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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
[Interpreted] Good day, everyone, and welcome to NEXON's 2019 Third Quarter Earnings Conference Call. Today's call is being recorded. And 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 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 statement. 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, www.ir.nexon.co.jp/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 thank you all for joining. Today, I'm going to begin with a brief update on our performance in Q3. I'll follow with a broader outline of the strategic imperatives that we've defined to grow NEXON's global business.
My intent today is to show you that while our short-term performance is being challenged, NEXON's management of live games, our recent investments and our retooling of our new game development projects reflect a larger strategy for robust success and profitability in both Asia and in the West.
Group revenues came within our expected range despite the FX headwinds during the quarter. Our Korea business showed excellent results, exceeding our expectations, driven by strength in our key franchises, including MapleStory and FIFA Online 4.
On the other hand, the results in China were below our outlook due to lower-than-expected performance of Dungeon&Fighter. I will discuss Dungeon&Fighter in more detail shortly.
First, MapleStory. Q3 was another outstanding quarter for MapleStory in Korea. Both PC and mobile set lifetime high quarterly revenue in this 16-year-old franchise. On a constant currency basis, PC revenue grew 8%, which was well above our expectation and surpassed the previous peak in Q3 of last year. You might recall that in the year ago quarter, MapleStory received a massive update for its 15th anniversary, and as a result, grew 129% year-over-year in that quarter.
So growing an additional 8% this year, on top of that high hurdle, is quite a feat. The driver this year was the successful summer content update as well as events and sales for Korea Thanksgiving, all of which were hits with our customers.
We're also starting to receive operational benefits from the AI technology developed in our Intelligence Labs unit. MapleStory M, the mobile version of MapleStory, delivered stronger-than-expected results in key territories.
In Korea, the game grew 51% year-over-year, surpassing the record quarterly revenue we achieved in Q4 2016, the quarter in which the service began in the region. MapleStory M has grown at a double-digit or more pace for its remarkable seventh consecutive quarter in Korea. Together, MapleStory PC and MapleStory mobile, demonstrate 2 important points about NEXON's live franchises and our future. First, both games have, yet again, shown that they can grow to new revenue heights even after periods of decline.
Second, the opportunity for growth and longevity for deeply-immersive games is as strong on mobile as it is on PC. This bodes well, not just for the future of MapleStory, but for upcoming mobile games, such as D&F. It is important to remember that there are now roughly 3 billion smartphones around the world that can play a highly immersive online game. So the massive market expansion, combined with proven longevity, is a very powerful tailwind for this and other Nexon franchises.
FIFA Online 4 also delivered stronger-than-expected results in the third quarter. The combined PC and mobile revenues increased significantly year-over-year. We have been extremely happy with FIFA's post service transition performance this year.
Now on to China Dungeon&Fighter. As we said during the previous call, we observed weakness in the key performance indicators of Dungeon&Fighter beginning in June as the 11th anniversary update in that month and the July summer update did not resonate as well with our players as we had planned. Accordingly, we are aggressively addressing the customer feedback through updates and new content that will extend over multiple quarters. However, we expect that getting revenue back on track will require another 2 to 3 quarters.
Over the course of Q3, we introduced the summer update and the National Day update. In addition to these 2 regular seasonal updates, we also rolled out several in-game updates -- in-game events. The content and Avatar design of our National Day offerings received good reviews and increased engagement as measured by paying users and ARPPU. However, sales in August and September were lower than expected.
Addressing this near-term challenge in D&F China is a core priority at NEXON and the operating team at Neople is working hard to pull forward the timing of the new key update, which addresses the primary feedback we received from players.
Our current plan is to deliver a key update by mid first half 2020. We will provide more clarity on the release date as we get closer to the update being available to our players.
NEXON has extensive experience in listening to players. And when they tell us they don't appreciate something, our live operations team moves quickly to update and improve that element of the game. Over the years, this has happened in several of our franchises, and the changes we make usually result in renewed engagement.
We remain confident in the long-term health of Dungeon&Fighter, a game enjoyed daily by millions of players. We expect the game will rebound and grow to new heights in players, revenue and most of all, fun.
