DoubleUGames Co., Ltd. (A192080) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, and thank you, all analysts and investors, both domestic and international for joining our earnings conference call for the fourth quarter of 2025. This earnings presentation has been prepared based on the preliminary financial statements for the fourth quarter of 2025. While it has been prepared with reference to objective standards, it contains certain forward-looking statements and projections. Please note that the actual results may differ depending on future changes in the business environment. Today's presentation will be conducted as follows: Vice President, on Jay Young Trey, will provide an overview of our 2026 business operation direction and lead the Q&A session. And then before that, the main earnings presentation will be delivered by Young-Joo Shin, who is the Head of the IR.

This is Young-Joo Shin from IR Division. Today's presentation will cover our full year 2025 results, fourth quarter performance revenue trends by business segments, consolidated expenses, business updates and our business operation direction for 2026, and then we will proceed with our Q&A session. The key highlights of our full year 2025 performance, we're achieving record high revenue and maintaining strong profitability. On a consolidated basis, revenue for 2025 reached KRW 719.9 billion, representing a 13.6% Y-o-Y increase and marking an all-time high on an annual basis. Building on the stable revenue based of our social casino business, iGaming and casual games began to contribute meaningful growth, resulting in a more diversified revenue structure. Annual EBITDA totaled KRW 252.2 billion, with an EBITDA margin of 35%. The expansion of our DTC channel helped ease the burden of platform fees contributing to improvements in our cost structure. This, in turn, supported the preservation of annual profitability and led to record quarterly results in the fourth quarter. Overall, 2025 was a year in which we achieved both top line growth and sustained profitability and it marks a period where structural changes, including portfolio diversification and cost structure improvements were clearly reflected in our financial performance. There are 2 key highlights in our fourth quarter consolidated performance. First, fourth quarter consolidated revenue reached KRW 199.8 billion, marking the highest quarterly revenue in our history. Revenue increased by 28.3% Y-o-Y and 7.3% Q-on-Q, expanding our growth trend for 5 consecutive quarters. This level exceeded the peak revenue recruited during the COVID-19 pandemic, demonstrating that our structural growth foundation has been clearly reflected in our performance. Second, fourth quarter EBITDA amounted to KRW 70.5 billion, increasing for 3 consecutive quarters, while the EBITDA margin rose to 35.3% and maintaining an upward trend. EBITDA increased by 11% Y-o-Y and 7.9% Q-on-Q, reflecting improved marketing efficiency and the expansion of our DTC channel. This quarter represents a successful outcome, where our growth focus strategy throughout 2025, translated directly into improved profitability. Next, I will walk you through revenue trends by business segment, building on the stable revenue base of our social casino business, both iGaming and casual games continue to expand further diversifying our growth structure. In particular, fourth quarter casual revenue reached KRW 19.2 billion, increasing 55% Q-on-Q and have emerged as a key growth driver for our new business expansion. Social casino revenue recorded KRW 157.3 billion, maintaining its role as a stable foundation of our overall performance. Meanwhile, iGaming generated KRW 23.3 billion continuing its stable operation centered on the U.K. market. So fourth, new brand, [ Las Vegas ], which was launched late last year, is expected to begin making a meaningful contribution to our results starting in the first quarter of 2026. As of the fourth quarter, the proportion of revenue generated outside of the social casino segment expanded to 21%. This development helps to mitigate concentration risk in social casino, while enabling us to build a more balanced revenue structure that enhances investment and cost efficiency based on segment-specific KPIs. Our fourth quarter consolidated cost structure reflects a balanced approach between growth investment and efficiency improvements. First, variable costs. With the expansion of our DTC revenue mix, our payment structure improved, which helped ease the burden of platform fees and directly contributed to profitability improvement. In the fourth quarter, variable costs declined to 27% of revenue and platform fees amounted to KRW 41.0 billion, which is down 3.5% Q-o-Q confirming an overall improvement in company-wide margins. Next is fixed