Operator: [Foreign language]
[Translator]: Good morning and good evening. Thank you all for joining the conference call for the SOOP earnings results. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star and 1 on your phone during the Q&A. Now we will begin the presentation on SOOP's Q3 of fiscal year 2026 earnings results.
Kim Hye-yoon: [Foreign language]
[Translator]: Hello, this is Kim Hye-yoon, Head of IR at Soop. Today's earnings call will begin with a review of our third quarter business results, followed by a Q&A session. CEO and Co-CEO Lee Min-won and CFO Lee Byung-ho will be answering your questions during the Q&A. Please note that the results presented today are preliminary consolidated results prepared in accordance with K-IFRS, and they are subject to change depending on the outcome of the external auditor's review. 3
Kim Hye-yoon: [Foreign language]
Kim Hye-yoon: [Foreign language]
[Translator]: Let me walk you through our third quarter results. This quarter's revenue increased quarter-on-quarter on the back of a significant rise in advertising revenue. Operating profit and net income also increased from the previous quarter, showing a recovery in profitability. However, platform revenue declined due to factors such as reduced activity in major crew broadcasts and streamer attrition. With growth in the advertising segment partially offsetting the decline in platform revenue, total revenue increased slightly.
Kim Hye-yoon: [Foreign language]
[Translator]: Q3 total operating revenue was KRW 105.7 billion, an increase of approximately 1.8% from the previous quarter. Although platform revenue declined, overall revenue growth was driven by expanded advertising spend related to major game leagues and major large-scale events such as FC Online and VALORANT VCT Busan Roadshow, along with increased platform advertising spend by major game publishers.
Kim Hye-yoon: [Foreign language]
[Translator]: Next, let me turn to revenue by major business segment. First, platform revenue came in at KRW 66.1 billion, down 10.8% QOQ, showing an impact from reduced activity and departures among key streamers. Other revenue was KRW 2.7 billion, up slightly from the previous quarter.
Kim Hye-yoon: [Foreign language]
Kim Hye-yoon: [Foreign language]
[Translator]: Advertising revenue was KRW 36.8 billion, up 35.4% from the previous quarter. Branded content ad revenue increased with expanded ad spends related to major game leagues and large-scale events. The inflow of large corporate advertisers from non-gaming sectors also made a meaningful contribution to growth. In platform advertising, continued spends by major game publishers on new title lineups and large-scale projects also supported revenue growth.
[Translator]: Going forward, we will secure stable demand for branded content advertising based on proven major game leagues and large-scale events, while broadening our base of platform and corporate advertising in multiple ways to sustain our growth momentum.
Kim Hye-yoon: [Foreign language]
[Translator]: Next, let me go over our operating expenses. Operating expenses for Q3 were KRW 91.2 billion, remaining at a level similar to the previous quarter. Depreciation and amortization increased due to new capital expenditure for IDC expansion and data center right-of-use asset amortization.
[Translator]: Content production expenses also rose with the execution of large-scale ad campaigns. However, decreases in some line items, such as labor and network cloud costs, kept total operating expenses at a level similar to the previous quarter. We will continue investing in infrastructure to ensure stable platform operations and improve competitiveness while improving profitability through technological efficiency and cost management.
Kim Hye-yoon: [Foreign language]
[Translator]: Operating profit was KRW 14.5 billion, up 15% QOQ, and the operating margin improved by 1.6 percentage points on-quarter to 13.7%. Despite higher depreciation related to IDC infra investment and other business-related expenses, operating profit improved as ad revenue increased significantly and overall costs remained stable.
Kim Hye-yoon: [Foreign language]
[Translator]: Net income was KRW 10.6 billion, up 21% from the previous quarter. Despite changes in non-operating income expenses, such as financial income reduction and foreign currency translation losses, net income increased as corporate tax expenses decreased from the previous quarter.
Kim Hye-yoon: [Foreign language]
[Translator]: Please refer to the distributed materials for the summary financial statements and our key metrics for Q3. This concludes our report on the Q3 business results. Before the Q&A, CEO Lee Min-won will briefly share our future business direction and key initiatives.
Lee Min-won: [Foreign language]
[Translator]: Hello, I'm Lee Min-won, CEO of SOOP. Before we move on to the Q&A, I'd like to share the key challenges we identified through the Q3 results and our future business direction, as well as our shareholder return plan. The competitive landscape of the platform market is changing rapidly. With greater diversification in platforms for streamers, competition to secure content is intensifying, which is affecting our donation economy, our core business and revenue base. Although our ad business showed growth, a full-fledged recovery in the platform revenue is taking longer than expected. Rather than resting on the temporary easing of costs, we will focus on restoring the competitiveness of our streamer ecosystem and translating it into user activity and revenue growth.
