Kakaku.com, Inc. (2371) Earnings Call Transcript & Summary

Good afternoon. I'm Shonosuke Hata, President of Kakaku.com. I will now report on our operating results for the fiscal year ended March 2021. First, please refer to the summary of our consolidated operating results. In the fourth quarter, revenue was JPY 13,309 million and operating profit was JPY 4,826 million, down 15.3% and 23.8% Y-o-Y, respectively. Profit attributable to owners of the parent company in the fourth quarter was JPY 2,873 million, a Y-o-Y decrease of 34.2%. For the full fiscal year ended March 2021, revenue was JPY 51,077 million, down 16.2% Y-o-Y. Operating profit was JPY 18,295 million, down 32.8% Y-o-Y. Net profit was JPY 11,763 million, down 35.9% Y-o-Y. The operating profit margin for the fiscal year ended March 2021 was 35.8%. Next, a quarterly breakdown of consolidated revenue and operating profit. The total figures are, as I reported earlier. This graph shows a breakdown of quarterly consolidated operating expenses. In the fourth quarter, advertising expenses decreased year-on-year. Although T-point-related costs, increased slightly, there were no large advertising placements. Commissions paid to sales agencies declined due to a decrease in sales in Tabelog's restaurant promotion business. An impairment loss on goodwill and fixed assets at a subsidiary worth JPY 181 million is shown in yellow at the bottom of the bar chart for the fourth quarter of the year under review. This is the first time in the past 3 years that we reported impairment loss affecting operating profit. Next, I will explain operating results by business segment. In the fourth quarter, revenue from Kakaku.com was JPY 6,130 million. Revenue from the Tabelog business was JPY 4,187 million, and revenue from New Media and Solutions and Finance were JPY 2,991 million. On a quarterly basis, the ratio of New Media and Solutions, and Finance accounted for 22.5% of total revenue. Next, I will explain the operating results by business for the fourth quarter and full year. Revenue in the Kakaku.com business was down 2.1% Y-o-Y in the fourth quarter, and down 1.9% Y-o-Y for the full year. Revenue in the Tabelog business was down 35.7% Y-o-Y in the fourth quarter and down 32.5% Y-o-Y for the full year. New Media and Solutions and Finance showed a 1.5% Y-o-Y increase in the fourth quarter. And an 8% Y-o-Y decrease for the full year. Next, let me explain the operational progress of the Kakaku.com segment. Revenue in the shopping business in the fourth quarter showed a Y-o-Y increase of 8.3%. The graph on the left shows the breakdown of revenue both of durable goods and consumer goods recorded Y-o-Y rises with an increase of 2% Y-o-Y and 6.4% Y-o-Y, respectively, As shown in the graph on the right, revenue in categories such as home appliances, PCs and interior goods increased Y-o-Y, but revenue in categories related to outings such as digital SLR cameras and suitcases decreased. Next, let's look at Kakaku.com's service business. Revenue in the telecommunications category or was down 29.7% Y-o-Y. As revenue from overseas WiFi rentals remained almost 0 due to the continued impact of COVID-19. In the personal finance category, however, revenue was up 2.9%, Y-o-Y due to a slight recovery in consumption. In the telecommunications category, revenue was mostly stable throughout the second, third and fourth quarters of the fiscal year ended March 2021. In the other category, including energy, revenue in the fourth quarter showed a Y-o-Y increase of 11.4%. I will now discuss the Kakaku.com segment's advertising business results. Revenue in the advertising business decreased due to fewer advertising placements because shortages of components and materials triggered delays in new product launches and curtailed the production. However, the third quarter result was very strong. And the combined figures for the third and fourth quarters were generally in line with or slightly better than our projections. The chart on the right side shows revenue by industry for the fourth quarter. Although revenue from PC manufacturers returned to last year's level, revenue from manufacturers of cars, home appliances and cameras decreased Y-o-Y. Next, I would like to report on the Tabelog business. This graph shows topics related to the restaurant industry throughout the year. At the top are COVID-19 related topics. Operations at restaurants and bars, highly depended on whether there is a declaration of a state of emergency. As you know, in the first quarter, April and May, the first state of emergency was declared. In the fourth quarter, in early January, the second state of emergency has been declared and priority measures to prevent the spread of disease have been issued in some prefectures, and these measures are presently still in effect. Under these circumstances, the restaurant industry was somewhat revitalized by the, Go to Eat campaign, which started in October. The point allocation ended in November, but the points are still being used when making online reservations. The Go to Eat campaign points were scheduled to lose effect in March, but the deadline was extended due to the current state of emergency declaration. Tabelog's