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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 2018 Third Quarter Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Maiko Ara, Head of Investor Relations. Please go ahead, ma'am.
Hello, everyone, and welcome to NEXON's Earnings Conference Call. Thank you for joining us today. With me are Owen Mahoney, President and CEO of NEXON; Shiro Uemura, CFO; and Patrick Söderlund, CEO of our new partner Embark Studios and a candidate for NEXON's Board of Directors. Today's call will contain forward-looking statements including statements about our results of operations and financial conditions such as revenues attributable to our key titles, growth prospects including with respect to the online games 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 owners 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 of our -- 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, www.ir.nexon.co.jp/en/ following this call. Unauthorized recording of this conference call is not permitted. Lastly, we would like to inform you that there is a correction to the glossary included in the Appendix to the Investor Presentation. For details, please see Page 30 of Q3 Investor Presentation. If you have any questions, please contact NEXON Investor Relations. I'd now like to turn the call over to Owen.
Thank you, Ara-san, and thank you all very much for joining us today. I'm pleased to report that we had another great quarter, with our business delivering solid results around the world. Results represent record Q3 revenues, operating income and net income, and we also delivered the highest quarterly mobile revenues in our history. These excellent results were primarily driven by the continued strength of our biggest franchises across the regions. The credit for the sustained growth in these franchises goes to the outstanding work by our live operations and live development teams around the world. The work by these incredibly talented people is the key to building sustainably growing, Software-as-a-Service-like business. We believe NEXON has the best live teams in the world. Our world-class live teams are one way NEXON is different from the traditional games industry model. The games industry has recently been retooling to digital online and recurring revenue models. That's been NEXON's approach since day 1. Another difference is how we build for the future. In a traditional games approach, most of your revenues come from games that were recently launched in the last 1 to 2 quarters. In an online approach, most of your revenues comes from games you launched well over a year ago. That difference means in the traditional approach, the key point of analysis was to look for catalysts, which means evaluating the pipeline of new product launches. In the purely online approach, it's about growing the game world over many years. This is conceptually similar to a SaaS model, in that the primary objective is about delivering annuity-like returns by continuously adding to and growing out the offering. This difference of approach is why NEXON has been able to consistently build its business over the long term, rather than being distracted by the noise in the short term. And the growth of those SaaS-like game worlds, along with our pipeline of new games, makes us confident in the future. Now let me talk about our progress during the third quarter. We introduced the National Day Update to China Dungeon&Fighter on September 17, and it's been performing well. Sales from this update during the quarter were very strong, and as a result, Dungeon&Fighter exceeded our expectations, showing double-digit growth year-over-year in local currency terms and record Q3 revenues. While most people don't know this, Dungeon&Fighter is now among the very largest game franchises of all time, in terms of life-to-date revenues. More importantly, while there may be fluctuations depending on timing and performance of individual updates to the game, in reviewing the KPIs and activity within the game, we are seeing resilience and growth well into the future. On to MapleStory. It's been a great quarter for the MapleStory franchise around the world. Last quarter, we said the MapleStory PC had an incredible 61% year-over-year growth in Korea, following the successful 15th anniversary event and Summer Update. The Summer Update, which started in Q2, continued its strong performance in Q3 along all key metrics, including MCCUs, ACCUs, MAUs and paying users. This strong engagement drove MapleStory to exceed the very high expectations we built into our guidance and resulted in it growing 129% from the same period last year. Like D&F, MapleStory is bigger than it has ever been in its 15-year history. This is precisely what we mean when we use the term forever franchise. Meantime, the mobile version of MapleStory, which we launched 2 years ago, had another great quarter, growing significantly both quarter-over-quarter and year-over-year. Again, thanks to the great work by our live operations and live development teams, the game grew 134% year-over-year in Korea. And in July, we launched the game outside Korea to the global markets, excluding Japan and China. It's off to a solid start. And last but not least in the world of MapleStory IP, we launched MapleStory2 for PC in the West in October. We made a lot of changes to the game for its launch in the West, specifically to foster a high retention, and it's off to a great start. While it's still early, so far we're seeing the kinds of KPIs that we know from experience leads to long-term success. And so far on Twitch and Reddit forums, our players have given high marks to both the development teams in Korea and the operations team in the U.S. These results underscore the strength of NEXON's IP bench. Both Dungeon&Fighter and MapleStory are getting both stronger in engagement and bigger in revenue than they've ever been. Now let me shift gears and give you a quick update on FIFA ONLINE 4, which we service in Korea in close partnership with the game's developer Electronic Arts. The transition from FIFA Online 3 to FIFA ONLINE 4 has gone very well and the revenues as well as the key metrics, such as MAUs and paying users, were all up nicely quarter-over-quarter. Again, our focus is on the continued long-term growth as a franchise, and we are very happy with the progress. Looking ahead, we have a rich library of new games we will launch around the world. These include some of the most long-established and beloved IPs, including Mabinogi, TalesWeaver, Crazy Arcade BNB and The Kingdom of the Winds. We will be showing several of these at the upcoming G-STAR show in Korea later this month.
