Kakaku.com Inc

TSE:2371

Earnings Call Transcript 2020-Q3

[Shonosuke Hata, executive]

Good afternoon. I'm Shonosuke Hata. Thank you very much for attending today's briefing despite your busy schedules. I will go ahead and get started with my briefing on Kakaku.com, Inc.'s operating results for the third quarter of the fiscal year ending March 2020.

Page 3 shows our consolidated operating results for the third quarter. We posted revenue of JPY 15,727 million, a 10.4% year-on-year increase. Operating profit was JPY 7,315 million, a 12.3% year-on-year increase. Profit before income taxes was JPY 7,191 million, up 11.7% year-on-year. And profit attributable to owners of the parent company was JPY 4,884 million, which was a 10.4% year-on-year increase.

Moving along, Page 4 shows cumulative figures for the first 9 months of the fiscal year. We posted revenue of JPY 45,256 million, a 13.5% year-on-year increase. This is 73% of our forecast revenue for the full fiscal year. Operating profit was JPY 20,885 million, up 14.8% year-on-year increase and 78.2% of our forecast operating profit for the full fiscal year. Also, our operating margin in the first 9 months of the fiscal year was 46.1%. Profit before income taxes and profit attributable to owners of the parent company are also shown on Page 4.

From Page 6 onward, I will provide further analysis of these results. Page 6 shows consolidated revenue by business segment. I discussed the totals a moment ago, but breaking down the figures, the Kakaku.com accounted for 38.2% of total revenue in the third quarter, the Tabelog accounted for 44.8% of total revenue and the New Media and Solutions and Finance accounted for 17% of total revenue.

The New Media and Solutions and Finance business saw its ratio of overall revenue fall by 0.7 percentage points versus the second quarter. This was mainly due to seasonal factors for Kyujin Box and the real estate-related websites, and we expect this segment's percentage of overall revenue to increase again in the fourth quarter.

Moving along, Page 7 shows the breakdown of quarterly consolidated operating expenses. In the third quarter, there were basically no significant changes in terms of advertising expenses, commissions and personnel costs. However, advertising expenses were on par with the first quarter and approximately JPY 150 million less than in the second quarter due to the fact that we did not carry out mass advertising for Tabelog as we had been planning to. Also, rent of JPY 354 million, shown second from the bottom, was as expected. The increase in rent accompanied the expansion of our Shibuya office in November.

Next, from Page 9, I will discuss the results of each business segment. Page 9 shows operating results for each business segment and includes more detailed figures for each segment.

In the Kakaku.com business segment, revenue in the third quarter increased 2% year-on-year and cumulative revenue for the 9-month period increased 8.7% year-on-year. Shopping revenue in the third quarter declined 2.7% year-on-year, impacted by the consumption tax hike. Service revenue in the third quarter increased 12.8% year-on-year, maintaining its strong performance. In advertising, third quarter revenue declined 5.8% year-on-year as advertising activity regressed after increasing before the consumption tax hike.

In the cumulative 9-month period, Kakaku.com's revenue increased 8.7% year-on-year. Revenue in the first quarter increased 8% year-on-year, and we had predicted that growth in the second and third quarter would be on par with the first quarter. In fact, totaling the first, second and third quarters, revenue increased 8.7% year-on-year, in line with the prediction stated at our second quarter results briefing.

In the Tabelog business segment, restaurant promotion revenue increased 12.7% year-on-year. Premium memberships revenue declined 19.3% year-on-year, while third quarter advertising revenue increased 27.2% year-on-year. The premium memberships revenue decline was as initially expected. Restaurant promotion revenue was very slightly lower than our internal projection. Although advertising revenue is not so large in scale, we did manage to achieve a 27% year-on-year increase.

In New Media and Solutions and Finance, total third quarter revenue in New Media and Solutions increased 36% year-on-year, while in Finance, which is our insurance business, third quarter revenue increased 31.4% year-on-year. These results were generally in line with our internal forecasts.

