Mixi Inc

TSE:2121

Earnings Call Transcript 2021-Q4

[Hiroyuki Ohsawa, executive]

Thank you very much for taking time out of your busy schedule to participate in today's earnings results meeting. I am Hiroyuki Ohsawa, Director and CFO. Today, I will begin by explaining the financial and business status for fiscal year 2021 and the forecast for fiscal year 2022 results, and then Mr. Kimura, President, will talk about our medium-term management policies.

Please turn to Page 3. This is the executive summary. First, in fiscal year 2021, we achieved sales and profits increased for the first time in 5 years, and our profits were significantly higher than the revised forecast. Starting from fiscal year 2022, we are announcing our results forecast in a range. In terms of shareholder returns, we will pay a full year dividend of JPY 110 per share and have also resolved to repurchase treasury stock. Lastly, we will explain our medium-term management policies.

First, I will explain our financial status. Please turn to Page 5. This is the full year consolidated statement of income. Net sales were JPY 119.3 billion, an increase of 6.4% year-on-year and almost in line with the revised plan. EBITDA was JPY 27.1 billion. Operating income was JPY 22.9 billion and profit attributable to owners of parent was JPY 15.6 billion, it's up more than 30% year-on-year and well above the revised plan.

Please turn to Page 6. This is the quarterly consolidated statement of income. Net sales were JPY 31.5 billion. EBITDA was JPY 8.5 billion, and operating income was JPY 7.4 billion. Please refer to Page 7. This is a quarterly trend of consolidated results. Segment sales will be explained later.

Please refer to Page 8. This is a trend of cost of sales. Compared to the same period of the previous year, personnel expenses for development increased. This is due to an increase in the number of personnel and the impact of year-end bonuses.

Please refer to Page 9. This is a quarterly SG&A expenses trend. Advertising expenses increased year-on-year. This was due to the addition of advertising expenses for TIPSTAR. Next, I will explain the status of each business. Please refer to Page 11. This is a review of the Sports segment. Net sales totaled JPY 3.8 billion, an increase of 68.5% year-on-year. This was mainly due to the growth in sales of Chariloto and Net Dreamers as well as the addition of sales of TIPSTAR. Please refer to Page 12. This is the GMV trend of Chariloto and TIPSTAR total GMV increased by 145.9% year-on-year, mainly due to the growth in Internet sales. Compared to the previous quarter, Chariloto's GMV increased steadily due to the implementation of marketing measures. TIPSTAR, on the other hand, did not see an increase in GMV as the company refrained from marketing activities in preparation for the major update in April.

This update added a new function that allows users to publish their bets and also started handling auto racing as a new content. We will continue to accelerate our investment in TIPSTAR with the aim of further increasing its growth. Please refer to Page 13. This is a review of the Lifestyle segment. Net sales totaled JPY 1.1 billion, an increase of 15.7% year-on-year. This was mainly due to higher sales in FamilyAlbum and minimo.

Please refer to Page 14. This is the status for FamilyAlbum and minimo. The number of users for FamilyAlbum surpassed 10 million in March. We are diversifying monetization methods and steadily building a foundation for sales expansion as the number of users increases. Although the number of reservations for minimo dropped at the beginning of the fiscal year due to the COVID pandemic, it has since grown significantly and exceeded the previous year's level.

Page 15, this is a review of the digital entertainment segment. Net sales totaled JPY 26.5 billion, a decrease of 27.2% year-on-year. In the same quarter a year ago, Monster Strike recorded significant sales through a collaboration with Demon Slayer: Kimetsu no Yaiba, which had become a social phenomenon. There is a difference from the previous year, but sales were generally in line with the revised plan. Sales of Kotodaman more than doubled year-on-year due to collaborations with popular IPs.

Please turn to Page 16. This is the status of Monster Strike and Kotodaman. Monster Strike achieved an increase in profit for the full year by aggressively conducting collaborations with IPs and for Kotodaman, year-on-year sales increase continued throughout the year. Thanks to collaborations with various popular IPs, resulting in a significant increase in sales. We will continue to implement a variety of measures that users will enjoy. Next, I explain the fiscal year 2022 results forecast. Please turn to Page 18. This is a result forecast. Considering high business volatility, earnings forecast will be disclosed as a range beginning this fiscal year. We forecast net sales of JPY 115 billion to JPY 120 billion, EBITDA of JPY 14 billion to JPY 17 billion, operating income of JPY 12 billion to JPY 15 billion and profit attributable to owners of parent of JPY 8.5 billion to JPY 10 billion. I will explain the key points of the forecast on the next page.

