Z Holdings Corp

TSE:4689

Earnings Call Transcript 2023-Q1

[Operator]

Thank you very much for joining us at the Z Holdings Corporation FY '22 Q1 Business Results Conference Call. We'll be using the presentation material, which is shown in our website.

Let me introduce the participants from Z Holdings. First, we have Kentaro Kawabe, President and Representative Director and Co-CEO. We have Takeshi Idezawa, Representative Director and Co-CEO, Marketing and Sales CPO; Takao Ozawa, Director and Senior Managing Corporate Officer and e-commerce CPO; Ryosuke Sakaue, Senior Managing Corporate Officer and GCFO; Hwang In Joon, the Senior Managing Corporate Officer and CGIO and Global Business CPO.

First, Mr. Kawabe and Mr. Sakaue will explain the FY '22 Q1 business results, and we take questions. We plan to have this conference call for about 90 minutes. We are streaming the conference call. If you have any problems with the voice and the video, please try and move to another server from the bottom of the screen.

Now let us get started. Mr. Kawabe, please start your presentation.

[Kentaro Kawabe, executive]

Thank you. This is Kawabe of Z Holdings. Thank you very much for taking the time out of your busy schedule to join us at the business results briefing of Q1 of FY '22. In addition to the business results, we would also explain the outline of the consolidation of the PayPay, we announced on the 27th of July and also the synergy from consolidation.

So let me start with the Q1 business results. Revenue was JPY 390.5 billion. Adjusted EBITDA was JPY 86.5 billion, both highest record for Q1. As for the consolidated results, the LINE Ads has maintained a double-digit growth, driving the overall performance, especially the account adds grew more than 20% year-on-year due to the acquisition of new customers. E-commerce transaction value achieved double-digit growth with the recovery of travel business and high growth of overseas e-commerce. As for topics, there's a transformation into the Yahoo! JAPAN -- shopping renewed on Yahoo! JAPAN Shopping and the consolidation of the PayPay Corporation, which will be explained later on.

[Ryosuke Sakaue, executive]

This is Sakaue speaking of Z Holdings. I'll be explaining those agenda items. Number four, the consolidation of the PayPay Corporation will be explained by Mr. Kawabe. Let me start with the consolidated business results of the whole group.

In Q1, with the steady growth of the LINE Ads and others, revenue and income increased to the highest record as to the first quarter.

Next is the result of the Media Business. Investments were mainly for the improvement of ad functionality of LINE and Yahoo! and sales promotion of Yahoo! JAPAN Local. As a result, LINE Ads revenue grew in double digits, and the transaction value of the Yahoo! Local grew 210% year-on-year, dramatic growth.

In Commerce Business, we invested mainly in LINE's overseas EC and promotion -- sales promotion of LINE GIFT, and also the strengthening of the logistics of the Yahoo! JAPAN Shopping and PayPay Mall. As a result, the transaction value of LINE overseas EC and LINE GIFT grew more than 80% year-on-year.

In Strategic Business, we invested in LINE NFT. The PayPay Card is moved under PayPay and is integrated in the management with PayPay. As higher sales promotion efficiency is expected during the term, no strategic investments for PayPay Card were made in Q1. No additional strategic investments. Q2 and onwards, based on business environment and market conditions, we would execute the investments in a flexible and disciplined manner.

Next is the topic and business results by segment. First, starting with the Media Business. Once again, we are explaining that we have 3 competitive advantages in Media Business. First is the first-party data obtained from which touch points and conversion points. These days the ad targeting with the third-party cookie is being controlled more, but in our case, utilization of the accumulated first-party data will lead to the continuous improvement of the distribution accuracy, which brings us the more effective ad distribution.

The second is the fact that we have search service. In addition to the display that provide touchpoint, search ads have high ad effectiveness and is more likely to lead to the user's actions. And in Q1, search ads grew steadily.

The third is our unique asset and stock type product, which is LINE Official Account. This is not affected by the market conditions easily, and we achieved high growth.

So utilizing those 3 advantages, we will try to build a full funnel solution to solve the issues of the companies and stores, which cannot be imitated by the competitors. This shows the measures to link services with LINE Official Account.

Last fiscal year, we were focused on the cross-selling to Yahoo! JAPAN Shopping stores. As a result, a number of the registered friends increased dramatically, and the message open rate and CTR were higher than the store newsletter, and LINE Official Account has already taken root as an e-commerce CRM tool. We'd like to take advantage of those successful examples of the Yahoo JAPAN Shopping and start collaborating with PayPay and PayPay Gourmet.

By enhancing the touch points with the users and merchants through LINE Official Accounts, we aim to maximize the payment GMV and the number of reservations. Also, active users of the LINE Official Accounts would increase. So this would lead to the higher revenue of the LINE Official Accounts as well.

Next is the LINE Ads revenue results. As I mentioned, account ads, through the acquisition of the new customers of the LINE Official Accounts and increased ad distribution by major clients, account ads grew more than 20% and driven the overall ad business growth. As for display ads, in some sectors, it was affected by the economic conditions, but overall ad revenue maintained double-digit growth.

Next is Yahoo JAPAN's advertising revenue. In search ads, we captured the demand recovery, especially in travel industry revenue grew steadily. As for display ads, it was affected by the uncertain macro environment, especially the reservation advertising demand was weak. And as a result, the overall revenue were the same level as last year.

Next is Commerce Business. Since the beginning of the e-commerce revolution, the transaction value of Yahoo JAPAN Shopping and PayPay Mall have grown to about 5x. Until now, we have tried to show the differences in those 2 marketplaces. However, by integrating by Yahoo! JAPAN Shopping and PayPay Mall, we can combine the strength and provide the rich product selection as well as high-quality purchasing experiences. From now on, we will further expand the transaction value through straightforward user experience, promotion of Blue Ribbon stores and unification of the referrals.

And this is the business model for renewed Yahoo JAPAN Shopping. There are commissions from the additional options and at placement. There are 2 plans that we have. In the case of promotion package plan, as a commission, there will be 3% of the transaction value. And in this plan, we will have additional benefits exclusive to the Blue Ribbon stores. And this is designed so that we can increase the percentage of the Blue Ribbon delivery and so the promotion package would be chosen.

The high effect of the introduction of the Blue Ribbon delivery is confirmed based on the various KPIs. So with the renewed Yahoo JAPAN shopping, we'll try to build the marketplace, which is advantageous for both merchants and users.

So this shows the e-commerce transaction value and actual results. From Q1 '22, we have added the transaction value of the overseas EC business, and we have retroactively revised FY '21 numbers. Economic reopening brought the recovery of the travel business, and overseas e-commerce grew quickly. The e-commerce transaction value ended at JPY 989.5 billion. Double-digit growth was achieved.

This shows the domestic merchandise transaction values. The impact of the economic reopening was relatively limited, both shopping and reuse businesses grew steadily. The domestic merchandise transaction value landed or reached JPY 731.6 billion.

Lastly, about the Strategic Business. Those are major KPIs of the payment and financial business. With the introduction of PayPay Atobarai or deferred payment, the PayPay GMV is showing the strong growth, and the card and bank businesses KPIs are trending steadily. Strengthened collaboration with the PayPay led to the acquisition of PayPay users.

