Kakaku.com Inc
TSE:2371
Earnings Call Analysis
Q3-2024 Analysis
Kakaku.com Inc
Kakaku.com has revised its full-year earnings forecast due to prolonged negative impacts in its Shopping and Advertising businesses. Originally anticipating a recovery, the company has struggled with challenges such as fewer new products, exchange rate fluctuations, and increased production costs. The updated forecast predicts full-year revenue of JPY 66.5 billion, operating profit of JPY 25.5 billion, and an operating margin of 38.3%. This revision represents a decrease of JPY 1.2 billion in revenue and JPY 1.6 billion in operating profit compared to earlier projections.
Third quarter revenue increased 5.7% year-over-year to JPY 17.24 billion, while operating profit slightly dipped by 0.2% to JPY 7 billion. Cumulatively, the first nine months showed a 9.2% increase in revenue and a 2.1% increase in operating profit compared to the previous year. Accounting for an adjustment in the Insurance segment's revenue recognition, both revenue and operating profit would be approximately 15% higher, showcasing a stronger performance than indicated by the raw numbers.
The Kakaku.com segment witnessed a decline across Shopping, Service, and Advertising areas. Specifically, there was a noteworthy decrease in banner and tie-in advertising revenues by 24.7%. Conversely, the Tabelog business bounced back post-COVID to record-high revenues. Kyujin Box displayed excellence with a significant 55.9% revenue increase, fueled by promotional efforts and user retention strategies. The New Media and Solutions as well as Finance segments presented a mixed performance, with real estate and travel areas showing growth but entertainment, hobbies, and finance experiencing declines.
Kakaku.com plans to maintain its essence of offering products at reasonable prices but intends to amplify the experience through technological advancements. Enhancements including AI-driven features, better guides, chatbots, and robotic customer services are in development to further improve user engagement and satisfaction.
Tabelog's third-quarter revenue reached JPY 7,415 million, surpassing the peak pre-COVID figures. Promotion service and online reservation service grew by 4.2% and 37.7%, respectively. The platform exceeded its annual goal with 71,100 contracted restaurants and achieved a record 23.07 million online reservations, indicating a resilient and growing user base.
Kakaku.com has made strides in their sustainability efforts, including the selection of what's most important (materiality issues) and reporting greenhouse gas emissions (Scope 1 and Scope 2). Although they await scores from sustainability evaluations, the company's commitment to transparency and proactive response to climate change is evident. Continued progress and disclosures in sustainability are set to enhance Kakaku.com's corporate responsibility profile.
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Hello. This is Hata from Kakaku.com. Thank you very much for joining us today. I will now briefly discuss the financial results for third quarter of the fiscal year ending March 2024. Before I talk about operating results, I would like to inform you of the revision of our earnings forecast. In the Kakaku.com business, the impact of fewer new products and price increases due to exchange rate fluctuations on the Shopping business, as well as the impact of less ad placements because of fewer new products and higher production cost due to exchange rate fluctuations on the Advertising business have been more prolonged than initially expected. As a result, revenue and profits for the first nine months of the fiscal year under review deviated from the forecast announced at the beginning of the fiscal year.
In light of these circumstances, we have revised our consolidated earnings forecast for the full year. There are no plans to change the dividend forecast. The three factors I have just mentioned indicate that we were not able to recover in third and fourth quarters from the poor performance in first and second quarters. The revised forecast calls for full-year revenue of JPY 66.5 billion, operating profit of JPY 25.5 billion, operating margin of 38.3%, profit before income taxes of JPY 25.6 billion, and profit attributable to owners of the parent company of JPY 17.5 billion. The revision is JPY 1.2 billion in revenue and JPY 1.6 billion in operating profit. Next, I would like to report on our operating results. In third quarter, three-month consolidated revenue was JPY 17.24 billion, up 5.7% from the previous year, and operating profit was JPY 7 billion, down 0.2% from the previous year. In the cumulative total through the third quarter, revenue was JPY 48.6 billion and operating profit was JPY 18.2 billion, up 9.2% and 2.1%, respectively, from the previous year. Progress against the revised forecast was 73.2% for revenue and 71.8% for operating profit. As I mentioned, third quarter revenue and operating profit were up 5.7% and 0.2%, respectively, from the previous year.
