Mixi Inc

TSE:2121

Earnings Call Transcript 2022-Q3

[Koki Kimura, executive]

Thank you for taking time out of your busy schedules to join us in the earnings results briefing. This is Kimura, President and Representative Director. Today, together with Director and CFO, Ohsawa, we'll go over the financial status, business status revision of earnings projections, redefining of our corporate philosophy and branding and recent Sports segment investments.

Please turn to Page 3. This is the executive summary. In light of the Monster Strike and TIPSTAR situations, we have revised upward our earnings projections. I will explain the details later. Ohsawa will now explain.

[Hiroyuki Ohsawa, executive]

This is Ohsawa, Director and CFO. First, I'd like to explain our financial status.

Please turn to Page 5. This is a quarterly consolidated income statement. Net sales were JPY 29.5 billion, EBITDA was JPY 2.9 billion and operating income was JPY 1.8 billion, an increase in both sales and income year-on-year.

Please turn to Page 6. This is the quarterly performance trends. Sales increased in each segment compared to the previous quarter. I will explain in more detail later.

Please turn to Page 7. This shows quarterly sales costs. Outsourcing expenses increased both year-on-year and quarter-on-quarter. The main reasons for the year-on-year differences were: in the Sports segment, an increase in expenses for publicly managed betting sports market business; and in the Lifestyle segment, an increase in sales of New Year's card services as well as changes in some accounting treatments.

Please look at Page 8. This shows the trend of SG&A expenses. Advertising expenses decreased year-on-year. This was mainly due to more efficient advertising for Monster Strike. On a quarter-on-quarter basis, advertising expenses increased mainly due to airing of TV commercials for TIPSTAR and costs related to Monster Strike's eighth anniversary and New Year events.

I will now explain the status of each business. Please turn to Page 10. This is a review of the Sports segment. Net sales totaled JPY 4.8 billion. Year-on-year, sales for the publicly managed betting sports market business increased steadily mainly due to the growth of the Internet ticket sales for netkeirin. As a result, net sales increased by 38.5%. netkeiba also performed well, surpassing a record high 17 million MAUs in December.

Please turn to Page 11. This shows the GMV for Chariloto and TIPSTAR. Total GMV increased by 49.1% year-on-year. This is because GMV of Chariloto increased due to the growth of online ticket sales. And GMV of TIPSTAR also increased by approximately 80%. Growth was recorded on a quarter-on-quarter basis as well. And TIPSTAR GMV increased by 66.1% mainly due to the impact of TV commercials in October.

Next, I will explain about the Lifestyle segment. Please turn to Page 13. Net sales increased 38.5% year-on-year to JPY 4 billion. Sales of the New Year card service, now in its third year, are growing steadily. Sales of FamilyAlbum Dispatch Photography for Shichi-Go-San celebrations and OKURU photo gift products are also trending stronger. New Year card service sales were positively impacted by some accounting changes.

Please turn to Page 14. This shows the status of FamilyAlbum and minimo. We are continuing to strengthen the monetization of FamilyAlbum. And we have recently invested in Call Doctor, a company that provides house call and online medical services. We will expand the FamilyAlbum ecosystem from services based on children's photos to services based on safety and security of family.

Also, minimo service continues to grow steadily, surpassing 5 million downloads in December. We will continue to improve our services to meet the expectations of our users.

Next, I'd like to explain about Digital Entertainment. Please turn to Page 16. Net sales were JPY 20.6 billion, a decrease of 8.6% year-on-year. However, on a quarter-on-quarter basis, net sales increased by 14% mainly due to the recovery of ARPU in Monster Strike. From the beginning of the current fiscal year, we adopted new revenue recognition standard and changed accounting treatment, resulting in a change in the method of measuring segment profit. As a result of this change, net sales and segment income in this segment increased by JPY 1.2 billion.

Please turn to Page 17. For Monster Strike, we excited users with an eighth anniversary event in October and New Year events and provided attractive characters. As a result, ARPU recovered to the same level as the same period last year.

In December, we released a new smartphone game, Crossroad Tales, in the U.S. This is an interactive story game in which players co-op stories as they read along. The interactive story market is a scenario entertainment content growing rapidly overseas and gaining popularity mainly among young women as an alternative to novels and dramas. While there is some volatility due to COVID, the market has been growing at a CAGR of 16% in the last 5 years.