As you see under Page 47, the equity method loss from JPY 2.9 billion has improved to JPY 1.5 billion, so about half of the previous term. It will take time to be profitable, but the transaction value is growing. So we are making good progress towards the profitability.

Next page. This shows the major KPIs of the LINE financial business. Tapping into the potential financial needs through LINE, we are growing steadily and greatly, not only in Japan, but also in the overseas financial business.

Next is the forecast for this fiscal year. PayPay consolidation is an income decrease factor that was not factored in at the beginning of the fiscal year. The full year guidance of the adjusted EBITDA is JPY 331.5 billion to JPY 340 billion. We are not making any changes to the guidance. Impact of the consolidation on the financial results, other than the adjusted EBITDA, is being examined and will be disclosed in a timely and appropriate manner as soon as it is determined. Next page.

[Kentaro Kawabe, executive]

So now I'm Kawabe once again. I'd like to talk about the outline and synergies of the consolidation of the PayPay Corporation. Please go to the next page.

First, overview of the transaction. Now let me explain the scheme of the consolidation. As we disclosed on the 27th of July, from October '22, we would make the PayPay Corporation into our consolidated subsidiary. What I would like to communicate to you is that this is a part of the important growth strategy. Based on the overwhelming customer base of LINE, Yahoo! and PayPay and through stronger collaboration among them, we will further expand our ecosystem. And let me explain the strategy to realize that.

First of all, about the outline. We would set up the B Holdings, which is the jointly managed intermediate holding company, and Z Holdings and SoftBank would be jointly managing this. This intermediate holding company will have 57.9% of the PayPay shares, and PayPay Corporation as a result, becomes a consolidated subsidiary of the Z Holdings. The acquiring business under Yahoo JAPAN will move to PayPay Card Corporation, and PayPay Card Corporation will be right under the PayPay Corporation.

The newly established intermediate holding company, B Holdings, will work with SoftBank to maximize the growth of PayPay payment and the financial businesses. The difference is that in the past, the Z Holdings Group and SoftBank brought respective strengths to the table and yet conducted investments separately to PayPay. But from now, Z Holdings and SoftBank will have a structure to maximize synergy, coordinate our views and work with PayPay together to further grow PayPay.

Next page, please. I would like to explain why we are making PayPay Corporation our subsidiary, referring to PayPay's growth trajectory in the past. Next page, please.

Since its launch in October 2018, PayPay has achieved explosive growth in just 3 years and 9 months, with cumulative number of registered users surpassing 48.65 million, PayPay GMV for FY 2021 reaching JPY 4.9 trillion and the number of PayPay Payment transactions at 3.24 billion times, leading the expansion of the QR and the barcode payment market. PayPay has established a dominant position, accounting for approximately 2/3 of the total market in terms of GMV and the number of transactions.

Having established a dominant position in the payment market, PayPay is now moving into the monetization phase. At present, PayPay is able to post a positive profit, excluding advertising expenses and other user and merchant acquisition costs.

With the consolidation of PayPay, we will strengthen cooperation with Z Holdings and further accelerate monetization in the second and third tiers. The second tier, merchant services, provides a variety of services to 3.74 million merchants. The third tier is financial services where we will more aggressively expand such services as credit card, banking, securities and insurance to our 48.65 million PayPay users. Next, synergies from consolidation of PayPay. Next page, please.

This is the overall strategy of the Z Holdings Group. There are 2 key points. First, we have LINE, Yahoo! JAPAN and PayPay. 3 services have a large user bases, so we will further strengthen our user base by ID linkage and integration of point reward programs. Second, utilizing this overall user base, we will further expand the B2C and the B2B ecosystem. Next page.

The expansion of the user base will be achieved through collaboration with LINE. The number of registered PayPay users in total has surpassed 48.65 million while LINE's MAU in Japan is over 92 million. By strengthening the collaboration with LINE, we can reach users who do not have the PayPay yet in order to further expand the PayPay user base. By implementing QR code, payment linkage, integration point rewards and ID linkage, we will grow PayPay into a payment service used by everyone in Japan. Next page, please.

By linking the ID supplying Yahoo JAPAN and PayPay, we will create the strongest ecosystem used by the majority of Internet users in Japan. Currently, the ID linkage rate between PayPay and Yahoo! JAPAN is 77%. We are aiming to increase the linkage ratio to 80% in the future and further evolve into an internet company with an overwhelming user base. We plan to start linking IDs in 2023 or later. Next page, please.

Next, I will explain how we will cultivate markets and expand profit earning opportunities centered on PayPay, specifically LINE, Yahoo! JAPAN and PayPay will mutually refer or send users to each other and conduct a 2-sided approach. One for B2C, the other for B2B. And the B2C approach will be in the areas of commerce, finance and cryptography assets. While the B2B approach will be in the areas of sales promotion, e-commerce and the finance and recurring businesses. Let me explain specific initiatives on the next page.

First, I will explain our approach to B2C market. First, commerce. The PayPay ecosystem keeps expanding. And, as we see that, we will expand the awareness of Yahoo! Shopping as the most efficient reward points accumulation EC within the PayPay ecosystem by maximizing the amount of points issued. By doing so, we can further strengthen the PayPay ecosystem and send the 48.65 million PayPay user base to Yahoo! Shopping. This will promote Yahoo! Shopping to become the main EC site in the ecosystem, doubling the number of annual purchases. Next page, please.

This is about B2C process. With PayPay as the core touch point, we will strengthen the linkage with LINE's financial services to promote the cross-use of financial services. Then we will build a payment and the financial ecosystem with the largest user base in Japan. Our midterm goal is to triple the number of cardholders from the current 8.68 million.

PayPay Card will become a subsidiary of PayPay, integrating operations of the 2 companies together to accelerate synergies. In terms of both business and performance, both companies provide services that are tied to the user action of payment. From the perspective of expanding PayPay's share of the cashless market, the 2 companies will promote the combined use of PayPay and PayPay Card and make the PayPay Card the main card. In addition, we will acquire users in a product-driven manner while streamlining acquisition costs. Details will be -- details of the synergy will be explained by PayPay at the time of consolidation in October. Next page, please.

The last part of our approach to B2C is crypto assets. We will develop new markets by linking LINE's crypto assets and NFT services with PayPay's payments. Specifically, we are considering the sale of crypto assets and NFTs through PayPay, enabling payments using crypto assets at PayPay merchants and adding the crypto asset course to the PayPay point investment menu. In addition, we will launch an NFT market mini application and enhance its functionality so that users can buy and sell NFTs on the PayPay app. By providing PayPay users with easy access to crypto asset services, we will further expand our user base. Next page, please.

I will explain our B2B approach. First is sales promotion. By linking PayPay's payment function and LINE Official Account together, we will develop sales promotion solutions for manufacturers as well as for PayPay merchants, aiming for a revenue size of JPY 100 billion in the digital sales promotion market. For manufacturers, ID linkage will provide a full funnel approach from in-store and out-of-store reach, to purchase and repurchase. For merchants, we will maximize the number of users and transaction values through referrals from a LINE Official Account. We will also strengthen sales collaboration with SoftBank. Next page, please.

