Nexon Co Ltd

TSE:3659

Earnings Call Transcript 2020-Q2

[Operator]

Good day, everyone, and welcome to Nexon's 2020 Second Quarter Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Maiko Ara, Head of Investor Relations and Corporate PR. Please go ahead, ma'am.

[Maiko Ara, executive]

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 condition 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 statements.

Please note, net income refers to net income attributable to owner of the parent as stated in Nexon's consolidated financial results. Furthermore, this conference call is intended to provide investors and analysts with financial and operational information about Nexon not to solicit or recommend any sale or purchase of stock or other securities of Nexon.

A recording of this conference call will be available on our Investor Relations website, 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.

[Owen Mahoney, executive]

Thank you, Ara-san. And thanks all of you for joining Nexon's Second Quarter 2020 Conference Call.

Before we share our financial results, I'd like to offer some context on our performance at the midpoint of a highly disruptive year, a view on how we expect Nexon to emerge in 2021, and how we're positioned as we look beyond this year.

From the start of the pandemic, the games industry has experienced a surge in both players and engagement, despite that some analysts expect to taper off as the crisis ends. At Nexon, we see COVID in the context of a much broader trend in entertainment. We believe the crisis has brought sharp focus to a secular shift in the entertainment industry, which began years ago from physical-based entertainment such as sporting events, concerts and theme parks, to online virtual worlds, and from linear lean back experiences to lean forward interactivity.

Today, millions of consumers have discovered online games and virtual worlds are more fun, more social and widely available across billions of smartphones, PCs and consoles. This secular shift towards online interactive entertainment began years ago. It's here to stay, and it's accelerating.

The entertainment company is positioned to prosper in the shift have a proven ability to sustain and grow powerful, intellectual property to manage their IPs across multiple markets on multiple platforms. They understand that success comes from managing the live services of their games. This understanding gives rise to franchises that thrive for years and even decades. In this context, we believe Nexon stands out as one of the world's top creators and stewards of intellectual property.

We recognize that a great game is not a movie. It operates much like a massive virtual amusement park, where millions of people return to have fun with their friends and enjoy new experiences year after year.

Despite the disruption caused by global public health crisis, Nexon is performing exceptionally well. Our tent-pole franchises are setting records for longevity, consumer engagement and revenue. These franchises are fueling our cash flow, which, in turn, is strengthening our fortress-like balance sheet, providing liquidity to invest in growth.

Our creative teams continued to deliver the gold standard in live operations as well as a pipeline of exciting new titles. Importantly, we are also expanding our popular IP portfolio on to platforms like mobile, which offer explosive growth potential as we reach a wider audience with a product that is even more accessible.

Next week, Nexon will launch Mobile Dungeon&Fighter in China, a game that has already generated an incredible 60 million pre-registrations. More on that shortly. As an executive team, we couldn't be happier with the progress of the creative strategy we announced a few quarters ago, an initiative to create fewer but bigger games and to maximize both player satisfaction and profitability by adapting our big franchises for enormous new platform opportunities like mobile.

Our success on mobile started with MapleStory M. We followed that up with several additional mobile successes, most recently, KartRider Plus and the Kingdom of the Winds: Yeon. And what is shaping up to be our biggest launch in decades, Mobile Dungeon&Fighter on August 12. By the end of this year, Nexon will have 5 of our biggest and most immersive online game franchises available to tens of millions of players on mobile. We are deeply gratified to develop and communicate an ambitious plan and then for our teams to implement that plan so successfully.

On today's call, we're going to discuss our strong second quarter results. As impressive as these results are, we hope that you will view our performance in the larger context. We hope that you'll see Nexon as a company that offers investors long-term stability and exciting growth catalysts and that we stand to benefit from a massive secular shift that is bringing consumers right into our sweet spot, deeply immersive online games on PCs, consoles and mobile devices.

I'll now turn to our second quarter performance, where Uemura-san will provide details on our Q2 financial results and Q3 outlook later in his section.

Q2 group revenues were JPY 64.5 billion, up 20% year-over-year, which came in ahead of our expectations. Operating income was JPY 26.7 billion, up 106% year-over-year, also exceeding our outlook. The solid performance was primarily driven by the record-breaking Q2 in Korea, where we had strength across our portfolio, including MapleStory, Dungeon&Fighter and Sudden Attack, each of which recorded double-digit or even triple-digit year-over-year growth. Our new games also performed well.

MapleStory in Korea, now in its 17th year of operation, delivered yet another quarter of triple-digit year-over-year growth. In Q2, it grew 151% on a constant currency basis on top of the 24% growth in Q2 2019. MapleStory also recorded excellent results in other parts of the world. In North America and EU, it grew 173%, and the rest of the world, it grew 217% year-over-year on a constant currency basis. We are particularly pleased with the early success we're seeing in moving popular Nexon PC franchises on a massive mobile platform.

In May, we launched the mobile version of Nexon's popular racing game KartRider Rush Plus globally excluding Japan and Vietnam. The game is off to a terrific start, particularly in Korea and Taiwan. Our data shows that in Korea, there is little overlap between the PC and mobile players. The franchise is building new fans on top of the already massive registered player base on PC of 380 million users.

KartRider Rush Plus, which accommodates a variety of play styles, is enjoyed by a wide audience of players, including male and female, parents and children, young and old. We think KartRider Rush Plus is a large and positive data point north thesis, the platform expansion, especially mobile, represents a massive opportunity for Nexon. Let me pause here to make an important point.

