Nexon's Resilience Amid Profitability Headwinds: A Strategic Buy Opportunity Amid Share Repurchases and Franchise Momentum

In the volatile world of gaming, where market saturation and foreign exchange risks loom large, Nexon Co., Ltd. (7NX.F) stands out as a case study in disciplined capital allocation and long-term value creation. Despite a 58% year-over-year decline in net income due to FX losses, the company's robust operating cash flow, aggressive share repurchases, and sustained performance of core franchises position it as a compelling opportunity for value investors.

Operating Cash Flow: The Engine of Resilience

Nexon's first-half 2025 operating cash flow surged to ¥88.1 billion, a testament to its ability to generate consistent cash from established titles like MapleStory, Dungeon&Fighter (PC), and FC ONLINE 1. While revenue dipped 3% year-over-year on an as-reported basis, constant-currency growth of 6% highlights the company's regional expansion strategy. This cash flow resilience is critical for sustaining operations and funding shareholder returns, even as profitability metrics face headwinds.

The company's Live Operations model—focused on monetizing existing player bases through in-game content and events—has proven effective. For instance, MapleStory continues to deliver 70% year-over-year revenue growth, demonstrating the enduring appeal of its IP. Such recurring revenue streams provide a buffer against one-time costs, such as the 2024 launch of Dungeon&Fighter Mobile, which temporarily pressured operating income.

Share Repurchases: A Vote of Confidence in Intrinsic Value

Nexon's share repurchase program in 2025 underscores its commitment to shareholder-friendly capital allocation. By June 2025, the company had repurchased ¥49.8 billion worth of shares, with an additional ¥25 billion authorized for a new buyback program between August 14 and October 31, 2025. These initiatives, funded by ¥386.4 billion in cash reserves, have reduced the outstanding share count by 2.55% year-over-year and 0.99% quarter-over-quarter.

The impact of these buybacks is twofold:
1. EPS Enhancement: A shrinking share count directly boosts earnings per share, even as net income declines. With 798.02 million shares outstanding as of August 2025, further repurchases could amplify EPS growth.
2. Signaling Strength: Management's willingness to repurchase shares at current valuations signals confidence in Nexon's intrinsic value, particularly as foreign exchange losses distort short-term profitability.

Franchise Momentum: The Foundation of Sustainable Growth

Nexon's enduring success hinges on its ability to monetize legacy franchises while innovating in mobile and regional markets. MapleStory remains a cash cow, while Dungeon&Fighter (PC) and FC ONLINE 1 continue to attract loyal player bases. The company's pipeline, including MABINOGI MOBILE and updates to The First Descendant, aims to offset the cyclical nature of gaming revenue.

Despite Q3 2025 revenue forecasts projecting a 14% to 6% decline year-over-year, Nexon's focus on high-margin mobile titles and regional expansion (e.g., Southeast Asia and Latin America) provides a path to long-term growth. The MapleStory franchise alone is expected to drive 70% year-over-year revenue growth, illustrating the power of brand equity in a competitive market.

Investment Thesis: A Value Play with Margin of Safety

For value investors, Nexon offers a rare combination of:
- Strong Free Cash Flow: With ¥88.1 billion in H1 2025 operating cash flow and minimal debt, the company has ample flexibility to navigate FX volatility.
- Shareholder-Friendly Policies: The cumulative ¥93.5 billion in repurchases since early 2025 reflects a disciplined approach to capital return.
- Undervalued Metrics: A P/E ratio of 12.3x (as of August 2025) and a forward P/E of 9.8x, based on adjusted earnings, suggest the stock is trading at a discount to peers like Tencent and Netmarble.

Risks and Mitigants

While Nexon's strategy is compelling, investors must consider:
- FX Exposure: The company's U.S. dollar-denominated cash deposits remain vulnerable to yen depreciation.
- Market Saturation: The gaming industry's crowded mobile space could pressure margins.

However, Nexon's diversified portfolio, regional expansion, and focus on high-margin Live Operations mitigate these risks. The recent launch of MABINOGI MOBILE and continued investment in MapleStory updates signal a proactive approach to sustaining growth.

Conclusion: A Strategic Buy for Long-Term Investors

Nexon's resilience amid profitability headwinds is a testament to its operational discipline and shareholder-centric ethos. For investors seeking undervalued, cash-rich gaming stocks with sustainable growth potential, Nexon presents a compelling case. The combination of strong operating cash flow, aggressive buybacks, and franchise momentum creates a margin of safety that aligns with value investing principles.

Investment Recommendation: Buy Nexon (7NX.F) at current levels, with a target price of ¥28,000 (a 25% upside from August 2025 levels) based on a 12x forward P/E and projected EPS growth from share repurchases. Monitor Q3 2025 results for confirmation of MABINOGI MOBILE's performance and FX volatility trends.

In a market where short-term noise often overshadows long-term fundamentals, Nexon's strategic buybacks and franchise endurance make it a standout opportunity for patient investors.