DeNA Co Ltd

TSE:2432

Earnings Call Transcript 2023-Q3

[Shingo Okamura, executive]

Hello, everyone. This is Shingo Okamura. Thank you for taking the time to join us today. I would now like to present our earnings results for the third quarter of fiscal year 2022. First, our financial results summary and financial highlights. In Q3, we had revenue of JPY 30.2 billion and IFRS operating loss of JPY 2 billion and a non-GAAP operating loss of JPY 1.7 billion.

Here are the financial results by segments. I will go into more detail shortly, but one point I would like to make is that in Q3, we have seasonality in the Sports business. Baseball is the largest component in sports. And we do not have many games in Q3. So we had that usual seasonal impact that we would like for you to take into account. And here is the cost and expense breakdown. I will not go into much detail, but I would like to draw your attention to the last line, our consolidated headcount. This increased to 2,854 people due to the previously announced conversion of Allm into a subsidiary under the medical area in October last year.

For the financial highlights, in the mid- to long term, we are using our healthy financial base to grow corporate value while also considering ROE. This fiscal year, we have built up our portfolio by making data Horizon into a subsidiary in August and all Intuit subsidiary in October. We established our portfolio foundation and are making progress in both, our entertain and serve approaches. Under increasing asset efficiency and shareholder returns, we updated our shareholdings for policy purposes in May 2022. As I mentioned just now about M&A, we conducted JPY 15 billion total in borrowings in Q2. Finally, we have had a share buyback with a maximum of JPY 15 billion running from July last year to January, and this program concluded just last month.

Here is our future outlook and long-term structure shifts. Our progress through Q3 was below our initial expectations, mainly in the Entertain approach. For the full fiscal year, we aim to achieve year-over-year revenue growth, but we expect to have a year-over-year non-GAAP operating profit decline. However, we have strengthened our business portfolio, and we'll be continuing our efforts to achieve a structural shift. As you can see here, in our midterm plan over 3 to 4 years, we have strengthened our business portfolio in fiscal year 2022, which is this year. And in the next fiscal year, we aim to have some of the key businesses underserved, health care and medical, achieve profitability. And then around fiscal year 2024, we aim to have completed the structural shift to produce good performance from both, our Entertain and serve approaches.

Now I will go into each area in more detail. First, Entertain. For the Game business, our Q3 performance was impacted by seasonality in existing title performance. Here, I would like to mention a point of difference compared to our initial expectations. Some of our new titles expected for launch in the second half of fiscal year 2022 have been delayed. Specifically, we were expecting to have 5 titles come out, mainly from our China studio. But as I will cover in the next slide, it ended up being 2. We are making steady progress towards launch, but we expect the contribution will slide into next fiscal year.

First, today, Hunter x Hunter is scheduled to be launched in traditional Chinese regions. Next is Takt Op. and Captain Tsubasa. Last year, in December, we had a closed beta test for Takt Op. in Japan and China, and we expect to launch this title in Q1 of fiscal year 2023. We had a great response, and I'm excited to hopefully see great results from this game. For Captain Tsubasa, we also held a closed beta test last year in December. The launch regions and other details will be finalized going forward. That's it for games. Next is the live streaming business quarterly results.

As you can see, the segment has been in a steady revenue growth trend since fiscal year 2019. Revenue grew this quarter too. While we expect that we will not reach the initial segment profit goal for the full fiscal year, segment revenue is continuing in a growing trend. To go into more detail, let's look at Pococha Japan. We will be enhancing our efforts to acquire new users and engage them in the platform. The activity among our existing users is solid. Going forward, we will work on our marketing, especially digital marketing in an efficient way and enhance our events. In this way, we will work on enhancing our efforts to bring in new users and keep engaging our existing users.

We had 4.56 million downloads in Japan as of December 31, 2022. While we keep a close eye on the situation with Pococha Japan, we also have the global versions of Pococha. One of our initiatives to achieve leaps and growth is the global push. As we have shown in our quarterly earnings announcements this fiscal year, we are controlling the investment appropriately, while implementing necessary measures for growth, including adjusting the balance in the community. We have over 950,000 downloads in the U.S. as of December 31, 2022. As you can see in the graph on the bottom right, just like we did with Pococha Japan, we are gradually building up our core user base, and we plan to continue these efforts while controlling the investments.

