NEXON Co., Ltd.

Hello, everyone, and welcome. Thank you for joining us today.

With me are Owen Mahoney, President and CEO of Nexon; and Shiro Uemura, CFO. Today's call will contain forward-looking statements, including statements about our results of operation and financial conditions such as revenues attributable to our key titles, growth prospects, including with respect to online game industry, our ability to compete effectively, adapt to new technologies and address new technical challenges, our use of intellectual property and other statements that are not historical facts.

These statements represent our predictions, projections and expectations about future events, which we believe are reasonable or based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Information on some of these risks and uncertainties can be found in our earnings-related IR documents. We assume no obligation to update or alter any forward-looking statements.

Please note, net income refers to net income attributable to owner of the parent as stated in Nexon's consolidated financial results. Furthermore, this conference call is intended to provide investors and analysts with financial and operational information about Nexon, not to solicit or recommend any sale or purchase of stock or other securities of Nexon.

A recording of this conference call will be available on our Investor Relations website, www.ir.nexon.co.jp/en/ following this call. Unauthorized recording of this conference call is not permitted.

I'd now like to turn the call over to Owen.

Thank you, Ara-san, and welcome, everyone, to Nexon's Fourth Quarter and Year-End 2020 Conference Call. Today, I'm going to offer a brief remarks on Nexon's performance for both the fourth quarter and full year 2020, both of which were very good.

I will also offer some perspective on key trends and metrics that drive growth opportunities in our industry, in our company. Following that, our CFO, Uemura-san, will provide detailed breakout on both the quarter and the fiscal year.

Starting with our recent performance, Nexon's fourth quarter marked a strong finish to a good year. We beat our forecast and posted our highest ever Q4 revenue, up 35% year-over-year.

This record-setting performance is attributable to great execution and careful management of our virtual worlds, global blockbusters that showed continued growth years after launch. We are also extremely pleased with our full year results for fiscal year 2020, the highest revenue year in Nexon's 26-year history.

In addition to the top line growth, we saw clear progress on our focused strategy for doing fewer things, bigger and better. And as a result, Nexon Group revenues grew by 18% year-over-year.

In particular, a high-point year and one that demonstrates our virtual world strategy is the performance of MapleStory in Korea, which posted revenue growth of 98% year-over-year in 2020, 98% growth in its 17th year in the market. Our performance in 2020 also reflects on the overall success of our strategy for moving blockbuster franchises onto mobile.

Mobile revenue grew by 60% year-over-year and now represents 1/3 of Nexon's total annual revenue, and we expect this percentage to continue to grow in the years ahead. With the close of a record-setting year, I'd like to pause and offer some thoughts on how our strategy aligns with trends in technology and entertainment in order to provide catalysts for long-term growth.

In recent calls, we've highlighted the global secular shift in entertainment from live physical-based entertainment to online entertainment and from linear to interactive. We've said that we think the shift is both profound and underreported.

On top of this fundamental shift is the far-reaching impact that rapidly improving mobile technology will have on the business of online virtual worlds. Breakthroughs in mobile tech are leading billions of new consumers to Nexon's core business.

In the past, virtual worlds were restricted to a limited audience of players with game playable PCs. Now everyone can have a virtual world on their phone in their pocket.

While the potential for billions of new mobile players will have an obvious positive impact on our total addressable market, the larger and more enduring opportunity comes from Nexon's unique ability to sustain and grow virtual worlds for decades. On smartphones, a platform where games and companies frequently disappear in weeks, Nexon brings a highly unique specialty in operating complex virtual worlds.

Like operating a world-class theme park in the physical world, this knowledge is specialized based on constant iteration and refinement and very difficult to replicate at scale and over time. In short, the same live operations support that keeps millions of PC players in a game for the past 2 decades is likely to keep billions of mobile players playing for decades in the future.

A major analytical challenge for investors is to understand how a virtual worlds company like Nexon grows over time. In the old world of video games, a company depends on new products for its revenue.

No new products, no revenue. So analysts understandably must fixate on catalysts in the form of new product launches.

Investors think that because Nexon is a game company, it relies on new product introductions for growth. Not true.

The economics of a virtual worlds company don't look like that at all. A virtual world company might double in revenue within a few years without any new products.

The economics of a virtual world and, therefore, the analytical challenge are not an evolution of the traditional games business. It is a different paradigm altogether.

