Nexon Co Ltd

TSE:3659

Earnings Call Transcript 2021-Q3

[Operator]

Good day, everyone, and welcome to NEXON's 2021 Third Quarter Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Takanori Kawai, Team Leader of Investor Relations. Please go ahead, sir.

[Takanori Kawai, executive]

Hello, everyone, and welcome to NEXON's earnings conference call. Thank you for joining us today. With me are Owen Mahoney, President and CEO of NEXON; and Shiro Uemura, CFO.

Today's call will contain forward-looking statements, including statements about our results of operations 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 on this conference call will be available on our Investor Relations website, world wide web. 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, Kawai san. Welcome, everyone, to NEXON's third quarter 2021 conference call. I'm pleased to report that our results reflect a year of smart hard work by our teams and aligned with the analysis we offered throughout the year. In short, NEXON is delivering on its promises, strengthening the core business, preparing for the launch of new games in 2022 and developing new, yet to be announced games, for launch in 2023. Throughout the year, we have emphasized that NEXON's virtual worlds grow in a steady but nonlinear pattern, whereby periods of robust growth can be followed by flat or declining engagement before springing back into all new growth cycle. That pattern is evident in our third quarter results, which were ahead of the high end of our expectations and once again demonstrated how robust our franchises are over the long term.

Second, the investments we made this year in studio leadership, content creation and in building trust with our players are now showing positive results. Operational investments in 2 big franchises, China Dungeon&Fighter and Korea MapleStory have sparked what we hope is an extended return to growth.

Third, our relentless execution on multiple catalysts has positioned NEXON well for growth in 2022. In the current quarter, our studios in Sweden and Korea are providing details on highly promising new games to be launched next year. Our key message for today is that NEXON's core business is returning to growth, and we are preparing to launch new games, any one of which could deliver dramatic improvements in our revenue and profitability.

In the third quarter, operating profit was up 8% despite a tough comparison to the same quarter last year. Two of our most important franchises, China Dungeon&Fighter and Korea MapleStory delivered stronger-than-expected results and sequential quarterly improvements. We also saw strong performances by FIFA Online 4 and the Kingdom of the Winds: Yeon.

Next, I will provide some insights on our operational progress and why we believe 2022 could be a breakaway growth year for NEXON. I'll begin with China Dungeon&Fighter, one of our highest grossing franchises. This summer, we made a change in the leadership team aimed at shaking up the content plan and reengaging players. In the third quarter, the team delivered 2 successful content updates, which resulted in an improvement in player sentiment and significant year-over-year growth. As you know, the fourth quarter is when we focus on building our player base ahead of big events that follow in Q1. Today, the team is concentrating on delivering continual improvements to the user experience with an eye on 2022, while avoiding aggressive monetization in the near-term to solve our new momentum. This is exactly where we want China Dungeon&Fighter to be at the end of the year, reengaging players and gathering momentum for revenue growth in 2022.

One important point on Dungeon&Fighter. NEXON is committed to full compliance with the new regulations in China. However, it's important for investors to recognize that worldwide, the number of Dungeon&Fighter players under the age of 18 is less than 1%, and the revenue attributed to that group is quite a bit less than 1%.

Next, I'll move to Korea MapleStory and a completely different growth strategy. Where China Dungeon&Fighter needed a different creative approach to reignite growth. MapleStory maintained a strong creative core and substantial growth in recent years. Our challenge in MapleStory, Korea has been twofold. First, we faced a tough comp on the explosive 98% growth in 2020. Second, we worked hard to rebuild trust after players expressed vocal concerns over how the industry communicates probabilities on certain in-game items.

Over the past 9 months, our team has invested significant time to establish a direct dialogue with players to listen and implement changes based on their feedback. Again, I'm pleased to report clear progress. MapleStory's Net Promoter Score, a key indicator of player satisfaction has improved steadily. Continuing the positive momentum we reported last quarter and building us close -- and bringing us close to the high scores we saw earlier this year.

Meantime, our team has taken a measured approach to monetization, while delivering a stronger-than-expected result in Q3. By establishing a solid base of player engagement in Q3 and Q4, we look forward to MapleStory's return to robust growth in 2022.

Now I'd like to switch gears and update and provide an update on our creative pipeline, starting with KartRider: Drift, a new game based on NEXON's popular arcade racing franchise, KartRider, which has life-to-date registered more than 380 million players. Last month, we announced KartRider: Drift will host a closed beta consumer testing in December, allowing players in Korea, Japan, Europe and the U.S. to test the new game on PCs and consoles. A new trailer for KartRider: Drift was recently unveiled at Sony Interactive Entertainment, State of Play event and streamed on Twitch and YouTube. Built on Unreal Engine 4, KartRider: Drift features stunning graphics and unique finally tuned customization of characters in carts.