While we are extremely pleased with the launch metrics on KartRider Rush Plus, at Nexon, we measure success in years and decades, not months and quarters. We believe this franchise has a long and exciting future on mobile.

In June, we launched FIFA MOBILE, FIFA's mobile standalone game, which also had a good start, while having minimal overlap with FIFA Online 4. Our success on the mobile platform is particularly pleasing, and it comes just ahead of the mobile launch of one of our biggest franchises Dungeon&Fighter. As a result of these excellent numbers, Nexon has achieved its highest ever Q2, revenue and operating income. This success is clear affirmation of our recent strategy change.

We are now deeply focused on leveraging Nexon IP on supporting fewer, but bigger, deeply immersive online games and on expanding our franchises into multiple new platforms. This highly focused strategy, coupled with the secular shift in the entertainment industry towards interactive entertainment and online virtual worlds provides a clear path towards growth and profitability.

Nexon's Q2 success was tempered by revenue from our China business, which was below our expectations due to softer-than-expected performance of Dungeon&Fighter on PC. The key update in March as well as the 2 major content updates introduced in the second quarter were well received by our existing players, but have yet to recapture players who haven't logged in the recent months.

To summarize, the updates were partially successful. They effectively engaged existing players but missed our expectations on recapturing those who haven't logged in for a while. Importantly, the existing player base is stable, and we do not expect that to change this year.

Going forward, we will continue to work on the engaging those who haven't engaged recently -- to reengage those who haven't engaged recently. We remain focused on the long-term success of the game and strongly believe that the best days of this franchise in China are ahead of us. While it's taking us longer than we had originally expected to get Dungeon&Fighter back to its growth trajectory, we are pleased with the strength of Nexon's business as a whole as we once again delivered stronger-than-expected group performance in Q2.

Shifting now to new games, we're about to launch Mobile Dungeon&Fighter in China. Globally, Dungeon&Fighter is one of the most successful franchises in the entire entertainment industry. Launched in 2005, it is a flagship Nexon franchise, generating lifetime gross well revenue of well over $15 billion on the PC platform alone. To put this into perspective, that's several billion dollars more than the lifetime box-office of the entire Star Wars catalog. At the core of this incredible success are 2 features that make Dungeon&Fighter accessible and sustainable, simplicity and incredible live game operations from our team in Korea. The simple control of Dungeon&Fighter makes the game easy to learn for all players, regardless of their level. In addition, a wide variety of characters, skills, modes and communities have constantly evolved over the last 15 years, making the game so deep and immersive that players repeatedly come back to this virtual world. It's most attractive feature, including action-packed gameplay as well as the 2D iconic pixelated art, which is reminiscent of arcade games makes it a special game for our players.

Mobile Dungeon&Fighter encompasses the distinctive action gameplay, decade-long legacy in the evolution of the original Dungeon&Fighter, and our development team at Neople has invested an enormous amount of time and effort to ensure that the deeply immersive world of Dungeon&Fighter can be optimized on powerful mobile devices.

During a closed beta in China, we received valuable feedback from our fans, which helped us polish and repolish the overall game quality, tech and fun. Now we're ready. Next week, on August 12, Nexon will launch Mobile Dungeon&Fighter in China, where it has already generated 60 million pre-registrations. Our partners at Tencent have committed a deep marketing and operational support to the game as we both believe this could be one of China's biggest game launches. We are thrilled to bring Dungeon&Fighter to deeply immersive virtual world to tens or hundreds of millions of players on mobile platforms in China, and we're thrilled about what this could mean for other Nexon franchises. We'll share with you its early performance during our Q3 call.

And we're pleased to say that there are more big launches coming soon. Looking forward in the second half of '20 and 2021, we have 2 more big beats that we're particularly excited about. First, KartRider Drift, the cross-platform next iteration of our popular cart racing game, KartRider Drift had its second closed beta test in June. And like KartRider Rush Plus, we think the game will build millions of more fans on top of the already solid user base of 308 million players. And there is more to come, including the first title from Embark Studios, our team in Sweden. In the near future, we'll share with you some exciting news about their work. We think what Embark is doing represents a new generation of online games for the West as well as a massive audience in game making -- a massive advance in-game making technology.

In June, we announced a partnership with Wonder Holdings on 2 joint ventures focused on sharpening, development of KartRider Drift and Mabinogi Mobile. At the center of the agreement is Wonder Holdings Founder and CEO, Min Hur, an accomplished developer with a great eye for what makes games successful.

In 2001, Min founded Neople, which developed the first Dungeon&Fighter. After selling Neople to Nexon, Min established Wonder Holdings, which included 2 game studios in Seoul, Korea. Following our strategic investment in Wonder Holdings last September, we invited Min to take an advisory role at Nexon, and he made valuable contributions to our development teams. That collaboration yielded an idea for a new structure that brings Min's leadership and creative insight together with teams working to extend Nexon's IP onto new growth platforms like mobile.

The 2 projects under this collaboration are KartRider Drift and Mabinogi Mobile. Min has been appointed executive producer of both projects and will be responsible for making creative decisions in partnership with 2 Nexon producers. The teams will transfer into the new joint ventures later this year.

