Z Holdings Corp

TSE:4689

Earnings Call Transcript 2023-Q2

[Operator]

[Foreign Language] [Audio Gap]

[Interpreted] Mr. Hwang In Joon, Senior Managing Corporate Officer as well as Chief Global Investment Officer and Global Business CPO; as well as Mr. Ryosuke Sakaue, Senior Managing Corporate Officer as well as Group Chief Financial Officer.

We will first ask Mr. Kawabe and Mr. Idezawa to go over the results for Q2 FY 2022. After that, we will have a Q&A session. We expect the entire session to last for 1 hour and 30 minutes. This session is also live streamed. Those of you who are attending via live streaming, if you have any trouble in regards to audio or video, please switch to another server, which is shown at the bottom of the screen. With that, we will start the presentation.

[Kentaro Kawabe, executive]

This is Kawabe from Z Holdings. Thank you very much for attending our announcement for Q2 results of FY 2022. Today's presentation will be given by our Co-CEO, Mr. Idezawa. And so please move on to the next page.

[Takeshi Idezawa, executive]

This is Idezawa for Z Holdings. So here, we have the topics for Q2 results. Revenue increased in all segments this quarter, marking JPY 394.3 billion, which is the highest-ever second quarter revenue. Even under the unstable macro environment, our adjusted EBITDA marked approximately 50% progress versus our full year's guidance. As for our consolidated performance, LINE Account Ads maintained a double-digit growth and Yahoo! JAPAN's search advertising groups grew 6.3% year-over-year and LINE VOOM also found steady growth in various KPIs.

Travel business also performed well. Thus, our e-commerce transaction values achieved double-digit growth. Also PayPay's deficits have steadily decreased due to transaction fees charged to SMB merchants. We announced consolidating PayPay this July, but still have maintained our full year's revenue as well as our adjusted EBITDA guidances.

Please turn to the next page. Here, we would like to move on to each of the agenda points you find on this slide. Moving on. First, we will cover the consolidated business results for the whole group.

Please move on to the next page. Even under a challenging macro environment, we have marked a record-high second quarter revenue. Adjusted EBITDA, on the other hand, decreased due to the absence of YJ FX sales gain and execution of strategic investments.

Please move to the next page. Here's our FY 2022 policies to achieve our guidance. PayPay's consolidation was not factored in our initial guidance and will become a downside factor to our adjusted EBITDA. We're also finding revenue decrease mainly in our Media Business. In order to absorb these impacts, we will optimize our cost across the company to convert our management to a more robust and muscular one.

Specifically, we will implement efficient sales promotion mainly in our commerce and strategic business segments and pursue cost optimization in line with the business environment. We still expect changes in the macro environment continue to pose uncertainty. But nevertheless, we aim to achieve our adjusted EBITDA guidance standing between JPY 331.5 billion to JPY 340 billion.

Please move to the next page. Here, we show results of our strategic investments. In Q2, we executed a strategic investment of approximately JPY 11 billion, mainly in our commerce business. Due to consolidation of PayPay Corporation, we expect better efficiency in capturing new PayPay Card members and that is why we had not implemented strategic investment towards PayPay Card even in Q2.

In light of uncertain business environment for Q3 and onwards, we mean to make decisions in a flexible manner, carefully reviewing our investments, focusing on profitability and returns.

Please turn to next page. Here, we show our status in ID linkage. Establishing data governance structure is ever more requiring further prudent measures, but the reason heightened regulations for personal information protection as well as social changes. On the other hand, system development for ID linkage are progressing smoothly without major delays as we schedule to begin ID linkage from 2023 and onwards.

Please move to the next page. Here, we show results of business integration and our future road map. Ever since business integration in March 2021, we have promoted not just ID-linkage efforts, but have also promoted product and sales collaboration, integration of overlapping areas and selection and concentration of business and so forth. In addition to initiatives to create synergy between the 2 companies, we've also pursued measures to further enhance each company's strength.

PayPay Corporation has been consolidated since October. And now with the profoundly powerful customer base with LINE, Yahoo! and PayPay, we will further focus on generating synergies from the entire Z Holdings Group.

Next, about topics in business results by segment. Please move to the next page. Starting with our Media Business. Please move to the next page. Here, we show market impact and challenges for our Media Business. Japan's advertising market is steadily digitizing, but yet continues to be affected by macro and business conditions, especially in our display ads, decreasing advertisement demand.