Next is the introduction of e-commerce, which is also part of B2B. In addition to PayPay My Store, which helps merchants attract customers into their stores, we are adding MySmartStore, which provides e-commerce services and solutions to the 3.74 million PayPay merchants. For PayPay merchants, this will enable them to easily build their own EC sites, and for our group, we can increase the number of MySmartStore stores and PayPay merchants, leading to further expansion of GMV.

Finally, B2B financial services for merchants. We will provide comprehensive financial services to PayPay merchants. By consolidating merchant's sales proceeds into PayPay, receiving them at the PayPay Bank, having their expense handling all through PayPay and also providing services such as factoring and loans, we will help merchants increase their revenues and volumes while building on our side a payment and a financial ecosystem. Next page, please.

As explained so far, we will maximize synergies between different group companies of Z Holdings, who have largest user bases in each respective areas in Japan to expand revenues in total. Specifically, the Media Business, we'll try to increase the ID linkage ratio to 80% over the midterm through collaboration with Yahoo JAPAN and LINE and other majors and increase the ad unit price by 5% to 15%, while achieving JPY 100 billion in revenues by digitizing the sales promotion market.

The Commerce Business will promote cross-use of PayPay to double the number of purchases at Yahoo! Shopping. The Strategic Business, we will focus on building the PayPay underlying financial ecosystem based on PayPay's payment and loyalty point platform, while tripling the number of credit cardholders and achieving a positive segment profitability on EBITDA basis within a few years.

That's my explanation for the group synergies and PayPay consolidation. Finally, we are pursuing the concept of financial service business run by an internet company. Through digitization, networking and personalization, we are trying to revolutionize the relationship between people, society and money. In other words, we are committed to creating a world where each and every user can benefit from all money-related transactions and activities such as payment, borrowing, remittance and management of money.

That's all from myself. Thank you very much for your kind attention.

[Operator]

[Operator Instructions] First question is from Nikkei, [ Mr. Matsuda ].

[Unknown Analyst]

This is [ Matsuda ] speaking. I'm from Nikkei. About the consolidation of PayPay, I'd like to ask a question. So you're trying to promote a collaboration with LINE, collaborating the points and also the ID linkage towards '23. I'd like you to give us some details. For example, LINE Pay and PayPay, the brand integration, is that insight in sight in the future? As much as you can discuss this, we would appreciate it.

[Kentaro Kawabe, executive]

Thank you for your question. Yes, as we announced, in the future, the -- we would be integrating the functions of the PayPay in LINE so that LINE users can also easily utilize PayPay in a seamless manner. But PayPay and LINE Pay, as for those brands or as for the legal entity integration, we have no plans to make such integration. That's my answer to your question. Thank you very much.

[Operator]

Next question is from Asahi Shimbun, [ Mr. Onaya ].

[Unknown Analyst]

My name is [ Onaya ] from Asahi Shimbun. I have 2 questions. First, this time, PayPay and LINE ID linkage synergy, there was a substantial expectation. How about Yahoo! ID and LINE ID consolidation synergy. For example, in terms of services, what kind of collaboration is possible? And then from ID linkage, what kind of services will become possible? That's the first question.

Second, with the ID linkage LINE Corporation, in March last year, there was a data management issue. So after that, I'm sure that you have made an improvement for the entire group. But have you reached a good understanding from the users? And how are you addressing this issue going forward? That's the second question.

[Kentaro Kawabe, executive]

Thank you very much for your questions. Regarding Yahoo! ID and the LINE ID consolidation, and on top of PayPay ID consolidation, for possible synergies. Well, I'd like to answer your second question first. That's exactly where we are focusing, looking at the security requirements and economic and social security perspective for users and for different countries because the expectations are getting higher and higher.

Therefore, for users and for each country and government, with LINE and for Z Holdings Group, with this ID linkage, we make sure that they are confident with what we are doing in the ID linkage. That's how we like to launch this. So the original plan was this year, FY '22, ID linkage. That's why we are postponing this to FY '23 onwards. Therefore, by then, at that time, we'd like to meet all the security requirements and test the user requirements before we start the ID linkage. So we are taking cautious steps.

Going back to your first question, it was about Yahoo! ID and LINE ID consolidation linkage. There are possible positive effects from this we are anticipating. Even at this time, Yahoo! disaster information for with LINE, without any ID linkage, the information that was reaching Yahoo! is now reaching LINE as well. So that kind of service linkage is already happening.

So for the service of Yahoo! and LINE together, with the ID linkage, with a single ID and seamless services will be possible one after another. And also, with the strengthening of this linkage and with the further understanding for each user, more personalized opportunities and ad unit price increase opportunities will -- this is expected as well. That's my response.

[Operator]

Next from Toyo Keizai Shinposha, we have Mr. Nakagawa.

[Unknown Analyst]

This is [ Nakagawa ] speaking. I'm from Toyo Keizai. Two questions, please. First, about the PayPay becoming your subsidiary and the establishment of the B Holdings. So Z Holdings and SoftBank will be adjusting the opinions about the management. So adjusting opinions, what specifically do you mean? And until now -- or probably there were some issues? That's my first question.

And also the crypto asset of the emergence of the PayPay, the wallet is on the LINE side. So how -- I'm sure that the merchants also need to make some preparations. So what is -- what kind of a scheme are you going to have to realize this? That's my second question.

[Kentaro Kawabe, executive]

Sorry, your second question, the second half, your voice was not very clear.

[Unknown Analyst]

For the merchants, so crypto asset payment, what would be the scheme for that? What is your plan? What -- how are you going to realize it?

[Kentaro Kawabe, executive]

Thank you for your questions. First, about the B Holdings. Until now, the 3 companies, SBG, SBKK and Z Holdings, each company has a different role. And we discussed with PayPay, we were working together. And SBG provided capital, SBKK provided management and Z Holdings were in the development and the user experience area.

So until now, now the PayPay has grown so much, talking individually or separately is not very efficient. It could -- deficiency, could be lower, not higher. So we wanted to consolidate that. As an example, Z Holdings or the parent, A Holdings, is doing exactly that. SoftBank KK and NAVER from the long-term perspective, what they can do about the Z Holdings, they have discussions. And 2 bodies, based on their agreement, they take measures vis-a-vis Z Holdings. So they have integrated the contact point, and the efficiency was achieved. So we're going to apply that to the PayPay so that we can improve the efficiency.

And also, the -- by making the PayPay into the consolidated subsidiary, in the past, SBKK and the former Yahoo! were the brother companies under SBKK. And about the budget and also the transactions, when we were not consolidated, there were a lot of active discussion about the conditions setting negotiation, and speed was sometimes lost. So those were the issues that we had.

So in order to turn it around and make them into advantages, we decided to make the company into the consolidated subsidiary. So it will become the subsidiary of the B Holdings and the Z Holdings, and that's what I explained.

As to your second question, the crypto assets, the payment for the merchants or the stores. Yes, of course, for the merchants, we have to make sure that we provide the full explanation before the launch. And legally speaking, the registration would become necessary. So we have to make sure that we all go through all this process, and after completing all this process, we would like to start establishing such scheme. I hope that answers your question.

