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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, everyone, and welcome to NEXON'S 2021 Second Quarter Earnings Conference Call. It's being recorded. At this time, I would like to turn the call over to Maiko Ara, Head of Investor Relations and Corporate PR. Please go ahead, Ma'am.
Hello, everyone, and welcome. Thank you for joining us today. With me are Owen Mahoney, President and CEO of NEXON; and Shiro Uemura, CFO. Today's call will contain forward-looking statements, including statements about our results of operation and financial conditions such as revenues attributable to our key titles, growth prospects, including with the respect to online game industry, our ability to compete effectively, adapt to new technologies and address new technical challenges, our use of intellectual property and other statements that are not historical facts. These statements represent our predictions, projections and expectations about future events, which we believe are reasonable or based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements.
Information on some of these risks and uncertainties can be found in our earnings-related IR documents. We assume no obligation to update or alter any forward-looking statements. Please note, net income refers to net income attributable to owner of the parent as stated in NEXON's consolidated financial results. Furthermore, this conference call is intended to provide investors and analysts with financial and operational information about NEXON, not to solicit or recommend any sale or purchase of stock or other securities of NEXON. A recording of this conference call will be available on our Investor Relations website, worldwide web.ir.nexon.co.jb/en/ following this call. Unauthorized recording of this conference call is not permitted. I'd now like to turn the call over to Owen.
Thank you, Ara-san, and welcome, everyone, to NEXON's Second Quarter 2021 Conference Call. Today, I'll provide a brief update on our second quarter performance and devote the rest of my time to detailing the strategies that position NEXON for significant growth in the coming quarters and years. Following that, I will turn the call over to our CFO, Uemura-san, for a detailed financial review of our quarter and the guidance for Q3. In the second quarter, NEXON delivered revenue that was within our outlook at JPY 56.0 billion, down 13% on an as-reported basis and down 21% on a constant currency basis. The Kingdom of the Winds: Yeon, Mabinogi and Sudden Attack exceeded our expectations, while MapleStory in Korea came in lower than expected.
On a platform basis, both PC and mobile revenues were in the range of our outlook. In short, some things went better than expected, others not as well with the net result putting us within our expected range. On today's call, I will provide context on how the management team has been investing time in 2021. We see 2021 as an operational inflection point for improving our live games and polishing multiple new projects, each with the potential for enormous returns. Executing on any one of these initiatives could dramatically change NEXON's trajectory and bring step function improvements to our revenue and to our profitability.
I will start with the actions we've taken to improve the performance of MapleStory in Korea, which is facing tough comparisons following the last 2 years of significant growth, including a 98% jump in year-over-year revenue in 2020.
In Q1, we received clear feedback from our players on the need for greater communication and transparency on the probability of values assigned to in-game purchases. Communication on probability, improving player trust has been an industry-wide issue in Korea, and the MapleStory team has been aggressively proactive in addressing this issue. Their approach has combined significant investment in time to fully understand players' concerns and formulate a thoughtful response, while moving rapidly to implement changes based on this feedback. The objective of this is to get the best long-term solutions in place as rapidly as possible. The situation is ongoing, but we're seeing clear signs of progress as we continue to improve.
MapleStory's Net Promoter Score, an important indicator of player satisfaction while still below the previous levels, has improved significantly. The recently introduced summer update has been very well received by players and there's more great content in development. Investors should be clear that we are highly focused on rebuilding long-term trust and player retention over short-term monetization. Why? Returns we get over the long term from focusing on player satisfaction to wharf any near-term benefits from aggressive monetization now. Investors should be aware that long-term trust and satisfaction of our players is our top priority.