On the other hand, Z Holdings' uniqueness were our account ads and search ads are less affected by market conditions and are demonstrating product strengthen amidst this difficult business environment. Please move to the next page.

This slide shows advertising revenue per line. Account ads continue to acquire new customers as well as to find increase in ad distributions by major clients, thereby maintaining strong double-digit plus growth, driving growth of our entire ad business. On the other hand, display ads were affected by economic conditions, declining ad demand in some industries and in those markets. And this we saw a slight revenue decrease versus last year.

Next is our total advertising revenue for Yahoo! JAPAN. Search advertising performed well even in this unstable macro environment due to its ease and measuring of its effectiveness. Display advertising, on the other hand, not only experienced absence of last year's Special Olympics demand this time but also a decline in advertising demand due to macro factors and thus marking result at the same level as previous year.

Next page. This slide shows product-specific initiatives based on market impact. Display ads are observing slowdown in advertisers' demand due to changes in business conditions and to counter the environment changes, we will strengthen measures for video or app advertising, which are growth areas. Account ads continued to mark double-digit growth amidst a tough business environment. And here, too, we will further pursue growth by revisiting fee plans, reinforcing CRM features and enhancing sales activities. As for our search ads, we will further refine and polishing our products, including enhancement to search results.

Next page. Here, we issue updates on major initiatives for LINE VOOM. After the renewal to LINE VOOM last fiscal year, we find various KPIs growing steadily with improved products and utilize the profound user base of LINE. From here, we will further aim to offer differentiating content through acquiring and developing creators and improve user experience by enhancing functions to create video experience for the growth of video advertising.

Please move to the next page. Here we show updates on LINE Official Account and measures. As LINE becomes more prevalent as communication infrastructure with customers, we find more people using LINE Official Account and a steady increase in number of paid accounts as well. In addition to leveraging Z Holdings Group, which touch points to its maximum, we will promote use through product reinforcement and stronger monetization so that LINE Official Accounts will be used furthermore.

Please turn to the next page. Next, I'll explain our commerce business. Please turn to the next page. As Yahoo! Shopping and PayPay Mall merged on October 12 and the renewed Yahoo! JAPAN Shopping started, I'd like to talk about the progress. First of all, merchant's applications for our promotion package plans have been strong, and the percentage of transaction volume accounted for by stores subscribing to the paid option has increased by more than 30% compared to before the integration.

Measures to increase Blue Ribbon stores also developed steadily with the ratio of Blue Ribbon delivery services doubling from the previous fiscal year after the integration of sales platform. In line with the integration of the sales platform, sales promotion measures have been simplified to improve recognition as a main e-commerce store used on a daily basis. The integration of the sales platform proceeded smoothly and the transaction value is trending firmly. The base campaign will be restructured to make the mall simpler and easier to understand.

Please turn to the next page. Next, I would like to explain the investment policy for the Commerce business. After the integration of the sales platforms, for the mall-type EC, we will focus on user-retention rates and LTV aiming to achieve stable growth in transaction value. We have been focused on sales promotion measures to grow transaction value in the past. But as shown in the graph, we have been improving the efficiency of fixed points that are awarded.

On the other hand, we will make disciplined investments in acquiring new customers, focusing on continuation and retention. In addition, we will make improvements on the product itself and further increase efficiency of sales promotion expenses in line with the integration of the sales platforms. By reviewing our investment policy, we'll create a sales platform that can grow stably while streamlining sales promotion expenses as a percentage of transaction volume.

Please turn to the next page. Next, I'd like to explain about LINE Gift, the social commerce product. The LINE Gift platform is something only Z Holdings can provide, and we will continue to develop and invest into it with an eye on the future. The use of LINE Gift for seasonal events have been growing steadily and the online gift-giving is becoming customary. We are also expanding our product lineup, including cosmetics-related products, which have seen a significant increase in transaction volume. As a new measure, we'll further expand transaction volume by linking LINE Gift and Shopping -- Yahoo! Shopping order data and enriching the number of products.

Please turn to the next page. Next is overseas e-commerce. The e-commerce markets of Taiwan and Thailand, our focus markets, continue to grow. We are expanding LINE's easy transaction value. In response to changes in the macro environment, we will be conscious of investment discipline as we strive to improve profitability by making a sectional improvements to our product.