[Operator]

Next, from media, [ Mr. Kobayashi ].

[Unknown Analyst]

From Business Insider Japan. My name is [ Kobayashi ]. In your presentation this time, you talked about LINE Bank in several slides. I saw some information. So there was a footnote saying, "To be opened." There was some reference in the past as well. What is the schedule going forward for the bank? And you already have PayPay Bank, but why do we have a different name and different license to be acquired? What is the purpose of this? What is motivation?

[Ryosuke Sakaue, executive]

Thank you. For the latter part, I would like to respond to your question. And for the former part, President of LINE, Mr. Idezawa, will respond.

First, we have -- what is the motivation behind 2 separate banks? Well, the financial services that we are developing. The basis for that should be the services and on which we are blossoming payment services. That's how we are expanding the user base for PayPay and for LINE.

The way we are designing the user experiences are different. LINE is based on communication, and the other one is based on the QR payments. In the case of PayPay Bank, Yahoo! Auction was the basis for that to begin with. So the user experiences are different.

So for each one of them, the user experiences are different and the purpose for the usage is different. And also different users exist for each one of them. So including securities, we will have separate banks so that we can capture different types of users and acquire them and provide different services. And the unit customer cost should be efficient.

As a whole, for Z Holdings, the number of users and the revenues and the sales should be maximized as a whole for the entire Z Holdings. Of course, in the expansionary stage, we can take that approach. So we are to try this not only for banks, but with these different financial services and whatever is not working well, we would like to exit or integrate. And there may be a possibility for that as well. But at the moment, we would like to maximize each service in terms of revenue as well as the number of users. That's the strategy so far. As for the schedule, Idezawa is going to respond.

[Takeshi Idezawa, executive]

This is Idezawa speaking. In terms of the preparation stage, of course, the license from the authorities is required. So we are making steady preparations towards that before the opening of the bank. Basically, LINE, there is a user of 92 million. So we would like to provide smartphone banking services for them. That is the focus. But at the same time, with the PayPay consolidation that we are announcing today, we will think about how to collaborate with them. That was my response. Thank you.

[Operator]

Now the last person to ask on behalf of media is [ Mr. Kemimoto ] of Nikkei.

[Unknown Analyst]

[ Kemimoto ] from Nikkei speaking. I have 2 questions about the PayPay-related question. So you mentioned the 48 million sum of users of PayPay, and when you integrate the with it LINE and Yahoo! this would increase. So PayPay standalone, is there any target of the number of the users that you want to achieve?

And in terms of the PayPay ecosystem, I think that the competitor would be Rakuten. So as I'm sure that you have that in your mind, are there any issues or challenges that you need to overcome to become such competitor to Rakuten?

[Unknown Executive]

Yes. Thank you. First, about your first part of your question, of course, LINE has 92 million users. So theoretically, we should get to that level. So that would be the double of the current level, and that means that most of the Internet users in Japan will be using this. So this would be like the wallet used by everyone in Japan.

So as for Rakuten, yes, we will become a competitor to them, and the strength of the -- our ecosystem or the ecosystem in general is something that we should emulate from, and that could be one of our challenges. So loyalty program or the simplicity of the naming or card business strength, those, I think, are quite superior on the part of Rakuten. So we want to catch up and exceed them. And that's what we'd like to do. And from October, we expect to have more detailed explanation from the PayPay side. That's my answer to your questions. Thank you very much.

[Operator]

Next, we would like to entertain questions from investors and analysts. [Operator Instructions] First, from SMBC Nikko Securities, Mr. Maeda.

[Eiji Maeda, analyst]

Yes, I am Maeda from SMBC Nikko. I have 2 questions. First, LINE Ad's display ad sales. You said 9% growth. This is steady growth and strong growth, but compared with past quarters, this growth is decelerating. The factors behind this is probably because of the economic sentiment in some of the industries and the sectors. Do you anticipate this impact to continue? Or structurally, single digit or around 10% growth, is this a sustainable growth rate level? This is my first question.

The second question is about shopping ad sales. According to the materials you have given, 2.7% down from the last fiscal year it says. For Yahoo! Shopping and PayPay Mall and others, is it because of the declining GMV or decline in take rate or any other reasons? Could you explain the background behind this decline? That's all.

[Kentaro Kawabe, executive]

Thank you very much for your questions. The first question will be addressed by Mr. Idezawa, and the second one, Mr. Sakaue, CFO.

[Takeshi Idezawa, executive]

This is Idezawa speaking. First, on your first question, Q1 Y-on-Y, plus 9.2% growth of display ad revenue. Well, the economic sentiment was part of the reason behind in certain sectors. The demand was weak. And the other is about -- well, for last year, both in Q1 and Q2, we had a strong year. That's why the comp reason, there was a decline.

Another reason is inventory. With the LINE inventory development at the moment is almost over, so lift up from that is rather limited. That's why we had only 9.2% growth this time, and demand is recovering in some of the areas at the moment. So the growth rate compared with the last fiscal year may be slow. That's what we had already anticipated in the past.

And regarding official account, the performance is very strong. So irrespective of the business segment, it is rolling up. So it's recurring. So please look at both aspects in combination, together. That was my response to the first question.

[Ryosuke Sakaue, executive]

This is Sakaue speaking. I'd like to respond to your second question. There are 2 factors this time. First, at the moment, Blue Ribbon distribution is being perceived well by the customers, and take rate is down because of the less usage of the option. For the short term, there was some impact, but as the market plays, user sustainability and usage, well, the service as a whole is improving. Therefore, we would like to continue with the Blue Ribbon customer distribution or logistics. As a whole by the frequent usage by the users, the transaction value for the medium to long term should benefit from this and grow.

Second factor is seasonality reason. In the previous year, in March, there was a spring PayPay Festival. In the last year, it was held until March 28. And this year, we held it until March 22. As a result, for the previous year because it ended on 28, which is almost the end of fiscal year, sales and delivery was continuing until the next fiscal year. Therefore, last year, Q1 benefited more because of the continuous impact from the festival in Q1. That's why there were some decline on a Y-o-Y basis. So that's my response for the ad business.

[Operator]

Next, from JPMorgan, Ms. Mori.

[Haruka Mori, analyst]

Two questions, please. First is about the guidance forecast. Now PayPay has become your subsidiary, I ask the same question. So for this fiscal year and JPY 390 billion, you would try to manage that and achieve that target. That's the comment that you made. So how do you achieve that? So I think that you will be controlling the expenses. And would you be sacrificing the growth investments? So could you comment on that?

And also about the Yahoo! and PayPay ID linkage, which has been a bit delayed. So about that, that would not affect the target of the next fiscal year? That's my first question.

The second question is about PayPay becoming -- you explained the synergy of making PayPay a subsidiary, and I think you mentioned some targets. So as a whole, what would be the timeframe in achieving those targets? And if possible, PayPay as a whole, to make it profitable, I think that the KK side is unable to comment on this, but this time maybe you can explain a bit more.

[Unknown Executive]

Please bear with us a few seconds. Thank you. Okay. Thank you very much. Basically, Kawabe will respond to your questions.

