DeNA Co Ltd

TSE:2432

Earnings Call Transcript 2022-Q1

[Shingo Okamura, executive]

Hello, everyone. I would now like to present our earnings results. First, financial results and highlights. This slide shows our financial results summary.

As you can see on the graph, we had good performance in the Live Streaming Business. And last fiscal year, in Q1, our Sports Business was significantly impacted by COVID-19 but has recovered since then, resulting in JPY 34.1 billion in revenue and a year-on-year increase in non-GAAP operating profit. We had about JPY 10 billion in onetime factors last fiscal year in Q1, impacting IFRS operating profit. So we cannot really compare but non-GAAP operating profit grew year-on-year.

This slide shows our financial results. I would like to mention the strong performance of SI Games and the onetime gain of JPY 4.4 billion due to the third-party allotment by Mobility Technologies, which contributed to a significant increase in the share of profit of associates accounted for using the equity method in Q1.

I already briefly mentioned this during the summary. But looking at the financial results summary by segment, you can see that the Sports Business has recovered compared to Q1 in fiscal year 2020. The Live Streaming Business is also showing strong performance with good growth compared to Q1 of fiscal year 2020. These contributed to our overall performance growth. In the Game Business, we have many existing titles, and we saw a decline in operating profit from fiscal year 2020 Q1 but overall, we were able to grow our revenue and non-GAAP operating profit.

This slide shows our cost and expense breakdown. I have nothing to highlight here. I believe we can say that DeNA has done well in showing results for our businesses in Q1.

This is my very first Q1 presentation. 3 months ago, I talked about our new management structure. And how we would grow DeNA businesses overall to form our long-term portfolio and pursue corporate value creation. We established a new mission, vision and value. And on that foundation, we work to entertain and to serve. And we are also working to encourage synergy between the 2 approaches. In this way, we will evolve into a new, unique kind of tech company. We aim to form an earnings base on these 2 approaches and challenge ourselves to achieve leaps in growth such as through the upside opportunities shown below. In Q1, we had some updates here that I will share later.

Now let's look at the financial highlights. Under growth investment, we have updates. In Live Streaming, we made IRIAM, a wholly owned subsidiary in August 2021. We have already made a minor shareholding investment. But on this occasion, we acquired an additional 80% share for JPY 12 billion, making IRIAM a wholly owned subsidiary. As a result, we expect to have a onetime gain of approximately JPY 2.3 billion in Q2 and JPY 14.2 billion in goodwill.

In healthcare, we plan to make Nippontect Systems, a wholly owned subsidiary. The shares furnished in the share exchange are as shown on the slide. The impact on our financial performance this fiscal year is expected to be minimal. But we expect approximately JPY 3 billion in goodwill. We have also mentioned DATA HORIZON on multiple occasions. But want to share that we have enhanced our capital relationship with them. Our holdings have increased from 8.6% to 12.81%. And I believe we are successfully growing our existing businesses and conducting investment to enable leaps and growth.

That concludes the overview of our performance. And now I would like to go into more detail for each of our businesses under entertain and serve.

First, we have the approach that has been a significant contributor to our performance to date and that we continue to expect to contribute significantly going forward, entertain. The Game Business is a major part of our entertain approach. As we have mentioned previously, our earnings structure is mainly composed of existing title performance. And we are also impacted by seasonality in Japan. As we have mentioned, our existing titles will gradually decline, and we do our best to maintain their performance. But it is important for us to create new titles to enhance our earnings space. And we are making progress here. Our existing title performance has been gradually declining but I want to call attention to how we have been able to maintain the performance of China, which has titles like Slam Dunk, helping to maintain our overall performance level.

Now I would like to discuss our game pipeline. We have multiple titles that are already launched or are planned for launch. On the top left, we have Toho Danmaku Kagura, which launched 2 days ago. I believe our marketing initiatives did very well, and this contributed to a very strong start for this game with higher-than-expected downloads. In addition to the downloads, we have seen positive feedback, both internally and externally about the game. There are high expectations for this game, and we will do our best to make this an enjoyable game.

Next, Dragon Quest: The Adventure of Dai is scheduled for a fall launch in multiple languages. We also have an original title called Takt Op, which will have a TV anime broadcast from October 5 and the game release scheduled in 2021. Finally, we have Captain Tsubasa, which is a great IP in development in China. So in the Game Business, we continue our strategy of developing and operating games in Japan and China using our partnership with IP holders and publishing globally. We have previously stated how important this pipeline strategy is for DeNA. And now we have produced fruit from that strategy.

The Live Streaming Business has been seeing rapid growth since last fiscal year. And we saw a continuation of those strong trends this quarter. Pococha Japan is currently in the growth phase. And later, I will talk about our global launch and new genre initiatives as well.

