Kakaku.com Inc

TSE:2371

Earnings Call Transcript 2019-Q2

[Shonosuke Hata, executive]

Without further ado, I would like to begin today's earnings briefing covering the second quarter of the fiscal year ending in March 2019 for Kakaku.com. We invite you to follow along by referring you to the slides on the big screen or to the presentation materials in front of you.

Please turn to Page 2, which contains an outline of the company's earnings for the first half of the current fiscal year. We registered JPY 13.132 billion in sales during the second quarter and JPY 6.123 billion for the metric of operating income. We similarly saw JPY 6.075 billion in ordinary income and JPY 4.123 billion in net income attributable to shareholders of the parent company. This represents an increase of 19.2%, 13.6%, 12.9% and 12.7% for each category, respectively.

For the first half of the year, we delivered JPY 25.6 billion in sales as well as JPY 11.6 billion in both operating and ordinary income. This translates into an annualized increase of 18.4%, 11.3% and 10.8% for each metric, respectively. Net income attributable to shareholders of the parent company, too, grew at an annualized rate of 7.3%.

At 106.9%, 102.2%, 102.1% and 98.8%, these figures, for the most part, exceed company guidance, which we announced back in May. These numbers, too, exceed company forecasts for the full fiscal year ending in March 2019, printing at 49.3%, 46.4% and 46.3%, respectively. Net income attributable to shareholders of the parent company grew at a slightly slower pace of 7.3% and came slightly short at 98.8% of our target for the first half of the year. As I mentioned during our previous earnings briefing for the first quarter, this was due to a nonrecurring tax expense and, therefore, not indicative of any major change in the company's profit structure.

Please turn to Page 3, which contains a visual overview of the metric of sales for the first half of the current fiscal year. As I've mentioned in the previous slide, sales grew 18.4% Y-o-Y for the first half of the year, allowing us to exceed company guidance by 6.9%.This figure also represents 49.3% of the company's full year forecast.

Please now turn to Page 4, which contains a similar graph for the metric of operating income. Operating income grew at an annualized rate of 11.3%, allowing us to exceed company estimates by 2.2%. This figure represents 46.4% of the company's full year forecast.

I would now like to give you a breakdown of sales and costs for the second quarter for each business segment. Please turn to Page 6, which contains a breakdown of sales for each business segment on a consolidated basis.

Sales associated with Kakaku.com represented 39.7% of all sales during the second quarter. The relative share for tabelog stood at 45.3%, while new media and solutions/finance represented 15% of total sales. This last sector continued to grow in line with company expectations as part of our strategy of increasing its relative share within the Kakaku.com Group.

I would now like to direct your attention to the graph on Page 7, which contains a quarterly breakdown of costs on a consolidated basis. Our cost structure as it pertains to advertising fees, commission fees, personnel costs, et cetera remained mostly unchanged in percentage terms. Personnel costs have gone up in absolute terms, however, due to the inclusion of LCL, which we acquired in January of this year as well as gaie into the company's consolidated earnings results.

I would now like to give you a progress report for each business segment.

Please turn to Page 9, which deals with Kakaku.com. Kakaku.com as a whole grew at an annualized rate of 1.3%. The subsegment of shopping grew 0.3% Y-o-Y, while the subsegments of service and advertising grew 2.7% and 0.7% on an annualized basis. As you can see, all 3 subsegments posted growth during the second quarter.

Next, I would like to give you a more granular breakdown for each component part of Kakaku.com, starting with the segment of shopping on Page 10. Sales for the shopping segment remained mostly unchanged at JPY 2.203 billion or an annualized increase of 0.3%. We registered strong sales in the category of durable goods such as household appliances and computers, which expanded by 3.8% Y-o-Y, making this the best quarter in a while for this product category.

Gross merchandise value or GMV for consumable goods contracted by 7.9% Y-o-Y as shown on the graph on Page 10. We sell advertising for both durable and consumable products. We decided to allocate a larger portion of our advertising spend to selling advertising for durable goods, which led to an expansion in revenue associated with this type of products, to the slight detriment of sales pertaining to consumable goods. However, despite a slight contraction in GMV for consumables, we succeeded in negotiating higher commissions for this product category.