[Kentaro Kawabe, executive]

First, about this fiscal year business results guidance and also the next fiscal year, the highest EBITDA, yes, as the management, we are determined to achieve those targets. At the same time, when we said at the integration time, we will be promoting the number of strategies and how do we try to manage that. So higher revenue and controlling the expenses, we'll be doing both.

And as for ID linkage and impact of it, ID linkage will have an impact in terms of the revenue increase. And if -- with this delay of the ID linkage for this fiscal year and also part of next year, when we start the service linkage, the promotion expenses will be lower. So there are 2 different impacts.

So there will be different strategies, and this is going to be a major strategy. So looking at the ID linkage, for example, there are pluses and minuses, advantages and disadvantages; and similarly, the strategies. For example, we try to employ certain number of the engineers, and we have that plan. But through the digital transformation, the recruitment was more difficult to implement. So in terms of expenses, it was higher expenses.

And there -- since this is a major strategy, there are many factors. So through working on those factors, we would like to achieve the target but also at the same time, want to achieve those number of strategies. So I want to declare that is our intention.

As to your second question, what is the time frame, and it's difficult to include that as of today. And as I said about the first question, we need to go through many things and in ID linkage, the changes of the views in the society or changes of the legal requirement, and there are so many factors so that it makes it difficult to say clearly by when. But as our intention and determination, for example, I mentioned tripling this number or others. We want to achieve those targets.

And as for the schedule or time frame, there are so many uncertain factors, so it's difficult to clearly say. So I'm sure that you would try to calculate that based on the different factors. I understand that, and we are sorry that we cannot be definitive. As for being profitable as PayPay business, as I mentioned in the presentation, the users and acquisition of the merchants and before those acquisition costs, by charging the commission, for example, we are already profitable.

And for the future acquisitions, we can take advantage of the group synergy, so through the collaboration with LINE. So there are different ways that we can improve the efficiency, so we believe that we will be moving steadily toward being profitable. And as Z Holdings and after making PayPay profitable, EBITDA and the contribution to the income or revenue, we have a high expectation in the medium to long term. Thank you. That's my answer to your question.

[Haruka Mori, analyst]

I'd like to just make some follow-up questions. As for the next fiscal year, JPY 390 billion, I think that advertising, for example, the macro factors are uncertain, so it's becoming weaker. So I think that the headwind is probably stronger. So I'm wondering or I'm a bit concerned whether you'll be able to achieve that. I think that there is such a view.

Among the management team, as a driver of the higher profit, are there -- are you seeing some clear factors? You explained many things and you're trying to juggle them, and you mentioned that you're determined to achieve those targets. And I'm sorry to be vague in my questions. But could you just clarify that point?

And to the second point, just a quick point. So at the time of the consolidation, the -- well, in October, PayPay side will give us some explanation. Even at that time, is it difficult to give us the specific numbers? Is that something that we should be prepared for?

[Kentaro Kawabe, executive]

Well, thank you for your additional questions. As for your second point, do you say that you're asking about the time frame or a time horizon?

[Haruka Mori, analyst]

Yes.

[Kentaro Kawabe, executive]

So concerning the first point, as a management team, as I said, for this fiscal and next fiscal year, we have a very strong determination to proceed toward those targets. And I once again say that myself and our CFO, Saka, will give you more details.

[Ryosuke Sakaue, executive]

Well, thank you. There are 2 things that we expect. First is that the -- of course, that there are macro uncertainties, but the ad business is a more profitable business. The LINE official account is growing in terms of the revenue, so we want to make sure that we can continue that.

The second point is, right now, the businesses that we are investing in, since several years ago, there are several businesses that we have been investing in. So the peak of the deficit is in FY '22. There are a lot of them. So concerning those businesses, toward FY '24 and '25, we will be shifting toward higher -- shifting toward being profitable.

So we believe that we can catch up with the profit toward '23. So based on those 2 points -- and of course, that we would believe that we can grow in other businesses. And through those, we want to achieve JPY 390 billion. So that is what we expect.

As for the second point, of course, toward October, Z Holdings and PayPay, there will be more tie-ups, and we will make sure that we will try to provide more numbers. But realistically speaking, as I mentioned, this is a major, grand challenge, which requires investments, and PayPay is in the middle of this. So uncertainties and the force majeure, there are many things like that.

And as for the financial business, it has to do with the authorities. So we cannot really calculate the time frame and sometimes setting the target in terms of the time frame is not welcome in relation to the authority. So realistically speaking, it could be difficult to come up with the time frame or the numbers as of now.

[Operator]

Next is from Citigroup Securities, Tsuruo-San.

[Mitsunobu Tsuruo, analyst]

Can you hear me? I have 2 questions.

[Unknown Executive]

Yes, we can hear you.

[Mitsunobu Tsuruo, analyst]

First question is about Yahoo! ad-related revenue. There was a deceleration to 4% growth. Original guidance was 3% to 9%, so it is less than the median point and close to the lower point. Probably this is in the initial stage still, but at this point in time, for Yahoo! ad revenue, what is the prospect for the full year? Are there any initiatives that we can take so that you can recover the reasonable level of growth? That's the first question.

The second question is related to the first question. For this year's full year performance, EBITDA guidance should be reasonable, I think. And ad revenue for Yahoo!, it's becoming challenged now; and on top, PayPay consolidation is planned for the second half. So probably we should think about the lower end of the range? Or do you have any initiatives to recover a higher level within the range?

[Unknown Executive]

Thank you for your question. To the first point, this is about Yahoo!, but from the Z Holdings perspective, Marketing Solutions CPO, Mr. Idezawa would like to respond. And the second question will be responded by Mr. Sakaue, CFO.

[Takeshi Idezawa, executive]

First about Yahoo! Display Ad, I think, regarding search ad, there are certain sectors recovering, so the number performance was not so bad. But in terms of the display ad, you're asking a question. As you said, yes, it is declining and Yahoo! is traditionally strong with automotive and so forth. These sectors are not doing so well continuously. Therefore, 2 of them, we are taking some recovery measures.

And there is room for growth in certain other sectors going forward. So we like to approach these sectors, and internal improvement is something that we are continuing with. Therefore, within the range, we would like to end up at a higher level within the range as much as possible. And to do that, we are taking measures of implementing various initiatives. That's my response.

[Ryosuke Sakaue, executive]

Regarding the second question, the full year EBITDA guidance range, with the guidance, the range that we have announced is JPY 8.5 billion range. So at this point in time, whether we are ending up at the lower end or high end, within this JPY 8.5 billion range, it is difficult to say at this point in time. So we would like to continue to stay within this range. That is something we are thinking about at the moment. So for the remaining 3 quarters, that's how we would like to operate the business.

[Mitsunobu Tsuruo, analyst]

Then a follow-up question is, JPY 50 billion strategic investment for the full year is to be made. At this point in time, what is the situation at this point in time? Earlier, Kawabe-san sounded like as if we are not spending all of it. So do you have any ideas?

Sorry, there is a second point. Regarding the PayPay performance, losses are becoming half of what it used to be. But for the second half of the year, are you continuing with the same pace of improvement for the loss reduction? Or do you have a more positive outlook for the second half?