Please turn to the next slide. This slide shows the results of e-commerce transaction volume. Overall, e-commerce sales continued to achieve double-digit growth, reaching JPY 1,026.2 billion. In addition, the resumption of the economy has led to strong growth in the travel business and domestic service-related EC recorded high growth of 41.1% over the previous fiscal year.

Please turn to the next slide. This slide shows the results of domestic merchandise sales transaction value. The impact of the resumption of the economy was relatively limited with both the shopping and reuse businesses growing steadily, up 8.7% and 8.8% year-on-year, respectively. But due to the closure of some services overall, domestic merchandise transaction value was plus 7% year-over-year with the closure of OT Direct.

Please turn to the next slide. Finally, I'd like to explain our strategic businesses. Please turn to the next slide. First, we'll discuss the goals and key measures for PayPay and PayPay Card. We will strive to expand the combined use of QR code payments and credit card payments and aim to improve ARPU. Regardless of the payment method, whether it be QR code or credit card, et cetera, we will provide a seamless payment experience that starts from the app, enabling PayPay payments in a variety of scenarios.

For example, we provide immediate notifications when PayPay and PayPay Card are used and for -- and plan for a centralized management of statements and integration of benefits to PayPay's step in the future. In addition, Z Holdings plans to introduce an attractive Gold Card that is unique to us.

Please refer to the next slide. The next chart shows the growth of PayPay before and after the consolidation. The number of PayPay point users has exceeded 7 million and a number of PayPay insurance mini-app subscribers has exceeded 1 million. The financial services based on PayPay are steadily expanding. Monetization measures in areas other than payments are also making steady progress.

Please turn to the next page. This is an overview of PayPay's business. A number of registered users exceeded 15 million as of August 2022. GMV also continues to steadily grow, and we aim to expand the business even further through the consolidation. Revenue growth is accelerating after starting to charge transaction fees to SMB merchants since October last year.

EBITDA's currently in the red, but we will promote measures so as to turn the business profitable but providing a seamless payment experience together with PayPay Card and acquiring new members more efficiently.

Please turn to the next slide. Here are some major KPIs for the payment and financial businesses. With the consolidation of PayPay, the transaction volume of PayPay Card remained steady from the previous fiscal year although the execution of strategic investments was restrained. Deposits at PayPay Bank extended from the previous fiscal year despite changes in the business environment. In addition, we are seeing a steady expansion in LINE Securities since the start of the services. As of end of September, after 3 years, over the shortest period of time, we have been able to exceed 1 million accounts.

Next, I'd like to talk about the forecast for this fiscal year. Please turn to the next slide. Revenue due to the -- decline in the revenue from Display Ads, PayPay consolidation has not been accounted for, which will be an increase for revenue. Adjusted EBITDA due to the consolidation of PayPay and the decline in Display Ads is going to be a declining factor, but in order to absorb this, we will be optimizing costs and we'll be moving towards leaner management of the company.

So revenue as well as adjusted EBITDA, we have decided to maintain our beginning-of-year guidance. The macro environment will be watched closely so that we could raise profitability even more.

Please turn to the next slide. Finally, I would like to explain the remeasurement gain from the PayPay consolidation. We expect to record a remeasurement gain of JPY 148 billion from the business combination in the third quarter of fiscal year 2022. We do not expect any impact of income taxes on the remeasurement gain. We have made bold investments to win in the cashless payment market and in just 4 years, we have established ourselves as the leading cashless payment infrastructure in Japan. We will recover a large return on investment, and we'll strive to nurture the business into the third pillar of our operations following media and commerce.

Please refer to the next slide. This concludes my presentation. Thank you for your attention.

[Kentaro Kawabe, executive]

We apologize that the audio was severed for a moment during the presentation. Next, we would like to move on to Q&A.

[Operator Instructions]

So now we would like to move ahead into the Q&A session. Thank you.

[Operator]

We will first take questions from Mr. Maeda from SMBC Nikko Securities.

[Eiji Maeda, analyst]

I have 2 questions, so I'd like to ask all at once. So first of all, LINE Display Ad, this is declining in terms of the profit. And I know there's the market environment. But I do feel that you are finding a deep drop. You have been -- of course, there has been the activities that you have been working on last year, which there is an absence this time. So I understand this, but what -- how do you assess this? And so when do you think this trend is going to continue? That's my first question.

