DeNA Co Ltd

TSE:2432

Earnings Call Transcript 2023-Q4

[Shingo Okamura, executive]

Hello, everyone. This is Shingo Okamura, the President and CEO. Thank you for taking the time to join us today. I would now like to present our earnings results for the full fiscal year 2022.

First, I will start with our financial results summary and mid- to long-term strategy review. First, the financial results summary. In Q4, we had revenue of JPY 33.5 billion. For the full fiscal year 2022, we had revenue of JPY 134.9 billion and IFRS operating profit of JPY 4.2 billion and a non-GAAP operating profit of JPY 4.3 billion. On a year-on-year basis, we saw an increase in revenue and a decrease in operating profit.

Here are the financial results by segment. You can see that for Games, as I will describe later, we had fewer new titles than initially expected. For each of our other businesses, Live Streaming, Sports and Healthcare & Medical, we saw year-on-year revenue growth. We are working to build our business portfolio, and these results show how we are starting to build revenue from each of our businesses. And here is the cost and expense breakdown. During fiscal year 2022, as part of our efforts to build our business portfolio, we conducted M&A. We acquired DATA HORIZON in the health care area and Allm in the medical area. These companies have been consolidated into the DeNA Group, leading to an increase in the number of employees to close to 3,000. Since fiscal year 2021, we have set a 3-year growth strategy for both our Entertain & Serve approaches. Entertain is already a major important area for DeNA. We continue to aim to secure a good level of profit, for example, by producing new game titles and building up the performance of Pococha Japan. For Serve, we aim to achieve growth with our goal to make the Sports business and Healthcare business profitable. As you can see, over this 3-year period for the Serve approach, we aim to achieve profitability.

During fiscal year 2022, this last fiscal year, we strengthened our business portfolio. During this fiscal year 2023, we aim to achieve a year-on-year increase in revenue and operating profit. And in the long term, we aim to achieve a structure where we have profit contribution from both Entertain & Serve. We're working hard to achieve this goal.

Now for our financial highlights. Fortunately, we are able to use our healthy financial base to grow corporate value while also considering ROE. Our first priority is to grow non-GAAP operating profit and strengthen our businesses. Under investment in new growth and initiatives, in August 2022, we converted DATA HORIZON into a subsidiary. And in October 2022, we converted Allm into a subsidiary. Under increasing asset efficiency and shareholder returns, we updated our shareholdings for policy purposes in May 2022. In Q2, we conducted JPY 15 billion in borrowings for M&A. During fiscal year 2022, we conducted a share buyback of JPY 15 billion and canceled the acquired shares. We also expect to set our fiscal year 2022 dividend in accordance with our dividend policy.

So now I would like to go into more detail about each of our Entertain & Serve approaches. First, Entertain. Under Entertain, the Game business is incredibly important but also volatile. We aim to secure a good level of profit in the entertainment space despite this volatility. And considering this in the mid- to long term, we plan to produce sustainable performance from our current Game business. We have our pipeline of major IP for the global market and we'll continually make 3 to 5 titles per year. It is also important for us to promote our new development structure and rationalization of costs.

In addition, we are blessed with wonderful partners. We will make use of our partnerships, technology, which is such an important element, and our live operations capabilities to create business opportunities not limited to strictly Games.

Next, I would like to look at the results for the Game business. Some new titles expected for launch in fiscal year 2022 were delayed, but overall performance was supported by long-term contributing titles and control of fixed costs, et cetera. Our fiscal year 2022 Q4 performance was also solid. Of course, what is important in this business is to have profit contribution from new titles.

Looking at our new titles. First, we have Hunter x Hunter that was launched in traditional Chinese regions on February 8. Licenses to launch in China are flowing again, which was a cause for concern. And Hunter x Hunter received its license for launch in China in March. We are aiming to launch the game during fiscal year 2023.

