It’s a good time to check in on Nexon – its stock is flirting with highs not seen since 2021 and its new CEO just wrapped up his first quarter at the helm.
The Seoul-founded, Tokyo-headquartered developer and publisher completed a leadership transition in March 2024, with longtime CEO Owen Mahoney stepping into an advisory role after more than a decade in charge. He passed the torch to Junghun Lee, the former CEO of Nexon Korea Corporation, the company’s largest subsidiary. Earlier this year, Naavik co-founder Aaron Bush sat down with Mahoney on the Naavik Gaming Podcast to discuss this transition specifically among many other topics.
Lee takes over at a pivotal time. Like other publishers of its size, Nexon is eagerly searching for new breakout franchises upon which to grow its business, while seeking to sustain its cash cow IPs – Dungeon & Fighter, MapleStory, and the Japanese and Korean versions of EA Sports FC – through a variety of growth opportunities.
As one might expect in today’s climate, the search for new hits has proven to be challenging. Fortunately for Lee and Nexon, however, the company just posted a strong Q2 earnings report that both extends the company’s runway with its existing franchises and displays promise in its quest to establish a fourth franchise cornerstone.
On August 8th Nexon reported its best ever second quarter earnings, posting ¥122.5B in revenue (up 30% year-over-year as reported and up 19% on a constant-currency basis), ¥45.2B in operating income (up 64% year-over-year), and ¥39.9B in net income (up 63% year-over-year).
These results were largely driven by the launch of Dungeon & Fighter Mobile in China, which enjoyed more than 11 weeks at the top of China’s iOS top grossing chart. The 2D beat ‘em up is actually the second mobile entry in the series, replacing a failed 3D mobile take, Dungeon & Fighter: Spirit.
The Dungeon & Fighter franchise is already immensely popular in China, Korea and Japan, where previous PC-based entries have been widely played since first introduced in 2005. According to Nexon, the franchise has grossed north of $22B worldwide life-to-date. This latest entry, published in partnership with Tencent, had previously been delayed in China by Beijing’s freeze on new game approvals. That pent-up demand drove solid Q2 results, with Dungeon & Fighter Mobile earning over $100M in just ten days.
Other strong performers in Q2 for Nexon included EA Sports FC Online and FC Mobile, which both exceeded expectations despite tough year-over-year comparables, as well as MapleStory’s PC version, which saw double-digit year-over-year growth in Japan, North America and the rest of the world. In aggregate, Nexon’s three cornerstone franchises grew 57% year-over-year.
This is all well and good for Nexon, but these IPs are extremely long in the tooth and have been for some time. To the company’s credit, its continued investments in growth and its expertise in live operations have extended the financial viability of these franchises well beyond what external observers would have reasonably expected.
It's no coincidence that Nexon’s new CEO spent years at the helm of the company’s live operations. To quote outgoing CEO Owen Mahoney from the aforementioned Naavik interview, Junghun Lee “came through live game operations. And he's forgotten more in the last week about live ops than I have probably ever learned in live ops. He's done everything in live ops…he knows it very intuitively and very well.”
Nevertheless, the company cannot rely on its aging franchises forever and needs to find new hits to keep its forward momentum going. To that end, Nexon has invested in a variety of projects in an effort to add a new cornerstone franchise to its stable of intellectual properties.
Betting on New Franchises
Nexon previously thought that it had found its answer in The Finals, a free-to-play team shooter from DICE veterans Embark Studios. In its Earnings Letter for Q4 and FY 2023, Nexon's management wrote that it “believe[s] The Finals represents Nexon’s fourth major franchise pillar.”
The company had reason to be optimistic at the time, given that the game launched to over 200K peak CCU during a busy holiday season. However, the game has since failed to live up to expectations, and has been facing a steady decline, plagued by ineffectual live operations and middling user scores.
Beyond acknowledging the game’s recent shortcomings and announcing that Embark would be collaborating with Nexon's Korea-based live ops team to address the issues, the company has been light on specifics as it relates to turning the game around. In the interim, Nexon announced that it had reached an agreement with Tencent to publish The Finals in China, alongside Embark’s forthcoming third-person extraction shooter ARC Raiders. So, we’ll have to wait and see how the game fares with mainland China players.