My second question is about cost. Are you all trying to appropriate the cost, reduce the cost to make sure you'd be able to have better EBITDA? Where are you going to be controlling? And as a result of cost control, would there be a rebound in the cost, in other words, cost to increase in next fiscal year? So I'd also like to hear your thoughts about how you expect your cost to go in the next fiscal year? That's my second question.

[Takeshi Idezawa, executive]

Yes. Thank you. For the LINE Display Ad -- this is Idezawa. I'd like to answer your question. Just as you pointed, Display Ad, it is true that we're finding a decline year-over-year in terms of performance. Of course, this is because the demand is low unless this sluggishly slowing economy. But then if we try to look at this per product per service, this is something that we did to go over in our presentation, but we, at the moment, are trying to push LINE VOOM into a short video platform.

And as in terms of KPI, we know we are making very good progress. In other words, people are looking at these videos longer time. But then when we look at the ad -- advertisement side, ad client, some of the ad clients, we do see some change. And along that, CPM is attentively dropping. And so it has to do with the market environment, but also those changes in what we're doing with Line VOOM in terms of service, and that is why we're seeing a decline this time around.

Now what is our outlook from here? Now in terms of the economic outlook, we do have to expect the situation is still going to be tough. On the other hand, on Q3, this is going to be the high season of the year. We do expect there is going to be expansion of demand. And so we do want to make sure we'd be able to keep up our good work.

Now also within our guidance, we talk about Display Ad in the range. The range here, we did make a change or revision here. And so it does seem like we are showing a weaker outlook this time. And so that is the current explanation I can offer you. So that's my response.

So the second question will be answered by CFO, Mr. Sakaue.

[Ryosuke Sakaue, executive]

Yes, this is Sakaue. FY 2012, the second half cost, there are 3 factors behind this, first is Yahoo! Shopping, cost optimization, rationalization by integrating some of the shopping space. And second is about the strategic business. In other words, fintech business, be it Yahoo! or LINE or this is about PayPay or LINE brand and how to put more efficiency in the acquisition. And also, this is something that would have to do with our business that we'll be doing. But then when it comes to like personnel, like hiring costs, we do want to control there.

So we do want to make sure we'd be able to optimize the cost, which follows the current environment trend. And this is something that we do believe we'll be able to control by like JPY 30 billion. This is something that we expect to happen in FY '22.

Now how is that going to impact our cost outlook for FY '23? Now you did hear from Mr. Idezawa, we -- that we still do expect a tough business environment for FY '23. This is something that we all agree amongst the management here. So again, in FY '23, too, we are going to make sure that we'd be able to optimize the cost, especially around our fixed cost. That's our thought now.

Now I think this is going to be a very good opportunity for us to revisit how we manage ourselves, in other words, to make sure we'd be able to convert ourselves into a more robust management and also for FY '23.

In addition to what we're doing, especially for the strategic business, there will be some business that still would be making a loss because it has just started. We expect, even though there could be a loss, that amount of loss would be lessened. And so that is how we expect to find growth in terms of our profit.

Excuse us, because the audio must have been very hard to hear. Does that answer your question?

[Eiji Maeda, analyst]

Well, I do want to ask a bit of a follow-up to my first question. Again, you talked about LINE VOOM, the impact there. Now yes, there was this Display Ad were stuck there because of how well you'll be able to stream the advertisement there. Now should I expect the current situation to continue for like the next 12 months? And afterwards, there is going to be an acceleration to the contribution of our business? In other words, is it going to start growing after a year?

[Kentaro Kawabe, executive]

Thank you for that question. Yes, just like you mentioned, the change that we're doing, this is something that we are doing intentionally, LINE and Yahoo! Display Ad. We are trying to offer more video contents and ad video contents and this has been something that we wanted to work on. And so here, we'd like to make sure that we'd be able to make good progress. So the service KPI is making good progress there.

So we are sort of fine-tuning our business to strike the right balance between the content and the service that we'll be able to offer. And we expect that we should be able to find an acceleration improvement, and that's our current plan. So that is my response. Thank you very much.

[Operator]

So the next question is from JPMorgan Securities, Ms. Mori, can you unmute and go ahead with your question?