initiatives during the year are shown in the yellow part at the bottom of the chart. In April and May, we provided all our promotion services free of charge and in June, we provided our online reservation service for free. In October, we participated in the Go to Eat campaign and provided an online reservation campaign plan to restaurants without charging fixed fees. While the environment for dining out differed from prefecture to prefecture subject to the state of emergency, we broadened the eligibility for suspending promotional services and related fees as indicated by the third bar line from the bottom of the chart. As shown at the bottom of the chart, we are still expanding information on infection control measures taken by restaurants and we continue to expand the information on a takeout services on the Tabelog takeout application as well as the Tabelog website. Please look at the graph on the left side, the average monthly revenue per restaurant, ARPU, declined increased in the fourth quarter. As we are also including restaurants who have suspended their contracts in the calculation ARPU was JPY 17,700. On the right is a graph showing the number of fee-paying restaurants. The total number of contracted fee-paying restaurants was 57,000 in March, down slightly from 59,900 in December. These graphs show the number of online seat reservations made using Tabelog. In the fourth quarter when the state of emergency was declared in Tokyo and other regions. The number of online seat reservations was by 5.53 million, a decline compared to 16.89 million in the third quarter when they Go to Eat campaign was being conducted. The graph on the right shows the number of online seat reservations on a weekly basis. February into March, we saw a concentration in online seat reservations by people using the Go to Eat campaign points ahead of the initial deadline at the end of March. But in the last week of March, the total number of online reservations was 73.8% compared to early February of last year before COVID-19. Though the number is declining, I have the impression that more online reservations are being made than generally perceived. Next, I will report on the New Media and Solutions and Finance segment. Here, the segment is broken down into 4 domains: Entertainment and hobbies; travel and transportation; real estate; recruiting; and finance. The entertainment and hobbies domain, which focuses on movies and cars saw a 9.5% Y-o-Y decline in revenue in the fourth quarter and 16.7% Y-o-y decrease for the full year. The travel and transportation domain showed a decrease of 52.6% in the fourth quarter and a decrease of 63.6% for the full year. In real state, revenue in the fourth quarter was down 1.7% Y-o-Y, and that in the full year was up 9.1% Y-o-Y. In recruiting, revenue was up 67.4% Y-o-Y in the fourth quarter and up 37.7% Y-o-Y in the full year. As for Kakaku.com insurance in the finance domain, revenue grew 9.3% Y-o-Y in the fourth quarter and rose 12.2% Y-o-Y for the full year. Next, I will provide a little more detail about results for Kyujin Box and Sumaity. Please look at the graph on the left. The number of monthly users in the fourth quarter increased 53% Y-o-Y and revenue expanded 67.4% Y-o-Y. As you can see on the graph on the right, the number of average monthly users for Sumaity was very strong, up 59.1% Y-o-Y. But revenue decreased slightly, down 1.7% Y-o-Y. The decrease increase in revenue is due to the fact that the unit price of clients targeted by Sumaity decreased slightly in the fourth quarter due to a lack of budget. But the major trend has not changed much. So we expect revenue growth to return to a trend in line with an increase in the number of users. Next, I would like to explain recent developments for businesses in the entertainment and hobbies domain. For Kinarino, e-commerce revenue has been growing slowly, mainly from sales of household goods. In the fourth quarter overall revenue increased 32.8% Y-o-Y. For the full year, Kinarino's revenue was up 31.3% Y-o-Y. On the other hand, in the movie advertising and movie advertising agency fields, gaie and eiga.com were affected by the postponement of major movies releases and the decline in the capacity of movie theaters. As such, revenue decreased more than 30% Y-o-Y for each of the businesses. Next, let's look at the travel and transportation domain. The travel and transportation domain was in a considerably difficult situation with 4travel revenue down 86.1% Y-o-Y for the full year and LCL bus transportation revenue, down 76.9% Y-o-Y for the full year. On the other hand, Time Design was doing relatively well. And as you can see by the graph on the right, the number of contracts with hotels in Japan increased even amid the COVID-19 pandemic. The graph on the left shows the number of monthly users in the travel and transportation domain, both 4travel and LCL experienced sluggish revenue. In particular, 4travel was stagnant as it is an advertising media based business model, but the travel-oriented mindset in Japan has not sunk too much since the number of users of travel-related media tended to increase in January, February and March, even after the Go to Travel campaign was over. Next, I