With regards to the mobile version of Dungeon&Fighter, together with our partner, Tencent, we are now preparing for the second closed beta test in China. Prior to the CBT, we're fine-tuning the game to adjust to the actual Internet environment in China, making sure that this fully online action multiplayer game will work well across China as the game is played by a massive audience. We expect the full launch will occur within the first half of 2020. This will, of course, be subject to the results of a second CBT. We'll keep you posted for any updates.
For both Dungeon&Fighter PC and mobile, we're reallocating our resources and bringing more people to each of these teams. This will allow us to accelerate the speed of content development as well as to provide our players with better live services.
Now moving to the progress of our strategic initiatives. Last quarter, we highlighted our strategic focus on our substantial IP portfolio, concentrating our resources on our key franchises and streamlining our operations in the West and Korea to reflect the convergence of game platforms as well as technological developments. Our management team has spent the last few months running group-wide studio reviews and has made the decision to drop a substantial number of our new game projects.
We are leaning into our strengths and placing our resources on games in genres where we excel, fully online multiplayer games and virtual worlds. Our strength in these categories is evidence -- evident in the live game operations that we've run in games, such as D&F and MapleStory, games that have been operating for more than a decade and are enjoyed by many millions on a daily basis.
In upcoming quarters, you'll see us launch fewer titles, but which closely adhere to this focus on better, deeper, more fully-online games that are playable across multiple platforms. Our players will see bigger games with deeper support and services.
Our developers and live operators will focus on key performance indicators that will lead them to deliver games that will entertain and delight our players on a regular basis over an extended period of time and games that provide strong cash flow and positive returns for our shareholders.
As part of this focus, we've announced last month that we will sell our browser-based mobile games business in Japan. While the mobile sector remains heavily competitive with small margins, the overall game sector in Japan remains vibrant. We see enormous untapped opportunity in the fully-online-multiplayer market, which is a NEXON strength in a sector with much better margin opportunities.
On the investment side, in September, we made a strategic investment in Wonder Holdings. Wonder Holdings was founded by Min Hur, the highly respected studio leader and entrepreneur who previously founded our subsidiary, Neople back in 2001, where he led the development of our biggest franchise, Dungeon&Fighter. The company owns 2 game studios as well as a successful e-commerce platform. Through this strategic partnership, NEXON will support the game development and live operations of Wonder Holdings' game studios, and Min became an external adviser of NEXON's new game development in Korea. He has participated with NEXON's management team in the franchise reviews I discussed earlier.
Now turning to the west. As most of you know, we've increased our ownership stake in Embark studios to 73% over the last several months. Additionally, our plans to fully purchase Embark's remaining shares through NEXON's stock over a 5-year period was ratified at the extraordinary shareholder meeting held in September.
Since the company's founding last November, Embark has been moving very fast with a mission to create groundbreaking online game experiences for western audiences. For marketing and competitive reasons, we've been deliberately cautious about detailing too much of Embark's games at this stage. However, we have shared that their first game will be a cooperative, free-to-play multiplayer action game set in a distant future.
They are developing this game on Epic’s Unreal Engine, augmented with highly unique proprietary technology that they have under development. They also have several additional products in the pipeline. Embark has expanded their team to approximately 80 people and is looking to add additional head count by the end of the year to better enable them to work on multiple projects.
There are several points of synergy between NEXON and Embark that we have been exploiting.
First is cross-pollination of knowledge between the development teams. Embark's leadership team has a long history of developing blockbuster franchises across multiple platforms. The NEXON team offers world-class live services, which allow games to grow for years and decades. Second, Embark's innovative development technology has broad applicability at NEXON Studios. And finally, live game technology developed at NEXON will be integrated into Embark's Games.
We have been very gratified at the progress we've made collaborating with Embark and are looking forward to unveiling their first game and additional details about the studio's progress in 2020.
To summarize, NEXON is in the middle of a transition. We're taking proactive steps to address customer feedback on our recent content update in Dungeon&Fighter. At the same time, we're making hard choices about our slate of games so that we can focus our attention and our resources on opportunities with greater potential returns. This inevitably means that we have to say no to certain projects to make it possible to say yes to ideas that hold more promise and that are closer to our core values and expertise.
