Kakaku.com Inc

TSE:2371

Earnings Call Transcript 2022-Q3

[Shonosuke Hata, executive]

Hello. This is Hata. Thank you all for joining us today. I am pleased to report our financial results for the third quarter of the fiscal year ending March 2022. First, here is an overview of our consolidated business results. In the third quarter, revenue was JPY 14.053 billion, operating profit was JPY 5.662 billion. Profit before income taxes was JPY 6.786 billion, and net income was JPY 4.673 billion, down 12.3%, down 14.1%, up 3.8% and up 5.1%, respectively, from the previous fiscal year. As of the end of the third quarter, cumulative revenue totaled JPY 37.935 billion, up 0.4% from the previous fiscal year.

Operating profit was JPY 13.782 billion, up 2.3% from the previous fiscal year. Profit before income taxes was JPY 14.813 billion, up 12.9% from the previous fiscal year and net income was JPY 10.448 billion, up 17.5%. In terms of progress against the full year forecast, revenue was 68.0%, operating income was 64.1%, income before income taxes was 69.5% and net income was 71.6%. I will explain the factors of each of these results later on.

Next, please refer to the quarterly trends and breakdown of consolidated operating expenses. The major structure of expenses per quarter has not changed much in the past 2 years. But in this third quarter, the ratio of advertising, commissions and outsourcing expenses has returned to the same level as in previous years. Compared to last year when we saw an increase due to taking part in the Go to Eat campaign. Advertising, commissions and outsourcing expenses decreased.

Next, on Page 6 is the quarterly trend of operating results by business. We have divided our sales composition into 3 businesses: Kakaku.com, Tabelog and New Media and Solutions and Finance. Tabelog's performance returned in the 2 months from the beginning of November, with the declaration of the state of emergency being lifted and recovered to 37.8% in the overall sales composition. As for New Media and Solutions and Finance compared to the second quarter, the composition ratio dropped from 26.8% to 24.4% due to the recovery of Tabelog, but the growth in absolute terms has been very steady, and the composition ratio has increased compared to the third quarter and the annual average of last year.

Next, we have the operating results by business. For Kakaku.com, 9 months revenue was down 8.7% from the previous fiscal year with the Shopping business down 13.6%, the Service business down 6.9%, and the Advertising business down 1.0%. For Tabelog, cumulative sales were down 7.2% from the previous fiscal year, with the restaurant sales promotion business, up 0.7%, the User Membership business down 11.1%, and the Advertising business down 17.7%.

As for New Media and Solutions and Finance, 9 months revenue increased by 48.8% on New Media and Solutions compared to last year and 11.5% for Finance. I will now explain each of our businesses, starting with the Kakaku.com Shopping business. Overall sales in the shopping business decreased. In this third quarter, durable goods were down 12.1% and consumer goods grew by 5.8%. The main reason for the decline in durable goods was the shortage of semiconductors for PCs and large home appliances as well as the impact of COVID on supply chains led to a continued decrease in new products and supply shortages resulting in a significant drop in sales.

Sales of consumer goods increased steadily, and we were able to increase our figures, both in comparison to the previous fiscal year and the second quarter of this fiscal year.

Next, I will talk about the details of the Shopping business. As for how much the number of new product launches in durable goods has decreased, the graph on the left-hand side of the page shows the trend in new product registrations on the Kakaku.com website. The number of new product registrations related to personal computers was down 64.4% compared to last year's third quarter, while that of home appliances was down 28.5%. The combined total of personal computers and home appliances decreased by about half of last year's figure, indicating that the supply has dropped considerably. As for consumer goods, our numbers are steadily increasing. And as you can see on the right side, we are continuing our efforts to further enhance user convenience by adding functions to product pages that allows users to identify popular products for different time frames.

Next, I will explain about Kakaku.com's service business. Sales declined for personal finance, telecommunications and automotive. In Personal Finance, we have seen a strong impact of low consumption trends, resulting in reduced applications for credit cards. In the automotive category, both new and used cars were significantly affected by supply shortages due to the semiconductor shortage in the past 3 months.

Next, trends for each category of the Services business. Again, for personal finance, the number of applications for credit card issuance or credit card loans is declining. In terms of telecommunications, overseas WiFi comparison has remained at a low level as there is still very little overseas travel. In the automotive category, delays in delivery due to shortage of parts and materials have had a significant impact. In other, the numbers of comparison of energy that is electricity and gas retailing and applications for online English classes continue to grow at a high level.

Next, I will talk about Kakaku.com's Advertising business. In advertising, banner and tie-in ads were down 8.3% and network and listing ads were down 28.1% compared to the previous fiscal year, mainly due to a decrease in new product releases by consumer electronics and car manufacturers, which led to a decline in ad placements.