Starting with Page 10, I will discuss the operational progress of Kakaku.com. Shopping revenue is shown on the graphs on the left. Revenue from consumer goods declined 4% year-on-year, while revenue from durable goods declined 2.8% year-on-year, as shopping revenue fell back slightly in the third quarter following efforts to harness demand prior to the consumption tax hike in the second quarter.

As for advertising revenue, on the right, home appliance and electronics manufacturers and other national clients placed a large number of ads in the second quarter so third quarter revenue from network and listing ads declined 11.8% year-on-year, while revenue from banner and tie-in ads, which is derived from direct sales, fell 4.5% year-on-year.

Next, on Page 11, I will report on the service business. As the graph on the left shows, the personal finance category, including credit cards and card loans, is still performing well and third quarter revenue was up 38.3% year-on-year. The automobile category also performed well with revenue up 10.6% year-on-year. On the other hand, revenue in the telecommunications category decreased slightly by 6.7% year-on-year.

Kakaku.com Magazine is a tool to support shopping. This magazine includes all articles about both durable goods and consumer goods, but also products in the service category. The number of monthly users surpassed the 10 million mark. The number of Kakaku.com Magazine users increased 26.8% year-on-year. And going forward, we plan to increase the number of users by further enhancing the magazine's content.

Page 12 shows the operational progress of Tabelog. I mentioned the revenue earlier, and here I will discuss the KPIs which we always report on. First of all, the number of fee-paying restaurants stands at 59,100 as of the end of December. Of these, 42,400 restaurants are on new fee plans comprising a fixed fee component and a pay-as-you-go fee component. Average monthly revenue per restaurant in the third quarter was JPY 32,000 compared to JPY 30,400 in the second quarter.

Page 13 shows the number of online seat reservations. The quarterly cumulative total for the third quarter was 11.37 million, an increase of 27.2% year-on-year. The number of advertisers in the advertising business is shown on the right. Rather than being a KPI per se, this is used as a rough guideline for one of the targets we ought to achieve. In the third quarter, the number of advertisers increased. Going forward, we want to continue to increase the amount of advertising revenue that isn't reliant on specific clients or specific types of advertising campaigns.

Moving along, Page 14 shows the operational progress in New Media and Solutions and Finance. Revenue in New Media and Solutions and Finance was strong overall. Looking at year-on-year comparisons, Kyujin Box revenue and Time Design revenue both increased. Time Design's revenue increased 119.4% year-on-year, more than doubling. Kyujin Box revenue increased 152.8% year-on-year.

For Kyujin Box, the number of monthly users in revenue are shown on the right. The number of monthly users almost doubled, increasing 91.5% year-on-year. The number of monthly users declined slightly compared to September. Revenue is shown on the right. As you can see, third quarter revenue was 2.2% higher than second quarter revenue. As the number of Kyujin Box users and revenue increase, the business becomes more impacted by seasonal factors. Demand is highest in the fourth quarter, so we are looking to further increase revenue and the number of users.

Please look again at the bar graph on the left side. Sumaity, shown at the very bottom, has performed well throughout the year and revenue in the third quarter increased 39.1% year-on-year.

Next, on Page 15, I will discuss a few topics in New Media and Solutions and Finance. Almost all of Sumaity's revenue still comes from rentals, but the navy blue portion at the top of the graph shows revenue from real estate sales and other business. As you can see, revenue in this domain increased 41.7% year-on-year. Besides rentals, we want to increase revenue from estate sales of condominiums and apartments as well as detached housing and widen the scope of this real estate portal site.

With respect to Kakaku.com Insurance, which is shown on the right, there are 2 types of revenue in the finance category: online sales and face-to-face sales. Most customers enter via Kakaku.com's insurance category, so we redesigned the top page so that it is easier for people to use and enroll in policies.

That completes my discussion of business progress as well as financial results for the third quarter and the 9-month period.

Moving along, from Page 17, I will introduce some of our initiatives going forward.