NEXON's ability to make immersive virtual worlds that grow over many years is highly unique and incredibly powerful. Longevity, which means players coming back from many months or years, is the most powerful concept in online games on any platform. Although much of the industry is focused on near-term catalysts, product launches and app store rankings, it's player longevity that builds forever franchises that have enduring benefit for customers, employees and shareholders. And that leads to the topic of Western game development and our investment in Embark Studios, which we announced earlier today. Embark is a new game development studio located in Stockholm, Sweden, headed by Patrick Söderlund. Patrick is one of the most prolific and successful creative leaders in the video games industry. He was responsible for creating the highly innovative Battlefield franchise almost 20 years ago and then building it into one of the largest and most iconic franchises in the industry. His most recent position was Chief Design Officer and Head of Development of Electronic Arts, where he led the renaissance in their game development efforts over the last several years and oversaw the growth of blockbuster franchises such as Star Wars, Need for Speed: Edge, Madden NFL and FIFA. NEXON is the sole strategic investor in Embark Studios and will serve as the worldwide operator of the new properties developed by the company. Similar to our relationship with EA for FIFA Online or Valve for Counter-Strike Online, NEXON will manage the day-to-day live operations of the game worlds, including customer interaction, in-game events, customer support, user acquisition and localization. Additionally, Patrick will be nominated to serve on NEXON's Board of Directors. The nomination is expected to be ratified at the NEXON Shareholder Meeting in March 2019. As an executive with years of experience making hit game franchises in the Western market, we think Patrick will bring a unique perspective to NEXON's Board of Directors and will help shape NEXON's vision for years to come, especially for development of games that appeal to a global audience. And NEXON's Board of Directors and I feel it's important and appropriate for the board of a video game company to have a game developer as one of its members, especially someone as capable as Patrick. I've asked Patrick to join us on this call to briefly -- to talk briefly about his experience -- his perspective. But before that, I want to briefly talk about what this means for the future of games and of NEXON. In preview, this agreement represents the marriage of our complementary skill sets in game development and operations of online games, of expertise in the East and West games markets and of the highest caliber of people. In our view, the online games industry is just beginning. It's only been 25 years since NEXON brought the first graphic massively multiplayer online game to the market, The Kingdom of the Winds. Over the next 25 years, we expect new technologies like AI, machine learning and even AR to establish -- to enable vastly different user experiences. This is great news for the industry if the industry chooses to innovate and take creative risks. Despite the incredible advances in technology in just the last few years, our industry has been slow to catch on and leverage the new technologies to bring great game experiences to customers. Yet all of the biggest new franchises of our industry, whether from NEXON or from other companies, had major innovative leaps at their core. So the time is now for the next big innovative leap. But to pull off great innovation requires both clear vision and great execution. Embark Studios is just that sort of team. So now I'd like to introduce Patrick Söderlund.