I and the rest of the management team are exceedingly focused on this task. The core economics of our company remain incredibly compelling today, while we make this transition. At its core, NEXON is a maker and operator of deeply-immersive online virtual worlds. We are one of the world's very best companies at delivering that, and [ when ] there is a massive shift in games and entertainment to that core, we will be ready.
With that, I'll turn the call over to Uemura-san to discuss the Q3 results and the Q4 outlook.
[Interpreted] Thank you. And now let's move on to the Q3 results. For additional details, please refer to the Q3 2019 investor presentation available on our IR website.
Q3 revenues were JPY 52.4 billion, down 24% year-on-year on as-reported basis and down 18% year-on-year on a constant currency basis within the range of our outlook. While MapleStory and FIFA Online 4 in Korea, exceeded our expectations, China Dungeon&Fighter's revenue was below our outlook. FX headwinds due to the yen's appreciation during Q3, also negatively affected our results.
Net group revenues in Q3 were in the range of our book outlook. On a platform basis, both PC and mobile revenues were in the range of our outlook.
Operating income was JPY 24.4 billion and exceeded our outlook. While we recorded a total of JPY 2.2 billion impairment loss primarily on the goodwill of our Korean subsidiary, Boolean Games, costs, including HR costs and direct marketing costs, were lower than planned, and we recorded higher-than-expected gain on step acquisition-related to the purchase of additional shares of Embark studios and its consolidation. Net income was JPY 39.8 billion, which exceeded our outlook primarily driven by JPY 15.4 billion FX gain, mainly on our U.S. dollar-denominated cash deposits related to the Korean won's depreciation against the U.S. dollar during Q3.
Revenues from our China business were below our outlook. KartRider Rush Plus, which received a major update on July 2, exceeded our expectation, driven by continued strength in the latter half of the quarter. Meanwhile, Dungeon&Fighter revenue was below our outlook. As a result, revenues from our China business were below our outlook.
Dungeon&Fighter revenue's underperformance was primarily due to the lower-than-expected item sales in the latter half of the quarter as well as National Day Avatar Package sales, which started on September 24.
We are addressing the content issue through the updates that would extend over multiple quarters. While we did not expect to experience substantial improvement in Q3, in addition to the seasonal update, we conducted several in-game events, aiming to recover the number of active users and paying users that have declined since the 11th anniversary update in June. However, we were unable to obtain the benefits we had hoped. Consequently, the number of paying users remained at the low levels compared to the -- our expectations and decreased both year-on-year and quarter-on-quarter. As we explained last quarter, revenue from the July summer package sales were soft as the Avatar design was not well received by our users.
Subsequent to this, users' purchase appetite did not recover as much as we expected. Accordingly, the revenues from the regular item sales as well as a National day update were also below our expectations. Consequently, ARPPU remained lower than last year's Q3 throughout the quarter and decreased year-on-year. However, the content and Avatar design of the National Day update received good reviews and positively affected [ key ] user metrics.
I will discuss the Q4 outlook later on.
ARPPU increased sequentially due to the strong seasonality. However, revenue was below our outlook and has decreased both quarter-on-quarter and year-on-year, MAUs decreased slightly, both quarter-on-quarter and year-on-year. Revenues from our Korea business in Q3 exceeded our expectations primarily driven by the stronger-than-expected performances of the MapleStory, FIFA Online 4 as well as MapleStory M.
MapleStory's revenue in the latter half of Q3 exceeded our outlook, driven by the successful events and sales promotions, which began in late August, in time for the Korean Thanksgiving holiday. MapleStory generated record quarterly revenue, grew year-on-year on a constant currency basis on top of the 129% year-on-year growth we achieved in Q3 2018, driven by the strong summer update, Korean Thanksgiving holiday events and sales promotions.
FIFA Online 4's revenue exceeded our outlook, driven by the strong package sales in August. KPIs, including MAUs, paying users and ARPPU increased year-on-year. Combined PC and mobile revenues grew significantly compared to Q3 2018, just after the service transition from FIFA Online 3 to FIFA Online 4. MapleStory M's revenue in the latter half of the quarter exceeded our outlook, driven by the successful content update and sales promotions. Its revenue grew 51% year-on-year and generated record quarter revenue since the Korea service began in October 2016.
