Kakaku.com Inc

TSE:2371

Earnings Call Analysis

Mixed Q2 Results with Strong Segment Performances

The company reported a second-quarter revenue of JPY 16,730 million, totaling JPY 31,435 million for the first half, marking an 11.3% increase from the previous year, with operating profit up 3.6%. While some segments like Kakaku.com's shopping sales declined by 7.8% in the first half, Tabelog, and Kyujin Box showed significant growth of 20.5% and 55.2%, respectively. Tabelog's restaurant promotion and premium membership increased by 26.2% and 3.7%, while its advertising dropped by 4.6%. New initiatives to enhance smartphone user experience are underway. Travel and transportation surged 19.9%, benefiting from increased domestic travel, highlighting a potential for further growth as demand for international travel returns.

Overall Financial Health and Profitability

The company posted JPY 16,730 million in revenue for the second quarter and a combined JPY 31,435 million for the first half of the fiscal year, demonstrating steady growth with an 11.3% increase over the previous year. Though initially below expectations in the first quarter, performance caught up in the second quarter with a 13% boost. Operating profit also rose by 10.8% in the second quarter, culminating in a 3.6% increase for the semester. With an operating margin of 38.1% in the second quarter and 35.9% for the first half-year, the company's profitability shows resilience. Moreover, both revenue and operating profit are neatly aligned with the year's forecasts, hovering close to JPY 31,600 million and JPY 11,900 million, respectively.

Expense Management and Cost Control

A key component of the company's financial health is its ability to manage expenses. Personnel costs have remained stable, and other cumulative expenses have decreased by JPY 100 million from the first quarter. This prudence in managing expenses is likely a contributing factor to the company's healthy profit margins.

Product and Service Performance

Performance varied across different segments of the company. Tabelog sales rose by 21.7% compared to the prior year with a total 20.5% sales increase over six months. Similarly, Kyujin Box saw a second-quarter spike of 55.2% year-over-year. However, the service business observed mixed results, with service sales up by 6%, shopping down by 9%, and advertising dropping significantly by 26% from the previous year. Notably, there were sectors facing challenges; durable goods and consumer goods dipped by 9.2% and 12.1%, respectively, hindered by weak new product registrations and lingering search ranking fluctuations.

Market and Demand Changes

Consumer demand is on the mend, with increased interest in market segments like used smartphones where the company has enhanced comparison page information. The domains of personal finance and telecommunications have exhibited robust growth, 8.1% and 49.1%, respectively, likely attributed to increased credit card usage and loan applications correlated with post-COVID expenditure patterns. There's also a partial recovery in the demand for overseas WiFi services at 31.3%.

Advertising and Technological Innovations

The company's advertising revenue, especially from banner and tie-in ads, saw a 26.8% year-over-year reduction, signaling an area of weakness influenced by broader industry trends. Ensuring the website's ease of use on smartphones and enhancing the site's features are primary goals. To this end, new content launches for comparisons of online programming schools and eSIMs are planned, suggesting a strategic expansion into educational technology and connectivity solutions.

Restaurant Promotion and Membership Services

An upbeat trend was seen in the restaurant promotion business, which witnessed a 26.2% year-over-year increase, and online reservation services leaped by 64.6%. Although the premium membership business saw a modest growth of 3.7%, the overall takeaway here is promising: these services are tracking well with the company's forecasts and growth strategies.

Partnerships and Future Initiatives

The company is advancing partnerships and future initiatives, such as integration between Tabelog Note and Tabelog Order to aid restaurants with digital transformation and, consequently, to improve customer convenience. Furthermore, there are plans to cater to the influx of international travelers with a multilingual online reservation system. Lastly, enhancing the customer experience through loyalty point integrations like Ponta and T-Points are anticipated to boost user engagement.

Emerging Sectors and New Media Ventures

Kyujin Box's performance stands out with a strong 55.2% sales increase in the second quarter. Real estate and travel domains are flourishing as well, with respective 9.3% and 19.9% rises. Notably, the finance sector experienced a small setback with an 8.3% decrease. The company's focus on improving its mobile site and minor enhancements in growing domains such as personal finance and telecommunications shows an adaptive response to market demands and technological advancements.