[Haruka Mori, analyst]

I have 2 questions as well. Both may overlap with Maeda-san's question. One is about mine display ads. The negative number was a little bit shocking. According to your explanation, you were talking about VOOM or the former time line that has been dropping. And apart from that for news were talked view for those areas, it seems that it continues and maintains positive growth. Is that the way I should look at it? Is that correct?

And also for the second half for LINE Ads, when you do the deduction and get the guidance for the second half, I think it's going to be flat or 10%. But for Account Ads and for Display, if you were to break it down, what is your outlook for the second half of the year? If you can give me some numbers, that would be great.

So my second question is about next fiscal year and the JPY 390 billion number that Sakaue-san was giving out earlier. Can you break that down digitally a little, meaning JPY 50 billion, JPY 60 billion increase in profit is what you're probably going to strive for and you're going to make cost execution more efficient for your existing businesses, and you're going to have less loss-making businesses. And as you've mentioned from before, there are fluctuations around investments.

So what's your stance on that? And what is your outlook on PayPay as well looking out into next fiscal year? And how would you like to achieve the expectations? And you have a diverse range of businesses in place. And when there are a lot of things we can't notice from the outside. And are you going to make your business portfolio leaner or slimmer going forward? Do you have any intentions of doing so?

[Kentaro Kawabe, executive]

Thank you very much for your question. Regarding the first question, Idezawa-san will answer your question. And the second question will be responded to by Mr. Sakaue. So Idezawa-san, please.

[Takeshi Idezawa, executive]

Thank you very much for your question. In line from other Media Services point of view, for each of the services we have, demand has been subsiding lately. So we have been able to maintain business out flat on a year-over-year basis. On the other hand, for VOOM, it's in a structural-change phase. So it is moving in an extraordinary way. So that's the overall picture.

And regarding the breakdown, we do not give out detailed disclosure, unfortunately. But if you refer to the details, you'll probably know, but for Official Accounts, it continues to be firm. So it's probably in the high teens. And for the other products, it is not growing as much. That's pretty much the mix.

[Ryosuke Sakaue, executive]

Regarding the second question, at this point in time, this might be redundant with what I've already explained. But right now, by segment or you were saying you want more digital information. We still have uncertainty around where we're going to end at the end of the year upon finishing the second half. So we'd like to give out more guidance upon finishing the year.

And of course, we would like to quantify various things. But I think structurally, there are 4 factors qualitatively. Top-line growth leading to profit growth, which is unpredictable at this moment, we believe the hurdle is high. Therefore -- so this is overlapping also what I've said about fixed cost optimization and regarding investing into strategic businesses as well as reducing the losses that are being generated by our strategic businesses is what we would like to do in order to achieve the plus JPY 50 billion to plus JPY 60 billion growth in profit by implementing the 2 measures that I mentioned, in particular.

And Mori-san, regarding making the business slimmer, consolidating the businesses as well as being more selective and having focus. First of all, we made an announcement around the sales of the Livedoor business, for example, because we wanted to increase the profitability of our business and to make management more leaner. So we have been having discussions internally, and we would like to continue to implement these measures in fiscal '23 as well. Although this was qualitative, that was -- that's it for me.

[Kentaro Kawabe, executive]

And this is Kawabe speaking. Regarding the second question, I'd like to follow up on Mr. Sakaue's comments. Next year, JPY 390 billion EBITDA record high is the commitment we have made and we are determined as management to achieve this expectation. Therefore, as Mr. Sakaue just explained, there are some existing services that we are delivering where we are not expecting substantial growth or expecting sustained losses.

In that case, we would like to ensure that we slim down the businesses by taking bold action. So the co-CEOs will exert their leadership so that next year's JPY 390 billion can be achieved no matter what. On the other hand, there is uncertainty around economic sentiment and the uncertainty is growing. Therefore, at the top-line level, if the market is going to cause any significant changes in that case, we would like to make announcements swiftly, accordingly as well as in a timely manner. But we would like to make the year progress next year with determination. So that was a follow-up comment from Kawabe. Thank you for your question.

[Operator]

Next question will come from Mr. [ Manakata ] from Goldman Sachs.