Thanks for the extremely kind words, Owen. This partnership between Embark Studios and NEXON is built on a deeply aligned vision about the future of interactive entertainment and about challenging the standard conventions and practices of how to create. What will interactive experiences look like in a few years? Connected players, Big Data, speech recognition, cloud compute, advanced AI and more. What new play will open up? Embark are a group of veteran creators eager to move beyond current play experiences. Committed to a modern development approach, our past pushes us to explore new creative methods. Very few companies and leaders in our industry dare to see around the next corner, dare to think about the future of interactive entertainment, and most importantly, try to do something about it. In Owen and NEXON, I feel we have the perfect partner to do just that. NEXON knows how to not just build incredible IP such as Dungeon&Fighter and MapleStory, but to design experiences that keep players in these worlds for over a decade. The ability to understand what engages, entertains and brings value to players long term is the most powerful ability for any games company. Further, NEXON has built most effective and powerful game operations, live service and player relationship model, which has become the gold standard utilized by nearly all of the most successful games businesses around the globe, while still underestimated in the West. And finally, what I've seen of the leadership at NEXON has been a fearlessly bold vision and frictionless decision-making ability to help create brand-new forms of interactive entertainment. As we embark on this long-term venture with NEXON, and as I hope to take a seat at the table as a board member, I'm extremely excited and committed to help realizing our mutual vision for the future of our industry and to push the limits of what is possible. I will now like to turn the back call to -- turn the call back to Owen.
To conclude, among all the noise in the industry right now, NEXON's business continues to grow over the long term, and we are methodically investing and building for a very bright future. We believe other opportunities to invest will arise in the future and we intend to act aggressively when great opportunities appear. On behalf of our entire management team, we thank our shareholders and our partners for your support, and especially our thousands of employees around the world for their hard work in making NEXON stronger than ever. With that, I'll turn the call over to Uemura-san to discuss the Q3 results and the Q4 outlook.
Thank you, Owen. Now let's move on to Q3 results. For additional details, please see the Q3 2018 Investor Presentation available on our IR website.
We are pleased to report that the revenues exceeded our expectations for the quarter. Q3 revenues were JPY 69.3 billion, up 15% year-on-year on as-reported basis and constant-currency basis. The operating income was JPY 23.7 billion and the net income was JPY 22.3 billion, both of which were in the range of our outlook. The revenue outperformance was primarily driven by the strong start of Dungeon&Fighter China's National Day Update as well as the stronger-than-expected result of MapleStory in Korea, driven by the successful Summer Update. Despite the revenue outperformance and lower-than-planned costs, including HR and marketing costs, these were offset by a JPY 7.3 billion impairment loss, primarily on NAT Games, goodwill and game IP. Accordingly, the operating income was in the range of our outlook. Net income was in the range of our outlook while we recorded JPY 1.9 billion FX loss on our U.S. dollar-denominated cash deposits related to the depreciation of the U.S. dollar against the Korean won during Q3. Revenues from our China business in Q3 exceeded our expectations, driven by the solid performance of our key title, Dungeon&Fighter. For Dungeon&Fighter, we introduced the National Day Update on September 17, and it got off to a great start. The stronger-than-expected sales of -- from the Avatar Package designed for the special dungeons playable for a limited period of time helped push the revenues above our expectations. During Q3, revenues, ARPPU and MAUs for Dungeon&Fighter all increased quarter-on-quarter due to the typical seasonality. Meanwhile, the number of paying users decreased quarter-on-quarter. This was primarily due to the high comps with the previous quarter with a high base of paying users, driven by small item sales in time for seasonal events. Revenues, ARPPU and MAUs increased year-on-year. Paying users decreased slightly year-on-year.
