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[Interpreted] We will now start Z Holdings Fiscal '22 Q3 meeting on business results. Thank you very much for participating today. And we apologize that the starting time of the business results meeting has been delayed. We apologize for the inconvenience. We will use the material that's available on the website regarding Q3 business results.
Today with us, we have from Z Holdings, the Representative Director and President, Co-CEO, Kentaro Kawabe; we also have Representative Director, Co-CEO, in charge of Marketing and Sales, who is the CEO, Takeshi Idezawa; Director, GCPO, Group Chief Product Officer, Jungho Shin; Corporate Director, Senior Managing Corporate Officer, e-commerce CEO, Takao Ozawa; Senior Managing Corporate Officer, CTIO, Global Business CPO, In Joon Hwang; Senior Managing Corporate Officer, GCFO, Ryosuke Sakaue. First of all, from Kawabe and Sakaue, the fiscal '22 Q3 results will be explained and after, we will take any questions that you may have. Overall, we are planning 1.5 hours for this meeting.
Also, this call is being live streamed as well. [Operator Instructions] Now without further ado, we would like to start the presentation.
[Interpreted] Hello. This is Sakaue of Z Holdings. Thank you very much for joining us today for the briefing on business results for the fiscal year '22 third quarter. I will now explain the overview of Q3 business results. Please turn to the next page. Here are the topics. Revenue reached JPY 453.6 billion, a new quarterly high, partly due to the consolidation of PayPay. For this quarter, as we focused on profit and managing the company, adjusted EBITDA achieved approximately 79% of the lower end of our full year guidance. As explained at the time of Q2 results cost optimization and reorganization efforts to select and concentrate are steadily underway. And adjusted EBITDA, excluding PayPay on a nonconsolidated basis increased. PayPay is growing steadily with more than 54 million registered users and GMV exceeding JPY 2 trillion in the quarter. With PayPay now a consolidated subsidiary of Z Holdings Group, we will accelerate growth even further. That's what we will strive to do. On the other hand, in light of the deterioration of the ad market, adjusted EBITDA guidance has been revised down to the lower range. Finally, in order to speed up the decision-making process for group management, we have decided to merge our company, Yahoo! Japan [ and LINE ] during fiscal '23. We plan to shift to the new structure in April 23.
Mr. Kawabe will explain the details later. Please turn to the next slide. From here on, I'll explain on the order of the agenda.
Please turn to the next page. First, I will explain the consolidated results. Please turn to the next page. This is a summary of the company expenses performance due to the fact of making PayPay [ consolidated subsidiary ] from Q3. Consolidated results as well as results excluding PayPay on a nonconsolidated basis are provided here. Even excluding PayPay's nonconsolidated sales revenue, quarterly sales revenue reached a record high. We've consolidated PayPay, which was loss-making, but we maintained adjusted EBITDA margin of approximately 20% by simultaneously promoting company-wide cost optimization and business selection and concentration.
Please turn to the next page. Here is the consolidated guidance for fiscal '22. Company-wide adjusted EBITDA has been revised from the previous range of JPY 331.5 billion to JPY 340 billion to the lower end of the range of JPY 331.5 billion. There are no changes in other items. We aim to achieve the revised company-wide EBITDA guidance of JPY 331.5 billion by absorbing changes in the macro environment in the media business, and the decrease in profit due to the impact of PayPay's consolidation through cost optimization and business selection and concentration.
Please turn to the next page. I'd like to explain our progress in responding to changes in market conditions, including cost optimization and business selection and concentration, which we are currently working on the most. We are proceeding with cost optimization, focusing on promotion expenses to the extent that it does not impair medium- to long-term growth. In addition, the hiring restraint has been in full swing since the second half of the fiscal year and is expected to contribute to profit from next fiscal year onward. In addition to the projects listed here, we are considering the closure or downsizing of about 10 services. On the very right, although there is no impact on adjusted EBITDA, equity and earnings of affiliates, which has been pointed out by investors, it is also improving due to progress in monetization and cost optimization.
Please turn to the next page. The following is an explanation of the changes in the financial indicators and guidance. Due to the consolidation of PayPay, the finance business is becoming a greater component of the group's financials. Therefore, we've changed our financial indicators and guidance to ensure financial soundness in accordance with the characteristics of each business in the form of financial services excluded and financial services. We will also revise the definition of net leverage ratio from excluding banking business to excluding financial business, and maintain the leverage ratio below 3x to maintain both investment and financial soundness.
Please turn to the next page. Next, here are the topics and results by segment. Please turn the page. I'd like to explain our media business. Please turn the page. This is the performance trend of the media business. In Q3, in addition to the deterioration of the advertising market, the impact of the renewal of LINE VOOM and the revenue growth effect of products launched in the previous fiscal year ran their course, resulting in a year-on-year decline. Leveraging the strength of Z Holdings uniqueness in account adds and search, the segment's adjusted EBITDA margin recovered from Q2 to 42%.
Please turn to the next page. This is company-wide advertising-related revenue. I'll explain the situation by product. First, Yahoo! display ads. Programmatic ads excluding commerce, remained at the same level as the same period of the previous year. On the other hand, demand in the overall market, like it has been, is shifting to programmatic advertisements and the number of placements for the reservation type ads continued to decline and impacted our performance. And we'll touch upon this later. But in addition, due to cost optimization in commerce, sales of commerce ads, which is linked to Yahoo! Shopping GMV also declined. LINE's display advertising revenues was it impacted by the market but due to the impact of the renewal of LINE VOOM revenues decreased. On the other hand, account ads and search, which are Z Holdings' unique strength are less susceptible to changes in market conditions and continue to grow steadily.