We're especially excited to announce, for the first time today, the mobile version of this game and KartRider: Drift will be cross-platform and fully cross play, which means a PlayStation player can race against a mobile player, a PC player and an Xbox player, all in different countries in the same match. Another potential hit in our pipeline is mobile Dungeon&Fighter, which generated more than 60 million pre-registrations before the game was delayed in China last year. Last week, we announced plans to launch the game in Korea in Q1 2022.

Life to date, Dungeon&Fighter franchise has been played by more than 700 million people worldwide. We are highly confident in the quality of the mobile game and its potential in Korea. We also remain optimistic about the launch of Mobile Dungeon&Fighter in China, although at this time, we have no additional information about the release date.

Now I'd like to give you an update on Embark, one of the most talented game teams assembled under one roof in recent years. The studio now has more than 250 game makers working on multiple new titles and groundbreaking technology. As we promised earlier, our plan has been to start talking about Embark's first game at the end of this year. Prior to the upcoming official game announcement, I can tell you that the game, codenamed Pioneer, combines uncompromising AAA quality and a highly accessible free-to-play model. It takes place in a breathtaking high fidelity immersive virtual world. It leverages exceptionally sophisticated physics and applies machine learning to create emergent, engaging and unexpected gameplay. Embark started working on this game a little over 2 years ago, and we can't wait to show it to the world.

I'm also excited to report that Embark's team has also been working on a second game, codenamed Discovery. Discovery is a free-to-play, team based, first person shooter that puts dynamism, physicality and destruction front and center. It's a ton of fun and unlike anything currently in the market. While it is too early to set a launch date, we plan to reveal more about this one in 2022. Both of these games are powered by a technology stack developed at Embark, leveraging procedural tools for content creation, groundbreaking game physics and machine learning to unlock game experiences that were simply not possible before.

But that's not all. The team at Embark is working on a third project, a creative platform. It started from our conviction that the future of games is one where all of us, not just professional game makers are able to craft sharable, interactive experiences. That means creating living, persistent virtual worlds where anyone can craft, play, remix and share their experiences with others. We also believe that platforms that address this challenge today, as good as they are, are too complicated for most people to use. We plan to show how that concept becomes a reality when we share more on this project in the months ahead.

To summarize, NEXON is delivering on its promises and is now positioned to enter 2022 with great momentum. Our core business is solid, and we've reignited growth in our 2 biggest franchises, China Dungeon&Fighter and Korea MapleStory. We have multiple new games in development for new markets and platforms, including consoles. Best of all, we are now on a countdown to launch 3 potential blockbusters. KartRider: Drift, the first game from Embark and Mobile Dungeon&Fighter in Korea.

Our message to investors is simple. Our core business is performing. We have multiple projects in development that will serve as growth catalysts. Any single one of these catalysts if successful, will trigger a step function improvement in NEXON's earning power.

With that, I'll turn the call over to Uemura san.

[Shiro Uemura, executive]

Thank you, Owen. Now I'll review our Q3 2021 results. For additional details, please see the Q3 2021 investor presentation available on our IR website. We faced a challenging comparison this quarter following a record-breaking Q3 in 2020. Group revenues were JPY 75.9 billion, down 4% year-over-year on an as-reported basis and down 11% year-over-year on a constant currency basis. However, these results exceeded our outlook, primarily driven by stronger-than-expected performances of our major titles, such as Dungeon&Fighter in China, MapleStory, FIFA Online 4 and the Kingdom of the Winds: Yeon in Korea. Revenues from all regions, excluding Japan, exceeded our expectations. Revenues from Japan were in the range of our outlook.

Looking at the total company performance by platforms, PC revenues exceeded our expectations, while mobile revenues were in the range of our outlook. On a year-over-year basis, PC revenues grew by 24%, while mobile revenues decreased by 44% due to a tough comparison with the year-ago quarter when our mobile business grew by 140% year-over-year and achieved record-breaking results, primarily driven by contributions from V4, KartRider: Rush+ and the Kingdom of the Winds: Yeon. On a quarter-over-quarter basis, mobile revenue grew slightly.

Operating income was JPY 29.8 billion, up 8% year-over-year, exceeding our outlook, primarily driven by revenue out requirements. Net income was JPY 37.9 billion, up 132% year-over-year, exceeding our outlook. The outperformance was primarily driven by the operating income strength as well as an FX gain of JPY 16.1 billion related to the depreciation of the Korean won against the U.S. dollar and a revaluation gain of JPY 1.7 billion due to movements in the market price of Bitcoin during the quarter.

Let's move on to results by region. Revenues from our Korea business exceeded our outlook, primarily driven by stronger-than-expected performances of MapleStory, FIFA Online 4 and the Kingdom of the Winds: Yeon. On a year-over-year basis, however, revenues decreased by 20% on an as-reported basis and by 25% on a constant currency basis due to a tough comparison with Q3 2020 when our Korea business grew by 115% year-over-year on a constant currency basis.

