Wemade Co Ltd

KOSDAQ:112040

Earnings Call Transcript 2023-Q4

[Operator]

Hello. Thank you for participating in today's call. We will now begin the earnings call for fiscal year 2023 Q4 of Wemade and Wemade Max. We will first start with the call with the presentation by Wemade and Wemade Max and then proceed with the Q&A from the participants. [Operator Instructions] Now we will start the presentation by Wemade and Wemade Max.

[Unknown Executive]

Hello. This is [ Soo-Rae Han ] of Wemade IR Division. Thank you for joining the 2023 Q4 and Annual Earnings Call of Wemade and Wemade Max. We have with us, CEO, Henry Chang of Wemade; and Sang-Won Kim, Senior Managing Director of IR Division; and Director Young-Jun Ko of Financial Management Division.

We will start with the opening remarks by Wemade's CEO, Henry Chang, and the presentation of Q4 and annual results by Senior Managing Director, Sang-Won Kim, which will be followed by a Q&A session. The Q4 and the annual results of 2023 is provided for the convenience of the investors without completing the external auditor's review. It is subject to change due to accounting audits and instructions of the Financial Services Commission. Please be advised to refer to the disclaimer from the Q4 and annual results presentation material posted on our website.

Now CEO, Henry Chang, will give his opening remarks.

[Henry Chang, executive]

Hello. This is Henry Chang, CEO of Wemade. Thank you for joining us in our Q4 2023 Earnings Call. First of all, as of February 6, 2024, as of yesterday, we have signed a publishing contract for Mir 4 in China. The contract is with a major listed company in China. I cannot share today who the publish share is due to contractual confidentiality. After the Lunar and Chinese New Year's holiday, we will plan to communicate further information with bulk prepared coordination with the other party. And quite soon, we'll be able to share the news about the Chinese publishing agreement for Mir M, which we already gained version #4.

2024 will be a year of significant growth for the company on the basis of what we have been investing in preparing for and building over the past 2 years. The launch of the Mir IP games in China, which I've mentioned earlier, as well as Night Crows Global is slated for next month and Fantastic Baseball and Ymir, which will be launched back-to-back, will drive revenue growth for the company. Last year, our revenue grew by more than 30%, and this year, we're targeting KRW 1 trillion revenue.

As the gaming division drives the company's growth in terms of scale, this year will be the year that the blockchain division solidifies the foundation for sustainable growth. Since the second half of last year, blockchain revenue has been steadily increasing on a monthly basis and next month's launch of Night Crows Global will shift the growth chart itself and accelerate that growth.

Two years ago, the success of Mir 4 Global was quite sudden, so it was not possible to further grow and expand the achieved success. However, this time around, Night Crows Global will leverage the preparation of the past 2 years to achieve much greater success and the success will be extended to the entire games platform and the Wemade's ecosystem, and this will serve as a catalyst for sustainable blockchain business growth. Such top line growth will naturally lead to an improvement in the bottom line and operating profit. In particular, the blockchain division grown steadily in terms of revenue from [ $200,000 ] in July 2023 to [ $2 million ] in December. Our goal is to make such growth sustainable and achieve a monthly BEP for the Blockchain division within the year.

For the past 2 years, we have reported large losses due to investments we have made to prepare for new businesses. But this year will be the year that we reap the results of our investments, and we will be able to report a profit. It will not take a long time to see a shift in our P&L structure, and you will start to see it as early as our next earnings call. I extend my appreciation once again to the shareholders and investors for your patience. Please stay with us to witness Wemade grow and achieve results in the coming year. Thank you.

[Sang-Won Kim, executive]

Hello. My name is Sang-Won Kim from Wemade's IR team. I'd like to briefly discuss -- allow me to repeat. I think the mic was not available. Hello. My name is Sang-Won Kim from Wemade's IR team. I'd like to briefly discuss our Q4 2023 business highlights and our 2024 Q1 status and plans. In 2023, we had the release of our new epic MMORPG Night Crows in Korea, ranking #1 in sales under both major markets. The signing of a 5-year KRW 100 billion per year contract with a total size of KRW 500 billion for the Chinese license for Mir IP and WEMIX being selected as one of the top 10 global blockchain projects. It was indeed a year of great achievements. Thanks to such accomplishments. Once again, on the heels of 2022 and 2023, we've recorded KRW 607.2 billion in annual revenue, breaking the record once again.

In 2024, we have the most number of large titles to be released in the company's history, so we expect this year to be another year of significant leveling up in terms of both revenue and profit. First in March, the blockchain game, Night Crows Global, will be released and we plan to bring a completely new game play experience and fun to users around the world by applying omnichain services.