Please turn the page. Regarding LINE official accounts, the number of paid accounts continues to steadily increase, regardless of industry or size as important as the CRM tool grows even amid changing market conditions. Also, for accounts that continue to increase the number of funds through ongoing utilization unit prices increased, contributing to top line growth. We'll continue to maximize user contact points through functional enhancements to promote continued use.
Next page, the video -- strengthening the short feeder business as the video AD market expands, we intend to strengthen the short video business through selection and focus. The LINE VOOM line was renewed last year, and [indiscernible] was shifted from those in their 30s and 40s to the teens. And the service KPIs are steadily expanding. As already announced, [indiscernible] in LINE Live will be terminated at the end of March this year. We will equip the know-how and human resources cultivated in these 2 services into LINE VOOM, and that will strengthen our competitive edge in the video content. The combined cost reduction from the termination of the 2 will be about JPY 3 billion per year for the year.
Next page, please. These are new promotion solutions for manufacturers. We announced sales promotion solutions for manufacturers to maximize the blank LTV last December. The first is the LINE, Yahoo! Japan and PayPay milage program. The second is PayPay's product-specific coupons. The first one, the mileage offered by the 3 companies allow customers to accumulate mileage for purchasing specific products and receive rewards according to the mileage they had accumulated. In addition, by linking the LINE official account messages based on the purchase history can be delivered to enhance users' continuous CRM and brand loyalty.
Also, the second one, the PayPay users can acquire a product-specific coupon, which will be applied automatically for the payment of the product and they get points. This allows for flexible spot marketing such as promotion of new products. These new solutions will allow manufacturers to visualize who has purchased their products and where. With these, we are fully committed to developing the digital promotion market.
Next slide, please. Next is Commerce Business. Next slide, please. This shows Commerce Business performance. Through cost optimization, including promotion costs and the fundamental reinforcement of business platform, such as integration of Yahoo! Shopping and PayPay Mall, we try to improve the balance between growth and profitability. As a result, we achieved increased revenue and profit. Going forward, by expanding PayPay's ecosystem and through new e-commerce initiatives we will lead to expand Japan's EC market and to achieve our long-term growth. Next slide please. This shows e-commerce transaction value performance mainly due to progress in cost optimization group EC transaction value achieved JPY 1.11 trillion, in line with the plan. Thanks to economic reopening in Japan nationwide travel incentives domestic service EC grew as high as 34.8% from last year.
Next slide, please. This shows domestic merchandise transaction value -- this is a repeat by the shopping business, along with the fundamental strengthening of products and cost optimization progress through changes in campaign programs and resulted in JPY 471.2 billion, in line with our expectation, although this was down from last year. For reuse business, it continued to grow steadily, mainly driven by PayPay free market, which grew 8% from last year.
Next slide, please. This shows the status after integration of sales platforms including fixed point provision expenses, cost optimization made good progress and impact on transaction value from the sales platform integration was within the expectations, thanks to improved advertisement take rate and efficient promotions, gross margin improved by 8 points. We will continue to operate by monitoring the balance of transaction value growth and profitability rebuilt the basic reward campaign for daily use to take the [ root and week day ] transaction value increase compared to the period before the change. Ratio of Blue Ribbon delivery also steadily increased, along with the integration of the platform. We will further drive fundamental improvement of products to achieve sustainable growth.
Next page, please. Next is Strategic Business. Next please. This is the Strategic Business of our performance. Thanks to the PayPay consolidation in this quarter, we achieved a significant revenue increase. Excluding PayPay stand-alone adjusted EBITDA deficit got smaller. Going forward, we will improve profitability through growth in PayPay cost optimization and review or termination of loss generating businesses. Next slide, please. This shows a business overview of PayPay, the registered user number of PayPay partly thanks to Japanese government's promotion of individual number card system hit 54 million as of December 2022, and it continues to grow, along with the expansion of users, average spend and number of transaction increase leading to a high growth in transaction volume and sales revenue and steady improvement of EBITDA, as you can see. Going forward, we will drive integrated operation with PayPay card provides seamless payment experience through smartphone apps and we will accelerate efforts for market layer business expansion.
Next slide, please. This shows PayPay and PayPay Card initiatives and current situation. We launched PayPay Card Gold in November when the [indiscernible] so that the PayPay Card will be a first choice credit card. So far, we noticed that the unit spending by new gold card users trends higher than regular PayPay card users, about 2.2x more. Thanks to collaboration with PayPay, programs such as Atobarai or deferred payment, overall transaction volume went up 26.4% from last year, very steady growth.
Next page, please. This shows the other domestic financial business KPIs. PayPay Card revolving balance showed a steady increase PayPay Bank loan balance also increased from last year, thanks to expansion of personal loans. As for LINE Financial Business, thanks to the product offering utilizing the LINE [ user base ] especially -- the loan balance significantly increased, particularly the LINE pocket money.
Next slide, please. Lastly, we announced merger of core companies and Kawabe will explain now.
[Interpreted] I'm Kawabe, Representative Director and Co-CEO, will explain from here on. To date, at Z Holdings, the advertising business had drove profits. However, ever since the latter half of fiscal '22, business conditions have suddenly deteriorated. Regarding the main reason for the market iteration, partly it is due to the competitiveness of Z Holdings media products relative to competition, and we are feeling a strong sense of crisis. In light of the market changes, Z Holdings' ad revenue has declined mainly around display as the difference against the beginning of the year guidance is substantial, and Q3 has been showing negative growth.
Next page, please. In order to break through this situation, we felt that we need to carry out bold and drastic measures. In order to generate revenue and adjusted EBITDA as well as secured funds for medium- to long-term investments, and to make a breakthrough, the management at Z Holdings decided to make a big decision.