While revenue from MapleStory decreased year-over-year as expected, its performance significantly exceeded our outlook due to a well-received event in August and successful sales promotions conducted in time for Korean Thanksgiving, Chuseok. As we said last year, last quarter, we have been working hard to build our players' trust. As a result, the Net Promoter Scores, an indicator of player satisfaction consistently improved throughout the quarter, and the events and content update in Q3 were well received by players. We will continue to focus on creating fun games that would be enjoyed by players for years to come.

Moving to FIFA Online 4, PC and mobile combined revenues exceeded our outlook and grew year-over-year, driven by well received events and sales promotions. Dungeon&Fighter grew by 22%, while Sudden Attack maintained its momentum and grew more than 3x year-over-year. This marks the seventh quarter in a row in which Sudden Attack grew by double or triple digits year-over-year. Consequently, PC revenues in Korea increased by 9% year-over-year as MapleStory's revenue decrease was more than offset by revenue increases in other major PC titles.

As for the mobile business, revenues decreased by 52% year-over-year due to a tough comparison with the year-ago quarter, when our mobile business marked record-breaking revenues, driven by contributions from V4, KartRider Rush+, as well as the Kingdom of the Winds; Yeon following its launch.

On a quarter-over-quarter basis, mobile revenues were roughly flat as V4's revenue decrease was offset by an increase in revenue from the Kingdom of the Winds: Yeon, driven by successful first anniversary update and sales promotions.

Revenues from our China business exceeded our outlook, driven by Dungeon&Fighter's stronger-than-expected sales from the National Day package offerings. On a year-over-year basis, revenues increased by 45% on an as-reported basis and by 33% on a constant currency basis. For Dungeon&Fighter, we are seeing improvement in user engagement as new initiatives after a leadership change in the creative team were well received by players. As a result, sales from the National Day packages offered from September 14, exceeded our expectations.

Quarter-over-quarter MAUs and paying users increased, driven by positive impact from the successful 13th anniversary update in June and the summer update in July. ARPPU and revenue also increased sequentially due to seasonality and improved user engagement under the new leadership. On a year-over-year basis, while MAUs decreased paying users, ARPPU and revenue increased.

Revenues from Japan decreased by 5% year-over-year due to revenue decreases from TRAHA and MapleStory M, which offset MapleStory's growth and contribution from Blue Archive and FIFA MOBILE.

Revenues from North America and Europe decreased by 18% due to revenue decreases in Choices and V4, despite the year-over-year growth of MapleStory M. Despite revenue decreases from KartRider Rush+ and V4, revenues from the rest of the world increased by 12%, driven by significant growth in MapleStory and MapleStory M.

Moving on to our fiscal year 2021 fourth quarter outlook. For PC games in China and Korea, usually Q4 is a quiet season when our teams focus on building the player base ahead of a big update in Q1. While Dungeon&Fighter and MapleStory had great performances in Q3, in Q4, our teams are focusing on building player engagement to further improve the in-game experience and add entertaining content so that we can consolidate the strong performance and grow further next year. And Q4 2021 is faced with a challenging year-over-year comparison, given the record-breaking Q4 revenues and operating income we achieved in 2020. As a reminder, in Q4 2020, revenues from our major PC titles, including MapleStory increased, and our mobile business grew rapidly, driven by contribution from new titles.

As a result, group revenues increased by 35% year-over-year. Given this tough comparison, we expect our overall group revenues to decrease year-over-year in Q4 2021. We expect our Q4 group revenues in the range of JPY 51.2 billion to JPY 57 billion, representing a 23% to 14% decrease year-over-year on an as-reported basis and the 26% to 18% decrease year-over-year on a constant currency basis. We expect our Q4 operating income come to be in the range of JPY 2.5 billion to JPY 6.9 billion, representing an 84% to 56% decrease year-over-year on an as-reported basis and a 90% to 64% decrease 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 0.3 billion to JPY 3.6 billion.

Last year in Korea, we achieved 72% year-over-year growth, driven by the strong performance of MapleStory and contributions from the Kingdom of the Winds: Yeon and KartRider Rush+. Given that challenging comparison, we expect revenues from our Korea business to be down this year. We are looking for revenue to be in the range of JPY 29.6 billion to JPY 32.3 billion, representing a 29% to 23% decrease year-over-year on an as-reported basis and a 31% to 25% decrease year-over-year on a constant currency basis. As for the PC business, we expect Sudden Attack to grow approximately 2.5x and FIFA Online 4 to also grow year-over-year.

However, we expect Dungeon&Fighter's revenue to decrease year-over-year. As for MapleStory, we expect revenue to decrease compared to Q4 2020 when the game delivered an especially strong performance and grew by 88% year-over-year, driven by the largest ever winter update and a collaboration with the popular K-pop group, BTS. However, as I mentioned earlier, MapleStory's Net Promoter Score is improving. Rather than seeking short-term revenues, our focus is to strengthen our mid- to long-term relationship with our players and to return to revenue growth in 2022 and beyond.

