Mixi Inc

TSE:2121

Earnings Call Transcript 2021-Q1

[Koki Kimura, executive]

Thank you very much for taking time out of your busy schedules to attend this earnings results briefing session today. I am Koki Kimura, President and CEO. Now I'd like to explain the results of the first quarter of fiscal year 2021. Today's briefing will be divided into the following parts: financial status, business status and results forecast. Please turn to Page 3.

First of all, our company stock listing was transferred from Mothers to the First Section of the Tokyo Stock Exchange on June 23. I'd like to express my sincere gratitude to our shareholders and all of our stakeholders. It is because of your support that we were able to realize this transfer. We will continue to strive to improve corporate value. I ask for your continued guidance.

The mixi Group has a medium-term management policy to enrich global communication by combining entertainment with technology. In the current fiscal year, fiscal year 2021, we will focus on the revitalization of Monster Strike and to further grow government-managed betting sports. Please look at Page 4. Before talking about the business results, let me first explain our company's measures against COVID-19. In line with government policy developments, we promptly established the COVID-19 Response Committee chaired by the Managing Director of Human Resources. By having the committee take central command in grasping the situation in devising countermeasures, we were able to quickly introduce remote working and establish a system that allows us to provide continuous services even under various work environment. After the declaration of emergency was lifted, we defined the mobile work style as a work style that combines remote work and office work and we are promoting this flexible work style that mixes the best of both approaches. Going forward, we aim to shift to new ways of working regardless of the COVID-19 situation.

Please move to Page 5. Let me explain our business topics. In the Sports segment, we are working on further growth in the government-managed sports related business and launched a new service, TIPSTAR, in June. In addition, Chariloto and Net Dreamers are achieving steady growth. In the Digital Entertainment segment, we focus on the revitalization of Monster Strike and achieved an approximately 30% increase in net sales year-on-year. At the same time, quarterly sales of Kotodaman exceeded JPY 1 billion and the segment as a whole overachieved the plan. With the strong performance of Monster Strike, we have revised upward our full year forecast to net sales of JPY 105 billion, EBITDA of JPY 18 billion and operating income of JPY 14 billion. I will now provide a more detailed explanation. First, let me explain the financial status.

Please take a look at Page 7. This is a consolidated income statement. Net sales increased 41.3% on year-on-year to JPY 29.3 billion. EBITDA was JPY 8.4 billion, and profit attributable to owners of parent increased 340.6% year-on-year to JPY 4.8 billion. Please turn to Page 8. This is a trend of quarterly consolidated performance. Segment sales will be described later for each segment.

Please take a look at Page 9. This shows the trend in sales cost. You can see that outsourcing expenses has increased year-on-year. This is due to the booking of cost for the online viewing session of the Monster Strike movie in June and the development cost of the new service, TIPSTAR, which was released on June 30.

Please move to Page 10, SG&A expenses. Advertising expenses has decreased year-on-year. This was mainly due to our efforts to improve the efficiency of advertising expenses for Monster Strike, starting this year in order to calculate EBITDA. Depreciation cost has been separated out from others. Next, I will explain the status of each business.

Please turn to Page 12. First, we look at the Sports segment. Sales increased 299.8% year-on-year to JPY 2.3 billion. This was due to an increase in revenue at Chariloto and the consolidation of Net Dreamers from the fourth quarter of last year. Please turn to Page 13. This shows the status of Chariloto and Net Dreamers. Despite a difficult environment in which keirin races were voluntarily canceled due to COVID-19, Chariloto sales recovered after the races resumed, resulting in a 4.3% year-on-year increase in net sales. Net Dreamers recorded a 39.9% year-on-year increase in sales, a significant improvement in performance. This is largely due to not only bidding, but racing media also going online as horse races were held without live audience.

Please look at Page 14. Now I'd like to explain about the sports betting service, TIPSTAR, which we launched on June 30. As we have been explaining for some time, this service takes advantage of synergies within the mixi Group. In the next pages, I will explain about the keirin market that TIPSTAR is addressing and the details of TIPSTAR service.

Please turn to Page 15. Here, I explain about the keirin market. The keirin bicycle race market has been growing every year since hitting a low of about JPY 600 billion in fiscal 2013. The driving force behind this is online sales, which surpassed 50% share of total sales in fiscal 2019. We aim to expand our market share by launching a new service in this market, TIPSTAR, which I will now explain in more detail.

Please look at Page 16. Let me explain the features of TIPSTAR service. TIPSTAR is a sports betting service where you can watch live video of the races along with the prediction talk of video streaming personalities and enjoy online voting for keirin races with your friends any day of the year. One of its major features is that by using a dedicated currency called the Tip Metal, people can continue playing for free, like social network games. In addition, since users simply bet along the expectations of the video streamer teams, there is no need to make difficult predictions and even complete novices can start to enjoy it right away.