Next are the details of banner and tie-in ads. Revenue from home appliance and consumer electronics manufacturers declined by 20.0% compared to the previous fiscal year, and sales from car manufacturers declined by 51.4% compared to the previous fiscal year, resulting in a significant drop in sales. At the same time, advertising sales in IT services and software, telecommunications and other domains increased compared to the previous fiscal year. Therefore, we can say that the results for home appliances and cars is not a trend in Internet advertising as a whole, but rather a result of the significant impact of supply shortages, mainly among PC and consumer electronics manufacturers. This concludes my explanations for the Kakaku.com business.

Next, I would like to explain about the Tabelog business. Tabelog saw an increase in revenue quarter-on-quarter due to a significant recovery in the online reservation service following the lifting of the state of emergency. However, sales are still low compared to the third quarter of last year when we were participating in the Go to Eat campaign. Sales from the promotion service, an advertising service for restaurants for which we charge fixed monthly fees were down 5.6% compared to the previous fiscal year, and sales from the online reservation service for which we charge a performance-based fee were down 32.3%, however, sales from the online reservation service almost tripled from the second to the third quarter.

In November and December alone, sales from the online reservation service have returned to normal, with the number of online reservations recovering to numbers that exceed pre-COVID levels.

Next, we have here more details for the promotion service for which we charge fixed monthly fees. The number of contracted restaurants for this service has been on a downward trend as the state of emergency continued. However, in this third quarter, we have 44,600 restaurants, which is an increase of almost 1,000 restaurants quarter-on-quarter. As for the ARPU for the promotion service, we are seeing an impact from restaurants, which had contracts of JPY 50,000 or JPY 100,000 pre-COVID, downgrading their plans.

Changes in ARPU from the second to the third quarter were a result of a decrease in the number of restaurants that had temporarily suspended their membership from the fourth quarter of last year to the second quarter of this year, during the state of emergency, the scope of accepting contract suspensions was expanded, but in the third quarter, the situation has recovered, and ARPU has returned to JPY 21,200.

Next, we have the online reservation service for which we charge a performance-based fee of JPY 200 for dinner and JPY 100 for launch. The graph on the left shows the number of restaurants using the online reservation service, which also includes those that also pay fixed fees for the promotion service. In this third quarter, the business situation recovered considerably, and the number of contracted restaurants has increased significantly to 58,400 compared to 53,000 in the second quarter.

On the right is a graph showing the ARPU for the online reservation service. The number of restaurants themselves is increasing, so it is difficult to determine how to view sales per restaurant. The total number of online reservations, which I will explain later, might be easier to understand. In terms of ARPU, we were able to recover to JPY 9,300 per restaurant in the third quarter, which is higher than pre-COVID levels, but not quite as high as last year during the peak of the Go to Eat campaign.

Next, the number of restaurants we have contracts with, including the promotion service and the online reservation service, we did quite well here with 63,600 restaurants in total. The breakdown is shown in 3 categories. In dark Orange, we have the restaurants using the online reservation service only. In light Orange, we have the restaurants that only subscribe to the promotion service and in between, we have the restaurants that have contracts for both the promotion service and online reservation service.

Here are the cumulative number of online reservations for the quarter. In this third quarter, the numbers were back to about the same level as the year before last. However, the state of emergency was still in effect in October, and the impact was felt until the beginning of November. But it took only about 2 months from the middle of November to December to return to the number of reservations for the 3 months in the year before last. In other words, we were able to get back to the point where the number of people making online reservations in November and December was higher than the year before last.

Now let me explain about Tabelog's current situation. The yellow line in the graph on the left shows the weekly number of online reservations, and the bar graph shows the number of positive COVID cases up until January 24. Priority measures to prevent the spread of disease were applied again due to a new wave in COVID infections, and as you can see, the number of online reservations has dropped to 40% of pre-COVID levels. We believe that the figures will change significantly depending on the business conditions of restaurants, such as whether the priority measures to prevent the spread of disease will be extended or terminated or whether a state of emergency will be declared this month or moving forward.

Next, I will explain the results of New Media and Solutions and Finance. In New Media and Solutions and Finance, we saw an overall increase in all domains compared to the previous fiscal year, with Kyujin Box, in particular, showing strong growth of 85.7% compared to the previous fiscal year. In addition, Real Estate was up 0.7%; Travel and Transportation was up 15.1%; Entertainment and Hobbies was up 9.7%; and Finance, which is Kakaku.com Insurance was up 6.1%.

Next, the operational progress of Kyujin Box. The number of ad placements continued to grow, resulting in an increase in revenue. The number of monthly users increased by 29.4% compared to the previous fiscal year, which is almost in line with our expectations. In terms of sales, we were able to achieve very good results including an increase in the number of ad placements and an increase in unit prices.

The right-hand side shows our efforts in improving the Kyujin Box website to make it more user-friendly and convenient for users to search for jobs, such as expanding the criteria for refining search results and notifying users of new jobs.