Both PC and the mobile business grew year-on-year, primarily driven by these titles, resulting in a year-on-year increase in our Korea business. Revenues from our Japan business in Q3 were within the range of our outlook, revenues decreased year-on-year, while we benefited from MapleStory M, MapleStory 2, FAITH and ArkResona, which launched on August 14. These are more than offset by decreases from overhead and Dynasty Warriors: Unleashed, which launched in 2018, and from browser-based mobile games.
Revenues from North America in Q3 were within the range of our outlook. Revenues decreased year-on-year due to the deceleration of the Choices as well as MapleStory M and Darkness Rises, both due to the tough comparisons with the last Q3, just after the services began.
Revenues from Europe and others in Q3 exceeded our outlook, primarily driven by the stronger than expected performance of MapleStory M. Meanwhile, revenues decreased year-on-year, while we benefited from the Taiwan's service of Moonlight Blade, AxE and OVERHIT, which all began their services in and after Q4 2018, these were more than offset by the deceleration of the MapleStory M and Darkness Rises, both due to tough comparisons with Q3 2018, just after the services began [ in ] decline of Choices.
Now turning to our Q4 2019 outlook. In the quarter, we expect the Chinese yuan, Korean won and U.S. dollar, major currencies in our business, to depreciate against the Japanese yen, as in Q3 2019, and therefore, to negatively impact the as-reported basis performance.
For Q4 2019, we expect revenues in the range of JPY 41.4 billion to JPY 44.5 billion, representing 10% to 4% decrease year-on-year on an as-reported basis and 3% decrease to 4% increase year-on-year on a constant currency basis. While we expect revenues of our Korea business to increase, we anticipate revenues from other regions outside of Korea to decrease year-on-year.
We expect our operating income to be in the range of JPY 6 billion to JPY 8.2 billion, representing 52 -- 53% to 110% increase year-on-year on as-reported basis and 60% to 120% increase year-on-year on a constant currency basis. I'll discuss this later. We would explain the details later on.
We expect the net income to be in the range of JPY 7.6 billion JPY 9.4 billion, a 16% to 45% increase year-on-year on as-reported basis and 23% to 53% increase year-on-year on a constant currency basis.
In China, while we expect to benefit from KartRider Rush Plus, we anticipate this to be more than offset by the decrease in revenue of our key PC online game, Dungeon&Fighter. Overall, we expect revenues from our China business to be in the range of JPY 13.9 billion to JPY 15.3 billion, representing a 22% to 14% decrease year-over-year on an as-reported basis and 18% to 10% decrease year-over-year on a constant currency basis.
For Dungeon&Fighter in Q4, the National Day update, which includes limited time offer Dungeons as well as Avatar Package sales, has continued from Q3. In addition, we have conducted small-scale content updates in order to improve the user metrics, including active users and paying users. There will be some more small updates and in-game events throughout the quarter.
Since there has not been any substantial change in the trends since Q3 we expect Q4 paying users and ARPPU to be both lower compared to Q4 2018, resulting in a year-over-year decrease in Dungeon&Fighter's revenue.
Meanwhile, the content and the Avatar design of the National Day update received positive reviews. As a result of these, we observed a slight recovery in the number of paying users and ARPPU compared to Q3. Therefore, we expect the percentage of the year-over-year revenue decrease to be smaller than in Q3 2019.
In Korea, MapleStory has strong momentum as we enter Q4, and we expect this revenue to further increase in Q4 2019, even compared to last year, when it grew by 34% year-over-year. We expect our mobile revenues in Korea to increase year-over-year, we expect to benefit primarily from the new MMORPG V4 launched today, November 7, and TRAHA, which launched in Q2 as well as an increase in MapleStory M, to more than offset the expected year-over-year declines in AxE and OVERHIT.
Overall, we anticipate revenues from our Korea business to be in the range of JPY 19.2 billion to JPY 20.2 billion, representing a 23% to 30% increase year-over-year on an as-reported basis and a 35% to 43% increase year-over-year on a constant currency basis.