Please look at Page 19. This is the results forecast by segment. In the Sports segment, we expect net sales to double from the previous fiscal year to JPY 25 billion. The key points are the continued investment in TIPSTAR and acceleration of its growth. We also expect growth in Chariloto synergies to be created through the collaboration between TIPSTAR and netkeirin and growth in the netkeiba by enhancing its functions.

In the Lifestyle segment, we forecast net sales of JPY 7 billion through the expansion of the FamilyAlbum product line and the growth of minimo. In the Digital Entertainment segment, we forecast net sales of JPY 83 billion to JPY 88 billion, a decrease of 10% to 15% from the previous fiscal year. Although we are making conservative estimates for Monster Strike, the latest collaboration with Jujutsu Kaisen and others are performing very well, and we are aiming to realize an upside. For Kotodaman, we expect sales to grow on a year-on-year basis. No new titles are considered in the forecast.

Please refer to Page 20. This is a TIPSTAR initiative in the sports segment. TIPSTAR was updated on April '22, and we released a platform where ordinary users can publish their forecast as top betters and auto racing was added as content. Going forward, we will enhance the multiplayer function to make it even more fun and exciting to play with friends. Please turn to Page 21. These are the Digital Entertainment segment's initiative for this fiscal year. For Monster Strike, we will continue to aim for an upside in sales by introducing high-profile initiatives such as collaborations with leading IPs. At the same time, we will ensure stable earnings by continuing to optimize advertising expenses.

With Kotodaman, we will make improvements to the game itself so that new users who have registered as a result of collaborations with popular IPs will continue to enjoy the game for a long time. Also, we will continue to implement attractive collaborations with an aim to achieve further growth.

Please turn to Page 22. I'd like to explain about shareholder returns. Our policy is to continue to focus on investments for business growth, while providing stable shareholder returns. For fiscal year 2021, we will pay a year-end dividend of JPY 55 as forecasted, with the interim dividend, the full year dividend will be JPY 110.

For fiscal 2022, we expect to pay an annual dividend of JPY 110 based on a DOE of 5%. In addition, the company resolved to repurchase JPY 7.5 billion of its own shares to improve capital efficiency and implement a flexible capital policy in response to changes in the business environment. Our policy is to hold treasury stock up to a certain level and utilize it as consideration for such things as M&A.

This concludes my presentation. Mr. Kimura will continue the explanation.

[Koki Kimura, executive]

I am Kimura, President and CEO. I will now explain our medium-term management policies. Please look at Page 24. We have adopted a medium-term management policy of enriched global communication by combining entertainment with technology. Technological innovations in IT, such as AI, are advancing in dog years. As such, there is an even stronger demand for humanity, such as interpersonal communication and creation of culture.

In our medium-term management policies, we are focusing on the entertainment field, in particular, and we believe that content such as games and sports, can be enriched by sharing their appeal and excitement with others. We hope to enrich communication around the world by refining our technology and know-how to create entertainment that surprises people and makes them want to tell others. At present, many of the opportunities for consumption of live entertainment and the food and beverages have been lost due to the COVID pandemic. But we believe that this is precisely why there will be a big rebound after the end of COVID. We would like to prepare well so that we can capture that opportunity and realize a big growth for the mixi Group.

Please turn to Page 25. I would like to explain again the significance of pursuing business development in the sports market. In a nutshell, we believe that this is the most suitable market for us to build our next pillar of revenue. First of all, we believe that the sports market, including publicly-managed bidding sports is an attractive market because of its large scale, room for growth and high sustainability.

Secondly, whereas all our competitors have an individual consumption model, we have a unique positioning called socialization, which encourages multiple consumers to consume together. We aim to take the know-how we have accumulated through our social networking services, mixi and Monster Strike, which have had tens of millions of customers, apply to the sports market and capture a big market share.