I will now explain the revision of earnings projections. Please refer to Page 19. Today, we disclosed an upward revision to our earnings projections. For the full year, we have revised our net sales forecast to JPY 112 billion to JPY 115 billion, EBITDA to JPY 14 billion to JPY 15 billion, operating income to JPY 10 billion to JPY 11 billion and profit attributable to owners of parent to JPY 8.5 billion to JPY 9 billion. The dividend forecast remains unchanged from the initial projection of JPY 110 annual dividend per share.

Please turn to Page 20. I would like to explain the breakdown of the upward revision of our earnings projections. Against the revised forecast announced on November 5, we have revised upward our net sales forecast for Digital Entertainment to JPY 86.5 billion to JPY 89.5 billion due to the recovery of ARPU of Monster Strike and to JPY 8 billion in Lifestyle due mainly to the strong performance of New Year card services.

For operating income, there is an upward revision of JPY 1 billion for Sports, JPY 3 billion to JPY 4 billion for Digital Entertainment and JPY 1 billion for others, including Lifestyle.

Please turn to Page 21. I explained the main causes for the revision of our earnings forecast. In Sports, we expect an additional improvement of approximately JPY 1 billion mainly due to better cost efficiency of TIPSTAR. We will continue to operate the system efficiently and also aim to increase sales.

In Digital Entertainment, ARPU of Monster Strike, which had been declining, recovered in Q3. In Q4, most recent figures show recovery, and we are planning more events and collaborations going forward.

On the cost front, due to the increased efficiency of advertising and pushing back the release of Monster Strike spin-off to the next fiscal year, these costs were incurred. Due to those factors, the full year forecast has been revised upward.

In the game industry, sales are easily influenced by external factors such as market conditions and competition. But we have confirmed that Monster Strike is a title with sustained power that can recover even when there is a temporary drop in sales.

Next, Kimura will explain about redefining our corporate philosophy and branding. Please turn to Page 23. From here, Kimura will explain.

[Koki Kimura, executive]

We have redefined our corporate philosophy. Up until now, we have provided many communication services. In SNS, games and sports, the mixi Group has pursued not only the exchange of information but also the communication of hearts and emotions.

With this in mind, we have established a new corporate philosophy that expresses the reason for existence of the mixi Group, mission and decision-making axes, namely purpose, mission and mixi way.

Please look at Page 24. In line with the redefinition of our corporate philosophy, we are renewing our corporate brand. Until now, there was a strong established image of us being an SNS company and even widely recognized services like Monster Strike were not commonly associated with our company. Going forward, we will feed the branding power of each of our service to the enhancement of our corporate brand equity to further increase corporate value.

Next, I'd like to explain the recent initiatives in the Sports business. Please turn to Page 26. As announced at the end of last year, we acquired shares of the Tokyo Football Club, the operator of FC Tokyo, on February 1 and made a consolidated subsidiary.

FC Tokyo is a team that has been operating steadily in the back in the past, although recently, it has seen significant decline in ticket revenue due to COVID. We will capitalize on the knowledge we cultivated through team management of the Chiba Jets, and we will also focus on DX in order to expand this business.

As for the Chiba Jets, construction of home arena will begin in Funabashi City, Chiba Prefecture shortly with Mitsui Fudosan. The new home arena, which is scheduled to open in the spring of 2024, will be a large-scale, multipurpose arena with a capacity of 10,000 people and will be designed to host B.League games as well as music concerts, corporate exhibitions and a variety of other events. We aim to create a new sports and entertainment space in the Tokyo Bay area.

Please look at Page 27. I'd like to update you on the progress of the previously announced development of a new service with Dapper Labs using NFT. We have announced that we will launch DAZN MOMENTS, an NFT marketplace specializing in sports in collaboration with DAZN in the spring of this year. DAZN MOMENTS is service that provides NFT contents of super plays and memorial scenes of sports players.

We will combine our service development know-how, Dapper Labs' blockchain technology and DAZN's rich sports content to provide an NFT marketplace.

Please turn to Page 28. As we explained at the beginning of the fiscal year, we believe that the sports spectator market is an area where we can achieve significant growth with recovery in the post-COVID market and the creation of new value through DX. We will continue to make investments and conduct business activities in line with our medium-term management policy.

Finally, please turn to Page 29. The new logo is accompanied by the tagline, connecting the hearts and minds, too. We will not only provide efficient functions but also create deeper, more dense and richer emotional connections through the sharing of feelings of joy, excitement and warmth.

This is the idea behind the tagline. We believe that by focusing on this kind of emotional connection in the pursuit of our business, we can provide services that will be loved for a long time.

We hope that you will continue to support us. Thank you for your attention.

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