Mixi Inc

TSE:2121

Earnings Call Analysis

Mixed Results and Future Growth Focus

In the recent earnings call, it was revealed that net sales remained flat at JPY 34.7 billion while EBITDA and operating income declined primarily due to costs related to the Monster Strike 10th anniversary. However, the decrease was offset by an absence of extraordinary losses from the previous year. The Sports segment grew, with net sales up by 13% to JPY 7.5 billion and positive impacts from ticket sales and cost optimization. The Lifestyle segment expanded by 28.2% to JPY 2.1 billion, driven by growth in FamilyAlbum, though EBITDA was negative due to overseas investments. The Digital Entertainment segment saw a slight decline in Monster Strike sales, but it remains a key focus for investment and growth over the next decade. The company aims to enhance its key segments, publicly managed betting sports, FamilyAlbum, and the Monster Strike economic sphere, with various initiatives for innovation, user engagement, and global market expansion.

Steady Sales with a Dip in Profitability Amid Anniversary Costs

The company saw a steady performance in net sales, maintaining a level of JPY 34.7 billion, comparable to the previous year. However, this stability in sales came with a significant cost: both EBITDA and operating income saw a decline. The primary culprit was the increased costs associated with the 10th anniversary of Monster Strike, a flagship title. Despite this, net income actually improved due to the absence of one-time losses that were recorded in the previous year.

Sports Segment: A Mix of Growth and One-Time Expenses

The Sports segment experienced a 13% rise in sales, driven by the lucrative betting business and spectator sports revenue. This growth is a part of the upside following organizational restructuring efforts that aimed to optimize costs. However, the EBITDA did take a hit from one-time expenses related to a new fan communication platform. The sales growth in the sports betting, led by Chariloto and TIPSTAR, was identified as robust, even after adjusting for accounting changes.

FamilyAlbum Drives the Lifestyle Segment Forward

The Lifestyle segment saw a surge in sales by 28.2%, much of which can be attributed to the FamilyAlbum service, which now boasts over 20 million users. Interestingly, overseas Average Revenue Per User (ARPU) has outperformed the domestic market, thanks to a favorable exchange rate. The segment, however, still faces a negative EBITDA due to increased investments in user acquisition and infrastructural development.

Digital Entertainment Juggles Anniversary Celebrations and Sales

The Digital Entertainment segment reported a slight decline in Monster Strike sales year-on-year, though the numbers were better than anticipated. This was due to the costs associated with the title's anniversary activities, which, while dampening profitability, did create a bump in Monthly Active Users (MAU). The anniversary was deemed a success, with high engagement in live streams and social media presence, raising hopes for a carryover effect into the holiday sales period.

Investment Segment Benefits from Exit Gains and Valuations

The Investment segment enjoyed noteworthy gains with net sales of JPY 700 billion and an EBITDA of JPY 400 billion. This impressive financial outcome resulted from the exit of an investee and a valuation gain from an overseas fund.

Outlook Holds as Company Eyes Robust Second Half

Looking towards the future, the company maintains its full-year forecast despite the lower profit progress in the first half, attributed to the heightened anniversary-related costs. Strengthening its position, the company signaled no change to the interim dividend of JPY 55 per share. With an anticipated stronger second half performance due to seasonal factors, the company seems poised for a positive close to the fiscal year.

Strategic Shifts and Expansion Plans Across Segments

The company outlined several strategic initiatives for its core segments. These range from enhancing social betting functions and exploring international markets in the sports domain, leveraging the new arena and brand enhancement in spectator sports, to accelerating growth in the Lifestyle segment with a focus on overseas potential and new service rollouts. For Digital Entertainment, the company is building on its user base enthusiasm to spur further growth in the Monster Strike franchise. Along with this, they are also focusing on making strategic investments in India and other emerging markets.

Monster Strike: A Decade of Dominance and Aspirations for the Future

As Monster Strike celebrates its 10th anniversary, the company reviewed its colossal success. The game has amalgamated a staggering 61 million users and surpassed JPY 1.3 trillion in sales. Moving forward, the company pledges to embrace user astonishment as its core ethos, with intentions to develop and nurture more mainstay franchises, ensuring that Monster Strike's legacy continues well into the next decade.

