Kakaku.com Inc

TSE:2371

Earnings Call Transcript 2021-Q3

[Shonosuke Hata, executive]

Good afternoon. I'm Shonosuke Hata, President of Kakaku.com. I will now report on the operating results for the second quarter of the fiscal year ending March 31, 2021.

Page 3 of the briefing document provides a summary of the second quarter consolidated operating results. Revenue decreased 20% year-on-year to JPY 12,243 million, and operating profit decreased 34.5% to JPY 4,667 million. Profit before income taxes was JPY 4,422 million and profit attributable to owners of the parent company was JPY 3,024 million. Total revenue for the first and second quarters decreased 26.4% year-on-year to JPY 21,746 million, and operating profit decreased 49.3% to JPY 6,877 million. Operating profit recovered in the second quarter to more than twice the first quarter results of approximately JPY2,200 million.

Next, Page 4 shows a quarterly breakdown of consolidated revenue by business. In the second quarter, revenue from the Kakaku.com business accounted for 44.7% of total revenue. Tabelog business revenue accounted for 36.7%, and the New Media and Solutions and Finance business revenue accounted for 18.6%.

Although Tabelog's revenue, shown as the orange middle section of the bar is recovering, operating revenue hasn't yet reached the prior year level. A breakdown of the results for the New Media and Solutions and Finance business indicates that although revenue from the recruiting and real estate categories increased, media in the travel category remained in a slump due to the impact of the COVID-19 crisis.

Next, Page 5 shows change in quarterly consolidated operating expenses. The general trend of the composition ratios of advertising, commissions, personnel expenses, outsourcing and other expenses is unchanged. And for both the first and second quarters, the distribution of expenses closely follows the prior year pattern. However, advertising and commissions decreased year-on-year in both the first and second quarters. The absence of Tabelog TV commercials this fiscal year has affected advertising expenses. The composition ratio for personnel expenses, including April recruiting expenses increased slightly year-on-year.

Moving along to the next section, I will now provide an explanation about each business. First, Page 7 provides an overview of the operating results by business. Looking first at the 6-month results for the Kakaku.com segment. Shopping revenue was up 14.2% year-on-year. Service revenue was down 11.4%, and advertising revenue was down 16.2%. I will provide a comparison of the second quarter results with the prior year and first quarter results later.

Next, in the Tabelog segment, revenue from the restaurant promotion business decreased 55.4% year-on-year to JPY 4,693 million in the first 6 months. Revenue from premium memberships and advertising decreased 29.2% and 37.5%, respectively, in the New Media and Solutions and Finance segment, revenue from the New Media and Solutions business declined 27.6% year-on-year to JPY 2,904 million, while the finance business revenue increased 16.9% year-on-year to JPY 1,183 million.

I will now report on operational progress made in the Kakaku.com segment, starting on Page 8. In the shopping business, revenue from durable goods, consumable goods and other products increased 0.2%, 2.8% and 7.3% year-on-year, respectively. Teleworking and stay-at-home demand, which has continued since the first quarter, is subsiding somewhat. Revenue from popular categories related to outings or travel is decreasing.

Please refer to the graph on the right. While referrals for product categories that showed strong performance ahead of the consumption tax hike last year and referrals for somewhat high-priced home appliances, such as washing machines and rice cookers, were up or flat compared to the fiscal year ended March 31, 2019, referrals were down compared to before the consumption tax hike last year. Referrals for laptops and flat screen and LCD TVs increased compared to the fiscal year ended March 31, 2019, as well as compared to the previous fiscal year due to teleworking and stay-at-home demand.

Referrals for products affected by demand related to outings and travel, such as digital single lens reflex cameras in suit cases, were down sharply year-on-year. Although growth rates were a little weak compared to last year when revenue was strong due to last-minute demand ahead of the consumption tax hike, I think that the shopping business had a fairly strong quarter overall.

Next, please refer to Page 9 for information on operational progress of the service business. In the personal finance category, revenue declined 8.2% year-on-year, with the end of the government's points reward program for promoting cashless payments and fewer consumption opportunities associated with outings because of the spread of COVID-19.

Next, in the telecommunications category, applications for overseas WiFi services fell sharply year-on-year to nearly 0. Consequently, overall telecommunications revenue declined 46.7% year-on-year. Revenue from the automotive category rose 0.8%. Revenue from the other category rose 4.8%, fueled in part by stay-at-home demand for services provided entirely online, such as online English lessons.