Finally, keep in mind that challenges and efforts are distinctly different than China Dungeon&Fighter. China D&F is a powerful franchise that has recently been in need of a creative spark to reignite growth. MapleStory Korea is a specific communications challenge around a specific issue. How these challenges affect the respective gain and how we are responding are extremely different. Now on the China Dungeon&Fighter, experience tells us when a team meets new creative leadership to generate dynamic growth, and we recently announced that one of our top creative leaders, Myeong-jin Yun, has taken on oversight of development and live game operations for PC Dungeon&Fighter including the China service. Myeong-jin is also responsible for ongoing development on mobile Dungeon&Fighter and for a new title in the franchise, Project BBQ.
He led the franchise in China during its best period from 2014 to 2017. And today, he has innovative ideas for shaking up the content plan to reengage players. As I said a moment ago, improving execution on Korea MapleStory and China Dungeon&Fighter are two distinctly different initiatives. Success on one or both would have a dramatically positive impact on NEXON's financial profile.
Next, I will outline our updates for layering new virtual worlds and revenue opportunities onto our existing businesses. The first is Mobile Dungeon&Fighter, a game that generated more than 60 million preregistrations when it was announced in 2020. While we don't have any news to share with you today, under the direction of Myeong-jin, the team is developing significant additional content ahead of the launch. We remain extremely excited about bringing this game to our fans in China.
Next is KartRider Drift, a new Arcade racing title based on another popular NEXON franchise. While we haven't locked on a release date, our ambition is to give this title a simultaneous launch in multiple markets around the world. The team is now focused on polishing gameplay. As we announced earlier, KartRider Drift is currently being developed for both PC and the Xbox, and the team is studying ways to make the game enjoyable for worldwide players without any restrictions on when they play or on which platform. We will be making additional announcements about the content plan in coming months.
Next is the first game from Stockholm-based Studios. This game will be a mass market, virtual world, targeted to a large and well-established player base. In July, Embark hosted a milestone meeting and in-depth testing that included key leaders from NEXON. All who participated were deeply impressed. The team has been making rapid progress and the game is stunning, reflecting Embark's higher statistic standards, and importantly, the high priority they place on fine-tuning, the pacing and attention.
To make a AAA online play experience set in a virtual world would normally require massive investment of many hundreds of people. Fortunately, Embark invested heavily in creating tools for rapid content development. This set of tools and technology is available both before launch and after. Before launch, it results in not just faster development and lower development costs, but faster and deeper iteration in the development process since ideas can be tested and developed rapidly. Put simply, more iteration results in better, more unique game.
In AAA development, iteration is typically much harder due to the high cost of trying new ideas and throwing out what doesn't work. After launch, this tech stack means much faster introduction of new content into the live virtual world using a fraction of the development team. We think this tech stop will be a game changer for Embark's first title and for future games across the NEXON development portfolio.
In addition to our previously announced three big beats mentioned above, for the first time, NEXON unveiled several additional titles in our development pipeline at an announcement event in Seoul last week. 12 games in development were showcased, including Project Magnum, Project HP, Mabinogi Mobile and KartRider Drift. The tittles under development represent a variety of genres in target geographies, but all reflect the common theme of focus on fewer, the better online games in virtual worlds.
In addition to our robust content pipeline, NEXON is investing in innovative strategies for developing new revenue streams from a deep bench of blockbuster intellectual property. To date, we have exploited a small fraction of our potential, given the size and the popularity of our IP portfolio.
In July, we announced the appointment of Nick Van Dyk as NEXON's, Chief Strategy Officer and as President of NEXON Film and Television, a new division of the company focused on expanding the value and reach of our IP. Nick is well known in the global entertainment industry from his accomplishments as a senior executive at, The Walt Disney Company and later at Activision.
By way of context, over the last several months, I've had the privilege of talking with our new board member, Kevin Mayer, about how he, Bob Iger, Nick and others at Disney architected arguably the greatest media flywheel of all time during the 2000s. Their leadership resulted in an explosion of creativity and growth for Disney. Both Kevin and Nick see the same latent untapped value at NEXON that they saw previously at Disney, but now in a new era in a fully digital arena. So Nick's appointment is not about NEXON making movies, it's about harnessing the untapped potential of NEXON's intellectual property reaching new audiences for our core properties and driving revenue and profitability.