Earnings Call Transcript 2024-Q2

[Kohei Shimamura, executive]

Thank you very much for taking time out of your busy schedule to attend today's financial results briefing. I am Shimamura, Senior Corporate Officer and CFO.

Today, I will explain our business according to the agenda shown on Page 2.

Please turn to Page 3. This is the executive summary. From the next page onward, I will explain the details.

Please turn to Page 4. Let me first explain our financial status.

Page 5. This is a quarterly consolidated income for the second quarter. Net sales were JPY 34.7 billion, about the same as a year ago. On the other hand, EBITDA was JPY 2.6 billion and operating income was JPY 1.5 billion, both down year-on-year. The decrease in profits was mainly due to increased costs related to the Monster Strike 10th anniversary measures and costs associated with Monster Strike series. Profit was attributable to owners or parent, on the other hand, increased due to the absence of extraordinary losses recorded a year ago.

Please look at Page 6. This is a quarterly trend of consolidated business performance.

Please turn to Page 7. I will now explain the business status of each segment.

Please turn to Page 8. This is a review of the Sports segment. Net sales increased 13% year-on-year to JPY 7.5 billion. Main contributing factors were growth in ticket sales for Chariloto in the publicly managed betting sports business and higher ticket revenues from FC Tokyo in the spectator sports business. EBITDA improved year-on-year. This was due to an increase in sales and the impact of cost optimization from organizational restructuring implemented in the previous fiscal year. The deterioration in EBITDA compared to the first quarter is due to onetime expenses incurred in the new fan communication platform, humy, in the spectator sports business.

Please turn to Page 9. This is a sales trend for Chariloto and TIPSTAR. Sales increased by 8.9% year-on-year. If we exclude the impact of an accounting change made at the end of the previous fiscal year, net sales increased 3.1% year-on-year.

Please take a look at Page 10. This is the status of TIPSTAR. TIPSTAR's positive EBITDA trend continues, and the company continues to make service improvements. In the second quarter, we improved social functions such as the newsfeed and friend feature. We will continue to make improvements. Investment plans will be made once improvements are seen in main KPIs aiming for significant business growth.

Please look at Page 11. This is the status of the spectator sports business. The new season for Chiba Jets opened in October. Chiba Jets will also represent really in EASL, East Asia Super League. The team will aim to increase its presence in East Asia and work toward becoming a world-class team. FC Tokyo held MIXI Day on October 1 and celebrated the 25th anniversary of the club's establishment with over 30,000 fans. We will continue to apply our expertise in the operations of both teams to provide entertainment for even more fans.

Please turn to Page 12. Here, I will explain our Lifestyle segment.

Page 13, please. Net sales increased 28.2% year-on-year to JPY 2.1 billion. This is mainly due to growth in FamilyAlbum. EBITDA was negative. This was due mainly to investment in overseas user acquisition and Lifestyle structure reinforcement.

Please turn to Page 14. This is the status of FamilyAlbum. With large growth overseas, the number of FamilyAlbum users surpassed 20 million. In addition, overseas ARPU has grown to exceed that of domestic ARPU due in part to the favorable impact of foreign exchange rates. We will continue to promote monetization and aim for further business expansion.

Please turn to Page 15. This is the status of monetization for FamilyAlbum. FamilyAlbum is currently promoting monetization, both domestically and internationally, with sales being driven forward by premium plans, prints and GPS Guardian. In the second quarter, we added the Premium Pro plan to our premium service. Also, in November, we started taking orders for 2024 FamilyAlbum New Year cards, and we will continue to strive to grow the ARPU.

Please look at Page 16. I will explain the Digital Entertainment segment.

