GMO internet group, Inc. ($9449)

Yasuda, CFO of GMO Internet Group. Thank you very much for taking the time out of your busy schedules to attend the GMO Internet Group financial results briefing today. I will explain the financial results for the first quarter of the fiscal year ending December 2014 (sic) [ 2026 ]. Thank you for your time. Today's agenda is as shown here. First, I will provide a conclusion, and then I will explain the important topics of our security and AI robotics initiatives. After that, Mr. Inagaki, Group Executive Officer and Head of Finance, will provide an explanation. Thank you for your time. Before we get into the main topic, I would like to explain the transition to disclosure based on IFRS. In conclusion, as a result of IFRS, we have introduced a new KPI called business profit. As a background, IFRS is operating profit, includes temporary and incidental items that were previously classified as non-operating items and extraordinary income and expenses under the previous Japanese GAAP. Therefore, when tracking IFRS operating income, there is a problem in that the actual value of ongoing business activities becomes difficult to see. Please take a look at this waterfall diagram. It shows how J-GAAP's operating income on the left connects to IFRS operating income. The figures listed are for the full year 2025. The main differences are the non-amortization, the reflection of the self-assessment of the incubation business, and the inclusion of temporary and incidental items that I mentioned earlier. Please refer to the appendix for details on how to handle figures prior to 2025. Today onwards, the explanation will focus on this operating income, which indicates the actual value. So thank you for your understanding. Now, for the conclusion. I will discuss three key points from today's briefing. First, let's talk about the long-term perspective. We are steadily pursuing long-term management with the aim of becoming a corporate group that will continue for 100 years. Efforts to further evolve the group structure are also progressing steadily. In particular, GMO Internet Inc. has completed its efforts to achieve a private listing position on the 4,784 Stock Exchange, meeting the criteria for maintaining listing. Next, regarding our performance, operating profit in FY 2019 was JPY 19.3 billion, up 32% year-on-year. Operating income was JPY 18.6 billion. Infrastructure and Finance achieved record highs for the first time in the fiscal year, driving consolidated performance. The strength of our group is our stock revenue. With the spread of AI providing a tailwind, stock revenue is expected to expand structurally. Currently, each group member is implementing internal measures to capture the growing demand in the era of AI agents. Finally, regarding progress in the AI robotics field, which is our core area of focus. We have positioned 2026 as the first year of humanoids and are working to make the AI robotics field a new growth driver by promoting early brand recognition and social implementation. Next, I would like to report on GMO Internet's efforts to maintain its listing on the prime market. We have completed our public offering and achieved compliance with the Prime Markets listing maintenance criteria. This completes our series of efforts to maintain our listing. Now let's look at the financial results summary. As you can see, the figures show both increased revenue and profit. Next, let's look at a summary of performance by segment. On the far right, management's revised evaluation is listed alongside the previous year's results. First, infrastructure achieved its highest performance in 20 consecutive terms. Our core companies, GMO Payment Gateway and GMO Internet drove our performance. In addition to the strong performance of existing domains, servers, and Internet connections, GMO Internet, GPU Cloud, which we had invested ahead of the competition achieved commercial profitability, and our performance is improving. We feel that we have been able to overcome the weakness of the stock revenue brought about by the overwhelming #1 service that is indispensable and will not disappear. Next, security saw an increase in revenue by 20%. Amid the increasing threat of cyber attacks, the cybersecurity business continues to perform well, thanks to the GMO projects awareness raising prototype for Internet security. In terms of profits, brand security has made strategic investments in dot-com domains, which has led to an increase. However, we have been steadily taking the necessary steps for future growth and have been able to achieve a profit of 20%. Next, advertising and media saw a decrease in revenue, which has led to an increase in revenue. Each company and each material is in a state of stagnation. Our own products, especially those with high profit margins, are performing well. On the other hand, passive products such as affiliate advertising are weakening, but as a result, it can be said that the shift from flow to stock type is progressing. And finance has updated its highest performance in the 20th quarter. The key driver of performance is CFDs, and CFD revenue increased 3.5x year-on-year to JPY 6.4 billion. The main factor is the increase in trading of highly profitable products such as gold, silver, and crude oil. We believe that the results of our efforts to diversify products have become apparent. Furthermore, FX