Gree Inc

TSE:3632

Earnings Call Transcript 2024-Q3

[Toshiki Oya, executive]

Thank you for joining the FY 2024 Third Quarter Financial Results Briefing of Gree, Inc. I am Toshiki Oya. Looking at the executive summary on Page 2, we posted quarterly net sales of JPY 17.2 billion, operating profit of JPY 2.5 billion and EBITDA of JPY 2.6 billion. In the Game and Anime business, 2-year anniversary events for were successful, and we achieved sizable Y-on-Y growth in sales and profit, exceeding our expectations.

While performance in the Metaverse business and the DX business was firm, the commerce business was somewhat weak and the investment business broke even. On Page 5, we provide an overview of financial results for third quarter FY 2024. Viewed Y-on-Y sales declined on weaker sales in the Game and Anime business and the Investment business and operating profit declined on a decline in the Investment business. Viewed Q-on-Q, sales and profit rose sharply on the success of 2-year anniversary events for Heaven Burns Red. Ordinary profit rose owing to factors including foreign exchange gains. Page 6 shows trends in net sales and operating profit.

Sales and profit both rose Q-on-Q. On Page 7, we have an analysis of sales and operating profit by segment. On Page 8, we present an analysis of operating profit in the third quarter. The rise in sales was mainly from the Game and Anime business. Variable costs rose along with sales and fixed costs also rose slightly, resulting in operating profit of JPY 2.52 billion. On Page 9, we break down our cost structure for the third quarter. Variable costs rose on rising sales. Fixed costs rose slightly Q-on-Q on an increase and outsourcing costs, et cetera. Page 10 outlines the change in our dividend policy and presents our dividend forecast.

Our dividend policy has changed effective this quarter. Our previous dividend policy was to maintain a DOE of approximately 2% and a consolidated dividend payout ratio of 20% or higher. Our revised policy is to maintain a DOE of approximately 3% and a consolidated dividend payout ratio of 30% or higher. However, in order to maintain an appropriate balance in terms of financial soundness and retained earnings, we have set a maximum consolidated dividend payout ratio of 70%, in line with this. While we distributed dividends of JPY 11 per share in FY 2023, we forecast dividends of JPY 16.5 per share in FY 2024. Page 12 shows our earnings estimates and forecasts.

Our fourth quarter FY 2024 segment forecasts are as shown here. Excluding the investment business, we forecast company-wide operating profit of roughly JPY 1.5 billion in the fourth quarter, partly owing to a reactive decline after anniversary events for Heaven Burns Red. Our full year FY 2024 forecast remains unchanged from our forecast announced at our FY 2023 results briefing held in August 2023. Excluding contribution from the investment business, we forecast company-wide FY 2024 operating profit between JPY 5 billion and JPY 6 billion. Now let's hear from the heads of each of our businesses Yuta Maeda covers the Game and Anime business.

[Yuta Maeda, executive]

First, Page 15 shows sales and operating profit in the Game and Anime business. We held 2-year anniversary events for Heaven Burns Red during the third quarter, resulting in sizable growth in sales and profit. Operating profit rose by 93% Q-on-Q and 26% Y-o-Y. Page 16 shows an overview of the game and anime business as a whole. 2-year anniversary events held for Heaven Burns Red in third quarter were successful. We closed Shoumetsu Toshi and announced the closure of DanMachi - MEMORIA FREESE, but these moves had only limited impact on earnings. Other titles under operation performed well, and we achieved strong profit growth.

Page 17 provides information on Puella Magi Madoka Magica Magia Exedra. We released information on this title on April 22, 2024. And based on the feedback we have received, it is highly anticipated by an incredibly passionate fan base. Page 18 covers the live service game business. Profit rose sharply on strong performance from Heaven Burns Red. We continue to work on new titles for FY 2025 and beyond. Page 19 shows the licensed game business. This business funds anime production committees in order to license projects and produce contracted development projects. Saint Seiya: Legends of Justice, released at the beginning of this year is performing well. Page 20 shows our development pipeline. The number of titles in our pipeline is unchanged from second quarter. We are making progress in the development of these titles.

Page 21 shows our fourth quarter FY 2024 earnings forecast. We expect a reactive decline in sales in fourth quarter following anniversary events for Heaven Burns Red. We forecast sales between JPY 9.6 billion and JPY 11.3 billion and operating profit between JPY 1.6 billion and JPY 1.9 billion. Page 22 shows our full year FY 2024 earnings forecast. Sales and operating profit trends are strong, and we aim to continue to make progress toward the upper end of our forecast range. On Page 23, we present our medium-term targets. These are unchanged from our original forecast. Earnings contribution from new titles in our development pipeline are factored in conservatively, and we also factor in some costs. Thank you for your kind attention.

Next, Eiji Araki will explain the Metaverse business.

