Soop Co., Ltd. (A067160) Earnings Call Transcript & Summary

One by one, we will execute our objectives. So we will continue to work with the eSports teams and which is a significant thing. Going forward, we will continue to expand our partnership. In an effort to fortify the competitiveness of our VOD content, we have launched a vertical short-form video service catch and enhance the competition mission feature, which engages in competitions and added the live game service to make the content more entertaining and provide more offers to users. We have also enhanced our capability to bring in more advertisers to push the rapidly growing advertisement business to go even further, thereby building a strong foundation to become a comprehensive advertisement platform. Indeed, the clients' demand for branded content advertisement has increased as it is highly engaging and effective. In case of platform-based advertisement, targeted products are created to maximize the effectiveness of the current inventory. AfreecaTV has achieved not only quantitative but also qualitative growth such as internal control and the ESG management in such a turbulent business environment for making a concerted effort in broad areas. In fact, we are committed to reduce financial and nonfinancial risks and continue to create values. Please continue to take interest in and support the growth of AfreecaTV. Coming up next is the earnings of the second quarter of 2022. The revenue in the second quarter is KRW 78 billion, up 4% Q-o-Q and 20% Y-o-Y. The revenue from the platform went down by 3% Q-o-Q, but went up by 15% Y-o-Y. The revenue growth has been rather slow due to seasonality and commencing the post-COVID era. Having said that, the annual growth is expected to continue. The second quarter's advertisement revenue was KRW 18.4 billion as the demand from both game and nongame advertisers has increased. Indeed, it went up by 30% Q-o-Q, and 42% Y-o-Y. The platform advertisement revenue went up by 10% Q-o-Q and 25% Y-o-Y. The highly effective branded content advertisement revenue went up by 34% Q-o-Q and 50% Y-o-Y, maintaining a skyrocketing growth trend. Indeed, AfreecaTV's advertising business has been proven to be resilient against economic fluctuations and is expected to achieve sustainable growth through enhancing [indiscernible] products. KRW 2 billion, which is 0.3% growth Q-o-Q and 8% growth Y-o-Y. The sustained growth of the revenue drove operating income up but due to some investments that we made, the OPM or the operating profit margin recorded 29.8%, slightly down than last quarter. Next slide, please, for the more details. Now turning to operating expenses. Q2 operating expenses recorded KRW 54.8 billion, which is a 5% increase Q-o-Q and 26% hike Y-o-Y. Advertising commissions, which is variable cost in nature, recorded KRW 9.9 billion, driven largely by the expanded revenue from branded content and this is a 27% up Q-o-Q and 59% up Y-o-Y. Also increased league revenue pushed up production costs for league and other general content. So the content production cost grew by 13% Q-o-Q, recording KRW 3 billion, which is a minus 16% growth Y-o-Y. Now as for employment costs, which is more like a fixed cost posted KRW 16.6 billion, mostly attributable to more headcount. And it is a 3% increase Q-o-Q and 39% increase Y-o-Y. As for depreciation, investment into the Sangam Colosseum was recognized in Q2, hence a 9% increase Q-o-Q and 17% increase Y-o-Y, recording KRW 4.2 billion. For other commissions for broadcasting rights and other section, this is heavily related to content investment activities. And we did acquire KB and other sports bot testing rights, but it was evened out by all expenses related to Beijing Winter Olympics finished up at previous quarter. So for Q2, this session recorded KRW 5.7 billion, down by 6% Q-o-Q and up by 30% Y-o-Y. Last but not least, BJ support category recorded KRW 900 million, down by 32% Q-o-Q and 20% down Y-o-Y. This does not mean that we cut down the support to them. It's because many newbies outgrow their title as a new BJs. No other section saw an unusual increase in operating expense. The last slide is the yearly financial statements. Thank you very much.

All right. Let's see if there are any questions from our audience. [Operator Instructions] Let's get started with the first question. If there isn't any from our virtual audience, let's get started with the one that I have already. All right. So many questions. There is a T1 and Gen.G players. They now have the contract for the streaming with you AfreecaTV. Any other such similar plans in the future?

