DeNA Co Ltd

TSE:2432

Earnings Call Transcript 2022-Q3

[Shingo Okamura, executive]

Hello, everyone. I would now like to present our earnings results for Q3 fiscal year 2021 by going through our operating results materials. First, our financial results and financial highlights. Here is a summary. First, to summarize our Q3 results, revenue was JPY 31.0 billion, which is down 9% year-on-year.

IFRS operating profit was JPY 2.2 billion, which is down 50% year-on-year. Non-GAAP operating profit was JPY 1.3 billion, which is down 76% year-on-year. Profit for the period attributable to owners of the parent was JPY 4.0 billion, which is 43% up year-on-year. Later, I will provide more detail, but I will now touch on the 2 approaches into which our business's fall. First is Entertain. For the Game Business, while we do have a few titles that have been launched, fiscal year 2021 performance is mainly coming from existing titles, and we have an ample new title lineup planned for fiscal year 2022.

For the Live Streaming Business, there is no change in the long-term Pococha Japan trends, and we are making progress in our other initiatives to achieve leaps in growth. Next, I will discuss our Serve approach. The Sports Business falls under here and we have seen a steady recovery from last season. I would also like to call your attention to our Healthcare business. In Q3, we had a significantly increased level of revenue year-on-year and the first posted profit. We are seeing good signs of progress towards meaningful contribution in the next 3 years, which is a goal we have previously mentioned.

As usual, we have the financial results summary. The financial results summary by segment and the cost and expense breakdown. Our results can be found on those slides. I would now like to take some time to talk about our long-term portfolio and corporate value creation, including this fiscal year. I have discussed my view on the long-term portfolio and corporate value creation a few times since becoming CEO. But to reiterate, DeNA will evolve into a new unique kind of tech company, working to entertain and to serve through our businesses and encouraging synergy between the 2 approaches.

We aim to form an earnings base on these 2 approaches and challenge ourselves to achieve leaps in growth. Recently, this has included initiatives in Live Streaming, new businesses and growth investments, including M&A. I would also like to share some updates from our group companies at the end of the presentation, specifically in mobility and show the various ways in which DeNA is active.

We have a healthy financial base and we will use it for new growth investment opportunities to grow corporate value. We will continue to focus on proactively using our balance sheet for new growth investment opportunities. Now that I have given the big picture update, I would like to talk about each of our businesses for Entertain & Serve in more detail.

I'll start with the Game Business. Although we had some title launches this fiscal year, they had limited contribution. So our performance through Q3 was mainly driven by existing titles. As you can see, rather than looking at individual years, we instead look at more of a 3- to 5-year time span developing and doing live operations of games over that longer time span. This results in waves in our performance.

In fiscal year 2019, we had 11 new games launched but in fiscal year 2020 and this fiscal year, we have 2 titles each. We are pursuing a pipeline strategy focused on major IP for the global market and are doing cost optimization and streamlining. As you can see on the next slide, in fiscal year 2022 and beyond, we expect to see more results build up. On a 3 to 5 year time span, I expect to see contribution from the Game Business. In addition to our 2 launches from this fiscal year, Toho Danmaku Kagura and the Adventure of Dai. Going forward, we plan to launch Takt Op, Captain Tsubasa and Hunter x Hunter. We are using DeNA core competencies, including development and live operations in Japan and China, partnerships with IP holders, and global publishing to pursue our pipeline strategy. In addition to the titles mentioned on the slide, we have other titles also in development. We plan to launch approximately 5 titles in fiscal year 2022. For this business, it's important to take a 3 to 5 year view, and we plan to launch approximately 3 to 5 titles per year. That is my view on how this business will contribute to overall performance.

Now I will talk about the live streaming business. On the left, we have focused on Japan, which already has a solid foundation. This is a good support base in the live streaming business, enabling us to also pursue initiatives for leaps in growth, which are shown on the right. Pococha Japan had solid revenue performance and in Q3, among the other services, IRIAM was a major contributor to quarter-on-quarter growth.

I would like to share more detail about Pococha Japan and the various other initiatives. First, Pococha Japan. The graph on the left is a good 1 to look at. We were impacted by COVID-19 or in other words, we were impacted by the rapid recovery of social activities, and we saw a temporary stagnation in existing user activity and new user inflow. But as you can see, the long-term trends have not changed. With marketing initiatives, MAU recovered in December 2021, leading to revenue reaching an all-time high.

My view that the long-term growth trend is unchanged. We reached 3.45 million downloads as of December 31, 2021. For the first of our initiatives, to achieve leaps in growth, I will talk about the global version of Pococha. In the U.S., we have been seeing growth and are forming a highly passionate community essential to service growth and structural strength. We are seeing a user base scale and activity similar to the period strategic focus began in Japan. It's clear that a solid user base is forming in Japan and took about 3 years. But we now have that Pococha Japan know-how. So we should be able to achieve results in the global version in a shorter period of time. In summary, we will continue to focus on building up an even stronger user base.

Next, I will discuss our new genres. As I mentioned at the start of this section, we are pursuing initiatives with a view to genre diversification and market growth and IRIAM is a great example of 1 of these initiatives. IRIAM has started to contribute to revenue. As you can see on the right, we launched Voice Pococha in January. It's too early to comment on the initial performance that Voice Pococha is a voice live streaming app. We're seeing a good initial user response.