saw a decrease in revenue compared to the previous year, which was a difficult situation, but it is recovering from the phase in which profitability declined in the latter half of last year. And crypto assets or [ triangles ], this has become a raw material cost. Although it is affected by the market environment, such as the steady trend of crypto assets, we have been able to secure profits by cost recovery. Now let's take a look at the overall situation for each segment, which I explained earlier, and compare the factors behind the year-on-year changes in revenue and operating income. Revenue is on the left and operating income is on the right, with both figures compared on an if-based basis. As I have explained so far, the consolidated overall figure increased due to the expansion of infrastructure and finance. As you can see, the performance of the first half of the year was affected by the favorable performance of CFDs. However, looking at the long term, there is a structural strength that our group has recognized over the years. That is stock revenue. This is a term that represents our group's unique revenue model. Since our founding, we have been committed to building a revenue base that is indispensable and generates recurring subscriptions. As long as the Internet remains an essential part of social infrastructure, stock revenue will continue to support the sustainable growth of our group. And we believe that the changes in industrial structure brought about by the spread of AI will further enhance the significance of this [ rock play ]. Now, the spread of AI agents and humanoids is progressing rapidly. This will lead to an increase in the amount of data and transactions. The constant connection between AI agents and the automation that does not return humans will lead to an explosive increase in the amount of information and transactions flowing on the Internet. At the same time, the objects that need to be protected will also expand. There are two reasons for this. One is that there will be a need to protect new objects that did not exist before, such as AI agents and humanoids. The other is that as the amount of data and transactions increases, the amount of information and assets that need to be protected will increase. As a result, the demand for Internet infrastructure, financial infrastructure, and Internet security will all increase. The main players on the Internet are rapidly shifting from humans to AI. This trend of increasing demand is already evident. As you can see, the traffic of AI agents is increasing explosively. It is predicted that bot traffic will surpass human traffic by 2027. Amidst these changes, our group is required to become the entity chosen by AI. To that end, we are working on MCP and API support. MCP is a standard plan for AI agents to call services. We will create a situation where AI agents can independently call our services. We believe that this will directly lead to competitiveness in the AI era. In this way, the spread of AI will be a real tailwind for our group. As you can see, demand will accelerate in two areas: Internet infrastructure, financial infrastructure and security. Our group has been aware of these indispensable foundations that will never disappear from society for many years. The arrival of the AI era will further increase the importance of these services. Now, what supports the importance of these services is our technological capabilities. This technology has been proven on a global level. GMO Flatt Security researchers have achieved the world's highest ranking in a vulnerability discovery program run by Anthropic, the company that developed Claude. This means that we are supporting the safety of Claude and Claude code users around the world. We are also utilizing these technologies in product development. A prime example is Takumi Guard. This service, which supports software supply chains, has received strong inquiries since its release in March. We will lead the way in security in the AI era with both technical capabilities and products. Next, I will explain the progress we have made in the areas of security, AI, and robotics. First, let's talk about security. Let me explain our security business again. As the threat of cyber attacks becomes more serious every day and the scope of those who need to be protected expands with the advent of AI, the demand for peace of mind is structurally increasing. Security has become an indispensable foundation that supports society. In this environment, our group is working towards realizing a safe future for all people and has positioned the security business as the core area of our medium- to long-term strategy. Encryption security to prevent eavesdropping, tampering, and spoofing cybersecurity to handle late-stage cybersecurity and brand security to support spoofing monitoring and deletion. We will further strengthen and develop our business based on these three areas. We have summarized the main companies, services, products, and strengths of each of the three areas. Each area is developing its business based on clear strengths. In encryption security, we are developing stock type products centered on electronic certificates and electronics, leveraging our strengths as a certification authority in terms of technology and operational know-how. Next, cybersecurity is the technology of the world's strongest white hat hacker