Next page, please. The Z Holdings Corporation decided to launch with core operations, LINE Corporation, and Yahoo! Japan Corporation, we decided on the policy of [ margin ] by around end of FY '23. This will expedite decision on group management, and we can control costs, the elimination or consolidation of overlapping functions. In March '21, we integrated with LINE. And at the time, we mentioned adjusted EBITDA of JPY 390 billion as the midterm goal for FY '23. When I became president, that we try to achieve by -- in early 2020 to be #1 domestic EC merchandise transaction value driver and we try to achieve that as the group. However, external condition changed, ad market worsened than we had thought, we decided to revise the goal.
The guidance for FY '23 will be explained in detail in the next earnings meeting for further cost optimization, and that should -- we hope to achieve year-on-year an increase of 10% going forward. And we -- from domestic EC transaction value, we seek growth and profits through maximum usage of group asset instead of point provision and sales promotion. We will explain the details in the next earnings call under new management.
Along with merger, we will be shifted to product first management structure. April this -- first this year, we will shift from co-CEO to a single CEO structure and the new representative Director, will welcome Shin Jungho, who is a Group Chief Product Officer. I, Kawabe, will be a Chairperson so that the revised goals will be more clear. And the new President, Idezawa, and [ Shin ] the new Representative Director will be supported by me. And for the structure after merger, that is not clearly defined, but we will introduce company system that we got authority to promote service development and allocate an autonomous growth. That's all. Thank you very much. Now we would like to move on to Q&A.
[Interpreted] [Operator Instructions] Now we would like to start Q&A. [Operator Instructions] First person is from SMBC Nikko, Mr. Maeda.
[Interpreted] I have 2 questions. The first one is regarding towards the [ Q4 ] and your thoughts on revenue.
For the Commerce Business and the Media Business in Q3, revenue has decelerated. You have been suppressing the sales promotion cost for commerce or for shopping. Are we going to expect a turnaround and positive growth? And for media, with LINE VOOM and the migration, if you think that the migration is going to run its course, are we going to see better momentum in Q4 compared to Q3? So the first question was about revenue. So second question is about the merger. Regarding costs and synergies, I presume that you haven't yet been able to come up with an estimate, but what are your thoughts around it? And for ID linkage, things have been delayed somewhat, but are you going to be accelerating your efforts? So from a revenue standpoint, cost standpoint, growth standpoint, what are your expectations around benefits? So can you take a deeper dive into that?
Mr. Maeda, regarding your first question. I would like to take your question. This is Sakaue. And if we're media and commerce, if there's any add-on comments, Ozawa-san and Idezawa-san may answer. So I'll take the first question. First of all, regarding the fourth quarter revenue and our thoughts around it, we are not going to disclose our actual outlook. But for the media business, our account adds like Q3, we are expecting continued robust growth and for search. We are expecting similar levels.
On the other hand, for display, trends like Q3 are likely to be ongoing. So on a Y-o-Y basis, Q4 may be similar to what we saw in Q3, meaning it may be a tough quarter. Of course, VOOM is going to run its course. But overall, that is the underlying trend.
Next, regarding commerce. In March, last year as well as 2 years ago, we had to PayPay [indiscernible] -- Ultra-PayPay festival and for this fiscal year, we will be having it, but the scale of it is likely to become smaller from a cost point of view. Of course, we will build a lot of energy around it, but cost wise it's going to be lower. So for revenue, for Yahoo! Shopping or Commerce, Q4 may be a little tough. That is our outlook.
From an EBITDA standpoint, we are going to make sales promotion cost efficient so that should be better on a year-over-year basis. That will be my answer for your first question. For media and commerce, do any of the other people have anything to add? They were saying no. So that's it for the first question.
For the second question regarding cost synergies. In light of the merger, for the details, we would like to provide more color at the end of the fiscal year when we have the results briefing, including strategies as well. And also regarding the merger, we were saying somewhere around fiscal '23. So at this point in time, it is really hard to answer your question. But as Mr. Kawabe said, next fiscal year is also going to be a year where advertising revenue is presumably going to be tough. That is our outlook internally.
On top of that, also based on that, we are going to strive for double-digit or 10% earnings growth, and that is going to be through the cost optimization initiatives that are currently underway and also by merging overlapping businesses and functions can be made more efficient from a cost standpoint. So that is how we would like to achieve double-digit growth. So that is the overall direction we're working on.
Regarding the scale, we hope we can give you more color when we have the full year business results meeting. That's all for myself. Thank you.
For Shopping, I have an additional question. The time being, you're going to be focusing on EBITDA? And how about GMV growth, it seems that you're not going to focus on GMV growth for a while. Is that the case? Number one, in commerce in Japan, you have decided to revise that target. So it seems like you have changed strategy. So can I just confirm?
So Mr. Ozawa will answer that question.
Yes, I will answer that question. So for the Shopping Mall business' GMV growth, we would like to do whatever we can within the realms of cost control. For e-commerce as a business in Z Holdings as a whole, if I may give you a little bit more explanation, there -- it can be divided into 2 large ways. First is margins as well as rolling out the financial businesses in association with that. Regarding the spreads of the Shopping Business, it's very low. So internally, we have ZOZO, ASKUL and we have the used [indiscernible] business and Yahoo! LOHACO that we would like to grow. And for Mall, we are going to control and suppress the points provision. And Mall GMV, however can lead to PayPay and credit card growth, which has been our track record. So we'll focus on that.
