CyberAgent Inc

TSE:4751

Earnings Call Transcript 2019-Q1

[Unknown Executive]

It is time. So we would like to begin the First Quarter FY 2019 Briefing Session for CyberAgent.

Before we get started, we would like to introduce our representatives: CEO, Susumu Fujita; Managing Director, Go Nakayama; and Senior Manager of IR and SR division, Sonoko Miyakawa.

CEO, Susumu Fujita, will take us through the results.

[Susumu Fujita, executive]

Thank you for taking the time out of your busy schedule to be here today. As you know, a short while ago, for the first time in 17 years, we just made a downward revision, so today we would like to cover the downward revision as well as the future outlook.

First of all, our fiscal year ends in September, so this is our first quarter, October through December. During this quarter, we marked record-high consolidated sales and AbemaTV hit a new Guinness World Book of Records for WAU. And in terms of the Ad Business, we also had the highest sales today as well. And with Games, we promoted Dragalia Lost, which is a new game and that is why we saw an inflated advertising spend for the Game Business, and this is a consolidated sales and how it has shifted. So we have continued to increase in volume and the sales have grown.

But if you look at the other numbers that follow, we have actually spent more costs in the -- our growth rate. That is why our business now progressed as planned. That is why we have made a downward revision.

This is the consolidated OP, JPY 5.3 billion. And if you break that down, we're actually behind schedule significantly. We actually sold shares of our upfront investments, but that is why the numbers are not as bad as it seems. But we believe that it was a right decision to make the downward revision, taking into account that the numbers would have been worse had we not sold those shares.

These are the SG&A and this has continued to grow. The costs have continued to grow. And as of November, we had spent more costs than we have planned and the sales hadn't progressed as we had hoped, so we started -- we stopped hiring and we also tried to revise our ad spend but October through to December wasn't enough time to offset. And also, we have been trying to curtail our costs. Having said that, we have still seen a growth in our SG&A.

Number of employees. We have actually increased our hiring efforts and we actually hired 600 people over the past year, and we had hired a lot of experienced hires as well. But we stopped our hiring in November, and we actually tried to transfer people within the divisions inside our company.

This is the PL and balance sheet. This is as per usual. So this is the -- as we have made a downward revision, and I've posted a blog entry earlier on how -- why we arrived at this current position. But first of all, as I mentioned before, from November of last year, we stepped on the brakes in November, but we realized the change in revenue structure and costs last summer.

So as you can see, number one, so July through to September, we noticed a change in revenue structure, but if you can -- look at first and second quarter of last fiscal year, there has been an overlap since -- to the forecast and even if we spent more cost, we were making more revenue, so we were able to offset that. In the third quarter, it was a little bit lower but there were seasonal factors. And the fourth quarter wasn't as great as we had hoped.

And having said that, in September, we were planning to release Dragalia Lost, which we had high expectations within the firm. So the initial month, if it gets off to a great start, it will absorb all of the costs, so we decided we didn't have to step on the brakes at that time. So we released Dragalia Lost at the end of September, and we sold -- or the revenues from that game was JPY 3 billion, which was very high, so it wasn't as high as we had expected but it was pretty high, so that's why we -- our forecast for this year was OP of JPY 30 billion, and we saw growth in the number of users. Having said that, we didn't see as much billing from that game as much we had hoped, so in November we decided to rein in our costs.

Having said that, we didn't react in time. So it's only been a month, but we apologize if we were making a downward revision, but we reduced the consolidated OP by JPY 10 billion to JPY 20 billion.

And by doing so, our management team, how we feel is at -- other businesses outside of AbemaTV, we were making JPY 50 billion with existing businesses and we were making upfront investments of JPY 20 billion in AbemaTV.

But we revised the forecast, existing business will now contribute to JPY 40 billion, and we will still make an upfront investment of JPY 20 billion, so we will be making a fresh start with -- from there. So that's the line from which we're making a fresh start. So the existing business will be JPY 40 billion, but we hope to do more. In AbemaTV upfront investment, we hope to reduce the upfront investment, and by doing both, we hope to increase sales and profit.

So that, as it says, we reflected the changes in revenue structure, the increase in costs. Of course, ad spend we can curtail quicker, but in terms of payroll, once we employ someone, we can't really cut that cost, so we need to wait for the sales and profit to rise.

So we revised the forecast accordingly. And also, we could have just left the consolidated OP at JPY 30 billion even though we were behind schedule, we could have tried to achieve that target. That was an option that we had, but we didn't want to be reactive. We would always be one step behind, so that is why we wanted to get it all out, the negative factors, and revise cost structure and the forecast. So by doing so, we hope to do more than OP of JPY 20 billion. So we hope that all of the news that will come from now on will be all positive and we will be achieving -- doing our best to achieve more than the forecast.

So looking more closely at the individual businesses, starting with the Internet Ad Business. In terms of sales, we marked record-high sales this quarter, but our feeling is that the type of clients that we are seeing, it's not games or financial or -- we don't see a very strong industry that is pushing up the sales, so the top line growth is a little bit weaker.

And in terms of the OP, quarterly OP, we have talked about AbemaTV and upfront investments but Game and Internet Business, Ad Business, we are still investing -- making upfront investments in these areas as well and we want to acquire national clients, so that's why we're trying to invest in creative and also technologies, hiring new employees as well and establishing new companies. So we have seen an increase in the number of employees in this business as well.

So going forward, CyberAgent's Internet Ad Business, creative and technology is the -- our strong point, so we want to be strong in technologies and numbers to acquire new advertisers. So we hope to continue to develop new advertisers with advanced technology.

Next, the Game Business. So we were a little bit dependent on Dragalia Lost, but outside of that, the existing titles didn't do as well. So the second quarter, from January onwards, we've seen great -- good results, so we hope that second quarter onwards, we will see a better performance. But in terms of the first quarter that we just ended, the existing titles, their sales declined. That's one of the reasons why we're behind forecast. And as I mentioned before, from January, we saw great performance, and if you turn to the next page, we will be celebrating anniversaries of popular titles in February and too in March. So in the second quarter, we believe that the sales will come back up. I don't know what will happen February onwards, but that's how -- what we believe. And we skipped one page but the Game Business, the OP has come down significantly. This is because we spent a lot on advertising, that's our main reason.

And in terms of the future plans, we are working with BANDAI NAMCO Entertainment on the game called Magnificent KOTOBUKI TAKE OFF GIRLS, and we are showing this animation on AbemaTV as well. So we will be working on the anime as well as the game together. So this is a new release coming up. And UMA MUSUME was on the previous documents at the end of the fiscal year, but we were supposed to release that in the winter of 2018, but we've actually delayed its publishing because we wanted to improve its quality. But these are the titles that we are currently working on. And these titles will be released as new titles.

Next, the Media Business. AbemaTV sales are doing -- growing very well, so the numbers have continued to grow. So you can see that this is a very nicely shaped graph. And downward revision, of course, we are going to be reining in our costs and that's something that we're all working on internally. But in terms of the AbemaTV upfront investment, this is going to be on track as -- but in TV business, it's actually the costs can inflate very easily, so we want to take care. If any programs that we have is not doing very well and if the costs are becoming inflated, we want to do a spring cleanup basically and review the costs -- revise the costs and continue to make investments where necessary.

And I talked about doing commercials for the Game Business, but we did also do advertising for the first quarter, so we saw more costs in this quarter as well.

In terms of the number of downloads, it has continued to grow steadily, so now we're at 37 million downloads.

And the WAU as well has grown steadily. So we saw 7.29 million in 2018, this is because we had a special TV program, 72 Hours, but last year, we worked on regular TV programs, and finally, we're seeing -- our efforts are bearing fruit.