Uemura-san will discuss the financial and accounting impact associated with the joint venture formation shortly. However, I'll close by saying that bringing talented teams under the leadership of a proven-hit maker is a familiar strategy in the entertainment industry, particularly in movies, music and games. We are incredibly excited to work more closely with Min and apply his insights and leadership in ways we expect he'll enhance the success of these 2 games.

I'll summarize here by saying that Nexon just recorded the best Q2 in our 26-year history. Several tent-pole franchises are delivering exactly what is hoped for by both players and investors, fresh, exciting content and predictable revenue from games you can depend on for years and even decades. We have an exciting pipeline of games in development. We generate strong and predictable cash flow. And our balance sheet provides us with enormous strategic flexibility that we can use to accelerate growth.

First of all, we are keeping our promises to both players and investors. We built a strategy for making fewer online games, but to make them bigger and to evolve franchises with millions of passionate followers on to enormous new platform opportunities like mobile.

With that, I'll turn the call over to Uemura-san, our CFO. Thank you.

[Shiro Uemura, executive]

[Interpreted] Now let's move on to the Q2 results. For additional details, please see the Q2 2020 investor presentation available on our IR website.

Q2 revenues, which were JPY 64.5 billion, up 20% year-over-year on an as-reported basis and up 27% year-over-year on a constant currency basis, exceeded our outlook. While revenues from China were below our outlook, revenues from all the other regions exceeded our expectations. We had particularly strong performance in Korea.

Looking at the total company results on a platform basis, PC revenues were in the range of our outlook, while mobile revenues exceeded our outlook. Operating income was JPY 26.7 billion and exceeded our outlook, driven by revenue outperformance.

Looking at the cost items. Our marketing costs in Q2 were lower than our plan, while we recorded higher-than-planned PG fees and royalties in relation to the strong performances of the new mobile games, including the global service of KartRider Rush Plus and TRAHA Japan service, which is a publishing.

Net income was JPY 19.8 billion, which was below our outlook, primarily due to a JPY 6.7 billion FX loss related to the appreciation of the Korean won against the U.S. dollar during the quarter and its corresponding impact on U.S. dollar-denominated cash deposits.

Revenues from our China business were below our outlook and decreased year-over-year as Dungeon&Fighter performance was below our expectations.

For Dungeon&Fighter, we introduced a Labor Day update on April 23, which continued until June 5. This update included the Avatar Package sales. We also introduced the 12th anniversary update on June 18, which included new Dungeon's in-game events as well as Avatar Package sales and continue until July 16. The March key update which focus on increasing user engagement as well as regaining the churn users and positive impact on improving the engagement of the existing players, but did not recapture the lapse players at the rate that we had expected.

Accordingly, both active users and pay users trended lower than anticipated and Dungeon&Fighter revenue was lower than expected. In addition to the factors I discussed, active users were negatively affected by the reduced number of bots following the implementation of structure player identity verification measures.

Consequently, MAUs and paying users decreased quarter-over-quarter. Revenues and ARRPU also decreased sequentially due to typical seasonality. Year-over-year MAUs decreased primarily due to the churn of users in the second half of 2019 as well as the reduced number of bots following the implementation of a stricter measure to verify player identity. We do not experience a major improvement in the number of paying users since the second half of 2019. Paying users decreased year-over-year and remain at low levels. Meanwhile, ARRPU increased compared to Q2 2019, as a portion of users decrease compared to a year ago. While ARRPU increased year-over-year, this was more than offset by the decrease in paying users resulting in a year-over-year decrease in Dungeon&Fighter's revenue. As planned in Q2, we recorded an adjustment of JPY 2.3 billion from onetime royalty income related to Dungeon&Fighter sales from Q2 Tencent's communication platform.

Revenues from our Korea business in Q2 exceeded our outlook, primarily driven by stronger-than-expected performances of the new mobile game KartRider Rush Plus, which we launched on April 12, as well as our key PC online games, including MapleStory and Dungeon&Fighter.

MapleStory's Q2 revenue exceeded our expectation, driven by the strong performance throughout the quarter following the successful 17th anniversary event and sales promotions in April. User metrics, including MAUs, paying users and ARRPU increased year-over-year, generating a 151% revenue growth on a constant currency basis as it achieved its highest Q2 revenue in Korea.

Dungeon&Fighter's revenue in Q2 also exceeded our expectations driven by the well-received item packaging offering. The strong momentum continues since the key update, including level cap release and the third awakening, which was introduced last quarter. User methods include MAUs, paying users and ARRPU or increased year-over-year, and it recorded constant currency revenue growth of 49%.

Revenue from Sudden Attack also exceeded our expectations and grew 103% year-over-year on a constant currency basis. This was driven by the successful in-game events and the introduction of the new characters and season pass. The strong momentum continue from Q1 and the user networks, including MAUs, paying users and ARRPU grew versus a year ago.

Meanwhile, FIFA Online force revenue was below our expectations. The active users, which has stayed high since the second half of 2019, decreased as the balance of the game's player rating and content update did not resonate with our users. However, on a year-over-year comparison, active users as well as paying users were roughly flat, and its revenue was up on a constant currency basis. We have already addressed the user feedback regarding the balancing of player rating and reviews from our players since have been good. We will continue to focus on increasing the user engagement through exciting content updates.

As per the mobile business, we launched a new mobile game KartRider Rush Plus on May 12, and it is off to a terrific start. We had a strong performance throughout the quarter and the revenue significantly exceeded our expectations. The KartRider franchise successfully expanded the player base by building upon the PC KartRider player base. KartRider Rush Plus has been enjoyed and played by very demographics and played together across generations.