I would like to draw your attention to the title in the middle, Takt Opus (sic) [ Takt Op ]. In March, we held a closed beta test in traditional Chinese regions, South Korea and Southeast Asia. In Japan, pre-registrations exceeded 1 million, and we expect this game to launch in late June. We will do our best with the launch of this game and hope to see it enjoyed by large numbers of people. Captain Tsubasa is also scheduled to be launched in fiscal year 2023, and we held a closed beta test in December of 2022. The launch regions and other details for this game will be finalized going forward.

The next major business pillar under Entertain after Games is Live Streaming. I would like to discuss the results and future development of this business. This business domain was impacted by COVID-19, and we continue to consider Live Streaming to be a growth-phase business. So we are prioritizing revenue growth and positioning in each region. In fiscal year 2023, we intend to achieve continued revenue growth while also securing profitability for the segment. As you can see on the graph, we are achieving steady annual revenue growth. I would like to take a look at Pococha Japan, Global Pococha and the new genre, IRIAM, in turn.

First, Pococha Japan. Activity among existing users is solid. However, bringing in new users and engaging them in the platform will increase our number of active users and help to grow the business. So we need to enhance our efforts there. We had 4.86 million downloads in Japan as of March 31, 2023, and we will continue with our initiatives here. In Japan, Pococha has built a unique Pococha community, filled with broadcasters and viewers with a broad appeal and developed a supportive culture. It is important for us to bring this culture, this enjoyment in Pococha out into the world, while also controlling the investment appropriately.

We have 1.1 million downloads in the U.S. as of March 31, 2023, and Pococha U.S. is getting into the same growth phase as Pococha Japan. The key point will be to see if we can successfully drive Pococha U.S. into the same growth as that experienced by Pococha Japan.

Under new genres, we have IRIAM. IRIAM was brought into the DeNA Group in fiscal year 2021 and achieved steady revenue growth in fiscal year 2022, over 2x on a year-on-year basis. IRIAM achieved 1.55 million downloads as of March 31, 2023. And in the same month, IRIAM also achieved the highest-ever DAU for the service. There was a brief pause while IRIAM implemented safety measures, including to better protect minors. But it is solidly in the growth phase, and we intend to grow this area. That concludes the section of the presentation concerning Entertain, both our results for fiscal year 2022 and our approach for fiscal year 2023. Next, I will share about our Serve approach. I will begin with Healthcare & Medical, part of the business portfolio we strengthened. We are now at a phase where it is important to focus on further growth of this strengthened business portfolio and earnings base enhancement. I have already shared our goals, first, to achieve profitability for both Healthcare & Medical areas for the full fiscal year and fiscal year 2023 and a combined JPY 20 billion in revenue and JPY 5 billion in operating profit in fiscal year 2024. I am pleased to show the steady revenue growth we have achieved over fiscal year 2022 in the graph on the left.

For the operating profit, we are seeing some ups and downs. And for fiscal year 2023, achieving profitability is our goal. For this, we will need to continue to grow revenue. I would like to point out that while we saw steady revenue growth in fiscal year 2022, there are a variety of business areas included in that revenue, and some of them may have seasonality. For this reason, it will be important to focus on building up growth and performance for the whole fiscal year, and there may be some quarterly variability.

I would like to go into further detail about the Healthcare area and the Medical area. First, the Healthcare area. Here, we have our data health business and data use business. DATA HORIZON will have more detailed information about the data health business, but I will share that 2023 is the formulation year for the Japanese government data health plan. So we are accelerating our outreach to local municipalities. We also use the data that we obtained through the data health business. The data use business saw revenue increase to JPY 750 million for fiscal year 2022, which is 3x the JPY 250 million from fiscal year 2021. The number of clients increased from 22 to 46 companies. We sought to show that we could turn the use of data in this area into a business for us, which we have effectively done.

Next, I will discuss the Medical area, which is mainly Allm. Allm provides a variety of medical digital transformation services in Japan and globally. One of these services that was a particular focus when we made the decision to bring Allm into the DeNA Group is Join, which is a medical practitioner communication platform. The penetration of this platform and additional uses of it will be key.