Lee Min-won: [Foreign language]
[Translator]: Next, I will share the status of our business initiatives and our shareholder return policy. First, responding to market changes and revitalizing our streamer ecosystem. In October, we introduced Partners Mentoring Program to prevent streamer attrition and to help new and returning streamer onboarding. Currently, about 20 major content partners are participating, and about 25% of eligible partner streamers have joined the program. Going forward, we will broaden participation and reduce our dependence on specific content, laying the foundation for a more diversified streamer ecosystem and a recovery in donation-based revenue. In addition, we will unveil our platform UI/UX overhaul at the year-end SOOP Streamer Awards and boost user engagement through phased rollouts in H1 of the next year.
Lee Min-won: [Foreign language]
[Translator]: Second, recovering our advertising business and integrated growth. SOOP is solidifying collaborative relationships with key partners from home and abroad in the field of branded content ads. We have completed the trademark application for SOOPIER, an integrated brand that brings together the marketing capabilities of SOOP and its sister companies, and is establishing a sales and operation network and framework. We will complete the organizational setup within the year and officially launch the brand in Q1 of the next year, accelerating the acquisition of new advertisers and expansion of ad business.
Lee Min-won: [Foreign language]
[Translator]: Lastly, I will show the return policy and value plan. Starting with this earnings release, we have begun disclosing total MRV to show the fundamental changes in our platform. In September, we completed the cancellation of 306,375 treasury shares worth approximately KRW 18.9 billion as planned. As for dividends, we will maintain our return policy of paying out at least 25% of consolidated net income as cash dividends. As announced in the ad hoc disclosure today, for 2026 year-end dividends, we plan to implement a plan that meets the requirements for the high dividend company. We will announce our corporate value plan, which will include our mid to long-term capital allocation plan regarding remaining treasury shares and dividends around our annual shareholders meeting in March 2027.
Lee Min-won: [Foreign language]
[Translator]: Dear shareholders and investors, the platform market will continue to evolve. Simply responding to each change in the external environment cannot guarantee sustained growth. What matters is building the fundamental strength of the platform that can stay competitive in any environment. Starting Q4, we will double down on executing our key initiatives. In 2027, we will show you the results of these changes through a recovery in platform competitiveness and improved business performance. We will continue to communicate our progress and results transparently, and we will reward you for your trust by restoring our core business competencies and delivering sustained growth. Thank you very much, and we will now take your questions.
Operator: [Foreign language]
[Translator]: Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone.
Operator: [Foreign language]
Operator: The first question will be provided by Junhyun Kim from HSBC. Please go ahead with your question.
Junhyun Kim: [Foreign language]
[Translator]: Thank you for the opportunity. I have two questions. First, in this quarter, the number of users are increasing YOY, as we have seen in July and September. Can you first share a little bit about why the number of users increased? Second part of the first question is, when you looked at the entire revenue composition, the share of content that has high ARPU is on the decline. As the competition with Chzzk is intensifying, do you have any ways to monetize on this increasing number of users? You have talked about a recovery plan for the platform's competitiveness. Can you share more details about this strategy? Second question is about the advertisement. The rebound QOQ is quite encouraging, but YOY, the decline is continuing. I think one of the two strengths is production of e-sports leagues, but I believe the growth driver on this front is diminishing.
[Translator]: Do you have any strategy to bolster any other engine for growth?
Lee Min-won: [Foreign language]
[Translator]: In the Q3, MAU numbers increased, particularly thanks to the popularity in different e-sports games, e-sports and games. There is increasing inflow of international users, which showed YOY increase. As you can see, the pattern of watching and payment is different from one category of content from another, and game is not closely associated with the monetization or the payment activity on the platform. The most active donation economy is visible in Visible Radio, and because of the attrition, the Visible Radio is being impacted slightly. However, as we start to launch mentoring programs with numerous agreements with MCN and partner streamers, starting from early November, we will be able to see inflow of new streamers who will bring along with them users and communities from outside, and we will be able to have more active engagement.
Lee Min-won: [Foreign language]
[Translator]: For advertising business, on the basis of consolidated partnership, solidified partnership with existing large game publishers and other big corporate advertisers, we are continuing to expand our business base for advertisement. As was mentioned in the presentation, we have made tough preparations to launch SOOPIER as a brand, because we judged that with the previous structure, it is difficult to expand advertising business. So, we have converged capabilities of SOOP and our sister companies into a brand, SOOPIER, to secure greater and difficult growth in advertising business. By the year-end, we will put together organization and operational framework and officially launch SOOPIER in the Q1 next year and make the brand operational.
[Translator]: By doing so, we will invite more new advertisers and expand our business and orders from advertiser base, and we will be able to see the strength of SOOP's content and streamers with the greater performance in the advertising business. 다음 질문 받겠습니다.