Either way, it’s probably too early to call The Finals a failure. Embark Studios has placed a huge emphasis on technological innovation (as we covered here back in March), heavily leveraging AI, cloud computing, and photogrammetry to reduce costs and speed up production. This has not only enabled the team to release an innovative product (maps in The Finals are entirely destructible), but it has also allowed for rapid-fire patching and game updates, and potentially reduced overall development costs for a game in an expensive and competitive genre. Regardless, the early optimism around The Finals would have at least led to inflated growth projections, which the franchise doesn’t appear to be hitting, and we will have to wait and see if the game can rebound with time.
Another recent bright spot for Nexon's slow fade into obscurity has been “indie” darling Dave the Diver (previously covered by Naavik here). Launched in June of 2023 by subsidiary Mintrocket, the quaint RPG/management sim hybrid would go on to sell more than 3M copies in just six months. This was always going to be a short-lived success, however, as the game was never expected to be a premium experience (it only has about 25 hours of playtime at a $20 price tag).
To the company’s credit, Nexon has been able to extend the game’s long tail with partnerships. First came a crossover with spooky fishing/horror mashup Dredge, followed by a free Godzilla-themed DLC, and most recently - a collaboration with anime gacha game Goddess of Victory: Nikke. Fans may be eager for a sequel, but nothing has been announced yet, and Mintrocket appears to have already moved on to its next title - Nakwon: Lost Paradise, a third-person zombie apocalypse survival game.
Nexon’s latest release, however, may be its most promising. Third-person looter shooter, The First Descendant which launched on July 2nd, was specifically cited by management in its latest earnings report as a key contributor to the successful quarter. Despite some middling reviews (“Not A Great Game, I'm Loving It,” “Grind Me Down,” “The Bones of Warframe, the Skin of Destiny, and the Ghost of Korean Live-service games”), the game appears to be scratching an itch for many players.
The company has not yet reported revenue figures (it expects to defer about 50% of bookings to Q3), but engagement appears to be solid. The game averaged more than 127K players for the month of July and stood at #16 on Steam’s Top Games ranking at time of writing. Hopefully, Nexon has learned from the pop-and-drop shortcomings of The Finals.
Nexon has also placed an interesting bet on Theorycraft Games’ forthcoming Supervive (FKA Project Loki), having secured publishing rights in Japan and Korea. The MOBA-meets-battle-royale, set to launch in Q4 of this year, is helmed by a host of ex-Riot Games veterans, including CEO and former League of Legends EVP Joe Tung. Should this game capture anything close to the mindshare that League of Legends has in those two markets, the investment could prove to be extremely lucrative for Nexon.
Nexon appears to have quite a few other titles in its pipeline. One of them is the aforementioned ARC Raiders, a free-to-play PvPvE extraction shooter, also from Embark Studios. First announced at The Game Awards in 2021, ARC Raiders was initially slated to be Embark Studios’ debut title, but was replaced by The Finals. No release date is confirmed yet, though we do know that Embark has conducted a closed alpha test in June of this year. A launch in 2025 seems likely, but we’ll have to wait for further news.
Also due in 2025 is The First Berserker: Khazan, an action role-playing game set in the Dungeon & Fighter universe. Developed by Nexon subsidiary Neople, we should expect to hear more about this title at Gamescom.
Investing in the Future
Beyond these traditional AAA experiences, Nexon has been actively investing in some more speculative areas, the most prominent of which is to bring its MapleStory franchise to the blockchain.
In December 2023 multiple reports popped up, stating that the company had set aside $100M for MapleStory Universe, a “Virtual Worlds ecosystem” based on the MapleStory IP that makes use of “NFTs to create various tangible and intangible enhancements to the game experience.” Most of these reports seem to trace back to this Medium post from CryptoNavigator, and while there has been no official press release from Nexon, it does appear to have been corroborated by the game’s X page (and potentially also by this Korean news article).
Regardless of the validity of these reports, MapleStory Universe has been under active development and recently conducted a ten-day “Pioneer Test” of MapleStory N, the first game created for the ecosystem. Nexon has also been working with blockchain provider Avalanche to bring this game to market, which is particularly noteworthy given Nexon’s prior investment in competing blockchain Oasys. Avalanche certainly has greater mindshare in the blockchain gaming ecosystem, but one would think that bringing MapleStory to Oasys would be in Nexon’s best interests.
Nexon has also committed itself to web3 beyond MapleStory by purchasing $100M of Bitcoin back in 2021. Additionally, it participated in the a16z-led $40M round raised by CCP Games for its blockchain-enabled take on the EVE universe.