[Unknown Analyst]

This is [ Munakata ] from Goldman Sachs. I also have 2 questions. My first question is about your e-commerce business. So in your new guidance, when I look at it, it seems like GMV has been kept. But then the adjusted EBITDA is now revised upwards. I think this is how you made it. Now you're going to be controlling your investment, but you still are trying to expect growth in GMV. Why do you think this is possible?

And let's say, if this year, if you're going to be holding down specific strategic investment, is that going to hinder growth in the following year? Can you give us your thoughts here as well? My second question is about your ad business, in the advertising. Yes, you talked about the slowdown of the economy. But then how do you expect this is going to impact you?

Now LINE or Yahoo!, let's say, like in the second half., how much of that economic impact have you baked in, in your outlook for the second half? And let's say if the economic -- economy is going to become even more sour, do you think you'd be able to still keep your guidance by, for example, slimming down your cost even further? Do you think there's more options like that? That's my question -- second question.

[Kentaro Kawabe, executive]

Thank you very much for your question. So your first question, this is about e-commerce. And so Mr. Ozawa will answer. And then your second question will be answered by Mr. Sakaue. So Mr. Ozawa, please.

[Takao Ozawa, executive]

Yes, this is Ozawa. Thank you very much for your question. So from this year or to be more specific for the second half, the cost here will be about point -- the cost per point will be controlled more. And we're going to be very mindful about P&L. And this is exactly what we have been expressing.

Now the impact to GMV, would there be any impact to e-commerce GMV? Now in the first half, the growth rate was -- is low. This is something that we have been aware. But then we are going to keep our guidance, and this is because we're looking at the full year's. And so this was the 15% range growth in the first half. And so in the second half, we're expecting that the growth rate is going to slow down.

But then if you -- but that's what we expect. And with that, we have the full year's guidance. Now what is going to be your assumption for next fiscal year? Again, as we look into the entire P&L, how much can we invest in our e-commerce is exactly something that we are revisiting. Now even if there is going to be a slowdown in the growth in the second half, we do not expect that is going to immediately impact the growth in the coming year.

But again, we, at the moment, are focusing on the P&L. We want to be very disciplined in deciding how much we want to invest. And so once we have the further guidance, we hope we'll be able to share more information in that regard. So that's my response.

[Ryosuke Sakaue, executive]

So this is Sakaue. I will answer your second question. So for LINE Advertisement, basically, we expect it is going to slow down or stay pretty flattish versus Q2. Now Yahoo! Advertisement, the growth rate we saw in Q2 will slow down. And it is something that we have factored in, in revisiting -- revising our full year's guidance. Now you did hear earlier from Mr. Ozawa but Yahoo! Advertisement does include some shopping advertisement to some extent. And so that's also something that we also looked at when we revisited our guidance.

Now do we expect a further dampening of the economy? Now you did hear from Mr. Kawabe earlier on. Now if the economy dampens even further, we will make sure that we then will share with you our thoughts at that point of time, but that's my response.

[Operator]

The next person is from Citigroup, Tsuruo-san, over to you.

[Mitsunobu Tsuruo, analyst]

Yes, I'm unmuted. I also have 2 questions. My name is Tsuruo. My first question is regarding the JPY 30 billion decline in profits. And you were saying that media and PayPay consolidation was affecting this. So can you break this down? Because I'm looking at Page 30 and your guidance. This is the new EBITDA guidance based on the cost reduction measures you're going to take. So I would like to have a better understanding by segment.

And secondly, with PayPay consolidation, it's great that there's no impact on EBITDA. But for impact on other key financial KPIs, apart from the revaluation gains, I would like to learn more. One is about the gains and losses associated with the consolidation. And no taxes are going to be incurred, but at the tax level, the equity portion -- accounted portion is going to be deducted, right? But for the balance sheet, total assets and debt, how much of expansion are you expecting due to the PayPay consolidation? So those are my questions.

[Kentaro Kawabe, executive]

Thank you very much. For both of the questions, Mr. Sakaue will take them.

[Ryosuke Sakaue, executive]

Regarding the JPY 30 billion negative decline in profits, for PayPay consolidation, a little bit over JPY 20 billion is the contribution. And the other is the Media segment challenging revenue. So the balance, which is less than JPY 10 billion. So that's the breakout. Secondly, regarding the PayPay consolidation and the impact on key financial indicators. First of all, for the P&L, for top line, there is a positive impact. Therefore, for the fintech business or strategic business, we have made an upward revision due to the consolidation of PayPay.