We've also included in this slide the customer traffic statistics for key products in the category of durable goods. We registered a sharp decline in traffic for the category of video game consoles. Sales of video game consoles, however, represent only a small fraction of total sales for the category of durable goods. Laptop computers saw a 15% increase in consumer traffic, a factor which allowed for an expansion in sales associated with durable goods. We had a particularly hot summer this year, which translated into higher consumer interest for air conditioning units, sales of which were up 11.5% Y-o-Y.

Next, I would like to give you a breakdown of sales in the service and advertising segments. Please turn to Page 11. We registered strong results in the category of comparison services for telecommunications and personal finance products, which resulted in JPY 2.078 billion in sales, up 2.7% Y-o-Y. Comparison services for car insurance and used cars suffered a slight contraction, while sales for telecommunications products registered an annualized expansion of 6.1%. Personal finance services grew 3.7% Y-o-Y. While a relatively small category, sales in the product category termed moving companies grew by approximately 30%.

Sales in the segment of advertising grew 0.7% Y-o-Y and stood at JPY 929 million. We don't put much credence into this figure of 0.7% growth Y-o-Y given the high degree of quarterly or even monthly variance within the segment of advertising. However, we were able to attract a wider range of advertising clients, which gives us reason to be hopeful about our advertising portfolio.

Please turn to Page 12 where we provide our outlook for Kakaku.com as a whole.

We started featuring articles and created special pages for the category of school bags. This product category itself is not new on Kakaku.com, but we've started featuring articles and creative special pages for the category of school bags as part of our strategy to increase sales for both durable and consumer goods, making it easier for customers to buy products beyond computers, household appliances and cameras. Moving forward, we want to continue this type of initiatives and expand the scope and range of products and services featured on Kakaku.com. We also intend to continue featuring more article content media sites such as Kakaku.com magazine and TASCLAP, which features content related to men's apparel. We saw tremendous user growth for both of these initiatives, which grew at an annualized rate of 20.5%.

Please turn to Page 13, which deals with our operations at Priceprice.com, the overseas offshoot of Kakaku.com. We pulled out of the India market, but Priceprice.com continues operations in Indonesia, the Philippines and in Thailand. The total number of users who use our platform in these 3 countries grew 62.8% Y-o-Y. Priceprice.com grew even if one were to include data from the Indian market. We continued monetizing our platform in Indonesia in the form of advertorial content. The amounts are still small, but we continued to make steady progress in expanding our media and advertising operations in the country.

This concludes my overview of Kakaku.com. This next section, starting on Page 15, deals with our operations at tabelog.

We registered JPY 5.952 billion in sales for tabelog as a whole, which translates into an annualized increase of 21.2%. Within tabelog, the restaurant promotion segment grew 30% Y-o-Y, in line with company projections. We registered a 9.6% decline for the segment of premium memberships, as we had forecast. While only a small part of tabelog, the segment of advertising grew 9.4% Y-o-Y, exceeding company forecasts.

The graph on Page 16 provides an overview of the restaurant promotion segment within tabelog and offers a progress report on the number of fee-paying restaurants on the tabelog platform. At the end of September, there were a total of 57,100 fee-paying restaurants on the tabelog platform. Of these, 30,800 subscribed to our new pricing plans. These numbers were in line with company estimates and indicate we continue to acquire new customers and getting old customers to switch to the new pricing plans.

Please turn to Page 17, which details other key performance indicators within the restaurant promotion segment. Quarterly cumulative online reservations reached 7.03 million reservations during the second quarter, up 76.6% Y-o-Y in what was a very robust performance. The second half of the year is usually a very busy period for restaurants, so we're very pleased with these numbers. Quarterly average revenue per restaurant has also surpassed our expectations and stood at JPY 27,000, exceeding the forecast we outlined back in March.

Please turn to Page 18. This next section deals with the segments of premium memberships and advertising. We registered JPY 735 million in sales associated with premium memberships, which translated into an annualized contraction of 9.6%. The graph on the left details the evolution of the number of premium memberships over time. The numbers for June and September were in line with company forecasts.