To summarize, NEXON is sharply focused on growth. We are making strategic use of a transitional period to improve our existing blockbusters to perfect and polish a pipeline of exciting new games and to maximize the value of our IP. Each of these projects targets a large potential player base with a unique product. That translates to the potential for fast growth into large markets. The reason we are so focused on the projects, I've highlighted today, is that any one of these initiatives could deliver a step function improvement in the revenue, profitability and long-term trajectory of our company. With that, I'd be happy to turn the call over to Uemura-san.
[Foreign Language] Thank you, Owen. Now I will review our Q2 2020 results. For additional details, please see the Q2 2021 investor presentation available on our IR website. Group revenues were within the range of our outlook at JPY 56.0 billion, down 13% year-over-year on an as-reported basis and down 21% year-over-year on a constant currency basis. The -- of the Kingdom of the Winds: Yeon exceeded our expectations, which was offset by the lower-than-expected performance of MapleStory in Korea. As a result, revenues were within the range of our outlook. Looking at the total company performance by platforms, both PC and mobile revenues were in the range of our outlook.
Operating income was JPY 15.4 billion, which was in the range of our outlook, while costs, including marketing costs, HR costs and outsourcing costs were slightly lower than the plan. Net income was JPY 9.0 billion, which was slightly below our outlook. While we recognized a revaluation gain from fund investments and dividend income as finance income, we recognized a revaluation loss of JPY 4.5 billion due to movements in the market price of Bitcoin. As for Bitcoin, we recognize it as an intangible asset in our balance sheet under IFRS.
Bitcoin will be reevaluated according to the market price at the end of each quarter. Gain or loss from the revaluation will be recognized up to the purchase price after the operating income line. On the other hand, revaluation gain, which is recognized above the purchase price, will be recorded as other comprehensive income in the consolidated comprehensive income statement.
Let's move on to results by region. Revenues from our Korea business were in the range of our outlook, as the stronger-than-expected performance of the Kingdom of the Winds: Yeon was offset by the lower-than-expected performance of MapleStory.
On a year-over-year basis, revenues were flat on an as-reported basis and decreased by 10% on a constant currency basis. Regarding MapleStory, we responded quickly to feedback we received in February regarding probability-based items. We took several steps to address player concerns, including compensation, probability disclosures on a probability-based items and engagement with players.
As a result, the number of active users, which had dropped sequentially since February, started to stabilize in late April then picked up in late June, driven by the summer update introduced on June 17.
However, revenue came in below our outlook due to lower-than-expected spending by players. We are still working on regaining our players' trust, and we'll continue to focus on making our games better by introducing a probability monitoring system and incorporating player feedback to improve the game experience.
Moving to FIFA ONLINE 4, PC and mobile combined revenues grew year-over-year due to well-received sales promotions. Sudden Attack maintained its momentum and grew revenue by 136% year-over-year, while Dungeon&Fighter's revenue decreased. Consequently, PC revenues in Korea decreased by 7% year-over-year. As for the mobile business, the Kingdom of the Winds: Yeon outperformed, driven by a well-received update and successful item sales targeting new and returning users.
On a year-over-year basis, mobile revenues increased by 14%, primarily driven by a contribution from the Kingdom of the Winds: Yeon and growth in FIFA ONLINE 4M partially offset by revenue decreases in V4 and KartRider Rush Plus. Revenues from our China business were slightly below our outlook. On a year-over-year basis, revenues decreased by 30% on an as-reported basis and by 37% on a constant currency basis.
Excluding the impact of JPY 2.3 billion one-off royalty income adjustment recognized in the year ago quarter, revenues decreased by 20% year-over-year on an as-reported basis and by 28% year-over-year on a constant currency basis. Dungeon&Fighter's revenue was at the low end of our outlook. In the second quarter, we tried to maintain user metrics through the Labor Day update in April and other events to address the drop in user metrics continuing from last quarter. However, active users and paying users continue to decrease until we introduced the 13th anniversary update on June 17.