On June 10, we also launched FIFA MOBILE, FIFA's mobile standalone game. It is also off to a good start and the revenue exceeded our expectations. FIFA MOBILE also expanded its player base by successfully gaining FIFA Online 3 and FIFA Online 4's dormant users as well as brand-new players.

Driven by the strong performances of these titles as well as the condition from V4 launch in Q4 2019, PC and mobile business grew 62% and 88% year-over-year, respectively. Overall revenue from our Korea business grew 69% on an as-reported basis or 81% on a constant currency basis year-over-year, and we achieved the highest Q2 revenue in Korea.

Revenues from our Japan business exceeded our outlook. Driven by stronger-than-expected performance of the new mobile MMORPG TRAHA, which we launched on April 23.

On a year-over-year basis, while we benefited from TRAHA, this was more than offset by decreases in MapleStory M due to tough comparison with Q2 2019, which was the quarter in which the game launched as well as the disposition of groups. Consequently, revenues decreased year-over-year.

Revenues for North America and Europe in Q2 exceeded our outlook, primarily driven by stronger-than-expected performances of MapleStory and choices.

Revenue from MapleStory and Choices grew year-over-year. MapleStory's active users, paying users and ARRPU all grew versus a year ago and recorded year-over-year growth of 173% on a constant currency basis driven by well received content update and item sales. This growth was more than offset by decreases in MapleStory 2, Spiritwish, AxE and Darkness Rises. Consequently, revenues decreased year-over-year.

Revenues from the rest of the world exceeded our outlook, driven by stronger-than-expected performances of KartRider Rush Plus launched on May 12, primarily in Taiwan as well as MapleStory. Revenues grew year-over-year driven by the contributions from KartRider Rush Plus, V4, which launched in Taiwan, Hong Kong and Macau in Q1, as well as MapleStory, which recorded 217% growth on a constant currency basis, while revenues were from OVERHIT, Moonlight Blade and AxE decrease year-over-year.

Now turning to our Q3 2020 outlook. For Q3 2020, we expect revenues in the range of JPY 77.3 billion to JPY 85.4 billion, representing a 48% to 63% increase year-over-year on an as-reported basis and a 49% to 65% increase year-over-year on a constant currency basis.

In particular, we expect revenues from Korea and China to increase year-over-year. We also expect North America and Europe as well as the rest of world to grow year-over-year, while Japan will decrease versus a year ago. Overall, we expect strong growth in our group revenues compared to Q3 2019.

We expect our Q3 operating income to be in the range of JPY 30.5 billion to JPY 37.4 billion, representing a 25% to 53% increase year-over-year on an as-reported basis and a 26% to 55% increase year-over-year on a constant-currency basis. I'll discuss the details of this shortly.

We expect net income to be in the range of JPY 25.5 billion to JPY 31 billion, representing 36% to 22% decrease year-on-year on as-reported basis and 35% to 20% decrease on year-on-year on a constant-currency basis.

In Q3 last year, we had recorded JPY 15.4 billion FX gain, which will not be repeated in Q3 2020. Therefore, the net income in Q3 is expected to decrease year-on-year, excluding JPY 15.4 billion for FX gain, we expect our net income to increase 4% to 27% year-on-year.

Now turning to China. We expect to benefit from the launch of the mobile game, Mobile Dungeon&Fighter. We anticipate the PC version of Dungeon&Fighter to be roughly flat year-on-year. While our mobile game, KartRider Rush Plus, which received a major update last year in July, will decrease year-on-year. We expect revenues from China business to be in the range of JPY 23.3 to JPY 28.1 billion, or 31% to 58% increase year-on-year on as-reported basis, and 33% to 60% increase year-on-year on a constant-currency basis.

As for PC Dungeon&Fighter, we introduced the summer update on July 16, including Avatar Package offering events and new dungeon. In addition, we will release the National Day Update in September, which will include additional Avatar Package offerings, new content and events.

We have not experienced a notable change in our KPIs. MAUs and paying users have trending low. Meanwhile, ARPPU has been staying at a higher level than the same period last year. We expect Dungeon&Fighter revenue in Q3 2020 to be roughly flat year-on-year.

We launched the new mobile game, Mobile Dungeon&Fighter in China, August 12 through our local partner, Tencent. Together with Tencent, we announced its release date in June on the official website as well as at the Tencent Games Annual Conference. Major marketing activities have begun, including LED light show and online events celebrating the launch date announcement. In addition, we showcased the game at ChinaJoy, China's major game show from July 31 to August 3. 60 million players have already pre-registered.

The contribution from Mobile Dungeon&Fighter reflected in Q3 outlook is based on the information such as number of the pre-registrations and results from the closed beta test.

Turning to our Korea business. For MapleStory, we expect to gain a strong momentum to continue into Q3, driven by the summer update started from late June, and its revenue to trend record double-digit year-on-year growth even compared to the tough comparison with Q3 2019.

In Q3 2019, MapleStory's constant currency basis revenue grew 8% on top of the 126% year-on-year growth in Q3 2018, which was driven by the large scale update for its 15th anniversary. We also expect other major PC games, including Dungeon&Fighter and Southern Attacks, strong momentum to continue and grow double-digit year-on-year in Q3.