Well, as for the streaming , it's more of the acquiring the contents. When we say contents in general, we're talking about buying the broadcasting rights or having the BJs doing that broadcasting. These are the 2 pillars of this section. Now going a bit further into it is adding B2C or even B2B approach. As for eSports and games, which are our major pillars of the business, T1 and especially with the League of Legend players having a streaming context with them is very important to us. And it's not specifically confined to League of Legend, it can be expanded to other titles as well. And you talked about the 2 gamers, but even further going down LCK or even global platforms which you already have. So we can definitely see the expansion taking place going down the road. The other thing that I would like to bring your attention to is that there are many other platforms like the one in China. And again, I want to tell you that this is rather different than other streaming contract that we had in the past. It's not simply a transmitting the content. It is more broader and specific than it's the fact that we have a partnership in nature. As for the e-commerce as well and other businesses can be grown and even planned out together in this new contract that we signed recently. Again, it's not simply paying money and getting the airtime. It's not that kind of conventional framework that we are confined to. Rather this time, our partners and we AfreecaTV have more of a business vision together. And of course, our global business agenda as part of it. So there's definitely the possibility for expansion down the road. And also as for eSports club I think that will be very specific to partnerships to each club, our team. And that's what I mean by the strategic business partnership that we will be having with each one of them. So stay tuned with us. There was a lot coming up.

All right. So for example, the very famous gamers or their very famous BJs that they could collaborate?

Well, that's kind of a different layer because it's AfreecaTV as a company and the game -- professional gamers as a team that's making a contract between. But what you just mentioned between the BJ specifically and the player, this could be outside our framework, but it's definitely possible. And are there some retired players such as [indiscernible] and et cetera, who are working at the AfreecaTV, one of the channels. But what I want to tell you is that our current terms and conditions of the contract does not have the specific individual level contract or partnerships.

Well, moving on to the next question. So when it comes to the regional VOD content that is going to happen soon. And what type of -- how is it going to work? And what type of content format is it going to have?

So in relation to the content strategy obviously, there are many options that we can implement. Obviously, our BJs have their IPs, and they have fandom and also they have their own communities as well. So they're all individualized. If you think about the legacy system and if we utilize a new platform, the uses -- is it going to be UCC or professional contents? I mean, we have to think about that. If you think about other platforms, the streaming platforms that -- there are content created by YouTubers. So that's user created content. So we will jump in and get our hands on what is happening because there are companies that create content. So perhaps we can think about the way to create IP-based content involving our BJs. We have been thinking about developing this type of lineup.

We have the first question from Kwon Youngsun of Daiwa Securities.

I see that the MUV is going down and even faster than before. And what's worrying me more is that we're seeing a dwindling number of the young users. Can you explain to me the age mix demographics of age at the MUV. And second question, I think, is coming up. So let's get started with the first question.

Thank you, Mr. Kwon Youngsun from Daiwa Securities for asking the question and joining us after some time. Well, as for the age mix, I think our IR head can explain.

Well, in fact, I don't see any dwindling trend of the young group. We do have 80% of the users who are concentrating those male in their 20s and 40s. So it's I think the dwindling trend, if you saw, is overall, not specifically by a certain age. So there isn't anything to further in that.

All right. The second question from Mr. Kwon. I think it's just popped up now, okay? So second is about the eSports contract that you mentioned. Has there been any changes in the index or performance to share?

Talking about, I guess, our contract with the T1 and Gen.G. Well, in the index, I guess, when they are on the show on our platform, we have to see, but it's pretty recent development, in fact. So we don't have any accumulated data as to how effective that contract has been to our business per se. I think we are going to need some time to gather those and share with you. I guess by the next quarter, we'll be able to share some figures. I believe so. As for the MUV, the -- I'm not sure what specifically is you're talking about, Mr. Kwon. But if you look at our traffic, definitely, there was a time when we saw the decrease in the teenage users. I don't know exactly when that was. But I think it has to do with the type of the content and who the BJs are who are active. And also teenagers, usually, as you know, don't have access to the live broadcasting, as you know, because of their schedules and et cetera. And it's not that we have a downward trend of the teenage MUV.

So this question came from Dong Hwan Oh from Samsung Securities. During the second half of this year, you will increase investment in content production. So in terms of the value, though, how will the cost increase?

