NCsoft conducted a conference call for domestic and foreign investors today (12th) to announce the second quarter of 2022. The conference call was attended by major executives, including Hong Won-jun, CFO, and also mentioned the second quarter sales and major game status and new release in the second half.
** August 12, 2022 (Fri) 09: 00 ~ 10: 00
True Seok: NCsoft Lee Jang-wook, IR, major executives
Announcement: NCsoft 2Q results and game launch schedule/strategy
■ NCsoft 2Q sales of KRW 629.3 billion, TL in-house test successfully proceeded
NCsoft's sales increased by 17% year-on-year to 629.3 billion won in the second quarter of 2022, but decreased by 20% QoQ. Operating profit was 123 billion won, up 9% year-on-year, but fell 50% QoQ. Net profit was W118.7bn, up 26% year-on-year, down 29% from the previous quarter.
Mobile game sales increased 35% year-on-year to 475.2 billion won, down 26% QoQ due to stabilizing Lineage W sales and decreasing sales of Lineage 2M. Lineage W posted sales of W223.6bn, down 40% QoQ, and achieved cumulative sales of 1 trillion won in July this year after its launch in November last year. Lineage M recorded sales of KRW 141.2 billion, Lineage 2M 96.2 billion won, and Blade & Soul 2 recorded KRW 14.2 billion.
PC games were estimated at W95.9bn, up 3% QoQ due to the release of Guild Wars 2 expansion packs. PC online game sales recorded Lineage 25.7 billion won, Lineage 2 22.6 billion won, Aion 14.2 billion won, Blade & Soul 61 billion won, and Guild Wars 227.2 billion won. NCsoft predicts that Guild Wars 2 is preparing to launch Steam within the year, and Bulso will have a solid performance on the PC side as the retention rose with the 10th anniversary update.
Regional revenue recorded 408.8 billion won, down 19% QoQ due to stabilizing mobile game sales. Overseas and royalty sales in 2Q increased 21%year-on-year, accounting for 35%of total sales. Overseas sales amounted to W144.6bn in Asia and 39.9 billion won in North America and Europe.
Overall operating costs decreased 7% QoQ, but recorded an increase of 19% year-on-year to W56.3bn. Labor costs fell 5% QoQ to W206.6bn, and marketing costs increased 44% QoQ, up 44% QoQ, with strengthening overall business activities. Revenue fluctuations and other costs increased 33% YoY to an increase of 33% year-on-year, down 18% QoQ to W213bn.
In the second quarter, NCsoft said that the second quarter of Lineage M and Guild 2's propaganda reaffirmed the long life cycle capabilities of MMORPGs in NCsoft, expanding the area not only in Korea and Asia but also in North America, and consoles. He is also preparing to expand the platform. In addition, the new TL has successfully completed the company's large-scale test this week, and he will soon have a chance to showcase global.
In addition, it will launch new mobile games such as Bulso S, the collective game, and the action battle royale project R, which will be released in 2023, and will launch a variety of portfolios by launching PC and console games in succession from 2024.
■ Q&A Q. I wonder if TL is going to be released this year. It was also reported that it would change distribution methods and platforms, but I would like to explain it. And Lineage W is called downward stabilization, but how much trend in the third quarter?
= The timing and distribution related to the launch of the TL, which was reported in the newspaper, considered the best timing and partners for strategic overseas expansion. This is because in order to leave an important example that domestic MMORPGs can be successful abroad, we have to consider how to create synergy inside and outside in terms of open innovation rather than the way we did. It is estimated that it is about the first half of the 23rd year.
Lineage W's third-quarter trend is known to grasp the trend by looking at the sales trends of existing games, but we also see it as a basis. However, the Giran update, which was applied on August 10, showed a higher number of indicators in various indicators, such as dormant account activation and payment users. In this case, I think that in the third quarter, you will be able to take good results in the long term through updates.
** Q. I am also curious about TL's BM in-game BM level and personality. I want to ask Aion 2's launch schedule and project E. Lineage W told future prospects, when is the daily sales normalized? In addition, I know that I am preparing to launch the second area, but I want to update the details such as NFT.
