DeNA Co Ltd

TSE:2432

Earnings Call Transcript 2021-Q3

[Isao Moriyasu, executive]

Hello, everyone. Today, we are going to announce DeNA's operating results and also discuss our announcement regarding personnel and changes in the management team.

Starting on April 1, I will be stepping down and we will have a new management team. Today, my successor, Shingo Okamura, is present for the first time at an operating results briefing. And after my presentation, he will share his aspirations for DeNA.

This will be my last presentation of our operating results. Ordinarily, I would have liked to speak with you in person. But with the situation with COVID-19, unfortunately, it will have to be through Zoom.

I will now start the presentation. First, I'd like to discuss the financial results summary for Q3. Q2 had particularly strong performance, and because of that, revenue, operating profit and the profit lines below were down quarter-over-quarter. However, in a year-on-year comparison, last year was the bottom for us in terms of financial performance. So both revenue and operating profit showed significant improvement.

Looking at our progress for fiscal year 2020. Exactly 1 year ago, we recognized a significant impairment loss. Our game business earnings base had weakened and we had increasing new business investments. This combined put us in a very tough situation. In response, we identified 3 major initiatives, as shown on the slide. We have seen good progress in each of these initiatives and, as a result, seeing a good recovery in revenue and operating profit this fiscal year.

Next is the financial results summary by segment. I would like to touch on one business in particular, the sports business. This business is highly seasonal. This fiscal year, the baseball season started later than in a typical year. And we had a large number of games that were pushed into Q3. This led to stronger quarterly performance in this segment on a year-on-year basis. However, in Q4, we will be completely in the off-season. And we expect to see performance as is typical for an off-season quarter, such as from 2 fiscal years ago.

Next is our slide on the cost and expense breakdown. I have nothing to add here.

Now I would like to discuss our individual businesses, starting with the game business. Q3 is often a seasonally weak quarter, falling into a gap in our event schedule. So our performance is often weak. This year, we had strong performance in Q2. As I mentioned during our previous briefing, this was due to strong revenue performance due in part to events in our key existing titles. In Q3, on the other hand, our key existing titles did not perform as well. And our performance overall was weaker than we had expected. Looking forward to Q4, usually, this is a seasonally strong quarter, with contribution from New Year events and anniversary events in key existing titles in February and March. Chinese New Year is also about to begin. We are going to do our best to achieve good performance during these important events in February and March and return to stronger performance in this business in Q4.

This slide covers our new titles. This fiscal year, we expanded our title Slam Dunk outside of Mainland China into multiple new countries and saw major earnings contribution. I have talked about this before, but generally with games, if you depend on just enhancing the performance of the existing titles and cutting costs, then it is really challenging to maintain stable performance in the future. This is simply a characteristic of this business. You need to continually produce new games. This is absolutely essential to stabilize and grow your business.

This slide shows the new and upcoming titles in our pipeline and we have others we cannot talk about today. And we will do our best to make these titles into hits.

Next is the sports business. The next professional baseball season is coming up quickly, starting around the beginning of the new fiscal year. It is incredibly difficult to predict how things will work with COVID-19. We, of course, would like to be able to hold games without any restrictions, but it is not clear what the situation will be.

For the upcoming season, we will continue to propose new online initiatives and find ways to engage with fans online, just as we have done this past season, and have that contribute to our financial performance. So online initiatives will continue to be important.

In our new business areas, we have a variety of initiatives. We have divided them into 3 different approaches and are conducting disciplined investment. We are particularly focused on our live streaming business, including the service Pococha.

This slide shows the revenue and operating profit for the live streaming business segment. As you can see, we saw incredible growth in Q1 and Q2 due to demand from people staying at home due to COVID-19. From Q2 to Q3, we saw a slower level of growth, and our view is that we will return to a more stable growth trend. Some of you may be unsatisfied with the level of revenue growth we saw from Q2 to Q3. And to tell the truth, we are not entirely satisfied either. We expect that we will be able to bring the growth pace a little higher going forward.