So it doesn't mean that we need to continue to strive to become #1 in the Mall business, per se, meaning the goal of becoming GMV #1, is that our priority was the question we posed. And like Mr. Kawabe explained earlier, it's more about growing PayPay or developing new financial businesses. So it's about leveraging group assets, and it's about drastically changing our group strategy that we are currently in the middle of considering. But from April onwards, when Yahoo! and LINE merges together, we will need to strategize one more time by considering the user profile. So it's not just about growing the Mall business going forward. So your perception is correct.
Next, from JPMorgan Securities, Mr. Mori.
I have 2 questions. There is an overlap to the question from Maeda regarding the change in management structure and the merger. Three represented directors is going to support the merger and the roles and responsibility of those, the management structure. Can you explain more in-depth what's going to change? It's not very clear to me. Can you explain that? What kind of change do you expect from the new management structure and also the merger and integration?
And also regarding cost reduction effect as of today, it's not disclosed. But as Sakaue-san commented and this is a confirmation, next year EBIT growth of 10%, it's about JPY 30 billion and top line actually for advertisement business, it could be a negative growth, and you can achieve cost reduction that can drive increased profit? Is that what you're thinking? So that's the first question.
Regarding the second question for ad revenue sales and the condition is rather tough. And as Kawabe-san mentioned, it's not just market condition one the -- and specifically regarding LINE VOOM, Idezawa-san and Shin-san, can you answer VOOM? Would it be successful? Otherwise, LINE service as a whole can be impacted. That's my concern. On the other hand, YouTube shows and TikTok are able to catch up from this level now. It's not clear to me. And therefore, creator and user TikTok and YouTube shows and what are the designs for the incentives that they move to VOOM? Maybe there are some actions you have already taken but high time stands here growth? How do you achieve that? Can you explain that?
Thank you for the question. Regarding cost reduction, Sakaue will answer. And for the roles and responsibility of the 3 representative Kawabe will answer. And for revenues, Shin, especially VOOM will be answered by Shin. First regarding cost reduction continuation from the first question, as for the ad account ad and search ads and especially account ads, it's not so severe as a decrease. But for display ad, the current situation is rather tough. So my answer is that we should be covered by cost optimization, cost reduction and consolidation or elimination of businesses, and we achieved a 10% increase in EBITDA close to JPY 30 billion. So that's the question to the first -- second part of the question.
Regarding your question about 3 directors, roles and responsibility, Kawabe will answer.
This is Kawabe speaking. So the merger and management structure after merger. So you need to consider 2 aspects. Intention of the merger is at the Z Holdings and the 2 companies, LINE and Yahoo! Japan. And they tend to look at their own operation there to optimize. That's the summary from the past 2 years. So important decisions made and the group overall optimization needs to be achieved. And for that, the core company's line Yahoo! Japan, Z Holdings need to be one to make the decisions so that we can have a streamlined decision and we can have faster decision, and that is very important for our future growth.
In the past 2 years, we have accelerated mutual understanding, data protection, and this has been very significant and meaningful. But going forward, we need to move to the next phase. So merger should help. And after merger, the structure and also from April 1, maybe before merger, we have a new structure and Chief Product Officer Shin becomes representative director. So the services of core companies and the product owner will be his responsibility and the services overall optimization will be achieved and also its respective service optimization should be also achieved for product, we will exercise strong leadership to achieve overall optimization and the services. And since leadership can be improved or could be surprises [ WOW ] and others, and that should be put into profit and revenues. And Idezawa, after elimination of Co-CEO, he will be CEO and President and the decision-making will be streamlined, and we have a rapid decision process and the strong leadership. So those 2 will drive businesses in that sense the drivers.
I am the chairperson, representative chairperson, I will be supporting them from the backside. That's what I want to do. And for the holdings and the services in the society should be well accepted, and we want to show presence in various themes and external activity so that our activities will be better understand and the customer [indiscernible] that show and also the government-related areas and also broadly in the society, our services should be well understood because we should be playing a very important platform. And we hope -- I will be supporting for that kind of understanding to prepare. So Service by Shin, and business by Idezawa, I will support those. So from Co-CEO, CPO, compared to that, we have a clear definition of roles and responsibility and decision-making will be more clear. And VOOM and TikTok, how are you going to win in competition? What's the merit for the users, how do you achieve the merit?
This is Shin, I'll answer to the question going forward, how do we fight and achieve results service function, differentiated, and that needs to be strengthened all the time. And also VOOM, [indiscernible] LINE type, we are driving big changes and the service KPIs are achieved -- KPIs are achieved including the number of reviews and replace and maybe new ad frameworks so it should be achieved so new ad space should be created.
Regarding the competitors, what differentiating point was a competitive edge. Our first user base including LINE, we have broader line of customer base and [indiscernible] and TikTok is the bus, but creators in the extra users and in terms of the skill of users, there is much room for growth and VOOM we'll be able to appeal to various age groups, and that is the strength of the VOOM our user base can be leveraged. And in terms of content procurement, some we had broad-based. So some may enter as creators and through entertainment companies, we can provide or procure new content. That is our focus. The new contents that other competitors cannot procure and that appeal to the users, and we want to strengthen content. That's my third point of what we can do. Just one point in the incentive reward system started depending on how often they review and that is very popular, other creators are delivering their contents to VOOM what you see or local other services are also available, we want to collaborate those services into our service menu. That is all for the question.
Regarding the VOOM, just one more. TikTok do not really had good format of ads. It seems to me, but for the VOOM, you are making progress about your products and how timing soon, you would be able to actively introduce ads and place ads.
Well, VOOM monetization is a question, and Idezewa is answering to that question.
Thank you for the question. Regarding monetized efficiency, well, ad format being designed, including added features, and we had better efficiency now. But compared to the conventional feed ad, unit price is still low, and we try to improve that now. So as of now, it's 100% achieved and we're ready. It's not -- we are not there yet. We are still tuning. That's where we are now.