While we anticipate growth from Sudden Attack and FIFA Online 4, we expect this to be more than offset by declines in MapleStory and Dungeon&Fighter. As a result, we expect PC revenues in Korea to decrease year-over-year.

Regarding the mobile business in Korea, we expect revenues to decrease year-over-year. While we expect to benefit from Blue Archive, which launched today, November 9, and anticipate growth from FIFA MOBILE, we expect these to be more than offset by revenue decreases in the Kingdom of the Winds: Yeon KartRider Rush+ and V4, all of which had strong performances in Q4 2020 following their recent launches.

Turning to China. We anticipate Dungeon&Fighter's revenue to be flat on an as-reported basis and to decrease on a constant currency basis year-over-year. Accordingly, we expect revenues from our China business to be in the range of JPY 11.4 billion to JPY 13.2 billion, representing an 11% decrease to 4% increase year-over-year on an as-reported basis and a 20% to 8% decrease year-over-year on a constant currency basis. As for Dungeon&Fighter, we expect Q4 revenue to decrease on a constant currency basis year-over-year, while Q3 revenue -- Q3 revenue significantly increased.

While we have seen improvements in user engagement recently, Q4 is different from Q3, in that we do not have any particularly large monetizing events scheduled during the quarter. Therefore, we do not expect paying users and ARPPU to change significantly compared to the same period of last year. Additionally, this year's National Day update was introduced 8 days earlier compared to last year. So we expect its positive effect during Q4 this year to be smaller than last year. Consequently, we expect Dungeon&Fighter's revenue to decrease year-over-year.

We manage our games with a mid- to long-term revenue outlook rather than aiming for short-term gains. Accordingly, in Q4, we intend to use the slow season to build a foundation for growth in 2022 and beyond. We will focus on creating an environment for players to enjoy the game even more by improving the in-game balances and conducting events.

In Japan, we expect revenues in the range of JPY 2.50 billion to JPY 2.8 billion, representing a 28% to 17% decrease year-over-year on an as-reported basis and a 29% to 18% decrease year-over-year on a constant currency basis. We anticipate the contribution from Blue Archive to be more than offset by decreases from V4 and TRAHA.

In North America and Europe, we expect revenue -- revenues to be in the range of JPY 3.8 billion to JPY 4.3 billion, representing a 26% to 16% decrease year-over-year on an as-reported basis and a 31% to 21% decrease year-over-year on a constant currency basis, primarily due to a decrease in revenues from Choices.

We expect revenues in the rest of world in the range of JPY 3.9 billion to JPY 4.3 billion, representing a 24% to 35% increase year-over-year on an as-reported basis and a 20% to 31% increase year-over-year on a constant currency basis. While we anticipate a contribution from Blue Archive, which launched today, November 9, as well as growth from MapleStory and MapleStory M, we expect these to be partially offset by a decrease from KartRider Rush+.

In Q4 2021, we expect operating income to be in the range of JPY 2.5 billion to JPY 6.9 billion, representing a year-over-year decrease of 84% to 56%. Unfavorable factors compared to Q4 2020 regarding the operating income include: First, a decrease in revenue; second, increased stock options costs and HR costs associated with the introduction of our new compensation policy in Korea. Favorable factors compared to Q4 2020 include decreased variable costs associated with revenue decrease. The high end of the range reflects the fact that we expect the impact of negative drivers to be larger than that of positive drivers, resulting in a year-over-year operating income decrease. Overall, in Q3, we saw positive impacts from various improvement measures conducted to our major titles.

As we have said before, online games can grow over the long-term by conducting proper updates and careful daily operations. In Q3, we have steadily operated our games following this policy. In Q4, similar to Q3, we will make necessary improvements on each title. And rather than seeking short-term revenue, we will focus on building a foundation to build upon with step function growth in 2022 and beyond. In addition, the development of new games is on the right track. We are excited to achieve significant growth in 2022 and beyond by adding these titles on top of our revenue foundation.

Last, I would like to provide an update on the shareholder return and capital allocation strategy. Regarding our 3-year JPY 100 billion share repurchase policy that we announced on November 10, 2020, we have not yet executed on this buyback authorization. In timing the repurchase, we take into consideration several factors, including investment opportunities, financial conditions and share price. We're still committed to executing on this initiative before the November 2023 deadline. We make the most of our cash at hand to compose a balanced portfolio of investment for growth, investment for financial return and shareholder return.

We will effectively utilize our cash by leveraging the strength of our solid financial base upon consideration of the balances between business investments and shareholder return. This ends my comments. Back to you, Owen.

