Kakaku.com Inc

TSE:2371

Earnings Call Transcript 2023-Q2

[Shonosuke Hata, executive]

Hello. I'm Shonosuke Hata from Kakaku.com. Thank you for joining us today.

I would like to report on the results for the second quarter of the fiscal year ending March 2023. First, please refer to the consolidated business results on Page 3 of the document.

In the second quarter, revenue was JPY 14.225 billion, up 19.9% Y-o-Y. Operating profit was JPY 5.533 billion, up 34.7% Y-o-Y and the operating profit margin was 38.9%, which improved 4.3 percentage points from last year. Profit before income taxes was JPY 5.685 billion, and net income was JPY 3.876 billion. In the first half of the fiscal year, which is shown on the right, revenue was JPY 28.240 billion, up 18.2% Y-o-Y. Operating profit was JPY 10.906 billion, up 34.3% Y-o-Y.

Operating profit margin was 38.6%. Profit before income taxes was JPY 11.330 billion, and net income was JPY 8.046 billion. The column right next to it shows the progress rate against the earnings forecast, which is 43.8% for sales and 42.1% for operating profit. They are not shown in this document, but the results against the first half forecast at 95.7% for sales, 97.4% for operating profit, 102.1% for profit before income taxes and 105.9% for net income. The result for operating income was 97.4%, slightly below the first half forecast, but all indicators were generally close to the plan.

Next, let's look at sales in each business. Please see Page 4. For the sales ratio by business in the second quarter, Kakaku.com accounted for 32.9%, Tabelog 38.3% and New Media and Solutions and Finance 28.8% of total sales. As I will explain later in the section for each business, the second quarter saw a slight slowdown in Kakaku.com, but this was compensated for by Tabelog and New Media and Solutions and Finance.

Page 5 shows consolidated operating expenses compared to last year, advertising and commissions increased in the second quarter, but this is due to the recovery of sales in the Tabelog business, and there was no major change in the business model or use of money from time prior to COVID-19.

Next, on Page 7, I will explain each business segment in more detail. Please refer to the figures for the first half for Kakaku.com shopping, services and advertising were all in the negative 8% range compared to last year. The restaurant promotion business in Tabelog increased 62.4% Y-o-Y and Tabelog as a whole increased 47.9% Y-o-Y. New Media and Solutions and Finance increased 28.9% Y-o-Y, which is generally in line with the plan.

I will now explain the individual businesses, starting with the shopping business of Kakaku.com. Page 8 shows the change in sales from the first quarter of the year before last. In the second quarter, sales of durables were down 3.1% Y-o-Y and sales of consumables were down 25.5% Y-o-Y particularly for durables, although the number of new product registrations began to recover around August, the level remains low and new products were hardly launched. This is mainly due to the shortage of materials such as semiconductors and the sharp rise in the cost of raw materials. Consumables are affected by search ranking volatility, which will be explained on the following Page 9.

The number of new product registrations for durables on the left side shows that PC-related products are on a recovery trend with a 7.4% increase over the previous year, but home appliances are down by 34.2% Y-o-Y. The number of new product registrations for PCs and home appliances combined increased from the first quarter but is still in the process of recovery.

Next, the right side shows the number of organic traffic for consumables due partly to the changes in search engine algorithms, search result rankings fell significantly and the number of inflows dropped. In the middle of August, traffic dropped significantly by 53.6% Y-o-Y, which directly led to the decrease of 25.5% in sales of consumables in the second quarter.

As of now, the number of organic traffic has not yet fully returned but it has risen sharply in the last week of September. I cannot give you a definite time frame for the return to the original level, but the ranking once lowered is generally recovering, please see Page 10 for the service business of Kakaku.com. This business is categorized into personal finance, telecommunications, automotive and other. Personal finance was down 2.3% Y-o-Y. Telecommunications was down 20% Y-o-Y. Automotive remained unchanged from last year and others were down 12.2% Y-o-Y.

Next, on Page 11 are the trends in each category -- in the personal finance category, the number of mortgage applications and credit card issuance declined. However, the number of card loan applications has recovered for 3 consecutive quarters, and we believe that this trend will continue along with the recovery from the impact of COVID-19.

