NHN Reports Q2 Operating Profit of 5.2 Billion KRW, Down 75% YoY

Sales of 511.3 billion KRW, up 12.8% YoY
Game sales driven by strong performance of web board games
Operating profit margin 1%... "Focusing on profitability improvement in the second half"

[Asia Economy Reporter Seungjin Lee] Despite an increase in sales in the second quarter of 2022 driven by the strong performance of webboard games, NHN’s operating profit sharply declined. With the operating profit margin falling to 1% and the net loss widening, NHN plans to focus on improving profitability in the second half of the year through group structure optimization and other measures.

Game Division Sales Up 20%... Easing of Webboard Game Regulations

On the 9th, NHN announced that its second-quarter sales rose 12.8% year-on-year to 511.3 billion KRW. Operating profit fell 73.9% year-on-year to 5.2 billion KRW. The net loss for the period widened to 5.3 billion KRW compared to the previous quarter.

Looking at sales by division in the second quarter, the game division recorded 104.1 billion KRW, up 19.9% year-on-year. NHN explained that despite the seasonal off-peak period, the strong performance of webboard games was due to Hangame’s differentiated content and rebranding marketing, as well as the effect of new mobile content.

In particular, webboard game sales increased by 40% year-on-year and 22% month-on-month in July, when the revised game enforcement ordinance was applied. It is expected that game sales will increase further in the third quarter, when the easing effect of webboard game regulations is fully reflected.

The payment and advertising division recorded 216.5 billion KRW, up 10.3% year-on-year, driven by steady growth in Payco transaction volume and NHN Korea Cyber Payment’s domestic and overseas PG payment scale. Thanks to the lifting of social distancing measures, Payco’s transaction volume in the second quarter increased 36% year-on-year to 2.3 trillion KRW. Offline payment amounts in the second quarter rose 75% year-on-year due to securing large offline merchants and growth in campus zones and B2B corporate welfare solutions.

The commerce division recorded 81.7 billion KRW, up 2.6% year-on-year, despite worsening external conditions such as lockdowns in major Chinese cities and weakened U.S. consumer sentiment. This was due to the stable growth of NHN Commerce’s ‘Shopby Pro’ and the visible potential of NHN Global’s ‘Dropshipping’ service. The technology division recorded sales of 69 billion KRW, up 33.8% year-on-year, supported by NHN Cloud’s growth in the public sector and sales growth in AWS reselling business by Japan’s NHN Tecorus.

The content division recorded 50 billion KRW, up 8.8% year-on-year, thanks to the global webtoon platform ‘Pocket Comics’ entering the French market and increased sales of NHN Link’s sports tickets and performance exhibitions following the lifting of social distancing.

Operating Profit Margin at 1%, Urgent Need for Profitability Improvement

Despite solid sales performance across divisions, operating profit in the second quarter sharply declined. The operating profit margin fell to 1%, down 3.4 percentage points year-on-year and 2 percentage points quarter-on-quarter.

This is attributed to increased operating expenses. Operating expenses in the second quarter rose 16.8% year-on-year to 506.1 billion KRW. Commission fees, which accounted for the largest portion of operating expenses, increased 14.4% year-on-year to 327.4 billion KRW. However, costs related to the China commerce business have been declining since the fourth quarter of last year due to reduced cost of sales.

Advertising expenses also increased significantly. Advertising expenses in the second quarter were 37.3 billion KRW, up 78.1% from last year, due to increased game marketing from Hangame’s rebranding and new releases, as well as expanded webtoon marketing in the French region. Despite one-time welfare-related costs and bonus payment reversals last quarter, personnel expenses exceeded 100 billion KRW, up 8.4% year-on-year.

In response to the decline in operating profit margin, NHN plans to focus on improving profitability through group structure optimization. In July, NHN decided to absorb and merge its game subsidiary NHN Bigfoot, concentrating game business capabilities at the headquarters.

Payco aims to improve the profitability of its corporation by increasing transaction volume through rising offline payment amounts and gradual recovery of daily life, while leveraging corporate welfare solutions including mobile meal tickets, Payco Order, and its coupon business expertise. In June, Payco fully reorganized its corporate structure focusing on differentiated services such as coupons and corporate welfare solutions.

NHN CEO Woojin Jung stated, “Although costs were incurred as a preemptive investment to accelerate business after the lifting of social distancing, results are becoming visible with increased webboard sales and more Pocket Comics users. Amid rationalization of regulations surrounding webboard games, we will lead balanced growth across core businesses including payment advertising, commerce, technology, and content based on solid game performance. From the second half, we will focus on improving profitability and optimize group structure through a strategy of selection and concentration.”

Meanwhile, on the 8th, NHN’s board of directors decided on the company’s first-ever treasury stock cancellation since its founding, planning to specially cancel treasury shares equivalent to 10% of the total issued shares by 2024.

This content was produced with the assistance of AI translation services.