Based on our extensive experience in blockchain game services, we expect to achieve much greater results than the domestic performance of Night Crows. The baseball game, Fantastic4 Baseball, is also preparing to launch in Q1 in line with the opening season of baseball. Fantastic4 baseball is developed by Round One Studio, a company in which we hold a 20% strategic investment stake in and will be serviced by us. The game allows players to create teams with famous players from various leagues.

Currently, we have obtained a license from the Taiwanese professional baseball league, CPBL, and are in discussions with KBO as the preferred bidder for the game license business. This year, there will also be the release of our long-anticipated AAA games in the Chinese market. With the goal of launching Mir 4 within this year, we are proceeding with the process to obtain version number and finalize publisher selection. For Mir M, we obtained the version number in December, and we signed a publisher contract with a well-established Chinese gaming company.

We expect to proceed with obtaining the version number for Mir 4 and the publisher contract for Mir M in the near future. Our in-house developed and serviced MMORPG Legends of Ymir is gearing up for the launch. Based on [ Norse ] mythology, it will showcase a grand narrative unfolding on the continent of Ymir and realistic combat action and graphics created on Unreal Engine.

At G-STAR 2023, we unveiled demo and received great response from new users. We plan to release it in Korea in Q3 this year. Our consolidated subsidiaries are poised to launch MMORPG, the Legend of Mir 2 [indiscernible], subculture RPG Lost Sword, Idle healing simulation game, Abyssrium, the classic puzzle RPG [indiscernible] and Dungeons & Stones. The release of a record number of new games in 2024 is expected to contribute to performance improvement.

At the same time, the blockchain business based on WEMIX 3.0 mainnet continues to expand and achieve remarkable results. In particular, as shown in the earnings results material, blockchain platform revenue began to show a clear upward curve in the second half of 2023 and expect it to continue to grow in the future.

Next, I would like to share with you the major achievements of our blockchain platform business. First, we became the first Korean game company to partner with Innovation Hub in the Dubai International Financial Center to establish a WEMIX PLAY Center within the hub. We are planning to forge strategic alliances with Singapore's Whampoa Digital and other major investors to create Web3 fund of almost $100 million.

In addition, 40 WONDERS, a Node Council Partner of WEMIX 3.0, welcomed new members, global gaming company, Ubisoft; Verichains, the blockchain subsidiary of Vietnam's #1 IT company, VNG; FACTBLOCK, a Web3 ecosystem builder; and Sygnum global digital asset bank creating synergies to create -- grow the WEMIX ecosystem and community.

WEMIX is listing on cryptocurrency exchanges, is also progressing smoothly. In November, it was listed on GOPAX, a domestic Korean won cryptocurrency exchange. And in December, trading support resumed on Korbit and Bithumb. As of February 7, 2024, WEMIX is listed and traded on a total of 27 exchanges. As a result of these efforts, CoinMarketCap, a global virtual asset analysis site ranked WEMIX ninth in the global projects, ranking based on TVL, which is -- WEMIX is now in the global top 10 list for blockchain projects. In addition, in the Industry Sector Indexed released by Sygnum, a global digital asset bank, WEMIX topped the rank with the largest share in the gaming sector, providing once again that WEMIX is one of the leading cryptocurrency in the global blockchain market.

Recently, in order to further solidify the fundamentals and practical aspects of WEMIX tokenomics, we decided to carry out Zero Minting, which means we will discontinue blockminting rewards. This effectively means that the total supply of WEMIX will either remain fixed or reduce from the block height in which the discontinuation of blockminting rewards is implemented. We expect to achieve the true deflationary economy as we strive to.

Next, I'd like to provide a brief overview of Wemade's Q4 2023 preliminary results on a consolidated basis. Revenue for Q4 and 2023 stood at KRW 118.4 billion, down Q-o-Q due to the KRW 100 billion in the previous quarter from onetime recognition of license fees and flattish growth of existing games. Operating expenses recorded KRW 189.3 billion, down slightly on a Q-o-Q basis. As a result, we recorded an operating loss of KRW 70.8 billion. Net income turned into a loss Q-o-Q due to recognition of a loss on the valuation investment assets and a loss on the valuation of derivatives related to convertible bonds due to increase in our stock price.

This concludes my presentation on the preliminary results of Wemade for Q4 2023, and I will turn to the preliminary results of Wemade Max for Q4 2023.