By providing a completely new and overwhelmingly easy way to enjoy keirin, we have been able to attract new users who have never experienced keirin, with around 50% of users being female and half of the registered participants being young people in their 20s and 30s. We aim to capture a high share of the market by bringing together the high-growth potential of public sports with our know-how of combining entertainment and technology nurtured through our social games. In addition, since it is something you can enjoy on your smartphone, it can provide entertainment to people hold up in their homes.

Next, I will explain about the Lifestyle segment. Please turn to Page 18. This is a review of the Lifestyle segment. Sales increased 20.6% year-on-year to JPY 900 million. This was due to strong sale of FamilyAlbum gifting services, which recorded doubling of sales. Sales declined from the previous quarter, but this was due to a temporary decline in sales of minimo as the beauty parlor industry was affected by COVID-19.

Please turn to Page 19. This is a review of the FamilyAlbum. Net sales for FamilyAlbum increased 266.4% year-on-year. Thanks to strong sales of Mother's Day gift and Father's Day gift services launched in collaboration with gifting app OKURU. As with FamilyAlbum New Year's card at the end of last year, this is part of our effort to monetize the photo assets of FamilyAlbum, and it is a service where you can send a token of appreciation to parents with a picture of their grandchildren. By continuing to provide services-based synergies with FamilyAlbum, we aim to enhance monetization and contribution to profit. Next, I will explain about the Digital Entertainment segment. Please turn to Page 21. This is a review of the Digital Entertainment segment. Net sales increased 34.2% or JPY 6.6 billion year-on-year to JPY 25.9 billion. This was due to the strong performance of Monster Strike, whose net sales increased approximately 30% year-on-year, and also, the consolidation of Kotodaman.

Please look at Page 22. This explains the current status of Monster Strike. By collaborate with popular IPs and introducing materials that motivate users to spend, we were able to recover the ARPU while maintaining the MAU year-on-year. As a result, net sales increased approximately 30% year-on-year.

In addition, as part of our effort to offer entertainment in the COVID-19 era, we hosted the public online viewing session for the Monster Strike movie, whose release had been postponed. I think we were able to make many users happy with an event you can enjoy at home. We recognize that we are still in the process of revitalizing the game, and we will aim to develop this into a game that will continue to be loved for the next 10 or 20 years. Also, we have been running a new summer campaign since August 3. Even in the summer of 2020 when you can't go out and have fun, Monster Strike will offer you the opportunity to play with your friends.

Please turn to Page 23. This explains the status of Kotodaman. We have carried out active campaigns, including the second anniversary and various monthly collaborations. As a result, we were able to further improve our ARPU while maintaining a high MAU. We will continue to conduct aggressive campaigns to improve performance.

Overall, for our games, Monster Strike now in its seventh year still achieved a significant increase in sales. Kotodaman has also been able to steadily improve its performance. We are more confident in our management and are aiming to increase sales.

Now let me explain our results forecasts. Please refer to Page 25. Today, we revised upward our full year results forecast. Net sales forecast is up by JPY 5 billion to JPY 105 billion, EBITDA will be JPY 18 billion, operating income will be JPY 14 billion, and net income will be JPY 8.5 billion.

Full year segment sales forecast have been revised as follows. For Digital Entertainment, an increase of JPY 5 billion from the initial forecast to JPY 88 billion. The Sports segment will be JPY 10 billion, and the Lifestyle segment will be JPY 7 billion.

Please turn to Page 26. I would like to explain the main points about our results forecast revisions. We saw an increase of JPY 5 billion in net sales and JPY 3 billion in operating income in the first quarter and July for Monster Strike that has been added. Some factors that are not reflected in the earnings forecast include net sales of our new service, TIPSTAR, in the Sports segments; impact of further revitalization of Monster Strike in the Digital Entertainment segment; and net sales of new games scheduled for release in the second half of the fiscal year. These factors have not been reflected in the current forecast.

Please turn to Page 27. Finally, I'd like to explain the establishment of the mixi Entertainment Fund, which was Board resolved today. As I mentioned at the outset, our company's medium-term management policy is to enrich global communication by combining entertainment with technology. The live entertainment industry is in need of a major change due to the impact of COVID-19. Through this new fund, we aim to partner with industry companies to promote digital transformation of the industry as a whole and deliver new entertainment in light of the new normal to many customers. Our company will continue to strive to energize Japan and the world through the power of entertainment.

That concludes my explanation. Thank you for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]