Nexon Co Ltd

TSE:3659

Earnings Call Transcript

[Operator]

[Interpreted] Good day, everyone, and welcome to NEXON's 2024 Fourth Quarter Online Earnings presentation. Today's presentation is being recorded. [Operator Instructions] We will now hand over to Takanori Kawai, team leader of Investor Relations. Please go ahead, sir.

[Takanori Kawai, executive]

[Interpreted] Hello, everyone, and welcome to NEXON's earnings conference call. Thank you for joining us today. With me are Junghun Lee, 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 condition, 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 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 following this call. Unauthorized recording of this conference call is not permitted.

Now I'll pass the call to Junghun.

[Junghun Lee, executive]

Thank you, Kawai-san, and good afternoon to those attending today's call. Earlier today, NEXON posted our quarterly earnings letter and slide deck with details on our recent performance and outlook. Before taking your questions today, I would like to offer context on how our outlook in Q1 and recent results have influenced our strategy in 2025 and progress toward the goals established in our 2027 midterm plan. Following this, Uemura-san will provide a quick review of the financial data.

Highlights in our quarterly report include record-setting full year 2024 revenue of JPY 446.2 billion, up 5% year-over-year, driven by the strong launch of Dungeon&Fighter Mobile in China and the global launch of The First Descendant, Operating income was JPY 124.2 billion, down 8% year-over-year, reflecting our ongoing investments to strengthen and expand our IP portfolio. Q4 research came in below expectations with revenue of JPY 79.7 billion and operating loss of JPY 1.7 billion.

Our Q1 outlook reflects recent success and momentum for MapleStory in Korea, offset by a slower start of the New Year update performance in China for the Dungeon&Fighter franchise. In short, much of 2025 will be dedicated to strengthening and regaining momentum in our Dungeon&Fighter franchise, while maintaining steady progress in the development of new games. Two important elements in the dynamic growth strategy outlined in our 2027 midterm plan. To reflect our confidence during this period and to enhance shareholder value, today, we announced a JPY 100 billion buyback policy. Uemura-san will provide more detail on that shortly.

To summarize our recent performance, I will start with our Dungeon&Fighter franchises, which grew revenue by 53% in 2024, driven by the strong launch of our Mobile game in China. However, we saw slow growth in Q4 and initial results from the Q1 New Year update released in January. Regarding the PC game in China, an IP collaboration in December did not meet our expectations for moving packaged item sales.

The Q1 New Year update, which included a brand new area, a Level Cap increase and an overhaul of the progression system started slow, but more recently showed improvements, including greater balance to the in-game economy and an increase in daily active user, which put the games close to the players' level seen last year. While we expect Q1 revenue to decline year-over-year, we like where this is heading and believe recovery will continue with the steady supply of new content coming this year. In Korea, which received the same update nearly simultaneously, we saw immediate improvement in daily active user, resulting in the likelihood of delivering year-over-year sales growth in Q1.

Moving on to Dungeon&Fighter Mobile. Our analysis show that the Q4 Level Cap increase in China effectively stabilized daily active user, but the subsequent New Year update in January has been slow to attract players. As a result, we expect a lower-than-anticipated Q1 revenue. The analysis by our team and partners at Tencent point to 2 opportunities for growth in China: more hyper-localized content and all new experiences, which can attract a broader range of players. For some time, we have been discussing with Tencent the need for greater adaptation to capture quickly evolving trends and unique preference in the market.

Last year's challenge with PC D&F and the slow start to this year's new year update advanced this discussion. As a result, NEXON and Tencent have reached a co-development agreement that will increase our production capability. NEXON's Neople Studio will continue to develop core content and maintain overall creative control of the franchise. Tencent will provide additional production capacity for a variety of new experiences. We look forward to updating you on a meaningful step forward.

Additionally, our teams are making steady progress on a series of games designed to create new revenue streams by extending Dungeon&Fighter into global markets. Our strategic initial step, The First Berserker: Khazan is scheduled for release on PC and console on March 28. Khazan will be followed by Dungeon&Fighter: ARAD and Project OVERKILL, 2 more brand extensions designed to help meet our franchise growth target for 2027.