While being supported by the solid growth in Pococha Japan, we are investing in the global launch and initiatives into other genres. We will continue to carefully control the investment while aiming to grow the Live Streaming Business. That concludes the updates under Entertain.

Next, I will share the updates for serve. First, we have the Sports Business. The Yokohama DeNA BayStars are the main contributor to this business, and the number of games changes depending on the timing. Looking at just the quarter-over-quarter trend is misleading. So it's better to look at the overall fiscal year performance. For our Q1 to Q3 cumulative performance, we saw a JPY 1.4 billion year-on-year increase in revenue and a JPY 0.9 billion operating profit loss improvement. While infection prevention measures are still needed, our performance has improved compared to last season when COVID-19 first started.

Our stadium attendance grew from 470,000 to 730,000. Of course, we have to take care during the pandemic but we have shown that we are able to operate this business. Something important to note about our Sports Business is that we go beyond just being about simple sports entertainment. We also consider the broader community. We are making steady progress using our core competencies and collaborating with stakeholders to take steps to evolve to fit the post-COVID-19 world and create excitement in communities not limited to providing Delight on game days. We are strengthening our online initiatives. We mentioned online [indiscernible] previously and today I want to mention the start of services using NFTs. For the BayStars, this is a service focused on baseball cards. For basketball, the Brave Thunders, they have also added gaming elements. I think this is an exciting new area. We are also working on building our brand, our soft power in Yokohama and Kanagawa and as a part of that, we held a stadium illumination event in December 2021 for the second year running.

We had over 30,000 people visit over 7 days. We are steadily contributing to Yokohama and Kanagawa, and we also aim to make this work as a business. This next initiative is also unique to DeNA. Kanagawa has a population of 9.1 million, and we are involved in the management of 3 professional sports teams in 3 ordinance-designated cities in the prefecture. These are the Yokohama DeNA BayStars, Kawasaki Brave Thunders and SC Sagamihara. We are, of course, working on operations for each of the clubs but I believe we will also be able to take advantage of our position with these 3 teams in the Kanagawa region. We have already done such initiatives but 1 new update to share is that Maruha Nichiro has become an official partner of DeNA Sports. Maruha Nichiro will be great for food education and advising for a better athlete diet.

We are planning to pursue cross club initiatives, including with our new official partner, and I expect to see more similar initiatives in the future. I would like to share some important updates about the Healthcare Business. As you can see, we had revenue of JPY 1.1 billion, which is a significant increase year-on-year. We also had our first quarterly profit. Our goal for this important business under [ SIR ] is to achieve meaningful profit within 3 years. We felt that this would be an important business for DeNA. Now we are able to show signs of success towards that vision. We will continue appropriate investments and aim to achieve our mission, making the shift from sick care to healthcare and lengthening healthy lifespans.

We have been providing services and products to encourage health promotion and behavioral change. We have also expanded into using data to solve social problems. On the next slide, I would like to spend some time talking about an example of our services, 1 that is unique to DeNA KenCom. A major achievement was that DeSC Healthcare, who operate KenCom and other services, had revenue up 2.5x compared to fiscal year 2020 Q1 to Q3 cumulative performance. KenCom has almost 100 organizations and about 4.8 million members. The user engagement in the app is also excellent with a continuation rate at the 60% level. KenCom uses a variety of data, including changes in lifestyle habits, medical checkup results changes and medical exam history changes, and uses that data to solve social problems. We have initiatives with local municipalities, initiatives with academia and use for the health care industry, including insurance companies and pharmaceutical companies.

We also have our capital and business alliance with Data Horizon, which I have mentioned before. Data Horizon has a great core competence in health improvement businesses for local municipalities. And by forming a capital and business alliance with them, we are accelerating our progress. That concludes my updates on DeNA's businesses under Entertain & Serve.

Finally I would like to share a Group Company Updates. DeNA has pursued challenges in a variety of areas. Now we focus on our initiatives under Entertain & Serve. However, there are multiple examples of group companies where rather than DeNA pursuing a business alone, we partner with other companies. One example of this is the Mobility Space. Mobility Technologies launched under its current structure in April 2020. The taxi dispatch app go exceeded 6 million downloads and has become the #1 taxi app, you may be familiar with them. The number of dispatches has been growing significantly, and they had the fourth most funds raised among start-ups in Japan. This is an exciting company. Internally, we think about group companies as being part of the DeNA galaxy. If any of these companies have interesting updates, I'll take time to share them with you all.

We keep our long-term portfolio and corporate value creation vision in mind in the operation of our businesses. Under Entertain, we aim to secure a good level of profit in the entertainment space going forward despite volatility in games.

We will also grow Pococha and new games and aim to capture upside opportunities and grow in leaps. As the business matures, we will conduct agile investments while controlling costs in accordance with business characteristics. In addition to the Entertain space, we also have Serve. We aim for the Sports Business and Healthcare Business to be profitable in 3 years. We will discover growth opportunities while being flexible in method and build up business enterprise value over the next 5 to 10 years. We will form the future of DeNA in this way. This fiscal year, each of our businesses is making progress towards our long-term goals.

This concludes my presentation. Thank you for your attention.