Turning now to Page 10. I will report on operational progress of Kakaku.com's advertising business. Although second quarter revenue from network and listing ads and banner and tie-in ads fell 19.2% and 17.3% year-on-year, respectively. Demand for online ads recovered compared to the first quarter.

As the bar graph on the right shows, demand for advertising placements from advertisers, including home appliance manufacturers, automakers and retailers, increased compared to the first quarter. In the third quarter and beyond, we expect advertising placements from clients that refrain from advertising in the first half to recover as well.

I will now discuss the operational progress made in the Tabelog segment. Please refer to Page 11. The number of fee-paying restaurants as of September was 48,100, of which 35,600 restaurants were on the new pricing plan and the 12,500 restaurants were on the old pricing plan. Although the state of emergency declared by the government was lifted, and we thought the decline in the number of fee-paying restaurants had bottomed out, a number of contract cancellations resulted in a decline in the number of fee-paying restaurants, mainly restaurants on the old plan from July into September.

Next, please refer to Page 12, which shows the number of online seat reservations on Tabelog. Online reservations in the second quarter totaled 4.68 million seats. The number of online reservations had recovered to 68.9% of the prior year level as of the week of September 21, and reservations have gradually recovered to 53.2% of the pre COVID-19 level. I will explain later about the impact of the Go to Eat campaign, which started in October. Also, average monthly revenue per restaurant has recovered to JPY 25,000 because of the resumption in July of invoicing of variable fees in addition to fixed fees.

Next, I will report on operational progress made in the New Media and Solutions and finance segment. First, please refer to Page 13. Year-on-year growth for services divided into several categories is shown to the right of the graph. Revenue from businesses in the entertainment and hobbies category, which includes movies and automotive services, declined 10.9% year-on-year. Travel and transportation category revenue fell 72.6%. Real estate category revenue increased 5.9%, and recruiting category revenue rose 21.5%.

Revenue from businesses in the travel and transportation category declined sharply, with demand falling to near 0, particularly for overseas travel. On the other hand, revenue from media in the real estate and recruiting categories showed solid growth, even though market conditions were not all that favorable.

Next, I will report on the second quarter results for the Kyujin Box and Sumaity businesses shown on Page 14. Kyujin Box achieved higher revenue, accompanying an increase in the number of users. Although revenue growth fell somewhat short of growth in the number of users because the number of job offers wasn't very high, second quarter revenue, nevertheless, reached a record high. The number of companies placing ads is also increasing following the shift from a fixed fee system to a bidding system. A similar trend was seen at Sumaity, with revenue increasing as demand for online searches continued to rise.

Please refer to the bar graph on the right. Although revenue spiked in the prior year fourth quarter, this reflects a tendency for revenue to increase sharply each year due to seasonal factors. Page 15 shows the results for time design and other services. With regards to time design, overseas travel has not recovered at all. And as the bar graph on the left shows, gross revenue for global dynamic packaging was very close to 0. However, domestic dynamic packaging gross revenue recovered to 75.7% of the level in the second quarter of the previous fiscal year after being near 0 in the first quarter.

In the entertainment and hobbies category, most releases of blockbuster movies were postponed in the first half, and the decline in revenue continued due to the drop in ad placements, but revenue remains strong for Kinarino's e-commerce business, Kinarino Mall.

Page 16 shows progress in the finance business. Kakaku.com Insurance's revenue increased 10.4% year-on-year on the back of sustained strong demand from users considering and applying for insurance policies online. The graph on the right shows the number of applications and revenue for online life insurance policies. The number of applications increased 28.6% year-on-year, while revenue more than doubled year-on-year.

That concludes my remarks on the second quarter operating results. Starting with Page 18. I will now discuss initiatives going forward as well as the current situation in each business.

First, as Page 18 shows, we intend to continue making site improvements as well as expanding and enhancing content to be able to provide more meaningful information. Regarding site improvements, we are making highly-detailed improvements to how we handle very specific category divisions and search result precision. We also wanted to bolster our internal technology team and fully leverage technologies such as AI and machine learning.

With respect to expanding information, we want to expand and enhance content to enable users to more easily select products and services from categories that are difficult for users to understand, becoming increasingly complex and seeing an increase in types and numbers of products. This includes adding different types of cards to the credit card category.

Next, Page 19 discusses the current situation with Tabelog. The graph on the left shows how the number of fee-paying restaurants was 48,100 at the end of September. But as of the end of October, the number of fee-paying restaurants had increased to 52,800, partly thanks to the Go to Eat campaign. The figure for November has not been finalized, but we expect to see a further increase of about 4,000 restaurants.