Turning to our MapleStory franchise. Despite a 17% year-over-year decline in 2024 revenue, we are encouraged by signs of our turnaround. In MapleStory primary market, Korea, we've seen solid improvements in active users and player satisfaction following the winter update posted in December. While it is too early to celebrate, we are encouraged by the momentum we are seeing in Q1, which includes a projected year-over-year sales increase of more than 30% and a meaningful improvement in player satisfaction. We are similarly pleased with progress outside of Korea from Global MapleStory, which includes Japan, North America and Europe and Rest of World. A group that now represents 35% of franchise revenue and grew 24% year-over-year in 2024. And on all new experience, MapleStory World delivered better-than-expected results with a Q4 soft launch in North and South America.

Turning to our FC franchise. Full year 2024 revenue was the second highest in franchise history, although down year-over-year from a record high point in 2023. In Q4, franchise revenue grew year-over-year, although sales fell short of expectations as an October branding campaign did not deliver the expected level of sales. In 2025, we expect lower fan enthusiasm due to a lack of major professional soccer events ahead of the World Cup in 2026. Overall, the game is in good shape, and we anticipate stable operations throughout the year.

Turning to our Mabinogi franchise. Preregistration for MABINOGI MOBILE is now open ahead of the March 27 release in Korea. We are also excited about development on another MABINOGI franchise extension coming to PC and consoles Vindictus: Defying Fate. And we are making steady progress on MABINOGI Eternity project, which moves the classic PC experience onto the Unreal Engine 5. This project will provide greater graphic fidelity and the larger-scale content with more freedom to engage the core and attract both new and dormant users.

Next, The First Descendant is showing improved retention following the December Season 2 update. We expect the second episode of Season 2 scheduled in March to further strengthen retention. In addition, an influx of studio talent dedicated to accelerating content production will also help further improve the game performance. Looking beyond our existing portfolio, we encourage investors to recognize NEXON's large pipeline of games in development, which includes 7 new games scheduled for release by 2027, with each expected to deliver incremental annual revenue of more than JPY 10 billion.

And now I will hand over to Uemura-san, who will provide some details on our results and outlook as well as on the JPY 100 billion buyback we announced today.

[Shiro Uemura, executive]

[Interpreted] In Q4, while we continue to face challenges in Dungeon&Fighter franchise, we successfully turned around the momentum of MapleStory in the primary market, Korea. Q4 revenue came in below our outlook at JPY 79.7 billion due to the shortfall in key titles, primarily our FC franchise and The First Descendant. Year-over-year, it was down 6% on an as-reported basis and down 4% on a constant currency basis. An operating loss of JPY 1.7 billion was recorded due to an impairment loss of JPY 7 billion. This was below our outlook due to revenue underperformance. Net income exceeded our outlook at JPY 32 billion, principally due to an FX gain of JPY 31.7 billion, primarily on cash deposits.

Looking at the performance by franchise, Dungeon&Fighter franchise revenues grew 47% year-over-year, driven by the contribution from Dungeon&Fighter Mobile, which launched in China during Q2. For the PC version in China, revenue fell short of our outlook as an IP collaboration and package item sales in December did not meet our expectations. While Dungeon&Fighter Mobile was slightly below our expectations, the number of its active users stabilized after the Level Cap increase in late November. MapleStory's franchise revenues decreased year-over-year as planned. For MapleStory in Korea, Net Promoter Scores improved by 6 points and the number of active players increased quarter-over-quarter, driven by the successful Winter Update. Accordingly, its revenue exceeded our outlook. MapleStory revenues outside of Korea increased by 8% year-over-year, driven by our hyperlocalization strategy.

MapleStory Worlds, which soft launched in North and South America in October on top of the Korea service exceeded our expectations driven by well-received content. FC's franchise revenues increased year-over-year, but fell below our outlook because the October branding campaign did not boost revenue to the expected extent. As for other key titles, The First Descendant was below our outlook due to a greater-than-expected decline in traffic attributable to lack of content.

Next, I would like to talk about our full year 2024 results. In FY 2024, we delivered record-breaking full year revenues at JPY 446.2 billion, up 5% year-over-year on an as-reported basis or up 1% on a constant currency basis. While we faced challenges in our 2 biggest titles, Dungeon&Fighter in China and MapleStory in Korea, our new titles, Dungeon&Fighter Mobile in China and The First Descendant significantly contributed to our revenues. Operating income was JPY 124.2 billion, down 8% year-over-year on an as-reported basis and 12% year-over-year on a constant currency basis as the increase in costs in relation to ongoing investments to support our long-term growth was larger than the increase in revenues.

