NEXON Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥351.50B
• Operating Income: ¥116.84B
• Net Income: ¥79.93B
• EPS: ¥100.56

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Nexon (TSE:3659) delivered resilient profitability in FY2025 Q3 despite a top-line contraction, with revenue of 3,515.03 (100M JPY), down 4.1% YoY. Gross profit of 2,356.17 implies a robust gross margin of 67.0%, underscoring the high-margin nature of its digital content model and disciplined cost of sales. Operating income was 1,168.37, down 7.2% YoY, indicating modest negative operating leverage as fixed costs did not fully flex with softer revenue. Operating margin remained strong at roughly 33.2%, supported by tight SG&A control relative to scale (SG&A at 1,015.29). Net income of 811.95 declined 21.0% YoY, impacted by a high effective tax rate of 41.4% and non-operating items, despite profit before tax of 1,219.63. EBITDA of 1,242.52 (35.3% margin) reflects healthy cash earnings capacity relative to revenue. The DuPont-derived ROE is 7.7%, driven by a 23.1% net margin, 0.270x asset turnover, and conservative 1.22x financial leverage. The equity ratio is a very strong 81.0%, and total equity stands at 10,617.77, evidencing a fortress balance sheet. Cash and equivalents are sizable at 3,319.31, and operating cash flow of 628.05 supports ongoing investment and shareholder returns. Free cash flow is reported at 684.92, aided by light capital expenditures of 24.61 and positive investing cash flows. Financing cash flow was an outflow of 491.75, primarily share repurchases of 390.98 and dividends of 102.94, signaling continued capital return discipline. Book value per share is calculated at 1,331.62 JPY, with basic EPS of 100.56 JPY, implying moderate earnings yield on equity. Comprehensive income of 1,182.81 exceeds net income, suggesting favorable OCI movements (likely currency translation or securities). Liquidity ratios are not fully calculable due to unreported current liabilities, but the disclosed current assets base of 7,522.73 and net cash position imply strong short-term flexibility. Debt-to-equity is a low 0.21x, consistent with limited balance sheet risk. Data limitations exist in several unreported items (e.g., current liabilities detail, interest expense, R&D), but the available figures support an assessment of high-quality margins, conservative leverage, and solid cash generation.

Profitability Analysis

ROE_decomposition: ROE 7.7% = Net margin 23.1% x Asset turnover 0.270 x Financial leverage 1.22x. The primary driver is margin strength; low asset intensity and conservative leverage cap ROE upside. margin_quality: Gross margin 67.0% reflects scalable digital content economics. Operating margin ~33.2% (1,168.37 / 3,515.03) is strong but compressed YoY given revenue decline and relatively fixed SG&A. EBITDA margin 35.3% corroborates durable unit economics. Net margin of 23.1% is solid but pressured by a high effective tax rate (41.4%) and non-operating items. operating_leverage: Revenue declined 4.1% YoY while operating income fell 7.2% YoY, implying modest negative operating leverage. SG&A at 1,015.29 suggests partially fixed cost structure; management maintained profitability despite softer sales.

Growth Assessment

revenue_sustainability: Top-line contracted 4.1% YoY to 3,515.03, indicating a pause in growth likely tied to title cadence, in-game monetization intensity, or FX. High gross margin suggests core engagement and monetization remain intact, but visibility on bookings or regional mix is not provided. profit_quality: Operating margin and EBITDA margin remain robust, indicating core earnings quality is intact. Net income softness versus PBT reflects tax and below-OP items; comprehensive income outperformance versus net income implies favorable OCI effects, improving total return potential. outlook: With strong cash, minimal leverage, and ongoing capital returns, Nexon is positioned to invest in pipeline and live-ops. Near-term growth hinges on new content launches and sustaining user monetization; absent disclosures on pipeline timing or bookings, we assume midterm stability with sensitivity to release schedules and FX.