group. As I explained earlier, these are our greatest strengths. As I explained earlier, we have secured the #1 spot at domestic and international cybersecurity conferences. In addition to vulnerability diagnosis and penetration testing, we are also expanding stock type products by incorporating our insights into products. Brand security is developing the service products you see here, leveraging our expertise in operating domain trademarks. Now, from here on, we will update you on the progress of the GMO Internet Security project, which was launched in February 2025 under the catch phrase Safe for Everyone. This project is an initiative aimed at establishing the first early brand in security by Ierae. The first section describes initiatives through ongoing product and service provision, while the second section describes initiatives through events such as holding large-scale conferences. We are steadily working to increase brand awareness through both product provision and event provision. Today, I would like to introduce several things. First, we have the reporter's name domain. With the advent of AI generation, impersonation and phishing scams have become more sophisticated and sophisticated. The importance of phishing countermeasures to protect brand value has never been greater. The dot reporter name domain is the ultimate phishing countermeasure. Like our GMO, the photo name itself becomes the domain, allowing end users to tell at a glance that the e-mail and website is genuine. Applications began accepting on April 30, and companies such as TOPPAN Holdings have already decided to apply for acquisition. The deadline for accepting applications is August 12. We will steadily develop this as a new pillar of stock revenue with high unit prices and high retention rates. Next up is MUFG GMO Security, a public venture with Mitsubishi UFJ Bank. The greatest significance of this deal is that we have established a system that can deliver cybersecurity solutions to MUFG's customer base. We have begun making proposals and are making progress in developing projects. Next up is GMO Preferred Security. This was established as a joint venture with Preferred Networks, a company at the forefront of domestic AI reactionary generation AI development. From the perspective of economic security, establishing a domestic AI environment that does not rely on overseas technology is a pressing issue for Japan. We will address this national challenge by providing a domestic AI environment with consistent security guaranteed from hardware to software. Now let's move on to our initiatives in the AI robotics field. We have positioned 2026 as the first year of humanoids and aim to establish the first early brand. Our role is not to manufacture humanoids, but to provide the infrastructure that supports their operation. We will bring together the strength that our group has cultivated over many years, such as communications, cloud, security, and data utilization to provide total support from the introduction to the utilization of humanoids. GMO AI and Robotics Trading, commonly known as GMO AIR, is the core company in the AI and robotics field. We started a humanoid dispatch service in April of last year. This is the first service in Japan to customize and dispatch humanoids based on customer request. It allows customers to select the most suitable humanoid from multiple humanoid without being tied to a specific manufacturer, and it does not require initial investment or specialized knowledge. Now, let me introduce some specific initiatives aimed at social implementation. The humanoid technology demonstration project, GMO Robots has started. This is the world's first initiative to have humanoids run the running data of Japan's #1 ekiden team, and I, myself, became #1 in the New Year Ekiden. We believe that mastering the basic action of running will become an important technological foundation that will lead to solving labor shortages in areas such as logistics, manufacturing, and disaster relief. Next, we have the GMO Humanoid Lab Shibuya showroom. We introduced this in April as Japan's first and largest physical AI research and development center. Since then, we have been interviewed by several media outlets, so I believe many of you are familiar with it. We will utilize this as a venue for gathering diverse stakeholders, including developers, adopters, and the media, and accelerate the social implementation of humanoids. As an example of social implementation, we will introduce our work with JAL Ground Service. This will be the first demonstration experiment of humanoids at an airport in Japan. The recent press conference was widely covered by overseas media and has attracted a great deal of attention from society. As you can see, airports face serious labor shortage due to the many labor-intensive task they perform, such as moving containers and loading baggage. As the first step for full scale social implementation, we will work to solve social issues by utilizing humanoids. Finally, here is an overview of our Internet Infrastructure, Security products. Up until now, we have built up stock revenues mainly through our infrastructure business. Going forward, we will develop security and AI robotics as new stocks, and develop them into medium- to long-term growth drivers. Please look forward to it. Inagaki will provide an explanation from the next section.

