DeNA Co Ltd

TSE:2432

Earnings Call Analysis

Strong Q1 with Notable Growth and Strategic Initiatives

The company reported revenue of JPY 34.0 billion and a non-GAAP operating profit of JPY 2.1 billion for Q1 FY2024, marking a year-over-year increase. Key highlights include a strengthened marketing push for Pococha Japan, which has led to significant user growth, and IRIAM's steady user activity with 3.49 million downloads. The sports segment showed solid performance with higher stadium attendance. The Healthcare & Medical business is geared for growth with 514 facilities using the Join service. The company reaffirms its commitment to achieving JPY 15.0 billion in non-GAAP operating profit by FY2026.

Solid Start to Fiscal Year 2024

In the first quarter of fiscal year 2024, the company reported revenues of JPY 34.0 billion, accompanied by an IFRS operating profit of JPY 1.9 billion and a non-GAAP operating profit of JPY 2.1 billion. The non-GAAP operating profit showed a significant year-over-year increase, underlining the company's strong performance at the outset of the fiscal year.

Strategic Focus on Marketing and User Growth

The company has made considerable marketing investments, particularly in its live streaming platform, Pococha Japan. This initiative is aimed at user acquisition and brand awareness during the first half of fiscal year 2024. Recent marketing efforts have resulted in improved user engagement metrics, with an uptick in both monthly unique users and monthly unique paying users. By June 30, 2024, Pococha achieved 6.08 million downloads in Japan, a clear indicator of its growing market presence.

Enhancements in the Gaming Sector

After downsizing its operations in China, the gaming segment showed improved profitability, rising from JPY 0.2 billion to JPY 0.9 billion year-over-year. This restructuring is expected to further optimize the segment's efficiency, laying a more solid foundation for future growth.

Promising Developments in the Sports Business

There are positive trends within the sports sector, evidenced by a strong start to the professional baseball season with average stadium attendance reaching 32,504. Additionally, the basketball B League saw an increase in both attendance and revenue. The company is poised to leverage these gains to support ongoing revenue growth in the sports segment.

Ambitious Goals and Expectations in Healthcare

The healthcare segment is positioned for significant growth, with a focus on its data use business and the deployment of the Join platform, a key service offered by its subsidiary, Allm. As of June 30, 2024, the Join system was implemented in 514 facilities. The company is targeting a substantial increase in healthcare revenue and profit, with expectations for further financial contributions to manifest in the latter half of the fiscal year.

Long-term Growth Strategy and Profit Goals

The company's long-term objectives include achieving a non-GAAP operating profit of JPY 15.0 billion by fiscal year 2026, with specific profit targets set at JPY 5.0 billion for Healthcare & Medical and JPY 3.0 billion for the sports sector. The commitment to these goals suggests a disciplined approach to capital efficiency and operational profitability, aiming for substantial and sustainable growth over the coming years.

Outlook for Fiscal Year 2024

While the company refrained from providing specific consolidated financial results forecasts, it anticipates year-over-year revenue growth, driven by a reinvigoration of its business portfolio. The focus will remain on profitability improvements and strategic capital allocation to navigate uncertainties in the business environment successfully.

Earnings Call Transcript 2025-Q1

[Shingo Okamura, executive]

Hello, everyone. Thank you for joining us for our presentation of the operating results briefing for the first quarter of fiscal year 2024.

As it is the first quarter, my presentation will be brief First, I will start with our financial results summary. Revenue was JPY 34.0 billion. We had an IFRS operating profit of JPY 1.9 billion. We had a non-GAAP operating profit of JPY 2.1 billion. That non-GAAP operating profit of JPY 2.1 billion is a year-over-year increase. This is an important takeaway.

Next are the financial results by segments. Rather than going into detail now, I'll explain further during the individual business sections later and reflect on each business. And here is the cost and expense breakdown. The sales promotion and advertising expenses were up compared to Q4 of fiscal year 2023. I'll explain more later that this was due in large part to a major marketing push for Pococha Japan in the live streaming business. I think that's all for this slide.

Now I would like to discuss our progress for each business. First, the Game business. In the Game business, we already announced the significant downsizing of the China office in February 2024. That was a factor behind our Q4 performance and behind the Q1 profit increase year-over-year. Year-over-year, we went from JPY 0.2 billion to JPY 0.9 billion.