Wemade Max's consolidated revenue for Q4 decreased 4% Q-o-Q to KRW 17.7 billion due to flattening of the existing release games such as Mir 4. Operating expenses increased 10% Q-o-Q to KRW 18.9 billion, reflecting commissions and marketing expenses for new releases. As a result, we recorded an operating loss of KRW 1.2 billion, recording a loss Q-o-Q. Net profit stood at KRW 1.4 billion, recording a slight increase Q-o-Q.

That concludes our presentation of Wemade and Wemade Max's preliminary results for Q4 and the full year of 2023. We will now proceed with the Q&A.

[Operator]

We will now start the Q&A session. [Operator Instructions] The first question will be asked by Yeji Yoon of HI Investment Securities.

[Yeji Yoon, analyst]

Two questions. So in Mir 4 for Q2 and Mir M for Q4, depending on the status of version number, will this schedule be changed?

And second question is, the revenue regarding blockchain platform increased in December. And the reason behind that is maybe because of the preregistration for Night Crows Global. Is there any relation between the two? And after the launch of Night Crows Global, do you have any -- I mean, daily revenue for blockchain, we can make some guesses of the game revenues, but can you give us some guidance regarding blockchain platform revenues on the heels of Night Crows Global's launch?

[Unknown Executive]

Yes. Thank you very much for the question. So Mir 4 and Mir M's Chinese launch scheduled. I have shared Mir 4 is second quarter and Mir M is fourth quarter. So there is no plan to change any launch schedule as of now. However, before we have signed an agreement with the publisher and we need to coordinate with the other party to confirm the schedule, but I don't foresee any significant change to our original plan.

To answer your second question, as you can see from the material, the increase in December is not an isolated phenomenon since the October -- since the August last year, the trend is significantly upturn. So the blockchain revenue is on a consistent upturn trend. And NFT sales was in January and preregistration was in January. So this did not impact any December numbers. So in the second quarter -- in the second half of last year, we could definitely see the organic growth of blockchain platform.

And as organic growth sustained for more than 6 months, and we have 20 months in 2024. And when you grow the chart, the organic and upturn trend will be more evident [indiscernible] to substantiate that up until March this year when we add back results, we'll be able to see our future blockchain revenues with greater clarity.

But one caveat here is Night Crows Global launch is a major event. And I believe the chart itself was shifted up in its entirety. And we have high expectations, but we are unable to share specific numbers as to the future revenues. So last year -- in particular starting from the second half, the platform revenue is growing so that we can have more vision about the future. And after the Night Crows launch next month, the chart will be shifted up and moved up, and we will be able to exhibit more elevated growth. And the consequent quarter, I believe the analysts will have -- will be able to see the clear trend for the future and adjust your expectation numbers for the future. We will be able to see more trend for the blockchain revenue.

[Operator]

Now take the next question. The next question will be from Hee-Seok Lim from Mirae Asset Securities.

[Hee-Seok Lim, analyst]

I want to ask about the preregistration status of Night Crows and your expected outcome. What are you expecting in terms of the final results? And the games that you're planning to release in China, there are 2 currently at the moment. If you have any expectations or ideas on which game would be more popular in China, that would be much appreciated.

[Unknown Executive]

Yes. For Night Crows, we have been communicating our expectations in a consistent manner. The basis for that is when we look back at our experience of releasing Mir 4 and Mir M, we have achieved quite great -- good success in the domestic market for Mir 4. We have achieved about a success of 2.5x in scale compared to the domestic market and the global market for Mir 4. And for Mir M, actually it didn't do as well in the domestic market or in the global market, but the global market performed better in comparison to the domestic market by twofold or threefold. So MMORPG with the proper design of tokenomics seems to have a performance of 2 or 3x compared to the domestic market, and that's our past reference of [ KRW 230 billion ].

So we do expect that we will be able to achieve the success of 2 or 3x. So compared to Mir 4 and Mir M the overall situation in terms of Wemix, the advancement of the tokenomics and also the game itself. The level of success in the Korean market, everything is much better. So we do have high expectations that we will be able to achieve greater success. For Mir 4 and Mir M, we have high expectations and also the high-quality Mir game that is to be released in the market for quite some time now. So the Legend of Mir 2, I think previously it was kind of a repetition. But Mir 3 was released in 2004, so it's been about 20 years since the new Mir series is released. We have the power of the IP to back us up. So we definitely have very good expectations for that.