Regarding the segment of advertising, we focused less on banner ads and more on collaboration projects with restaurants and processed food manufacturers. Such initiatives include our top 100 list for different food genres and product development. One such initiative during the second quarter took place in collaboration with a company called House and select restaurants featured in tabelog's top 100 curry restaurants list for 2017.

Please now turn to Page 19, which outlined tabelog's strategies for growth during the third quarter and beyond. Starting last year, we announced our strategy of increasing the number of online reservations through the tabelog platform. We, thus, hope to reach approximately 2.8 million online reservations per month by March of next year. On a longer time horizon, we believe we can further grow this number to 11 million online reservations per month. To this end, we intend to continue improving our sales efforts as well as the quality of the content found on our website. Another important facet of this strategy involves adding extra functionality to our online reservations framework. We believe there is still room for improvement by, for example, allowing users to choose seating options for different occasions, allowing reservations for large groups for parties, et cetera. We are currently in the process of implementing new features. We intend to continue improving our online reservations platform moving forward so as to better serve our users.

This next section, starting on Page 21, deals with the segment of new media and solutions/finance.

LCL and gaie became consolidated subsidiaries of the Kakaku.com Group and are, therefore, included in our results for this segment of new media and solutions/finance. Sales were up 103.8% Y-o-Y for the segment and stood at JPY 1.971 billion for the second quarter. The subsegment of finance grew at an annualized rate of 46.4%, while new media and solutions posted growth of 127% Y-o-Y.

Please turn to Page 22. The graph on the left doesn't contain actual sales figures, but the height of each box corresponds to the relative weight of each media platform segment in the form of LCL, gaie, Kyujin Box, Time Design, et cetera. As shown by the graph on the right, Kyujin Box grew the most of all the various platforms that make up the segment of new media and solutions/finance in terms of monthly user traffic as well as quarterly sales. We started actively monetizing the platform in the third quarter of last year, but as you can see from the graph, Kyujin Box continued to grow by leaps and bounds even beyond the third quarter of last year.

I would like to direct your attention to the graph on Page 23, which contains a visual representation of monthly user traffic and quarterly sales for LCL. LCL generates a lot of search traffic for price comparison services for bus and overnight bus fares. Monthly user traffic grew 53.5% Y-o-Y. In terms of sales, LCL became a consolidated subsidiary of our company through a process of M&A during the fourth quarter. Sales at LCL grew at a very healthy clip following our acquisition of the company, namely 44.1% between the first and second quarters of the current fiscal year.

Please now turn to Page 24, which outlines our strategy for the segment of new media and solutions/finance through the third quarter and beyond, namely improving user functionality and content for the Kyujin Box platform. We want to continue offering enhanced features to our users, such as detailed search information as well as work-related information about each area, and establish Kyujin Box as a source of original content rather than a mere content aggregation website. We invite you visit our website on your computer or smartphone and see for yourselves.

Please turn to Page 25, which details our third investment initiative in Asia in a company called TabSquare. As shown on Page 25, we first started by investing in a website called MoneySmart, operated by Catapult Ventures, back in June of last year. We then acquired a stake in Love, Bonito, a fashion company, in February 2018. Finally, we carried out an investment in TabSquare this last October.

TabSquare is a company based out of Singapore offering self-ordering services, allowing customers to order food at restaurants and pay for their meal without the help of a waiter, using only an iPad or similar mobile devices. A number of traditional Japanese pub franchises already allow customers to order food and pay for their meals directly from tablets installed at their tables. TabSquare's service, which is already in widespread use in Singapore, however, is offered as a software which can be installed on any tablet on the market. Moving forward, we would like to explore the idea of a possible integration with tabelog further down the line, but first, we want to provide support allowing the company to grow and flourish in Singapore while, at the same time, encouraging the flow of information between TabSquare and tabelog, allowing us to provide an even better dining experience to our users.

This concludes today's earnings briefing covering the second quarter of the fiscal year ending in March 2019.

Thank you for listening.