Nexon is also deeply interested in AI. The company has operated an in-house AI research division called Intelligence Labs since 2017 which has experimented with a variety of applications in live operations, text-to-speech generation, AI NPCs, cheat detection, character creation and more.
A final Nexon investment of note is the purchase of a $400M minority share in AGBO, the production company founded Anthony and Joe Russo, the directors of four films in the Marvel Cinematic Universe. Announced in early 2022, the investment brought Nexon two board seats and a 38% stake in the company, making it the largest minority shareholder on the cap table. Naavik readers may know AGBO as the company that hired Fortnite mastermind Donald Mustard who previously worked for Epic Games.
While coverage of the deal has been light on specifics, the potential synergies are obvious. According to Deadline, Joe Russo described the setup as a “swinging door that can go either way,” meaning AGBO could develop films or series from Nexon’s trove of game titles, and Nexon can build game and virtual world extensions of AGBO titles. Perhaps the likeliest outcome here is another major publisher taking a swing at transmedia.
Taken all together, Nexon appears to have a series of short-term, medium-term, and long-term bets in place, aimed at both strengthening its existing IPs and establishing new franchises. The true test of this strategy will come down to the company’s ability to bridge the gap between its existing franchise pillars and its next generation IPs.
Developing AAA live service titles is not cheap, and as we have already seen with The Finals sustaining early success is hard. This delicate balancing act between nurturing established successes and cultivating future hits will likely define Nexon's trajectory in the coming years and will determin whether it can maintain its position as one of the world's largest and most successful stewards of gaming IP.
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In Other News
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📊 Business & Products:
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👾 Miscellaneous:
- RallyHere Partners with ProbablyMonsters to Support Launch of Multiple Games
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- Hades is the first video game ever to win a Hugo Award
- Most mobile devs still building new games despite job security risks | Sandsoft
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Content Worth Consuming
The State of Gaming App Marketing – 2024 Edition (AppsFlyer): “2023 appeared to be a year of modest, stable growth. However, this calm exterior is misleading. Beneath the surface, significant shifts were taking place. The main trends include the strengthening of hybrid monetization, the positive results for Casual games compared with Mid-Core and Hypercasual (HC) categories, and the contrasting revenue outcomes between in-app advertising (IAA) and in-app purchases (IAP).”
Singular Quarterly Trends Report – Q2 2024 (Singular): “What changed in the app advertising ecosystem in the last three months? We analyzed trillions of ad impressions, billions of clicks, and app installs to share the latest trends and help you optimize your growth strategy accordingly.”
Mastering F2P Cosmetics Monetization in Games (GameMakers’ YouTube Channel): “Anton Bernstein, CEO of Pocket Worlds, discusses the intricacies of cosmetics monetization in free-to-play games. Learn about player motivations, game design considerations, primary vs. secondary markets, and cultural differences in monetization strategies. Gain valuable insights on key metrics and best practices for successful cosmetic-based revenue in games like Fortnite, CS:GO, and High Rise.”
How a Traditional Toymaker is Going Big on Digital Games (Odd Lots on Spotify): “Hasbro has been making toys for decades, including many classic favorites like G.I. Joe and My Little Pony. But in recent years, it's also been going big on digital games. An app version of the classic board game Monopoly — called Monopoly GO! — has become one of the top mobile games of all time and grossed billions in revenue since it launched last year. Hasbro also owns Wizards of the Coast, the publisher of Magic: The Gathering, Dungeons & Dragons, and the best-selling video game Baldur's Gate 3. So why is gaming such a big growth market for a traditional toymaker? Where is the market heading? And how does a big company judge the success of "freemium" apps like Monopoly GO!?”
Rod Fergusson Shakes The Jello (The Fourth Curtain): “This week's guest is a well-known "closer" who has steered the ship for some of the biggest games ever. Beginning with Train Simulator, he went on to serve as Producer for Counter-Strike Xbox, Gears of War, Infinity Blade, BioShock Infinite. Now helming Diablo at Blizzard, he talks triage, teamwork and not shaking the jello – this week!”
Supporting Game Design with Evolutionary Algorithms (gamedeveloper.com): “Evolutionary algorithms can optimize game parameters by simulating various scenarios, enhancing design, especially for complex games. Imagine a multiplayer online game, such as a MOBA, where players choose from a roster of characters or a real-time strategy game with various unit types players can recruit from.”
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