DeNA Co Ltd

TSE:2432

Earnings Call Transcript 2024-Q4

[Shingo Okamura, executive]

Hello, everyone. Thank you for joining us for our presentation of the operating results briefing for the fiscal year 2023. Let's get started.

First, I will start with our financial results summary. Revenue was JPY 136.7 billion. We had an IFRS operating loss of JPY 28.3 billion due to impact from impairment losses, et cetera, in Q3, which we covered last quarter. We had a non-GAAP operating profit of JPY 1.2 billion.

Next are the financial results by segment. We have our 4 business segments: Game, Live Streaming, Sports and Healthcare & Medical. The Game business saw a year-over-year decline in revenue, but the other businesses saw year-over-year revenue growth. And here is the cost and expense breakdown. I have nothing in particular to add.

Now I would like to discuss our midterm strategy update. I have already mentioned this briefly, but over the past 3 years from fiscal year 2021 to fiscal year 2023, we focused on enhancing our business portfolio and achieving a structural shift. If you will first look at the graph on the left, we have our revenue breakdown for fiscal year 2020 and fiscal year 2023. And although the absolute amount of revenue is about the same, the breakdown has changed significantly.

The Live Streaming business grew to represent 31% and the Sports business grew to represent 20% of the total, which is good growth. Over the past 3 years, we have made significant changes towards a portfolio structure that is less impacted by volatility in the external environment. Under the revenue by business chart, you can see how we achieved significant growth over the past 3 years in the Live Streaming business, the Sports business and the Healthcare & Medical business. As shown by this revenue growth, I believe the business structure has also been built up to provide steady financial contribution.

Allow me to share more about each of our 4 key businesses. In the Game business with the goal of creating a stronger business structure and with an emphasis on reducing volatility risk, we decided to pursue a new development approach, and we conducted a major review of the China business significantly downsizing the China office among other efforts.

For the Live Streaming business. Over the past 3 years, this business grew to achieve annual revenue exceeding JPY 40 billion. We are investing for growth and secured a profit last fiscal year. We now have a foundation in place to pursue future growth while focusing on profitability.

For Sports & Community, we have completely recovered from COVID-19 and achieved even further growth. We have made progress and initiatives that will be the core of future Smart City development, including the City of Yokohama old city hall district project and Kawasaki! Arena City Project.

For Healthcare & Medical, we made Allm and DATA HORIZON, et cetera, into subsidiaries and significantly enhanced the business portfolio. In my view, we have secured the foundation for future growth. We have also made steady progress in building and spreading high-quality services such as Join, but we expect a delay in achieving the initial goal set for fiscal year 2024, namely the goal to achieve revenue of JPY 20 billion and profit of JPY 5 billion.

On this slide, I would like to cover the financial highlights from the 3-year period from fiscal year 2021 to fiscal year 2023. Under Investment in New Growth & Initiatives, we have that we enhanced our business portfolio through M&A. We also invested in growth phase businesses and we have set up a framework for the continued business creation centered on Venture Builder and Delight Ventures. I'll touch on this more later.

For Increasing Asset Efficiency & Shareholder Returns, we've updated shareholdings for policy purposes and had a partial sale of shares. We are also using borrowings for opportunities such as M&A. We have also had share buybacks totaling JPY 25.9 billion over 3 years. We have also continued to pay dividends at each fiscal year-end in accordance with our dividend policy.

Following the reflection on our past 3 years, now I would like to discuss what we intend to do in the upcoming 3 years. I'll discuss our key focus points. As I mentioned, we have transformed our portfolio and established a foundation for financial performance. We aim to establish a group of businesses with structural and continued growth and aim for each of these businesses to achieve a meaningful profit contribution. The pieces are coming together to achieve these aims.

We are also focusing on increasing capital efficiency and ROE with consideration for capital cost. As a result, we aim to achieve profit increases each year for the next 3 years and commit to achieve JPY 15 billion in non-GAAP operating profit for fiscal year 2026. Due to the difficulty of forecasting a major game hit, et cetera, we consider that possibility to be upside potential relative to the commitment shown here in the gray.