Let me explain in more detail. Please turn to Page 26. I will explain the 2 subsectors of the sports market that we are involved in, the spectator sports market and the publicly-managed betting sports market. First, I will explain the market size and growth potential of the spectator sports market. In 2020, the spectator sports market was reduced to half size due to the impact of COVID-19. On the other hand, the amount of enthusiasm among sports funds have not decreased, and we expect a recovery post COVID-19. On top of that, we believe that we can create new markets with DX. And this is where we see great business opportunity for our company.

Please turn to Page 27. I'd like to explain the publicly-managed betting sports market. This is an attractive market, which is large and growing in recent years. Recently, growth in Internet sales, in particular, has contributed to the accelerated growth of the sector, even under COVID-19. We believe that this is a very exciting environment in which a huge market will grow further through DX.

Please turn to Page 28. I would like to explain the sustainability of the sports market. First of all, sports is a national culture, although there would be some ups and downs impacted by the state of the economy, it has a long history as popular culture with a huge market size. There is also a national policy to expand the market.

Next is need for local economies. Sports are closely linked to the local economy and contribute to job creation. In particular, publicly-managed betting sports contribute directly to local government revenue and are indispensable for regional vitalization. Through the management of tailing stadiums and professional sports teams, we are delivering excitement and inspiration to people in each region and also contributing to regional vitalization. Please turn to Page 29. I'd like to explain our differentiation strategy. Up until now, we have gained tens of millions of customers by our socialization positioning that creates communication among friends and family through services such as a social networking service, mixi, Monster Strike and FamilyAlbum. Our differentiation strategy is supply the socialization know how we have thus acquired to the sports market.

TIPSTAR is a betting ticket sales service that leverages the know-how of social games and is the only betting service that offers new experience in which users can enjoy bidding together with their friends. Fansta, launched in April, is a service that makes it easy to find a venue to enjoy watching sports games. It is a one of a kind service that allows users to enjoy sports content with friends over drinks or meals. By differentiating ourselves with socialization, allowing people to enjoy together, we will expand market share in the sports business. Please turn to Page 30. We talk about the future development of the lifestyle segment. In March, the number of users of FamilyAlbum surpassed 10 million. We believe that communication among family members, which is the core value of FamilyAlbum is a common value throughout the world. In the future, we will aggressively implement marketing measures and diversify monetization methods in overseas markets as well, aiming to further increase the number of users and expand sales worldwide.

Romi, which is made available to the general public in April is a communication robot that specializes in conversation, allowing users to chat with it as if it were a family or a friend. With its originally developed conversation AI, users can enjoy free flowing conversations with Romi. Instead of hearing canned responses. In recent years, the pet market has grown significantly, and Romi is like a pet that provides comfort and also is like a family member who understands you and who you can enjoy conversations with. We believe that Romi, with its unique features, will be able to establish a unique position.

Please turn to Page 31. Here, we talk about the future development of the digital entertainment segment. With respect to Monster Strike, we will continue to implement measures to enhance the staying power of its IP. For Monster Strike itself, we will aim to create a new gaming experiences that users will enjoy for a long time. In addition, we plan to release spin-offs on a constant basis.

By strengthening the brand power of Monster Strike, we aim to expand the Monster strike ecosystem. As for new titles in this highly-competitive game market, we will focus on our strengths of social and multiplayer and constantly aim for a Monster Strike class home run.

Please turn to Page 32. I would like to explain our investment policy. We intend to invest actively through M&As and capital participation in deals that bring synergistic growth to our focused business areas. Since the transition to the current management structure in June 2018, we have conducted M&A for 4 companies in one business, totaling approximately JPY 24 billion.

Within the group structure, we have studied business strategies together with each company and implemented various measures and were able to significantly expand each company and business, resulting in a profit contribution of JPY 3.8 billion EBITDA in the previous fiscal year. In addition, we have been able to create multiple synergistic businesses by combining the assets of each company with our own.

One such business is TIPSTAR, which is positioned as a business with high growth potential. We are confident that we have been able to speed up the process of management growth by utilizing mergers and acquisitions. We will continue to pursue M&A opportunities that will accelerate our growth.

Please turn to Page 33. This is a summary of the key points of our medium-term management policies that I have explained so far. We will proactively invest in the sports segment to create a second pillar of our business and achieved profitability within 3 years. By growing the sustainable sports business, we will expand the scale of our sales as we transform and expand to a stable business portfolio.

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