Since there are so few virtual world companies operating at scale, it is easy to miss this underlying difference. In this way, virtual world economics are more akin to theme parks.

We obsess over day-to-day details that make for a great user experience and build a business over years. Except our theme parks are not physical.

They are rendered in software and delivered from the cloud and can increasingly be played anywhere by anybody on the planet. But as robust as our current virtual worlds are, of course, we are expanding.

We are extending our existing virtual worlds onto new platforms like mobile and creating new virtual worlds. Today, we are developing an exciting pipeline of new online games like Mobile Dungeon&Fighter, KartRider: Drift and multiple new titles from our Embark Studios in Sweden.

Most important from an investor perspective, each of the new games we are developing today is designed to be a virtual world. Each has the same potential for decades-long revenue growth and profitability.

As we layer these new virtual worlds and as we expand beyond the PC to mobile and beyond, we foresee a step change in earnings power. My final point relates to our Q1 2021 guidance, which Uemura-san will report on in just a few minutes.

We're extremely pleased with our exceptional performance in 2020. However, this success did not mean that the rate of growth will be constant each quarter.

Our experience tells us that growth is nonlinear and occurs over an extended period. We believe the growth potential of virtual worlds is the games industry -- is the game industry's biggest catalyst, and we strongly believe that mobile represents a massive opportunity as the potential player base expands from hundreds of millions to billions.

And we expect to see variations in our PC-to-mobile ratio in individual quarters, but the scale and the direction of these forces are both massive and unmistakable. To summarize, Nexon delivered a record-setting performance in both the fourth quarter and full year 2020.

We're extraordinarily gratified by the robustness of our massive IT franchises, thanks to the great work by Nexon employees around the world. And we look forward to introducing several new virtual worlds in 2021.

With that, I'll turn the call over to Uemura-san.

Thank you, Owen. Next, I will review our Q4 and FY 2020 full year results.

For additional details, please see the Q4 2020 investor presentation available on our IR website. We again delivered record-breaking Q4 revenues and operating income, which were driven by the growth of multiple major blockbuster franchises, which were expanded on to the mobile platform.

Group revenues were ¥66.4 billion, up 35% year-over-year on an as-reported basis and up 34% on a constant currency basis, which exceeded our expectations. This was driven by the strong performances of FIFA ONLINE 4 and MapleStory in Korea.

By region, revenues from Korea, Japan, North America and Europe each exceeded our expectations. Revenues from China were in the range of our outlook, and rest of world was slightly below our outlook.

Looking at the total company performance on a platform basis, PC and mobile revenues both exceeded our outlook and grew 16% and 76% year-over-year, respectively. Operating income was ¥15.6 billion, which was within our expected range.

While our revenues exceeded our expectations, HR costs were higher than our plan due to the higher performance-based bonus related to the terrific performances of our major titles as well as our new mobile games. Net loss was ¥29.8 billion, which was below our outlook, primarily due to a ¥29.5 billion deferred tax liability additionally recorded on the undistributed profits of our overseas subsidiary as well as a ¥21.0 billion FX loss related to the appreciation of the Korean won against the U.S.

dollar during the quarter and its corresponding impact on U.S. dollar-denominated cash deposits.

Let's move on to results by region. Revenues from our Korea business in Q4 exceeded our outlook, primarily driven by stronger-than-expected performances of FIFA ONLINE 4 and MapleStory.

We saw strong results from all 4 of our major PC titles, which drove 48% year-over-year growth in our Korea PC business. MapleStory's revenue exceeded our expectation and grew 88% year-over-year, driven by well-received winter update and a successful collaboration with a popular K-pop group, BTS.

Dungeon&Fighter and Sudden Attack also grew 106% and 56% year-over-year, respectively. FIFA ONLINE 4's PC and mobile revenues combined exceeded our expectations and grew compared to Q4 2019, driven by a successful introduction of legendary players, events and content updates.

Mobile revenues grew by 116% year-over-year, driven by contributions from The Kingdom of the Winds: Yeon, KartRider Rush+ and FIFA MOBILE as well as MapleStory M, which grew 51%. Overall, revenues from our Korea business grew by 72% on an as-reported basis and 70% on a constant currency basis and set a record Q4 revenues.