In Japan, we expect contributions from MapleStory M and MapleStory 2 to be more than offset by year-over-year decreases in Dynasty Warriors: Unleashed and FAITH, both of which started their services in the second half of 2018. Q4 includes a 2-month contribution from our browser-based mobile games. This is for the period prior to the sales of gloops' browser-based mobile business, which will close on December 1.
As a result, we expect revenues in the range of JPY 2.3 billion to JPY 2.5 billion, representing a 46% to 43% decrease year-over-year on an as-reported basis and 44% to 40% decrease year-over-year on a constant currency basis.
In North America, we expect revenues in the range of JPY 2.8 billion to JPY 3 billion, representing a 36% to 30% decrease year-over-year on an as-reported basis and a 33% to 27% decrease year-over-year on a constant currency basis due to decreases in Choices, Darkness Rises and MapleStory M.
In Europe and other regions, we expect revenues to be in the range of JPY 3.20 billion to JPY 3.5 billion, representing a 20% to 14% decrease year-over-year on an as-reported basis and 15% to 8% decrease year-over-year on a constant currency basis.
While we expect to benefit from Spiritwish global service, which launched on October 30, we expect this to be more than offset by decreases in MapleStory M, Choices and Darkness Rises.
In Q4 2019, we expect the operating income to be in the range of JPY 6 billion to JPY 8.2 billion, representing a year-over-year increase of 53% to 110%. The primary driver for the lower operating income in Q4 2019 is the year-over-year revenue decrease. Favorable factors compared to Q4 2018 regarding the operating income are: first, decreased marketing costs, while we expect to incur marketing costs for new titles launching in the fourth quarter, including V4, we expect these to decrease compared to last year in Q4 where we had multiple new launches, including MapleStory 2 in the West and FAITH Japan service; second, decreased variable costs, we anticipate decreased royalty costs in relation to the lower contributions from publishing titles, including the Dynasty Warriors: Unleashed as well as lower PG fees benefiting from stronger yen.
Lastly, a decreased impairment loss of JPY 3 billion recorded in Q4 2018, which will not be repeated in 2019.
The high end of the range reflects the fact that we expect the impact of positive drivers to be larger than that of negative drivers, resulting in a year-over-year operating income increase. Next, I'll discuss the investment we made in Q3 as well as the sales of the browser-based mobile business in Q4.
First, on Embark Studios. In relation to the consolidation of Embark Studios, we have provisionally booked a JPY 23.7 billion goodwill on our balance sheet as of September 2019. A JPY 23.7 billion is expected to be allocated to goodwill and intangible assets after further review.
Moving on to our strategic investment in Wonder Holdings. In Q3, we entered into a strategic partnership with Wonder Holdings and acquired 11% of its total shares outstanding for JPY 31.5 billion. We expect the impact on our quarterly consolidated P&L related to this investment to be immaterial.
Lastly, on the sale of our browser-based mobile game business. On October 24, NEXON's Board of Directors approved the sale of our consolidated subsidiary gloops' browser-based mobile game business to Mynet Inc. for JPY 0.5 billion. The transaction is scheduled to close on December 1. We expect the impact on our consolidated financials from the sale to be very limited.
Finally, I'd like to give you an update on the share repurchase program. Based on the policy of the share repurchase program we announced on August 8, on September 9, the Board of Directors approved to initiate a share repurchase program with a total amount of JPY 30 billion. The share repurchase program will take place over the 6-month period between September 10, 2019 and February 7, 2020. We've been updating the progress of the program every month, and these are available on our IR website. Now we'd be happy to take your questions.
[Interpreted] Thank you, Uemura-san. Next we would like to open up the lines to live Q&A.
[Operator Instructions] Now we'd be happy to take your questions.
[Operator Instructions] We will begin taking your questions shortly, please hold on for a moment.
[Interpreted] Before we take our questions, we'd like to make just one correction. During the presentation by Mr. Uemura, our CFO, we mentioned that the China mobile game KartRider Rush Plus major update was conducted on the 1st of July, but a correction of that to the 2nd of July. So update was done on the 2nd of July, rather than the 1st of July. Thank you.
[Operator Instructions] Our first question comes from Seyon Park from Morgan Stanley.