will report to on our finance business, Kakaku.com Insurance. Revenue in the fourth quarter showed a favorable result of a 9.3% Y-o-Y increase on the back of continued strong demand from users considering and applying for insurance policies online. On the right, you can see an example of content for the comparison and online application of fire insurances. Since the model of completing the application process online for insurance is advancing, we expect revenue to increase even further. This concludes my explanation of fourth quarter and full year operational progress by segment. Next, I would like to introduce our future initiatives for each business. For Kakaku.com, our policy of continuing to expand meaningful content and increasing information remains unchanged. As shown on the left, under site improvements, we are working to improve our sites using AI and machine learning, both through internal methods as well as alliances with external parties. As shown on the right, we will further expand the information that is needed for the new era and information regarding the evolution of products. As an example, we are planning to increase the amount of information about the SDGs and environmentally friendly products, thereby providing our users with meaningful information on environmentally conscious consumption. Next, I will explain the initiatives being taken at Tabelog. In addition to information on dining at restaurants, we have increased the information and applications in the areas of takeout, delivery, mall, and we will continue to further strengthen these initiatives. As part of offering restaurants useful services to support their sales activities, we are offering a procurement service. We will introduce further tools and apps with expanded functions, including delivery and takeout and online reservation management. Next. Initiatives for Kyujin Box and Sumaity. As for Kyujin Box, we will increase the number of clients centering on measures launched in the past 2 years, such as expanding our partnerships and offering flexible fees. We will also work to improve our content, including improving the accuracy of keyword searches and further expanding the original content, such as articles. As for Sumaity, we are working to address the biggest inconvenience user's experience with real estate sites, which is data duplicate property information, and we would like to focus on improving the aggregation of property information. Sumaity has been focused on rental information. But going forward, we would like to widen our portfolio as a comprehensive real estate site, such as including content on the purchase and sale of used properties. Next, I will now explain initiatives of Time Design and Kakaku.com Insurance. Time Design is still doing very well, but we would like to increase the number of contracted hotels, both in Japan and overseas. And continue to offer packaged tours in combination of hotels and airplanes to a variety of hotels. Time Design will also continue to increase transportation options for its dynamic package solution to include not only airplanes, but also all kinds of transportation. For Kakaku.com Insurance, we would like to extend what we did in the fiscal year under review and work on providing even more convenient ways to conclude insurance contracts online. Next, I will explain our overall business strategy going forward. Our goal remains the same. We will continue to expand our expertise and build a more balanced portfolio, which currently consists of 3 segments: Kakaku.com; Tabelog; and New Media and Solutions and finance. And we will raise the revenue share of the third segment to 20% in the medium to long term. We have already achieved this target in the fourth quarter, however, the current revenue share includes the slump of Tabelog under the state of emergency declaration. So we will keep our target at this level for the time being. We will not concern ourselves with the 20% target for this fiscal year, but we will continue to aim to grow the revenue share for the third segment beyond 20%. That brings me to our consolidated earnings forecast and the dividend forecast for the fiscal year ending March 31, 2022. As we set forth in the consolidated earnings report that is already released, for the current fiscal year ending March 31, 2022, we forecast consolidated revenue of JPY 59 billion, operating profit of JPY 23.6 billion, profit attributable to owners of the parent company of JPY 16.1 billion and an OP margin of 40%. For the fiscal year ended March 31, 2021, we will pay JPY 40 per share for the year consisting of an interim dividend of JPY 20 per share and a year-end dividend of JPY 20 per share, subject to approval at the ordinary general meeting of shareholders. Our dividend forecast for the fiscal year ending March 31, 2022, will consist of an interim dividend of JPY 20 and the year-end dividend of JPY 20 for a total of JPY 40. For other KPIs and financial indicators related to the company, please refer to the following reference sheets. This concludes my presentation on the results for the fourth quarter and full year. [Statements in English on this transcript were spoken by an interpreter present on the live call.]