Revenues from our China business were within our expected range and decreased 18% year-over-year on an as-reported basis and 20% on a constant currency basis. PC Dungeon&Fighter's Q4 revenue was in the range of our outlook.

We continued the National Day update from Q3 and introduced other updates and events during the fourth quarter, all of which performed as planned. As expected, revenue decreased year-over-year.

ARPPU increased compared to Q4 2019, as the portion of light users was lower as compared to a year ago. This was more than offset by decreases in both active users and paying users due to the strengthening of player identity verification and bot sanctions, reduced user engagement since the second half of FY 2019 as well as lower sales from the National Day package offerings.

MAUs decreased quarter-over-quarter. Active users trended quite stably in Q4 as compared with Q3 when active users declined during the quarter.

However, in addition to the typical seasonality, the comps were high, as Q3 included a period when we continued to benefit from the effect of the March large-scale update. Paying users decreased slightly quarter-over-quarter driven by item offerings, which had rich lineups.

ARPPU and revenues decreased due to seasonality. Revenues from our Japan business exceeded our outlook.

On a year-over-year basis, we recorded a revenue increase of 52% on an as-reported basis and 51% on a constant currency basis. We benefited from new titles, including V4, TRAHA and FIFA MOBILE, all of which launched in 2020.

Revenues from North America and Europe exceeded our outlook. On a year-over-year basis, revenues increased by 22% on an as-reported basis and 26% on a constant currency basis.

This was driven by MapleStory and MapleStory M, which grew 124% and 55%, respectively; as well as contributions from KartRider Rush+ and V4. Revenues from the rest of world were slightly below our outlook but grew 14% year-over-year on an as-reported basis or on a constant currency basis.

The year-over-year growth was driven by KartRider Rush+'s contribution as well as MapleStory, which grew 103% year-over-year. Next, I will review our FY 2020 full year results.

FY 2020 highlighted the diversity and durability of the franchises that drive our portfolio. Our focused strategy, combined with our substantial IP as we bring our virtual world to multiple platforms, is paying large dividends, which drove significant growth in both our major franchises and our mobile businesses.

In particular, Korea reflected outstanding execution. After 84% year-over-year growth, Korea now accounts for 56% of Nexon Group's full year revenues.

In Korea, MapleStory, Dungeon&Fighter and FIFA ONLINE 4 each achieved its highest full year revenue. MapleStory, a 17-year-old franchise, recorded a remarkable 98% year-over-year growth; and Dungeon&Fighter, a 15-year franchise, grew 55%.

Now in its ninth with Nexon, the FIFA ONLINE franchise also recorded year-over-year growth. As a result of the performance of these titles, our overall PC business grew 4% versus the prior year despite our challenge in China's Dungeon&Fighter.

The expansion of our beloved franchises on to a mobile platform, including The Kingdom of the Winds: Yeon, KartRider Rush+ and FIFA MOBILE as well as V4 drove 60% year-over-year growth in our mobile business. 1/3 of our group revenues was mobile in 2020.

As a result of strong execution of our focused strategy, we achieved record high revenues and operating income for the full year. Our group revenues were ¥293.0 billion, up 18% year-over-year on an as-reported basis and up 21% on a constant currency basis.

Operating income was ¥111.5 billion, up 18% year-over-year on an as-reported basis and up 23% on a constant currency basis. Excluding the impact of ForEx, we have recorded top line growth for the 9 consecutive years since we went public in 2011.

Net income was ¥56.2 billion, down 51% year-on-year on as-reported basis and 47% on a constant currency basis due to the ¥29.5 billion deferred tax liabilities additionally recorded on the undistributed profits of our overseas subsidiary as well as ¥17.7 billion FX loss on our cash deposits. Now I move on to FY 2021 Q1 outlook.

We expect Q1 revenue to be flat or increase year-on-year. The expected growth from MapleStory, The Kingdom of the Winds: Yeon and KartRider Rush+ will be partially offset by a year-over-year decline in Dungeon&Fighter's revenue in China.

Q1 revenue range is expected to be ¥82.8 billion to ¥89.1 billion, representing a range between 0% decrease to 8% increase year-on-year on as-reported basis. On a constant currency basis, we expect a range between 3% decrease to 5% increase.

