Wemade Co.,Ltd. (A112040) Earnings Call Transcript & Summary

Good morning. This is [ Jimin Lim ] of Wemade Strategic Communications division. Thank you for joining the third quarter earnings conference call of Wemade, Wemade MAX and Wemade PLAY. Today, we have CEO, Henry Chang of Wemade; CEO [indiscernible] of Wemade PLAY; and Senior Managing Director, Sang-Won Kim, Head of the Strategic Communications division of Wemade present for the call. First, we will start with opening comments by Wemade CEO, Henry Chang, followed by a presentation of third quarter results before taking your questions. The third quarter results shared with you today have not yet completed the external auditor's review and have been prepared for the convenience of investors. It is subject to change during the accounting review and may also change per instruction by the Financial Services Commission of Korea. We also remind you to refer to the disclaimer included in the presentation material posted on our website. Now CEO, Henry Chang, will make a few opening comments.

This is Henry Chang, CEO of Wemade. Thank you for joining the third quarter earnings conference call. Last week, Wemade's new mainnet WEMIX 3.0, was opened, and over the weekend, our stable coin, WEMIX Dollar, was also newly issued. The mainnet, WEMIX 3.0, was launched in order to create a platform that is powerful enough to fully contain all of our achievements in blockchain games as well as the infinite application possibilities of a general purpose blockchain technology. The aim of WEMIX 3.0 is to go beyond a mere openness in terms of technology and to become a platform where anyone is able to easily convert experiences and services to a digital economy. It will become the dominant digital economic platform for not only games, where it is already global #1, but also arts, sports, entertainment, finance and many other areas. A stable unit of account is essential to enable an intuitive economic activity. And likewise, a stable coin is essential for the development of a digital blockchain economy. By definition, an unstable -- stable coin would be an oxymoron as a stable coin must necessarily be stable but also be reflective of the native coin that represents the ecosystem and also must be scalable. The most innovative stable coin yet to satisfy all of the necessary and sufficient conditions I just stated is the WEMIX Dollar. The WEMIX Dollar is used as the medium of trade on WEMIX 3.0 and also provides the foundation for an expansion of the WEMIX ecosystem. It will become the key currency of a huge digital economy. The growth of the WEMIX Dollar will lead to a positive feedback loop together with the growth of the WEMIX coin and the WEMIX ecosystem. Starting as a game company, Wemade continues to evolve first into a blockchain game company, then a blockchain game platform and now a digital economy platform. As with all cases of evolution, the growth of an enterprise does not occur in one day, and we are concentrating on each day, putting in everything we have each day and making progress each day in expanding the WEMIX ecosystem. As I mentioned during the last conference call, all investments also need to remain stable and on track. And even now, while we continue to make aggressive investments, our cash flow remains stable and provides a firm support to our aggressive investment program. We are managing the cash flow so that the company and its activities will be sustainable regardless of external prices. And we will do our utmost to make WEMIX the true global digital economy platform. Thank you.