HR costs increased year-over-year, primarily due to proactive talent investments for mid- to long-term growth as well as performance-based bonuses for successful new games. Also, impairment loss impacted on a year-over-year decrease in operating income. While operating income was down year-over-year, net income was JPY 134.8 billion, up 91% on an as-reported basis or 84% on a constant currency basis. FX gain primarily on our cash deposits increased by JPY 20.5 billion year-over-year. Also, an impairment loss of JPY 44.4 billion on our investment in AGBO was recorded in 2023.

Moving on to our first quarter 2025 outlook. We expect our Q1 group revenues to be in the range of JPY 109.9 billion to JPY 122.1 billion, representing a 1% to 13% increase on an as-reported basis or 2% to 14% increase on a constant currency basis year-over-year. We expect Dungeon&Fighter franchise revenues to grow double digits year-over-year. For Dungeon&Fighter Mobile in China, while we anticipate an increase in revenue quarter-over-quarter due to strong seasonality, the new Year update introduced on January 13 has been slow to retain users as well as attract new and returning players. For the PC version of Dungeon&Fighter in China, we expect revenue to decrease year-over-year. The New Year update started slow, but more recently showed improvement, including greater balance to the in-game economy and daily active users returning close to the level seen last year.

NEXON has signed a co-development agreement with Tencent, which would significantly increase our production capability and adopt the game to meet the unique taste of Chinese players. Although overall responsibility for the franchise will remain with NEXON, the agreement could significantly improve user acquisition, engagement, retention and sales in China. The First Berserker: Khazan, a new title for PC and console is scheduled to launch globally on March 28. The purpose of this title is to spread the Dungeon&Fighter franchise to players worldwide ahead of new launches based on the Dungeon&Fighter IP, which include Project OVERKILL and Dungeon&Fighter: ARAD.

We expect MapleStory franchise revenues to increase year-on-year. For the PC version of MapleStory in Korea, the Winter Update in Q4 delivered an improvement in player numbers and provided good momentum into January. Consequently, we expect its revenue to increase more than 30% year-on-year. We are seeing signs of recovery and hope to maintain a favorable trend in 2025. FC franchise revenues are expected to decrease year-on-year due to a challenging comparison with Q1 2024. We expect the franchise to be challenged throughout 2025 by a lack of major professional soccer events happening ahead of the World Cup in 2026; while overall, the game is in good shape, and we anticipate stable operations throughout the year.

MABINOGI MOBILE is scheduled to launch in Korea on March 27. We would expand the fan base for MABINOGI IP by extending the MABINOGI IP to mobile. We expect Q1 operating income to be in the range of JPY 29.6 billion to JPY 35.4 billion, 2% to 21% increase on an as-reported basis or a 3% decrease to 16% increase on a constant currency basis year-on-year. On the cost side, we anticipate higher HR costs due to the performance-based bonuses and hired headcount as well as increased marketing expenses associated primarily with promotions for new titles.

On the other hand, we expect lower royalty costs due to the decrease in FC franchise revenues and lower PG fees due to the decrease in mobile revenues, excluding Dungeon&Fighter Mobile in China, which is a royalty business. We expect net income to be in the range of JPY 22 billion to JPY 26.6 billion, 39% to 26% decrease on an as-reported basis or 43% to 31% decrease on a constant currency basis year-on-year. In Q4 -- in Q1 2024, we recorded an FX gain of JPY 10.7 billion.

Finally, an update on our shareholder return. NEXON continues to generate significant cash flows, which strengthened our powerful balance sheet. In 2024, we generated more than JPY 100 billion in operating cash for the seventh consecutive year, and we finished 2024 with a cash balance exceeding JPY 600 billion. This large and stable cash flow has allowed us to materially increase our dividend while also buying back stocks. In 2024, we increased our dividend payout to JPY 22.5 per share from JPY 10 per share in 2023 and executed a share buyback of JPY 51.4 billion.

