Mixi Inc

TSE:2121

Earnings Call Transcript 2019-Q2

[Koki Kimura, executive]

Thank you very much for joining us despite your busy schedule. I am Kimura, President and Representative Director of mixi. Now I'd like to start the earnings result briefing session for the second quarter of FY '2019. My presentation comes in 2 parts: financial condition and business condition.

Let me begin with financial condition. Net sales for the second quarter and the review were JPY 36.4 billion, down 19% year-on-year, and profit attributable to owners of parent was JPY 5.6 billion, down 50.7% year-on-year. Cumulative net sales for the first half of FY 2019 was JPY 71 billion, down 23.8% year-on-year, and profit attributable to owners of parent was JPY 12.9 billion, down 48.6% year-on-year.

Next is about the quarterly consolidated sales and operating income by business domain. In the second quarter, we recognized JPY 35.3 billion for the sales of Entertainment Business. Sales of Life Style Business were JPY 1.1 billion. Entertainment Business recorded higher sales than the previous quarter, owing to the sales growth of Monster Strike. Net sales declined for Life Style Business quarter-on-quarter as we completed the transfer of shares of our consolidated subsidiary, Diverse, in July, which operates a matchmaking business.

As for quarterly consolidated cost of sales, outsourcing expenses increased affected by Monster Strike sales.

In quarterly consolidated SG&A expenses, advertising expenses increased. This is because XFLAG PARK was held across 2 quarters and as a result, expenses were posted in the second quarter for the number of days of the event. Also, TV commercials and web advertisement expenses were recognized as well due to collaboration with popular IPs. In addition, new series of Monster Strike animation was launched in July, and these are the main reasons for the increase of advertising expenses.

Today, we announced downward revision of full year forecast for FY 2019. In the previous forecast, net sales were estimated as JPY 175 billion and operating income was JPY 48 billion. This forecast is revised downward to net sales of JPY 155 billion and operating income of JPY 42 billion. The main reason for this downward revision is declining sales of Monster Strike. Five years have passed since the launch of Monster Strike, and although it maintains high popularity, the number of active users is lower than the estimate at the beginning of this fiscal year.

Also ARPPU in the first quarter was lower than the forecast. Even though it showed a sign of recovery in the second quarter, it was not substantial enough to recover the full year results. In addition, the share transfer of Diverse and the business withdrawal decision led to lower sales result than the original forecast. Under such a circumstance, we decided the downward revision of the full year forecast.

Let me explain about breakdown of operating income difference with the previous forecast. Operating income decrease due to sales decline was negative JPY 11 billion, and review of investment is JPY 5 billion. This is the amount we decided not to be posted in this fiscal year due to postponement and withdrawal of upfront investment in Digital Entertainment. In total, operating profit of FY 2019 was revised downward by JPY 6 billion.

Next I'd like to explain, business condition. First, Entertainment Business. Entertainment Business includes Digital Entertainment, Live Experiences and Sports. We have 2 objectives in Digital Entertainment service development. That is to make Monster Strike a nationally known IP and generate new IP.

In Live Experiences, we intend to create spaces where people can meet and have fun together by opening new stores and planning and expanding events.

For Sports, our objective is to build relations with the Sports industry and to accelerate growth of the clubs we support.

In our original forecast, we planned to invest JPY 11 billion in Digital Entertainment. However, it will decrease by JPY 5 billion because of postponement of some new game titles and some new IPs to the next fiscal year, and withdrawal from Telecommunication business we haven't been prepared.

These are the topics of Entertainment Business in the second quarter. We excluded various measures for the fifth anniversary campaign of Monster Strike as in-game events, we implemented collaboration with popular IPs, such as Sword Art Online, which is quite popular, especially among users in their 20s; Rurouni Kenshin, which is popular mainly among men in their 30s; and world famous IP, Mickey Mouse.

Next is about our video content. In July, we launched a new series of Monster Strike, The Animation, with a popular main character. As a result, the total number of views for the entire series exceeded 300 million worldwide in August.

In October, Sora no Kanata, the second animated feature film of Monster Strike, was released, and it ranked first at the box office during the first week of the release. Monster Strike, The Animation boosts DAU of the game, and the animated feature film is contributing to the game revenue in the third quarter.

In order to make Monster Strike a nationally known IP, we are trying to approach wider group of people. In September and October, Monster Strike exhibitions were held in Tokyo and Osaka, and many visitors came to the events. In September, a children's program started on Kids Station, a TV station for kids' animation programs. Also, in November, we opened an interactive intellectual digital theme park. With these measures, we intend to raise awareness about Monster Strike among people who do not play Monster Strike now, and increase the total number of users.

At the same time of the fifth anniversary of Monster Strike, we implemented a major update on October 3, by redesigning home screen and adding new monster rental feature. The game has become more fun for users to play with their friends. MonSpot, a feature introduced in the first quarter, has become easier to access and upgraded items for users. As a result, more players are enjoying the game.

As I said, Monster Strike marked the fifth anniversary in October, and we conducted a massive promotion with a popular TV personality. Also, we implemented Multi-Gacha, celebrating the fifth anniversary, and an event with a total price of JPY 300 million. We conducted our first collaboration campaign with McDonald's as well. As a result of these activities, MAU is increasing. Towards the year-end and New Year holidays, we are going to execute measures to boost the passion among users.

Next I'd like to share with you, the changes in the new IP creation since the previous briefing.

First one is a new action game Mobileball. It was announced to be released in this winter, but it was postponed to Spring 2019 due to development delay.

A new animation film, Promare, which is a joint production with Trigger Inc., was decided to be released nationwide in 2019.

In the area of Sports, we held XFlag-sponsored matches for FC Tokyo and Chiba Jets Funabashi, that we support as a sponsor. As I said in the previous briefing and the match of FC Tokyo, we invited 5,000 pairs or 10,000 users of Monster Strike for free, and also held a summer festival in the venue next to the stadium. It attracted a large cloud despite it was held on a weekday. The match of Chiba Jet Funabashi boosted its excitement by collaboration performance of the team and XFLAG and a popular artist participation as a surprise guest. We will grow this business by utilizing our marketing competence in the area of Sports.

I'd like to move on to Life Style Business. Life Style Business consists of media and wellness. Media Business aims to grow existing businesses and develop new businesses. And Wellness Business aims to develop exercise program services for the elderly. As for wellness, this fiscal year is considered as a period to verify the feasibility, and we are currently engaged in R&D of exercise program services. Also, we are preparing for opening a trial facility by the end of this fiscal year. Please allow us some time before service launch.

As for Family Album Mitene, the number of users exceeded 3 million in Japan, as I explained in the first quarter briefing. We will actively increase the users through measures like nationwide TV commercials. In the U.S., thanks to being featured in the App Store, the number of users of this application is growing steadily.

Finally, I'd like to explain about the direction from the third quarter onward. We will maintain the momentum of Monster Strike users, increased by the fifth anniversary campaign toward year-end and New Year holidays, as well as continue multidimensional efforts, such as animation and eSports, so that we can steadily increase active users. Cash flow generated from these activities will be invested in new businesses to establish pillars for future growth.

That is all for my explanation. Thank you for your attention.