While we saw a small rebound in active and paying users following the 13th anniversary update and a successful promotion aimed at bringing back users, both active and paying users decreased in Q2 sequentially and year-over-year. ARPPU and revenue decreased sequentially due to seasonality.
On a year-over-year basis, while ARPPU increased due to a decline in a portion of light users, revenue decreased year-over-year due to a decrease in the number of paying users. Revenues from Japan decreased by 22% year-over-year due to revenue decreases from Traha and MapleStory M, which more than offset contributions from V4, FIFA Mobile and Blue Archive.
Revenues from North America and Europe decreased by 13% due to choices revenue decrease despite the year-over-year growth of MapleStory and MapleStory M. Despite revenue increases from MapleStory and MapleStory M, revenues from Rest of World decreased by 29% due to revenue decreases from KartRider Rush Plus and V4.
Moving on to our FY 2021 third quarter outlook. Q3 2021 is faced with a challenging year-over-year comparison given the record breaking Q3 revenues and operating income we achieved in 2020. As a reminder, in Q3 2020, revenues from our major PC titles, including MapleStory, increased and our mobile business grew 140% year-over-year, driven by contributions from V4, KartRider Rush plus as well as the Kingdom of the Winds: Yeon, which launched in Q3 2020. Given this tough comparison, we expect our overall group revenues to decrease year-over-year in Q3 2021.
We expect our Q3 group revenues in the range of JPY 65.4 billion to JPY 71.5 billion, representing a 18% to 10% decrease year-over-year on an as-reported basis and a 24% to 17% decrease year-over-year on a constant currency basis.
We expect our Q3 operating income to be in the range of JPY 20.1 billion to JPY 25.3 billion, representing a 27% to 8% decrease year-over-year on an as-reported basis and a 35% to 18% decrease year-over-year on a constant currency basis. I will discuss the details of this shortly. We expect net income to be in the range of JPY 15.0 billion to JPY 18.9 billion, representing an 8% decrease to 16% increase year-over-year on an as-reported basis and a 19% decrease to 3% increase year-over-year on a constant currency basis.
Last year in Korea, on a constant currency basis, we achieved 115% year-over-year growth, primarily driven by the strong performance of MapleStory and a contribution from the Kingdom of the Winds: Yeon. Given that challenging comparison, we expect revenues from our Korea business to be down this year. We are looking for revenue to be in the range of JPY 34.5 billion to JPY 36.8 billion, representing a 32% to 27% decrease year-over-year on an as-reported basis and a 37% to 32% decrease year-over-year on a constant currency basis.
As for the PC business, we expect Sudden Attack to maintain a strong momentum and to grow approximately 2.8x year-over-year. We also expect FIFA ONLINE 4 to grow. However, we expect Dungeon&Fighter's revenue to be roughly flat year-over-year on a constant currency basis. As for MapleStory, the number of active users is trending lower than last year, and we are focusing on regaining trust of our users rather than focusing on the monetization of the game in the short term. Therefore, we expect this revenue to decrease compared to Q3 2020 when it grew by 71% year-over-year on a constant currency basis.
While we anticipate growth from Sudden Attack and FIFA ONLINE 4, we expect this to be more than offset by the decline in MapleStory. As a result, we expect PC revenues in Korea to decrease year-over-year. Regarding the mobile business in Korea, we expect revenues to decrease year-over-year, while we expect to benefit from KonoSuba, which is scheduled to launch on August 19, and anticipate growth from MapleStory M. However, we expect these to be more than offset by the revenue decreases in the Kingdom of the Winds: Yeon, V4 and KartRider Rush Plus, all of which had strong performances in Q3 2020 following their recent launches.