[Ryosuke Sakaue, executive]

Regarding strategic investment, continuously JPY 50 billion to JPY 70 billion, somewhere between that is what we think at the moment. On the other hand, for the sales promotion, we have some contribution. So considering the business sentiment and impact, we would like to make a judgment whether we should go into that or not. But at the moment, we are thinking still about the JPY 50 billion to JPY 70 billion range.

[Mitsunobu Tsuruo, analyst]

The second question is about the losses from PayPay. For Q1, will the acquisition cost through campaigns -- relatively speaking, well, even in last year, it was small for Q1 because in Q2 and Q3, there are festivals and more acquisition costs to be incurred. So for Q1, are we going to multiply Q1 results by 4?

[Ryosuke Sakaue, executive]

I don't think so. That's not going to be the case because, in Q2 and Q3, there will be more negative points. That means expenses. That's the structure.

[Mitsunobu Tsuruo, analyst]

Having said that, compared to last year, the losses amounts are getting less.

[Ryosuke Sakaue, executive]

That's true.

[Mitsunobu Tsuruo, analyst]

And is that going to accelerate going forward? That's my question.

[Ryosuke Sakaue, executive]

Compared with the previous year? Well, for Q1, the loss amount that was compared with the last Q1, it has decreased more than we had expected. So going forward, I don't think we will have more reduction, faster reduction compared with Q1.

[Operator]

Next from Jefferies, we have Ms. Sato.

[Hiroko Sato, analyst]

This is Sato speaking from Jefferies. I hope you can hear me.

[Unknown Executive]

Yes.

[Hiroko Sato, analyst]

I also have 2 questions. On Page 14, Yahoo! Shopping, the renewed Yahoo! Japan Shopping. I have a question on this slide. PayPay Mall and Yahoo! Shopping in October will be integrated. So looking at the plan for the promotion package plan, 3% commission. Now Yahoo! Shopping, the royalty shopping take rate was 0, so PayPay Mall, I think, was 3%. So basically, promotion package plan is same as the PayPay Mall plan. So probably for the full year, I think in the appendix, the take rate chart is shown. So for example, settlement, the resources and also the advertising-related 5% or the middle of the 5% take rate. So take rate like this, at the time of the integration, will not change. Is that the correct understanding?

One of my concerns is that the PayPay Mall people with this renewed Yahoo! Shopping, the original royalty payment will go down to 0. Is that the kind of image that they would have. So what you are showing here on this page, it looks as though you can choose. So promotion package is similar to the plan of the PayPay Mall. So is that the correct understanding? Sorry to be lengthy. That's my first question.

And the second question, the integration of the PayPay, about the revenue. So 10% organic growth is mentioned in the full year guidance, so at the end of the Q1, the 6% or less growth. So with PayPay, you achieve only 10%, so that's pretty low. So Yahoo! and LINE from Q1, unless you grow in double digit, if it's on the 5%, I wonder whether that's good enough. So without -- even without PayPay, Yahoo! and LINE, going forward 10%, the kind of measures, is that something we can expect?

And just one more question. The super app and something like that, at the time of the integration with the LINE, I think that was mentioned, and there were different views. But the super app type, in order to develop something like that, the fintech service ecosystem needs to be established and the ID linkage should be done. And then after that, super app concept will emerge. Is that the order? So how should we think about it and as a group? Is the super app already gone? If you can comment on that, I would appreciate it very much.

[Unknown Executive]

Thank you. About the first part, Ozawa will answer because it has to do with the e-commerce. And then the second one will be handled by me.

[Takao Ozawa, executive]

Yes, but the renewed Yahoo! Shopping, the store opening will be free of charge. And what you asked about that PayPay Mall, it was 3%.

[Hiroko Sato, analyst]

Yes. And what would happen to them? Would the take rate go down?

[Takao Ozawa, executive]

Well, in the 3% is the same number in the promotion package plan that we prepared. So those merchants in the PayPay Mall can use this plan, and that's what we will be trying to sell. So with the -- before that, through the hearing, we understand that this 3% package is advantageous, and we got that reaction. So many people will move to this plan and also those merchants only in the Yahoo! Shopping, when they satisfy certain conditions, they can move to this promotion package plan.

So overall take rate drastically going down, it's not something that we expect. In the medium to long term, I think that we -- it would increase. And depending on how the sales goes, if there is a possibility that the take rate go down mainly or drastically, we will disclose that beforehand.

[Unknown Executive]

As to the second question, about the revenue and EBITDA as Z Holdings as a whole, they have become quite big. So to have a double digit is not something very easy.

So you mentioned the 5% is not good enough, and I'm sorry to hear that. And I hope that you would move over here, so we can manage the company together, so you can actually truly share.

[Hiroko Sato, analyst]

Well, I think that the guidance at 10% plus and Q1 started with 5%. So that's why I was disappointed.

[Unknown Executive]

Yes, it's related to the second half of your question. So LINE and Yahoo! being integrated and so some of the businesses, for example, without the PMI, I think they grew. For example, I don't know, LINE or A, for example, but through the integration or linkage, there are many areas that we can grow.

So for those ID linkage and the linkage among the apps, as you said, once -- after the implementation of those, we can actually start to see the increased revenue and increased income. So ID linkage and others, due to the changes in the society I mentioned, it's been delayed. So I think that we can expect in the future that we can benefit from it and of course, that the super app is something that we would realize in the future, and we are making preparation for it.

So we have 3 potential applications for LINE, Yahoo! and PayPay. They could be super app. So if PayPay reaches 50 million, then we have 3 services with more than 50 million users, and they are very closely embedded to the daily life. So they could become the super app, and they can also be linked. So no change to that plan.

[Hiroko Sato, analyst]

Additional question. In the past 2, 3 years, I think that you usually make a slow start in Q1. And in Q2, Q3, then you would accelerate. I think that has been the pattern. And is that something we should expect for this fiscal year?

So you mentioned that more than 10% growth as guidance. But for this fiscal year, in October, there is an integration of the shopping and the integration of the PayPay. There are many things that the management team need to focus upon. So -- and 10% growth, the organic growth was in the guidance. So I think that you might have to spend more time for the integration and the top line, 10% growth probably there might be some kind of dilution in terms of how you allocate your resources and time.

[Unknown Executive]

Well, of course, we do this as an organization. And there is a team, which focus on the very short-term things and the management team who focus on the medium, long term. So we have a separation of the roles and separation of the authorities.

So as a management team, as a Z Holdings company, we create the medium- to long-term strategy, and we execute the strategies. But as for the operating companies, they are more focused on the short-term things. So I think we are -- you don't have to be too concerned about that type of dilution.

[Operator]

Next is from Okasan Securities, Mr. Okumura.

[Yusuke Okumura, analyst]

I'm Okumura from Okasan. Can you hear me?

[Unknown Executive]

Yes, we can.

[Yusuke Okumura, analyst]

I have 2 questions. First, this is a metric for the media business. External environment, how do you see that? These are qualitative. And the second point, for the second half, should we expect a weakening in the ad business? And with the infection cases increasing, are there going to be any impact on the business trend. On the agents, some of the operators are showing strong forecasts. So how do you see the external environment going forward? That's my first question.

