Mixi Inc

TSE:2121

Earnings Call Transcript 2020-Q2

[Koki Kimura, executive]

Thank you for coming to our earnings result briefing session despite your busy schedules. I am President and Representative Director, Kimura. I would now like to explain our earnings result for the second quarter of fiscal 2020. I would like to explain in 2 parts, the financial status and the business status.

First, I explain about the financial status. Please take a look at Page 4. This is a consolidated income statement. The second quarter net sales was JPY 26 billion, down 28.6% year-on-year.

Operating income was JPY 2.3 billion, down 75.3% year-on-year. Net income was JPY 1 billion, down 81.2% year-on-year.

Page 5. This is a first half cumulative consolidated profit and loss. Please take a look at Page 6. I explain the earnings trend by business. Entertainment business sales was JPY 25.1 billion and Lifestyle business sales was JPY 800 million. Entertainment business sales was down year-on-year. This was due mainly to lower ARPU for Monster Strike from the same quarter a year ago.

Page 7. This shows the trend of cost of sales. Game development cost that was booked as other assets were recognized as expenses with product release, leading to a temporary increase in outsourcing expenses.

Please take a look at Page 8. This shows the SG&A trends. Advertising cost increased over the first quarter due to the holding of XFlag PARK and the Countdown campaign toward the sixth anniversary of Monster Strike. However, advertising cost was lower than the same quarter a year ago. As I will explain later, these measures led to significant recoveries in MAU.

Page 9. This shows the performance progress for the first half, although progress rate of income is high, we are expecting to incur a onetime relocation expense of JPY 4 billion in the second half. So as of now, we are progressing according to plan against the performance outlook. Therefore, we will keep the full year earnings forecast unchanged.

Next, I talk about the state of our businesses. Please look at Page 11. In the Entertainment business, we are continuing to focus on revitalizing Monster Strike and growing the sports business. First, I explain the revitalization of Monster Strike, the status as of the second quarter and future initiatives.

Please turn to Page 12. As we explained at our briefing after Q1, we are pursuing the dual tracks of recovering business performance in short term and building brand positioning in the medium to long term for the revitalization plan, and we are aiming to improve MAU and retention and then improve ARPU by stimulating spending.

Page 13. As I already mentioned, the theme for Monster Strike in the second quarter was MAU recovery. From July, we started intermittent campaigns, including distributing orbs, the in-game currency in data for popular characters, which led to bringing back dormant users and pushing the MAU above last year's level.

Please take a look at Page 14. The theme for the second half is increase the ARPU. We are developing new materials and in-game measures during Q3 for the year-end high season. And at the same time, we are promoting measures to establish the active users we acquired in the second quarter to encourage them to play the game regularly.

Please turn to Page 15 for the second focus theme: grow sports businesses. We are continuing to exert our efforts to Pro Sports Team Management and government-controlled competitive sports and conducting various initiatives.

Please look at Page 16. In Pro Sports Team Management, we acquired shares of a B.League team, Chiba Jets Funabashi, and made it our subsidiary by broadly promoting a young manager. We further encourage the challenging spirit of Chiba Jets, which is their strength. And also, we will deploy the resources of mixi Group to accelerate growth even further.

Page 17. This shows a net sales of Chariloto, which we consolidated from this term. After joining our group, the business continues to exhibit strong growth. Also, we intend to inject O2O knowledge that we have accumulated to increase the number of customers who visit bicycle race trucks, thereby growing the Chariloto business and also contributing to local revitalization together with local municipalities.

Please take a look at Page 18. In terms of other initiatives for the Entertainment business, we completed the publisher transfer of the RPG game, Kotodaman. We'd like to cross-pollinate the game with know-how we have accumulated with Monster Strike and further develop the game to make it a game that will be loved by even more people. Also, we launched Monst Dream Company in September. Using Monster Strike IP, we will continue to improve the game so that many users choose to play it.

Next slide says about Lifestyle business. First about Cococise service, which we started in January of this year. As a new business in wellness segment, we opened the first store and conducted feasibility studies toward business expansion but could not identify effective measures to deal with issues such as customer acquisition. And so we have decided to terminate the service as of end of November.

We extend our deep appreciation to the local users who have patronized this service since opening. We will reevaluate the future direction of the wellness segment. The financial impact of the closing of the Cococise business is minimal.

Please turn to Page 20. As a derivative service of FamilyAlbum, we started the online New Year's Card service. Currently, the New Year's Card market is shifting online, and we believe that the smartphone app market for New Year's Card will grow further. The number of disciplined orders, which is a leading indicator of sales, is very high, and we are assessing a good response as a way to monetize user assets of FamilyAlbum users.

Finally, let me explain future earnings and our policies. The earnings result numbers for Q2 are substantially lower for both sales and earnings year-on-year. However, concerning the revitalization of Monster Strike, we are starting to see positive trends, such as improvement in MAU.

Going forward, we will take measures to maintain the high MAU and at the same time, provide schemes to simulate users’ consumption and aim for a v-shaped business recovery.

On our other focus area of growing the sports business, we will utilize M&A and invite in companies that have high synergy potential with us and aim for further acceleration for growth.

We ask for your continued support. That concludes my presentation. Thank you for your attention.

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