[Foreign Language] Turning to China. We anticipate Dungeon&Fighter's revenue to increase year-on-year. Accordingly, we expect revenues from China business to be in the range of JPY 19.4 billion to JPY 22.1 billion, up 23% to 40% year-on-year on as-reported basis and up 11% to 27% year-on-year on a constant currency basis. As for Dungeon&Fighter, we introduced the summer update on July 8. This update includes the introduction of the new job for our popular character as well as Avatar Package offerings, events and new Dungeons. And as usual, we will release the National Day update in September. The summer update was well received by users, the number of active users and paying users increased following the 13th anniversary update on June 17 and has remained solid.
Accordingly, current MAUs and paying users in July have increased since Q2 2022. Year-on-year, MAUs are at a lower level, while paying users increased. Revenue in July increased compared to July 2020, driven by the increase in paying users. We still need more time to carefully assess whether the current positive trend will continue, but we will try to maintain the momentum. As for mobile Dungeon&Fighter, it is not included in the Q3 outlook.
In Japan, we expect revenues in the range of JPY 2.2 billion to JPY 2.6 billion, down 14% to 2% year-on-year on as-reported basis and down 17% to 5% year-on-year on the constant currency basis. We anticipate contributions from Blue Archive, FIFA MOBILE to be more than offset by decreases from TRAHA and MapleStory M.
In North America and Europe, we expect revenues to be in the range of JPY 4 billion to JPY 4.4 billion, down 27% to 20%, year-on-year on as-reported basis and down 30% to 23% year-on-year on a constant currency basis, primarily due to the decrease in revenues from Choices and V4. We expect revenues in the Rest of the World in the range of JPY 5.2 billion to JPY 5.5 billion, up 4% to 11% year-on-year on an as-reported basis, down 3% to up 3% year-on-year on a constant currency basis.
While we anticipate the contribution from KonoSuba, which is scheduled to launch on August 19 as well as growth from MapleStory and MapleStory M, we expect these to be offset by decreases from KartRider Rush Plus and V4. In Q3 2021, we expect operating income to be in the range of JPY 20.1 billion to JPY 25.3 billion, down 27% to 8% year-on-year.
Unfavorable factors compared to Q3 2020 regarding the operating income include: first, the decrease in revenues; second, increase stock option cost and HR costs associated with the introduction of our new compensation policy in Korea. Favorable factors compared to Q3 2020 include lower variable costs associated with revenue decrease. Other favorable factors include decreased impairment loss of JPY 3 billion recorded in Q3 2020, which will not be repeated in Q3 '21.
The high end of the range reflects the fact that we expect the impact of the negative drivers to be larger than that of the positive drivers, resulting in year-on-year operating income decrease.
Overall, we see Q2 and Q3 2021 as a transitional period for making improvements to our key titles, such as Dungeon&Fighter in China, MapleStory in Korea to ensure our long-term growth. As we've explained before, online games grow in a nonlinear pattern with slow or even declining periods followed by rapid growth, if we operate well from the long-term perspective. I refer to MapleStory and Dungeon&Fighter as an example. But if you look at Page 18 of the investor deck, the same trajectory can be seen in Sudden Attack. In this way, online games can evolve over the long-term by conducting proper updates and care for daily operations.
We are not only pursuing short-term quarterly revenues and profits, but also operating our games with long-term perspective. The measures we have taken on our two major titles will surely contribute to our long-term success and bring us greater returns. Last week, we showcased a number of new games in our development pipeline. In addition to highly anticipated games, such as Mobile Dungeon&Fighter, KartRider Drift and the new title from Embark, we expect those titles to make a significant contribution to our revenue base and to drive the step function increase in our earnings power.
Lastly, an update on the shareholder return and capital allocation strategy. Based on our 2021 shareholder return plan, our Board of Directors today approved the payment of the dividend of JPY 2.5 per share for the interim period to the shareholders on the shareholder registry as of June 30, 2020. We are scheduled to pay the same dividend per share for the year-end of FY 2021. Regarding our 3-year JPY 100 billion share repurchase policy that we announced on November 10, 2020, we have not yet executed on this buyback. We would consider several factors, including investment opportunities, financial condition as well as the share price until the current plan ends in November 2023.