Looking ahead, in order to enhance shareholder value, while we regain momentum in our Dungeon&Fighter franchise in 2025, NEXON's Board of Directors has approved a share buyback policy of JPY 100 billion over 1 year, including the remaining JPY 50 billion of the JPY 100 billion share buyback policy that we announced a year ago. We approved the immediate execution of JPY 50 billion buyback from February 14 to June 30. We are also committed to maintaining a semiannual dividend of JPY 15 per share or JPY 30 per share on an annual basis in 2025. While we expect this year to be challenging, we are also confident in our strategy to greatly grow our business over the next few years. We believe that the substantial buyback we are planning to execute this year will position NEXON and our shareholders well for the next phase of growth, and that we will deliver in the coming years.

Now back to Lee, Junghun for a quick summary.

[Junghun Lee, executive]

Thank you, Uemura-san. We remain highly optimistic about the long-term growth potential for both our established franchises and our pipeline of new games in development. To resume growth in the Dungeon&Fighter franchise in China, we now have a co-development agreement with Tencent. That will add significant development resources for improved adaptation and to reach a larger group of players. We are also extremely pleased with MapleStory's rebound in Korea. And NEXON Studios are making steady progress on an exciting pipeline of new games, including 7 titles, each with potential to add incremental annual revenue of more than JPY 10 billion. As a reflection of our long-term confidence and our commitment to enhancing shareholder value, NEXON has authorized a JPY 100 billion share buyback policy.

With that, operator, we are ready to take questions.

[Operator]

[Operator Instructions] [Interpreted] The first question is from Mr. Seyon Park from Morgan Stanley.

[Seyon Park, analyst]

I have 2 questions. I guess the first is regarding -- as you go back to the midterm plans, back in September of last year when management had come out with those plans to invest for growth in terms of headcount and the development capacity. Obviously, the revenue situation with Dungeon&Fighter particularly was much, I think, robust than it is right now. So given this kind of change where the revenues for the last couple of quarters have not been as strong as what management had been anticipating, does that change the cadence of your investments this year?

And then I guess related to that, which is my second question, I think, obviously, a lot of investors are focusing on whether profit growth could be doable this year. Last year, if we adjust for the impairment charges, it seems like operating profit was roughly flat. 1Q guidance does indicate year-over-year growth. But then obviously, the bar becomes higher as you go into second quarter and third quarter when Dungeon&Fighter Mobile came out very strong in China during that period. So can you maybe share your views on how you think or what needs to happen for the company to achieve profit growth this year? Those are my 2 questions.

[Shiro Uemura, executive]

[Interpreted] Thank you very much for your question. Regarding what has changed since our announcement of midterm plan, which we made in the capital market briefing conducted last September up until now. In terms of the situation, in particular, China Dungeon&Fighter, the slowness is continuing more than we have expected.

Having said that, based on the analysis of China Dungeon&Fighter situation being made by ourselves along with Tencent, it is very important, we believe, to come up with hyperlocalized content, which will suit the preferences of the users in China. And secondly, it is important for us to come up with more diversities of the content to cater to broad users.

Having said that, we plan to continue investing in talents and also come up with more localized contents of high quality. And as we have mentioned before, it is our intention to do that through endeavors such as the co-development agreement that we have with Tencent so that we can further accelerate our initiative. So having said that, we plan to be in the area of strong investment in 2025, continuing what we did in 2024.

Regarding the growth of our profit in 2024 all the way up to 2025, we will continue investing in talent in order to drive the growth of our profit. And this will -- this meaning the investment in talent will drive our future growth. So maybe short term-wise, there might be some pressure exerted on our operating income. But even given the environment, we plan to robustly invest in our talent so that we will be able to grow in the future, and that is the goal that the management is aiming at.

[Operator]

[Interpreted] Next question comes from Ms. Yijia Zhai of UBS Securities.

[Yijia Zhai, analyst]

[Interpreted] I have 2 questions. I'd like you to answer that one at a time. First of all, I'd like to once again clarify the situation surrounding China and Dungeon&Fighter. I understand currently, the slowness is lingering. I think that originally, based upon your 3-year plan, you tried to turn around the PC version while maintaining the mobile version. But based on the current situation, do you think that you can maintain or keep the 3-year plan now? And also concerning the Dungeon & Fighter from -- in the coming month, there will be the extensions such as First Berserker: Khazan and also the OVERKILL Project. So first spin-off, the Khazan, do you think that you can maintain the start of the sale of that as you planned?