That means for the next year, we can't expect so much catch-up, is that right?
Well, regarding LINE VOOM, service growth and monetization what we are trying to achieve. So regarding the sales revenue, we are not bullish yet. We try to provide good services, creating good base. And also with that VOOM what happens, you mentioned, but the LINE ad including news and Talk Head Views and therefore the news, timeline type shift is being prepared now for the net head view, we are testing some ideas and both are showing good numbers. So all those together as display as we hope to achieve recovery. That is our plan.
Next is from Goldman Sachs, Munakata-san. Please go ahead with your question.
This is Munakata. I have 2 questions as well. First of all is regarding strengthening your competitiveness. In your explanation, you were talking about a decline having a sense of crisis around it, and that is why you're going to be merging your core subsidiaries -- so from a product point of view, and strengthening its competitiveness. I think it goes back to R&D and the approach towards services by merging together, do you think that we should expect some changes. So I'm an amateur on this, but for example, maybe the expertise that each of the business companies have is going to be shared. And because we're going to be able to make the decision faster, you'll be able to capture the trends. That was what I was imagining. But can you give us more color on that? That's my first question.
And the other question is regarding your mid- to long-term earnings target, revenue target. Next year, you're going to be shifting to the new management structure through the merger. So you're probably going to be solidifying the foundation next year. That's the way I perceived it. And I may be jumping to conclusions. But when you look 2 years ahead, originally, you were aiming for JPY 390 billion. Should we have an image that you're going to be aiming for that level? Or are you going to be aiming higher? Or this time around because you are changing direction in a drastic way, and internal structures are going to be changing, do you think you're going to need more time? And for ID linkage, should we expect this to be delayed even more?
Well, for the first question, regarding strengthening the competitiveness of the products and what's going to happen in light of the merger, our CPO, Mr. Shin will answer that question. And for medium- to long-term earnings targets, I will take that question. Mr. Shin?
This is Shin speaking. For the merger, one of the major aims is to go beyond the barriers, getting rid of the barriers and to generate synergies in the areas where we weren't able to in the past. Expectations would be, for example, like you said, R&D from an AI point of view, instead of doing R&D on an individual basis, we should be able to share more, so doing joint development and also developing trend new service -- [ 20 ] new services, our capabilities will become 2x or 3x greater. So from a services point of view, we will be able to speed up development of functions and so forth. So organizationally as well as product-wise, we will be able to reinforce our efforts and the speed of launching new services probably can be expedited. That's all for me.
Regarding your second question, regarding medium- to long-term earnings targets. At the end of the fiscal year, when we explain our strategy for the new fiscal year, we will talk about our thinking around growth strategies. And for ID linkage, like we've been communicating from the past, 2023 and beyond is a plan we have in place for ID linkage. So if there are any changes, we will communicate accordingly. That's all for me.
I have one follow-up question regarding my first question. Thank you for your commentary. I understood it very well. But during next fiscal year, I'm thinking about that you're going to be merging next fiscal year. getting rid of foundries and generating synergies, I guess, is going to start to take place in a fiscal year's time. Would that be when we're going to visibly see impact come through?
Well, we have decided on the merger as a direction. So of course, it may take some time, but as a policy, but I think we can head towards that direction. And as we already know that, and I think things will be delivered -- some will be delivered over the short-term and some will probably take more time.
Next from Citigroup, Tsuruo-san.
Thank you very much. My first question is for single CEO, Idezawa-san, my question is for you. So you will be a CEO and top line may decline or does not grow and cost reduction is what you would have to deal with first? And you don't have to explain details. But what would be different from the past? From Idezawa and your point of view of what opportunities going forward? Can you explain your thought on this, please? The second question is a bit technical question. For the next year, EBITDA and because of ad revenue numbers, you have changed your numbers and cash flow or other forecast would be changed for impairment test, I think you are doing by segment, but when would be the timing and what do you check for impairment test? And this change for the midterm change -- midterm goals? And how does that impact could be or it doesn't impact going forward? Can you explain your assessment now?
Regarding the first question since you mentioned Idezewa, the new President and the second question will be answered by Sakaue.
So in a challenging situation, what we find are opportunities. That's your question. Yes, we are facing a difficult situation next year or this year and onwards. Ad revenue recovery is rather difficult to see good visibility. So efficiency is streamlining. That would be the basic approach for us. So far in the past 2 years, we worked with Kawabe as co-CEO, we had various discussions and overlapping functions or businesses. Regarding those, we have had good discussion.
And by this merger of 3 companies, what we have discussed would be implemented in the execution. We will speed up to make efficient review or rearrangement of overlapping functions. And we execute that, and that is one of the opportunities. And also, collaboration among the group members would be much easier than before. So service collaboration would lead to service growth and sales collaboration will lead to top line growth that we can achieve. So those are opportunities that we want to explore and drive.
I will answer the second question. And some explanation included currently LINE integration, goodwill and others [ CGU Group ] in media. That's a major part of that. Some are financial, but most of that is in media CGU. And regarding the impairment test in media, Yahoo! Display ad and search ad is included to look at overall profitability going forward as the group. And we do that once a year to evaluate risk of impairment. That's what we do.
And for FY '23 outlook in Advertisement Business is challenging, but EBIT margin is over 40%. So number-wise, we maintain good profit. So regarding the midyear impairment risk for FY '23 EBITDA change. Even with that, it's not going to be a big risk for us.
Just one or two follow-up questions. You mentioned some numbers, Sakaue-san. In your presentation, you mentioned 10% of elimination or consolidation of businesses. And that -- how can that impact cost reduction and hiring fees would be placed and there will be some natural attenuation -- and how would that impact in terms of cost reduction, if you can disclose in information, please?