I have 2 questions. First of all, in terms of the declining, I guess, the pay users for Dungeon&Fighter in China, is there -- was there some kind of missed execution or a content update that didn't go well, that led to this decrease? And is there -- is that why the company is preparing for some kind of a remedy to fix this? Or is this more of -- we had a very strong first half for 2019 and as a result, is it some kind of a side effect of we may be overmonetizing the first half, and as a result, the tendency to spend and whether that just has taken a bit of a hit in the second half, is my first question.
Second question, given that you're planning this big update in the middle of the first half of 2020, should we be expecting a relatively muted quarter for the first quarter of 2020, when typically, the Lunar New year tends to be a peak quarter. And hence, does that mean that for that quarter as well, we should be expecting a relatively flatter quarter?
[Interpreted] Thank you very much for your questions. Yes, as we mentioned at the settlement briefing in Q2, we mentioned the forecast for the Q3. And at that time, I mentioned some of the recent KPI changes. And as you pointed out correctly, Q1 was very good, and Q2 was also good. But from the end of Q2, we started to see some decline in KPIs, including paying users. So the reason for that is first of all, the update that we conducted in June was not very well received. It did not resonate very well with the users. And also after that, we had a summer update. And at that time, the momentum was not very good. And again, the summer update was not very well received. So due to those 2 updates, which did not resonate with the users, we have the current status. So it does not mean that we have overmonetized but rather we saw the relatively poor response to our updates.
[Interpreted] And going back to your second question, I think you're asking about the Q1 of next year. And let me explain the flow from the past to the present and the Q4.
So as we -- as I mentioned earlier, from the second half of the Q2, we started to see some declines of the KPI. So we analyzed the status and we decided that we need to make a steady improvement during the coming several quarters. So we plan to have a content update, and that would continue for some quarters to come. And as Owen mentioned, there will be a major one, which is planned in the middle of first half of next year.
So under those circumstances, as I mentioned, we [ need ] the major improvements or updates. And we did not expect to see any major changes happening in Q3. And we wanted to have a series of events so that we can improve our user engagement. And as a result, we thought that, that would lead to the improvement of active users as well as the paying users. But actually, the reaction was cooler than what we expected. So we did not see the recovery of the number of the users and so forth. So that is the reason why we saw the decline in Q3.
However, after that, we had a National day update, which was well received by the existing users. For example, the design of the Dungeon and Avatar, those resonated with the existing users. So if you look at the recent KPI, we are starting to see some recovery in those KPIs.
So for Q3, we saw the decline in the KPI year-on-year changes, but we started to see a smaller decline now. So based on the analysis of the KPI right now, we have come up with the Q4 guidance.
So we continue to have a series of minor events as well as some updates so that we can increase or improve the existing users' engagement. So we will do so in Q4 and see what would happen to the KPI in January next year. And so we would start to see then the Q1 numbers. So as of now, it's difficult to say what would happen in Q1 next year. But again, the major update will be happening in the middle of the first half of next year. So towards that, we are trying to rebuild and currently working on the development. So as you mentioned that Q1 this year was very strong. And the Dungeon&Fighter momentum and KPI situations, looking at that, we expect some decline still in the Q1 next year.
And, Seyon, this is Owen. Just to add a couple of points to what Uemura-san said. I think many of you know, sometimes it's easy to forget that in a massively multiplayer online game like Dungeon&Fighter, where we've got many millions of players, we're constantly experimenting and innovating in the game, especially when we do major updates. And sometimes it goes better than we had hoped, and sometimes it goes -- it doesn't go as well as we hoped. And we have a long history of listening to customer feedback.
Now we have small updates, and we have big updates and major updates are an experiment, and they require a lot of innovation. So that means trying new things and a lot of -- and a lot of times, customers love that experimentation, at other times they don't like it. So we listen to -- so we really listen hard to the feedback and then we reflect that feedback into the game, and that's what we're doing right now. And that's why we think it will take 2 or 3 quarters for this to play out.