We expect FIFA Online 4's revenue to be roughly flat year-on-year compared to Q3 last year, when its revenue grew significantly versus Q3 2018, when we successfully completed the service transition from FIFA Online 3 to FIFA Online 4.

We expect our mobile business in Korea to grow year-on-year, benefiting from V4, launched in Q4 2019, KartRider Rush Plus and FIFA MOBILE, both launched in 2020. And Kingdom of the Winds: Yeon launched on July 15 and is off to a terrific start. We anticipate both PC and mobile revenue to grow year-on-year.

Overall, we anticipate revenues from our Korean business to be in the range of JPY 42.2 billion to JPY 44.5 billion, or 78% to 88% increase year-on-year on as-reported basis and 80% to 90% increase year-on-year on a constant-currency basis.

In Japan, we expect to benefit from TRAHA launched in Q2 this year. Meanwhile, we expect this to be more than offset by the disposition of the group and a decrease in revenue from MapleStory M due to the difficult comparison with Q3 2019, which was right after the game launch.

As a result, we expect revenues in the range of JPY 2.5 billion to JPY 2.8 billion or 20% to 11% decrease year-on-year on as-reported basis and 19% to 10% decrease year-on-year on a constant-currency basis.

In North America and Europe, we expect MapleStory's strong momentum to continue into Q3 and grow triple-digit year-on-year. We also expect to benefit from KartRider Rush Plus launched in Q2 2020 as well as V4, which launched on July 24. Overall, we expect revenues from North America and Europe in the range of JPY 4.9 billion to JPY 5.3 billion, or 8% to 16% increase year-on-year on as-reported basis and 9% to 17% increase year-on-year on a constant currency basis.

In the rest of the world, we also expect MapleStory's strong momentum to continue into Q3 and grow double-digit year-on-year and to benefit from V4, which launched in Taiwan, Hong Kong and Macau in Q1 2020 and globally in Q3 2020, as well as KartRider Rush Plus launched in Q2 2020.

As a result, we expect revenues in the rest of the world in the range of JPY 4.4 billion to JPY 4.7 billion or 37% to 47% increase year-on-year on as-reported basis and 38% to 48% increase year-on-year on a constant currency basis.

In Q3 2020, we expect operating income to be in the range of JPY 30.5 billion to JPY 37.4 billion, representing a year-on-year increase of 25% to 53%. The main driver of -- for this higher operating income is a revenue increase.

Other favorable factors include the decreased impairment loss of JPY 2.2 billion recorded in Q3 2019, which will not be repeated in Q3 2020.

Unfavorable factors regarding the operating income include: First, increased variable costs associated with revenue growth. Second, increased HR costs associated with increased salaries, performance-based bonuses as well as stock option costs. Third, increased marketing costs associated with promotions for new mobile games, including the global service of V4, the global service of KartRider Rush Plus, FIFA MOBILE as well as the Kingdom of the Winds: Yeon.

Lastly, lower other income. In Q3 last year, we recorded JPY 7.5 billion gain on the step acquisition under the other income. In reference to the consolidation of Embark Studios, we do not expect such a gain in Q3 2020. The high end of the range reflects the fact that we expect the impact of positive drivers to be larger than the negative drivers, resulting in higher operating income.

Next, I will discuss accounting treatment as well as the impact on our profit and loan balance sheet related to the establishment of 2 joint ventures with Wonder Holdings. First, from an accounting perspective, both joint ventures will become our equity method affiliates. We plan to complete the establishment of the joint ventures within 2020. After forming the joint ventures, the development teams of the KartRider Drift and Mabinogi Mobile will be transferred to the new companies. Since KartRider and KartRider Rush Plus teams belong to the same division as the KartRider: Drift team, they will be transferring to the new joint venture together.

As for KartRider and KartRider Rush Plus, which are currently developed and published by Nexon, the impact on our group P&L related to the team transfer is expected to be immaterial. Development projects for KartRider: Drift and Mabinogi Mobile, both currently under development at Nexon, will be handed over to the joint ventures. Nexon will publish these games and provide ongoing live operations support.

Now next is the capital allocation plan. First, let me explain our plan to invest up to JPY 1.5 billion in global entertainment companies, which we announced in Q2. Nexon has a solid foundation that consists of multiple franchises, which provide us with strong cash generations and fortress-like balance sheet that is flushed with cash.

Our operating cash flow in the first half of 2020 was JPY 65.6 billion, and our cash balance as of Q2 2020 was JPY 474 billion.

In addition to M&A strategy in order to make good use of our cash in the market that is defined by the low interest rates, Nexon's BoD authorized $1.5 billion for investments in publicly traded companies that have strong global entertainment IP and run by great management teams. In addition to generating good returns, we hope to develop a long-term relationship that lead to opportunities to work together with those companies.

Lastly, let me update you on the shareholder return. As planned, the BoD today approved a dividend payment of JPY 2.5 per share for interim period to the shareholders registered as of June 30, 2020. We are scheduled to pay the same dividend per share for the year-end fiscal year 2020. We remain disciplined in delivering shareholder value by growing our business globally and maintaining consistent dividends.

This ends my comments. Back to Owen.

[Owen Mahoney, executive]

Thank you, Uemura-san. Before we take your questions, I want to quickly summarize our quarter and the growth catalyst that you can expect in the coming year.