[Owen Mahoney, executive]

Thanks, Uemura san. I'd like to close with some broader comments about how to think about NEXON's upcoming 18 to 24 months, and indeed, how investors can generate alpha on a virtual worlds company like NEXON, as distinct from a traditional games company or a casual games company. The traditional approach to evaluating public video game companies has generally served investors well. To oversimplify, the traditional approach focuses on catalysts in the form of new game launches. Once the pipeline of catalysts is determined, the investment is timed to the launch date. Given that it's extremely hard to determine which new games will be a hit, public game companies and their investors have understandably gravitated towards franchise sequels over new IP or significant creative innovation. Why? For a traditional games company to even maintain its size, let alone grow, they first need to replace revenue from old games with revenue from the new slate.

If they take a gamble and bet wrong, a poorly performing slate of new games can severely impair the P&L of a traditional games company. But when talking about immersive virtual worlds whose lifetimes are indefinite, the traditional approach only captures a fraction of the picture. In virtual worlds, the core of our business is similar to a SaaS model. The revenues may go up and down in the short term, but when properly managed, they tend to be predictable over the long term, just like a SaaS business. That means that our recurring revenue could double in a few years, even without launching any new games. This SaaS-like aspect of the virtual worlds business is lost on most investors who have been trained to think in the old mode of launching new hits to replace old hits. This misunderstanding represents an attractive opportunity to those who can think in the new mode of long-lasting simulated online virtual worlds. It also gives enormous flexibility to the maker of virtual worlds to pursue and develop massively outsized opportunities.

Take the first game from Embark as one example. As I sit here today, I don't know whether it's going to be a success. Why? Because there's nothing like it. So there are no comps to help us forecast revenue. All I know is we want to play this game, and we have a strong hunch, many others will as well. And since there's nothing quite like this game, if it does hit, we know we'll have the market to itself. We won't have to compete with similar games. For investors, it makes it much like -- this makes it much like a call option, a potential positive black swan with vast potential to pay returns for years or even decades.

And our massive and growing base of revenues from virtual worlds unlocks great freedom for us to try completely new things like Embark's new game. We can take creative bets with massive potential returns while still sleeping well at night, thanks to the SaaS-like characteristics of our core business.

All of this makes your job analyzing NEXON challenging, and it requires thinking that today may seem contrarian, but we think will be mainstream in the near future. So if you're an investor on the hunt for substantial alpha, this approach represents real opportunity. We are thrilled with the games that we will bring to market over the next 18 to 24 months, and we can't wait for you and our global audience of players to enjoy them.

With that, we look forward to taking your questions.

[Takanori Kawai, executive]

Thank you, Owen. Next, we would like to open up the lines to live Q&A. Q&A session will be conducted with Japanese English or English Japanese consecutive interpretation. Please be noted that interpretation will come between your questions and our answers. Please hold for interpretation before you hear our answers. Our answers will also be followed by interpretation. So please hold until the interpretation finishes before moving on to the next question. For those of you who have more than one question, we will take your questions one by one. Now we'd be happy to take your questions.

[Operator]

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

[Seyon Park, analyst]

I have two questions. The first is related to the Dungeon&Fighter franchise in China, we've basically seen about, I think, 2.5 years of a decline, obviously, off of a very high base. But to find, I think, in the most recent quarter, do point to a bit of a comeback. And given the content updates with the new Director at the helm, I wanted to kind of get, I guess, some kind of a feel from management or from, I guess, the development team as to whether going into 2022, this recovery trend is looking a bit more clearer compared to, let's say, 6 months ago? That's my first question.

The second question comes on this whole, I guess, fever about metaverse and the play to earn model, which seems to have taken the market by storm the last 2 weeks, I did get a chance to actually read the writing that Owen had written on Medium, which I found to be very impressive. And I was just kind of curious as to whether this is something that NEXON has been actually looking into over the years, we have actually started to see a play to earn business model start to come up for some of these companies in Asia and whether -- given the openness that NEXON has shown with some of the crypto assets, whether this is something that the company would be willing to explore in the future as well.

[Shiro Uemura, executive]

Well, thank you very much for your question. I would like to -- this is Uemura speaking, and I would like to take the first part of your question. To your point, Dungeon&Fighter in China had been struggling during the course of the past 2.5 years. However, the performance we saw in the third quarter exceeded our expectations, and it performed positively on a year-over-year basis as well. So we are extremely satisfied with the results we were able to see. Just to talk about some details. The previous leadership also made efforts to see better performance. However, under the new leadership, although the new leadership succeeded, what the previous leadership was doing, they also -- the new leader also made improvements as well. To be a little bit more specific, user meetings were conducted, and there was talk about putting too much burden on the user in the past that we would like to reduce the burden that we had imposed on the users in the past. By implementing these measures, we were able to reduce the burden we put on the users in developing characters. So by doing so, what happened was the users started to own multiple numbers of characters. And when we conducted the National Day update, the packages sold in line with the number of characters that the users owned. So we were able to reduce the burden on our users and to see better, higher revenue as an outcome. And looking out into the fourth quarter, you may wonder why the guidance we're giving out is lower than the third quarter despite the fact that we did well in the third quarter. Like we mentioned in the presentation, our view on Q4 is that it will be a period when we prepare for 2022, Q1. So the momentum is good. So for Q4, it will be a period when we solidify our user base. And we do believe that the recovery trend for this title is clear, more than before. And we look forward to the performance of this title from next fiscal year onwards as well. So for Q4, we will be concentrating our resources in the operations of the game so that we can generate a good outcome in 2022.