Next, please take a look at the line graph on the right. These are not the most recent results, but thanks to the go-to eat campaign, which started on October 1, the number of online seat reservations surged up 123.5% from the previous year's level for the week of October '19 and were up 83.9% versus the pre-COVID-19 level. The most recent numbers are even higher than the figures on this slide.

Moving along, Page 20 highlights some future initiatives for Tabelog. I have already mentioned some of these initiatives before, but we will be working to further grow restaurant searches and online reservations for the reservation site. Going forward, in addition to enhancing the content of Tabelog and further increasing the number of users and repeat users rates. We will continue to enhance our services for Tabelog Takeout, expanded the lineup for Tabelog Mall and aim to provide more services that help restaurants deal with a variety of operational and business issues.

With the procurement platform Tabelog Shiire, shown at the bottom of the slide, we aim to provide services that are useful for restaurants. And while all of these services have already been launched, Tabelog Takeout, Tabelog Mall and Tabelog Shiire have only just started, so we will be working to improve their apps and sites.

Page 21 covers future initiatives in the New Media and Solutions and Finance business. For both Kyujin Box and the real estate service, Sumaity, we will work to enhance the content of their sites and improve their functions, while also seeking to expand the number of business partners. Kyujin Box has seen a significant increase in business partners due to the introduction of the bidding system. Also, for Saiyo Board, a hiring information platform for companies, we will increase the number of business partners by providing features allowing hiring companies to register and edit information.

Sumaity's revenue growth mostly came from the rental domain, but we are in the process of creating tie-ups with new partners involved in buying and selling new and existing apartments as well as detached houses as we work to widen our scope to include all types of real estate. We want to accelerate the pace of business development in this area.

Page 22 highlights initiatives by Time Design and Kakaku.com Insurance. Time Design will continue to expand its dynamic packages system. Part of this is expanding the number of partners and the scope of provision of the hotel pay settlement service for hotels. With the impact of the COVID-19 pandemic, we're uncertain about the situation for this year and next year, but we will work to increase the number of partner hotels in the overseas dynamic packaging system.

Kakaku.com Insurance will enhance its online consulting functions, including social media and chat and see to what extent it can offer online insurance assessments. With the COVID-19 pandemic, there are, of course, now more opportunities to talk directly with users online and business opportunities have expanded tremendously.

Page 23 shows movie-related initiatives. With respect to eiga.com, from the second half onward, and especially next year, blockbuster movies, which have been scheduled to be released this fiscal year will be released. With this, we expect revenue to return to a normal level. In addition to people watching movies at movie theaters, in the domain of video streaming, we are currently offering OSORE ZONE, a direct streaming platform, and we aim to build out this kind of business going forward.

With respect to the movie sales promotion service, gaie, the main business up until now, involves publicity and advertising orders from movie distributors. But going forward, we will expand the scope of customers so that we can also offer solutions to VOD platforms. In addition, we want to develop new products and new approaches to advertising, publicity and promotional services.

Finally, Page 24 presents an overall look at our business strategy going forward. There is no change to our medium- to long-term goal of increasing the New Media and Solutions and Finance businesses share of revenue. Right now, it looks like revenue is not growing due to the massive decline in travel and transport-related business as a result of COVID-19, but we feel that in overall real terms, the share of the New Media and Solutions and Finance business is increasing, and we will continue to pursue this business strategy going forward.

Now our consolidated earnings forecast on Page 26. Owing to the difficulty of reasonably estimating figures at this point in time, we have yet to determine our earnings forecast. We intend to promptly disclose the forecast as soon as it becomes possible to do so. It is especially difficult to forecast revenue in the Tabelog business given the impact of the Go to Eat campaign. And there is a significant fluctuation margin depending on how that campaign develops and what kind of additional measures there may be. We plan to report to you at a later date regarding the newest developments.

The remainder of the document is the appendix. Please take a look at Page 28. Our employee recruitment plans have not changed even with the COVID-19 pandemic. The circle graph on the right shows the breakdown of employees by job function. Currently, 16% of our employees are involved in sales, while 25% are programmers and other types of engineers.

Now please turn to Page 36, which covers our ESG initiatives. The content on this page was also included in the previous results briefing materials but Page 37 highlights in detail our current initiatives in the areas of economy, society and the environment.

This concludes my presentation on the results for the second quarter of the fiscal year ending March 31, 2021.