Good afternoon. This is the Senior Managing Director, Sang-Won Kim, Head of Strategic Communications at Wemade. And I would like to start with some key business highlights for third quarter and update and plans for the fourth quarter. Amidst the challenges faced by the global cryptocurrency market in what is being described as a crypto winter, we have continued to upgrade and expand the WEMIX platform. Last Thursday, that's October 20, our own mainnet, WEMIX 3.0 was launched; and on October 22, Saturday, the 100% reserve that's stable coin, WEMIX Dollar was issued. Also, WEMIX.Fi, a DeFi platform, was also launched. The next step will be to launch NILE, which is the decentralized autonomous organization, or DAO project platform and by continuing to add new services and platforms, we will complete the WEMIX ecosystem. During third quarter, the Mir 2M: The Warrior was launched on the blockchain game platform, WEMIX PLAY. And since the start of fourth quarter, Giant Monster War and Dekaron G has also been released on WEMIX PLAY. Lined up for launch on WEMIX PLAY during the remaining fourth quarter includes games such as the Champion Strike: Crypto Arena, Kingdom Hunter, Black Squad: Royal Road, Anipang Match and Anipang Blast. Also, the blockchain version of Mir M is scheduled for global release within the year. Including the games that were just named, during fourth quarter, we expect to accelerate the pace of new game onboarding on WEMIX PLAY. Also in November, Wemade will be participating in Korea's largest game show, G-Star as a main sponsor. We will use G-Star to introduce our blockchain business to a wider audience and also unveil the new MMORPG Legend of YMIR and Night Crow preparing for release next year. I hope that you will all be watching the G-Star closely. Next, I will briefly go over the tentative results for third quarter. Third quarter revenue was KRW 108.3 billion. Even though third quarter had a full quarter effect of Mir M revenue and also the addition of 3 new license themes, the revenue from our existing mobile game portfolio stabilized, and so overall quarterly revenue was similar to the previous quarter. Operating expense in third quarter was KRW 136.3 billion, which is a 5% Q-o-Q decrease. Operating loss in third quarter was KRW 28 billion, which is a reduction of the size of operating loss versus last quarter. In terms of net profit and loss, despite the FX translation gain from the strong dollar, the company recorded a net loss in third quarter due to valuation and disposition loss on the value measured financial assets. For details regarding the revenue breakdown by line of business and geography, please refer to the presentation material uploaded on our website. That completes a brief review of Wemade's tentative third quarter results, and now we will look at the tentative results of Wemade MAX for third quarter. Wemade MAX's third quarter consolidated revenue recorded KRW 20.5 billion as revenue from existing games showed a stabilizing trend. This is a 14% decrease Q-o-Q but an increase by 168% Y-o-Y due to the effect of including Wemade NEXT. Operating expense decreased slightly Q-o-Q due to decrease in advertisement and marketing as well as commission fee expenses but increased by 87% Y-o-Y due to increase in subsidiaries that are consolidated. Operating profit was KRW 5.3 billion, which is a 39% Q-o-Q decrease due to a decline in revenue, but returned to a profit-making quarter versus the loss-making quarter last year. Net profit was KRW 6.9 billion, thanks to financial gains from the higher dollar-Korean won exchange rate. This is a 24% decrease Q-o-Q but a return to net profit versus a net loss making quarter last year. And that was a brief review of Wemade MAX's tentative third quarter results, and now we will look at the tentative results of Wemade PLAY. Wemade PLAY's third quarter consolidated revenue was KRW 33.5 billion, which is a slight Q-o-Q decrease due to natural attrition of existing game revenue but a 20% increase Y-o-Y due to the effect of inclusion of new subsidiaries such as [ Flyshare ]. Operating expense was KRW 32.8 billion, which is a 5% decrease Q-o-Q due to overall decrease in expenses, including reduction of labor costs from organizational streamlining. Operating profit was KRW 0.7 billion, returning to a profit-making quarter, and net profit was KRW 4.1 billion, also returning to black, seems to increase in equity method gains.

And that completes the brief review of tentative results of Wemade, Wemade MAX and Wemade PLAY, and now we will take your questions.

[Operator Instructions] The first question will be provided by Ahn Jae-min from NH Securities.

I have a question about the Mir M blockchain version. During the presentation, you did mention that you're expecting to launch that within the year. Can you give us a bit more details, especially around the business model? And it may not be an apples-to-apples comparison, but if you compare it to the achievements and performance of Mir 4, how much of a performance are you expecting from the blockchain Mir M global version? Based on experience of having played the Korean version of Mir M, I think the response is that it was developed to be more suitable to P2E model. And so I'm wondering what the company is expecting to see in terms of performance for the Mir M global version. Also, given the fact that unlike the Mir 4 launch, the P2E and the coin market are both going through very difficult times. What kind of impact are you expecting that to have on the Mir M global launch?

Well, regarding the schedule for the Mir M launch, we are planning to open preregistration soon for [ CBT ] around the G-Star time so that we will be able to launch it around the early December time frame. That is our current plan. And as you mentioned, based on our experience of having blockchain economies in our games, both trials and errors as well as success experiences, we have reflected what we have experienced and learned into the development of Mir M. And so you will definitely notice improvements and advancements in the economy versus Mir 4. Well, actually Mir M, when we were developing it, we had in mind the global version and actually intentionally designed the in-game economy to be far more tight than Mir 4. That actually explains one of the reasons why the performance of the Korean version of Mir M was not as strong as the Mir 4 launch. It's because Mir M, even though it had a very tightly designed in-game economy, at least in Korea was not able to incorporate the blockchain aspects. And we think that, that was one of the reasons why Mir M in Korea did not perform as strongly as Mir4. But that in reverse means that the Mir M global version has a very well-designed economy to it. It was put in there from the very first design phase. And therefore, given the fact that it has a strong in-game economy and also has equal playability versus Mir 4, we actually expect that the Mir M's global version would outperform the Mir 4 global version. You also asked about any impact the negative market conditions may have on Mir M's global performance. It is true if the overall market is challenging. There is a negative impact in the players that are in the market. But on the other hand, that also means that the competition may be less than when market situations were good and there were more players in the space. So as long as we do not give up and continue to make challenges, I think players in the market will be able to benefit actually from less competition. As we mentioned, Mir M was designed with a very well-designed economy with an in-game economy already in mind. And therefore, we think that just as Mir 4 global opened the chapter of blockchain games, Mir M global will be the game that will actually take that to the next step.

The following question will be presented by [ Park Song-yeop ] from Mirae Asset.

I have 2 questions. First question is looking at -- first question, I'm looking at the MAU of WEMIX. And it seems that, at least versus first and second quarter, your third quarter WEMIX MAU has decreased, dropped significantly. Was there any special reason behind that? And what kind of MAU trend are you seeing in the fourth quarter? Second question is about the attractiveness of WEMIX platform from the game company's perspective. For a game company, considering onboarding its game on the WEMIX platform, what would be the merit? What would be the attractiveness of the WEMIX platform?

Regarding the reason why our MAU numbers in third quarter dropped, we think that there's 2 main reasons behind that. Number one is definitely we were affected by the crypto market situation and the global financial situation, as was just mentioned by the previous question. Also on top of that, during third quarter, because we were focusing on expanding the ecosystem. The number of new games that were onboarded or released was relatively small, and that also explains the decrease in MAU. That said, the negative impact of the crypto market situation, I think would not be lasting, at least in the sense that it would prevent people from playing blockchain games. I think that impact has already been fully reflected. Also, in terms of new game being released, as you know, we have picked up pace of new game releases and onboarding. And therefore, we think that as more games are brought on, on an accelerated pace, our MAU probably was hit bottom in third quarter and will continue on an upward trend from there. Regarding your second question of what would attract game companies to the platform. Game companies are, at the end of the day, businesses and therefore they would always be attracted to something that will bring them better performance, better growth of their games. And a blockchain game itself is an opportunity to do that because blockchain games provides users with a greater or different aspect of fun. And therefore, by announcing blockchain games, the blockchain or the game company will be able to gain a wider user base, which will come back in the form of larger revenue. So a platform cannot necessarily guarantee the success -- a huge success for all of the games that is onboarded. I think the role of a platform is actually to enable the games -- each of the games to realize its full potential or even go beyond that full potential. And I think we have been able to fulfill our role as a platform for all of the games that have come on to our platform yet. By attaching tokenomics aspect to the game, all of the games that have joined us on our platform have been able to reach beyond their potential. I think that is the reason why game companies actually consider adding a blockchain economy to their games. It is to go beyond the original potential of their game. Now if there is a game company today that is considering attaching a blockchain economy to its game to be able to, for example, introduce tokens and issue NFTs, we are essentially the only company out there that has the full technology as well as the platform support to make that happen. Also some of the advantages that we offer to game companies, we -- for a game company, by touching tokenomics to their games, they are able to provide an extra dimension of fund to their users, which will increase their user base and eventually come back in the form of larger revenue. Right now, we have the full technology suite to make that happen. And also, we are the platform that has the largest user base in terms of blockchain games.

The following question will be presented by [ Lee Yang Mi ] from [ TI Invest ].

I have 2 questions. The first question is about Wemade MAX. I recall that last year, you announced plans of making of Wemade MAX a platform that specializes in M&A. Since it's been a year, can you give us some highlights of what achievements Wemade MAX has made, what kind of M&A deals has it done? Or what kind of M&A or blockchain-related business plan, does it currently have? Second question is about your stock performance -- stock price performance since the launch of WEMIX 3.0. As you all recall, there was the controversy over the WEMIX liquidation last year. And maybe that is the reason why -- but your stock price has been showing a greater fluctuation since the launch of WEMIX 3.0. Does the company have any comments regarding that?