If you think about it, in general, we have content companies that everybody can think of. It is not going to be that. So we will think about this short production -- products having 10 to -- 10 plus or so on content products. For example, we have this right to broadcast. So what else do we have in terms of the contents? So we have paying charge, and we have sports World Cup and Olympics, and we purchased the right of broadcast such games and they are onetime thing. And annually, we also purchased the right to broadcast such as animation. So we get about KRW 1 billion or so. So before the COVID-19 crisis that happened very frequently, aside from the original content production, we can purchase the right to broadcast others' products. So -- but that didn't really happen during the COVID crisis. So this is not a brand-new thing. We are resuming this effort. So what about this BJ support? Now that accounted differently -- separately from this.

We're going to wait for another question to pop up. During this time, maybe I can ask a question about the catch the new services launched what is that service? And how is it different from what you had before? I know this is pretty brand new, right?

Yes. Well, Catch is a short-form video clip that's popular amongst the younger generation. At AfreecaTV, whether the users are watching VOD or the live shows, what they can do from the users is that they can automatically create a short form that falls into the catch. And right now, short from clips are being made and put up on our platform. And because of the length of it, the short length of it, in fact, I guess, the retention rate, if you will, tends to be high, and also the number of shows or the views is also growing. So we're very -- putting a positive light on this. Now as for the Play Store, and in terms of the Google, it's not updated on Play Store. So I guess what I can tell you is for the proportion of it is -- Catch about -- I think about 30% is being utilized. And we need to go over the threshold of the 50% to see the efficacy or the effectiveness of it. So we're going to need to see and wait for some time.

The next question came from [indiscernible] . The revenue from donation has gone down. So what do you think the cause is? And do you think the figure will bounce back? If so, why?

So I should answer this question. During the second quarter, we still have some time. If you think about last year, things when -- things became slow during the second half. And the weather, if you think about the weather, BJs are out there doing activities. So from the second quarter, I suppose we are entering the phase of the endemic. So figures were quite low in May and because we had holidays and et cetera, but it has indeed bouncing back. So we are looking forward to what is happening in the third quarter, but we can achieve the growth in this quarter as well. So the revenue from donation, I mean we cannot actually foresee the demand. It's quite different than the membership fee and et cetera because we do have our own pattern, and we can actually foresee the growth trend. So it is quite different than the demand forecast of other companies. So the platform activity is the key in foreseeing all these figures. So the average viewing time and every element is all included here. So the -- if you think about the platform activity, it cannot go up and up and up. So because we have the seasonality in place, and BJs are the core of our ecosystem. So if there are changes in the community of BJs that is going to have an impact. Or if you think about the group users, there can be changes as well. As she said, during the holidays and if the user is going to holiday, then that is going to have an impact as well. So we have internal index and official index elements are about 20. But internally, we have 30 to 40 index. And the impact on one thing does not have rightful effects throughout other index. So we have to think about the BJs, users and the content. We have to think about those big category items and come up with the strategies accordingly. Just one thing does not lead to another automatically. But all these cumulative efforts are going to lead to this explosive growth. If you think about last year, let's say the fourth quarter is a good example. So as we've been saying, we have a growth -- tremendous growth potential.

Next question comes from Yu, Incheol from Citi Securities. First question, what's the second quarter's POR? Second question, the Google's in net payment policy and how you plan to respond? Number three, because of this new policy of Google, do you plan on modifying guidance for the second half of this year or yearly guidance?