= TL's BM will be released later. Overall, it is preparing to avoid P2W. In addition, the global game market has changed the perception of partial payments. Various partial paid models, such as Battle Pass, DLC, and In-Game items, are being accepted, and large game companies are also adopting BM to continue to profit like NCsoft according to the prolonged development period. Excessive P2W is expected to be avoided and the balance between BM and game is expected to show great results in the global market.
Aion 2 is the most anticipated mobile MMORPG in NCsoft, and is being developed based on Unreal Engine 5. The world's simultaneous launch is being made. It is still early to tell the schedule of the launch, and I will have the opportunity to explain in detail next time.
Project E only revealed that it shares the worldview with TL on Asian Pung MMORPG, and there will be a chance to talk about more information in the future. Project M targets the console, and as if the teaser video was out, we would like to release additional information separately.
Lineage W stabilization is expected that Lineage M and 2M have been stabilized for about a year, so if you follow M and 2m liturgy, we expect to be the end of this year and the beginning of next year.
NFT-related strategies are not pursuing P2W, unlike other companies' NFT. As I mentioned before, we are seeking such a strategy that can be digested in the game and compatible with other games by NFT in our game. It is not just an NFT concept that exchanges in-game goods, but rather a huge vision such as Crypto based on the concept of web 3.0.
Crypto winter is not too late, but it is solving web 3.0-based technical issues and being in line with the strategy we pursue. There are a lot of technical concerns, such as how to design and cooperate with the mainnet and the game. It's not the end of simply combining NFT with one game. This is not just the discussion, but there are visible progresses, and I want to announce it at the right time.
Q. How many employees are there in NCsoft at the end of the second quarter? We also want to disclose user indicators in more detail regarding the TL teaser. There are 9 million views, but only 500 comments. I wonder how much the actual demand will be connected.
At the end of the second quarter, the number of employees is 5,420. I am thinking in depth with the help of internal and external help of how to manage resource allocation, whether IP stars, development or business. From the third and fourth quarter, the attempt of efficiency will be reflected in the company's performance.
Recently, NSIN has continued to release trailers and teasers for new works. The total number of views is 22 million, and the development team is encouraging. It is confirmed that the number of views is mainly from overseas, and the age group is also rising.
It's important for how many hits are you, but it's important to be young, but so far, MMORPG is a game that's only a game in Korea and some specific regions and hasn't been stereotype that it's not major in the West? In recent years, young users gather in the Western region, and there is a clear need for competition, cooperation, and achievement in the process. I reaffirmed that the MMORPG did not work, but that there was a possibility in different perspectives. TL is also looking forward to breaking the stereotypes if it approaches that.
Q. In terms of data, Lineage W is coming up at the time of downward stabilization. I would like to share Lineage M's 3Q trend outlook.
= At the time of launch, it was found to be in the stabilization stage. After that, there are ups and downs depending on the update method and point of view, but the quality and timing of the recent updates seem to be good. I don't know what's going to happen in a year, but I'm cautious about stable sales and performance if I expect 3Q to 4Q.
Q. In the second quarter, other game companies showed that the exchange rate fluctuations were influenced. What is NCsoft? In the fourth quarter, I predicted two regional expansion IPs and TL. I would like to tell you about the trend of marketing and labor costs in the second half.
= NCsoft has little debt and has quite a lot of foreign currency assets. It's hard to say the exact number, but there are a lot of profits in the second quarter, and if the trend proceeds, foreign currency profits will continue to occur. We will announce the above through the disclosure. Although it is not the main business to make money due to exchange gains, it is worrying about coordinating the level of an asset in dollars according to the market trend.
Labor costs do not increase significantly in the third quarter, and TL-related marketing contents have already been prepared. Overall, the company is enterprisingly efficient for marketing costs. In this year's total, marketing proportions will not exceed 10%compared to sales.
** Q. TL showcase point
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