Financial Health

liquidity: Current assets are 7,522.73 and cash & equivalents 3,319.31; current liabilities are unreported, preventing ratio calculation. Nonetheless, significant cash and net cash posture imply ample liquidity. Working capital of 7,522.73 reflects the disclosed current assets base. solvency: Equity ratio is 81.0%, and debt-to-equity is 0.21x, both indicating low financial risk. Total liabilities are 2,262.46 versus total equity of 10,617.77, highlighting substantial solvency headroom. capital_structure: Low leverage (financial leverage 1.22x within DuPont) and ongoing buybacks signal balance sheet optimization from a strong base. Interest-bearing debt details are unreported; interest coverage cannot be computed, but operating cash flow adequacy reduces refinancing risk.

Cash Flow Quality

earnings_quality: OCF/Net income is 0.77x, below 1.0, suggesting working capital absorption or timing differences this period. EBITDA of 1,242.52 versus OCF of 628.05 indicates significant non-cash items and WC movements; absent detail, quality appears acceptable but not exceptional in the quarter. FCF_analysis: FCF is 684.92 with light capex (24.61), consistent with a capital-light model. Investing CF was a net inflow of 56.87, likely from asset sales or investment redemptions; sustainability of positive investing CF is uncertain. working_capital: Accounts receivable are 887.17; inventories and payables are unreported, limiting a granular WC analysis. The sub-1.0 OCF/NI ratio implies some collection timing or deferred revenue dynamics common in gaming; monitoring receivables turns and deferred revenue is prudent when disclosed.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio is 22.9%, indicating a conservative dividend relative to earnings. Note: dividends paid in cash flow are 102.94, which may reflect timing differences versus the calculated payout; DPS data are unreported. FCF_coverage: FCF coverage of dividends is 3.69x, suggesting strong coverage based on reported period cash flows. policy_outlook: With substantial cash, low leverage, and ongoing buybacks (390.98), shareholder returns appear well-supported. Absent explicit DPS guidance, we assume a flexible policy balancing buybacks with sustainable ordinary dividends.

Risk Assessment

Business Risks:

• Title pipeline and release schedule risk impacting bookings and revenue trajectory
• Live-ops dependency requiring continuous content updates and event cadence to sustain monetization
• Platform concentration and changes in app store policies or fees
• Regional regulatory risk in key markets (game approvals, playtime/monetization rules)
• Competitive intensity for player time and spending across PC, console, and mobile
• IP lifecycle risk and user churn for aging franchises

Financial Risks:

• FX volatility between operating currencies and JPY affecting reported revenue and profits
• Tax rate volatility (effective tax rate at 41.4% this period) impacting net margins
• Working capital swings affecting OCF/NI conversion (0.77x this quarter)
• Potential impairment risk for intangibles/goodwill (line items unreported here)
• Market risk from investment securities valuations affecting OCI (details unreported)

Key Concerns:

• Negative operating leverage with revenue down 4.1% and OP down 7.2% YoY
• High effective tax rate weighing on net income (-21.0% YoY)
• Limited visibility on current liabilities and interest expense due to unreported items, constraining ratio analysis

Investment Implications

Key Takeaways:

• Resilient profitability with ~33% operating margin and 35% EBITDA margin despite a revenue dip
• ROE of 7.7% capped by conservative leverage and modest asset turnover; margin is the primary value driver
• Strong balance sheet with 81% equity ratio and substantial cash supports continued buybacks/dividends
• Cash conversion below net income this quarter (OCF/NI 0.77x) merits monitoring of WC and collections
• Comprehensive income exceeded net income, suggesting positive OCI tailwinds in the period

Metrics to Watch:

• Bookings growth and title release schedule updates
• OCF/Net income conversion and receivables trends
• Effective tax rate normalization path
• EBITDA margin sustainability relative to content update cadence
• FX impacts on revenue and margins
• Shareholder return intensity (buyback pace, dividend announcements)

Relative Positioning: Versus domestic gaming peers, Nexon exhibits above-average margins and a notably stronger balance sheet, but delivers moderate ROE due to low leverage and asset turnover; growth visibility appears more pipeline- and FX-dependent relative to peers emphasizing recurring console/merchandising mixes.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis