GMO Internet Inc

TSE:9449

GMO Internet Group Reports Strong Performance and Strategic Growth Initiatives

GMO Internet Group demonstrated robust growth in FY 2024, achieving record revenues and profitability, with a remarkable 27% increase in operating profit. The transition to a holding company structure aims to enhance autonomy and agility within subsidiary operations. The crypto exchange business significantly rebounded, doubling trading volume year-over-year. For FY 2024, they expect an unprecedented total shareholder return ratio of 108%, driven by a JPY 10 billion share buyback program. The security business is poised for major expansion, focusing on addressing modern threats. Looking ahead, GMO Aozora Net Bank reported its first-ever quarterly profit, with ambitious plans to lead in embedded finance.

From Strength to Strength: GMO Internet Group's Yearly Performance

In FY 2024, GMO Internet Group reported remarkable financial results, showcasing sustained revenue growth for the sixteenth consecutive year. The company achieved a record benchmark in annual revenues, significantly bolstered by its core Internet Infrastructure segments. Despite challenges such as a JPY 9.5 billion expense related to the closure of its Thai Securities unit, the overall financial health of the company remained strong. Notably, its operating profit saw an impressive year-on-year increase, reaffirming the resilient nature of its business model.

Transforming Challenges into Opportunities: The Holding Company Shift

GMO Internet Group is undergoing a significant transition to a holding company structure, aiming for increased autonomy among its subsidiaries. This strategic move is expected to enhance decision-making efficiency, allowing entities within the group to respond more agilely to market changes. By fostering independence, GMO aims to maximize synergies and accelerate value creation across its diverse business applications. The leadership emphasized that this change is a foundational step for sustainable growth in an evolving internet landscape.

Driving Innovation: New Growth Pillars and Strategies

The company launched new initiatives to address emerging security needs, including the GMO Security 24 service, which offers free online security diagnostics. This innovation enhances consumer awareness regarding cybersecurity while setting the stage for profitable recurring service models. Moreover, GMO Aozora Net Bank achieved its first quarterly operating profit, underscoring the potential for its banking and financial service growth. The bank aims to become a dominant player by focusing on small businesses and embedded finance solutions.

Segment Performance: A Closer Look

The Internet Infrastructure business thrived, with revenues from this segment surpassing JPY 70 billion in quarterly sales, attributed to consistent recurring revenues from various services. The Online Advertising and Media sector also recorded its highest historically, despite external budget reductions affecting advertising volumes. Meanwhile, the Internet Finance segment, despite a slight dip in FX revenue, saw ongoing strength in trading volumes, indicating resilience amidst a challenging market environment. The Cryptoassets segment capitalized on the crypto market recovery, with GMO Coin witnessing trading volumes and revenues more than double compared to the previous year.

Commitment to Shareholders: Enhanced Returns and New Policies

GMO Internet Group maintains a robust commitment to shareholder returns, with a total return policy exceeding 50% of net profit. With a notable increase in annual dividends to JPY 41.8 and a new share buyback program funded at JPY 10 billion, the group is focused on enhancing shareholder value. For fiscal year 2024, the total shareholder return ratio is anticipated to reach 108%, reflecting a proactive approach toward investor engagement and confidence in ongoing business growth.

Looking Ahead: The Vision for Tomorrow

With a vision of sustainability for the next hundred years, GMO Internet Group is committed to leveraging its extensive experience in internet services. The leadership underscored ongoing improvements across technology and operational aspects to adapt to market demands. As the company aims to harness opportunities within its core competencies, investors can expect further developments and strategic expansions that align with industry advancements and consumer needs.

[Operator]

Hello, everyone. Thank you very much for joining us at GMO Internet Group Full Year Announcement. Well, you might be very busy, but thank you very much for giving your time. I'd like to introduce today's presenters. Masatoshi Kumagai, Group Representative; and Group Vice President and CFO, Masatoshi Yasuda (sic) [ Masashi Yasuda ], are going to be presenting to you.

Today, we will give you the high-level announcement about our financial close, and we will take some question and answer at the end. And material slides are available on our website. And after today's session, we will give the guidance to the survey participation. So please help us in giving us your feedback with the survey form.

With that, I'd like to invite Kumagai, the group representative.

[Masatoshi Kumagai, executive]

I am Kumagai, the group representative of GMO Internet Group. Thank you very much for joining us and giving us your time for 2024 December full year financial announcement. Thank you.

This is how today's agenda looks like. Today, during our financial announcement, there were 3 highlights I'd like to talk to you today. First is about our engagement with the long-term value creation. At our company, we want to make sure our company sustains for hundreds of years to come. We are committed to running the business in the long run. Sustainable growth needs to be accelerated. Therefore, we have decided to shift to holding organization, and we have recently been working on more advancement about group structures.

Next, I will talk about our performance in FY 2024. FY 2024 has demonstrated and created impact about the effectiveness of giving autonomies to subsidiary companies. GMO Internet is -- with securities code 4784, is running the core business, together with the payment business, with the GMO-PO (sic) [ GMO-PG ], has been growing quite substantially. And nonpublic companies under our group, who joined our companies throughout the history of the company, has been making a great contribution.

And Thai Securities, we decided to close the business, and that process has been completed. With that, we could manage to minimize the potential impact in the future.

Number three is about maximization of group synergy and building new growth drivers. If I may, last week on February 6, we have launched [ net security ] GMO project. This new project is giving us advantages that are core competencies that we own because of our experiences in Internet Infrastructure and services business, and the timing is right for launching this business. We want to work with addressing social challenges so that we can establish sustainable growth.

This slide is showing you with full year performances. Top line revenue had seen 16 years back-to-back growth. We have to provide it for Thai Securities closure, which cost about JPY 9.5 billion, but we could, on the other hand, be able to manage the growth. And this is showing you the yearly trends of full year performances. As you can see, we are hitting the record performances.

And next slide, it's showing you summarized performances by different segments. Further to the right, it's showing you with qualitative assessment by top management together with our assessment of the last quarter. First, let me start off with the Internet Infrastructure. We gave double circle, which is very positive. Revenue have grown together with the stock revenue. Last year, we had a onetime benefit, which make a very challenging year to start off with, but we managed to grew more than 27% on profitability. So collections of the #1 business is giving us the bedrock stock business and this year proved the resiliency of the business model.

Next, Online Ad & Media business is single circle, good. And the high-margin advertising business was weakening. Therefore, revenue have came down. But our own product and our own media, which has a higher mix implication has grew. Therefore, profitability has been breaking as a record.

Internet Finance is a triangle. Top line grew but not the bottom line. FX and CFDs transaction volume grew quite steadily, therefore, single circle. But we have to see the provision again for Thai Securities, which is not good, X. For that Thai Securities, we decided to close the business and minimizing the impact of the post-merging phase of this business. We are successfully minimizing the impact.

This slide is showing you revenue and operating profit year-on-year performances. Left-hand side is top line revenue. Right-hand side is operating profit. So as I said before, infrastructure businesses performance has expanded. Crypto asset businesses has now finally profitable and cost for Thai Securities closure was -- need to be paid for JPY 9.5 billion, but we managed to grow both top line and bottom line. Now the graph that you are seeing right now is showing you the performance of infrastructure business, which drove this year's financial performances and showing you past 6 years' trend. You see the growth is exponentially growing, as you can see.

Now bedrock stock business model is the leverage in which we took, and we have made the record 9 years straight. And this slide is breaking down infrastructure businesses with payment business versus nonpayment business quarter by quarter. Light blue is payment -- GMO Payment Gateways business, which is growing consistently, which is no different from the past. But ever since third quarter of last year, the brand security business has won a very big project as exemplifying many profit contributions from nonpayment business.

This slide is showing you nonpayment businesses and how different businesses have performed year-on-year on profit level within infrastructure business, nonpayment. So GMO Internet, with securities code 4784, which is our core business, apparently is doing a great job, but nonpublic companies, which joined us later in the history is also making a great profit contribution. They joined to the group. They experienced the group synergy to help the entity themselves, but the group as a whole is growing. This ranking chart is the crown jewel demonstration of group -- success of group management approach.

Now I'd like to talk about more progresses that we are planning for group management. Now at our group, 2 years ago, when we disclosed ESG, we have identified one of the governance challenge. And we have made a commitment to become group organization, which will continue to grow for the next hundreds of years to come. Internet industry is very competitive and changing very fast. For us to keep winning and sustainably grow, we need to explore best format and a setup to become competitive. And shifting to holding company is a very strong step, very first but very strong step to establish this strong and resilient foundation and building group strategy -- structure will continue to evolve.

Now shifting to holding companies comes with 2 important messages that I'd like to share with you. First point is about promoting more autonomy to the businesses. We have been traditionally giving discretion to businesses. We have been giving autonomy to 2 subsidiary companies. Now shifting to holding company is accelerations to giving more empowerment to the subsidiary companies so that they can make more agile, faster decision-making for their business.

Number two is about maximization of group synergy. When we become a very close to a pure holding company and subsidiary companies are going to be a good peer to each other, therefore, synergy can be identified and maximized more smoothly under this structure. So these 2 ideas will accelerate the speed of our growth so that we can more certainly accelerate the speed and sustainability of our growth.

Under this structure, we -- the roles and the functions of holding companies can be listed in 4 things that you see on this slide. One is about us contributing maximizing group synergy. And also, we are pushing forward with more projects that are cross organization to give more enabler, more foundation for group synergies.

The other thing is about identifying and creating new growth drivers. We will be supporting new growth drivers for different businesses. At our group, we are a collection of #1 services, and that's how we grew. But we will identify and help develop more #1s and make the #1s bigger.

So the first and the 2 points that I mentioned about, I will come back to this point with more specific examples. Number three is about more -- bringing more efficiency for group structure. When we are managing group businesses, we would want to explore the optimum setup for all the organizations to keep growing. By shifting to the holding company, we do actually have a good new example, which I'd like to talk to you later in the slides.

Last is about sharing of know-how of group management. We can, as a holding company, become a hub to that. How? Becoming a hub to that or leveraging of AI tools, we would like to support the business management of the group companies. So first, I'd like to talk about group structure of the past.

Now we at the GMO Internet Group, we are now the business holding company but running its own business, managing together with the other subsidiary companies like this setup. Different entities are given autonomy with the independence to manage what they are good at. This is how the group structure has shifted.

Group structure is bringing more efficiencies, and we want to maximize synergy. There were 2 red numbers that you see to highlight the change. First, we had former GMO Internet Group, but we have -- giving this business to GMO ad partners. GMO Internet Group now becomes something similar to a pure holding company.

And the change #2, GMO Research & AI and GMO TownWiFi is going to be integrated. And we have just made an announcement some -- shortly before this announcement. By having a strategic change in organization, we would like to maximize and accelerate the speed of value creation.

And there are some companies who have a bigger box on this slide, GMO Payment Gateway, GMO Internet and GMO Financial Holdings with bigger boxes. They will -- going to be having -- be able to make its own issuance, its own ranking. We hope their presences within the group is going to be maximized.

Now I'd like to discuss and remind you once again about bringing more efficiency to group organization. From here on, I'd like to invite Yasuda-san, who is our Group CFO. Now 30 years ago, when we started the GMO Internet Group, I -- was a personal business and it became entity, only one company, but the Internet evolution is going very fast. Many and many evolutions happened to today's format. But this type of growth will continue in the future as well.

I would like to hand it over to Yasuda-san.

[Masashi Yasuda, executive]

And this is Yasuda. I'd like to go through the rest of this presentation. And now what you are seeing right now is just reminding you the scheme in which how our company and GMO AD Partners, former GMO Partners are just reorganizing themselves. So we've been managing infrastructure business, and that particular business has been handed over to GMO AD Partners. That makes this company now becoming similar to pure holding company so that we are focused on group management. And former GMO AD Partners effective as of January 1, 2025, this year changed its name to GMO Internet Group and has been listed on Tokyo Stock Exchange Prime Market. This is the main overview of the businesses and the main services by GMO Internet, domain, rental server, Internet connectivity. And also those are the core businesses that has been driven our businesses for the last 28 years, and that is the responsibility they handed over. And also [ GPM ] cloud, which is going to be the pillar of our new growth driver, will be part of the responsibility. The other synergy maximization and group optimization, bringing more efficiency, comes with this new exciting example.

Now GMO Research & AI is listed on Tokyo Stock Exchange Growth Market and the group GMO TownWiFi will integrate themselves to start the new history. Now both companies are committed to addressing challenges, pain points of consumers. We believe there's a great synergy opportunities for customers. The name of the customers have changed to -- will be changed to GMO Product Platform as of April this year.

Now GMO TownWiFi, which is one of the organization, let me just briefly talk about what they do in their business just briefly. Yes, just a minute, please. Now GMO TownWiFi, remember that list of the ranks. This is the second best performer in terms of year-on-year profitability under nonpayment infrastructure business. So they are managing app, consumer-related app whether it's about free WiFi connectivity app or shift digital app. And they are going to be evolving to become monetized platform business, and they are actually growing tremendously.

Both companies' projections and the plans can be found that -- with those announcements. GMO Internet's announcement presentation will start from -- shortly after the session from 4:45. So GMO Research & AI presentation will start from 11:00 tomorrow, February 13. So hope you are excited about finding more about them.

And next, I'd like to talk about important initiatives that we are running for group growth strategy. Now this slide is showing you different drivers about how we are maintaining this growth. So you see, as this slide showing you, there are many technological innovation but also caused some technological or social challenges. So these are the list of drivers that are performing quite well, shortlist. We have much more services. But in any case, we are providing #1 services to address the pain point of the consumers to make a steady growth.

So having a -- competitive products are coming from sharing and commitment to GMO-ism and also commitment to have group-wide business management. And this slide is showing the map of different businesses, Internet connectivity, domain, cloud rental servers or the infrastructure businesses for Internet. That's our starting point. We are helping the business to run efficient way of Internet shopping, security payments. And each one of them are essential services. They were #1. We cannot afford to lose them, by providing essential values. And we are demonstrating synergy across different #1 services to have a sustainable growth.

Now we were paying more attention and focuses to security. Now different media are talking about writing articles about cyber attacks, cyber crimes. There is no day that you don't -- that media doesn't talk about. Now GMO back in 1995, which makes up about 30 years ago, started the business or Internet business and helped facilitate the adaptation and development of Internet in this world. But the reality is some people have that intention in using Internet. We've been always concerned about, yes, we have to do something about this.

Now the world is going to be requiring more use of AI and robotics. Security, therefore, is going to be even more important than before. Therefore, security and safety is an urgent matter we need to address. But we now want to give safe and confident future to everybody. And we decided to launch a new project called GMO also can provide net security. I said GMO also provide net security. I hope I didn't confuse you to some of the investors. But please take a look at these numbers.

Now these are the numbers of our partners. By the way, we call our employees partners. This is the number of the people engaged in security business, so 8,000 partners in total across the group. Out of that, 1,100 people, partners are security experts. We actually are the biggest security providers in Japan domestically.

And the first project is this. The comprehensive Internet security service, GMO Security 24. In the physical world, when people sense the risk of burglary, they can check their own windows and door locks. However, in the online world, even when hearing about the threats of cyber attacks, most people don't know where to lock their doors.

To address this, we provide a free 24/7 service that helps users identify website security risks. Here are the details. GMO Security 24 provides password leakage diagnosis, web risk assessment and an AI chatbot for security consultations, all available 24/7 for free. We take pride in being the first in the world to offer such a comprehensive Internet security diagnosis service.

Here is an example of the actual web security risk assessment results. By offering a free security check as an entry point, we aim to raise awareness of security issues and establish the recognition that when it comes to Internet security, it's GMO. Furthermore, we offer detailed security assessments, security measures and regular security checkups as paid services, expecting them to contribute to solid recurring revenues.

Our security business consists of 3 key areas: encryption security provided through GlobalSign, utilizing authentication technology to prevent eavesdropping, tampering and identity fraud; cybersecurity offered by GMO Cybersecurity by Ierae and GMO Flatt Security, featuring the world's most skilled white hat hacker teams for cyber attack protection; and brand security, professional domain and trademark monitoring to detect and eliminate impersonation. This project leverages our unique differentiated technologies, making it an exclusive initiative within the GMO Group. Please stay tuned.

Now let me introduce the second project. We will hold Japan's largest security event, GMO Cybersecurity Conference and Awards 2025 on Thursday, March 6, at the ballroom on the second basement floor of Cerulean Tower in Shibuya, where our first headquarters is located. The main speakers are as follows: Prime Minister Ishiba; Mr. Hirai, Minister for Cybersecurity; Lieutenant General Hiroe, the third commanding general, Japan Ground Self Defense Force; Professor Matsuo from the University of Tokyo, a leading expert in AI; and Director Furuta from Chiba Institute of Technology's Future Robotics Technology Center, among others, will be joining us for keynote speeches.

Additionally, we will host the GMO Cybersecurity Awards 2025, recognizing individuals and organizations that have contributed to the development of the industry. This is one of Japan's largest security events with an expected attendance of around 1,000 participants. We warmly invite investors to attend as well.

Next, we will discuss the second key initiative in our group's growth strategy, GMO Aozora Net Bank. The performance trends of GMO Aozora Net Bank are as follows. We have achieved our first ever quarterly operating profit. The primary factor behind this success is the expansion of corporate accounts. As the number of accounts increased, transaction revenue from transfer fees and other sources steadily accumulated and the rise in deposit balances also contributed to revenue stability.

The key KPIs, corporate account numbers and contracts for BaaS by GMO Aozora are as follows. As you can see, the pace of account expansion is accelerating. This growth is driven by the convenience and superiority of our in-house developed products. We have reached a point where many newly established corporations choose us. Another crucial KPI is the number of contracts for BaaS by GMO Aozora. This service provides various banking functions such as payments and deposit notifications previously exclusive to banks as a cloud service via API to external businesses. Companies can seamlessly integrate banking functions into their services without disrupting their brand experience, making GMO Aozora the preferred choice.

The future strategy of GMO Aozora Net Bank is based on 3 pillars: becoming #1 bank for small businesses and start-ups, #1 in embedded finance, and #1 tech-first bank. At the core of this concept is our strength in in-house development and operation, enabling us to offer #1 services. We will continue to focus on building a solid recurring revenue model and expand our business as a unified group and Internet banking business as well. Please stay tuned.

Next, we will discuss the segment-wise performance. First, an overview of the group. Here is the lineup of our group's major products, all developed and operated in-house. The combined customer base of our infrastructure, financial and crypto asset businesses has exceeded 17.38 million. This chart shows the quarterly revenue trends by segment as explained earlier.

The deep blue section at the bottom, representing Internet Infrastructure continues to grow steadily, primarily consisting of highly sustainable and predictable solid recurring revenue. This has enabled continuous growth with quarterly revenue surpassing JPY 70 billion. The quarterly trend of operating profit by segment is as follows. While this quarter was temporarily impacted by allowances for Thai Securities, we aim for a V-shaped recovery backed by the continued growth of our infrastructure business.

Now let's review the status of each business segment. This chart shows the 6-year performance trend of our infrastructure business. With our solid recurring revenue model, we have achieved record-breaking results for the ninth consecutive year. Here are the quarterly revenue trends and their breakdown. To improve understanding of our businesses and services, we have renamed some subsegments starting this quarter. Cloud and hosting business is now cloud and rental server hosting business. Access business is now Internet connection provider business.

Regarding quarterly infrastructure performance, we achieved an 8.1% year-over-year increase, marking the fifth consecutive quarter of record results. In addition to the growth in our payment business, our infrastructure companies, both listed and unlisted, continue to build solid recurring revenue through monthly and annual subscription models.

On the other hand, our Internet connection provider segment appears to have declined due to a onetime negative JPY 1 billion adjustment from previous quarter's net revenue processing corrections. However, this does not indicate any change in business momentum. Moreover, this correction has no impacts on operating profit.

Next, quarterly operating profit trends. It shows a year-over-year decrease, but we still recorded a high level profit of JPY 9.5 billion. Considering the impact of large deals by GMO BRAND SECURITY in the previous year, this reaffirms the strength of our infrastructure segment.

Now let's discuss Online Advertising & Media. We recorded the highest profit in this segment's history. Revenue from our in-house products under GMO TECH and GMO Media performed well. However, our online advertising business operated by GMO AD Partners faced some challenges due to budget reductions in certain industries, resulting in weaker transaction volumes.

The quarterly revenue trends and their breakdown are as follows. Year-over-year revenue saw a slight increase. While our in-house products performed well, the advertising agency business was negatively impacted by reduced ad budgets in some industries, leading to a weaker trend. Quarterly operating profit trends show a significant increase year-over-year, driven by the expansion of highly profitable solid recurring revenue-based in-house products.

Next, the Internet Finance business. FX revenue decreased compared to the previous high performing period. However, thanks to the spread reduction measures that boost trading activity, the business remains at a high level. In CFD trading, commodity prices influenced by global events and rising stock indices led to increased trading volumes. However, operating profit declined due to a JPY 9.5 billion allowance for doubtful accounts in our Thai Securities business.

Here are the quarterly financial results. Revenue declined due to a highly brisk market activity previous year and our spread reduction campaign to boost trading. Additionally, a JPY 2.8 billion allowance for doubtful accounts in Thai Securities business resulted in an operating loss. We have decided to discontinue margin trading in Thailand in December 2024 and already completed business closure process toward the closure of business in December 2025.

This chart shows revenue trends by product category. Although FX and CFD revenues declined compared to last year's strong performance, both remain at high levels. This graph illustrates the correlation between FX revenue and trading volume. Until FY 2022, increased trading volume negatively correlated with revenue due to high-volume traders disproportionately impacting profitability. To address this, we implemented restrictions on daily trading volumes for some large clients starting in fourth quarter of FY 2022. As a result, profitability improved as we successfully built up trading volume from smaller clients.

Now revenue has declined in Q4. However, this was due to a strategically implemented campaign aimed at stimulating transaction activity. There have been no notable change in the competitive environment.

Finally, the Cryptoassets business. Amid the thriving crypto market, GMO Coin's exchange business saw trading volume and revenue more than double year-over-year. Operating profit turned positive for the first time since 2021's crypto boom.

Here are the quarterly financial results. Since Q4 last year, exchange business developed by GMO Coin has seen the crypto market recover, thanks partially to some hot topics on cryptoassets, driving increased trading volume and a continued profitable trend. We will continue operating the business without hesitation while expanding customer base and taking various initiatives.

Finally, let's discuss shareholder returns. Our basic policy is a total shareholder return ratio of 50%. This consists of allocating 33% to dividends and the remaining 17% to share buybacks and cancellations. This is the trend of dividends per share. Dividends are announced quarterly and the year-end dividend is JPY 10, bringing a total annual dividend to JPY 41.8. Finally, regarding the establishment of a new share buyback program, this is funded with JPY 10 billion, exceeding 17% of net profit as per our basic policy.

Here are the actual shareholder returns. You can see that the total shareholder return ratio has been consistently above the basic policy level of 50%. For fiscal year 2024, the total shareholder return ratio is 108% of net profit. Additionally, today, we have announced a partial revision of our shareholder benefits. Considering our transition to a pure holding company structure, we have decided to focus shareholder returns on dividends and share buybacks. Going forward, we will continue to implement steady shareholder returns while maintaining a balanced capital structure.

From now on, Kumagai will provide a summary.

[Masatoshi Kumagai, executive]

Lastly, I would like to summarize today's presentation. GMO Internet Group remains committed to achieving our vision of a corporate group that will last for 100 years by taking a long-term management perspective. As explained earlier, in 2024, we saw strong performance in our core business and payment services, along with notable growth in our recently joined unlisted subsidiaries. This accelerated the expansion of our infrastructure business, allowing us to fully showcase the strength of our group management.

In 2025, we have transitioned to a holding company structure to drive further evolution. With this reorganization, GMO Internet, 4784, which inherits our core businesses and the new company formed by the merger of GMO TownWiFi and GMO Research & AI, 3695, are expected to achieve significant growth. Please pay close attention to the presentations from both companies that follow. Additionally, as Yasuda mentioned, we are intensifying efforts to establish GMO for Internet security as a new growth driver for the group.

The security business is now entering a major expansion phase. We are also pleased to report that GMO Aozora Net Bank has firmly established itself in profitability. To meet shareholder expectations, we will continue to prioritize shareholder returns across the entire group.

Each group company that is listed has announced an increase in dividend payout ratios. Since around 2007 or 2008, we have consistently delivered on our promise of share buybacks, and we will continue to do so. We aim to demonstrate the validity and the progress of our group management through tangible results, and we appreciate your continued support.

That concludes today's presentation. Thank you very much for watching. Internet for everyone.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]