Next is live streaming for the Live Streaming Business in Pococha Japan, we are enhancing new user acquisition through marketing with a media mix, including TV commercials, mainly in the first half of fiscal year 2024. We are placing greater focus on profitability and continue to aim to achieve full year revenue and profit growth, as we have mentioned before. We are aiming for a buildup of profit towards the second half.

I'll start with Pococha Japan. As I mentioned, here, we are currently running a strengthened marketing push primarily in the first half with the aim to spread awareness of Pococha and grow the user base. As you can see in the graphs, we have an increase in the monthly new user trend as well as the overall monthly unique users and the monthly unique paying users indicated by the arrows.

Since April, new user acquisition has seen a significant recovery, while existing user activity continues to be solid, leading to growth in both overall monthly unique users and monthly unique paying users. We aim to continue to achieve growth in Pococha Japan with support from these factors.

We had 6.08 million downloads in Japan as of June 30, 2024. Next is another focus area. The service for VTubers, IRIAM. We have some great graphs on this slide. IRIAM achieved 3.49 million downloads as of June 30, 2024, and continues to see active use. I've mentioned a few times that we are prioritizing sound community development, which is a core competence for us while also aiming to achieve revenue growth and early profitability.

Next is the Sports business. As you can see from the graph, we've had steady growth since the beginning of COVID-19, and we had a solid start for this fiscal year. One thing to note about our performance is that we had one fewer game in this Q1 for professional baseball compared to last fiscal year.

That being said, this is a good result. More specifically, the average stadium attendance for the 2024 professional baseball season is solid, trending at a higher level than last season. The average stadium attendance was 32,504 people through the end of June.

For the basketball B League, our second sports effort, the 2023 to '24 season has ended with attendance and revenue both seeing growth. We also had good attendance trends. Even within the sports business, this area is becoming more meaningful.

Next is the Healthcare & Medical Business. Due to the nature of this business, the full year performance is a lot to look at. KPI in each area were off to a good start for Q1 towards a year-over-year increase in full year revenue and profit. Some financial contribution in those areas originally expected in fiscal year 2023 is expected in fiscal year 2024 onwards.

Now I'd like to look at the individual areas. Within the Healthcare area, the data use business is a growth area and demand is weighted towards the second half for this business. Shown on the right, under the health care area, KPI, you can see a comparison on a full year basis and see how we are outperforming in the most recent year compared to the previous year.

The number of clients and other leading indicators are solid. We will do our best to turn these initial signs into finalized contracts that contribute to our results. Further, for the Data Health business, since this fiscal year is no longer the Japanese government Data Health Plan formulation year, we are running the business with a focus on greater cost efficiency.

Next is the medical area. Here, our major subsidiary is Allm and the main focus service is Join, which is the central axis from which we are expanding our business. We expect there to be acceleration in individual facility deployment in each region this fiscal year through various efforts, including support from the national government's medical digital transformation and working style reform initiatives.

As you can see, we reached 514 facilities with Join deployed as of the end of June. We are also making progress in detailed discussions for projects leveraging Join Mobile Care, which combines portable medical devices and Join to address regional medical resource shortages with the aim to achieve contribution this fiscal year. Join will continue to spread. And as it does, though the uses of Join will also expand. We will also aim to secure some big projects and in this way, grow this fiscal year. Q1 was a good start towards that goal.

I have already shared our key focus for the next 3 years, starting in this fiscal year. We aim to establish a group of businesses with structural and continued growth and aim for each business to achieve meaningful profit contribution. Of course, we will focus on increasing capital efficiency and ROE with consideration for capital cost. And as a result of our efforts, we have committed to achieving JPY 15.0 billion in non-GAAP operating profit for fiscal year 2026 through our business growth.

If we have a major game hit, then that would be upside potential relative to our commitment. We have established the foundations for the sports and the community as well as medical. So we have expectations for growth. Our specific goal is to achieve the annual profit goals of JPY 5.0 billion for Healthcare & Medical and JPY 3.0 billion for sports in the community over the next 3 years.

Those goals have not changed. Based on those goals, our fiscal year 2024 consolidated financial results forecast is also unchanged. The consolidated financial results forecast cannot be provided due to the difficulty of reasonably and accurately estimating the figures. We expect full year revenue to increase year-over-year in conjunction with changes to and strengthening of the business portfolio, we expect to have a non-GAAP operating profit with a year-over-year increase.

This concludes my brief presentation for the first quarter of fiscal year 2024. Thank you for your attention.