To go into more detail about how we view the service, the chart on the left is essentially the MAU. This chart shows the MAU broken down into completely new users, who have never been on the service before, and repeat users, who return to continue using the service.

As you can see, we have a growing base of repeat users and we have been able to continuously maintain this growth trend. On the other hand, we have noticed that the number of new users coming into the service is declining slightly. So our next focus is on acquiring new users. We have been doing so since the end of December, and we'll continue to focus on this issue in the future.

On the right, you can see our paying user trends. As you can see, in April and May, we saw a large leap due to demand from people staying at home. But even after that period, we maintained a similar growth pace to the level before the leap. This gives us confidence that we will be able to maintain this level of growth going forward.

One of our future focus initiatives is to further grow and enhance Pococha. In the short term, as I mentioned earlier, we will be working to enhance the user acquisition, in particular, through digital marketing. That will be a key initiative.

Looking to the mid to long term, we are still in the early growth stage for this industry in Japan. So we are going to work hard in this genre to become the service considered the most trusted and most fun by live streamers and listeners alike and ensure users continue using the service over the long term. To do this, we will improve the service and also work on communication with live streamers and listeners. And we aim to become the #1 in Japan.

Pococha is a service where live streamers appear in person and they chat or sing or otherwise entertain in the live stream. We consider this to be a generic live streaming offering. And we are also doing our best to approach other new genres within live streaming that we are confident will be coming. We also think there's potential for live streaming to be successful, not just in Japan, but also globally. We are working on the global version of Pococha, and we believe that this will be an important initiative next fiscal year. We will do our best to make it a success.

Next, we have our new share buyback. This was also just announced. Originally, in May 2019, we announced a major share buyback program of up to JPY 50 billion and that program ran for about 1 year. The program only ended up purchasing a little more than JPY 36 billion worth of shares before it ended.

In May last year, there was a lot of uncertainty with COVID-19. We faced uncertainty about our own financial performance and about the financial markets in general. Given that uncertainty, we decided to not do anything further. Since then, our performance has recovered. So we have announced a new buyback program to use the remaining JPY 14 billion and thus reach the maximum of JPY 50 billion that we originally promised. This buyback program will be carried out over the next 6 months.

Finally, I would like to share our updates about personnel. I became the President of DeNA in 2011, so it has been about 10 years since then. We have also seen substantial results in all of our 3 major initiatives within 1 year of the initial announcement.

Considering all these aspects, we felt that we had enough leeway to make a transition to a new leadership team. I will pass the baton on to the COO, Shingo Okamura, and step down. Also, Tomoko Namba, who is our Executive Chairman, will be continuing in that role, but focusing more on her role as the chairperson for the Board meetings and be taking a step back from business execution.

Those are the changes we are making to our leadership team and business execution structure. This will be our new setup starting at the beginning of the next fiscal year.

Now I will hand it over to Shingo Okamura to share his aspirations as the future President and CEO.

[Shingo Okamura, executive]

Hello, everyone. We have been facing COVID-19 for over 1 year and there is no resolution in sight. The future is uncertain and many things are hard to predict amidst these changing times. These are the times in which I will be stepping into the role of President and CEO starting in the next fiscal year.

I joined DeNA 5 years ago. And since then, I worked on unifying the management of the baseball club and the stadium. And then from 2 years ago, I was involved in the management of all of DeNA as the COO, working closely with Tomoko Namba and [indiscernible] Despite only having 20 years of history, DeNA has accomplished a great deal. However, I also feel there is still significant potential as DeNA is such a young company. The excellence of the people at DeNA inspires me and gives me hope for what we can achieve.

DeNA is very unique, entertaining through our game and entertainment services and also serving the community in solving social problems. We have mastered Internet and AI technology and use it to pursue unique businesses. I plan to leverage the assets and experience of DeNA built under Namba-san and Moriyasu-san. And despite these turbulent times, I will do my very best to deliver delight to everyone.

Thank you for your continued support of DeNA. And I will do my best to meet your expectations. [Statements in English on this transcript were spoken by an interpreter present on the live call.]