The POR is -- the paying user is above -- we can give you the numbers later, but 5% -- in fact this is 5%, and we do have a light paying users, not the heavy ones. I can also give you updates on 2 and 3. As for the Google's Star Balloon, payment problem, I know that this is the topic in the town. And from our company, the AfreecaTV, we are very much going head on with the Google because the Google's in net payment is not in fact is not being applied to our platform just yet. I know most of other platforms are already being subject to the Google. Well, I'm not sure to talk about whether the Google's policy is right or wrong. But what I will tell you is that we do not fall into category of in payment policy of Google because it's not the digital currency. What we have at AfreecaTV is an intermediary currency, and it's basically the same as cash, that is what it does. Therefore, we do not again fall into the category of being subjected to the in net payment policy of Google. And we keep saying that we're very persistent on that. And we do have the shopfreeca where the Star Balloons can be used as a way to buy the actual product. And we have more plans coming out for that as well. So very clearly, for Google's new policy to be applied, we have to give up certain portion of our profit or transfer all of that to the users. None of that is valid to us at this point. So we are trying to communicate with the Google. It's been very challenging, but we are still not giving up on the Star Balloon, how it's different from all the other digital currencies that they're talking about. At Google's market, the paying process itself is very simple and easy. Therefore -- however, choosing another or alternative billing system is rather tricky there at Google's Marketplace. But for AfreecaTV users who have been with us for a long time are very loyalty, and I see that most of them are bypassing Google to use alternative billing system. For example, they're are shifting to another market. The Google market, for example, let's say, was 100%. Now about 20% have chosen a different and alternative market for the billing. And we also have the web page specifically created for the payment of the Star Balloons and et cetera. And we are seeing a 2-digit growth already there on our website. So overall, I guess I don't have much concerns about the volume itself, but now it comes down to access or accessibility. I know it can have an impact to the paying users that you mentioned, so we're putting all our efforts to see what we can do. I guess the best scenario is that we have consensus with Google and that we make sure that they understand how our Star Balloons is different. However, if this does not go through, we still have other alternative ways, for example, our web page created for this or different markets other than Google Play, and we can do -- use these other ways to avoid or bypass the Google in that payment. Yes. Well, I myself, I'm a BJ, and I'm just not sure how many people are actually using Google for the Star Balloon payment. Yes, because it has to do with the access, it's so easy to just simply pay on Google's Pay. There is a certain portion of people that do that. Yes, I do have some fans and other BJs, but like people sometimes they get like the stars from up to 1 million or 100 million, that must be some other routes. Yes, the high volume like that must come from a different route, not just the Google market. And again, there are different routes where our users can buy Star Balloons. And so in net payment does not impact our high-paying users, to be honest with you. Well, I think the third part of the question was whether you plan on modifying the guidance because of the Google policy. Well, not necessarily because of the Google's policy, but I think we do need to modify the overall guidance. Yes. We gave out a very aggressive guidance at the early part of the year because of the potential for the revenue on the ads to grow, and we also had the commercial timelines to be rather quick. And the GMVs on the commercials, we thought to be -- thought that to be very big. But again, the platform revenue is not going to be largely changed by the Google's policy. It's going to stay the same, I think, but we do need to modify our ads revenue slightly down. It's not the speed of it -- it's not the speed of the existing businesses, but the plan, the new businesses are actually slowing down. So I think our guidance will go down to about early 20s. And for the revenues for the ads about 40%. It was from 60% initially that we gave out early this year. Yes, for the new businesses, we are again seeing slowdown of those, so we do need to change the guidance slightly down. As for Google, again, it does not impact our Star Balloons. I don't think it will have any impact in fact. And Mr. Chan-Yong briefly just mentioned that on the Google, just to add a few words to that, that 20% of the users are going with an alternative route for the payments. What that means is that those people who used to download app -- our Afreeca app itself from the Google, they're not downloading it from another sources such as One app and et cetera, not the Google Play store. That's what we meant by the 20%. And also, we track the overall Android payment volume. And those that used to download from Google and try to pay but failed because of this new policy implemented it, now being faced with challenges and those users out of those, about 65% are bypassing and already paying to our AfreecaTV, though not from Google. So from June and onwards, we've informed them of the new ways and alternative. I mean I don't like the bypass is the right way, but I guess we can say a more efficient way of making payments for AfreecaTV. And also, we do have several onetime events where they can get some benefits. Our users can benefits by switching off the platforms from Google to something else. And also, those -- I told you those -- 65% of those who saw the error messages of not being able to pay on Google, if you look at their ARPU, they are the high ARPU users. So what that means is that the very high ARPU users are, for the most part, choosing an alternative way of making payments without being impacted by Google.

