CyberAgent, Inc. (4751) Earnings Call Transcript & Summary

It is time. So we would like to begin the briefing session for FY 2020 CyberAgent. The briefing session will be streamed live. So please look at the notes provided in the briefing presentation material today. Our President, Fujita, will take you through the performance.

So I'm Fujita, President of CyberAgent. So our fiscal year ended in September. So we would like to take you through the results of the full fiscal year ending in September. So looking at the full year results, it was a very special year or irregular year. Of course, the COVID-19 impacted our Ad Business, but we have been able to achieve our initial targets and forecast. So if I can go through each segment in more detail. Media, first. July to September, pay-per-view contributed significantly to the fourth quarter. So we were able to grow 22.6% year-on-year. So this was a significant growth. And of course, the Ad Business was impacted by COVID. And so this year, since we entered 2020, we have been impacted significantly by COVID. And we were expecting the Ad Business to grow even more. But we were able to -- despite COVID-19, we were able to grow the Ad Business, and we did introduce new game titles, which were -- became a hit. So we were able to improve our sales and operating profit year-on-year. This is the -- it's been 20 years since we went public. But this is how our sales has trended. So as you can see, we have been growing quite rapidly, and we're nearing JPY 500 billion already, but we're still growing year-on-year. And this is the operating profit. Over the last couple of years, we have been investing significantly. And OP has actually remained above JPY 30 billion because of our significant investment in Abema, but we have exceeded the upper end of the forecast. And moving on to SG&A. We did surpass our upper end of the forecast, so we did pay out special incentives. And the number of employees, we currently have 5,493 employees. And of course, many employees are now working from home. So the attrition rate has gone down. So we think that this is quite healthy still. And this is the P&L. And next, this is the balance sheet. As you can see, our cash deposits have exceeded JPY 100 billion. Moving on to FY 2021 forecast. So we aim to do JPY 500 billion in sales and JPY 30 billion to JPY 35 billion in operating profit. So this is our forecast for fiscal year 2021. Of course, we will continue to be impacted by COVID-19, we don't know how much that impact will be. And we are going to be releasing new titles for games as well, but we're not sure how much impact they will have. So this is the forecast that we have come up with at the moment. So this is a minimum and maximum business forecast. Of course, DOE is 5%, which is the management index that we have set from before. Of course, operating profit has remained above JPY 30 billion, so it's been stable. But even when we launched a new business and have invested heavily, we have still been able to meet the DOE of 5%. So we will continue to maintain this target. Now moving on to each individual businesses, starting with the Internet Ad Business. Of course, this was most impacted by COVID-19, but we were able to increase top line by 5% year-on-year. And so the OP for the Ad Business is JPY 21 billion. Of course, we have been making upfront investments, but we were able to achieve OP of JPY 21 billion. And we look at the yearly sales results, but this is by quarter and it's easier to see. If we look at the quarterly performance, the first quarter and second quarter, you can see that our performance is quite high. We thought that we were going to be growing significantly throughout the year. We were -- we did receive large orders. But with COVID-19, third and fourth quarter, we were able to -- despite COVID-19 still maintain the same level of business as the third and fourth quarter of the previous year. And this is the OP. Now that it's October, I think the world has -- [ atmosphere ] has started to change, we're starting to recover. So we don't know what will happen yet, but we hope that we'll continue on the recovery path. And this should also be improving as well. What is becoming our competitive advantage is we've actually invested in this area, technology, for the last couple of years, and we launched the KIWAMI Prediction AI, which is being picked up by many companies. So we use AI to forecast and switch up creatives to produce the most effective ad results. And so many of our clients have -- most of our clients have already adopted this and we have over 500 accounts so far. And another competitive advantage is the utilization of LED Wall, which enables us to change the background to shoot various different advertising creative. So we have been investing in this very innovative technology, which is keeping pace with the times. So we hope to continue to utilize this advantage. And moving on to game, the Game Business. The Game Business as well, of course, new titles have become a hit. So it has been -- people say that it's very difficult to have stable growth in this industry, but we have been able to do so, growing by 2.4% year-on-year. And we grew -- the OP for the Ad Business was JPY 30 billion. And also the Games was also JPY 30 billion. And with investments in the media, we have actually been investing in media, about JPY 20 billion. So the total comes out to