We delivered solid results in the first half of 2020. Our flagship franchises continue to deliver high growth and our balance sheet is a strategic asset. Many of our new games, like KartRider Rush Plus, have launched well, and we are extremely excited about the projects in our pipeline, including Mobile Dungeon&Fighter, KartRider: Drift, and products and development at Embark Studios in Stockholm.

For our investors, we are keeping our promises. We have refined our creative strategy to focus investments on fewer but bigger virtual worlds and priorities that can be adapted to capture huge platform opportunities like mobile. It's early in the development of the strategy. And in Nexon, we measure success in decades, not months, but we couldn't be happier with the early results of this and the path to success this company is headed on.

With that, we'll open the call to your questions.

[Maiko Ara, executive]

Thank you, Owen. Next, we'd like to start the Q&A. For Q&A session, we have a consecutive interpretation between Japanese and English. The interpretation will come between your questions and our answers. Please wait for the interpretation before you hear our answers. Our answers will also be followed by interpretation. So please wait until the end of the interpretation before moving on to the next question. You might have more than 1 question, but we will take your questions one at a time. So now we are happy to take your questions.

[Operator]

[Operator Instructions] The first question is from Mr. Han Joon Kim from Macquarie Capital Limited.

[Han Joon Kim, analyst]

Great. I do have 2 questions, and I'll go to them one by one. I think the first one is on Kingdom of the Wind in terms of the cooperation with Supercat. And I think in the past, when we've had good partnerships like this, I think, for like NAT Studios, we've progressively over time, have managed to kind of consolidate them into our fold now. Is it something that's possible for here as well in the interest of continuing to scale [indiscernible] of the 1 IP on mobile? Or is this going to be a little bit different in terms of being able to kind of work with them more closely down the road?

[Owen Mahoney, executive]

I'll take that question. Han Joon, it's Owen. Thanks for your question. We're not in a position to speculate on what might happen in the future. It's not the right time to do that. And it's -- and we have no announcements to make of any sort.

[Han Joon Kim, analyst]

Got it. My second question is on kind of projects after -- for the second half or going on to next year. So perhaps mistakenly, I thought maybe KartRider: Drift or Mabinogi M could be somewhere closer to the second half of the year. But with the structure change, I think presumably, is it fair to think more 2021 than 2020? And then alongside that, just in terms of Embark Studio title, I think you alluded to it earlier about having a little bit more update later down the growth. But is this something that we can still expect towards the end of the year going into early next year? But just in general, and maybe if you have thoughts on pipeline for the second half and thereafter? Any updates would be great.

[Owen Mahoney, executive]

[Interpreted] It's Owen again. I -- we don't have anything to announce at this time in terms of timing. What we've told you is that there -- those 2 games, particularly KartRider: Drift and the [indiscernible] from Embark are our next big beats. But we haven't announced dates for those yet, and that's going to be driven entirely by product development and marketing. And so we'll make the appropriate announcement for the time it's best for those launches.

[Operator]

Next question is from Yamamura of Nomura Securities.

[Junko Yamamura, analyst]

[Interpreted] I have 2 questions. But first of all about the plan of the China Dungeon&Fighter. You expect the National Holiday update. But if you look at last year, before it went down, Q-on-Q growth was observed. So looking at the status, the PC version of the Dungeon&Fighter, it seems that you're focused more on the existing users. So does that mean that the seasonality might change from now on? Or does it -- it won't change anything? That's my first question.

[Unknown Executive]

[Interpreted] Thank you for your question. Let me summarize once again on China Dungeon&Fighter. As you said, last year, in Q1 and Q2, we saw a very steady growth and we grew very much. But unfortunately, from the universally and the summer update time period, we started to see some decline. And this year, in March, we had a major update in order to recapture the churned users. And as a result of this update, unfortunately, we could not recapture the churned users as much as we -- like what we expected. So we could not go back to the very high-growth period in the past.

But the content of the update was very highly evaluated by the existing users and those existing users are enjoying the game very much. So as far as the China Dungeon&Fighter is concerned, the existing users are the main players, and they are very stably trending.

So as for the seasonality, we see the seasonality in Q1 and Q3. So as we always say, the PC online games has long longevity, and we think that we can grow this in the long run. So we would like to maintain the current level of status so that we can put this into the regrowth trajectory.

[Junko Yamamura, analyst]

[Interpreted] My second question is the plan in Q3 about the Mobile Dungeon&Fighter. What kind of scenario -- what kind of story do you expect for the start-up of this mobile Dungeon&Fighter and how this game will be played or enjoyed by the users? Would it be the monetization from the beginning? Or would it start up and gradually increase? It seems that you have a very big pre-registered users. And do you have a sufficient content from the beginning? So I'm a bit concerned about that.

So as for the start-up of this Mobile Dungeon&Fighter game, what kind of scenario do you expect? And as much as you can talk about this, I would appreciate your comments.

[Unknown Executive]

[Interpreted] Yes. Thank you. Yes, we have a very high expectations from the Dungeon&Fighter Mobile version. But it has not yet launched, so it's very difficult to talk about what would happen clearly at this moment.

But the game experience is very similar to that of the PC version. So if you look at the Dungeon&Fighter PC version, the users are enjoying this in the long term, and we can grow this -- we have been growing this game very much. So our idea is to do the same with the mobile version. Of course, we'd like to start big and then continue to grow further.