As to our investments in global entertainment companies, we have invested JPY 117.8 billion, which accounts for 72% of the $1.5 billion that Board of Directors authorized and recorded an unrealized gain of JPY 27.6 billion under other comprehensive income as for Q2.
Now back to Owen.
Thank you, Uemura-san. Before we begin Q&A, let me anticipate one of your questions. My question is, when will the first game from Embark and when will KartRider Drift be released?
I have two answers. The first is, If you absolutely had to put something in your model, put it in for the second half of next year, it could certainly be sooner. But here's the real answer. It's going to depend on when our developers feel they have an outstanding game that they are proud to show to their closest friends. Getting there is all about iteration, play testing and polishing. And any game company that is experienced and who's being honest with you, will tell you that this is not a linear process. Iteration is about making the game fun and that is an art challenge, not an engineering challenge.
So we can give you a date. That would satisfy your near-term need to plug something into your model, and it would generate near-term excitement from users, but then it would put the wrong type of pressure on our game developers. They would have to hit a date regardless of what is right for making the game fun.
In our industry, that's called crunch mode, which is industry parlance for put the game out by a certain deadline no matter what the costs are on the employees. Even after crunch mode, the game is often still not ready for launch. The result of all this is frequently disappointing customers, burn out, demoralize developers and damage brands and impaired financial returns for investors.
Crunch mode is one of the most pernicious problems in our industry. The charade of launch timing serves little purpose except as dance with equity analysts. Instead, the right thing to focus and push for is a game that blows people's minds. If we achieve that, the game will last for many years and the revenues will dwarf what we would have made by launching a quarter or 2 earlier.
I'm sorry nobody in my industry has explained this to you before. Within the industry, we all know it's true, and yet few talk about it openly. Everybody should. So rather than giving you a date, this team is going to give our customers and employees a commitment to make the best game we can as soon as we can. None of this is to imply that we are pushing back to date for any of our games or that we are experiencing delays. It is only to let you know as fully as we can, how we make our decisions on product launches. If your primary job is to fill in your Excel model, you'll hate our approach. But if you consider your job definition to be making money by identifying mispriced assets in the entertainment industry, we think you'll find our way a lot more lucrative.
With that, operator, we are ready to take your questions.
[Operator Instructions] [Interpreted] The first question is going to be from Mr. Han Joon Kim from Macquarie Capital Limited.
Technically, I have four questions, but I think that's a little bit much so I'll just do two first and then go back into the queue and see if there's time for the other ones. The two questions. I'll go one by one. And the first one relates to kind of the art versus engineering topic that I think Mr. Mahoney addressed. And we brought Myeong-jin Yun back as the Head of D&F Development and his tenure running that coincided with the best of days and then has subsequent move to the action studio kind of represented some decline in that. So we're bringing him back and hopefully, that resuscitate the business, but that -- does that necessarily mean that games as much as we try to systematically approach them and engineer them that art will ultimately try up in that sense. And just kind of thinking through maybe how to think through shelf life of game developers and their ability to empower kind of the games that they manage? And how can we maybe systematically approach it so that they live beyond the tenure of particular key individuals?
[Interpreted] Hi, Han Joon, this is Owen. I'll take a stab at your question. you're asking a very broad and very fundamental question about game development. I think it's a very, very good question. Frankly, we could spend all evening and probably a few more days talking about this exact question. Let me try by starting with some facts. And as you referenced, over the past 1.5 years, we introduced a number of updates. And they didn't resonate in a way that brought back the numbers that we had seen before. So we've been keeping at it. But just as a reminder, Uemura-san touched about this -- touched on this in a little more detail. More recently, both the anniversary update in June and the summer update in July were well received by users.