Page 17 shows some initiatives in New Media and Solutions and Finance. Kyujin Box, shown here on the left, has made solid progress in terms of both the number of users and revenue. However, there is still much we can do with respect to the site's content. We want to make the page easier for people to use by displaying specific preferences on the search results page. For example, the time it takes to get to the office from the closest train station. We want the site to be easier for people to use, such as by displaying search results corresponding to the things users attach importance to. Also, we want to make it easy for users to first just do a search based on their own key criteria without having to visit each separate page to find out if a particular job is open to those without experience or if a job does not involve transfers.

Time Design is a business in which Time Design Company Limited embeds dynamic package systems in the booking pages of hotels and lodging facilities. We work with each hotel to develop the technology and create each page. By deepening and increasing tie-ups with reservation site controllers, we can reduce the amount of technical development or save time and effort on sales. In addition, we would like to increase the number of partner hotels and dramatically increase sales. We have already entered into partnerships with a number of booking site controllers, but this fiscal year and next fiscal year, we want to increase the number of booking site controllers we work with and create a system that even more hotels can use.

Moving along, Page 18 shows some of our future initiatives with respect to Kakaku.com. In the shopping business, we have already discussed how our main initiative is to increase overall transactions and sales by bolstering our sales of consumer goods as well as durable goods. One approach is to use AI to process image data. Almost all of the product images we receive from shopping malls and retail stores include not only images of the product, but also information specific to each retailer, such as percentage discounts or whether a product is on sale or not. We want to optimize the product images by extracting the image of the product alone to create pages that make it easier for users to view and find products they want.

Another initiative involves improving the accuracy of color searches. With this, we will use AI to judge the color of a product from the entire image, which we haven't been able to do up until now. This will improve accuracy and allow us to create pages that are easy to view and also extract the optimal solutions to users' searches.

The right side shows the 3 main initiatives in each service category. For mobile phones and smartphones, we will make it easier to compare and consider different products with the device, data charges and other related information and functions shown together on the same page. This includes information on device charges, data charges and charges for the same device with different carriers, whether or not a device is SIM-locked and so on. This is a category in which searching can be confusing as specs can vary even within the same series of devices. So if you do not organize the information, users have to switch between lots of different pages to try to make comparisons. By displaying this information on one page in an easy-to-understand manner, the site will become easier to use.

The same holds true for home loans and used cars. To make the site more organized so that a variety of different plans are not mixed up together on multiple pages, we are consolidating the pages with information on home loans as much as possible, and we are doing likewise with information on used cars. While consolidating pages, we want to make sure that we don't omit or leave out any information.

Lastly, Page 19 shows several of our initiatives for Tabelog going forward. We are working to make the site more search-friendly by enhancing search accuracy and by making enhancements to map-based search functions. This page shows 2 examples of this.

With respect to enhancements to search accuracy, as shown on the left, the site is sometimes unable to directly address users' needs. We will make it easier to search restaurants based on desired criteria, such as all-you-can-drink plan pricing and availability of private rooms. For example, even if a restaurant has private rooms, they may not be available when required. Or even if it has an all-you-can-drink plan, it may not be in the price range that the user is looking for. We will increase search accuracy by finding the right results for users' searches.

Moving to the right side, by allowing the user to recognize the type of establishment right on the map, they will be able to search for a restaurant intuitively based on what they want to eat without moving the cursor or their finger. This will also simplify things, allowing users to complete a reservation with an uninterrupted flow, making the Tabelog site easier to use, increasing the number of users and making the reservation process smoother will all help boost the number of online reservations.

The final few pages of the presentation are the Appendix, which provides reference material. From Page 22 onward, we have included information about websites with smaller revenue, websites that still have limited numbers of users and newly created websites not covered in the section about future initiatives.

Page 24 is information that we provide each quarter. It shows the total accumulated monthly traffic for each Kakaku.com Group service. In December, the total was 267.05 million average visitors, up 4.8% year-on-year.

This concludes my discussion of operating results for the third quarter. Thank you very much.

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