[Owen Mahoney, executive]

This is Owen. I'd just add to that a little bit. I just want to make the overall point that China Dungeon&Fighter is a franchise that we remain enormously excited about going forward. We think we've got very good things planned for 2022. We're very excited about where it goes from there. We think the whole -- we've got big plans for the whole franchise. We think it just solidifies the base, and we remain and are getting more bullish all the time about the franchise.

And then I'll take your question -- your second question, if that's okay. So I did write a Medium post last week or posted it last week. I actually wrote it some time ago. And it was really for internal use, and we decided to put it outside, it happened to have timing in which everybody started talking about the metaverse recently in the last month or 2. Look, on the one hand, and the point -- by the way, that Medium post for those who are not familiar with it, it's available, if you look us up, on the IR website, the NEXON Investor Relations website. You can find it, a link to it, right there at the top.

On the one hand, we're enormously excited about all the talk about the metaverse and NFTs and what's going on. We've felt since the inception of the company in the mid '90s that all of us will be spending a large part of our day in a deeply immersive virtual world. That was the whole concept of the company since the very beginning. And that's why the first online -- first online games were tangible outcome of that viewpoint of the future of the entertainment business. And as we said in more recent quarters, we think that mobile makes that whole idea explode since soon everybody on the planet is going to have a high-end workstation in their pocket. There's already 3 billion iPhone 10s or higher or equivalent Android devices. So it makes the idea of spending a long time in an immersive world, not a topic for a small number of users, but for a very, very large and very rapidly growing number of users. And it's also important to remember that NEXON is the first one to put virtual items and virtual currency into an interactive entertainment experience. The first virtual world was Kingdom of the Winds and the first use of virtual currencies in an interactive entertainment experience was Quiz Quiz. So we're very familiar with the topics, and we're very familiar with the usability topics.

And we're also very excited by the new technology that's available to us, particularly around NFTs. And we think that creates a lot of new opportunity for us. I think the problem with the whole discussion of the metaverse though is that nobody seems to have a specific idea of exactly what we're supposed to be building. And nobody agrees on it. The closest that most people get to is some sort of facsimile of an early Neal Stephenson or William Gibson novel, which is really good Sci-Fi from the 1980s and 90s, i.e., more than 25 years old. And if you ask 10 different people, what their definition of metaverse is, they'll tell you 10 different answers. And it seems that the other companies that are talking a lot about the metaverse, many of them, if not almost all of them, are throwing a lot of money and a lot of technology at a not very deeply conceived idea of what it is that they're building. And we think that, that's a problem because we are creators of virtual worlds ourselves, and we can't afford to be glib or nonspecific. So we don't even use the term metaverse. We use the term virtual worlds, and then we specifically design what a virtual world is, and we think where it goes and what we do and what we don't know. So I guess my short answer to your question is we're very excited, but we feel the need to be very specific because we are in the entertainment business, and we can't get away with being vague. I hope that is helpful.

[Operator]

Next question comes from Yijia Zhai from Macquarie Capital Limited.

[Yijia Zhai, analyst]

[Interpreted] So I have 3 questions, but I'd like to go one by one. So my first question, I do understand, if I look at the quarterly track record, MAU paying user rate have been dropping. But for the first time now, I think we are observing an improving upward trend. Now how sustainable do you think this upward trend that we currently are observing would be. Now with that said, I do realize that MAU level, compared to the past, is still very low. But then at the same time, it's really the paying user rate that is really going up. Do you see this as a healthy structure? So what I really would like to know is what is your image of a sustainable, healthy structure as you look down the road? So that's my first question.

[Shiro Uemura, executive]

[Interpreted] So one confirmation. So would you be referring to a specific title when you say, for example, low MAU and pay user rate? Or would you be looking at the entire PC online series? And the response was, I'm talking about the overall PC online games, and I'm looking at presentation, page 23.

So I'd like to speak for the entire PC online games that we'd be operating at the moment. So it is true. If you look at the MAU trend, it is on a decline, but still, we have been making sure that we'd be able to stabilize this, and it is so true that we have been able to stabilize the downward trend of MAU at this point. Of course, with that said, some of the popular titles, you usually would find more bots. And so there's some correction or adjustments that we would have to make each time, which at times would again decline the MAU. However, on the other hand, we know that paying users is on the rise, which is a very good thing. And because it does tell that we have successfully been able to keep our core users playing those titles. Now it is very important to find more paying users playing the game because that really shows how we're able to acquire more loyal players in the game. And that, I do believe, is a healthy trend for us. And so it's not like we have any major concerns when we look at our current trends.