Which one will perform better? In terms of that question, we hope both will do well. I think the publishers have different views. Certain publishers think that Mir 4 has more advantage. So that's the publisher we signed yesterday. Another publisher says, Mir M is more closer to the original and they think that will do better. So we do think that maybe our strategy will be to have a time difference, maybe 3 months to 6 months, so that the 2 games will be able to land softly into the market. So to have a big success and a long-time success is our ultimate goal for both games. Thank you.

[Operator]

So we will receive the next question. So as of now, we do not have any participants who requested for the opportunity to ask a question. [Operator Instructions]. Next question will be asked by Mr. Mr. [indiscernible] Securities.

[Unknown Analyst]

So new and new launches will be the topic of my one question. So Mir -- during the period of [indiscernible] the popularity in China is quite high, but it's quite difficult to track the popularity of the IP in China. So can you share some of the data or indices that we have -- with which we can have understanding about the popularity of Mir IP in China.

And Legend of Ymir is slated for the third quarter launch. So the launch schedule of Ymir, I was wondering if there is any change to it.

[Unknown Executive]

Yes. Thank you for the questions. So the objective indicator we have to look into that if there is any available in the market. And if there are any, we will be able to share them. And you might say if there is no objective indicators, the popularity is not well-substantiated. But for [indiscernible] there are a lot of private servers which are servicing that game. In the past, we did the market research through a consulting company, and the revenue was in the range of KRW 4 trillion to KRW 9 trillion in China. And in Korea, the market was quite large, and the scale of the market got sustained with slight contraction in recent days, but Mir is in the same stature as that in China.

So in the past, when we add all the market, that was a little bit in the darker side of the compliance, the size is quite immense. And by launching new sequels, we'll be able to allure the users to the brighter side of the market. So we will be able to take the pie that was not accessible to us, and we'll be able to add that to our revenues going forward. Legend of Ymir is being developed without any changes to our schedule to launch in the fourth quarter.

[Operator]

We'll take the next question. The next question will be from DAOL Investment Securities, Ms. Ha Jeong Kim.

[Ha Jeong Kim, analyst]

I do have some 2 questions with regard to expenses. The first is in terms of commissions compared to the flattish growth in revenue, I think it's been quite flat. So I would like to get some more color on if there are any related issues there.

And in terms of labor, it does seem to be on a declining trend a bit. We would like to know a little bit more on what happened in Q4 and your recruitment plans for 2024. And if new people are to be onboarded, will there be a certain ratio that you're targeting for crypto assets and game?

[Unknown Executive]

Thank you for the question. So if we take a look at last year, we had KRW 600 billion in revenue previously compared to KRW 460 billion, we did have KRW 140 billion increase. But -- and there was an increase in terms of operating loss. A big factor is what you mentioned already. In terms of commissions, we did have an increase of about KRW 100 billion. For Mir 4 and Mir M previously, they were the game of our subsidiaries. So there were profit to be shared within the company. But on a consolidated basis, it was all counted as our revenue. So in terms of commission, there was only market commission to consider.

But for Night Crows, it's the company we invested in, but it's not our subsidiary. It's from the company Mad Engine. So the commission payment has increased considerably as a result. And I mentioned a lot of times before, but with Mad Engine from the very on start, if there are qualifications for them to be listed and if there are the right grounds for it, we have discussed the possibility of an M&A. We -- I can't say definitively that this is the timing for that, but the commissions to be paid to Mad Engine will not occur this year. It will be more of an intercompany type of transaction that we count on a consolidated basis. So in that sense, if that happens and gets realized, we will not have that commission to account for, which will improve our P&L.

In terms of labor, we have 1,800 in terms of head count, and that seems to be quite consistent for the past few months. Last year and the year before, we have been quite aggressive in our execution. So on one hand, that means that we have a lot of power to propel forward but that also could mean that there could be inefficiencies that arise. It's kind of like a double-edged sword. So this year, of course, we will stay on the course of aggressive execution, but we have 2 years of experience based on the blockchain business, and we also want to achieve cost efficiency in our management direction. So we are currently still hiring -- but I don't expect that there will be a considerable increase in terms of head count to the current level.

Of course, there could be significant upturn in terms of our performance. And because of Night Crows' massive success, we might need more head count like last year or the year before. But we will not be taking the sense of adding more head count quite obliviously because for the past through 2, 3 years, I think, we have had cases that people who left because the vision was not right for the company or it was not the right fit. So that's why we didn't really have a big deviation from the current level of head count.

So about 1,800, as I mentioned, at the current level, we will be a slight plus or minus from that. There will be people who leave, people who get onboarded, but I think it will be around that level. In terms of the breakdown of resources -- for blockchain dedicated resources, we have about 300 and about 200 staff resources and the remaining 1,300 as game resources. So definitely the ratio for gaming resources are higher. But for the new hires, there will be a higher portion for blockchain.