My name is Inagaki, and I am in charge of Group Finance. Thank you for your time. From here, I will explain the status of each segment and shareholder returns. First, let's look at non-group products. This is the lineup of the group's main products. All of these are in-house products developed and operated in-house. We are also making progress in providing new services to the AI industry. Of these products and services, our combined customer base for infrastructure, security, finance, and crypto assets exceeds 22 million. This is the sales revenue trend by segment for the launch period. Infrastructure shown in dark blue and security shown in green, both have a high sustainability and predictability, and both account for a large portion of the profits. They continue to grow as the customer base expands. In addition, as I explained earlier, finance also performed well in the first launch period, where the results of our product diversification efforts were evident in the form of increased CFD profits. The AI revolution is expected to lead to significant growth in the amount of information and transactions online. Furthermore, we will further ensure sustainable growth by promoting the monetization of our services through [indiscernible]. The trial period trends in operating profit by segment are as shown here. Our approach of achieving sustainable growth as a whole by combining passive, high-profit businesses with infrastructure security as a foundation for stock-based revenue remains unchanged. As you can see, in the first commercial phase, we were able to achieve high profit growth due to the strong stock-based revenue and the high growth in finance. Next, let's look at the status of each business. First, here is a breakdown of sales revenue from commercial machines in the Internet Infrastructure business. Sales of infrastructure commercial machines reached a record high due to the accumulation of stock-based revenue. Payments, which are offered through GMO Payment Gateway in light blue, continue to expand. In addition, high-priced enterprise products such as GPU Cloud offered by GMO Internet, and CloudCREW offered by GMO GlobalSign Holdings as shown in dark blue, performed well. Here's the trend of business profits in the commercial phase. Business profits from Internet Infrastructure significantly surpassed the previous record, reaching JPY 12.3 billion. In addition to the sustained expansion of payments that I mentioned in the previous slide, GPU Cloud, a cloud rental server, has achieved a profit on a trial basis and is expanding its revenue. In addition, existing businesses such as domains and Internet connections are also continuing to grow. Furthermore, regarding the BGPU server that started service at the end of last year in GPU Cloud, all 25 units planned for the first half of 2014 are now ready for service. In addition, as the outlook for the B300 operating rate in 2014 has strengthened, we decided to make an additional investment of JPY 6.9 billion in April. Next is Internet Security. This shows the trend of sales revenue in the commercial period in its breakdown. What I want you to look at is cybersecurity, which is in emerald green in the middle. It is followed by the two companies that make up this business, Cybersecurity, Ierae, and Flatt Security. In Internet Security, the number of projects is also increasing, but the driver of growth is the fact that orders for high-priced penetration tests are increasing. In addition, GMO GlobalSign Holdings' cryptographic security business saw strong performance from key products, such as the electronic contract service, GMO sign login, and the authentication enhancement service GMO trust log-in, as well as robust sales of SSL certificates globally. Profit from the Internet Security business remained stable due to the impact of promotional investments in brand security products. Profit from Cybersecurity by Ierae, which is driving the growth of cybersecurity, is steadily increasing. This is a summary of the sales revenue of commercial machines in advertising and media. It was the same as before. The light blue online advertising continues to include passive products such as affiliate advertising and advertising agencies. This is the trend of profit from the advertising and media business. GMO Internet's advertising agency was able to secure a certain level of profit by capturing demand from commercial machines and reviewing its organizational structure. Next is finance. As explained earlier, CFD revenue grew significantly, resulting in record results on a commercial machine basis, with significant increases in both revenue and profit. This is the trend of sales revenue by product. FX fell in the red due to a backlash from the strong performance of the same period of the previous year. CFDs expanded significantly due to an increase in trading volume of profitable products such as gold, silver, and crude oil. Since launching Japan's first CFD trading service using an in-house developed trading system in April 