[荒木 英士, executive]

First, Page 25 shows the long-term earnings trend for the Metaverse business over the past 5 years. In third quarter, sales rose 6% Y-o-Y to JPY 1.61 billion and operating profit increased by JPY 0.32 billion Y-on-Y, entering positive territory and reaching JPY 0.08 billion. Page 26 shows earnings in the Metaverse business as a whole. In third quarter, sales declined Q-on-Q due to the transfer of part of the B2B Metaverse business, but trends in the platform business and the VTuber business were strong and operating profit rose Q-on-Q. Page 27 covers the platform business. Although sales were somewhat weak owing to year-end seasonal factors, we made progress on profit margins as we improved our earnings structure by diversifying the payment methods available to users. Strong sales growth also continued owing to live streams and newly added functions such as the room function in reality.

Page 28 covers the VTuber business. The VTuber business is focused on growing our talent pool, and we are making smooth progress in terms of debuts. Growth is proceeding smoothly and sales rose from JPY 0.02 billion in third quarter FY 2023 to JPY 0.09 billion in third quarter FY 2024. We continue to invest aggressively and expect to continue to post quarterly operating losses between JPY 0.2 billion and JPY 0.25 billion. On Page 29, we provide our fourth quarter FY 2024 earnings estimates. We expect strong sales growth in both the platform business and the VTuber business. While we expect profit growth in the platform business, we expect the VTuber business to roughly break even owing to continued aggressive investment.

Page 30 shows our FY 2024 full year earnings forecast. We expect sales to fall short of our full year forecast due to the transfer of part of the B2B Metaverse business. However, although we had forecast a full year operating loss of JPY 0.2 billion, we now expect to post positive operating profit. On Slide 31, we present our medium-term targets. We continue to target FY 2026 sales of JPY 15 billion to JPY 16 billion and operating profit of approximately JPY 2.0 billion. Thank you for your attention.

Next, Kazuhisa Adachi explains the DX business.

[足立 和久, executive]

Page 33 shows sales and operating profit trends in the DX business. Third quarter sales were JPY 1.54 billion and operating profit was JPY 0.28 billion. On Page 34, we present an overview of the DX business. While we achieved Q-on-Q growth by accumulating a backlog of projects, operating profit declined Y-on-Y.

On Page 35, we have the Marketing DX business. Sales increased on expansion of the advertising business and transfer of part of the B2B Metaverse business. Page 36 shows the Social DX business. Starting this quarter, we have begun separately disclosing the results of this business, which focuses on supporting our clients' social marketing efforts. Recently, this business has been on a positive growth trend when viewed both Q-on-Q and Y-on-Y. We established and began collaborating with ADK Social Media Marketing Inc., a joint venture with ADK Creative One, Inc. that specializes in SNS and influencer marketing. We target further growth through this initiative. On Page 37, we provide our fourth quarter FY 2024 earnings estimates. We expect sales of JPY 1.4 billion and operating profit of JPY 0.22 billion.

Page 38 shows our full year FY 2024 forecast. Compared with our previous forecast, we now expect slightly lower sales and slightly higher operating profit, but our revised forecast is basically in line with our previous one. On Page 39, we present our medium-term targets. We target FY 2026 sales of JPY 7.9 billion and operating profit of JPY 1.2 billion and aim to continue to accumulate a backlog of projects. That's all from the DX business.

Next, Yosuke Nakamura will explain the Commerce business.

[中村 陽祐, executive]

Page 41 shows sales and operating profit trends in the commerce business. In the previous few quarters, we achieved a V-shaped recovery.

But in third quarter FY 2024, earnings have been somewhat weak. Page 42 shows an overview of the commerce business as a whole. The aumo business was strongly impacted by the update to Google's algorithms, and we were unable to offset the resulting decline with other businesses. This resulted in Q-on-Q declines in sales and profit. Page 44 shows an overview of jobda Inc. Jobda continues to achieve steady growth. tie-ups with recruiting media have accelerated to the point where we now have tie-ups with 100 recruiting media outlets, and this has resulted in continued steady sales growth. On Page 45, we provide our fourth quarter FY 2024 earnings estimates for the Commerce business. We think the decline in aumo's Media business is winding down, and we expect sales to rise 28% Y-on-Y to JPY 0.37 billion. Page 46 shows our full year FY 2024 forecast.

We forecast annual sales of JPY 1.5 billion and operating profit of JPY 0.1 billion. We expect to fall short of our full year forecast. On Page 47, we present our medium-term targets. In FY 2026, we target sales of JPY 3.3 billion and operating profit of JPY 0.4 billion. Thank you for your attention.

Finally, Toshiki Oya explains the investment business.

[Toshiki Oya, executive]

Page 49 shows sales and operating income trends. In third quarter FY 2024, we roughly broke even due to distributions received from investment funds. We will continue steady investment and accumulate investment assets. Page 50 shows an overview of assets under management. Current AUM is roughly JPY 80 billion. On Page 51, we provide a breakdown of our operational investment securities. The value of our operational investment securities rose slightly as did investment valuation owing to progress made in investment.

During third quarter FY 2024, we invested in two VC funds in the United States and 14 start-ups. Finally, on Page 52, we show the status of our investment results. At each phase, we compare net multiples and IRR with benchmarks. And based on this, we believe we have achieved favorable performance. Thank you for your attention. This, we believe we have achieved favorable performance. Thank you for your attention.

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