Next, the operational progress of Sumaity. For Sumaity, the number of monthly users increased by 2.3%, and sales increased by 0.7% which is a slight increase compared to last year. But compared to the first and second quarters, online property searches seem to have calmed down a bit. We assume this is partly due to the fact that with the lifting of the state of emergency, there has been a slight increase in searching for real estate offline rather than online. In addition, although we are focusing on rental housing, we are now expanding into other areas such as buying and selling properties.

Sales from these categories has increased by 36.8% compared to the previous fiscal year. The absolute value is still small, but we saw steady growth in this third quarter.

Next, we have the travel and transportation domain. The travel domain has been recovering very rapidly. But as you can see from the bar graph on the left, it has not yet reached the level of the year before last. LCL which runs comparison sites for buses is recovering, but not to the level of the year before last. Revenue for time design dropped by 20.3% compared to the previous fiscal year, but almost exceeded pre-COVID results.

Last year, the Go To Travel campaign resulted in a temporary increase in sales, but putting such extraordinary factors aside, I think it is fair to say that we have almost recovered from weak sales due to COVID. The right side shows the status of each business. First of all, with regard to time design due to the impact of COVID, sales from overseas dynamic packages, DP, has not been increasing, but we were able to increase the number of contracts and the number of systems installed. Time Design is steadily expanding its business, with the number of hotels using domestic DP up 18.7% and the number of hotels using overseas DP up 27.1% from the previous fiscal year. For LCL, sales are on a recovery track and have almost doubled from the last year.

Next, we have entertainment and hobbies. Although there are some ups and downs, the advertising business of eiga.com, a movie-related website, and gaie have recovered considerably compared to the first and second quarters of last year, when it was difficult to go to the movie theaters and major films were not released. Although not quite in line with our initial plan, sales are almost approaching the level of the year before last.

Next, operational progress for Kakaku.com Insurance. Kakaku.com Insurance is doing very well with a 6.1% increase compared to the previous fiscal year, which is roughly in line with our plan. On the right, we have trends by insurance product. As for life insurance, with the lifting of the state of emergency, the demand for considering and applying for life insurance has slowed down somewhat or rather has leveled off.

In addition, the number of applications for fire insurance is increasing due to improved content such as across-the-board policy comparisons. As for pet insurance, the number of applications has been growing steadily, partly due to the expansion of the pet market, but also due to the enhancement of insurance products. This concludes my explanation on the operational progress of each business. On the following pages, I will introduce some of the future initiatives for each business. Here, we have an overview of the policies and measures for each business.

Next, initiative in the Kakaku.com business to develop new areas of strength in the shopping business. For instance, categories with a lot of new features or new types of products on the market or categories such as kitchen appliances, where the variety of products to choose from has grown. For these categories, we want to increase the product lineup and reviews, but also put more effort in enhancing content to improve the convenience for users.

For example, providing information on full setups for gaming PCs or shopping simulations to help users find out how much a certain setup will cost. Then on the right side, we have 2 categories, bicycles and golf. These are categories where users have strong preferences, and where it is still difficult to find products with the current content we provide. For those areas, we would like to make changes to the search functions and UI, but also aggregate word-of-mouth content for each area to create a hybrid format that makes shopping easier.

Next, we'll talk about the general direction that the Tabelog business is aiming for. As I have said many times before, we are going to further expand the number of restaurants that allow online reservations. As a first step, we just launched the online reservation service as a stand-alone plan that does not require a fixed monthly fee. In the past, we sold the promotion services and online reservation service as a bundled service requiring monthly fixed fees, and we estimated the target market for such a product would be about 100,000 restaurants.

Now with the unbundling of our services, our sales target has expanded to all restaurants that take reservations, which we roughly estimate to be around 260,000 restaurants. This means that our target market in which we can conduct sales activities has expanded, and we would like to accelerate our sales activities. This is our overall business strategy going forward. Here, we have Kakaku.com, Tabelog and New Media and Solutions and Finance. In New Media and Solutions, Kyujin Box is starting to see good results. But we would like to improve the balance of our portfolio more and more and create a balanced structure with a wide range of businesses.

Next, I would like to explain a little about our ESG initiatives. As I have explained before, as a company that strives to be a part of people's lives, we aim to do what we can to address ESG issues in the 3 areas of economy, society and environment. Here, we have listed some examples of our initiatives in each category, economy, society and environment. This is just an example of what we are doing in the environmental field. Since we are operating Tabelog, we have been asking ourselves what we can do to address issue related to food, such as protecting the environment for fish. We are now cooperating with Earthwatch Japan to conduct environmental DNA analysis of fish in seawater to help create a research database.

On the right side, you can find 2 other initiatives. We would like to enhance the disclosure of our ESG initiatives in the future and provide information on specific initiatives where we can. This concludes my presentation of operating results and operational progress for the third quarter and our initiatives going forward. Thank you.