DeNA Co Ltd

TSE:2432

Earnings Call Analysis

Company Reports Rise in Q2 Revenue

In Q2, the company's revenue increased to JPY 39.0 billion, with operating profits of JPY 3.1 billion reflecting a quarter-over-quarter growth. The progress aligns with the strategy to grow their diversified portfolio, suggesting a strong recovery from COVID-19. The Game business experienced growth with new titles, including the planned launch of games like 'Hunter x Hunter' in China and 'Captain Tsubasa' in Europe. In Live Streaming, applications like Pococha Japan and IRIAM have seen download milestones and user growth, pointing to a robust performance and a focus on revenue growth and reduced losses. The Sports and Healthcare & Medical segments also showed strong recovery, surpassing pre-pandemic levels, with various initiatives expected to keep driving growth and creating market opportunities.

Overview of Q2 Fiscal Year 2023 Results

In the second quarter of fiscal year 2023, the company saw a quarter-over-quarter increase in both revenue and operating profit, with revenue reaching JPY 39.0 billion. IFRS operating profit was JPY 3.1 billion, and non-GAAP operating profit was JPY 2.9 billion. When compared year-over-year, revenue increased, while operating profit remained approximately at the same level. Segment-wise improvements are notable in the Game, Live Streaming, and Sports businesses, particularly with significant recovery in the Sports sector from the impacts of COVID-19.

Progress Under Entertain & Serve Strategies

The company's results reflect its commitment to the 'Entertain & Serve' strategies launched as part of its 3-year plan in fiscal year 2021. The 'Entertain' approach, aimed at achieving a consistent profit despite market volatility, has been bolstered by new game titles and streamlined operations in the mature game market. The 'Serve' strategy focuses on profit contribution and expanding the business portfolio, with promising strides especially in the Sports business that outperformed pre-pandemic levels and in the Healthcare & Medical business with solid advancements in line with the yearly goals set for fiscal year 2023.

Games Division: Strategic Developments and Launches

The Games division highlighted growth driven by new titles such as Hunter x Hunter, Takt Op, and the upcoming Captain Tsubasa, which have bolstered quarter-over-quarter revenue growth. Several of these titles have either recently launched or are set to launch in various regions, including East Asia and Europe, evidencing the company's efforts to expand its presence and sustain success within the industry.

Live Streaming Business Shows Promising Growth

The Live Streaming segment reported revenue growth predominantly from Pococha Japan and IRIAM. This sector is experiencing a boost in user engagement, rising viewing times, and high download numbers, indicating strong market presence and user acceptance. The company prioritizes revenue growth while targeting segment profitability in fiscal year 2023. With each sub-segment, like IRIAM reaching a record high Daily Active Users (DAU) and Pococha making a mark with 5.34 million downloads in Japan, future growth trends seem promising.

Serve Approach: Sports and Healthcare & Medical Businesses

Under the Serve approach, the Sports business rebounds from COVID-19 with performance exceeding pre-pandemic numbers, using the Yokohama DeNA BayStars' average game attendance as a success indicator. The Healthcare & Medical businesses have seen strategic developments through mergers and acquisitions, with a notable push in the data health business and an increase in client acquisition among pharmaceutical companies. The medical area, notably through Allm's Join platform, is set to expand, with expectations of a market size up to several hundred billion yen, as the platform gains traction among key medical personnel spreading its benefits within the healthcare community.

Earnings Call Transcript 2024-Q2

[Shingo Okamura, executive]

Hello, everyone. Thank you for joining us for our earnings results presentation for the second quarter of fiscal year 2023. Let us begin with the presentation.

First, I will start with our financial results summary. In our financial results summary, revenue for Q2 was JPY 39.0 billion, IFRS operating profit was JPY 3.1 billion, and non-GAAP operating profit was JPY 2.9 billion. This is an increase in both revenue and operating profit on a quarter-over-quarter basis. We also had a year-over-year increase in revenue, while operating profit was at roughly at the same level.

Next are the financial results by segment. We have our Game, Live Streaming, Sports, Healthcare & Medical businesses and New Businesses & Others. For Q2, in the Game business, we look forward to contribution from new titles. For the Others, Live Streaming and Sports, particularly Sports, if you look at the segment profit loss, we saw significant improvement from last fiscal year. This shows we are certainly recovering from COVID-19.

As I have talked about before during these presentations, we are building and strengthening our portfolio. With growth in each area, I believe that you can now see the progress of our strategy for our businesses. And here is the cost and expense breakdown. I have nothing in particular to add to what is already on the slide.

We are now in the third year since we kicked off our 3-year plan in fiscal year 2021. For our focus points, we have our Entertain & Serve approaches. Under Entertain, we aim to secure a good level of profit despite volatility. For Serve, we aim to have profit contribution. And to achieve this last fiscal year, we strengthened our business portfolio. For this fiscal year, we aim to achieve growth from our strengthened portfolio. And I believe that our progress this quarter shows how we are on track towards that midterm goal.

Now I would like to go into more detail about each of the businesses. First, we will start with businesses under our Entertain approach. I'll start with our Games results. As shown on the slide, revenue grew quarter-over-quarter due to the new title launch at the end of June and existing title seasonality. In this business overall, we are continuing streamlined operations. And while the Game market is mature, as a part of our sustained success strategy, we are making progress on establishing a midterm structure for new development.

We have a few new titles. First, Hunter x Hunter was launched in traditional Chinese regions in February 2023. A license to launch the game in Mainland China was granted in March, and we plan to launch during fiscal year 2023. Captain Tsubasa is scheduled to launch in some regions, including traditional Chinese regions and Europe in December 2023.