[Yijia Zhai, analyst]

[Interpreted] I'd like to move on to my second question, which is about MapleStory. I know that you have been working so that you'd be able to once again win the trust of your user base. And to do that, one thing you said was to not really go proactively to monetize from the users. But then I'd like to ask, would there be any criteria or certain metrics that you'd be looking at to decide when you'd like to resume monetizing or going for more payment activities by the users.

[Shiro Uemura, executive]

[Interpreted] So MapleStory is also another title, where we have been able to observe very good performance in this Q3. And perhaps this is something that we have been expressing from before. The game itself do not have any problem. In other words, you'll still be able to really enjoy playing the games. But then again, it was this miscommunication we had to go through with the users, which caused dissatisfaction among some users, and that is why we saw some users leave, some churn --churned. And so therefore, we decided that, yes, we need to cope with that. And so probability, we went into probability disclosure for that purpose. Now looking at this Q3, for example, in August time, we were able to have very good feedback performance in the [ medical ] time event. And at the same time, the sales promotion for Chuseok time, also, we were able to see very good result of that. Thus, we were able to have very good Q3 results.

Now looking at some of our metrics, for example, Net Promoter Score, we know is on the rise. And that does tell that we have successfully been able to rebuild the trust relationship with our users. And so that means that we'd be able to enhance the performance by offering better contents, better package for our users. And of course, that inevitably means that we'd be monetizing to our users, but it's not like we're trying to push ourselves to really suddenly start the monetizing campaign or anything like that. It's really -- once we'd be able to build that trust relationship that eventually makes us be able to see more paying users, more payment inside the game, and that is going to enhance the game performance.

[Yijia Zhai, analyst]

Owen, I have a question for you. So I am really excited about the future of Embark Studio. And you mentioned that you're going to have a creative platform, which sounds to me, it sounds like a decentralized game. So is it possible, can you further elaborate on the idea of this creative platform?

[Owen Mahoney, executive]

I'm not sure I can give you more details on what we said in our prepared remarks. We've put a screenshot of what we're building, which is early work into the investor presentation. I can't say that it is a creative platform that allows all of us, meaning not just professional game makers to craft interactive entertainment experiences to be played and remixed and shared with other players. And this has been the dream of many people for some time, and there's a lot of really interesting work being done on this right now. But if we're going to develop deeply immerse virtual worlds, we have to solve this problem because somebody is going to have to make all this. And we think it can be done better. We think that the tools that we view out there are very impressive and really, really interesting. But as good as they are, we can go a lot further in making everybody able to create highly interactive online entertainment experiences. And so that's the idea is to bring this to the masses. And with that, I'll leave more details to a future discussion that is about launching the product, and we're very excited for it.

And one thing I'd just add to the comments that I said before is that in order to achieve this vision, we have to go think about this in a very different way than folks have already been thinking about it. And one of the things that helps us a lot is the significant investment in technology that Embark made upfront. So the technology is not only going to be used in the first game in Pioneer; codenamed, Pioneer; and in the second game; codenamed, Discovery. But the technology stack that I mentioned before, can be used in this third project in very, very interesting ways for -- in order to help everybody make games. So we think that technology investment is going to become more and more valuable over time.

[Yijia Zhai, analyst]

[Interpreted] And I do have one more question in regards to your accounting practice. So we did hear about this upfront investment of Embark. Now have this upfront investment already been capitalized? Or is it going to be something to be amortized once you release the game? Or is it something already booked under some expenditures? What I would like to know is, is there any, for example, future risk in regards to, for example, impairments or write-down of all the investments that's been made so far?

[Shiro Uemura, executive]

[Interpreted] Thank you for the question. So at the point of the acquisition, there is this goodwill amount, which already has been booked. The amount will be JPY 30 billion. But then all the other developments that's been going on, the expenditures or costs will be recognized as we go down the road.

[Operator]

The next person to ask the question will be Mr. David Gibson from Astris Advisory Japan.

[David Gibson, analyst]

Two quick questions. So mobile D&F in Korea, is this the China game or is it a different game? Can you give us some idea of background, the decision to launch in Korea first, given your experience with the 3D version? The second question is on Embark again, Project Pioneer and Discovery. Are these titles the studio getting their feet wet in developing games? Or are they diving in fully into very much being major releases for the studio and hence for NEXON.