We expect our Q1 operating income to be in the range of ¥35.3 billion to ¥41.9 billion, representing 15% decrease to 1% increase year-on-year on as-reported basis and 17% to 2% decrease year-on-year on a constant currency basis. I will discuss the details later.

We expect net income to be in the range of ¥26 billion to ¥30.9 billion, representing a 48% to 38% decrease year-on-year on as-reported basis and 49% to 40% decrease year-on-year on a constant currency basis due to the operating income decrease as well as ¥18.7 billion FX gain we recorded in Q1 2020. In Korea, with the positive impact of our focused strategy, we expect MapleStory, Dungeon&Fighter, Sudden Attack as well as MapleStory M, which has kept good momentum since the major update in December, to once again grow double-digit year-on-year in Q1.

We also expect to benefit from The Kingdom of the Winds: Yeon, KartRider Rush+ and the FIFA MOBILE, resulting in a year-on-year growth in both our PC and mobile business. As accordingly, we expect Korea business revenues to be in the range of ¥51.1 billion to ¥53.8 billion, representing 28% to 35% increase year-on-year on as-reported basis and 24% to 31% increase year-on-year on a constant currency basis.

While we expect mobile revenues in Korea to increase year-on-year, we anticipate a sequential decline mainly due to the lower contribution from The Kingdom of the Winds: Yeon and KartRider Rush+. We anticipate fewer players compared to Q4, as the player base settle following the games' launches.

Over the long term, we are looking to grow the player bases for these games as we add rich content and events that will attract, retain and reacquire lapsed players. Turning to China.

We anticipate Dungeon&Fighter revenue to decrease year-on-year. We expect China business revenue to be in the range of ¥21.6 billion to ¥24.2 billion, representing a 36% to 28% decrease year-on-year on as-reported basis and 37% to 30% decrease year-on-year on a constant currency basis.

As a reminder, our Q1 China outlook does not include any contribution from Mobile Dungeon&Fighter. We are working closely with our partners at Tencent, who would tell us that they are making progress toward a release.

We hope to have more information soon, but we understand that there are some factors that Tencent is managing in respect to the release. As for PC Dungeon&Fighter, we introduced a Lunar New Year update on January 21, which includes the new dungeons and avatar package offerings.

Active users and paying users have been stable from Q4. However, they remain at low levels compared to last year.

Lunar New Year package sales are expected to decline year-on-year. In addition, in the year ago quarter, we introduced a large-scale update, which included the Level Cap release and third awakening.

Therefore, Dungeon&Fighter revenue is expected to decrease year-on-year. While we do not expect a near-term major uplift in user metrics for Dungeon&Fighter, in order to promote mid- to long-term growth, we are working on seasonal updates and additional updates in order to acquire new players and reacquire lapsed players.

Our top priority is to sustain our games' user metrics at the current levels while stably operating the game. We are also taking measures to drive its mid- to long-term growth prospects.

In Japan, we expect revenues in the range of ¥3.1 billion to ¥3.5 billion, representing 97% to 123% increase year-on-year on as-reported basis and 93% to 119% increase year-on-year on a constant currency basis. We expect to benefit from FIFA MOBILE, V4 and TRAHA as well as Blue Archive, a new mobile game developed by our subsidiary, NAT GAMES, launched together with our partner, Yostar, on February 4.

In North America and Europe, we expect revenues to be in the range of ¥4.1 billion to ¥4.5 billion, representing 2% decrease to 8% increase year-on-year on as-reported basis and 1% to 11% increase year-on-year on a constant currency basis. We anticipate MapleStory to grow double digit compared with Q1 2020 when it grew 54% year-on-year.

However, we expect this to be offset by a year-on-year decrease in Choices and MapleStory 2, which ended the service in 2020. We expect revenues in the rest of world in the range of ¥3.0 billion to ¥3.2 billion, representing a 22% to 16% decrease year-over-year on an as-reported basis and a 23% to 17% decrease year-over-year on a constant currency basis.

While we expect to benefit from KartRider Rush+, we expect this to be more than offset by a decrease in World of Dragon Nest, which launched in Q1 2020, as well as other mobile games. In Q1 2021, we expect operating income to be in the range of ¥35.3 billion to ¥41.9 billion, representing 15% decrease to 1% increase on a year-over-year basis.

