NHN Corporation (A181710) Q4 FY2025 Earnings Call Transcript & Summary

[Interpreted] Good morning. This is [ Ji Hye ] Kim, Head of IR at NHN. Thank you very much for attending our 2025 Q4 and Full Year Earnings Conference Call. NHN's CEO, Woojin Jeong; our CFO, Hyun Shik Ahn; and CEO of NHN Cloud, Dong-hoon Kim, are also present. CEO, Woojin Jeong will start with a business update, followed by CFO, Hyun Shik Ahn's presentation on financial results before we take your questions. The earnings announced today have been prepared based on IFRS consolidated financial statements and are subject to change depending on the results of the external auditor's audit that's currently underway. Also, I remind you that the conference call contains forward-looking statements and that the company's actual business results may differ materially. Now CEO, Woojin Jeong will address some key business topics.

[Interpreted] Good morning. This is NHN CEO, Woojin Jeong. NHN has achieved new record performance both on Q4 and full year 2025 basis. This is particularly meaningful as it reflects the tangible results of the business structure optimization and fundamental rebuilding initiatives of the company. Over the past several years, NHN has thoroughly reexamined its overall business portfolio under the principle of selection and focus, concentrating the group's capabilities on core businesses to enhance the company's overall profitability. In 2026, NHN will use such profitability gains as a platform to jump up to the next level of growth driven by its core businesses. While some quarter-to-quarter volatilities may occur given the seasonality and the inherent nature of the game, payment and tech businesses, we expect all lines of business to consistently gain stronger business competitiveness and deliver tangible improvements in business results. To give you more color regarding our growth strategy, I would like to share some key business topics and main initiatives of each of our lines of business. First, the game business. The Korean game act, which is relevant especially to the web board game business, was amended for the first time in 4 years as of February 3. The amendment increased the monthly billing limits for users, enabling more fun and freedom in gameplay. As a leader in the Korean web board game market, NHN continues to operate its web board game service in a responsible manner to ensure users enjoy games in an even more safer environment and under new regulatory environment. According to data from the first week after the new regulation, web board game revenue showed double-digit increase versus the previous month, showing meaningful improvements in key metrics. We are also planning to introduce various competition elements to our web board game service this year, which combined with a new regulatory environment is expected to generate positive upside. For mobile games, we are preparing the launch of Dissidia Duellum Final Fantasy and the [OSHI NO KO]Match Star, both based on popular IP. We are currently concentrating our development resources on final polishing of the games to ensure successful launch and smooth market uptake. [OSHI NO KO]Match Star's Japan launch date is scheduled to be February 25. Meanwhile, Abyssdia, which was launched in Japan last year, is preparing for a global launch, including Korea in late February and is currently undergoing preregistration. Next is about our payment business. In Q4 peak seasonality, NHN KCP recorded meaningful increase in overseas merchant volume resulting in Q4 revenue growth of 16% Y-o-Y and 6% Q-o-Q. On a full year 2025 basis, overseas merchant volume increased 28% Y-o-Y to account for 16.8% of total volume and driving overall volume growth. This year, NHN KCP is expected to record growth from both domestic and overseas merchants and further increase its competitive edge in the payment business while also focusing on developing new businesses to gain a lead in the next-generation payment infrastructure market, which will become the core of future finance. For the stablecoin business, we are continuing discussions with various financial institutions and major tech partners about business collaboration models and tech models. Internally, we're working on detailed design of stablecoin-based payment flow and settlement structure while also agilely responding to changes in the Korean policy environment. Meanwhile, NHN PAYCO's Meal Coupon business, even as a late entrant, achieved #1 market share in terms of total transaction value in 2025. The tech business recorded noteworthy growth in Q4, and NHN Cloud recorded quarterly positive operating profit for the first time in company history. NHN Cloud achieved growth by successfully implementing key government projects. During Q4, NHN Cloud provided GPU service from the Gwangju National AI Data Center to major Korean companies, public institutions and universities. Also, it completed cloud migration of major public agencies through the National Information Resources Service Daegu Center and successfully completed restoration of key government systems, including the Ministry of Interior and Safety's Mobile e-government system that had been affected by the fire last year. As a result, the tech business revenue in Q4 increased by 17% Y-o-Y and 24% Q-o-Q. As the AI factory supplier that covers the entire AI ecosystem, NHN Cloud aims to become the leading AI infrastructure provider in Korea and capture the quickly growing AI demand. Last year, it won the largest share of the Korean government-initiated GPU procurement deployment and operation projects and is currently in the process of deploying 7,656 NVIDIA B200s in the Seoul Yangpyeong region on schedule to go live from March. NHN Cloud will deploy a single cluster consisting of more than 4,000 GPUs under this government project with liquid cooling, demonstrating that once again, NHN Cloud has the most advanced GPU infrastructure operational capabilities in Korea. Leveraging such track record, it recently also won the project from Krafton -- for the Krafton mega GPU cluster. In 2026, NHN Cloud will focus on strengthening its lead in the GPU-driven market to step up to the next level of growth. That completes my update on key business topics. And now CFO, Hyun Shik Ahn, will take you through the 2025 Q4 and full year results.