Revenues from Korea in Q3 exceeded our expectations, primarily driven by the strong performance of MapleStory. MapleStory's revenue grew 129% year-on-year, driven by the successful Summer Update continued from Q2. MAU and paying users were also up significantly year-on-year. As a result of this, total PC revenues in Korea increased year-on-year. Following the launch of the PC service in late May, we launched FIFA ONLINE 4M, the mobile service, in late July. Both are going well and revenues for both have increased significantly on Q-on-Q basis. We are planning to gradually grow FIFA ONLINE 4 through content updates, the introduction of new players and events. That said, we expect it will take more time before the revenues return to the pre-transition level. Mobile game revenues in Korea are slightly above our expectations, primarily driven by the strong performance of MapleStory M, while revenues were down year-on-year. While we benefited from OVERHIT, KAISER and strong performance of MapleStory M, these were more than offset by the decrease from Dark Avenger 3, AxE, both launched in the second half of 2017, as well as FIFA ONLINE 4M impacted by the service transition. Revenues from Japan in Q3 decreased year-on-year. While we benefited from OVERHIT and good start of the new mobile game Dynasty Warriors: Unleashed, launched on September 20, these were more than offset by the decrease from the mobile browser games HIT and HIDE AND FIRE. Revenues from our North America business in Q3 were up over 2x year-over-year, primarily driven by the contributions from Pixelberry Studios, which we started to consolidate in Q4 2017; MapleStory M, launched in July; and Darkness Rises, launched in June. Revenues from Europe and Others in Q3 were also up over 2x year-on-year, primarily driven by contributions from MapleStory M, Darkness Rises and Pixelberry Studios. Now turning to our Q4 2018 outlook. For the Q4 of 2018, we expect revenues in the range of JPY 45.9 billion to JPY 50 billion, representing 13% to 5% decrease year-on-year on as-reported basis and 10% to 2% decrease year-on-year on a constant-currency basis. While we expect revenues to increase year-on-year in Japan, North America, Europe and Others, we expect these to be more than offset by revenues' decreases in China and Korea. Accordingly, we expect the NEXON Group revenues to decrease year-on-year. We expect our operating income to be in the range of JPY 6.4 to JPY 8.8 billion. We expect our net income to be in the range of JPY 7.6 billion to JPY 9.6 billion. In China, we expect revenues to decrease year-over-year due to revenue decreases in Dungeon&Fighter and MapleStory2. For Dungeon&Fighter, aside from the National Day Update continued from the third quarter, including limited-time-offer dungeons as well as Avatar Package sales, no other large-scale content updates are planned during the fourth quarter.
We expect Dungeon&Fighter revenue for the fourth quarter to decrease year-over-year. The initial sales from the National Day packages were strong in the third quarter, contributing more to the third quarter than we had initially anticipated. Meanwhile, we expect gross revenues of Dungeon&Fighter to increase year-over-year on a local-currency basis for the full year of 2018. If you recall, last year in Q4, the comps were very good and our China business had a nice 48% year-over-year growth. While we expect this year's Q4 revenues to be down from last year in the same period, we continue to be happy about the health of our business in China. In Korea, we expect MapleStory's revenue to increase, driven by the continued strength and the successful Summer Update, while we expect other key PC online games' revenues to decrease, resulting in PC revenues to be roughly flat year-over-year. On the other hand, for the mobile business in Korea, we expect revenues to decrease year-over-year, primarily due to decreases in AxE and OVERHIT, both of which launched in the second half of 2017. As a result, we expect the revenues of our Korea business to decrease year-over-year. In Japan, we expect revenues to increase year-over-year, driven by contributions from FAITH, which is set to launch in the fourth quarter; and Dynasty Warriors: Unleashed, which launched in the third quarter.
In North America, we launched MapleStory2 on October 10, and it has gotten off to a good start. We expect revenues from the North America business to increase year-over-year, driven by contributions from Pixelberry Studios, which we started to consolidate from the end of November 2017, as well as from MapleStory2, MapleStory M and Darkness Rises. In Europe and Other regions, we expect revenues to increase year-over-year, driven by contributions from Pixelberry Studios as well as from MapleStory M and Darkness Rises. In the fourth quarter of 2018, we expect the operating income to be in the range of JPY 6.4 billion to JPY 8.8 billion, representing a year-over-year decrease of 46% to 25%. Negative factors compared with 2017 Q4 on operating income are: first, decreased revenues, including the high-margin China business; second, increased HR costs, primarily due to increased headcount in relation to mobile business growth as well as consolidation of game studios, such as NAT Games and Pixelberry Studios; third, increased marketing costs associated with promotions for new titles, including Japan service our FAITH and Dynasty Warriors: Unleashed and MapleStory2 global service as well as promotions for Choices; last, increased platform fees associated with increased mobile revenues and increased costs of cloud services associated with increased number of new mobile launches.
Favorable factor compared with 2017 Q4 on operating income is the decrease in impairment loss of JPY 4.2 billion, which we recorded in 2017 Q4 and will not be repeated in 2018.