ESG Efforts and Data Utilization

The company is progressing towards better sustainability practices by addressing economic, social, environmental, and governance issues through an internal sustainable management promotion department and committee. Specific measures include utilizing data to improve societal outcomes and enhancing transparency by proactively responding to questionnaires and updating its corporate website with ESG initiatives.

Earnings Call Transcript 2024-Q2

[Shonosuke Hata, executive]

Hello. This is Hata from Kakaku.com. Thank you very much for participating in today's financial results briefing. I will now provide an overview of the first half of the fiscal year in line with the financial results presentation materials. First, please see Page 3 for an overview of our consolidated operating results.

Revenue in the second quarter was JPY 16,730 million and JPY 31,435 million in the first half. Operating profit was JPY 6,128 million in the second quarter and JPY 11,299 million in the first half. The operating profit margin was 38.1% in the second quarter and 35.9% in the first half of the year. Profit before income taxes and profit attributable to owners of the parent company are as shown.

Revenue in the first 6 months was up 11.3% from last year. And while first quarter results were slightly lower than planned, second quarter results were up 13%, which put us quite close to our forecast for the first half. As for operating profit, while the first quarter in particular was negative compared to last year, the second quarter was up 10.8% and the total for the first 6 months was up 3.6%. So we were able to catch up considerably, although the figures are slightly unsatisfactory.

Although not included in this document, the revenue for the first half forecasted at the beginning of the fiscal year was JPY 31,600 million, so we are almost in line with the plan. We had forecasted operating profit of JPY 11,900 million. So although we were still slightly behind in the first quarter, we finally seemed to be getting back on track in the second quarter.

Next, on Page 4, we have quarterly trends and the breakdown of operating expenses. At the first quarter results briefing, I explained that expenses were a little high in the first quarter, but in the second quarter, although this graph does not seem to show much change, we have considerably optimized our expenses.

First, personnel expenses have not increased. Also Others, which is an accumulation of smaller expense items shown in gray at the bottom of the graph, has been reduced by JPY 100 million from the first quarter. Other expenses, such as advertising and commissions, which are increasing in line with the growth of Tabelog and Kyujin Box, were in line with planned expenses, coupled with the increase in sales.

Next, please see Page 5 for business results by business segment. Kakaku.com was down 6.1% compared to last year and down 7.8% as a total for the first half, but we believe that it has recovered considerably from the first quarter. Sales of Tabelog increased to 21.7% compared to the previous year and the total sales for the first 6 months of the year increased by 20.5%. Next, Kyujin Box, which is up 55.2% in the second quarter compared to last year, continues to perform well, exceeding the plan.

In the new media and solutions and finance segment, sales decreased due to the divesting of consolidated subsidiary, gaie, in August, but still increased 5.5% compared to the previous year. As for new media and solutions alone, the second quarter was plus 10.8%, which was also generally in line with the plan.

Next, I would like to report on the progress by business segment in detail. First, please see Page 7 on Kakaku.com. Shopping and advertising remained sluggish, but the service business continued to increase revenues, with shopping sales down 9%, service sales up 6% and advertising sales down 26% compared to the previous year.

Next is Page 8, the shopping business. Durable goods and consumer goods were down 9.2% and 12.1%, respectively, compared to last year, with durable goods affected by the continued weak number of new product registrations during the period. In addition, consumer goods continue to be affected by the fluctuations in search rankings that occurred in August of last year. See Page 9 for more details.

Compared to last year, the number of new product registrations for durable goods was up 41% for digital and home appliances, and down 14.1% for personal computers. Even though the number of new product registrations for digital and home appliances increased by 41%, there has not been much increase in large appliances, such as TVs, washing machines and refrigerators. Also, many new products often have the same specifications, only with different model numbers, and a few have new features that would require a lot of advertising. And so the number of truly new products is still very small.

Then there is the organic traffic for the consumables categories, which in July was minus 38% compared to last year. The organic traffic has been declining sharply since August of last year, and the decline in organic traffic by 12% in August and by 11% in September indicates that the situation remains weak.

The right side of this page shows the trend in traffic sent from some of Kakaku.com's major categories to e-commerce shops. As you can see, for laptops and TVs, the traffic sent from our site has slowed down compared to when there was special demand during the pandemic. This indicates that the special demand due to COVID-19 has ended and demand is returning to normal. Another topic in durable goods is used smartphones. We have enhanced information on the smartphones price comparison pages to include press information for used smartphones, which you can easily switch to using the tabs at the top.