However, in the third quarter of the previous year, Kakaku.com Insurance made a change in estimates related to revenue recognition for commission income from life insurance agency operations, which had an impact of plus JPY 978 million on sales, operating profit, and profit before income taxes. If we exclude this impact, both revenue and operating profit are about 15% higher than the previous year. See page 6 for a breakdown of quarterly revenue by business segment. The table below the graph shows the percentage of sales in each category. For the third quarter, the sales composition was 27.9% for Kakaku.com, 43% for Tabelog, 13.8% for Kyujin Box, and 15.3% for New Media and Solutions/Finance. Please see the next page for a breakdown of quarterly trends in operating expenses. Advertising, commissions, outsourcing, and other expenses, as well as the total of operating expenses were similar in trend as in the first and the second quarters. Until last year, there was a tendency for various operating expenses to increase from the first to the fourth quarter. This year however, we made a major investment in the first quarter, including personnel expenses, and subsequently curbed non-essential expenses, resulting in operating expenses in the third quarter being on par with the first half. I will now explain operating results by business segment. In the third quarter, Kakaku.com revenue declined 3.1% year-over-year. Shopping was minus 9.1%, Service was minus 15.3%, and Advertising was minus 24.3%. Tabelog was plus 17.9% overall. The breakdown is as shown in the table. Kyujin Box was plus 55.9%. Of New Media and Solutions/Finance, New Media and Solutions was plus 5%, and Finance was minus 59.2% due to a change in estimates related to revenue recognition for Kakaku.com Insurance, as I explained earlier. If that had not been the case, the result would have been almost the same as the previous year. In the following pages, we will first report on the details of Kakaku.com. Here are the results for Shopping, Service, and Advertising as compared to last year. Next, please look at page 11. As I have often mentioned in past briefings, Shopping business revenue declined due to the continued impact of fewer new product registrations and declining demand for durable goods, as well as fluctuations in search rankings for consumer goods, resulting in a 7.6% decline for durable goods and a 15.6% decline for consumable goods compared to last year. Next are the other KPIs for the Shopping business. First, regarding the number of new product registrations for durable goods, compared to the previous year, home appliances increased by 5.5% year-over-year, while personal computers decreased by 12.8% year-over-year. The 5.5% increase in the number of new product registrations for home appliances was due to the fact that there were multiple registrations for TVs in a specific manufacturer's product series, but if we look at the number of new products in real terms, that is, from the perspective of whether the increase in variety had a positive enough impact to stimulate demand for comparing products, the number decreased again this year.
For consumable goods, the trend in organic traffic has not changed. Although up from the first and the second quarters, traffic decreased by 28.4% compared to last year. One topic is shown on the right. In the smartphone category within durable goods, in addition to pricing information for buying new and used smartphones, we have released pricing information for users looking to sell their smartphones. Next, I would like to report on Kakaku.com’s Service business. Overall, revenue in the Service business increased. The personal finance and telecommunications domains performed very well, but the automotive domain continued to face difficult conditions, with a lack of new cars and used cars selling poorly. As a result, compared to last year, the personal finance domain was up 24.7%, telecommunications domain was up 40.3%, and the automotive domain was down 15.4%. Next, I will explain the trends and movements in each of the domains. In the personal finance domain, the number of credit card comparisons and card loan applications increased along with an increase in consumer spending on events, travel, and other activities. In the telecommunications domain, overseas Wi-Fi rentals remained flat quarter-over-quarter due to the weak yen and other factors, and there was no trend of a sharp recovery from the pandemic in this third quarter. On the other hand, the number of applications for fiber-optic and mobile lines increased due to the enhancement of Kakaku.com exclusive offers and cash-back programs.
In the automotive domain, the number of inventory confirmations for used cars has been decreasing, partly due to higher apparent prices, affected by the regulatory revision for used cars that made it mandatory to indicate the total price, vehicle price plus expenses. On the right, some of new content is introduced. In terms of expanding information on investment and asset management, we are enhancing the content on investment trusts, the new NISA system, and other content for which demand is increasing in line with policy and other factors. On page 15 we have the advertising business of Kakaku.com. In the advertising business of Kakaku.com, ad placements by manufacturers in all three major areas, digital/home appliances, PCs, and cars, have been very weak. Banner and tie-in ads were down 24.7% compared to last year. Page 16 shows further details on the advertising business. Compared to last year, ad revenue from manufacturers of digital/home appliances was down 17.2%, PC manufacturers were down 36.1%, and car manufacturers were down 63%. There were various factors, but in addition to the lack of new product launches, fixed costs were being reduced as production parts were becoming more expensive, and some PC manufacturers were spending their money on sales price discounts. As a result, ad placements were limited in the third quarter. Next, on page 17 is a partial introduction to the concept of Kakaku.com and our future efforts. Kakaku.com’s essential value of finding the products you want and buying them at a reasonable price will not change, but we will continue to improve the user interface by utilizing advanced technologies including AI