[Foreign Language]
[Interpreted] So this is Sugiyama from Goldman Sachs. Thank you very much for the presentation. I also have two questions. The first question is related to cost. I'm specifically looking at advertisement costs, advertising cost as well as some -- especially, personnel costs. It seems that cost is coming down on a year-on-year and a quarter-on-quarter basis. So I was wondering the reason why it's been declining? Is it because you've started cost cutting, but as you've been seeing how the environment is unfolding in China? Or -- and -- when have you been reorganizing yourselves and so forth?
Second question is related to Embark. I believe it's going to be consolidated. So I was wondering about its impact on the P&L. Before all games are published or distributed, I believe that it's going to contribute only by a fixed cost basis, meaning it's going to be a loss-maker. But I was wondering how much this contribution is expected to be.
[Interpreted] Thank you very much for your question. First of all, regarding your question on personnel cost. Actually, with regards to head count overall, it is modestly increasing. The prime reason why costs have come down is due to FX reasons. Majority of our employees are in Korea, but due to impacts we've been hit by FX, our costs have been coming down. Did you also ask a question around marketing costs, Sugiyama-san?
[Interpreted] Yes, I did. I was just wondering why is was lower? Is it just primarily due to the number of titles and new titles and so forth?
[Interpreted] Yes, that is the case. Last year, in Q4, we had some major new titles come out. However, for this year, it's only V4, and that is the reason why marketing cost is coming down.
And going on to your next question, the second one. As you know, currently Embark is in the middle of the development process. So it is currently not generating revenue. The people that are working on development is costing us approximately JPY 500 million per quarter from a personnel cost point of view.
Our next question comes from Atul Goyal from Jefferies Singapore.
Just one question. You said earlier that, depending upon the closed beta test, how it goes, the timing for mobile D&F launch is sometime in the first half next year. Can you also elaborate how the revenue or the business model look like especially when you compare with the D&F, which is a PC game in partnership with Tencent. Any color that you could share?
Atul, thanks for your question. I can't speak directly to what the relationship -- the terms of the relationship are for obvious reasons. But I can tell you a couple of things. Number one is we've got a big, big fan base of Dungeon&Fighter fans in China, as you can imagine. And we've got an even larger group of people who own mobile phones in China, high-end mobile phones. So we're very, very excited about this opportunity. And we feel like the product is coming along very nicely. But then the other big thing that I'd say is we've got a fantastic partner in Tencent. They've been a wonderful partner to us. And we're very happy with that relationship and how we've structured the relationship for this project specifically.
Our next question comes from [ Hanjin Kim ] from Macquarie.
I wanted to quickly touch upon your investment to Wonder Holdings, and apologies, I should know this but I don't. But I think the past investments have been done at the NXC level, and I wasn't sure if the current one was done on either the [ MK ] level or [ NXJ ] level, and why we needed to do this investment? And I appreciate the fact that it will help bring in Min Hur to the firm. But I mean technically, I think it's a company that focuses more on e-commerce. So how does that really work towards investing into our core business? And then I'll ask my second question later.
[Interpreted] Thank you very much for that question. With regards to our investments into Wonder Holdings. First of all, going back to what you've pointed out, [ Hanjin ]. With regards to investments that NXC has made in the past, they are merely a large shareholder of our company and our relationship stops there. So the investments that are made by NXC are basically investments that NXC makes based on their own thinking and strategy.
So with regards to Wonder Holdings and our investments, we believe that there was value in Wonder Holdings and therefore, we decided to make the strategic investments based off our own decisions.
And with regards to their businesses. As you've rightly said, they not only have a game business, but an e-commerce business, and I also believe they're in the property business, but we are basically interested in their game development company. And we believe that there can be some collaboration happening between the 2 companies.
As for Min Hur, he is the founder of Neople. And he has -- he is very well-versed in the game industry, whether it be in regions such as Korea or across Asia. So we believe that he can be a good adviser to us, and that is why we have concluded an adviser contract with them.
So -- and for the other businesses as well, we have done a thorough analysis before we made the investments, and we deemed there was some upside. Therefore, we are confident that we have made investments at the appropriate level, and that is why we went ahead with the strategic investments. But obviously, our core business is a game business. Therefore, we will be cooperating together and collaborating with Min Hur in this regard.
