improvement.
• Dungeon & Fighter Franchise: Revenue fell below outlook and declined 33% year-over-year. China PC and Mobile updates underperformed; Korea PC also declined YoY due to difficult comparisons.

• Q4 2026 Revenue: Expected between JPY 107.7 billion and JPY 118.9 billion (down 4%-13% as-reported, or 12%-20% constant currency YoY).
• Q4 2026 Operating Income: Expected between JPY 4.0 billion and JPY 11.7 billion (down 44% to up 63% as-reported YoY).
• Q4 2026 Net Income: Expected between JPY 4.7 billion and JPY 10.6 billion (down 2%-57% as-reported YoY).
• Franchise Outlook: MapleStory expected to grow ~70% YoY; FC expected to grow double digits YoY; Dungeon & Fighter expected to decline YoY; ARC Raiders expected to decline YoY vs launch quarter but be flat sequentially.

• Dungeon & Fighter Execution: Significant decline in China due to underperforming National Day updates and structural issues in live service operations. Requires close coordination with Tencent for long-term stabilization.
• Revenue Concentration Risk: While diversifying, reliance on specific franchise cycles (e.g., Arcade/Raid updates) creates volatility.
• Cost Inflation: Rising royalty fees, PG fees, and creator fees linked to higher revenue outperformance in key titles like FC ONLINE and MapleStory: Idle RPG.
• Player Retention: Declining MAU in some segments while ARPU rises, indicating potential sustainability challenges if not offset by new user acquisition.

Q: Morgan Stanley asked about the sustained decline in Dungeon & Fighter (D&F), questioning if it’s age-related or execution failure, and which 2027 titles might be hits. / A: Junghun Lee stated D&F’s decline stems from weak reception of the April season and operational issues, not just aging. NEXON and Tencent aligned on a long-term plan to increase content frequency beyond 1-2 major updates/year and improve community management. New titles like D&F Classic and 'Project Overkill' aim to revitalize the IP, leveraging its unique genre position in China where no direct competitor exists.

Q: Goldman Sachs asked if MapleStory’s growth momentum will sustain into FY2027 and how AI impacts costs/revenue timing. / A: Junghun Lee confirmed MapleStory will maintain strong momentum into 2027, driven by Classic’s success in early stages across regions and infrastructure upgrades for MapleStory Worlds. Patrick Soderlund explained AI provides efficiency gains (10x faster pixel art conversion, faster localization) allowing teams to test more ideas. AI investment is staged and measured; it supports better games rather than reducing headcount, with material revenue impact tied to improved retention and development speed.

Q: UBS asked about declining MAU but rising ARPU in PC online games, questioning if revenue growth is sustainable via paying users, and ARC Raiders’ strategy post-Frozen Trail update. / A: CFO Shiro Uemura clarified that aggregate MAU decline/ARPU rise reflects vitalized in-game activity, not risky aggressive monetization, and trends vary by title. Regarding ARC Raiders, Patrick Soderlund noted the game is premium (all players are payers). Strategy involves two major high-quality updates annually to sustain core and attract new sales. Post-update, unit sales normalized as anticipated, with focus on retaining existing players through events and DLC.

Q: Sanford C. Bernstein asked if MapleStory Classic is a permanent franchise addition or one-time nostalgia, and how cannibalization is managed. / A: Junghun Lee highlighted Classic’s strong response, especially in China (9x player inflow vs local service) with insignificant cannibalization. It is a permanent strategic playbook, not one-time. NEXON plans to apply this 'classic' approach to other legacy IPs like D&F and Mabinogi, customizing experiences to different user memories rather than using an identical format, ensuring diverse engagement across the portfolio.