and for example provide, how-to-choose guides, chatbots, and robot customer services, as shown in the middle of this diagram. Next, I would like to explain about the Tabelog business. In Q3, revenue totaled JPY 7,415 million. The leftmost part of the graph shows revenue for the third quarter of the fiscal year ended March 2020, the highest ever revenue in the Tabelog business. In the third quarter of this year, after overcoming the difficult time caused by COVID, Tabelog was able to generate record revenue, above the level of the third quarter of the fiscal year ended March 2020. Page 19 is a breakdown of the restaurant promotion business. In Q3, sales in the promotion service and the online reservation service increased by 4.2% and 37.7%, respectively, compared to last year, both roughly in line with our plan. Next, page 20 shows the number of contracted restaurants for each Service. First, the number of restaurants contracted for the promotion service is 49,000. In the third quarter, we achieved the goal we set at the beginning of the term and were able to add about 1,000 restaurants from the last quarter. ARPU for the promotion Service was JPY 22,600, an increase from the first and second quarters, but considering that to the third quarter is the busy season, ARPU has not yet grown as much as expected. Next, the number of restaurants contracting our online reservation Service was 71,100, and since our target for this fiscal year was also around 70,000 stores, we were able to exceed that number. Next is the total number of fee-paying restaurants in the restaurant promotion business. There is some overlap between our two services because some stores subscribe to both the promotion service and the online reservation service, but the total number of contracted stores, excluding the overlap, is 75,000. Page 22 is the number of online reservations. The total number of online reservations for the third quarter was 23.07 million. This is also a new record high, surpassing our goal of 22 million. The next page provides an overview of year-end trends. Please refer to the left graph. Although the number of reservations for large group is gradually increasing, the percentage of total online reservations from October to December was about 6% before the pandemic and a little more than 4% this quarter, so the past three months still seem to have been influenced by the pandemic and an increase in telecommuting. Looking at the composition of the number of online reservations by time of visit, shown in the graph on the right side, there are more reservations in the early hours, 5 pm to 6 pm, than before the pandemic. However, compared to 2021 during the pandemic, reservations after 7 pm have greatly increased, indicating a gradual return to the same reservation trends as before COVID. Next, I will report on Kyujin Box. Kyujin Box saw an increase of 8.6% in monthly users and 55.9% in revenue compared to last year. Revenue in particular continues to be strong. We believe we have achieved better-than-expected results, including sales measures and improved conversion rates. On the right side of the page is a graph showing the level of brand awareness of Kyujin Box, based on our own research. The awareness rate has gradually increased from 22.3% last year and 18.8% the year before last to 28.5% in this December, thanks to TV commercials and an increase in the number of repeat users. We will continue to do our best to improve our brand power. Next, I will explain and report on New Media and Solutions/Finance. In the real estate domain, Sumaity increased 5.6% compared to the previous year. The travel and transportation domain is comprised of several services, which collectively added 19% compared to last year. The entertainment and hobbies domain was minus 26.5% compared to last year. The finance domain was minus 59.2% compared to last year. As I explained earlier, the change in estimates related to revenue recognition in the third quarter of the fiscal year ended March 2023, had an impact of JPY 978 million. As for entertainment and hobbies, gaie Inc. is no longer consolidated as of August 2023 due to the transfer of all shares held, resulting in the lower numbers. From page 26 onward, details on each of the New Media and Solutions/Finance businesses. The travel and transportation domain remains strong, coupled with the recovery from COVID. All of the major businesses are up in the 20% range, with LCL up 23.7% compared to last year, and Time Design up 22.6%. In the real estate domain, Sumaity, although the number of monthly users decreased slightly, sales increased by 5.6% compared to last year, which means that sales increased with an increase in the rate of users sent to partner sites. Next, the entertainment and hobbies domain, with eiga.com, gaie, Kinarino, and webCG. As for eiga.com, ad placements increased along with the release of major films, with a 14.3% increase compared to last year. Both the advertising and e-commerce portions of Kinarino performed well, up 27.6% compared to last year. webCG, where most of the sales comes from advertising, revenue was up 3.2% compared to last year. The finance domain is as explained earlier. That's all for my report on the progress of our businesses. Last topic today are our sustainability initiatives. Please refer to page 29. We have already introduced our sustainability efforts in our previous presentation materials, but in this time, we have included information on where we have made further progress. We have already completed the selection of our materiality and have posted them on our corporate website, et cetera. Regarding one of them climate change response, we were able to disclose audited figures for greenhouse gas emissions for fiscal year 2022 at Scope 1 and Scope 2. We have also responded to sustainability-related evaluation organizations by participating in surveys. We have yet to receive scores on some of the evaluation results, but we will continue to disclose information on sustainability. There are some areas where sustainability disclosure is progressing. We will continue to disclose sustainability-related information, as they become available, on our corporate website. This concludes my brief explanation of our financial results for the third quarter of the fiscal year ending March 2024.