In addition to the global versions of Pococha, we are also pursuing new genres. One important area is [ EDM ], which we made into a subsidiary last fiscal year. We are seeing good revenue growth. We have implemented both engagement initiatives, specifically celebrating the 4-year anniversary in October and initiatives to ensure the safety and soundness of the usage environment. One example is how since November last year, we have been implementing usage restrictions depending on age. The age restrictions, in particular, have some impact on the DAU shown in the graph on the bottom right. But I am confident we will be able to grow this number while still making our adjustments to the service. [ EDM ] achieved 1.35 million downloads as of December 31, 2022. That concludes the Entertain segment.

Next, I will talk about [ serve ]. First, sports. As I mentioned, Q3 is a quarter where we are impacted by seasonality. We also had some differences from last Q3. Last year in Q3, COVID-19 impacted the schedule and backloaded it. So we had more games last Q3 than this quarter. However, as you can see, if you look at the full year performance, our performance in fiscal year 2022 resembles what we had in fiscal year 2019. For our performance through Q3, this fiscal year, we have seen significant improvement year-over-year. In Q3, for baseball, we made it to the [ Jara ] Central Lean Climax Series playoffs. And in basketball, we started the season without any attendance restrictions. We are finally shaking off the impact of COVID-19 and in a position to pursue even further growth.

Now I will discuss Health care and medical, which are growth areas in our [ serve ] approach. As I mentioned earlier, we have made Data Horizon and Allm into subsidiaries. So we have integrated them this year. We are focusing on further growth of the strengthened business portfolio and earnings-based enhancement. And as I have said, our aim is to achieve profitability in fiscal year 2023 and JPY 20 billion in revenue and JPY 5 billion in operating profit in fiscal year 2024. I would like to share more details about the important points in the health care area. The 2 major areas, the data health business and the data use business, are being executed by the Data Horizon Group. For the first of these 2 wheels, the data health business, 2023 is the formulation year for the Japanese government data health plan. So they are accelerating sales outreach to local municipalities and plan to grow financial performance.

Next, the data use business on the right. Data Horizon Group gets permission from customers who are the insurers to use data and then anonymously processes it. They have built up the largest scale database of health and medical data, covering 17.5 million people. They partner with MTV to provide data to pharmaceutical companies and insurance companies who are the clients. That is the plan for growing this business. As you can see on the far right, the number of clients in the data use business is growing from 10 to 32, and we can expect further significant growth. Next is the medical area, Allm will be the focus of our initiatives here. Allm is working on expanding Join, the doctor-to-doctor platform into a wider area in cooperation with local municipalities. They are also making good progress in evolving the Join doctor-to-doctor program. They're making good progress.

Before joining the DeNA group, Allm was working on an individual approach, forming close relationships with key opinion leaders and spreading Join into core hospitals. But now that Allm has joined the DeNA group, a large scale and wide regional expansion through coordination with pre-fixtures has become possible. We have examples of deployment to medical institutions through local municipality subsidy programs in Hokkaido and for other prefectures. This is also a focus area for the Japanese government with examples of partnerships and model digital garden city subsidies. In this way, Join is penetrating the core hospitals, which are the key to the regional medical structures. And the platform is evolving, being used for patient monitoring and incorporating sensors, IoT and AI.

Here, we have some more specifics. On the right is a specific example of platform use, an optical IoT device developed by Allm's partner, [indiscernible] Technologies, was approved as a medical device in Japan in November of last year. On the ground, this device can be used for optical exams, and a remote specialist can make a diagnosis. This is a medical act. This is an example of how Join is used. Before I mentioned Join's coordination with local municipalities, the local municipalities are working on building their regional medical structures, and they are coordinating with various local hospitals. We expect further contribution from this trend. Currently, Join is deployed in 484 hospitals as of the end of Q3. Also in the Japanese government's secondary supplementary budget for 2022, a subsidy program for universities to address the working style transformation for doctors was incorporated, and this will be a tailwind.

In each region, there are university hospitals that have multiple specialist departments with many specialists, and they play a central role in doctor education. The incorporation of Join as an essential platform will enable us to contribute to resolving the doctor shortage, advancing remote medicine and other initiatives to solve social problems, which is our aim under our [ serve ] approach. This concludes my presentation for Q3 of the fiscal year 2022. Thank you for your attention.

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