Sorry, I may not have been clear. I said about 10 services may be closed going forward. It's not a percentage. It's the number of services or business I was mentioning -- and the second thought is hiring fees. And there is some natural attrition and how much of that is included in the cost reduction? Can you be more specific on that? I will not go into detailed numbers, but to a certain extent, in this front, there is not shown attrition, but this is a Japanese company. In April 1, we will have hundreds of new hires and so overall, there will be a bit of decrease for FY '23.
From Okasan Securities, next person is Okumura-san, Mr. Okumura, over to you. Please unmute.
This is Okumura from Okasan Securities. I also have 2 questions. The first one is about line display ad results. Revenue declined by approximately 10%. And according to your presentation, you were saying VOOM's renewal impact led to lower CPM. And for Talk Head View, LINE News, this revenue also declining. So if it's possible, can you give us more color on the ups and downs of revenue by product? So that's my first question. Second question is around the merger between LINE and Yahoo!, based off this policy. Going forward, for the listed subsidiaries and optimal capital ratio, what are you -- what are your views on that? Because last year, you had the integration of the Mall platform, and there were some subsidiaries that were impacted in a negative way and reality. So for ZOZO, and value commerce ASKUL that still remain should also absorb them or sell them? More than before is management discussing these affairs? So as much as possible, can you share with us your views? Those are my 2 questions.
Thank you for your questions. Both of the questions will be answered by me. For display ads and the breakdown. As explained in the presentation, the big reason for the decline in revenue was mainly due to LINE VOOM. For LINE News or Talk Head View, on a year-over-year basis, it was slightly below last year levels. However, on the other hand, regarding new [indiscernible], we were able to offset the decline through other areas like the home screen.
Regarding for the second question around listed subsidiaries, we do understand that we own listed subsidiaries. So of course, a variety of options are at times being discussed internally. But at this point in time, we haven't decided on doing anything nor are we deliberating anything. That's it for me.
I just want to confirm one thing about the second part. We're optimizing the equity ratio. It might be hard to explain in a quantitative way. But for the current ownership ratio and maintaining it. According to your explanation, you believe that the current balance is optimal. Is that the right way to view it?
Yes, as you rightly said, we believe that the ratio currently we have is optimal. Of course, in making additional investments, we are going to expect increased return. So we'll need to think about it from that standpoint. Of course, we might be able to capture more net profit. But in any way, we'll have to think about the overall balance by looking at return. But at this point in time, we believe the current ratios are optimal. That's it for me. Thank you.
Thank you very much from UBS Securities. Mr. Fukuyama, please unmute yourself and ask your question.
Thank you very much. I have 2 questions. First is Media Business. Second is Commerce Business. First, as for Media Business, fundamental challenges. What are they? According to your assessment, for example, for Yahoo! Japan, [indiscernible] proportion is rather low. And going forward, reopening may further decrease that number. So what should be changed? Can you explain more on that?
The second question is about commerce business. 8% growth is achieved by reuse business. Commerce as all is about [ 9%, 10% ], but reuse profitability how much is that especially PayPay Flea Market, when you look at take rate is low against competition. Going forward, cost is your priority and including take rate, what is going to be the change in terms of profitability. Those 2 questions. Thank you.
Regarding the first question, Media Business, media service included, Idezawa will answer. And the second question, including profit, Sakaue will answer and Ozawa will add comments. Idezawa for the first question.
Fundamental challenges in media business. Well, you mentioned the search business. Display ad is where we are struggling. As for search business, there is growth year-on-year and the 10% growth and so the display challenges rather significant. So demand is low as the basic assumption and the budget is very difficult to get. And the video associated media is scarce we need inventory of video. We don't have many video inventories. That is a structural issue and a challenge for us. And LINE VOOM was -- in that sense, we made current investments in VOOM and also distribution accuracy and capability, we do have some good aspect, but still in some areas, we need improvement and that would be the challenge for us.
On the other hand, including integration at related systems and products, they should be upgraded in a comprehensive manner by integration, including. So that's one of the purposes of mergers, and we need a good approach for our challenges.
The second question is about reuse, take rate and also promotion, we need to have good margin as we operate for PayPay Flea Market down -- number is over 15 million as the project, it is received as good quality, so we enjoy good growth. And also, if you look at the numbers, and maybe you mentioned, so let me ask transaction value for reuse was up 8%. Good growth for the revenue you may think it is decreasing, and it is true. And as for that number for revenue from this year, and we have the change in accounting, and we are not retrospectively [ approving ] that. So promotion expenses are deducted from sales, and that is from this year. So GMV and sales revenue may have some gaps. But it's not disclosed, but this reuse business profit can cancel all that, and we are achieving good growth.
Ozawa-san, do you have any additional comment?
Yes, let me comment regarding reuse service and flea market in Yahoo! Auction, you need to look at those 2 together structurally users increasing in flea market and we capture new customers and take rate is high for Yahoo! Auction and the customers will be referred, then we can have very good profit. So you need to consider those 2 as a pack or set. Competition is strong, yes, but for flea market and against the competitors, we have good cycle by having flea market. And for Yahoo! Auction, including competitors, users, reuse, buyers and sellers are increasing. So we have a virtual cycle and that can improve growth of Yahoo! Auction. That is the situation in the recent -- more recently.
So in terms of EC portfolio, reuse is a treasure for us going forward. Of course, rather than cost reduction in EC business selection and focus. And this is an area where we should make investment.
Next question is from Mitsubishi UFJ Morgan Stanley Mr. Araki. Please unmute and go ahead for your question.