[Junghun Lee, executive]

[Interpreted] Thank you very much. This is Junghun Lee. I think I'll be able to provide answer to these questions. First, starting off by laying out some situations in PC Dungeon&Fighter in China. So throughout last year, our consistent message has been that the team is making preparations to improve many different aspects of the game so as to strengthen its very fundamentals in the long run. So the very first step of this effort was the New Year update that has been conducted recently.

And let me give you some further context behind this update. In South Korea, it was met with an immediate positive response. Now when we look at the DAU, it was the highest ever in 3 years. And also when compared to the lowest level that we have seen from the last 3 years, the current number is around 300%. So the reason why I first started off by sharing the situation in Korea is because although it is currently being at a slightly slower pace, we are also seeing the user engagement in China on the rise after the update.

Now in the past, the usual pattern that we would see from these kinds of New Year update is that the traffic would spike at the very day of the update, but then it is followed by decline on the next day. However, this year, with this New Year Update, not only the very date's traffic has increased, but we are also seeing this continued traffic improvement up to this point. So -- and at the same time, we also shared in our last earnings calls that the gold prices also had also increased, but we are also seeing some improvements in this indices as well.

So basically, we believe that the overall indices related to users' engagement is on the rise since the New Year update. And once we have the solid foundation of secured user engagement in place, we believe that profitability will naturally follow. Right now we believe the initial engagement is at a satisfactory level.

When it comes to the Dungeon&Fighter franchises targets that we laid out during the Capital Markets briefing, our team is still confident that we will be able to fulfill those targets. The Tencent, the co-development agreement that we will be -- the co-development efforts, sorry, that we will be conducting with the Tencent team will also positively contribute to the content volume and the localization, both on mobile and PC.

So when it comes to launching our new titles in this franchise, Project OVERKILL and Dungeon & Fighter: ARAD, the whole preparation to ship these games are on track. And also for Khazan, which is a title that are strategically placed to introduce this Dungeon&Fighter IP to the Western users, it is also on track. Now we will do our best to make sure that Khazan can introduce this franchise to the Western community with this launch at the end of March.

[Yijia Zhai, analyst]

[Interpreted] Yes. The second question is about the buyback of your shares. It seems that you are accelerating this effort. But when you look back at the past 2 years, that is not necessarily the case. So what I want to ask is that for this year, do you think that there will be no merger and acquisition opportunities? Therefore, you want to use the excess cash to buy back your own shares. Is that the case? And as for the future, I think until now, it was almost like JPY 100 billion buyback in 3 years. But should we consider that now it is JPY 150 billion for 2 years? Or is it just this time or temporarily -- temporal initiative?

[Shiro Uemura, executive]

[Interpreted] Thank you for your question. About how we use our cash on hand, of course, we have to consider the future growth of the company. And there could be different ways for the different types of the growth, and that includes, of course, M&A, potential M&A. And of course, we have a very strong balance sheet. So if we have a leeway or buffer to return to the shareholders, we would do so. So as you asked, it doesn't mean that since we don't see the opportunities for the M&A, we are using this for the buyback. That is not the case. But this time, including the option of the M&A, we are now have decided to return this JPY 100 billion to buy back our shares.

To the second half of your question, whether it is now JPY 100 billion in 2 years, but rather than JPY 100 billion -- JPY 150 billion, sorry, in 2 years rather than JPY 100 billion in 3 years, we have to, of course, consider the situation that our company is in. And we also need to consider the environment that we see in front of us. So as I mentioned earlier, for the future growth, we will be using the capital, and there are different factors that we need to consider. So it doesn't mean necessary that we would spend JPY 150 billion for the buyback in 2 years. That is not the case. We will be looking at the different factors surrounding us, too, before making the judgment.

[Junghun Lee, executive]

[Interpreted] So if I may summarize, looking at the financial strength that we have, we would try to consider the different opportunities for the growth and look at the surrounding circumstances or the environment, and we will make the decisions about the buyback in a flexible manner.