The high end of the range reflects the fact that we expect the impact of negative drivers to be larger than that of positive drivers, resulting in a year-over-year operating income decrease. As you can see on Page 15 of our Q3 Investor Presentation, for the full year 2018, we expect revenues, operating income and net income to all grow year-over-year.
Full year 2018 group revenues are expected to grow year-over-year, primarily driven by the growth in our China business with strong performance of Dungeon&Fighter as well as the growth in North America, Europe and Other regions with contributions from Pixelberry Studios and new mobile games, including MapleStory M and Darkness Rises. We expect full year 2018 operating income to grow year-over-year, primarily driven by the growth in our high-margin China business as well as strength of our in-house title, MapleStory in Korea. While we are guiding and reporting on quarterly basis, the cadence of our business is over years. We remain confident about the prospect of our long-term business. Now we'd be happy to take your questions.
[Operator Instructions]
So the first question is from Keiichi Yoneshima of Crédit Suisse Securities (Japan) Limited.
[Foreign Language] Yes. This is Yoneshima of Crédit Suisse Securities. Actually, I have 3 questions, but I'll ask them one at a time. My question is about the impairment loss. This is mainly for the NAT Games and game titles. So in the case of NAT Games, there are titles such as HIT and OVERHIT. So I understand that the impairment loss is -- from others' game titles. But are there any other major items in terms of the impairment loss?
[Foreign Language] Yes. Thank you for the question. The question is about the impairment loss. At the time of the acquisition, of course, we evaluated the titles such as OVERHIT and HIT. And there is actually one -- another new type -- new one in the pipeline. And so we calculated the value. And at the time of the launch in Japan, we did have some achievement with the OVERHIT. But it was not as high as what we expected. Therefore, we made a review. And at this time, we recognized the impairment loss of about JPY 7 billion.
[Foreign Language] So the question number two is a bit on other details on Page 19 of the presentation material. And this is about the major indices. And specifically about the MAU, we see the change of recovery from the second quarter to the third quarter. So could you tell us the reasons behind this change?
[Foreign Language]
[Foreign Language] The question is about the increase from the second quarter to the third quarter looking at the MAU.
[Foreign Language] Yes. Thank you. About the increase from second quarter to the third quarter, this is mainly due the seasonality, namely the National Day holiday in China as well as Chuseok holiday in Korea. So it was a high season that pushed up the MAU. In terms of the titles, in Korea, it was MapleStory, and in China, it was Dungeon&Fighter.
[Foreign Language] My third question is about your guidance about the fourth quarter. We understand that there will be no major update in China in Q4, but you did not have any last year. So it seems that this decline -- expected decline is a bit too large. And Owen earlier mentioned that -- some noise in relation to the regulation in China. So at this time, do you think that the regulation matter in China had some impact on this? Or is it just reflecting the [ 2 ] good results in the third quarter and this is just a time lag? So do you expect a steady or solid business in China business?
[Foreign Language] Yes. About the decline in China, this -- in addition to the factor of Dungeon&Fighter, there was some impact from the MapleStory2. MapleStory2 had a very good start in the Q4 last year. And it has had very good results. And at this moment, it is struggling a little bit. And so that was one of the factors behind this decline. As for Dungeon&Fighter, it is doing very well. And one of the reasons behind this decline is that balance between the Q3 and Q4 revenue. Last year, if you look back at the Q3 and Q4, we're relatively well-balanced in terms of the revenue. But this year, due to the good revenues of the National Day Holiday update, there was a higher revenue than expected in Q3. Therefore, if you look at the Q3 and Q4 or as second half of this year, there is a year-on-year growth in comparison to last year. So this is just a matter of the balance. And you asked about the impact from the regulations. So far we have seen none, no impact. And it is -- has to do with the operations. So we do not see any problems or issues, and rather, the China business is doing well.
[Foreign Language] The next question is from Ms. Junko Yamamura of Nomura Securities Co. Ltd.
[Foreign Language] This is Yamamura of Nomura Securities speaking. I have 3 questions altogether. Firstly, about impairment loss. If we try to add back the impairment loss and look at the figure in comparison with the guidance, I understand that you exceeded the upper range of guidance by JPY 5 billion. I understand that National Day Update trended very well, but what was the reason that made you go above the expected range if you add back the impairment loss? Is this the good sales of expensive items? Can you elaborate on the reason behind this?