I have 2 questions. First of all, regarding numbers and PayPay in the presentation you were seeing JPY 33.8 billion of revenue and adjusted EBITDA, minus 4.4%. And in the appendix, Page 37, it says [ JPY 36.6 billion ] revenue and JPY 3.8 billion adjusted EBITDA. So with these 2 revenue numbers, which is correct? can you give us some commentary on that? And for EBITDA and adjusted EBITDA, is that the difference between 4.4% and 3.8% this is also in my first question, but in expenses, due to the PayPay consolidation, commissions have been growing? And also for advertising cost and sales promotion costs for PayPay's portion, is it mainly under advertising costs? Or and are they not included in sales promotion cost? So that's another confirmation point in Q1.
The second question is a simple question. For the integration of the 3 companies, what is going to happen to the company's name. First you have LINE and Yahoo!, that respectively have strong branding. But what is going to happen to the corporate name?
For PayPay, you asked 2 questions, and Investor Relations will give you additional comments but there is a footnote here. For IFRS and the stand-alone PayPay numbers is based on JGAAP. That is why there has been some adjustments made, which is a difference between 3.8% and 4.4%. And for revenue, some of the expenses have been deducted. So Investor Relations will follow up on that. In addition to that, regarding advertising cost and sales promotion costs. I think it's sales promotion costs, but we will get back to you through IR. Thirdly, regarding the company name at this point in time, it is still TBD. So once that's decided, we would like to disclose.
Next is CLSA Securities, Mr. Oliver Matthew.
I have 2 questions. The first question, you said you have a crisis in media. I hope you will be proactive before you have a crisis in e-commerce. If we look at China, it seems quite obvious that short video e-commerce is taking a lot of market share from the old merchant e-commerce model. So how are you preparing for that in Japan? Are you planning to link [ VOOM ] to e-commerce? How about linking VOOM to ZOZO? And why is there no ZOZO button on the top page of PayPay? That's my first question. Second question, for new management, who will be responsible for revenue and who will be responsible for costs?
Thank you. Both questions will be taken by Idezawa-san.
So regarding VOOM linkage and commerce, we have been looking at examples in China, and we have been making deliberations and considering and we have been testing as well. On the other hand, we also believe that it's not going to pick up right away. So we would like to determine the right timing as we go ahead with this. But essentially, in commerce, it's going to be really important to come up with a new strategy.
Therefore, currently, it's going to be about growth and striking a balance between growth and efficiency. And when we come up with the new policies, we would like to announce them in April when we announced our new strategies. And cost and revenue, the person who is responsible under the new management structure will be myself, Idezawa. I will be responsible for executing our strategies there.
Just to clarify, so you are working on a new e-commerce strategy overall right now, and you will tell us more in April, correct?
Yes, exactly.
That's great. I look forward to it.
[Operator Instructions] Next from Nomura Securities, Mr. Masuno. You can ask your question, please.
I have 2 questions related to PayPay actual EBITDA. I think you are seeing better efficiency and PayPay and Atobarai coordination or gold cards collaboration. And why is it possible to make this efficient operation? Can you explain the background of this piece for PayPay?
If you have 2 questions, you can ask upfront both of them.
The second question is regarding PayPay. It's a bit -- PayPay may be a bit away from the merger, but you have the card and PayPay and Gold Card was announced and the larger scale service may be what you announced that in the previous meeting. And I wonder how that's going to evolve. So can you explain more about mid- to long-term?
Regarding the first question, Atobarai deferred payment and Gold Card, Ozawa will answer to that question. And the second question card and PayPay is integrated in operation way. And regarding the card or financial businesses, what is assessment for the mid- and long-term, Ozawa will answer to both questions. Regarding the first question, the big trend is PayPay has really rooted in people's everyday life. So natural increase of [ month ], the KPIs of usage is growing very well. Even with our sales promotion, we are in a very good virtuous cycle. So that's the basis.
And additionally, promotion has been covered by PayPay, but stores manufacturers provides some funding for that, and that percentage has increased. They are beneficiaries. They can receive customers and their products are selling. And the out of promotion costs the manufacturers would pay, and that is also the revenue for PayPay, which is very ideal. So this is a good synergy coming from this cycle.
We have had the cost structure, but that is shifting in that way going forward. And the gold cards and other sales promotion requires -- is required for new launch of services. So to a certain extent, there would be some expenses for promotions. Regarding the second question, so just clarify among ourselves internally.
Thank you for waiting. PayPay card PayPay, this year, they integrated and we see synergy effects. So Atobarai deferred payment included card transaction numbers increased. And in December, Gold Card was launched, card, PayPay together the payment value is what we monitor. Why do we monitor both depending our stores, cards only can be used, not PayPay. PayPay, it's not introduced so high-end products users want to pay with credit cards. That is often the idea for the customers or users. We hope that the user will use both. But until the behavior change happens, or maybe it doesn't change at all. So we have card and PayPay.
In the back, we had the payment or Atobarai payment and the system may be integrated and whichever is used, they are reflected in royalty program. And so the total point will increase. So the points are often operated in a common manner. So cashing may be the right business out of that, and we have continuous business from that while Gold Card may be announced and Atobarai is announced. And little by little, those are put into reality. And when there is more ideas, that is going to be implemented and we will share with you.
Thanks for clarification, according to what you are explaining noncontinuous effort will be made for both in the card. But this is what you have incorporated in your plan and design of the model?
Yes, continuous or noncontinuous it may depend on definition. But from PayPay card, PayPay users is huge. And with that, the number of users may expand and also transaction value is increasing. That is what we see. So continuous non-continues, we will push both.
From CLSA Securities, we would like to now take a question from Oliver Matthew. Please unmute and go ahead.