costs. Fixed costs increased to 41% of revenue, primarily driven by expanded marketing activities focused on casual games. Market expenses totaled KRW 44.7 billion which is up 34% Q-o-Q and these investments are directly contributing to revenue growth. In the casual genre, marketing investments are typically recovered within approximately 3 months. As a result, revenue is reflected quickly following the investment, followed by profit generation, which is then reinvested creating a stable virtuous cycle. Multi-genre games and WIGO Escape are representative examples of this model, and both titles have already entered the monetization phase. Meanwhile, the social casino segment maintained ROI-focused execution rather than pursuing short-term expansion and iGaming continued to operate under strict profitability management principles, strengthening its stable growth foundation. Personnel expenses amounted to KRW 21.0 billion, decreasing 10.7% Q-on-Q. This decline was mainly due to a temporary impact related to the valuation of stock-based compensation, a DoubleDown Interactive. As of the end of December, our consolidated headcount stood at approximately 690 employees. Amortization expenses increased as a result of portfolio expansion through M&A. In the fourth quarter, amortization of tangible and intangible assets totaled KRW 6.6 billion which includes noncash expenses such as lease asset amortization and equities related purchase price allocation or PPA. Overall, our fourth quarter cost structure remained well managed despite increased growth investments and the foundation for mid- to long-term profitability improvement has been further strengthened. Next, I will provide an update on our social casino business. So in the fourth quarter, the social casino segment recorded solid growth supported by seasonal peak effects and consolidation of WOW Games. Revenue reached KRW 157.3 billion, increasing 9.8% Y-o-Y and 4.0% Q-o-Q. In addition to the stable operation of our existing franchises, the full quarter contribution from WOW Games supported our top line expansion. This demonstrates that the portfolio integration effect is becoming increasingly visible in our financial performance. In the fourth quarter, the DTC revenue mix for the Social Casino segment expanded to 26.6%, representing an increase of 18.4 percentage points Y-o-Y and 9.0 percentage points Q-on-Q. There are 2 main drivers behind the expansion of our DTC mix. First, we have seen accumulated improvements in payment conversion rates through Web store UX and UI optimization and expanded user exposure to payment channels. Second, the consolidation of WOW games has contributed to a revenue structure with a higher proportion of web-based payments, which has been reflected in our consolidated results. Looking ahead, the outlook remains positive. First, major platform operators, including Google and Apple continues to move towards allowing external payment options, creating a structurally favorable environment for DTC expansion. Second, considering that a leading global social casino companies are targeting DTC mixes exceeding 40%. Our current level of approximately 26% provides substantial room for further expansion. We believe that increasing the DTC mix will serve as a key driver of mid- to long-term margin improvements. The casual genre is emerging as our next key growth driver. Centered on Paxie games, we are building on our proven [ Merg 2 ] genres while focusing on launching new AI-based games through a time-to-market strategy that allows us to quickly test market response. In the fourth quarter, casual revenue reached KRW 19.2 billion with AI-driven new titles accounting for 49% of total casual revenue in leading the overall growth of the segment. While we concentrated our marketing investment on new AI-based titles, revenue from existing Merge gains remained stable, achieving growth in both scale and structure represents a meaningful milestone for the business. Our AI-led lineup is operated under a 3-stage framework, which are launch, scale and monetize. In the casual segment, the payback period for market investment is relatively short. As a result, after initial investment, revenue is reflected quickly. Margins are generated and profits are reinvested enabling a stable virtuous cycle. We do not view AI simply as a tool for faster game development. Rather, we utilize AI to enhance content direction and creative quality by incorporating evolving market trends and user preferences while also improving operational efficiency. As more titles enter the monetization phase and gradually accumulate their profit contribution is expanding. Based on this structure, we aim to further enhance the visibility of our mid- to long-term growth trajectory. Now I'd like to elaborate on Page 9.