Please turn to Page 17. Net sales were JPY 24.2 billion, and EBITDA was JPY 6.4 billion. Sales of Monster Strike declined slightly year-on-year but were slightly higher than projected due partly to the 10th anniversary measures. EBITDA decreased year-on-year due to Monster Strike 10th anniversary measures and costs associated with Monster Strike series.

Please turn to Page 18. This is a status for Monster Strike. Although ARPU decreased on a relative basis due to the collaboration with a major IP in the same period of the previous year, MAU landed higher than the year before as a result of various 10th anniversary measures. Therefore, we were able to create some upside to the plan.

Please turn to Page 19. This is the status of measures for the 10th anniversary of Monster Strike. We implemented various measures from July to October. Peak viewership of the 2-day anniversary party live streaming exceeded 530,000. We were trending #1 on social networking service, and we believe we were able to have many users enjoy the event. Also as a result of an active effort to strengthen touch points with users, including large-scale promotions in offline events held in regional cities, we were able to have higher MAU than the year before. We hope to link this, the heightened MAU, from 10-year anniversary measures to contribute to sales during the new year holidays.

Please look at Page 20, I will explain about the Investment segment.

Please turn to Page 21. Net sales were JPY 700 billion and EBITDA was JPY 400 billion due to the exit of an investee in our consolidated subsidiary fund and the valuation gain from the overseas fund in which we have a stake.

Please go to Page 22. This is a result forecast progress. As a background, we tend to have higher sales and profits in the second half of the year due to the seasonality and service operation cycles. In particular, this season, due to the 10th anniversary of Monster Strike, we're putting more cost than usual in the first half of the year, resulting in lower profit progress. Although first half results slightly exceeded our projections, led mainly by the Digital Entertainment segment, the full year results forecast has not been changed at this point. Also, the interim dividend of JPY 55 per share remain unchanged from the original forecast.

Please turn to Page 23. I will explain our initiatives for the second half of the fiscal year and beyond.

Please turn to Page 24. As explained in the financial results for the previous fiscal year, we are focusing on three business segment this fiscal year: Social betting, FamilyAlbum and Monster Strike economic sphere. I will explain our initiatives in the second half onward for each segment.

Please turn to Page 25. This is initiative for the second half and onward in the publicly managed betting sports business. Through feature additions and improvements to TIPSTAR, we will aim to enhance the social betting functions, create innovation and achieve unique growth. In addition, we will strengthen our search for overseas betting market.

Please turn to Page 26. This is an initiative for the second half onward in the spectator sports business in the Sports segment. The new Chiba Jets arena is scheduled to open in spring 2024. Chiba Jets aims to become an even more exciting team. FC Tokyo has set a medium-term vision to become a globally recognized team. By supporting both teams, we will also promote the improvement of MIXI's corporate brand equity.

Please turn to Page 27. This is the Lifestyle segment's initiative for the second half and onward. As I explained earlier, we see great potential for business growth in overseas markets for FamilyAlbum. We plan to release multiple new services, including digital products, both in Japan and overseas. We will leverage our user base to achieve significant sales growth.

Page 28 is the Digital Entertainment segment's initiative for the second half onward. For Monster Strike, we will aim to build on the user enthusiasm generated by the 10th anniversary measures toward the new year holidays measures for further upside in business performance. Whereas, for the Monster Strike series, we plan to select and concentrate taking into consideration the conditions of each title. As medium- to long-term measures, we will invest in the Monster Strike IP to make it grow into an IP that will be loved for the next 10 to 20 years. We will also acquire knowledge through start-up investments in India and seek to develop businesses in areas such as emerging markets.

Page 29. Finally, I'd like to look back on 10 years of Monster Strike. Released in 2013, Monster Strike reached a cumulative total of 61 million users worldwide and cumulative sales surpassed JPY 1.3 trillion in October of this year. We are grateful to all of the users for their support. The various measures taken for this 10th anniversary embody our user surprise first policy. And we believe that we have solidified our position as the #1 brand. We will continue to create new surprises for the next 10 years. And while maintaining and expanding this large revenue stream of Monster stream, we will manage our business to create the second and third pillars of our business. Thank you very much for your attention.

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