And as a result, we're seeing improvements in an active user number, the paying user number in July compared to Q2, which leads to year-over-year revenue growth expectations in Q3. We still need more time to carefully assess whether the current trend -- the current positive trend is going to continue, but we do hope to maintain that good trend. In the meantime now, our priority remains to improve user metrics for the long-term success of the game. And therefore, we think it's important to carefully control the monetization. So that's the basic status with Dungeon&Fighter now.
Now regarding the management change in, Myeong-jin Yun, we asked them to take the position of overseeing the entire Dungeon&Fighter franchise. And he's really an extraordinary creative leader. And he did a great job on China Dungeon&Fighter. He did a -- he's done an extraordinary job on Mobile Dungeon&Fighter. So we've been very happy, and we think it's the right time to put him in charge of the total Dungeon&Fighter franchise across all platforms. The question of what is systems and what is art, probably the answer to your question sits on a continuum, and it's not really binary. I would -- I think reasonable people can disagree on this, but I would be of the mind that it's not about systems so much because if it were about engineering projects then anybody could copy the technique or anybody could copy those systems, there is a lot of art that goes in here, and art in terms of having an year or 2 where the trajectory of the game should go over time. And that's where the art really lies. And that's a very special skill set.
In between the extremes of engineering and art is probably what a lot of people would consider technique. And there are a lot of techniques in the middle there between those two extremes. And I think if you ask 5 different people in the games business, they'll give you 5 different answers. We think that we're -- ultimately, though, we're in the entertainment business, and it's a form of art. So it's not an easily replicatable skill.
Great. So that dovetails into my second question. So under the idea that we can't really engineer or gimmick our way to rejuvenation of successive games. Do you think there's any consistencies in whether we could have systematically had warning signals for subsequent declines. So I think under your tenure CEO, we've had dips in performance in things like Sudden Attack or FIFA and now MapleStory and D&F. But as you watch games ebb and flow, do you think there would have been a systematic way to perhaps read and signal that things might have gone a little bit overheated on monetization, so to speak, and try to rein that in a little bit before we have meaningful deteriorations, which require significant surgery to the process for a period of time?
[Interpreted]
Well, I think the premise of your question is that when a game declines it is because of our monetization and I -- we just reiterate what we said over and over and over agian, and you've heard us say it many quarters in a row, which is we are very careful about the long-term health of the game. What we're doing here is fostering communities. You can see us doing it just this quarter, as we said in our prepared remarks, with MapleStory and Dungeon&Fighter.
Every quarter, there's lots and lots of opportunities to monetize more than we do, and we're not doing it. So I would probably not concur with what I think I heard is the premise of your question. But I will say when we put out new content, sometimes it resonates and sometimes it doesn't. And that is what has happened in various times. And when it resonates, the numbers can go up significantly. And when it doesn't resonate, people leave the game for a time, and then they'll come back when they see something that they like.
Again, I would refer you back to the graphic of MapleStory, the graphic of Sudden Attack, the graphic of many games. This has happened -- we've now been in this business for decades with these games, and we've seen that happen to go up and down.
[Operator Instructions] [Interpreted] The next question comes from Mr. Seyon Park from Morgan Stanley.
I have two questions. Both related to, I guess, China. First of all, if we look at the third quarter guidance, it does seem to be moderately better than the third quarter of last year. And I do believe that third quarter of last year was when we did see a big sharp decline for Dungeon&Fighter in China. I know that in the presentation that you're citing that you're kind of watching the trends closely, but I mean does it feel as if at least in terms of Dungeon&Fighter franchise in China that the trough or the worst kind of has passed, and we are seeing a bit of positive development going forward? That's my first question.
And then my second question is, given you are seeing on the news, talk about potential increased, I think, regulations for the video gaming industry in China. Is there anything that you can maybe provide some color on as to whether that may have any impact on your business with your existing games in China?