In the category of telecommunications, the number of applications for fiber optic lines and low-cost SIMs has been decreasing significantly. In the market as a whole, we have seen a decline in the number of applications for fiber optic lines and low-cost SIMs, and we were affected by that trend.

On the other hand, with the convergence of COVID-19, the number of applications for overseas Wi-Fi is on the rise, especially as outbound travel is increasing as shown in the graph on the right side of the page, the number of applications for overseas Wi-Fi had remained near 0 during the COVID-19 pandemic. But for this second quarter, it has recovered to 13.7% of the level of the same period before the COVID-19 pandemic. This figure is almost in line with the return of the number of people traveling abroad.

Page 12 shows the advertising business of Kakaku.com Advertising revenue has decreased Y-o-Y. Banner and tie-in ads were down 3.4% Y-o-Y, which is a decrease, but still almost the same level as last year. Network and listing ads were down 32.8%, and the overall result was in the negative 8% range.

Next, on Page 13, are the trends of our main client domains: digital and home appliances manufacturers, PC manufacturers and automobile manufacturers. Compared to last year, the figures for digital and home appliances manufacturers were up 22.3% and PC manufacturers were down 6.1%, and combined sales from ad placements for digital and home appliances and PCs were positive compared to last year. However, because ad placements from automobile manufacturers have declined 48.5%, final results were as shown on Page 12. This concludes my explanation of the Kakaku.com business.

Next, I would like to explain the Tabelog business, Page 14 shows the overall figures for the Tabelog business. Revenue of the restaurant promotion business was up 67.5% Y-o-Y. Premium users was down 2.4% Y-o-Y and advertising was up 21.2% Y-o-Y.

Next, Page 15 shows the restaurant promotion business in detail. Revenue from the promotion service increased 35.4% Y-o-Y, and online reservation service increased 201.3% Y-o-Y. In the second quarter of last year, restaurants were restricted in their opening hours due to the declaration of a state of emergency and the priority measures taken to prevent the spread of the disease.

So comparing current figures to that of the previous year are not very helpful. Compared to the first quarter, the number of contracted restaurants and reservations increased steadily, but for nearly 2 months in the second quarter, the numbers did not grow as planned due to voluntary restraints on restaurant operations and less people going out caused by the resurgence in COVID infections.

Next on Page 16, the 2 graphs show the number of restaurants contracted in the promotion service and online reservation service, respectively, our sales efforts for both services have been going well with the number of restaurants contracted in the promotion service increasing to 45,000 and that in the online reservation service to 62,900 in the second quarter. The ARPU for the promotion service was JPY 22,300 which is getting close, albeit slightly to the higher-priced plans, and we look back on this as a favorable result.

The next page shows the breakdown of the total number of contracted restaurants, including promotion service only and online reservation service only so that you can see how many restaurants are contracted for both promotion service and online reservation service. In this second quarter, the total number of contracted restaurants was 67,400 which is another record high. We hope to continue our sales activities successfully.

Next, on Page 18 is a graph showing the number of online reservations, which is the most important KPI that is reflected in the results. The number of online reservations for the second quarter was 11.39 million, which is slightly lower than the first quarter due to a resurgence in COVID infections. We expect the situation to improve further given the convergence of the spread of the infection and less self-restraint in restaurant operations. This concludes my explanation about the Tabelog business.

Next, I will explain the business progress of New Media and Solutions and Finance. First, please see the graph on Page 19 for a general overview. The recruitment domain was up 36.1% Y-o-Y. Real estate was up 3.1% Y-o-Y. Travel and transportation was up 113% Y-o-Y. Entertainment and hobbies was down 14.6% Y-o-Y and finance was up 10.7% Y-o-Y.

On Page 20, we have further details on Kyujin Box, which has the largest absolute growth in sales out of all domains. Kyujin Box revenue in this second quarter increased as expected with 36.1% Y-o-Y, and the number of users per month were up 9.8% Y-o-Y.