[Operator]

[Operator Instructions] [Interpreted] The next question is from Ms. Yijia Zhai of UBS Securities.

[Yijia Zhai, analyst]

[Interpreted] I have 1 more follow-up question, which is related to the status of Korea FC. Recently, EA actually downgraded their forecast on FC. And I want to know how that is impacting your FC business in Korea? And what is the situation? And I think maybe there might be some difference in operation under your management of FC as compared to the previous operational mode. So if there is any change, please let me know about that.

[Junghun Lee, executive]

[Interpreted] This is Junghun Lee. So I first would like to start off my answer by noticing that FC Online is a completely separated build from FC 25 or other console iterations of the FC franchise. Now regarding all those key issues in FC '25 that EA has mentioned, those issues are unrelated to FC Online. Now before the 2026 World Cup in 2025, we might experience some hurdle because of the lack of real-life football events throughout the year. However, since FC is definitely taking up a dominant position in the South Korean market, we believe that the game will continue its stable position throughout this year.

[Operator]

[Interpreted] Next question comes from Ms. Junko Yamamura of JPMorgan Securities Japan.

[Junko Yamamura, analyst]

[Interpreted] I have 2 points that I would like to ask you about. First, about the longevity. Looking at the recent volatility of the operating profit, it seems that the -- looking at the recent launches, for example, THE FINALS and The First Descendant and also Dungeon&Fighter: ARAD, it seems that Dungeon&Fighter or the Mobile, sorry, it seems that you have a very good reaction at the beginning, but then it would weaken after that. And at the same time, the cost of the labor or the human cost, the labor cost has been increasing. So it seems that the balance between the 2 is being lost somewhat or it has deteriorated somewhat.

And earlier, you mentioned that about the China Dungeon&Fighter Mobile after the Lunar Year or New Year update, you mentioned that there will not be a decline after that, then it will stabilize from now on. But would you be changing or reconsidering the speed of making updates or preparing the new content? Could you comment on that because this is a great opportunity to hear your thoughts on that.

[Shiro Uemura, executive]

[Interpreted] Well, first of all, about your question on longevity, we consider ourselves as a pioneer of the online games. And for the MapleStory and also Dungeon&Fighter, we have been operating in the past decade or 2 decades, and we have been growing those franchises. But at the same time, of course, there could be some slowness to some of the franchises. But if after some time or if we make efforts, we have shown proof that we can strengthen them once again.

Well, you mentioned FINALS and The First Descendants. Those are new IPs or new games, so they are a little bit different from our existing or established IPs. And you mentioned The First Descendant. And as you mentioned, at the launch, it did very well, but there was a lack of content, and we have analyzed this and we have reflected upon this. And when we reenhance this or strengthen this, I think it's possible to regain the strength. So in that sense, by increasing the volume of content as well as the quality of the content, we think that we can grow the longevity steadily for THE FINALS and also The First Descendant.

And so based on that, we need to, of course, invest in the talent that is absolutely necessary. And of course, at this moment, the balance between the top line and cost might seem that they are deteriorating. But I think that in the medium to long term, we believe that we can realize the growth. And as I mentioned earlier, the years 2024 and '25 are the years for the investments. And 2025 is also a year to strengthen those franchises. So based on those initiatives, we believe that we can once again show growth.

[Operator]

[Interpreted] Excuse me. So Junghun is going to add some comment to the previous question.

[Junghun Lee, executive]

[Interpreted] Yes, I think I can add a little bit of more color to the Mobile Dungeon&Fighter part. I would ask for your understanding because I think my comment might be a little bit long. So regarding this New Year's update in Mobile Dungeon&Fighter, internally, our goal was to acquire return users and new users so that we can boost the overall traffic volume. However, the problem that we had experienced at this time around was that it still lacks content that could satisfy or that return and new users had desired.

Now as a result of this problem, with this small amount of returning and new users coming in, the traffic volume did not grow as much as we had hoped for. Nonetheless, I would like to point out that the existing users' engagement is still very solid because even now the game is being enjoyed by millions of players. And we want to point out that this absolute number itself still represents quite a large player community that is enjoying our game.