[Foreign Language] In terms of Q1 and Q3 comparison, Q3 is the next best quarter for us. And in terms of the update that we had made, the package sales were very well-received and also the avatar design was well-accepted by the users as well. Therefore, it led to the increase of the revenues. And when you look at the Q2 and Q4, in which we try to sell inexpensive items, in Q3, we focus on expensive items sales, so ARPPU went up. And if I may talk about the details regarding the content design, it was well-received. So all in all, that led to the good result that we got in Q3.
[Foreign Language] I would like to move on to the second question, which might overlap with the previous question. Regarding the plan for China, I understand your explanation. But when you try to compare the second half against the second half of the previous year, you did so well in the third quarter so that when you come up with the estimates/plan for Q4, did you decide to lower the number in totality? And in Q3, item sales of expensive items were very good. And in Q4, you did not have a similar plan. Therefore, in order to manage the operational aspect of the game that you provide, you came up with the lower numbers for Q4. Is that the reason?
[Foreign Language] National Day Update was very good, and also that was the case in 2017 as well. But regarding what has had happened in 2017, the good trend continued for a long time. Whereas in terms of 2018 Q3, it started out gradually and was able to follow the similar pattern as that of 2017. So I do not think that there is a major difference in pattern between 2017 and 2018. And your question was looking at what had happened in Q3, did we try to tone down in Q4? No, that is not the case. We started very well in Q3. And when you take a look at different KPIs of 2017 for comparison, in Q4 of 2017, we -- it trended steadily. So we tried to look at the situation of what is happening at this point in time and knowing the fact that seasonality-wise Q4 tends to slow down. And so instead of trying to focus on the sales of expensive items, we tried to focus more or less on the user engagement so that we can be well prepared for 2019. And that is the reason why we do not try to push our monetization and by trying to sell many items. Once again, I repeat, Q4 is a slow season, to begin with. And when you try to compare what had happened in Q4 of 2017 and 2016, in 2017, we were able to grow more than [ 30% ] year-on-year. And in Q4 of 2017, we did very good. So you understand that comp-wise, hurdle is very high. And so when you just look at second half to second half comparison, we are growing and especially Dungeon&Fighter is doing very well.
[Foreign Language] This is my last question. Regarding China's regulations, I understand that today, you have not been impacted by it. But regarding Tencent and what they are doing regarding the countermeasures against the regulations, I hear that they are lowering the market cost. And also, I heard that they will be more stringent in identifying the business partners that they will be working with. And I want to know whether there is any concern regarding their movement. And next point is -- this is not a question, but just a proposal or advice that I can give to you. Owen mentioned in his presentation that game must be evaluated from a mid- to long-term perspective. And in terms of the guidance, however, you give a quarter-to-quarter guidance. And -- but given the regulatory movements that you see in China, we, in the market, are quite sensitive to what will happen in the future. So maybe the guidance that you are giving might be misleading. And on top of that, you don't provide any midterm plans. So are you discussing internally any ways in which you can fine-tune the guidance so that you would not mislead the market?
Correction from the interpreter. The action taken by Tencent is not trying to confirm the business partner, but rather Tencent is announcing that they will reinforce the identification of the users.
[Foreign Language] Regarding Dungeon&Fighter, this is the main title that we have in China. And so far we have been conducting discussions with Tencent. And if there is any need for voluntary restraint, we will come up with measures. And then the same policy will be taken in the future as well. So if we need to, we will take the right measures. And so, I do not think that -- there is nothing to be concerned of right now. [Foreign Language]
About your next point about the mid- to long-term plan and the way we provide guidance, as we have mentioned, it is true that we conduct management on a mid- to long-term horizon. And it will be great if we can provide you with numbers accordingly. But in terms of the game industry, it will be quite challenging, because the speed of change is very fast. And given that situation, today we can provide you with accurate numbers, just looking at the next quarter. And it will be quite challenging to come up with the longer horizon, for example, full year plan as a guidance. And if we do that, and if we happen to miss on the next quarter, then based on KSE rule, we have to provide with the adjustment announcement. And if that happens, that will be misleading as well. And having said that, I hear you. So we will try to think about what will be the better way to provide guidance to the market as well as investors so that we will not be misleading. And I will take your advice and we will try to look into the matter.