For Takt Op, we launched in Japan and other countries in June 2023. And now, as of October, we launched in Mainland China. We are working on various initiatives in this game and plan to continue our efforts in live operations for this game. For JUMP: Assemble, traditional Chinese and Korean versions are scheduled for launch primarily in Southeast Asia and East Asia from 2024, with other region launches subsequently planned. That's it for Games.

Next is the Live Streaming business. Let's look at overall results first. Revenue growth came primarily from Pococha Japan and IRIAM. As you can see in the graph on the bottom left, we are achieving steady growth. Looking at the graph on the right, for Global Pococha, we are continuing verification of the appropriate operations for each region, while optimizing investment. As you can see, the scale of losses has decreased compared to last quarter. We are continuing to prioritize revenue growth, while aiming to secure profitability for the segment in fiscal year 2023. And you can see we are making good progress.

Now I'd like to go into details. First, Pococha Japan. In this business, we saw impact from COVID-19 during the beginning of the pandemic as well as later when things began to return to normal. Amidst that, we are enhancing our efforts to bolster user engagement and aim to achieve greater efficiency in new user acquisition. We had 5.34 million downloads in Japan as of September 30, 2023.

If you look at the graph on the bottom left, you can see how the engagement of our active users is increasing in our monthly average viewing time trends. This growth in viewing time shows how our service is being welcomed by users and proactively used. It should also be appealing to new users. We will follow this up and continue to achieve growth.

In addition to Pococha, another area of focus in Live Streaming is IRIAM. In fiscal year 2023, we are focusing on revenue growth and profit loss improvement. As you can see in the 2 graphs below, we are seeing good growth in users. New user acquisition is going well. Viewers and streamers are both increasing and DAU has again reached a record high. IRIAM achieved 2.31 million downloads as of September 30, 2023. We will maintain these growth trends and grow the service.

That concludes the Entertain approach. Next, I will share about the various businesses in our Serve approach. Within the Serve approach, we have our Sports business. The Sports business was significantly negatively impacted by COVID-19. But I think with our first half performance, we can safely say that we have recovered. Our segment performance in the first half grew compared to pre-COVID-19 levels.

If you compare our performance before the pandemic in fiscal year 2019 on the far left and fiscal year 2023 on the right, you will see our performance improvement. We exceeded our already solid performance from fiscal year 2022. More specifically, there are a variety of indices we could look at, but I think the best thing is to look at the Yokohama DeNA BayStars average stadium attendance per game.

Looking at the 2019 season, our attendance per game was about 31,000, a little less than 32,000, and we have now broken that record. You can see on the right how we have achieved an even higher level than before COVID-19 and are bringing even more excitement into the community in Yokohama. I expect to create things from this business going forward.

Next is the Healthcare & Medical business results, a part of our Serve approach and an area of focus where we strengthened the portfolio last fiscal year. Since we did the M&A and expanded the business areas of the DeNA group, I have mentioned how we expect seasonality weighted towards the second half. With that in mind, in Q2, we made steady progress in both the Healthcare & Medical areas towards our revenue and profit goals for fiscal year 2023.

If you look at our results from last fiscal year, we had significant impact from the acquisitions being made part of the group from Q3. But as you can see, we have had sequential growth in Q1 and Q2, and we expect to see commensurate results in the second half.

To look at more specifics, we'll start with the Healthcare area. First, for the data health business, one of our existing major businesses in this area, we collect data from local governments and other entities, and leverage it to provide useful feedback to people to encourage health promotion. This year, 2023, is the formulation year for the Japanese government Data Health Plan. So we are accelerating our sales outreach. And as a result, the number of acquired customers and received orders are at a higher level than the same time last year.

In addition to that, a new growth area we are working on is finding ways to use the data that we collected. For this data use business, looking at the revenue for the past 12 months, we had JPY 0.3 billion in the 12 months up to September 2022, we while we had JPY 0.84 billion for the 12 months up to September of this year. For those same periods, we saw an increase from 24 to 44 clients who are mainly pharmaceutical companies.

The database that serves as a foundational strength for us also now has nearly 20 million people's health and medical data. We are off to a good start with our sales pitches in the data use business, and I believe we will be able to produce the results we are expecting in the second half.

The other area is our medical area. A major focus here is Allm. Within Allm, a central service is Join, a platform for medical personnel. Prior to Allm's joining the DeNA group, they were focused on KOLs or key opinion leaders. These are doctors and medical institutions in a position to lead their local medical structures. Deployment of Join began with these figures. And through them, the benefits of Join were recognized by others in the same field, leading to further spread of Join.

Since Allm joined the DeNA group, regional expansion has been accelerating. Examples of deployment to medical institutions through local municipality subsidies, et cetera, which are key, have expanded into 10 prefectures, including Hokkaido. In our view, with just the acceleration of regional expansion, we believe there is an expected market size of around JPY 10 billion.

But in addition to that, with the penetration of the platform, we expect to have more businesses that leverage Join, with an expected market size of around several hundred billion yen. We are working to expand the Join platform customer base, while also looking at leveraging sensors, IoT and AI, and medical services data use and platform businesses, among others. This will increase the possibilities available for Join.

We are making steady progress with projects that are expected to contribute to mid- to long-term growth from the second half onward. As we move forward, I expect to be able to share more detail about these projects with all of you. This concludes my presentation for the second quarter of fiscal year 2023. Thank you for your attention.

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