The primary driver for the higher operating income in Q1 2021 at the high end of the range is the revenue increase. Other favorable factors include a decreased impairment loss of ¥6.1 billion recorded in Q1 2020, which will not be repeated in Q1 2021.

Unfavorable factors compared to Q1 2020 regarding the operating income include: first, increased variable costs associated with revenue growth; second, increased HR costs, including increased salaries as well as stock option costs. This year, we introduced a new HR strategy in our R&D center in Korea aimed at promoting sustainable growth and global expansion.

In a highly competitive job market, the new policy will help us acquire and retain the top talent needed to achieve our vision of global leadership in entertainment. In a related decision, Nexon introduced a company-wide salary increase and top level incentive system tied to individual performance.

Due to the introduction of the new compensation policy, which is additional to increased stock option costs and the ordinary salary hike, we expect a large increase in HR costs compared to Q1 2021. Third, increased marketing costs associated with ongoing promotions for KartRider Rush+ and The Kingdom of the Winds: Yeon.

Lastly, increased outsourcing costs. The high end of the range reflects the fact that we expect the impact of negative drivers to be offset by data positive drivers, resulting in a flattish operating income year-over-year.

To summarize, in Q1 2021, we expect strength from multiple major franchises, while we expect this to be fully or partially offset by a year-over-year decrease in PC Dungeon&Fighter in China. Overall, we expect our group revenues to be flat or increase year-over-year.

In 2021, we will continue to focus on our daily live operations as we look to stably operate our major franchises. We will continue to build new virtual worlds, which we will layer upon our foundation that will continue to set us up for the long-term growth of our group business.

Lastly, I would like to provide an update on the shareholder return and capital allocation strategy. Based on our 2020 shareholder return plan, we plan to pay a dividend of ¥2.5 per share for the year end to the shareholders on the shareholder registry as of December 31, 2020.

We plan to pay the same semi-annual dividend per share in 2021. With regards to our share repurchase policy that we announced on November 10 to buy back ¥100 billion over a 3-year period, we have not yet made an announcement about a specific repurchase plan.

We will consider several factors, including investment opportunities, financial conditions as well as the share price as we buy back our shares. Regarding our investments in global entertainment companies, we have completed investments totaling ¥92.4 billion, which accounted for 58% of the $1.5 billion that the Board of Directors authorized, and recorded an unrealized gain of ¥29.5 billion under other comprehensive income as of Q4.

This ends my comments. Back to you, Owen.

Thank you, Uemura-san. Before we get to your questions, I want to summarize 3 points we've made today.

First, the business of online virtual worlds is fundamentally different than the rest of the games business. The way we run our business and the way you analyze it are not at all analogous to other segments of the game business.

That means like -- that like a physical theme park, our business of virtual worlds can grow substantially without introduction of new games. This creates an analytical challenge for those who think of Nexon as a traditional games company and, therefore, look for catalysts.

We proved this important point yet again in 2020, most conspicuously with MapleStory, a virtual world that launched 17 years ago that doubled its year-over-year revenue in Korea. Second, we are nonetheless very excited about new virtual worlds we will be introducing in 2021.

Yes, they will serve as catalysts in the near to the midterm, but the real win is for us to keep them growing over years, as we have done with our other major franchises. Third, with all that in mind, 2020 was a terrific year for us, but most importantly, it sets us up for more great years ahead.

With that, we are ready to take your questions.

Thank you, Owen. Next, we would like to open up the lines to live Q&A.

Q&A session will be conducted with Japanese-English or English-Japanese consecutive interpretation. Please be noted that interpretation will come between your questions and our answers.

Please hold for interpretation before you hear our answers. Our answers will also be followed by interpretation, so please hold until the interpretation finishes before moving on to the next question.

For those of you who have more than one question, we will take your questions one by one. Now we'd be happy to take your questions.

I have two questions, but the first question is as follows. You are doing very well in Korea.

But as for China, the expectation from the Lunar New Year, if you look at the Q-on-Q comparison, it seems that the growth is a little bit weak. Probably one of the reasons is that some of the players on PC are waiting for the launch of the mobile, and they're waiting for the purchase or the billing on top of the PC.

That might be one of the reasons. So the question is what would happen to the players or the users after the launch of the mobile version?

Do you expect to see some of the return to the PC or some kind of a flow going back and forth between the different platforms between PC and mobile? And how do you see that kind of movement between the different platforms?