[Foreign Language]
We will do our business well so that I hope that we will be able to discuss this matter in the future as well.
[Foreign Language]
Thank you very much. Looking forward to collaborating with you in the future as well.
Our next question comes from Han Joon Kim from Deutsche Bank.
I was hoping to ask Patrick a question since it's rare for us to have him on the line. And I think we've talked about the idea that we're trying to make a game that's innovative and leveraging all the technologies that's coming on board. I doubt you're talking about VR. So within the spectrum of technologies and whatnot. If you can just help elaborate a little bit more on how you're seeing kind of the video game world evolve and what you hope to achieve, that would be helpful, and add a color. And alongside that, I think, you just recently started your firm as well. So is something that we should be expecting 2, 3, 4 years from now? And sort of how do we think about the fact that you may be working on some new technology today, but there might be technology shifts that come from other competitors at a time. So how do we think about the timing and your sense -- the immediacy about what we're trying to achieve at the current junction? [Foreign Language]
This is Patrick. Thanks for your questions. I -- regarding the technology components, I think it's important to think about this from a couple of perspectives. I look at it from the perspective of new technology coming out, whether it's machine learning, whether it's cloud compute, or the fact that you can talk into a computer it will respond intelligently back to you today. I just look at these technological advancements as incredible segues to new types of experiences in games. And -- that's where you have to start. So I'll be honest with you. I don't know exactly what technology we are going to build, because this is the first, basically, week we're open for business. But what I do know is that we have a vision that I think spans away from what's currently in the market and utilizes some of these technologies. I think it's important also to acknowledge that we would never build technology for the sake of building technology. It starts with the experiences that we want to build and the experience that we want players to experience as they play our products. So that's kind of the approach we take on tech. [Foreign Language]
When it comes to timing, your question is accurate. If we were to build tech and at the same time try and build a game, it would take us a very long time to do that. So our approach would be one of probably utilizing existing technology that's available to license today with our maybe first or even second product; and at the same time, add to that technology base the things that we want to prove out for the long term. So it could be a game that may appear to be traditional in its formula but have a couple of components that we want to test or it could be something like we spoke about like speaker -- speech recognition. It could be immense scale. It could be a neural network-based AI system that we want to try and build. So for us, it's like we're going on a journey where we start maybe smaller, but we evolve over time with a vision of building something, including something that is -- will make a mark in this industry. That's our approach. [Foreign Language]
My last point would be, we can't -- the way I look at it is, we didn't build Embark to go away for 5 years and hide in a corner then show up with something that may or may not work. We want to be very transparent with players, with people and the press, and we want to show things, hopefully, earlier than people can anticipate from us. That's going to be our approach and we'll see how we do. Well, I think, we're going to be fine. [Foreign Language]
I just have some follow-up housecleaning issues, just in terms of your fourth quarter guidance for your North America and other regions. I've noticed that your guidance, basically, implies that U.S. -- or North America is sort of flattish quarter-by-quarter, whereas Europe is down. And I presume is due to MapleStory. So if you can just kind of help us understand why the U.S. -- or North American operations are more flattish and European operations seems to be a little bit down quarter-over-quarter, that'll be good. And then just lastly, depreciation. It picked up a little bit this quarter, so I'm just trying to understand the right -- what the right level to think about in terms of depreciation and what's causing the movement. [Foreign Language]
[Foreign Language] So regarding North America business, I understand that your question is on Q4. In Q3, as you have mentioned, MapleStory M as well as Dark Avenger 3 did very well. And as time passes by and we enter into Q4, I understand that the business will slow down regarding these titles. Even though MapleStory2 will trend favorably, we expect the mobile to slow down slightly. Therefore, all in all, we believe that business-wise, Q4 is lower than Q3. [Foreign Language]
Your next question on NAT Games depreciation, since we have recognized impairment lost (sic) [ loss ], the amount of depreciation will go down slightly. I cannot disclose you any numbers, but the amount that we have recognized as impairment loss will no longer be deemed as the amount to be depreciated. Therefore, the depreciation amount will go down slightly.
[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.
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