And these are some topics from the end of the year and beginning of the year. So we had a special TV program where people could win JPY 10 million for -- if they managed to push up -- push out a famous sumo wrestler. But unfortunately, this year, some of the casts said no so we couldn't really realize some of those shows. But having said that, we were able to actually increase the number of users that we had -- have.

And this year -- or every year, we win the fan favorite, so we actually, for the second year in a row, we won the Google Play's Best of Awards as well and AbemaTV was ranked third in the Top Trending Ranking 2018 among teenage girls. And You can't fool me, Mr. Wolf summer 2018 was also top 5 trending things among teenage girls, so we're saying that our fan base among younger girls is growing.

Most of the TVs that are leaving the factories are actually equipped with AbemaTV buttons, so we're -- continue to work on that and working with SoftBank, we -- AbemaTV is now compatible with their Ultra Giga Monster, a new billing plan for SoftBank, and we also established an animation label. So we are continuing to expand our collaboration with other companies, of course, with Dentsu and also Hakuhodo as well, which is helping our sales efforts. Santona AbemaTV, we were working very hard on our own, but we will continue to expand our range of collaboration -- extent of collaboration with other companies.

And another change that we witnessed, so in 2019 April will be 3 years since we launched AbemaTV, but back then, linear viewing was where we started because we wanted it to be an Internet TV. But because we're available on the Internet, there's going to be on demand -- video-on-demand as well. What we learned is that sports and Shogi, Mahjong as well as news and live broadcast, if we create other packages in that, everybody wants to watch on video-on-demand.

And what we released on AbemaTV, 95% is viewed as video-on-demand. So even if we actually show something at 9:00 on Monday, it's -- people are still is -- just like the showcase and people are still viewing it on demand. So we want to continue to offer the best convenience for our users so we want to combined linear and on-demand viewing going forward as well.

This is the AbemaPremium subscribers where they can use video-on-demand as well, and this is the first time we're releasing these numbers. We were focusing on growing the WAU until now so -- and subscribers has actually -- subscription services are closed and it doesn't really grow all that much, but we weren't focusing -- focused on this area in the beginning, but last year we started to work in this area.

Now we're actually seeing 358,000 subscribers and this has continued to grow. Of course, Netflix, Amazon, Hulu is what you would imagine, but what's great about AbemaTV is that if there actually join -- if they actually join as a subscriber, they can use a lot more features, so you can replay on demand, for example, and you can download programs, so you can watch where you don't have Internet connection and so -- and then you can view comments as well. So it's not just about content, it's -- these are one -- some of the reasons why people subscribe for the Premium service.

And this year -- or last year, we worked on regular TV programs, but 72 Hour TV and Kameda Koki's -- if you win against Kameda Koki, you win JPY 10 million, but we had the special features -- feature programs, but we want to also increase our effort into dramas. So we have started to focus our efforts on creating a very popular drama.

So our new romantic drama will be starting in February, One Page Love. So many people saw first-time drama, romantic drama, so that's why we are -- have created this. And also some other new programs coming up, so we have a TV program using JPY 1 billion provided by The Japan Foundation, so -- which will be provided to people who actually come up with ideas that contribute to society. So we want to tell people that they have an opportunity to win these funds. Video and ad and -- is doing well as well for AbemaTV, but we want to issue DVDs and also sell to other services. We want to establish a publishing business in April or May or June. We want to start our public gambling channel and also add a function, which allows users to buy betting tickets and also virtual gifting as well, which is something that we are developing at the moment.

And in February, we will make AbemaTV available from overseas. We'll start with 6 countries as a pilot, and then if there are no issues, we'll make it available worldwide.

As I mentioned, we are actively working with other partner companies and also on nonbroadcast revenues, M&A, increasing IPs to -- not just from advertising and billing but to diversify our revenue streams and to create a new media.

Since we made a downward revision, we don't want to use this word too much and of course, we will revise our efforts in AbemaTV, but we believe that we should be investing in AbemaTV so we will continue to pump up the viewers and sales and make sure that we're making investments accordingly.

That's it for myself. Thank you very much.