[Interpreted] Good morning. This is CFO, Hyun Shik Ahn. I would like to share the 2025 full year and Q4 results. 2025 full year revenue was KRW 2,516.3 billion, which is a 2.5% Y-o-Y growth. Full year operating profit was KRW 132.4 billion, returning to positive earnings and full year net profit was KRW 57.7 billion. Meanwhile, 2025 Q4 consolidated revenue was KRW 685.7 billion, which is a 6.5% Y-o-Y and 9.6% Q-o-Q increase. Consolidated operating profit was KRW 55.1 billion, which is up 120.5% growth Y-o-Y and 99.5% growth Q-o-Q. Consolidated OP margin was 8.0%. To look at Q4 business results by each line of business, Q4 game revenue was KRW 126.1 billion, which is a 6.0% Y-o-Y and 6.7% Q-o-Q increase. Total web board game revenue increased 2.2% Q-o-Q. Mobile game revenue was KRW 83.8 billion, which is a 12.3% Y-o-Y and 9.3% Q-o-Q increase, maintaining a solid growth trend. Hangame Royal Hold'em successfully conducted the new offline Hold'em tournament HPT to drive revenue growth. Total mobile web board game revenue increased by 6.4% Y-o-Y and 3% Q-o-Q. Meanwhile, in Japan mobile games, the collaboration with new outside IP resulted in stronger-than-expected performance and drove overall game revenue growth. In the case of COMPASS, which is a long-runner game celebrating its ninth anniversary, still set new quarterly revenue records, thanks to its collaboration with Fate/Strange Fake. And Yo-Kai Watch Puni Puni delivered double-digit revenue growth, thanks to the collaboration with Frieren: Beyond Journey's. Our payment revenue was KRW 345.6 billion, which is a 16.2% Y-o-Y and 5.6% Q-o-Q growth. NHN KCP saw merchant transaction volume growth from both domestic and overseas merchants, thanks to positive seasonality and in December, exceeded KRW 5 trillion monthly transaction volume for the first time. Overall, NHN KCP's revenue in Q4 increased 16.4% Y-o-Y and 5.7% Q-o-Q. NHN PAYCO continued to record stable performance supported by increase in coupon and B2B corporate welfare solution revenue. Tech revenue was KRW 139.1 billion, which is a 17.4% Y-o-Y and 24.5% Q-o-Q increase. NHN Cloud, as mentioned above, saw increase in revenue from the Gwangju National AI Data Center GPU sales and the public sector cloud migration project, including disaster recovery. On the private sector side, usage traffic of the integrated messaging platform notification increased and AI GPU revenue from private sector users also increased. So overall, NHN Cloud's Q4 revenue increased by 30.7% Y-o-Y and 37.6% Q-o-Q. Other businesses recorded revenue of KRW 94.3 billion, which is a 5.2% Q-o-Q increase. NHN Link's Q4 revenue increased 41.7% Y-o-Y and 28.8% Q-o-Q, reflecting the peak seasonality for concerts and performances. Meanwhile, 2025 full year revenue of our other businesses was KRW 384.8 billion, which is a 25.8% Y-o-Y decrease. This reflects discontinuation of some services, including Ikonic, comico and Doctor Tour. And it is worth noting that despite the downsizing in scale, the size of loss of our other businesses also decreased meaningfully through our purposeful streamlining. During the past several years, NHN has been reexamining its business portfolio to improve its profitability and has been gradually offloading noncore and low-margin businesses. As part of this, in January, we entered into an agreement to sell our entire stake in NHN Bugs. With a much more acutely focused business structure from 2026, we expect the efforts of our business streamlining to become more tangible and that the strong business performance from our core businesses will show up more clearly on our overall company's performance. Next is a look on our operating expenses. Total operating expense was KRW 630.6 billion, which is a 1.9% increase Y-o-Y and 5.5% increase Q-o-Q. Commission expense was KRW 454.5 billion, which is an 8.0% Q-o-Q increase, reflecting increase in commissions linked to NHN KCP's PG revenue and also NHN Link's show production. Labor cost was KRW 106.2 billion, which is a 1.6% Q-o-Q decrease, reflecting decrease in consolidated headcount at the end of the year by 89% versus the end of Q3. Advertisement and marketing was KRW 23.9 billion, which is a 1% increase Q-o-Q. This reflects the increase in the marketing expense tied with the COMPASS at ninth anniversary event, which also drove record high quarterly revenue as well as the [ decrease ] in marketing expense from the Abyssdia compared to the previous quarter. Amortization of right-of-use assets slightly increased due to recognition of additional leases tied to the IDC with the expansion of NHN Cloud's business. Q4 consolidated operating profit was KRW 55.1 billion, which is a 120.5% Y-o-Y and 99.5% Q-o-Q increase. Q4 net profit was KRW 28.7 billion. Despite goodwill impairment loss of KRW 16.7 billion recognized for subsidiaries, our operating profit improved significantly, resulting in a 59.2% Q-o-Q increase in net profit and returning to a profitable quarter versus last year's loss-making quarter in Q4. This completes the presentation on our Q4 financial results, and now we will take your questions.