Our focus will be on enhancing our profit-generating capabilities towards that end we have expectations for growth in Sports & the Community as well as medical, which have both had their foundation established over the past 3 years. Meanwhile, we aim to achieve the previously shared annual profit goals of JPY 5 billion for Healthcare & Medical and JPY 3 billion for Sports & the Community over the next 3 years. In any case, we will focus on establishing structural strength. In each business to achieve continued growth beyond fiscal year 2026.

We believe that proactive initiatives to create new businesses serve as the corporate value growth engine for the eternal venture DeNA. In addition to the pursuit of each business line that I have mentioned so far, as well as M&A, we also want to proactively leverage Delight Ventures, which is a unique initiative. Delight Ventures began in 2019. Under venture investment in the second fund, we have an independent venture capital with other LPs participating. We also have Venture Builder. In the second fund year, DeNA has contributed JPY 1.5 billion, and we intend to leverage this for strategic new business creation.

As you can see laid out on the right, there are opportunities for not just DeNA employees, but also alumni and other company employees to try entrepreneurship. Market mechanisms can be leveraged in business creation and for DeNA, there is potential for both capital gains as well as opportunities to bring new businesses in through M&A at market cost. Venture Builder has already produced 17 startups.

That concludes the portion of the presentation about overarching topics. Now I would like to go through the progress and future approach for each business. First is the Game business. In Q4, we had a profit recovery due to factors such as the strong seasonality in existing titles and the significant downsizing of the China business. We have decided to pursue a new development approach that aims to significantly reduce risks. We aim to achieve a structure with a low downside risk from volatility.

We are still continuing our efforts centered on major IP for the global market, in line with our strategy to date, with approximately 3 titles planned for fiscal year 2024. One such title is Pokemon trading card game, Pocket, a Pokemon card game for smartphones. This game is scheduled for release in 2024. Nine total languages are expected to be supported our subsidiary with joint investment from the Pokemon Company. And just to note, the subsidiary recently changed name is focusing on development for this game.

Next is the Live Streaming business. This business had grown to achieve annual revenue exceeding JPY 40 billion. And as you can see on the right, we have secured profitability while investing for growth. We aim to achieve growth with greater focus on profitability, including diversifying the business model.

Now I'll touch on each service. For Pococha Japan, we had 5.77 million downloads as of March 31, 2024, and user engagement continues to be positive. Our active users are very active, but we want to grow the number of new users and broaden our user base. To this end, we are aiming to enhance the new user acquisition through marketing with a media mix, including TV commercials, which is running now.

For another service in the Live Streaming business, IRIAM, we had 3.07 million downloads as of March 31, 2024, and the service continues to see active use. Both of the KPIs shown in the graphs below, the monthly average DAU trends and the monthly unique paying user trends, continue to be solid. We are prioritizing sound community development while also aiming to achieve revenue growth and early profitability.

Next is the Sports business. We have completely recovered from the impact of COVID-19 and achieved even further growth. As you can see on the left, we achieved our highest ever revenue and profit. On the right, we have figures for the Yokohama DeNA BayStars, which are representative for this business, specifically the average stadium attendance, which is again at the highest ever level.

But we are not just limited to sports entertainment. Under Sports & the Community, we have made progress in 2 initiatives that will be the core of Smart City development. We aim to expand this business beyond simple sports entertainment. We are participating in the City of Yokohama City Hall District Project, and the grand opening is planned for Spring 2026. We are generally involved in the matches occurring, but more specifically, we are playing to our strength by taking charge of the live viewing arena and the edutainment facility. We aim to draw people in and provide excitement through these initiatives.

We also have the Kawasaki! Arena City Project, which is in partnership with Keikyu Corporation. We plan to open an arena with capacity for up to 15,000 people and a hotel plus commercial facility in the Keikyu Kawasaki Station area in October 2028. The estimated economic impact after completion is over JPY 120 billion annually. These projects are making good progress.