be about -- total OP comes out to be about JPY 30 billion, but the OP grew by 16.5% year-on-year. And moving on to the quarterly shift. So we did have a few hit titles. Project SEKAI was also a hit. And these new hits have been able to supplement the revenues from the older titles that are becoming a little bit -- contributing a little bit less than they were contributing before. And this is the quarterly change or shift in the OP. This is the most recent release, Project SEKAI. So we're utilizing the Hatsune Miku IP, which is probably contributing significantly. And we have a lot of daily active users for this game. So it's racking up numbers and we think that we can expect even further growth for this title. And NieR is another game that we started preregistration and it's very globally popular. So I think once this game is released, it will start contributing as well. So we can expect a lot from this game. And with respect to the Game Business, we are also creating animations based on our own original IP. So UMA MUSUME Season 2 will be broadcast as well soon, as well as other packaged games. And a new UMA MUSUME game will also be released. So there's a lot of exciting news that we can look forward to. Moving on to the Media Business. July to September, the last quarter, pay-per-view contributed significantly. So we saw quite a significant growth. So the OP was minus JPY 18.5 billion. Abema, of course, we are planning to reduce the operating loss for Abema from around JPY 20 billion to -- was currently JPY 18.5 billion. But it won't be a drastic decrease, but gradually we will be decreasing the OP loss. And also, we focus on advertising as well, which contributed to the end performance for the Media Business and this is a shift over the quarters. We launched the pay-per-view service in June, but mainly we saw results in July through September and this has contributed significantly to the quarterly sales. And the downloads have been growing quite steadily. We will surpass 60 million soon. And on the other hand, weekly active users, once we hit 10 -- surpassed 10 million, we have been growing steadily, especially during the COVID stay-at-home period. So this is continuing to grow. And what has been -- has made us quite happy is that we received the ATP Award TV Grand Prix First Prize and there was an Encouragement Prize. And these awards are granted to content of a superior quality. And TV Asahi is also broadcasting Japanese version of "24," and we're actually helping with the -- this project. We've aired up to the third episode. And it's really, really interesting once you start watching. So you can binge-watch this TV show. And the number of Abema Premium subscribers has increased steadily. We believe that we will be able to reach 1 million by the end of the year. But next fiscal year onwards, we want to focus on creating better content, even better, to further drive this premium subscribership. And with respect to the Media Business, we have Abema -- with respect to the Abema business, excuse me, we have related businesses as well that is contributing to the performance. In addition to the pay-per-view that we've already mentioned, people can bet on cycling online, which is called WinTicket. And we are also offering Abema Shopping through collaborations. So we actually exclusively broadcast LDH and pay-per-view, and that contributes significantly, but [ Momoko ] is a very popular band in Japan, group in Japan, so that's also contributing to the viewership, as well as K-1 martial arts, our own original martial arts programs as well, which are contributing to the performance. Abema, we did JPY 2.3 billion in pay-per-view. And we -- it's contributed -- Abema is contributing to JPY 2.5 billion, which we didn't expect. And in October as well, we're adding a lot of content to the lineup. And once COVID settles down, people will be able to actually go to the live events. But we hope that watching live events online will also become routine. People will be accustomed to doing that as well. WinTicket, we launched maybe a year or so ago, so it's relatively new as a service. And it also works in tandem to Abema programs. And creatives and the usability, we think we offer the best in the industry. So this is also growing steadily as well. With respect to Abema, of course, we have advertising. So we want a lot of people to watch it for free. A portion of the revenues will be provided by subscription. And also, we will monetize the related businesses. But this is -- we are on track in terms of the strategy that we outlined in the beginning. So fiscal year 2021, we will continue to grow Abema as a mid- to long-term pillar of our business. And so we will grow Abema in terms of scale and also increase monetization. And with respect to the Ad Business, we will utilize AI and new technologies to enhance our competitive edge and maximize the advertising effectiveness, thereby increasing sales. The Game Business as well, we have new titles that we will be releasing, very exciting. So we hope to focus our efforts not only on the existing titles, but also on new titles as well. That's it for myself. Thank you for listening.

That is the end of the briefing session for FY 2020 ending in September for CyberAgent. Should you have any questions, please contact your IR counterpart. Thank you very much for watching today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]