So [indiscernible] for 2026, I'd like to explain our growth strategy across 2 pillars, which are organic and inorganic growth. For both strategies, our guiding principle is to execute investments based on the competitive strength we have already established and only after validating investment visibility through data. In other words, we determine where each dollar can generate the greatest increase in revenue and profit, and we allocate capital accordingly based on data-driven analysis. First, on the organic side, we plan to operate our existing businesses with greater precision under this framework. For social casino, we aim to reduce platform dependency and improve margins by expanding our DTC channel, while strengthening stable cash flow through efficiency-driven operations. For iGaming, we will accelerate growth within discipline the profitability management through brand expansion and more refined ROAS management. Lastly, for Casual Games, the virtuous cycle structure is the core driver. Following initial investment, marketing costs are recovered quickly, which is then followed by rapid revenue recognition and margin generation. This cycle has already been demonstrated through titles such as Merger Studio and Wiggle Escape. In this context, AI is not simply a tool for faster development, rather it is a means to more accurately reflect market trends and user responses, thereby increasing hit potential and improving operational efficiency. Titles with proven performance will be scaled up quickly, and we will concentrate resources only on validated opportunities. Next, our inorganic strategy, which is M&A follows the same principle. Rather than pursuing acquisitions solely for scale, we will focus on synergy-driven investments that strengthen our existing portfolio and maximize integration benefits. Our criteria are clear. We will pursue only deals that demonstrate strong growth potential and which can contribute to profitability on a consolidated basis within a short time frame and to provide clear visibility into investment paybacks. From a geographic perspective, we will prioritize markets where we have already accumulated operational capabilities and networks, enabling us to accelerate integration and scaling. In 2026, we will further strengthen its high-growth casual portfolio on the foundation of our stable social casino business, leveraging our global business coverage across both the United States and Europe as well as our broader user base spanning from players in their 20s to those in their 40s and 50s. Management will make every effort to position the company as one of the most effective adopters of AI within the gaming industry. This concludes our presentation of the fourth quarter results through Slide 9, and we will now proceed to the Q&A session.

Now Q&A session will begin. [Operator Instructions] The first question will be provided by [indiscernible] IBK Investment & Securities.

I have 2 questions. First of all, you have explained about your future business operation direction. And then could you please give us the guidance for the revenue and the operating profit for next year? And then it will be great if you can elaborate a little bit more on the inorganic vision for 2026? And second question is about AI Labs. So could you please share some plans regarding the organizations or the personnel-related to the AI Labs and then whether AI-related companies are also potential targets of your M&A in the future.

Thank you for your question. I will answer the first question. So because of the fair disclosure principles, I'm sorry that I cannot give you more detailed guidance about the profits -- operating profit plan for the next year, but we consider the big variables of the hit ratio of [indiscernible]. However, our target is to reach the double-digit growth annually for the top line growth. And then our -- also, another target for us is to make more than 30% of the revenues outside the casino genres. Regarding your second question about the AI Labs, I can divide into 2 parts in my answer. First, about the internal strengthening of our capabilities. So in the Paxie games, regarding the AI field, we have worked with a handful of employees in that company. But we went through some trials and errors until today. For example, we focus on developing the specification to make global launching possible within 3 weeks with just 1 personnel. That's 1 example. But with the Paxie at the center of Turkey, we will focus on finding some ways to utilize AI for the game development and then AI-related investment as well as the working methods. So we will do that for that. And then in terms of the investment, we are reviewing some AI agent services, of course, which can give us some benefits for the sake of the game development, marketing creative or the data analysis. But we have to consider the valuation and then we will focus more on minority investments. So their results will not be reflected directly and immediately. However, after strengthening our capabilities, we were trying to find some external help from other AI-related companies so that we can make more synergy effects.

The following question will be presented by [indiscernible] from Shinyoung Securities.

Thank you for this opportunity. First of all, congratulations on the successful achievement of last year. My question is about the WOW Game. So could you please elaborate on the current PMI progress and synergy effects following the acquisition of WOW Games.

