NEXON (3659) FY2026 Q1 Earnings Report

Quick View

Executive Summary

Nexon delivered higher revenue and earnings, along with a significant improvement in profit margins, driven by expanded earnings from its core PC online games. Revenue was ¥1,522.3B (+33.6% YoY), Operating Income was ¥581.6B (+39.8%), and Net Income attributable to owners of the parent was ¥572.3B (+117.8%). The Operating Income margin improved to 38.2% from 36.5% in the same period of the previous year, as operating leverage took effect, with revenue growth outpacing the 29.6% increase in SG&A expenses. In addition, foreign exchange gains of ¥145.4B included in financial income boosted Profit Before Tax, resulting in Net Income growth exceeding the strength of the operating business.

Factors Affecting Earnings

【Revenue】Revenue increased 33.6% YoY to ¥1,522.3B. The primary driver was PC online revenue, which increased 51.1% YoY to ¥1,166.1B and accounted for 76.6% of consolidated revenue. By region, North America and Europe expanded sharply, increasing 309.6% YoY to ¥444.7B, while South Korea remained solid, increasing 6.0% to ¥574.8B; China and Japan contracted by 16.5% and 10.9%, respectively. By segment, South Korea made the largest contribution to earnings, with revenue of ¥1,017.7B and Operating Income of ¥385.7B, while the Other segments (Europe and Asia) grew sharply to revenue of ¥409.0B and profit of ¥190.7B.

【Profit and Loss】Operating Income increased 39.8% YoY to ¥581.6B, and the Operating Income margin improved to 38.2% from 36.5% in the previous year. The gross profit margin also rose to 67.1% from 65.6%, as revenue growth exceeding cost increases generated operating leverage. Profit Before Tax was ¥752.3B, including ¥199.7B in financial income, of which ¥145.4B was foreign exchange gains. Net Income was ¥563.7B (+114.2%), while profit attributable to owners of the parent was ¥572.3B (+117.8%). The key characteristic was that foreign exchange gains amplified profit growth in addition to the improvement in the operating business.

Segment Analysis

The South Korea segment remains the largest source of earnings, with revenue of ¥1,017.7B and Operating Income of ¥385.7B (37.9% margin), but revenue declined 3.2% YoY and profit declined 13.1%, indicating a slowdown. North America generated revenue of ¥74.7B and profit of ¥11.6B, turning profitable from a loss in the previous year, with a 15.5% margin. China generated revenue of ¥7.0B and profit of ¥3.3B, resulting in a high profit margin of 46.8%. Japan continued to post a loss, with revenue of ¥14.0B and an Operating Loss of ¥2.2B, although the loss narrowed 67.5% from the previous year. In terms of geographic revenue mix, sales to North America and Europe expanded sharply to 29.2% of total revenue from 7.7% in the previous year, indicating an ongoing shift away from dependence on South Korea.

Key Financial Metrics

【Profitability】The Operating Income margin improved significantly to 38.2% from 36.5% in the previous year, while the Net Profit margin improved to 37.0% from 23.1%; annualized ROE remained high at 21.1%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥530.1B, representing only 0.93x profit attributable to owners of the parent of ¥572.3B; the non-cash nature of financial income, including foreign exchange gains, was the factor behind the divergence. A decrease in trade receivables (+¥198.4B) boosted cash flow, while decreases in deferred revenue and provisions weighed on cash flow. 【Investment Efficiency】Total asset turnover remains low (approximately 0.44x on an annualized basis), but the high Net Profit margin is driving ROE, with limited dependence on financial leverage. 【Financial Soundness】The Equity Ratio was 76.6%. Current assets of ¥9,968.5B compared with current liabilities of ¥1,943.3B indicate an extremely strong liquidity position, while cash and cash equivalents totaled ¥4,542.6B.