[Operator]

We will take the next question. Next question is from [ Jae-min Ahn ] from NH Investment & Securities.

[Jae-min Ahn, analyst]

I'm [ Jae-min Ahn ] from NH. I think it was around October time frame, and you have sold stake. And in Q4, when you look at the numbers, the sales of stake was not captured. So I was wondering if Q4 numbers are reflective of the sales of stake that you had and will they be captured in the first quarter?

[Unknown Executive]

So to reiterate again, our -- based on the annual outcome our net loss was there. And currently, the accounting standard does not capture the amount at the time of sales and every quarter the P&L will be captured in valuation. All the losses are mainly stemming from the convertible bond valuation loss and the asset valuation. The shift up, I do not have full information. More information will be given to you by IR division. And shift up did quite well from last year and that outcome was reflected in the previous year's outcome. And the sales of this date was not captured in the number, but the revenue of shift up will not be reflected in our numbers going forward.

[Operator]

We'll now take the next question. Currently, there are no participants with questions. [Operator Instructions] The next question will be from Hee-Seok Lim from Mirae Asset Securities.

[Hee-Seok Lim, analyst]

I have 2 follow-up questions. The first one is what you mentioned before a couple of times. In terms of your long-term penetration outlook for blockchain, I do want to get an update on that.

And the second question is, we do have a significant increase in terms of blockchain gains in terms of revenue. It definitely seems to be that it's coming a lot from NFT transactions from the commissions of the tokens. In the short or mid-long term, do you have an idea if that will account for a bigger portion of your revenue or the transaction value as such?

[Unknown Executive]

Thank you for the question. I guess I've been repeating myself when I made such comments, but I think for all games -- it will come a time that all games issue token and NFTs, that's because that makes the games much more fun to play. So there are negative perspectives about crypto assets at the moment and the outlook for the crypto assets are also not sure at the moment, but there will be a difference in terms of how people view crypto assets. Of course, there may be time differences, but I think the future is quite clear because that is the direction that will make the games more fun to play.

When Mir 4 succeeded in the market in 2015, I think, a lot of people agreed with my view. So with tokenomics combined, the K-MMORPG is making it in the global stage and everybody joined that movement. Then after Mir 4 kind of subsided in terms of popularity, people blamed us saying that Mir 4 didn't do as well. Wemade didn't make the right decision. I think that has been the perception for the past 2 years. That has become the new common sense per se. But I think for Night Crows Global, with the upcoming release next month, I think this will kind of break that preconception.

The AAA game combined with such factors makes the game even more fun to play. So adding blockchain and tokenomics for the previously unsuccessful games rather than taking that approach, adding it to the successful game makes a game much more fun to play and much more successful. I think this will be a wake-up call for the gaming industry, and good quality games will now include blockchain, and I hope that there will be a rush towards such momentum.

I think for Mir 4, we were not prepared for that. We didn't have a mainnet, we didn't have a blockchain ecosystem, we didn't have a lineup. But now we have more than 100 lineups secured, and we have partnership preparations already all on board. So we have the process for a fast launch at the moment. We're fully prepared for the success of Night Crows Global. I think this will have a significant impact on the market and industry for the expansion of blockchain, blockchain games and the positioning of blockchain games in the future.

And to be honest, for our games now, there's not a high portion of NFT. Rather than NFT, a lot of game tokens are being traded at the moment. But if we look at the revenue increase of the blockchain platform revenue, it is increasing across the board. The transaction value of NFT is going up. The game token value is going up as well. The gas fees are going up. So overall, there are a lot of increase in terms of the overall transactions. But rather than the trade itself, in the ecosystem and in the economy we take commission from such transactions. If the transaction volume goes up and then in proportion, blockchain revenue goes up. I think that will be the accurate description of that model. Thank you.

[Operator]

If there are no further questions, we will conclude the Q&A session here. If you have any further inquires regarding the earnings results, please contact IR division. So we will now ask our CEO, Henry Chang, to offer some concluding remarks.

[Henry Chang, executive]

Yes. Thank you very much for your continued interest in our business in 2024. There are a lot of initiatives that will be rolling out by us. And once again, I would like you to continue to be interested to pay attention on our business, and we will do our utmost to achieve great results and happy Lunar New Year.

[Operator]

So with this, we will conclude the 2023 Q4 and annual results earnings call of Wemade and Wemade Max.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]