2010, GMO Click Securities has focused on this area as an advocate. We believe that the fact that it has contributed to profits to this extent is a result of our efforts to diversify our products. This shows the trend in CFD trading volume and sales revenue. As you can see, sales revenue increased significantly in the first commercial period. Although trading volume decreased compared to the fourth commercial period of 2013, revenue increased. This is due to changes in the sales mix of products. Next is the trend in sales revenue and trading volume for the FX business. Although we are affected by the decrease in trading volume for FX in the overall market, we believe that we have been able to earn profits in our trading capacity. Furthermore, we are now on a recovery trend after the decline in profitability in the latter half of last year. This is the status of FX KPIs. At GMO Financial Holdings, we use the margin balance and active users as KPIs. As you can see, they continue to trend upward. We believe that if trading in the entire market returns due to these movements, we will be in a position to secure solid profits. Next is cryptocurrency. As you can see, the market is operating. Revenues have increased compared to the previous year. Although the market is very stable and trading volume is low, which makes the market difficult, we were able to secure a certain level of profit by achieving a minimum operating structure through cost optimization. In this segment, we are also strengthening our profit-based products such as staking cryptocurrency. Next, I would like to explain GMO Aozora Net Bank, an important initiative in the group's growth strategy. GMO Aozora Net Bank is holding company and accounts for 40% of our performance. Here is the trend of the market. Revenues and profits increased significantly compared to the previous year, contributing to the improvement of consolidated net profit. The main factors were the increase in transaction revenues such as transfer fees due to the increase in the number of corporate accounts. In addition, the increase in deposit balances also contributed to the increase in net income. These are the important KPIs, the number of corporate accounts and the number of contracts for birth by GMO Aozora. The number of corporate accounts at the end of March was 244,000. The customer base is expanding steadily, with the main bank growth rate ranked first for 2 consecutive years according to a survey by Tokyo Shoko. A number of contracts for another KPI birth by GMP Aozora is also increasing steadily. Birth is the system that provides banking functions such as settlement and deposit notifications to external businesses as a cloud service by returning APIs. Businesses are highly regarded for being able to incorporate banking functions without destroying the world view of their own services. Deposit balance status. Deposit balances have increased to JPY 1.3 trillion in the 7 years since its launch in 2018. Let's summarize the growth engine of GMO Aozora Net Bank again. GMO Aozora Net Bank is highly regarded, especially by small and medium-sized enterprises and startup companies. It is #1 in the number of newly established courses, corporate courses, and account openings, and the number of base customers continues to increase. And transactions continue to expand as each customer grows. As a result, deposit balances are increasing and the temperature of capital income is also rising. In February, we formulated a solution development plan for corporate customers in order to continue to be the bank of choice. We have announced plans to release various services that will further enhance convenience for corporate customers. GMO Aozora Net Bank will continue to play an important role as a next-generation tech bank and an engine for the group's growth. Please look forward to it. Finally, regarding shareholders. First, let me explain our approach to corporate value management. We aim to reward shareholders and improve corporate value through both growth and returns. Based on our long-term 55-year plan, we are targeting operating income growth of 15% or more each fiscal year. Regarding shareholders' returns, we have set a target of 50% or more for each fiscal year. We will also consider introducing DOE in order to provide investors with a clear understanding of the dividend amount and provide peace of mind. Our basic policy regarding shareholders' returns has always been 50% for total returns. Regarding dividends, we plan to allocate 33% of consolidated operating income for the fiscal year and the remaining 17% for amortization of treasury stock. We have also introduced a dividend system for the fiscal year to enable us to return management results as quickly as possible. The dividend per share for the fiscal year under review is JPY 21.20. That concludes today's briefing. Thank you for watching. We hope that everyone will enjoy the Internet. [Statements in English on this transcript were spoken by an interpreter present on the live call.]