Now as for the year-on-year outlook, we expect growth in China, but the Dungeon&Fighter PC is expected be flat even at the high end. There's a slight increase expected. So with the KartRider Rush Plus, there will be an offset, but the net increase will come from the mobile version of the Dungeon&Fighter. So that gives you kind of a little bit of a hint what would happen year-on-year.

[Owen Mahoney, executive]

This is Owen. I just have 1 other comment. As you know, we've had a game under development for some time. And one of the things we wanted to be very careful of was to develop a lot of content. You asked the question, but it was certainly, the development included making sure that we had -- works very hard to make sure that we -- as I said in my prepared remarks, polish and polish and polish the game. And a big part of that is making sure that we have enough content. So it's been a big focus for our team. I just want to let you know that, that was an important component of getting the product ready.

[Operator]

Our next question comes from Mr. Seyon Park from Morgan Stanley.

[Seyon Park, analyst]

I also have 2 questions, which I'll go over one by one. First question is related to the Kingdom of the Winds. To me, it seems like this game has come really as a big surprise, coming in at one point #2 grossing game. In Korea, it seems revenues are actually quite stable. And this is eventually a game which actually even comes before when I was going to call it. So it is a very old game that I recall. And I was just kind of curious as to whether the players are those who have played this game, on the PC version, or whether we are seeing a younger generation of players play this games? And in terms of your outlook of how long your longevity of this game could be. Could you kind of share some details as to whether this is a small group of very highly engaged payers or whether it's relatively a broader base of players, but with maybe moderate to kind of lower monetization overall.

[Unknown Executive]

[Interpreted] Thank you for your question. As you have mentioned, Kingdom of Wind is trending very well. And as you have mentioned, this is quite an old title. As a matter of fact, this is the very first online PC game that Nexon launched. And for us, this is a great track record of being able to convert the great IP title to mobile version. So all in all, today, I am quite happy and grateful for the results we are getting through this game.

Now talking about the attributes, meaning who are the players. Needless to say, people who used to play Kingdom of the Winds through the PC, feel very nostalgic, and they came back to play the mobile version. But not only that, but we see a broader generation playing Kingdom of the Wind, different gender as well as different age groups, whether you be old or young, they all come to play this game.

So once again, this is for the Koreans, a very nostalgic title that they can bring back good memories. So the people who used to play this game on PC are now enjoying the mobile version as well. So regarding the user profile, we can say that the past users of PC came back and also we have the new players.

[Shiro Uemura, executive]

I would like to comment on the outlook. As I have already mentioned, in Q3 outlook, we believe that this title can be a major contributor to our business. So far, KPIs look very favorable. Regarding what will evolve after Q4 and onward, of course, I cannot make any concrete comment on it. But for now, it is indeed growing, and we want to utilize our know-how on how to realize longevity of PC online games to the mobile world as well. Therefore, we will put our full-fledged effort to grow this mobile game and enjoy longevity.

[Seyon Park, analyst]

My second question is related to the JPY 1.5 billion budget that you have to invest in the global entertainment companies. Can I get a little bit more background as to the rationale behind it? Is it to replenish some of your IP, given that a lot of the games that Nexon had developed in the past has now come out on a mobile or across platform version? Or does it involve other kind of regions as well? Would it -- does this JPY 1.5 billion include gaming companies as well? Or are we talking specifically only about maybe nongame-related IP? And if you end up investing, would it mean that Nexon is a passive investor or more of kind of a mutual partnership?

[Owen Mahoney, executive]

This is Owen. I'll answer the question. Let me give you a quick background. By way of introduction or background, you can probably gather by talking to us, we have a very particular view on what's going on in the media industry around the globe right now and where it's heading in the coming years. And as we've said before, we just have a very strong opinion that we're in the middle of a secular shift in our industry and that it's profound and that we're going to look back on the first half of 2020 as a major turning point.

And so we think the world has really changed, at least in the entertainment industry. And the market for interactive entertainment is already bigger and it's changing a lot. So the transition is happening. But when you read about what's going on, when I read the newspapers in the U.S. and Japan, this type of discussion is barely mentioned.

I mean we can see it around the entertainment business, but you don't read about it a lot, but the topics typically are about linear entertainment about movies or music or live sports, when you see entertainment coverage. The question for us, though, is who wins in this new world? We think that we win, if we execute well, but we also think there's a lot of really good IP out there that could win if the IP owners make that transition to the new world. And we think this is going to be -- represent real opportunity in the coming 10 years.

So we think it's a good use to put our cash into this opportunity. It is not part of our M&A strategy. It sits apart from that M&A strategy. Really, the primary purpose is to get a better return on the on our cash in a 0 interest rate environment. So the Board has approved us to invest in up to $1.5 billion, as you've heard us say. We have invested about half of that so far. And if the opportunity arises, potentially, we can work with the companies that we invest in to help them make that transition if they're interested in doing that.

So to your question of is it about replenishing our IP? We don't think about that way at all. We've got lots of -- we've got some of the very biggest IP in the entire entertainment industry, anywhere in the globe. And so we've got fantastic IP, but we also have a view that there's going to be some other great winners in the world that we're all going into. So that's what it's about.

[Seyon Park, analyst]

So can I just confirm that you've cited that you already spent 50% of this budget and that means that in the near future, the company will be disclosing on what investments you've invested in?