All right. I actually got the message on that as well. So that's good to be educated on the alternative. Thank you very much. And also thank you very much for all the balloons from the audience. Thank you, [indiscernible], I thank you so much. [indiscernible], thank you so much for balloons. [indiscernible], thank you so much. We've got 50 of them. Another user has come up with more balloons. So thank you so much for that. So I suppose, users can actually watch this, but they cannot be engaged in this chat so perhaps, which is why they are sending us Star Balloons. So our IR account's Star Balloons are all donated. Anything else? So perhaps I can ask you a question. So what about the university match and its content that has been vitalized. So what do you make of this?

So I suppose we have pros and cons. So when it comes to the content, BJs are concerned about that. And them working together has been significant, trading collaborated contents. But the downside of it is, if you think about the entire -- if you think about it, this has been focused on one single thing. So we have this Afreeca ecosystem, has always experienced seeing this type of phenomenon. This one segment getting all the attention. So I've been doing this. We've been doing this indeed for the past decade, and the internal ecosystem has been fluid. That said, so are we going to just sit back and see what is happening? No, we will intervene, if needed. For example, the streaming contract, and we have original content as well. So we will continuously work on everything to improve the current situation. So the key here is, today, the legacy practices are still important, but we have to think about the original VOD content, and we will continue to focus on that. And we've been thinking about it for the past few months. BJs and the AfreecaTV have one thing in common, contents. So that is our core business value and business commodity, I would say. So if you think about the people who have been engaging in, they have changed their course of engagement.

Anything else? Do we have another question coming in? Yes, I do have a question here from Kim, Dohyoung of CLSA. Could you update on the second quarter's active streamer?

I think you're talking about the active BJ. Like I said, there is a seasonality there and the endemic that's bringing the BJ's number down from Q-o-Q. So right now, we have about 14,850 active BJs.

What do you say -- because you are the BJ yourself? You have some breaks, no?

Yes. it was my time to recharge and prepare. So now I'm back, fully recharged. And there are reasons for taking a break. To upgrade the content is one or maybe shed some weight or et cetera. And for me, I am looking at the eating shows and the beauty shows. And if I have that new target, I need some break to get myself ready and get ready for the new contents.

Well, we have a very -- we're looking forward to your second half of the year's performance. Now Mr. Chan, besides game, is AfreecaTV making any efforts for non-game sections?

Of course, we're all around platform, buying the content, producing the content, collaborating with other partners and supporting the content, all of that are within the content strategy, but that could be in the eSports section or sports section, entertainment section, fishing even or the leisure physical activity and et cetera, so we're expanding to many different categories.

All right. I believe we have another question. So another question from Mr. Kim. So it appears to me that you launched the advertisement broadcasting service. So obviously, there have been active movement to sign contracts between game companies and also streamers. So what do you expect to get out of this?

So there are several very famous BJs have been doing this. So I suppose this is not a general thing. This is sort of done by very few handful of famous BJs. We have to think of a commonality. So when we do the targeted advertisement, we have to think about the size and the type. And all that, advertising-related businesses are conducted based upon the capability of those who are running that segment. So it's a genre of advertisers. And what type of the matrix of the human resources? We cannot oversee every single thing. But we have a pool of proper BJs. We have to systematically match these people, the BJs and advertisers. So we have, let's say, we have small advertisers and big advertisers, and they have a different route of coming in. So what you said the impact that you're talking about. We have to think about using BJs as a means of achieving this goal, and we also have once again commonality. We had AAM solution. Against this backdrop, we have to provide advertisers with clear figures and clear information. So we are working on that. So the matching system is a part of this effort. So the AAM solution, is in relation to advertisement. So how the advertisers are going to do the segmentation and targeting and after creating the content, we can report the advertisement that was manually done in the past, but we will automatically do it utilizing the system. And once again, the metric system will be a fundamental element.

Okay. Next question from Daiwa Securities, Kwon Youngsun. Another question. When do you plan to have a successful profit model like the advertisement business?