Internally, we are seeing the solution to address the status quo in twofold, first of which is to stabilize and keep our existing users' engagement strong going forward. Throughout our live service in China with PC Dungeon&Fighter, there has been some set formula that has proven to be successful and working in the PC Dungeon&Fighter. Going forward, we will renew those updates designed with this existing success formula on PC further so that it can be even better aligned with the nature of the mobile platform. Now the second piece to our solution would be to bring in returning and new users by supplying entirely new type of content that were unseen in the PC version, especially through this co-development efforts with the Tencent team for the Chinese service. Now we hope to attract new and returning users throughout these efforts.

So the bottom line is by executing these twofold solutions, we aim to grow our user base or the traffic volume in the long term. With this, we believe that profit will naturally follow after that. Now in fact, these trends that we -- that I just mentioned when it comes to this returning users and new users were also observed in past quarters to some extent. So we've been internally discussing a lot how to address the status quo continuously.

Now with this recent New Year update, we were able to better realize the limitation of this past approach more clearly and decided to discuss -- decided that this discussion had to be expedited for its execution. Now in 2025, we are sparing no effort to stabilize this production procedure and see this co-development with Tencent and the co-developed content introduced within this year. Lastly, I would like to also mention that we won't see any changes to our economics from this co-development with Tencent. Thank you for your question.

[Junko Yamamura, analyst]

[Interpreted] I have a second question, which is slightly overlapping with my previous question. And my second question pertains to your ways of expanding the existing IPs. So you talked about Dungeon&Fighter in your midterm plan, and you mentioned your assumption that there will be some level of revenue increase attributable to Khazan as well as OVERKILL, once they are launched. But it seems that the market has some difficulty factoring that in fully in the stock price. And I was wondering where the gap between your assumption and the market understanding exists?

And maybe you're trying to say that if you're talking about the same franchise and its extension, you will be able to expect a similar level of the revenue. But we have some questions of why you are trying to sell Khazan in the form of sell-through format in the Western countries? And I know that you will be trying to work different measures to foster the passion and interest in this new title in the Western countries by leveraging on different media as well as marketing activities so that you will be able to generate some interest amongst the potential users. But it seems that the market doesn't understand how you plan to transition to the extension of this existing title. So if you can talk about that, I will appreciate it.

[Shiro Uemura, executive]

[Interpreted] Okay. So regarding The First Berserker: Khazan, you asked about why we decided to sell through regarding this model. And as mentioned by our CEO already, we believe that the introduction of Dungeon&Fighter in the form of Khazan to the West is our first step forward into that market. So our strategy is, given the different characteristics of this very game, we decided to go for the premium model.

So regarding what is the source of the gap that exists between the understanding by the market and how the management of NEXON looks at the future, it's very difficult to give you any concrete response to that question. But what I can say is that as the management, we will try to work very hard to attain the target that we have set for 2027 and try to build 1 step at a time and leave the track record and put a full-fledged effort to attain our goal, and that will be our strategy.

[Junghun Lee, executive]

[Interpreted] I think I'll be able to add a little bit of comment here as well. So throughout last year, some of the -- some of our largest franchises, MapleStory and Dungeon&Fighter have respectively faced some challenge in South Korea and China. And also, even though their early launch has been more explosive than our expectation, The First Descendant and THE FINALS also faced some questions from the investors regarding the sustainability of these titles. So throughout the past 30 years of history of our company, we've been constantly saying that the biggest prowess of our company is our live service operation capabilities.

Now regarding those challenges that I just mentioned, of course, I believe that we'll have to prove our live ops capabilities by addressing those. So there are things that are not fully presented or disclosed from earnings releases every quarter. And that is why our company really wanted to talk more on those aspects in our Capital Markets briefing last year and share more colors about our midterm plan. Now I would like to highlight that under this long-term strategy as well as the strong operating income with more than KRW 1 trillion annually, our team is smoothly executing on the strategies that we laid out at CMD.

[Operator]

[Operator Instructions] [Interpreted] This concludes the question-and-answer session. Mr. Kawai, I'd like to hand over to you for any additional or closing remarks.

[Takanori Kawai, executive]

[Interpreted] 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 Investor Relations at [e-mail], should you have any further questions. We appreciate your interest in NEXON and look forward to meeting with you whether it is here in Tokyo or in your corner of the world.

[Operator]

That brings us to the end of the meeting. Thank you for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]