[Owen Mahoney, executive]

The answer to your first question is yes, we are confirming that we spent roughly 50% of that. The answer to your second question is we may or may not announce who those companies are that we've invested in.

[Operator]

Our next question comes from Mr. Atul Goyal from Jefferies.

[Atul Goyal, analyst]

Very excited with the launch for Dungeon&Fighter Mobile. So Owen, the question is, you've got 60 million registrations. You also mentioned that combined with Tencent, you have high expectations, you believe that the game could be one of the best, probably you meant in revenue terms. How are you managing the potential risk of cannibalization that the users on mobile, don't necessarily just come from the PC? And is there some metrics you're monitoring? Maybe -- I don't know what you can share. But out of the 60 million, how many are actually current active users on PC versus the ones that are not. So that's my first question. And I've got 1 more question on D&F monetization later.

[Owen Mahoney, executive]

Thanks, Atul, for your question. The short answer is it's extraordinarily hard to tell. But over time, what we've seen is that the franchise tends to grow on both. The big impact, the much bigger impact that we have seen is synergies between the platforms. And combined with -- or in addition to growth of the power of the overall franchise. It's reflected -- and that gets reflected across the KPIs.

Of course, it ends up in revenue, but it also ends up in all the KPIs that get reflected in revenue. And just as an illustrative example of this, we've shown before the history with MapleStory PC and a history of MapleStory Mobile. And as a matter of fact, we've put a slide that illustrates that on Page 40 of this quarter's deck. You can see what happened. We launched MapleStory Mobile in 2016. And through 2019, as you can see that the numbers got substantially stronger in MapleStory PC. And those numbers have gotten even a lot stronger in the first half of 2020.

So over the long term, it's been very good for the franchise overall, the strength of the franchise overall and on each of those platforms. And that overwhelms the whatever cannibalization, which, as I said, is very, very hard to tell, that may be there.

So net, it's really hard in the near-term to call precise numbers, but over the long term, our experience has been very positive. And we'll just have to see how it works out for Dungeon&Fighter.

[Atul Goyal, analyst]

That's a very good point you make, Owen. In fact, before I ask my second question, a quick comment. I observed the same thing when we saw Pokémon launch, it did cannibal -- Pokémon Mobile, it didn't cannibalize, in fact, increase the number of people who wanted to buy Pokémon console games. Same thing we observed with Animal Crossing as well. So a big point there But again, we need to be careful and watch how things go.

Secondly, Owen, is it possible? I know it's very difficult to -- I mean there's something a lot of confidential agreement between you and other parties, especially including Tencent. But is there some kind of an image you could share in terms of the take rate or monetization for D&F on PC versus mobile without going into a lot of detail? But is there something you can share? Will it be slightly higher or slightly lower or ballpark, same kind of a take rate is what we should look at?

[Owen Mahoney, executive]

Sure. So I'm not sure how -- if this will answer your questions directly. But the way to think about Mobile D&F is it's basically designed to be PC D&F, but on a mobile device. That's the way to think about it. In terms of everything about it, the gameplay, the monetization, how long we expect or hope that people will play it, interact with each other and so on. But there will be 2 important differences, a small one and a bigger one. The small difference is that there's going to be a platform fee. So you -- anytime around mobile, you're going to have platform fees. You have to keep that in mind when you do your model. The bigger one is we're addressing a much, much bigger market. By our estimates, and I'm not sharing that, this is not the China numbers alone, but globally, there -- by our -- what we gather is there's roughly about 300 million game-playable PCs in the world. There are roughly 3 billion game-playable mobile devices now. That's iPhone X and higher equivalents on Apple and Android. And so on a global basis, we're dealing with the total addressable market that's much, much bigger and that dwarfs platform fees in terms of size of impact for us. So we're very excited about the mobile platform.

In terms of how we're designing it, though, it's designed to be the PC experience. But from a user's perspective, there's a huge impact. And then it's with you all the time, anywhere you're at.

[Operator]

Our next question is from Mr. Jay Defibaugh from CLSA.

[Jay Defibaugh, analyst]

I'll just ask 1 since I think we're running short on time. On Mobile D&F, could you please elaborate on what Tencent is doing to get those pre-registrations? And more importantly, how the game is being integrated into the Tencent platforms to engender engagement and monetization?

[Unknown Executive]

[Interpreted] Thank you very much for the question. Regarding a full-fledged marketing activities for Mobile Dungeon&Fighter, it started quite recently. So even before this full-fledged marketing activities, pre-registration has been conducted. So we can say that there were many preregistration even before the marketing activities.

Nonetheless, after the announcement was made that this game will be launched on August 12, Tencent conducted major marketing activities. And not only that, but we have Mobile Dungeon&Fighter official website and also at Tencent's Games Annual Conference, Tencent's conducted marketing. So we have a video that can be enjoyed by people who are interested in it. And also, we have showcased this game at ChinaJoy.

[Jay Defibaugh, analyst]

Is there anything that you can comment on regarding how Tencent is leveraging its platforms to make the most out of Dungeon&Fighter Mobile?

[Unknown Executive]

[Interpreted] Tencent has communication channel such as QQ and WeChat. And my understanding is that they are maximizing these channels to conduct activities related to marketing.

[Operator]

This concludes the question-and-answer session. Ms. Ara, at this time, I'd like to turn the conference back over to you for any additional or closing remarks.

[Maiko Ara, executive]

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 [e-mail] 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.

[Operator]

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.]