Next, on Page 10, the service business of Kakaku.com. Sales continued to increase due to strong performance in the personal finance and telecommunications domains. On the other hand, in the automotive domain, the number of new car registrations and the number of used cars in circulation show that the industry itself is still in a state of decline. The personal finance domain increased by 8.1%, telecommunications by 49.1% and the automotive domain declined by minus 21.2%.

Please see Page 11. In personal finance, the number of credit cards issued and the number of applications for card loans continued to increase. reflecting an increase in expenditure for things like events and travel with the convergence of COVID, rather than for physical goods. As for telecommunications, the number of applications for overseas WiFi, which dropped to almost 0 during COVID, recovered to 31.3% of the same period pre-COVID. We expect further increase when outbound travel increases.

As for automotive domain, the situation is, as I mentioned earlier. As for Others, there is not so much in terms of sales, but the electricity rate comparison has been affected by a very low demand for switching power companies as a result of the withdrawal of several new electric power companies from the market and price hikes by new electric power companies.

Please have a look at the right side of the page, we are continuing to improve our mobile site, and here are some examples. In particular, we are making several minor improvements in the growing areas of personal finance and telecommunications, including the appearance of the site, the function of the ranking page and its SEO effectiveness.

Finally, on Page 12, we have the advertising business of Kakaku.com. Banner and tie-in ads were negative 26.8% compared to last year, which means that this second quarter was also affected by a decrease in ad placements digital and appliance, computer and automobile manufacturers.

On Page 13, we have included sales revenue from clients in each of these industries. Ad sales from digital and home appliance manufacturers were minus 10.8% compared to last year and minus 36.7% for PC manufacturers. For car manufacturers, the result was minus 35.2%. Internet advertising has been declining considerably throughout the industry, except for video ads, but we believe that our company is more strongly influenced by the industry-specific factors explained on this page.

On Page 14, on the left side, we have included another effort to improve the smartphone site. We are making several improvements with the main focus on making the site easier to view on a smartphone and easier to select products while still providing detailed information. The first phase will be refrigerators and air conditioners, and in the second half of the year, we plan to expand into other major categories such as TVs and PCs.

Then on a minor note, in December, we plan to launch content that will allow you to compare online programming schools. We are already doing comparisons of online English schools, and there is quite a demand for them. For the online programming school comparison, we would like to start small and gradually build sales. Then in January, we will add content that will allow you to compare overseas eSIMs. This concludes my explanation of the Kakaku.com business.

Next, I would like to explain about the Tabelog business. Page 15 shows the overall sales of the Tabelog business. The restaurant promotion business increased by 26.2% compared to last year and the premium user membership business, which is also positive, increased by 3.7%, partly due to the convergence of COVID-19. The advertising business was down 4.6%. Details are explained on the following pages.

On Page 16, we have the restaurant promotion business. Promotion service increased 5.5% over last year. The online reservation service is plus 64.6%, both of which are roughly in line with the plan. Please see Page 17 for KPIs for each service. The number of restaurants contracted for the promotion service was 47,300. And since the target for the end of the fiscal year was set at 48,000, we believe that we are generally on track.

As for the online reservation service, we have 68,000 restaurants contracted at the end of the second quarter, which is almost in line with our target of 70,000 at the end of the fiscal year. However, ARPU for the promotion service has not increased. It is JPY 100 less than in the first quarter. The environment surrounding the restaurant industry remains challenging, due to a prolonged shortage of staff and the effects of this shortage are continuing.

On Page 18, we show figures for stores that have signed up for both online reservation services and PR services. Next, on Page 19, we have the number of online reservations. In the second quarter, the total number of reservations was 18.32 million, which is generally in line with the plan. Comparing the first and second quarters, the first quarter numbers are usually slightly better. But this time, the second quarter numbers are a little higher due to the fact that the transition of COVID-19 to a Category V infectious disease was in May.

Next, on Page 20, we will discuss some of our initiatives for Tabelog. First, I would like to discuss the integration between Tabelog Note and Tabelog Order. Both of these services have been in the works for some time, but by assisting restaurants with their DX, we hope to ultimately increase reservations through Tabelog, thereby making Tabelog lot more convenient for both users and restaurants. As I've said before, especially with regard to Tabelog Order, I hope that in the medium to long term, this service will simultaneously resolve the rising cost of labor and labor shortages.