Thank you for your question. So the results of the WOW games starting to be integrated into the consolidated results from July 15, the third quarter. And then after acquiring DDI in 2017, we went through some trials and errors. So based on the lessons that we learned from the case, we are trying to operate the PMI in a more efficient way. So I can tell you 2 things here. But first of all, when it comes to the slot games, they utilized mostly external IPs before. But nowadays, we are actively utilizing our own 500 slots so that we can also attract new users and then let the users play the slots very freely and then use that performance really as well. So the proportion of our slot is about 30%. So this is a short-term achievement that I can share with you. And then secondly, in terms of the long-term perspective, we acquired this company because W Games is globally #5 company, but it was about #11 in European continent. And then when it comes to the U.S. market, it focused mostly on the VIP users. But in Europe, we mostly had [ light ] users and male users in the past. So we believe the acquisition of this company will help us to have more marketing opportunities to expand the game users and increase the revenue and et cetera. So with the DDC and DUC, which work well, we will try the European market once again. And then it will also help us to diversify the marketing channels, and we are still learning that popular content in Europe and the U.S. are different. So we will overall analyze this content and the result from this market so that we can target European market once again.

The following question will be presented by Joon Ho Lee from Hana Securities.

I have 3 questions. First question is about the outlook for the iGaming and casual new business segments. Second question is about the possible contribution of the AI-driven new titles to the casual genre. So you said that you have the 50 now in your plan. So how is the plan for the future? And the third question is about the personnel issues. So according to some articles that I read, there were some changes in the structure of the personnel. So do you have any plans for further changes in the future?

Thank you for your questions. I will answer question one by one. So regarding your first question, the new business for the iGaming and casual. In the fourth quarter, we focused on minimizing our operating loss as much as possible and it contributed to improved profitability. So our goal for 2026 is to reach 5% to 10% of margin. And about the second question related to AI. So after acquiring Paxie Games in March last year, we mostly focus on Merge 2 genre in our studio. But in order to promote more diversification we turn our eyes to the AI-based game development. However, this was not done by the game developer, but our data analysts actually utilized the AI tool, and then they didn't use the code and then they started this activity from the second half of last year. So we have structured some protocols, so that's why we had about 6 to 7 games launched in January. This year, annually, we will test over 50 games, and then we saw 1 successful case, which was a Wiggle escape. So we want to have next Wiggle Escape within this year as well. So of course, there will be some market expenditures at first, but we will have a more GDP and the margin later. So regarding your third question, it was not just official structuring of the company, but we wanted to make some improvements by removing some duplicated task, so it was a voluntary separation. So we don't believe that, that will affect temporary effect to our company that 5% to 10%.

The following question will be presented by [indiscernible] Kim from CGSI.

Thank you for the opportunity. I have 3 questions. First question is about the proportion of the [indiscernible]. So do you have any plans to adopt the in-app external payment method? And then how about the proportion of the variable costs in 2026? The second question is about the monetization expense, which seems to increase a little bit recently. So do you believe that based on the Q-o-Q, it will also continuously increase in 2026. Third question is about the payment amount. So for the DoubleDown and DoubleU, do you see any forecast for the growth in 2026.

I will answer one by one. So regarding your first question, so the DTC in the fourth quarter of 2025 accounted for 26%, and then we believe that this number will increase this year. So if you see the DTC, it's mid 20% to 30%, but DUC is still at 10%. So if we focus more on the DUC, based on the consolidated basis, we target 40% this year. For example, if 15% goes up, then the variable costs margin will decrease by 20%, which means the 3% improvement can be expected. And then regarding the in-app external payments and then user benefits, we are currently strengthening them. And that if we utilize more DTC, that will help us to increase not only profitability, but also the loyalty of the users and then their trust can be -- can make a shift from the platform services and to our own services. So that will help us to strengthen our marketing activities as well. Regarding the amortization expenses, it was KRW 6.6 billion by fourth quarter 2025. If there's no more M&A this year, we believe that the number will be very similar this year as well. But the number can vary depending on the time of the M&A or if there is any additional M&A as you saw from the case of the SuprNation, which was acquired in 2023? And then about your third question, the DoubleDown and W, our core businesses, and then we have spent the most conservative marketing expenses for them, which is under 10%. From the second half of last year, we focused on improving ROAS. So this year, our target is to maintain the current level at least or make a single-digit growth.

since there is no more questions, we'd like to close our fourth quarter earnings presentation and Q&A session. Thank you so much for joining us despite your busy schedule. And if you have any additional questions, please do not hesitate to contact our IR team. Thank you once again.