And [ Hanjin ], this is Owen. I'll just add a couple of other comments. Some of them overlap a little bit with Uemura-san's comments. I'd say from the management team's perspective, there's a few things. Number one is we really -- we like their products that they've got going on in their game studios. So it's important to remember that. And we're -- so excited about what they're coming out. That's number one.
Number two is, we think they can add a lot of value to us and to what we're doing. And just to back up for everybody on the phone, the founder and head of Wonder Holdings is the legendary developer -- or head of the team that made Dungeon&Fighter. And Dungeon&Fighter, let's remember, is one of the largest franchises in the entire video games' industry, possibly the largest in life-to-date terms, we don't quite know because not all the information is public, but this is one of the -- so he's the creator -- the founder of the company and the creator of one of the biggest games, if not the biggest game in the entire industry.
And remember, this is a people business. And so part of the job is to surround yourself with smart people who can help you as you think through product development. And I've had the opportunity to work pretty closely with Min, as has the executive team as we've done studio reviews. And I'm extremely happy with what we're doing here. And we think that we can -- that he and his team can add a lot of value to what we're doing. He understands -- they understand what we're trying to do. They work well with other people. They're a team that we like a lot. And the business experience that has accrued to Min and his team as after they created Dungeon&Fighter and created the other components of Wonder Holdings is very valuable to us.
So from a variety of different perspectives, we're excited about what they're doing, and we think they can help us with what we're doing.
Great. Thank you for that detailed answer. I have a follow-up, which is, I think we -- as we do these studio reviews, and I think you alluded to it earlier in your statement, Owen, that there may be some changes going on. So would it be -- when I look at your presentation, I think the pipeline [ in a sheet ] tends to kind of look similar to what it's been. So would it be fair to say that in the coming months or quarters, we might see a bit of a shift in perhaps the density or the quantity of pipelines that we're going to be releasing? And as you guys think through your studio reviews, can you just shed some light on what are some of the incremental new things that you guys are prioritizing and some of the ones that you are deemphasizing?
Sure, [ Hanjin ]. This is Owen. I'm going to give you a short answer to your question, then I'm going to give you a longer answer to your question. The short answer to your question is that you will see fewer games come from our studio pipeline. Now we're just finishing up that process right now. So we're not ready to announce what those games are, and also some of the games will not be announced because that will be driven by marketing concerns. But if you think about the themes that we are focused on -- and I said this in my prepared remarks, but to make it very sort of clear and at the risk of reiterating too much, we're focusing on fewer but bigger games that are about deeply-immersive online virtual worlds on multiple cloud platforms, with -- that we would consider very powerful IP, particularly if it's our IP. So those would be the key themes. That's the short answer to your question. I'll give you more color in a second. Go ahead.
Now [ Hanjin ], as I listened to the translation, I realized that the short part of the answer was a little longer than I expected it to be. So I'll try to make the longer part a little less long. But let me just give you some context for a second. If you step back and you think about what makes a great game company in the future. It's really about massively multiplayer online virtual worlds. That's clearly the future. And a lot of people are talking about it now. But let's remember, that's NEXON's core competency. That's where we got our start. We literally invented the category. As you know, with the first MMORPG, Kingdom of the Winds. And NEXON literally invented free-to-play, the first free-to-play game that anybody knows of is Quiz Quiz. And we've allowed ourselves as we think -- as we thought back as a management team, we allowed ourselves to step away from that core competency in the effort to do a lot of experimentation, as the rest of the industry was doing.
And what we found in that process over the last couple of years, there's a whole lot of red oceans where we don't bring anything particularly special to the party. And -- but it's abundantly clear that multiplayer virtual worlds are the future. It's growing fast, and the explosion of devices that can play those games, as I said before, which is literally going -- it means we're going from the hundreds of millions to the billions, it dramatically increases our market. And this is an area where we bring a lot to the table, and it's reflected in games like MapleStory and Dungeon&Fighter and KartRider. So it's rare in life that the future is so obvious and that you have such a massive competitive lead that is hard to replicate. So our view is that everything else is a waste of time. And that viewpoint informs every decision we're making about products now.
[Operator Instructions] This concludes the question-and-answer session. Miss. 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.
[Interpreted] Thank you. That concludes today's conference. Thank you for your participation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]