Cash Flow Analysis

Operating Cash Flow was ¥530.1B (+7.6% YoY), and its ratio to profit attributable to owners of the parent was 0.93x, slightly below earnings. This was due to differences in the timing of cash realization of financial income, including foreign exchange gains. Investing Cash Flow resulted in a net outflow of ¥641.5B, primarily due to a net increase in time deposits of ¥893.6B and acquisitions of intangible assets of ¥78.3B, partially offset by proceeds from the sale and redemption of securities of ¥406.8B. Financing Cash Flow resulted in a net outflow of ¥284.8B, mainly due to dividend payments of ¥229.6B and share repurchases of ¥93.2B. Free Cash Flow, calculated as Operating Cash Flow + Investing Cash Flow, was negative ¥111.3B; however, this reflected the allocation of funds to financial management rather than business investment, and cash and cash equivalents remained ample at ¥4,542.6B.

Earnings Quality

The quality of current-period earnings reflects a combination of substantive operating improvement and financial and foreign exchange factors. Of the ¥199.7B in financial income, foreign exchange gains accounted for ¥145.4B, equivalent to approximately 19% of Profit Before Tax of ¥752.3B. Operating Income growth (+39.8%) resulted from revenue growth outpacing the increase in SG&A expenses, and is therefore considered relatively sustainable. However, it should be noted that Net Income growth (+114.2%) was amplified by foreign exchange fluctuations, a factor with low repeatability. The OCF-to-profit attributable to owners of the parent ratio of 0.93x also reflects the non-cash nature of financial income. Equity in earnings of affiliates was negative ¥16.9B, representing a continuing downward pressure factor.

Shareholder Returns

The full-year dividend forecast remains ¥60 per share, with no revision. Dividend payments during the quarter were ¥229.6B, representing a Payout Ratio of approximately 40.1% against profit attributable to owners of the parent of ¥572.3B. Including share repurchases of ¥93.2B, total shareholder returns amounted to ¥322.8B, resulting in a Total Return Ratio of approximately 56.4%. Operating Cash Flow of ¥530.1B covered dividend payments by approximately 2.3x, while the financial foundation of cash and cash equivalents of ¥4,542.6B and an Equity Ratio of 76.6% also supports the continuation of shareholder returns. However, because current-period earnings include the contribution from foreign exchange gains, future assessments of the funding capacity for shareholder returns should focus on trends in Operating Income and Operating Cash Flow.

Risk Factors

1. Revenue concentration risk: PC online games account for 76.6% of consolidated revenue, creating a structure in which user trends for major titles and fluctuations in live-service operations can significantly affect financial performance.

2. Reproducibility risk related to foreign exchange and financial income: Of financial income of ¥199.7B, foreign exchange gains amounted to ¥145.4B, accounting for approximately 19% of Profit Before Tax. If foreign exchange rates reverse, fluctuations in Net Income and EPS may be greater than those indicated by the underlying operating performance.

3. Risk of uneven regional growth: While revenue from North America and Europe expanded sharply by 309.6% YoY, mobile revenue declined 4.6% and the Chinese market contracted 16.5%, resulting in growth being concentrated in PC online games and specific regions.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s profitability is significantly above the industry median and ranks among the top performers in the IT and communications industry.

Growth and Capital Efficiency

Revenue growth also significantly exceeded the industry median, placing the Company among the industry’s leading group in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Income margin improved to 38.2%, confirming operating leverage as revenue growth outpaced the increase in SG&A expenses. This improvement is based on business competitiveness and is considered relatively sustainable.

2. The significant increase in Net Income (+114.2%) includes a contribution of ¥145.4B from foreign exchange gains, making it necessary to distinguish between the underlying operating performance and financial and foreign exchange factors.

3. The geographic revenue mix is shifting from dependence on South Korea toward North America and Europe (the North America and Europe share increased from 7.7% in the previous year to 29.2%), and the sustainability of growth depends on the degree to which the Company establishes a lasting presence in these regions.

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

---End of Report---