Thank you for your question. It is very difficult to give you the precise answer to your question.

I think to some extent, as you mentioned, that the people -- the players on PC are waiting or refraining from purchasing or billing on top of the PC because they are waiting for the launch of the mobile version. And looking at the PC Dungeon&Fighter, as you know, that the downtrend started in the second half of 2019, and that trend continued in 2020.

And as we mentioned earlier, if you look at other KPIs in Q4, it is true that the downtrend continues. But from October to December, we saw the flat movement of those KPIs.

So as of now, the China PC Dungeon&Fighter is stable, although at the low level. And based on that, we started a new Q1, and the Lunar New Year started.

And if you look back at the last year, there was a major update then, including the Level Cap release and the third wakening. And compared to that, we expect about a 30% decrease year-on-year.

And it's difficult to foresee what would happen to the PC players after the launch of the mobile, but we are hoping that rather than seeing the cannibalization, we can generate some synergy effect. And that is how we are operating this game, so that we can reactivate the PC players with the launch of mobile.

Thank you.

Second question is on the HR cost and your forecast on that. For the two quarters in a row, the HR cost was ¥18 billion, ¥19 billion, close to ¥20 billion level.

Although you did mention this in your presentation, but do you expect this level of the HR cost to continue for the full year? And/or is it just a temporary push or increase in Q4 and Q1?

So if you can give us some forecast or outlook in the longer term, it will be very much appreciated.

So if you look at the HR cost, you saw the increase in Q4, and we talked about the forecast for Q1. And there are some differences between the 2.

The increase of the HR cost in Q4 is in relation to the incentive bonus that we offered, reflecting the good performance of 2020. As for Q1, part of this increase is due to the stock option and the introduction of the new compensation program that we talked about earlier.

And for the game company, like us, our most important asset is the talent and the human resources, so we need to make sure that we provide a sufficient incentive to the people who work here. And this would lead to the long-term growth of the company, so we consider this as a long-term investment, and that's why we introduced this new compensation program.

And same as the stock option, this will be booked or recorded for a certain period of time. So we expect HR cost to stay at the similar level in coming quarters.

I have two questions. My first question has to do with the new title that we expect to come from Embark Studios.

If my memory is correct, I think we're supposed to hear some update during this time of the announcement. But then can you sort of explain and share with us what is the progress so far?

And to the extent you can, please give us some update information.

I'll take your question. This is Owen.

We understand, and we share your excitement about the potential of the games and development from Embark. We're not ready to release the details or the launch dates yet for those games, but what I can tell you is that what we've seen to date is very exciting, and we believe that the games from Embark are going to have a profound impact on how games are created and how they're played in the future.

I've been playing the builds internally and -- myself, and as a gamer, I'm really excited. So I can't tell you that.

We're going to be talking about it more as the year as -- in the coming months. And this will be dictated by marketing, of course.

But we hope to provide you more details in the coming quarters. We're very excited about this.

My second question has to do with MapleStory. I do recall that you were able to explain about making a collaboration with Korea in BTS, and you were able to have a very good result.

Now of course, collaborating with BTS, that, in a very large sense, is a collaboration within the same entertainment industry, but then, we could also say this is a new -- like new type of collaboration between virtual and real world. And so I'm fully interested in what this could bring about in the end.

Do you expect that you'll be able to capture new users through these types of collaboration? And are we -- do you think we'd be seeing, hearing from you this type of new collaboration or new fusion as we look down the road in the mid- to long range?

I'll take this question as well. I think it's a very insightful question, and the short answer to your question is yes, we do see more opportunities like this.

As I said, we -- in some ways with BTS, we were lucky a couple of the members are big fans of MapleStory. And so it was a lot of fun for us to work together with them.

And they've got a lot of fans within Nexon, and it's very -- it's fun for us to know that they're fans of Nexon's games as well. So we were -- it was not only impactful, but it was also a lot of fun for us.

But I think that this is the type of thing that we put a lot of -- we're putting a lot of thought to. Because we are focusing on a fewer number of very immersive games that are big intellectual property, because we get to focus on that smaller number of bigger things, it means that we can put time and attention to questions exactly like what you're asking.

And we see it not only as an opportunity to broaden the audience but also to deepen the game play experience for our players.

Great. I have a two part question that relates to the same topic, and I'll ask them one by one.