Well, looking at that question, I think he's saying that our ads business is already quite successful. Is that the assumption behind it? Well, that's great. Because as you all know, and Mr. Kwon, you must be also aware of it, but Star Balloon revenue has been so high and we are pursuing to become a media platform. And that means our ads revenue must be larger. We thought about that for 6 and 7 years already. And at the senior level, I had been very much down to like everything about the ads revenue as the way to drive it. And I think I've done it pretty well and it's time that we grow further. And Mr. Kwon, you're saying it is very encouraging and also puts me some responsibility on my shoulder because as for the ads revenue, this is very, very critical. The Star Balloons has been very good. But the moment that ads revenue exceeds the Star Balloons' revenue, that will give us tremendous ways to grow our businesses even further to an area, not imagine. So ads revenue is extremely critical to all of us. And also, we must think of it a way to ads revenue is going to give us a huge flexibility, not just the Star Balloons. So again, on a platform based on the donation. So Star Balloon is one pillar and the ads revenue is another. And if we have both of it, it is amazing already. But if you were to ask for the third element to really round us that would be the commerce. Now commerce revenue is put in a different category with the ads. It's basically selling the products and getting the commission cut out of it with the direct revenue out of it. And although the e-commerce business isn't picking up as fast as I would like to see, at least once we have that settled, the commerce business is going to be our third pillar that will bring the revenue to our company.

So the next question came from Eun Jung Shin from DB Investment. So the first question is the forecast of the platform and the branded content advertisement in the third and fourth quarter, how do you -- what do you make of this?

So during the third and fourth quarter, and the growth rate of the content advertisement has been 40% Y-o-Y. So that's a sensible figure. So I cannot divide up the figures for the platform advertisement and branded content advertisement portion. But obviously, the content -- the branded content portion is bigger. When it comes to live commerce though, internally, we refer to this as a media commerce. If you think of in live commerce, this is one element of what we are doing as a commerce business. So the entire commerce segment. And all that, we are focusing on this lucrative portion. But -- so once again, we are focusing on PV products that are highly effective and efficient. So we will focus on that. So once again about the management platform, it was one of the important elements of our business. We have shopfreeca that can be utilized via PC or mobile. So this basically is the platform and framework of the media commerce. So BJs and AfreecaTV are working on this commerce business together. So obviously, BJs will be able to get another way of revenue this is -- will be an additional route for them to create revenue. So the fruits will become more and more visible down the road. Well, we have to think about the potential and what this can create in the future. So if that happens, if the commerce business actually launches, I will do my very best to sell products. And that will be a ranking of who has sold more. So I would like to compete against other BJs.

Selling of the product, if you think about it. I suppose you are interested in a broad range of aspects and categories. So you are -- you have needs of certain products?

Yes, I do have interest in certain products, but I can sell more products, even equipment and tools I have sold them. So BJs are amazing at selling products on the platform of live commerce. And because we have our personalized channel to broadcast, so we are in a way -- we have capacity to do so.

Let's see if there's any other question. I guess we've been very articulate and rather clear on it. Well, I guess we don't have any further questions. That means we're going to bring this to the end. Are there any last words?

Well, yes, as I mentioned several times, when we say content strategy, that means it's another change that we're pursuing. It's not that we haven't had a content strategy, we'd already had it. But we are going to take it to the next level, and this is actually the first time to have that like officially announcing for this new change. And with that, if you look at us and others in the market, the content strategy is extremely essential in a platform business for sure. So we're going to do our best not going overboard. And hopefully, by the end of this year, next half of the year, you're going to share some great news and you will be able to tell we put so much efforts into this. So get excited. All right. Well, the stock market is actually going through a very difficult time, as you know, and this must draw hardship to many of you here in the audience. But we at the AfreecaTV is going to continue with what we have been doing for a long time. And with that, as Mr. Chan mentioned, we're going to add new content, new global businesses. And we're going to go with RSP that fits us the best and it could be by the end of this year or next year and the year after. We're going to put that into action and you'll be able to see the results of them one by one. And last but not least, Ms. Chan. Well, I want to, first of all, thank everybody for participating in the outcome for about an hour. And hopefully, by the next quarters, our panel will show -- come up with even better performance. All right. So thank you, everyone, for your time and your interest. I hope we helped to share some of the curiosity and questions you had. If you have any questions or sessions, do let us know at the chat room or you can always contact the IR team. Okay, see your next quarter. Thank you all. Thank you very much. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]