First, I would like to discuss Pococha in Japan. This business continues to grow and has good potential. We are seeing increases in the number of live streamers and effective digital marketing has increased the number of listeners. We have created a good environment for live streamers and listeners to interact. And we are bringing excitement to service. As a result, we have achieved continued active user growth. This, in turn, led to increases in the retention rate and monetization ratio. We achieved 2.9 million downloads as of the end of June, indicating how Pococha is becoming more recognized as a good environment, and I expect to continue to see growth in this service.

Earlier, during my discussion of the overview, I mentioned our investment in IRIAM as a new genre of live streaming. They are now our fully owned subsidiary. Since our investment about a year ago in August 2020, we have collaborated on live streamer and listener acquisition events and other matters using the insight we gained through Pococha and other services. As you can see in the reference information, IRIAM is seeing good growth. By making IRIAM wholly owned subsidiary, we aim to share and use live operations know-how and management resources to achieve further growth. My aim is to accelerate growth.

I have already mentioned the good growth we are seeing in Pococha in Japan. And we are also challenging ourselves to achieve similar success abroad. We've already shared that we launched in the U.S. on May 26, 2021. We are comparing the live streamer and listener trends from the U.S. with the initial stages in Japan. And working on in-service measures and establishing the necessary structure to build up the user base to further grow the service. Our impressions after the first couple of months is that while the scale is still small, the live streamers and listeners are responding to our measures. Just like when we started in Japan, when we implement these measures, we see increases in both live streamers and listeners. So we will continue our efforts both with our team and in service measures and invest in marketing. We have a good feeling about the potential success of this endeavor, but we will carefully consider various aspects and be disciplined about our investment.

We also plan to launch the service in English speaking regions in stages while refining the growth strategy and identifying priority launch regions. That concludes our update for Q1 under entertain.

Now I will discuss our updates under serve. First is the Sports Business. Starting from last year, this business was significantly impacted by COVID-19. As you know, the potential future impact of COVID-19 is unclear. But we are finding ways to adapt to the situation. For example, in baseball last year, the season start was significantly delayed. But this year, it was not. While we still have attendance restrictions, we can allow in more people than last year around this time. Of course, our current performance is still lower than the level of 2 years ago prior to COVID-19, but we are slowly adapting and enabling the Sports Business to regain solid standing as a business. For basketball, we had year-on-year revenue growth in the 2020, '21 season despite attendance restrictions.

Here, I would like to share some qualitative information about Kawasaki Brave Thunders. We operate with a focus on sports and the community in our Sports Business. Kawasaki is a government-designated city with a population of over 1.5 million and still growing. Our aim is to make the Brave Thunders irreplaceable sports content in the city. And in that view, we were the champions of the Emperors Cup and have the highest attendance of any team in the B.LEAGUE. Even in the age of COVID-19, we are establishing a strong presence.

We also have an SDG's project and growth in our basketball school. With COVID-19, online initiatives are especially important and the Brave Thunders are well known for their excellent use of YouTube, leading to an increase in the number of fans. We also have a card game using NFTs, online salon and are trying out other exciting new initiatives to not let COVID-19 get us down. This is enabling us to not just improve our financial performance, but it's beneficial for establishing our brand as well.

Next is the healthcare business. Our mission is making the shift from sick care to healthcare and lengthening healthy lifespans. We aim to achieve meaningful profit for the healthcare business within 3 years. And we are seeing good progress. To share some updates. We have some new initiatives in consumer-facing services. In June, the President of Dai-ichi Life Holdings, Mr. Inagaki and I announced our business alliance and the first planned service offering, which is Haretoke is a community service for women.

Earlier, I also mentioned the plan to make Nippontect Systems, a wholly owned subsidiary, while discussing upside opportunities for achieving leaps and growth. This company provides very unique services for the elderly and particularly for dementia. We expect to see growth in this area, starting with the existing services. ONSEI is a voice dementia diagnostic tool, and MENKYO is a digital transformation of the dementia test for elderly drivers seeking driver's license renewal. These are very unique. These services naturally fall under medical checkups and testing but more generally, Nippontect Systems has a core competence in services for the elderly. While DeNA has services like KenCom and our partnership with Data Horizon where we provide healthcare services for local municipalities and other companies. Bringing these together will enable us to better help serve the community and especially open the door to opportunities for services targeting elderly people.

So throughout this presentation, I have shared how we have not only achieved financial results in Q1 but also put measures in place to achieve long-term portfolio growth in both entertain and serve. We will continue these initiatives in both our approaches. And I believe that this quarter, we have shown good results in both.

This concludes my presentation. Thank you for your patience and your attention.

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