The first part, just when I look at the MAU number that you guys have reported, so relative to kind of last year at 27.4 million and this fourth quarter, 17.3 million. We've seen about a 10 million decline in MAU.

So can management just give us a sense of how we think about this breakdown, whether it's all coming from one singular game? Or is it spread across different games?

And how do we think about the decline of this number relative to the ARPU? And then I'll lead -- I'll follow with the second question thereafter.

Thank you. Your question about the MAU information, that is the cumulation or summary of all the PC games, but I can say that it's mostly due to the China Dungeon&Fighter.

As we mentioned, one of the reasons is that in the past several quarters, we have seen the downtrend with this China Dungeon&Fighter. And Q4 last year, there was a very stringent bot sanctions, and this was another factor leading to the lower bots, but the lower MAU.

So we think that this is the major reason behind this declining MAU trend.

Understood. And I think one of the kind of common questions that investors would might have off of a point where we have declining MAU and high ARPU is, I guess, the concern of over-monetization.

Or is this kind of the backdrop to having monetized too much, and then we're seeing some of the fallback on that? I think, to be honest, I think Nexon has gone through a few of these iterations with different games over time.

So can you really just give us a sense of where you feel some of your games are, whether it's MapleStory in Korea or Dungeon&Fighter in China? Kind of these things tend to have their cycles, if you will.

And where you think we are in terms of whether we've pulled the monetization lever a little bit too hard in the past, and we're just seeing kind of a recalibration here? Or it really is just some of the light users that really went away, and the underlying strength of the cohort isn't really impacted.

And just kind of where you see this kind of going in coming quarters from an ebb and flow kind of situation, that would be great.

Han Joon, this is Owen. Thanks for your question.

I'd say a couple of points. Number one is a big point that we have been focusing -- well, we've talked about focus a lot, and one of the things that we really focus on is being very careful about the exact topic.

So if the premise of your question is that we may be over-monetizing in games and that's what we're seeing here, we would definitely disagree with that premise of your question. But I'd add one other point that like revenue, player growth does tend to occur in a nonlinear pattern over an extended period of time.

And monetization is a really important topic. It's a really important metric because it can reflect player engagement, meaning how much people are engaged in the game and how much time they're spending and enjoying the game.

So it's safe to assume that when a player is investing more in a game, it's because they're enjoying the game and planning to continue. So it's a little more nuanced than just one or the other.

But I just want to sort of -- the premise of your question is not one that we would agree with at all, if I understood you correctly.

Great. I mean, there's a little bit more to the context there, but I think that's great for now, and I'll go back in the queue.

Given that we're going into 2021, I think coming off of, Owen, in your comments that you still have or Nexon still has a lot of franchises where with the right content updates can still see a lot of growth. I guess, for the benefit of investors, can we get a bit of color as to how you plan to drive growth in 2021?

I'm assuming there's going to be games that you feel that you can continue to grow from current levels. And then we have games like Dungeon&Fighter in China, which is still kind of in a declining trend.

And then with that, whether we can get some layers of new titles, whether it's the new KartRider game or Mabinogi or Embark. I know it's difficult to give very specifics given there's always a lot of moving parts, but maybe if you can give some scenarios as to how we should think about -- as you look back at the end of 2021, which platforms or titles that you feel can grow and drive growth for another strong year over the next 12 months.

Seyon, I thank you for your question. In some ways, your question -- embedded in your question is, in fact, the answer to the question.

But let me take a stab at filling up the picture a little bit to get to the crux of it. I think you've hit on a point which we were trying to make actually in our prepared remarks, and in some ways, we've said before, but we're trying to be as crisp as we can about it.

And that's really the analytical challenge of looking ahead of virtual -- analyzing a virtual worlds company. And the way to think about it is, first of all, our base of revenues that come from existing virtual worlds.

And we call them virtual theme parks for a reason because we operate them like theme parks. They happen to be in software, and we deliver them from the cloud, but they work in a lot of ways, and they should be analyzed, in our view, like a physical theme park.

And that's an important understanding. So one way to illustrate this, as we've said before is our business off of just our existing virtual worlds could double within a not too large number of years and within a couple of years without any new products whatsoever.

So it's important to understand that. And if you can really understand that, you can understand a virtual worlds company like us or like other virtual world companies.