The second question is, earlier, you talked about ID linkage for LINE, Yahoo! and PayPay. You would like to have 80% linkage. What is the time frame? You said that it's difficult to say. But as an image, is it possible in 2, 3 years? Or does it take 5 years to 10 years? Could you share with us just a rough image?

Also, for this year's linkage plan, is there anything that you have to overcome in terms of the authorities? [ If you ] say, and you are increasing unit ad price by 5% to 10% or 15%, what initiatives do you plan to do for this initiative?

[Unknown Executive]

Could you hold on, please? Thank you for waiting. For the first point, this is about our prospect for the ad business. not e-commerce, but you are talking about ad business only?

[Yusuke Okumura, analyst]

Yes.

[Unknown Executive]

Okay. In that case, you want to see our perception as well as our perception about the impact of the 7th wave of COVID infection. Idezawa will respond to this. And the second question will be answered by myself.

[Takeshi Idezawa, executive]

First, about our perception about the economy. After May, because of the macro factors, the demand is weak for Yahoo! and LINE, both of them. That is the case. On the other hand, there are several strong sectors, so the picture is sporadic and unstable at the same time.

Having said that, is it going to get any worse going forward? So we don't see any sign yet. In that sense, we are closely monitoring the current situation. In terms of the performance of our company, when we came up with the guidance, we have already incorporated some of these factors. Therefore, we haven't seen any necessity to change the guidance at this point in time. So that was my response.

[Unknown Executive]

To your second question about ID linkage, development internally is proceeding. And from the global standards, securities and [ Metis ] standards, are we meeting with them or not? Well, the external environment is changing, so we are responding to external environment. So our development in that sense is proceeding well.

Next year, we would like to start ID linkage if possible. In the past analyst meeting, we have already mentioned this. So starting of linkage does not mean we cover 100% of the users and 100% impact yet. Because of the current situation, we have to get the consent of users one by one virtually, and we have to gain their understanding of what the ID linkage will do to them.

So this part of the linkage may be started next year, but millions of people or 80% level, it will take multiple years, we believe, for PayPay and Yahoo! ID. It's going well, but it took 3 years and several months for that. And for [ pay TT ] and Yahoo!, we have 40 million or so in the linkage. It took 5 years to 8 years.

It's not that we don't get any positive impact unless we get that number. So with the user who is joining onboard, with the understanding about the benefits of the service, we can promote the personalization of different services, and Z Holdings services will become more attractive for those users.

And on the business front, for example, e-commerce personalization, we can proceed with that. And CVR and customer revenue per head will increase. So for us, with the linkage users, 5% to 15% increase is expected one by one.

With the users, we have added onboard for the ID [ use case ], so the big impact will come when we reach several -- tens of billions -- tens of millions, but we are getting smaller advantage one by one.

For the personalized advertisement, the effectiveness is higher, like reservation type ad and display ad. But when it comes to search ad, it's not personalized because it's done basically by the users. So the impact is less on those fronts.

And for LINE and Yahoo!, which one is getting more benefit? The ad unit price between those 2, we are calculating, but it seems that the LINE may have a higher benefit. Of course, for Yahoo!, with the understanding of the users, we can increase. But given the current unit price, maybe that is the case.

In terms of the expenses, this fiscal year, even if we can start, it will take some time until we get the benefit. Therefore, for the revenue line, we haven't incorporated a major impact except for the expense side because we are executing expenses one by one with the start of the ID linkage, so there may be some impact in that sense. So did I respond to all of your questions?

[Yusuke Okumura, analyst]

I have an additional question for the additional unit price for ad between 5% and 15%. Do you have any benchmark companies like Facebook? How did you calculate 5% to 15% in terms of the unit price increase?

[Unknown Executive]

Sakaue will answer that question.

[Ryosuke Sakaue, executive]

For this, we look at the existing LINE and Yahoo! unit price for ad. From those, we calculated 5% to 15% increase potential. As Mr. Kawabe said, LINE ad, we are thinking about more increases in unit price closer to the higher end.

For LINE, Yahoo!, if we compare, the signal is already stronger for Yahoo. Therefore, the increased potential for Yahoo!, I don't say close to lower end but maybe in the middle of the range for Yahoo! That is something we are anticipating.

[Operator]

From UBS, we have Mr. Fukuyama.

[Kenji Fukuyama, analyst]

I have a question on media, also in -- on commerce. First about the media, LINE official account. This time, more than 20% year-on-year growth was achieved. In terms of the percentage of the active users, how is it? From outside, the rate of active user is not so high. So that means the unit price is not so high. So LINE account ad revenue increase, together with the increased number of accounts, do you think it would go up? Or the -- do you think that it would contribute to the unit price increase?

The second question is about the Yahoo! Shopping annual spend, and you want to double that. And what is the current image or the level right now? So out of the 45 million users, how many of them are using the shopping services?

Together with that, MySmartStore, the EC site, establishment of the PayPay merchant, I think including the fulfillment, the support of the logistics, to what extent would you be considering that type of support for the merchants? That's my second question.

[Unknown Executive]

Thank you for your questions. The first part is answered by Idezawa-san and second part by Ozawa-san.

[Takeshi Idezawa, executive]

Thank you. This is Idezawa speaking about the official account. The latest revenue increase is with the number of the accounts. That was the major contributor. And as for the unit price, I think you mentioned the unit price from the major clients to the small ones. It's a wide range, so you cannot really discuss high or low. So once you set up the account free of charge and how frequently do they use so that they become the paying user and so active rate is very high, and what you said is correct.

So we are not disclosing the active rate. But it's not likely to grow double or triple, so gradually growing by adding the different features or functions. So since some years ago, we are working on that, so the percentage of the active user is gradually increasing. And the number of accounts increase is something that we are also trying. So if you multiply those 2 factors, I think we can achieve the growth that we mentioned.

So the official account, we talked about economic conditions, and it is not easily affected by the economic conditions. So this is something that -- this is a product that can be utilized for long term. So through the collaboration with the Z services, we want to strengthen it. And so we are taking various measures. So I hope we will continue to share the progress with you.

[Takao Ozawa, executive]

Ozawa. I'd like to speak about the second question. The annual number of the purchases, we are not disclosing that number. So annual GMV, you can calculate based on that. I think that's what is usually done. So please understand that. And MySmartStore for the PayPay merchants, are we considering the support in the area of the fulfillment?

In Yahoo! Shopping with Yamato, we work together to provide a fulfillment service, and it's being utilized. So something like that is what we plan to do. But how much would it be or how, what kind of program do we have, we have not yet finalized that. But in a similar way as the Yahoo! Shopping, we will be introducing something like that, and we are studying that possibility.

[Operator]

Next is from Nomura Securities, Masuno-san, please.

[Daisaku Masuno, analyst]

This is Masuno from Nomura Securities. I just have one question. Regarding the restructuring reorganization of PayPay, it seems that one should have 100%, but the investment is going down to 33%. In 5 years, you have to have a synergy, substantial synergy or you have to have a high transaction value. So strategically, the card investment percentage will go down. And with finance in 5 years or so, are you expecting operating profit of like JPY 50 billion or so? So could you explain that?