Operator: [Foreign language]
[Translator]: The following question will be presented by Jinwoo Kim from CGSI. Please go ahead with your question.
Jinwoo Kim: [Foreign language]
[Translator]: Two questions. First, when you look at this quarter's performance, the ratio of commission as the revenues and the number of users are all increasing with advertisement. Can you offer some guidance going forward? Second question is, in Q4, can you also give us some projection regarding branded ad content or content-related expense?
Lee Min-won: [Foreign language]
Lee Byung-ho: 첫 번째 질문에 대해서 커미션 비용에 대한 매출 대비 유저 수 증가라고 하셨는데, 이 부분에 대해서 좀 더 구체적으로 질문하실 의도를 좀 설명해 주실 수 있나요?
Jinwoo Kim: [Foreign language]
Lee Byung-ho: [Foreign language]
[Translator]: Yes, as you can see from the document, in Q3, we had a number of games produced, like VALORANT and Nexon FC Online, and it led to increase in branded content ads. Relative to the H1 of the year, where content or branded content advertisement was a little bit sluggish, we had increase in production of these, which in turn led to higher revenue.
Lee Byung-ho: [Foreign language]
[Translator]: The next question has to do with the projection regarding content production expenses in Q4. As you know, unlike other platforms, our strength lies in game and league production. When more branded contents are produced, which we expect to, the expenses linked to revenues will increase in tandem with the revenues. As we receive more orders related to AGF or other large name game branded contents, production expenses will increase accordingly. As we mentioned, if the trend in Q4 is similar to what we had in Q3, expenses will increase accordingly.
Operator: [Foreign language]
[Translator]: Currently, there are no participants with questions. Please press star 1, star and 1 to give your question.
Operator: [Foreign language]
[Translator]: Currently, there are no participants with questions. We will wait for a second until there is another question.
Operator: 다음으로 질문해 주실 분은 HSBC의 김준현 님입니다.
[Translator]: The following question will be presented by Junhyun Kim from HSBC. Please go ahead with your question.
Junhyun Kim: [Foreign language]
[Translator]: I have another question to the management. Going forward, out of platform business and advertising business, in the middle and long run, which do you think will take up larger share? When the advertising revenues increase with production expenses entailed, it might be quite difficult to reach the previous operating margin level of upper 20% and above 30% in 2027 or 2028. I was wondering if you can offer some guidance.
Lee Min-won: 사실 저희가 사업을 함에 있어서 플랫폼과 광고 모두 중요한 사업이라고 생각을 하고 있고요. 현재 저희 상황에서는 플랫폼의 본업의 경쟁력을 회복하는 데 좀 더 많은 주력을 하고 있을 거고, 다만 플랫폼 경쟁력 회복에는 아시다시피 조금 더 시간이 많이 걸리기 때문에 저희가 광고 쪽을 같이 사업을 확장하는 데 주력을 하면서 두 개를 병행하면서 가야 될 것 같습니다. 광고 같은 경우는 아무래도 조금 단기적으로 저희가 지금 플랫폼으로가 올라오기 전까지는 좀 가고 있겠지만, 어쨌든 이익률이나 이런 부분들에 대해서 저희가 과거 대비 떨어지지 않도록 플랫폼에 대한 본업의 경쟁력을 지속적으로 강화하면서 가도록 하겠습니다.
[Translator]: Of course, both platform and advertising business are important to us. Right now, as we have mentioned, we are doubling down on recovering the competitiveness of our core business, which is platform. As you know, this is not something that can happen overnight. It might take some time. In the interim, we are expanding advertising business to supplement the recovery process. Both will be pursued in parallel in two-track fashion. In the short run, advertising business can make up for the recovery period of platform business. In order to get the OP margin level to the previous level, we will focus on improving our core business platform business competitiveness.
Kim Hye-yoon: 다음 질문 받겠습니다.
Operator: 현재 질문을 요청하신 분은 없습니다. 질문을 하실 분은 전화기 버튼에 별표와 1번을 누르시기 바랍니다.
[Translator]: Currently, there are no participants with questions. Please press star 1, star and 1 to give your question.
Operator: 다시 한번 안내 말씀드립니다. 현재 질문을 요청하신 분은 없습니다. 질문을 요청하실 때까지 조금 더 기다리겠습니다.
[Translator]: Currently, there are no participants with questions. We will wait for a second until there is another question.
Kim Hye-yoon: 종료하겠습니다.
Operator: 이것으로 SOOP 실적 발표 컨퍼런스 콜을 마치겠습니다. 경청해 주신 여러분께 감사드립니다.
[Translator]: This concludes our conference call regarding SOOP's financial results. Thank you all for your participation.