On the right, you will find a new initiative. Kyujin Box offers direct application forms for job listings. By having these direct applications used more actively, we are able to increase conversions for job listings as job seekers do not have to click through different pages and sites to apply for a job. At the same time, we can provide our users the convenience of using the same format for different job applications.

When companies placing ads on Kyujin Box also use direct applications, they can see not only the number of people visiting their website based on the number of clicks, but also how many applications were sent through Kyujin Box, which is greater indicator of the site's performance, we believe that this will help us to retain and expand advertising contracts.

Next, Page 21 shows the travel and transportation domain. The main businesses in this domain are LCL, a comparison website for express buses and time design, which provides dynamic package solutions, allowing travelers to combine reservations for flights and accommodations. These 2 businesses were not impacted by the resurgence in COVID infections. And results for the seasonally strong second quarter were unusually good as demand for the bus market as well as domestic travel, mainly to high-end resorts recovered.

On the right, you will find some topics. As for the bus service, the number of monthly users has already recovered to the level that exceeds the same period before COVID-19 by 9.2%, although sales are still a little short of the pre-COVID-19 level.

On Page 22, we have the entertainment and hobbies domain, which includes eiga.com, gaie, Kinarino and webCG. Y-o-Y results were down 7.8% for eiga.com and down 10.1% for gaie. Movie releases, especially the release of semi blockbuster films, boost the film advertising market and this is usually reflected in the revenue of eiga.com and gaie. In this sense, the results for the second quarter were not good. As for webCG, as with the sales from car-related adds on Kakaku.com, ad placements have been declining due to supply side issues.

On Page 23, the left side shows the results of Sumaity with sales generally favorable, up 3.1% from the previous year. Site traffic, on the other hand, was down slightly by 18.7%. Although there are various compounding factors, our analysis shows that the number of monthly users has decreased slightly due to the recovery from the impact of COVID-19, which enables people to visit real estate agents physically.

On the right side, Kakaku.com Insurance has done very well with a 10.7% increase in revenue compared to last year. We believe that there was a very large rush demand before fire insurance premiums were revised in October. This concludes my report on the results of each of our businesses for the second quarter and first half of the fiscal year.

Next, I would like to explain some of the future initiatives for each of our businesses. On Pages 25 and 26, you can find policies and general measures for our main businesses, but please turn to Page 27 for future initiatives of our Kakaku.com business.

The left side of the page introduces the contents of the hometown tax related content for the shopping business. We are releasing this content in time for the end of the year when the hometown tax market becomes very active. There are various websites for a hometown tax donation, but it is not easy to find content that allows to search across these sites, which is why we have decided to start this site this year. And we will continue to expand the website.

Next, on the right side, our initiatives in the service business, we have released support content for used cars and low-cost SIMs. And around December, we plan to release new features for mortgages, including more detailed content and content that makes it easier to find the right loan for you.

Next, on Page 28 is Tabelog. There are no major changes, but the left side shows the overall picture of the services to be developed. In addition to restaurant search, online reservations, promotion, and procurement, with the mobile ordering system released in June of this year, we will make operations a little more efficient for users as well as for restaurants by digitalizing the ordering process in restaurants, we believe this will boost the restaurant business.

The right-hand side shows our targets for the expansion of restaurants offering online reservations and the expansion of app users, which we also included in our first quarter financial results presentation materials in particular, with respect to the number of restaurants offering online reservations on Tabelog, which are shown on the upper right and is currently at 63,000, I feel that our sales efforts are going very well as we move toward the first milestone of 100,000 restaurants.

Then on Page 29 is a description of Kyujin Box, but I will skip this one.

Please see Page 30, where we talk about Pathee Inc., which became a subsidiary of the company as of October 3. As already mentioned in our press release issued on September 21, our goal is to make shopping in areas other than e-commerce, more convenient for both the retailers and to the consumer by facilitating digitalization through proper database management, which, for instance, will make it easier to search for product availability in physical stores.

Since this is a function that Kakaku.com currently does not have or rather focuses less on, we would like to work together with Pathee to provide consumers with even more value-added services in all of their purchasing activities.

The pages that follow are for reference only, and we hope you will take a look at them when you have time. This concludes my brief explanation of our second quarter financial results.

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