People are starting to look at the IPO of Roblox, for example. And -- but because we're a games company, people ask us about catalysts.

And catalysts are something that you think of very much in the traditional games business. So we look like a games company, but what we really are is a virtual worlds company.

Now if you want to talk about new games, we are very excited about our pipeline. As we've said, we've got three very big beats coming up that we're very excited about: one is Mobile Dungeon&Fighter; one is KartRider: Drift; and one is the first game from Embark.

And all 3 of those we're going to be talking about in the coming months. And each of those 3 for their own reason, we're very excited about.

And as we layer these new virtual worlds and as we expand beyond the PC to mobile and beyond, we really foresee a step change in earnings power. And so that's why we are so excited about the future in 2021 and beyond.

I have just one. It seems that Electronic Arts is taking a new approach with its FIFA business, including partnering with another company in Japan.

So I was wondering, are there any implications from EA's new approach for your FIFA partnership in Korea and elsewhere?

Jay, this is Owen. No, there's no change at all in our relationship with EA for anything having to do with FIFA or anything else.

It's David Gibson, Astris Advisory. On -- taking on your earlier answer, given your focus on fewer, bigger games, we're seeing big games like Fortnite, Roblox doing concerts, doing other events, having user-driven content actually within it.

Is that something that you're thinking about for your big, fewer games longer-term that you're going to have user-driven content events and turn them into much bigger game or much bigger entertainment platforms? Or will you focus more on game only?

Thanks for your question. I think it's a really, really important question, and there's actually two very separate and distinct parts of the question.

One is in-game events or promotion that goes across events that happen within a game from, for example, in the Fortnite case from a music star. And then the second and very different one is user-generated content.

Both, I think, are very important. I've said before pretty publicly that I think a lot of the things that people talk about around games are not important for generating growth in revenue and sustainability.

I think these are 2 that do really matter a lot. Taking events for one minute, I would say the key on that is -- and I say this as a gamer, you've really got to make sure that it's relevant to the game itself in some way, if you want it to be sustainable.

For everybody who sees these types of things happen, they're very enticing. They get written about a lot.

But for the gamers who are actually in the game, it has to be relevant to what they're doing as part of the game. That's what a gamer will tell you, who spends a lot of time in that game or that virtual world.

So that is the creative challenge that needs to be addressed before this becomes a big and important thing. I would say this is something that we spend a lot of time thinking about.

We also spend a lot of time thinking about user-generated content.

On specifically the user-generated content, are you developing games with that in mind in the future that users can get involved with the creative process?

We don't have any announcements around that topic, so I'm going to let our marketing team lead the way on how we talk about that externally for now.

Okay. No problem.

And final one, just very simple. I'm not sure [indiscernible] press reports where the Final Fantasy XI Mobile had been scrapped by [indiscernible].

Is that correct? Can you give me a comment about why that was the case after several years of development?

David, sorry. We couldn't hear you properly.

Could you repeat your question again?

Sorry. Yes, sure.

Final Fantasy XI Mobile, according to press reports, it's been canceled. Could you comment around that?

Why is the case, given that it's been almost two years or more of development time?

Sure. This is Owen again.

Nexon and Square Enix have made the mutual decision that our work on Final Fantasy just wasn't showing the level of accretive differentiation, really, that we think our players expect from the Final Fantasy franchise. So rather than releasing a game that didn't break new creative ground, we've agreed to hold the project and redeploy our creative teams onto other projects.

We think this really reflects -- is all part of the larger piece of us, taking a very hard look at every project we do and focusing on the things that we really believe in, which includes, in large part, Nexon's own intellectual property, which we think is very powerful. As you iterate and you go through the creative process, sometimes you're able to really get the core of the fun, and sometimes you're not able to get there.

And I'd classify our relationship with Square Enix as enormously respectful. We are -- I, personally, am very fond of their CEO.

I've known him for a long time. I have huge respect for their creative teams.

We worked very closely together. But we made the decision to protect the value of their IP and to focus our resources on what we think were higher and better uses.

Thank you. If there are no further questions, I would like to take this opportunity to thank you for your participation in this call.

Please feel free to contact the Nexon IR team at [email protected] should you have any further questions. We appreciate your interest in Nexon and look forward to meeting you, whether it is here in Tokyo or in your corner of the world.