Fortunately, we are making progress in the wide regional expansion of Join through cooperation with local municipalities as well as steady progress in evolving as a platform. We have also seen examples of deployment to medical institutions through local municipality subsidies, et cetera, expand into 5 prefectures, including Hokkaido. The number of facilities using Join grew to 513 in fiscal year 2022.

We are also seeing progress and more coordination between hospitals and clinics using IoT and coordination between hospitals to supplement the specialist shortage with remote medicine initiatives. These are examples of how Join is evolving as a platform in addition to further penetration, becoming a key pillar in medical digital transformation. Our goal is to grow both in Japan and globally.

I will also share the results for Sports under our Serve approach. In fiscal year 2022, we saw significant segment performance improvement year-over-year. We are starting to get out of COVID-19. While we did not get all the way there during fiscal year 2022, we are in the process of shaking off the impact and seeing a return to engagement in in-person events. For both baseball and basketball, we saw record high attendance at home games in early fiscal year 2023. And I think that shows that we can expect plenty of in-person event engagement.

Another initiative looking to bring energy and vitality to people and the community is our joint exploration of a machizukuri initiative centered on a new arena with capacity for 10,000 people in Kawasaki, which has kicked off with Keikyu Corporation. We expect to see more development in this area.

Finally, I would like to touch on some group company topics. First of all, previously underserved, we had initiatives in the mobility space. In addition to the focus on our non-GAAP operating profit performance, I would like to share updates on these 2 group companies to highlight how we try to contribute to the world as a group. I'll start with GO Inc., which changed its name from Mobility Technologies in April 2023. The company provides the #1 taxi dispatch app, GO, as well as engaging in various mobility initiatives. They already have service in 90% of prefectures in Japan and over 10 million downloads. In July 2022, they had 4x the number of monthly dispatches compared to before COVID-19, which is a record high. They are also exploring taking on further business challenges and have announced that they expect to conduct fundraising of JPY 10 billion through a third-party allotment to Goldman Sachs. I expect to see more exciting movements in this area.

At DeNA, we consider ourselves an eternal venture, and Delight Ventures is very important to us. Delight Ventures has been operating since 2019, contributing to energizing the startup and innovation ecosystem and fostering an entrepreneurial culture. A second fund was formed for Venture Investment, which does pure investment with a goal to achieve a total investment amount of JPY 15 billion, including external LPs. This fund conducts venture capital investment into primarily Japanese startups that aim to solve major social problems through innovation. A second fund was also formed for Venture Builder in March 2023, which supports independent entrepreneurship within DeNA and is open to others. This fund contributes through investment in human capital to secure strength in the quality and diversity of talent, organization and culture. We will continue our efforts in this area.

That concludes the presentation of results for fiscal year 2022. Now I will share our view for fiscal year 2023. The consolidated financial results forecast for fiscal year 2023 cannot be provided due to the difficulty of reasonably and accurately estimating the figures. However, we aim to increase revenue and non-GAAP operating profit year-on-year. We have strengthened our portfolio and are working on our Entertain & Serve businesses. Another goal is to provide a greater level of detail about our businesses. Given that, I would like to share our expectations for each business. I have touched on some points already in the presentation, but would like to share the major change factors in non-GAAP operating profit for fiscal year 2023 for each business.

For the Game business, approximately 3 new titles are planned for launch throughout fiscal year 2023. This will be key. For the Live Streaming business, we aim to prioritize revenue growth and positioning in each market, and it will be important to continue to prioritize revenue growth and secure segment profitability. For the Sports business, if we are able to hold games without any restrictions and operate freely, then I would, of course, expect to see an improvement in revenue and operating profit. For the Healthcare & Medical business, focusing on further growth of our business portfolio and earnings base enhancement will be important. Specifically, we aim to grow revenue year-on-year and achieve profitability for both the Healthcare & Medical areas. If we can deliver on all these components, then I believe we will be able to deliver revenue and non-GAAP operating profit year-on-year growth. This concludes my presentation. Thank you for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]