I have a question about e-commerce. I just want to check my understanding. So it looks like you cut the promotions by about 8 percentage points and the GMV was growing about kind of high single digits and now drop to negative. So are you getting some kind of correlation between the promotion spend and GMV growth? What kind of learnings have you had reducing the promotion points.
This is Ozawa. I will take your question. Well, for Yahoo! Shopping or the mall business, I think your question is associated with the mall business. But for Yahoo! Shopping and the mall, the points that we give to users and the sales promotion cost we spend is extremely correlated with GMV growth. So less points means that GMV will be affected negatively by a certain degree. And on Z Holding basis and sales promotion cost control by spending sales promotion on high-margin business is what we're doing, and we're holding back and spending on the mall business. So the shopping mall business GMV goes down. However, e-commerce as a business overall is healthier due to our cost control. So that is what we are learning regarding spending. That's all for me.
So does that mean you're very confident that EBITDA growth will continue for the next 3 quarters for e-commerce?
We haven't set forth any specific targets, but the EBITDA margins, we will focus on maintaining it and we'll be mindful of the profits generated by GMV growth.
Next, MST Financial Services, Pty. Ltd, David Gibson. Please unmute yourself and ask your question.
I have one question. Since LINE was acquired, you've been working to integrate or work with it and Yahoo! together. Can you give an example of what didn't work in the last year or so? And hence, why you think the full merger of the 2 companies is needed, please?
Kawabe-san will take your questions.
I will answer your question. So what didn't. It's not about what didn't work out well. It's about making things work better. That is why we opted to go ahead with the complete merger. In the past 2 years, respective services culture was being mutually understood, and we had exchange at the talent level, and we did data protection at the same time and providing the linkage of services. So that was what we had been doing, but we want to accelerate our efforts. And we thought that in order to do so, we need to become one organization and make the decision-making process more simple and have more linkage between our services. So that's our thought process.
So there were 3 different companies, basically. So each of the companies try to optimize individually. So I think that's one aspect we have been observing. So I guess that's pretty much the answer to your question. So basically, individual optimization is what we would like to break through, so that we could generate new synergies under the new organization. And Mr. Shin will be in charge of products and for our business and revenue or earnings, Idezawa-san will be in charge so that we could generate good results.
As a follow-up, what is the difference in culture between the 3 companies then currently, and currently in which obviously you want to unify?
Well, first of all, for Z Holdings, it's a holdings company basically and it only has been several years since it's been set up. So there is no really unique culture. So it's more about the culture at Yahoo! as well as LINE. My comprehension, and I think Idezawa-san should also should answer this question as well. But what's common between the 2 companies is a priority on product, priority on users and through the services we want to contribute to society. So we have a lot of young employees that are managing the business. That's common. So it's all about service. Based off that, it's been 25 years since Yahoo! was established. So as a company, it's more mature.
And LINE, relatively has a more challenging spirit and also on a relative basis, LINE has more of a bottom-up approach, trying to do things what's happening at the job site. And for Yahoo!, in recent years, myself, Mr. Ozawa has been part of management and there has been some maturity in our services. So a lot of transformation has been happening top down. So I think that is some of the differences.
So Idezawa-san, do you have anything to add?
Yes. I think, Kawabe-san rightly pretty much said what I wanted to say. But Yahoo! was mainly engaged in businesses in Japan and for LINE. Even for the services as well as the development basis, it mainly was engaging in business in Asia. So that was just an addition, a follow-up comment.
While the closing time is approaching so we would take the last question. Tsuruo-san from Citi Group, please ask your question.
Just one question. It's a bit technical, but this is the first time I attended this in Appendix, PayPay financial statement is on the right-hand side. Net working capital is negative in this company, it looks. And as business expands, there may be some [ adjusted ] capital. And this is the first time I'm attending. I'm not familiar with this kind of business so free cash flow or cash flow in your business expansion, what kind of cash demand or what kind -- what are the needs for the capital?
Thank you for the questions. Maybe you use this, but for PayPay, we are strengthening deferred payment or Atobarai but users mainly use after charging that's the majority of the users. So cash [ JPY 470.4 million ] is the cash charged by the users and the payments are made to stores or merchants, but we have received a charge from the users, and that will be paid to the store. That's the cash flow. Going forward for market -- for our business expansion, as of now, this is operating very well at the moment.
Araki-san has a question, and this is regarding the second point, advertisement costs and the promotion cost of PayPay. That was the question. And much that was the promotion cost, and that is how it is mentioned in our Z's P&L on Page 3 was JPY 7.4 billion. That is increase of promotion cost that is mainly because of PayPay in footnote line and Yahoo! reduced promotion expenses. So this part is because of the consolidation of the PayPay. And for ad and promotion, there is an increase, and that is PayPay's consolidation effect and there's a Japanese government travel incentive and [ EQ ] had a large promotion in the third quarter, and that is why there is an increase in the sales promotion -- sorry, advertisement.
With this, we would like to close Q&A session. Lastly, Kawabe will give you a closing comment.
Kawabe speaking. Thank you very much for attending this earnings meeting. This is a very important turning point. We announced very important points. And personally, midterm plan revision was made and I feel responsible for that. And in terms of the management, and I should be the supporter for the new management with the renewed management, some goals would be revised, but our visions and midterm or long-term profit and the new management, we want to achieve those goals, and I will be a part of the management in that sense. I hope you will continue to support us going forward. For 5 years, I led the business. Many things I could achieve and not achieved, but I did my best, and I hope that you will provide your support to the new management of the new -- renewed Z Holdings. Thank you very much.
With this, we close the third quarter earnings report meeting for FY '23 of Z Holdings. Thank you very much for your participation.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]