Next, we have online reservation services for inbound travelers. We have been providing multilingual content on Tabelog for quite some time and have continued to improve it, but we are now working on an online reservation service as well. In response to the increasing number of inbound travelers, we believe that it is essential for our restaurants to be able to accept reservations from overseas customers in order to increase the number of customers. and we plan to begin this service in January.

Also, as one of the initiatives with KDDI, we are planning an integration with Ponta points. We believe that by linking with Ponta points as well as T-Points, which we have been doing so far, more users will be able to enjoy the benefits of reward points. This concludes my explanation on the Tabelog business.

Next, on Page 21, I will explain about Kyujin Box. The Kyujin Box business continued to perform well in the second quarter, with sales up 55.2% compared to last year. The number of monthly users is also up 10.1% compared to last year, which is also very favorable. It is less than in the first quarter, but this is due in part to the seasonality of this business. On the right side of the page, you can see several new features. Especially with regard to the app, we will continue to make improvements and expand our content to make it even more convenient and easy to use, which will ultimately increase conversions.

Next, I will report on new media and solutions and finance. The real estate business is generally performing well, with a 9.3% increase compared to last year. The travel and transportation domain was plus 19.9%. In the entertainment and hobbies domain, the divestment of gaie was responsible for a 20% decline year-over-year, but this was approximately in line with the plan and had almost no impact on profits. For finance, the second quarter results were a negative 8.3%.

Pages 23 and 24 provide details for each domain. In the travel and transportation domain, LCL, which operates a comparison site for express buses and other services, increased 18.1% compared to the previous year. Time Design, which provides a dynamic package booking platform, was plus 25.6%. 4travel was plus 34.3%. And although the sales itself is small, icotto was minus 12.1%. Overall, we were able to achieve approximately plus 20% in the travel and transportation domain.

Since this increase in revenue was mainly due to higher demand for domestic travel, we believe that we will be able to further increase our numbers in the future as demand for overseas travel, including outbound travel, increases.

Next is Sumaity in the real estate domain, which is also doing well. Monthly user numbers were up 11.3% from last year, while sales were up 9.3%. We will continue to make minor improvements to the site, such as matching duplicate listings so that search results are not filled with listings on the same property, thereby making the site easier to view.

In the entertainment and hobbies domain, eiga.com increased 7.6% compared to the previous year. This is largely due to major films being released and does not reflect the strength of the site itself, but the second quarter was somewhat favorable. Sales for Kinarino, which are composed of advertising and some affiliate e-commerce sales, were also very strong with plus 31.8%.

Lastly, the finance business, Kakaku.com Insurance, showed an 8.3% decrease compared to last year due to sluggish demand for fire insurance, which was on the rise last year. Although some demand is concentrated when there are price revisions for various insurance products, such as overseas travel or fire insurance, we believe that the year as a whole has been very favorable. This concludes my explanation on business figures and topics.

On Page 26 and beyond, we will discuss some ESG-related topics. In the context of our sustainability initiatives, we first introduced the identification of key issues and materiality. We have selected 14 issues from the perspectives of what is relevant to our company and what we should and can do, divided into economic, social, environmental and governance issues. We have a department called the sustainable management promotion department. And in addition to this department, we have created a sustainability committee with senior executives from the company. The entire company will focus on addressing these issues.

Next, let me introduce a couple of specific initiatives. First, I would like to talk about the development of data analysis or data utilization personnel. Although we have not made any major announcements, we have provided our data to a data business creation contest sponsored by a laboratory at Keio University, participated in the judging of the contest and provided participants with advice. We are implementing several initiatives to utilize our data to improve society in the future.

Finally, on Page 28, we have enhanced information disclosure. We have not done much in the way of responding to questionnaire or providing direct feedback to evaluation organizations in the past, but from this fiscal year, we are making a full-scale effort to do so. In addition to responding to questionnaires, we will continue to post our initiatives in a dedicated section of our corporate website. We will continue these efforts as a matter of course, as is generally done by many other companies.

I have now explained the financial results for the second quarter. From Page 29 onwards, we have included some reference material, which we hope you will find helpful.

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