[Interpreted] [Operator Instructions] The first question will be provided by Hoyoon Jung from Korea Investment & Securities.

[Interpreted] I have questions. First is your Q4 results were quite strong. Do you think that structurally, this trend could continue throughout 2026? And in that context, can you provide us with some performance guidance for Q1 as well as full year 2026? Also in that context, can you give us some guidance for your Cloud business separately, the market has quite strong expectations for that business this year, and we would like to hear your guidance? My second question regards your game business. There seems to be a very strong new game pipeline coming down the road this year. Can you share some expectations you have internally regarding your new games?

[Interpreted] Regarding your first question about our strong Q4 performance and whether that is going to continue throughout this year, as we mentioned during the presentation, we think that the largest contributor to our strong performance is the business streamlining efforts that we have been carrying out. On top of that, yes, the cloud revenue was also strong, reflecting peak seasonality in Q4. Also, there was the additional revenue opportunities that came with the disaster recovery work. Now the question is whether this will continue throughout this year. We think that, yes, the business streamlining effect will continue throughout this year. Now regarding Q1, as you know, some of our businesses are more seasonal and Q1 is not the strongest season, but we think that considering everything, our strong performance trend will continue throughout Q2, Q3 and Q4. Now regarding our tech business, including the cloud business, in -- as we saw in Q4, we expect there to be continued revenue from its GPU business throughout this year. And we are expecting some noteworthy level of growth to come from the Cloud GPU business revenue this year. Also, there are additional disaster recovery work that will go on throughout 2026. So the disaster recovery will also be another source of growth for our tech, especially the cloud business. As we mentioned during the presentation, we also won the Krafton GPU project. So that will also be a source of revenue during this year. So overall, we are expecting a large magnitude of growth from our Cloud tech business this year. Internally, our aim is to have a clear profit, so go beyond breakeven point clearly for the Cloud business this year on an OP basis. And your last question was about game business. As you know, game business by nature depends on whether these titles are a hit or not the popularity. So there is limited visibility that we can guarantee and ensure. But that said, as you mentioned, this year in our pipeline, we have a Final Fantasy game. As you know, Final Fantasy is such a mega popular IP. So we have very high expectations for this game. I'm not sure how best to quantify our high expectations, but I guess a way of describing it is that we are aiming to have at least 10% or more contribution on our OP basis. In addition to these new games that we are preparing to launch this year, as you've heard, the regulations regarding web board games have been changed. And so there will be additional growth upside opportunities coming from that new regulation, which all are very good reasons for you to continue to carefully watch our game business.

[Interpreted] The following question will be presented by Dong Woo Kim from Kyobo Securities.

[Interpreted] I have several questions. First question is about your business streamlining initiatives. I do agree that your business streamlining initiatives are starting to show effects. I'm sure you have an overall plan. In that plan, where -- how far have you come in your business streamlining? So at what point in terms of the entire plan have you reached? And can you share some details of what is left, what you plan to do going forward? I also noticed that there was KRW 16.7 billion of goodwill impairment recognized related with subsidiaries. That is a decrease, but do you think there's room for additional decrease on your goodwill impairment going forward? The last question is about the web board game regulations. There were easing of web board game regulations before. And when we look at your historical, what happens usually is that the incremental increased billing limits are all maxed out so that your top line grows in line with the additional billing limits that have been provided by the regulation. Do you think that, that will happen this time, too, even though you've only been under this new billing limit for a few weeks? What are you seeing? And do you think that the users will also max out their additional incremental billing?

[Interpreted] To answer your first question about business streamlining, as you have noticed, we had a very busy 2025, going through a lot of activities to streamline our business structure. There are some additional work that we need to wrap up. So there are some additional streamlining that will happen in 2026. It's difficult to quantify it in an amount, but we think that there is additional upside on our operating profit to come from additional streamlining this year. And then about the goodwill impairment from subsidiaries. If you look at our Q4 and full year nonoperating numbers, the net figures have already been reduced to quite a low size. Most of the goodwill impairments were related with the businesses that were streamlined or downsized. It's, therefore, already brought down to quite a low level, and we do not expect there to be additional large goodwill impairments to be recognized going forward. And to answer your question about our web board games, we are currently expecting the trends to be similar to what we saw before. Since there's no other questions, we will close the earnings conference call for 2025 full year and Q4. If you have additional questions, please forward them to the NHN IR team. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]