[Interpreted] Thank you for your questions. About the Dungeon&Fighter in China, let me talk about more specific improvements. As I mentioned earlier, first, we had the anniversary update to reactivate users. And then we had summer update to introduce good content. And as a result, the paying users increased and now we can expect some year-on-year growth. And if I may talk about our strategy a bit more with this summer update, we introduced a new job for a popular character. And before that, for the summer -- sorry, the anniversary update, we try to reengage and activate the users. So through those two updates, we had the synergy, and we had good results through those two update. And I think that's exactly the opposite of what happened in 2019 when we saw the decline of the Dungeon&Fighter.
And we always say that with the good daily operation and the series of updates, we can promote the growth of the titles. And this is a good example of that. But having said that, we have struggled for the past 2 years. Therefore, although we see some good signs, we have to be very careful and we focus on the operation. So at this moment, we cannot yet say that we have bottomed out, but we'd like to make sure that we maintain this good momentum. So we are not totally optimistic, but carefully monitoring the situation.
[Interpreted] Concerning your second question, the potential regulation from -- in China. It is true that there were some negative articles from a media about the gaming. But a few hours later when this article appeared, the article was modified and became more mild. And so far, we have not heard any official announcement from the Chinese government or Chinese authority in charge of this, about any potential regulation. And our partner in China, Tencent, has been saying that they are protecting the minors and -- to avoid any dependency of the minors on the games. And Tencent has taken measures and also made some announcements. And even before that, we have been very careful about that.
And your question also mentioned the impact on our business. And we have been analyzing the demographics of the Dungeon&Fighter players or users. And it is the fact that there are very few minor players, who are paying users for Dungeon&Fighter. And most of the players actually are, in fact, in their 20s. So we are very -- being very careful about the protection of the minors. And at the same time, we do not see any major impact on our business from this.
[Operator Instructions] And the next question will come from Mr. Han Joon Kim from Macquarie Capital Limited.
Great. Thanks for chance to ask again. Just accounting-wise, the tax rate for the first half seems a little bit high. So can you just walk us through the latest tax issues on why first half is high and how to think through the ebbing provincial tax treatment from Tokyo?
[Interpreted] So, Han, thank you for your question. Now we close our numbers every quarter. And so of course, even with tax, we do close the numbers every quarter. And this time, it's not that there was any specific event. There are some quarters, there are some times when we have higher tax and sometimes where we have lower. But then if we have tried to look at this on an annual basis, for the year 2021, we expect the annual tax rate to be in the range of 20% to 25%.
Understood. And then the second follow-up question is regarding the buyback. Is there any particular reason why you haven't started yet compliance or any other particular hurdles to come -- to overcome?
[Interpreted] So it is true that last year, back in November, we announced that we'd like to do a buyback of JPY 100 billion size of a 3-year time period. And this is something that we'd like to commit to. And so we'd like to make sure that we do execute this type of buyback, the deadline would be November 2023. Now -- but then, of course, there are several factors that we do have to keep in mind before we execute the buyback. First of all, there's a legal requirement so that needs to be overcome. And then after that, we do want to look into other circumstances. For example, the market circumstances. What is the capital that we would have? And what are the situation, circumstances around M&A, et cetera. So those are some of the things that we'd like to assess before deciding whether or not we'd like to do a buyback. And of course, if we do execute buyback, we'd be ready to announce that to the market. And so again, it is true at this moment out of the JPY 100 billion, we have not executed a yen of buyback at this point, but it's all the circumstances that we are looking at, at the moment.
[Operator Instructions]
This concludes the question-and-answer session. Ms. Ara, at this time, I'd like to turn the conference back over to you for any additional or closing remarks. .
Thank you. If there are no further questions, I would like to take this opportunity to thank you for your participation in this call. Please feel free to contact the NEXON IR team at investors@nexon.co.jp should you have any further questions. We appreciate your interest in NEXON and look forward to meeting you, whether it is here in Tokyo or in your corner of the world.
Thank you. That concludes today's conference. Thank you for your participation. You may now disconnect.