DeNA Co Ltd

TSE:2432

Earnings Call Transcript 2019-Q1

[Isao Moriyasu, executive]

I would now like to start DeNA's earnings presentation for the first quarter of fiscal year 2018.

First, I'd like to present our financial results summary. For the first quarter, revenue was JPY 33.9 billion, IFRS operating profit was JPY 5.1 billion, non-GAAP operating profit was JPY 4.6 billion and profit for the period attributable to owners of the parent was JPY 5.2 billion.

Starting this fiscal year, we are providing full year financial guidance, and our Q1 results may seem light compared to that financial guidance. But our performance is broadly in line with our plan.

Next is our financial results by segment. The Game Business and E-commerce business revenue were both down. Meanwhile, the seasonal sports business increased even on a year-on-year basis. For New Businesses and Others, we said that we would make several growth investments this fiscal year, and we are going forward with those planned investments.

Next is our cost and expense breakdown. In the Game Business, we're optimizing our costs, and we have successfully reduced our costs quarter-over-quarter, particularly marketing expenses. We are also refining our title lineup, and we decided to cancel the scheduled summer launch of a title, given its beta performance. We're exploring options for this title going forward, but for the time being, we decided to recognize retirement of game assets.

Now I'd like to discuss our progress relative to our approach for the fiscal year. First, to reiterate, we will ensure healthy profitability in the core Game Business. We are managing costs in accordance with top line performance to maintain profit at least at the level of fiscal year 2017. Also, we are steadily progressing with the development of future titles, including globally popular IP and aim to grow operating profit next fiscal year.

On the next slide, we have the Game Business quarterly virtual currency consumption performance. Both app and browser decreased quarter-over-quarter. One factor for this was the seasonality of existing games, both key third-party games as well as our first- and second-party games. Meanwhile, I'll discuss this more on the next slide. But by managing our costs appropriately, while we did see an operating profit decline, we were able to keep the operating profit decline less than the gross decline.

Next is our initiatives to ensure healthy profitability. We are mainly focusing on fixed costs and others. For marketing expenses, we are continuing to manage costs in accordance with individual title top line performance. And in addition, we are enhancing our ROI standards for each title more specifically with higher precision. By doing so, we have significantly reduced marketing expenses.

For outsourcing expenses, depending on the phase and scale of the title, we are refining and reviewing the team structure and reducing costs that ought to be reduced.

For other fixed costs like infrastructure expenses, we are continuing to optimize these costs, but it will take some time for the impact to be felt. So we expect this to impact in the second half.

Next, in the Nintendo partnership, we do not have any major updates to share. We will continue to service existing smart-device apps so that users can enjoy them over the long term. For future titles in our partnership, we have Mario Kart Tour that we plan to release during fiscal year 2018.

On the next slide, we have creating original new hits. Megido 72 has not achieved a high ranking so far, but we are implementing continual in-game updates and events. This title has achieved a good retention rate, and its DAU level is growing. We aim to do marketing and grow this title towards the holiday season.

For our future initiatives using major IP, we are steadily progressing with the development of future titles, including globally popular IP titles and are aiming to create future hits from the end of this fiscal year to the beginning of the next fiscal year.

We are also using our core competence in game operations and business development to bring major hits from the Chinese market to Japan. In this new initiative, we aim to use our live operations expertise to make these titles successful in Japan.

As part of our new business initiatives, we are pursuing proactive investment in TaxiBell, insurance integrated with wellness programs and social live streaming to create new business pillars. These are particular areas of focus for us among New Businesses.

We have seen solid progress in our key growth investment areas. I'll talk about TaxiBell in more detail on the next slide, but I'll say now that the service is off to a solid start, and we're seeing good usage growth.

For insurance integrated with wellness programs, we have been accumulating a solid evidence base about correlations between lifelog data such as pedometer steps and illness, for example, the relation to medical costs as well as on how we can drive changes in user behavior through health services. We are now gathering this kind of evidence and seeing meaningful results. We are using this kind of evidence and working in partnership with health insurance companies to create new health insurance products and services.

For social live streaming, we are focusing in particular on SHOWROOM and Pococha. Both services are seeing good performance of key KPIs like paying UU and performer numbers. In SHOWROOM, we have performances by top performers like idols and VTubers, who we started to focus on from this fiscal year, and other events are also driving excitement in the service.

Next is TaxiBell. TaxiBell launched earlier this fiscal year in some areas of Yokohama and Kawasaki but is now available in almost all areas in Kanagawa Prefecture. We are aiming to start a nationwide rollout starting from urban areas and starting in fall 2018. We are working with taxi operators to make this happen.

For our existing service areas, as you can see in the graph on the bottom right, our dispatches per day are steadily rising. Once users use the service once, repeat usage is very high. We are currently looking at marketing options and other possibilities to grow this service.

Next is the E-commerce business. As you can see on the right, we sold DeNA Travel on May 31, 2018. Part of the reason for this sale was the increasingly competitive travel environment. As you can see in the graph on the left, we only have 2 months of contribution from Travel included in our results. Outside of Travel, processing settlement and auction are showing stable performance.

Finally, we have the sports business. First, about maximizing the business. As you can see on the bottom left, our stadium attendance has had strong performance this fiscal year. However, since we have reached our capacity, we cannot expect significant increases in attendance going forward. Despite this, as shown in the bottom right graph, by engaging in various sales initiatives, we have been growing revenue more than we have grown attendance. Through these initiatives, we have successfully grown sources of revenue that are not reliant on increasing attendance.

We are also seeing good progress in our expansion of Yokohama Stadium at South. If we keep up this progress, next season, we will have an extra 3,500 seats available. By the 2020 season, there will be 6,000 extra seats overall. That will be extra ticket sales potential, and we can add other sales initiatives on top of that. I expect this will result in a new growth trend.

In addition to our stadium initiatives, we are also providing fun programs outside the stadium. Some examples include our BAY live viewing program to allow public viewing outside the stadium and an official hotel program. We want to provide enjoyment to people not only inside the stadium but outside as well. This is all part of our Smart Venue concept. We have formed a team dedicated to this concept, and we'll aim to grow these kind of programs going forward.

Finally, we come to strengthening business portfolio and view for mid-to long-term growth. We've shown this slide in previous earnings announcements. Our goal is to create multiple new business pillars by about the mid-2020s, and we will use fiscal year 2020 as a checkpoint to confirm our progress towards achieving our long-term goals, and aim to show our progress to all of you by the end of that fiscal year. So that's our aim for these new business pillars.

This concludes my presentation for this quarter. Thank you.