Next is the Healthcare & Medical business. This business grew to achieve annual revenue at the JPY 10 billion level. However, some of the financial contribution in both areas that was originally expected for fiscal year 2023 is now expected in fiscal year 2024 onward. More specifically, starting with the Healthcare area, in the Data Health business, orders grew due to being the Japanese government Data Health Plan formulation year.

Looking down at the KPI, you can see that the number of orders grew from 351 to 472. For Data Use, which we have identified as a growth area, some of the projects that were originally expected in Q4 are taking more time than we initially anticipated. However, there are good signs for needs in the industry for our data solutions, evidenced by the steady growth in the number of new clients, which you can see in our KPI below, and the growth in transaction amount per customer among pharmaceutical companies, et cetera. We anticipate that there will likely be more projects coming through in this area in fiscal year 2024.

The Medical area is another important part of this business. Our subsidiary in the area, Allm, provides Join, which is a communication platform for medical practitioners. We have mentioned the importance of the spread of this service on several occasions. We are making steady progress on the spread of Join, including in regional expansion. We now have 454 facilities using Join.

In addition to this, we aim to evolve as a platform, which is shown on the right. While measures to lead to future structural growth are taking shape, such as the date of the treatment compensation system, et cetera, we expect full-scale revenue contribution in fiscal year 2024 onward.

Join, to date, has been in the areas in light blue, facilitating communication between hospitals. In this area, we are making steady progress with examples of deployment to medical institutions through local municipalities, subsidies, et cetera, expanding into 10 prefectures. There is also accelerating deployment into entire facilities in each region through projects such as national medical, digital transformation and working style transformation support.

We also have the yellow area, which is the evolving use of Join and business model evolution. This covers situations such as rural and developing country areas, regional-related hospitals and other facilities, as well as remote islands, mountain areas, doctorless villages and emergency situations. Our solutions can be used in these situations.

In the fiscal year 2024 treatment compensation system update, the coverage area was expanded for hyperacute stroke fees and specific intensive care unit remote support fees were newly added. As this is a new addition, we expect to see use in the future. We are also making progress in exploring specific details for projects leveraging Join Mobile Care, including some pretty major ones that are expected to contribute from fiscal year 2024.

For reference, here's information about Join Mobile Care. Join Mobile Care combines portable medical devices and Join, and is being provided to areas with insufficient medical resources. To get an idea, look at the image of the man pulling a suitcase. That's how portable this solution is, and includes important medical equipment. In combination with Join, it becomes possible to provide medical care remotely. The use of Join Medical Care helps to maintain the level of medical care in the region and facilitates the education of medical practitioners, et cetera. Our expectation for this business is to bear fruit in the form of major projects in fiscal year 2024 and beyond.

Finally, we have our outlook. The fiscal year 2024 consolidated financial results forecast is as follows: the consolidated financial results forecast cannot be provided due to the difficulty of reasonably and accurately estimating the figures. We have made changes to our business portfolio. And as I have described in the presentation, we have established a good foundation so we are particularly focusing on strengthening our business portfolio, and we expect full year revenue to increase year-over-year. We expect to have a non-GAAP operating profit and we expect to have a year-over-year increase.

In the Game business, while we expect to be affected by the trends in existing titles and the significant downsizing of the China office, we plan to release about 3 new titles. However, we believe that it is difficult to reasonably calculate and provide a concrete outlook at the present time. With regard to the Live Streaming business, the Sports business and the Healthcare & Medical business, as I mentioned, we have established a good foundation over the past 3 years so we will aim to increase both revenue and profit while continuing to invest for growth. There are no items to be disclosed that could be construed as one-off factors impacting business performance.

This concludes my presentation for fiscal year 2023. At the beginning of the presentation, there appears to have been some technical difficulties with the sound, for which we apologize. Thank you for your attention.

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