[Shiro Uemura, executive]

[Interpreted] This is Uemura. I will take your first question. For Mobile Dungeon&Fighter and the launch in China, we are continuing to work on it. We have no release update at this moment, however. But Dungeon&Fighter is highly popular in China, and the expectations are high, so we continue to work on it with our preparations. And to answer your question directly, the version that we are going to launch from Mobile Dungeon&Fighter in Korea is the same one as we are as -- the same one as for China as well. The reason why we made the announcement for the launch in Korea was that -- it's a -- this is also a popular IP in Korea too. And from the onset of this title, we were intending on rolling it out to various parts of the world. So for Korea, we have now become ready, and that is why we made the announcement that we will launch -- we would like to release it as of Q1 next year.

[Owen Mahoney, executive]

And this is Owen. I'll take your second question. I think the short answer to your question is, this is a significant -- these projects that Embark has under development are significant projects that we are extraordinarily excited about. So there are major announcements and major products for us, and we're very happy to be launching them. The first one being, codenamed Pioneer, which we'll be talking about more in December.

Regarding -- just by way of quick background, the Embark team is about 2.5 years old. It's a new studio, but it is not in any way a new development team. The founder of Embark, most recently was the head of development at Electronic Arts from 2014 to 2018 and 2018 or 2019. And ran the -- the studio is doing, I think, what was their highest Metacritic averages during the time. An extraordinarily accomplished developer putting out highly differentiated games, turning them into massive franchises, the biggest being -- of that being the Battlefield franchise, which they had created. When I was at Electronic Arts running corporate development, I purchased the DICE studio and got to know Patrick Söderlund and his team very well. And when they -- when he told me that he was -- he had left EA, we were very excited for the opportunity to partner with him, and then ultimately purchase Embark Studios. And they've assembled 250 spectacularly talented, creative and capable developers. So we're very excited about them.

[David Gibson, analyst]

Actually, while we're talking Embark…

[Owen Mahoney, executive]

Hold on, hold on can you hold on for interpretation, please?

[David Gibson, analyst]

[indiscernible] tweeted something celebrating 3 years [indiscernible].

[Owen Mahoney, executive]

I'm sorry, you were breaking up a little bit. Would you mind repeating that?

[David Gibson, analyst]

I was just saying, while we've been talking Embark has tweeted that they're celebrating 3 years with a new video of looks like to be project Discovery, and it looks very impressive.

[Owen Mahoney, executive]

Yes. It's really cool.

[Operator]

Next question comes from [ Joseph from Nikkei ]

[Unknown Analyst]

So I have 2 questions. Now first question, I'm looking at the revenue for Q3 December 2021. And if I look at the year-over-year numbers, it's declined by 2.8%, marking JPY 210.2 billion. So can you explain the reason of this decline? So that's my first question. The second question is about cryptocurrency. And the [indiscernible] gain looking versus the market value, I do believe you've been able to book JPY 1.7 billion. But then can you clarify when and how much you acquired this cryptocurrency? And I also do recognize that you did announce that in Q2, there was a loss that you booked. And can you also specify how much was the loss?

[Shiro Uemura, executive]

[Interpreted] So thank you for your question. Now turning to the first question. I believe that you're looking at our Q3 year-to-date sales for the 2021 [indiscernible] period, which -- it is true that it went down by 2.8%. There are several reasons, several factors that happened in these first 3 quarters, which caused this decline. For example, at the beginning of the year, we did struggle with MapleStory as well as Dungeon&Fighter title. However, as we have been struggling, we still have been able to mark this good recovery trend as we headed into Q3. And at the same time, it is also true that this decline was very much offset by other titles. Another factor that we do have to take into consideration is the very fact that 2020 was a very remarkable year for us. And so that high comparison makes it difficult, if you look at, for example, this year's figure. And so those are the reasons why we're -- we've been seeing this year-to-date decline by 2.8%. So that's my response to your first question. The second question about Bitcoin. It is true that in Q2, we marked a loss of JPY 4.5 billion. On the other hand, in this Q3, we've been able to reverse the trend. It is now positive, JPY 1.7 billion again. And -- but then at the same time, we're not really worried about that small term -- short-term volatility because we take it as one currency that we follow. So we'd like to make sure that we'd be able to keep track of this one currency in a mid- to long-term perspective. That is my response.

[Unknown Analyst]

I do have a follow-up question. So this Bitcoin, is it true that it was back in April, when you acquired value wise $100 million worth. And at the same time, can you also explain to me why you decided to go into a reappraisal, reassessment, the revaluation of the amount that you would hold? And to the extent that you can.

[Shiro Uemura, executive]

[Interpreted] So yes, it is true that it was back in April when we acquired $100 million worth of Bitcoin and the revaluation is something that we did at the end of September, looking at the market price.

[Operator]

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

[Takanori Kawai, executive]

[Interpreted] Thank you very much. So if there are no further questions, we'd like to take this opportunity to thank you for your participation in this call. And we'd like to end today's call.

Now please feel free to contact NEXON Investor Relations 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 the other corners of the world.

[Operator]

Thank you. That concludes today's conference. Thank you for your participation. You may now disconnect.

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