[Unknown Executive]

Thank you for your question. So I think the former case is correct. By having this company under PayPay, we are expecting considerable synergy. That is the expectation behind the change of the structure.

And also from the press, there was a question about it. But on our side, whether we exceed or suppress Rakuten card or not, that's the kind of growth we have to have in our card business. To do that, the consolidation with PayPay, especially in PayPay Atobarai, deferred payment and usage of these cards. So that's something that we have to compete on. Otherwise, it's difficult for us to compete with the Rakuten card and surpass them. So as a way to have a good competition with them, we changed the structure. So the former is the case in your question.

[Operator]

Now Mr. Araki from Mitsubishi UFJ Morgan Stanley Securities.

[Masato Araki, analyst]

I have one question about the e-commerce -- actually, 2 small questions. At the beginning, when [ Mayada-san ] asked the question about the percentage of the Blue Ribbon delivery was mentioned, and I still do not understand how that works. So when the Blue Ribbon delivery goes up, why is the ad number goes down?

The second question this time, the domestic shopping, 7.9%. Excluding ZOZO, it will be a little bit lower. So earlier in the explanation, PayPay Festival was mentioned and the delay. But as for LINE GIFT year-on-year, 82% growth. So what I would like to ask is that were there any problems or the issues? Or 7.9% was achieved by making the full effort.

So should we understand that the e-commerce market is weak? Or were you beaten by the competitors, although the market is strong? So could you explain the background behind 7.9%? That's my second question.

[Unknown Executive]

First point will be answered by Ozawa-san. The second part will be explained by Mr. Sakaue, CFO; and then Ozawa-san would also answer to your question.

[Takao Ozawa, executive]

Yes, about the percentage of the Blue Ribbon delivery and the user option, from the customer's perspective, BR option, that is to say that the high ranking in search is likely to sell. So when it sells, a BR option cost is something that we can receive. But in the order of the search, if it is the Blue Ribbon delivery, it will go to the higher ranking.

So from the user's perspective, the high-quality delivery is selling well. And with the BR option, it's not setting that much. So if that is the case, for Yahoo!, we are receiving less; but from the user's perspective, they can get delivery quicker and satisfaction increases, and the repeat rate increases. So that's what we are seeing.

So in the short term, the BR option products are not sitting so well, but the certain level of revenue decline would happen. But in the medium to long term, the repeat rate goes up. Therefore, revenue would increase. So that's what we believe, and that's why we are taking this measure. That's all about the first point.

[Ryosuke Sakaue, executive]

Yes. I'd like to add to the second part of your question. In Q1, what we did in the previous fiscal year, what we call [ Tokomori ] campaign and this campaign was stopped from this fiscal year, and that's one of the factors. We want to improve the quality of the services. So as for the sales promotion, we want to be focused on the efficiency. So in commerce business, if you look at the PL table, the sales promotion is declining year-on-year. And that is the result of what I talked about. As for the e-commerce as a whole, the macro trend, Ozawa-san will make some additional comments.

[Takao Ozawa, executive]

Yes. First, whether there were major issues or major failure as a background? No, that is not the case. So yes, is Yahoo! weak or overall trend weak? I think that there are different reasons. The second wave of COVID-19 right before that, the reopening led to the customers to the physical stores, the real stores. So overall decline was something that we suffered but also the e-commerce as a whole.

And as for the -- specifically about Yahoo!, I think that probably our impact was a bit larger based upon the Yahoo! -- the market share. So maybe we are -- since we are #3, our impact was higher. But as Sakaue-san said, the reasonable control was done. And as a result, this number was achieved. And this number, we believe, is a reasonable level.

[Operator]

Now we are approaching the ending time, so we'd like to entertain the last question. From CLSA, Mr. Oliver Matthew, your question, please.

[Oliver Matthew, analyst]

First question, please clarify on PayPay card. When does this transaction happen? How much cash will you receive? How much revenue and profit does PayPay card make annually? And how much was the -- how was the valuation determined?

A second question, could you explain why you need to compete with Rakuten card? PayPay is a QR code company. What things can you not do with PayPay that you need a credit card for?

[Unknown Executive]

The first question will be answered by Sakaue and second by Kawabe.

[Ryosuke Sakaue, executive]

Regarding the card transaction, October 1 is the scheduled transaction date. And it will be a cash transaction for the sale, and we don't -- sorry, we don't disclose the transaction value. We have the Governance Committee with the external directors. We have had a series of discussions. And also in Japan, credit card companies, there are several listed companies. So we looked at the comp with them, and multiple will be more than that because of the future growth potential. That is the price. And with the understanding of the external directors, we have decided to sell on that basis.

Regarding the performance of PayPay cards, please look at the appendix material if you will. That's on Page 34 of the appendix. I'd like to give you the OP number. Last year, JPY 7.8 billion was the OP last year. And lastly, regarding PayPay, Y card business, not to our business only for PayPay -- sorry, that was to be answered by someone else.

[Kentaro Kawabe, executive]

Yes, Kawabe speaking, I'd like to answer your second question. In simple terms, PayPay is a payment player, and PayPay to provide -- evolve into financial service player, they needed a PayPay card. So that is how we see that in other words.

So money that they have right now for payment, that is PayPay. But for the Atobarai deferred payment or using the revolving payment to charge interest rate from the users for the Atobarai or for card loan services, in order to -- for PayPay to do these financial services, right now, all of the licenses exist with PayPay card. Therefore -- and also as well as the management know-how and credit screening know-how as well. So those all reside with PayPay card. So I'm not sticking -- adhering to the plastic cards themselves.

So we are interested in PayPay card's financial license as well as know-how and talent by. Having it under the consolidation account, PayPay as a financial service player, we think that we can grow.

So strategically even if we have to change the structure, we thought that we should do this. So regarding other companies, Rakuten card on its own, on a stand-alone basis, we are not competing. We are thinking about both QR code and payment services as a whole. So for both of them, for Rakuten card and financial services, we are looking at the Rakuten card as a comp company and compare and benchmark with them. That's our intention.

[Operator]

With that, we'd like to end the Q&A session. Lastly, I'd like to invite Mr. Kawabe to say a few words.

[Kentaro Kawabe, executive]

We have exceeded the planned time. Thank you very much for all the questions. About Q1 and Q3, usually, I don't attend. It will be presented by CFO only. But this time, there is a consolidation of the PayPay and also the synergy and strategy. We needed to explain them.

So I participated myself. In the past, the business results briefing about the consolidation of the PayPay was one of the questions. And it was not decided then. So how the Z Holdings can contribute to maximize the PayPay is something that we have been telling other group company.

And I think my view was accepted, and it was -- it is now becoming the consolidated subsidiary. So we can foster and develop PayPay and LINE, Yahoo! and PayPay. It's quite rare that we have this type of conveniences that we can provide to the users and we can do that.

So we would like to keep our confidence. And as a result, of course, like to grow the revenue and EBITDA -- the adjusted EBITDA in the medium to long term. So I hope you would continue to understand and have this type of discussions with you.

And thank you once again for participating despite your very busy schedule. And I hope you will continue to support us. Thank you very much.

[Operator]

With that, we'd like to end the conference call of Z Holdings. Thank you very much indeed for staying until the end.

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