For the overall revenue for the company, because we have revised down the outlook for Media, we have left the guidance the same for the entire company. So PayPay consolidation doesn't really contribute to the overall revenue guidance for the company. And for the evaluation gain in Q3, JPY 140.8 billion will be recognized, and it's above the operating profit level where it's going to be recognized.

This is the gain associated with the 33% stake. So it will cascade down to the net profit level as well. With Tomokazu, we are still having discussions, which is our auditor. So there might be some fluctuation, but that's our basic way of thinking. For the balance sheet and the integration as a group, the consolidation will start in earnest from the third quarter.

So at that point in time, we would like to give you -- walk you through the actual details. But as of end of September, for assets, JPY 700 billion plus was added. And more than half of the JPY 700 billion is associated with deposits liquidity. Because of the structure of PayPay, the users charge their accounts, and that is reflected as deposits on the balance sheet. So that is the reason why.

For liabilities and net assets, it's about JPY 700 billion as well. Because it's the opposite account but we have the deposit which offsets the liabilities and net assets. So we will give you the details in Q3, presumably in our appendix. So we will make the disclosure then, but that's it for now. Thank you.

[Mitsunobu Tsuruo, analyst]

I have 2 follow-up questions then. My first question is, in your first explanation, you were talking about the Media business. And for this business, the deterioration in the earnings environment, JPY 10 billion is going to drop off. And you haven't really accounted for cost reduction? And is it there any space for cost reduction? That's my first question. Can you take that first?

[Kentaro Kawabe, executive]

Thank you for that question. To a certain extent, for Media as well, we are intending on engaging in cost reduction. But compared to commerce, acquisition fees is not really a big factor, structurally speaking. So that is why this is how it looks like.

[Mitsunobu Tsuruo, analyst]

So in the future, if you need to cut costs, do you think you will be able to or no?

[Kentaro Kawabe, executive]

I wasn't able to hear you well, apologies.

[Mitsunobu Tsuruo, analyst]

In the future, when it becomes necessary, will you be able to fix cost in a large way for Media? This time around, it seems that you don't have that much sales promotion costs associated with the business or variable costs. But if you have to cut fixed cost, will you be able to?

[Kentaro Kawabe, executive]

To a certain degree, yes. For example, information provision fees and content procurement are areas where we will confirm in the second half going into 2023 to see where there's opportunity to cut costs. And the second confirmation point is JPY 148 billion. I thought this was the consolidated gain, but for the entire company. But that's only 1/3. So which means the total valuation gain is JPY 450 billion. And SoftBank guidance was saying JPY 150 billion to JPY 160 billion. So the size is completely different from what you've been seeing. So can you talk about the mechanism behind this? I'm not really sure.

[Unknown Executive]

Well, for SoftBank's guidance, that's probably the beginning of your guidance, but please confirm that with SoftBank. But the way of thinking about it is as you could see in the presentation, at this moment, we have the fair value, fair price valuation of PayPay and a vendor that is for us, and the amount of stake, the investments we've made up until to date, we looked at its book value. And PayPay was a loss-making entity. So for the book-value portion, the book value continues to decline, and that was processed accordingly.

And the difference between the 2 elements creates the gain on remeasurement related to business combination, which is approximately JPY 148 billion.

[Mitsunobu Tsuruo, analyst]

I probably need to ask SoftBank, but the reason why this gain increased so substantially, was it due to changes in operation or because you were conservative? What changed in the past 6 months?

[Takeshi Idezawa, executive]

Well, the logic of how they issued their guidance at the beginning of the year is something I am not aware about the details of. So I think you should confirm with them.

[Operator]

Next from Okasan Securities, Mr. Okumura.

[Yusuke Okumura, analyst]

This is Okumura from Okasan Securities. I have 2 questions in regards to your Shopping part of business. Now within our Shopping business, GMV in Q2 was grew by 9%. So that was the actuals. It excludes LINE Gift. And so the pure mall GMV growth, I'm assuming it must have been a bit lower than that 9%, but -- so when you look at the situation, what is the impact from reopening to the e-commerce? And do you find that you've been able to win or lose against your peers? How do you assess yourself looking at how you were able to do in Q2? So that's my first question.

And also my second question, again, has to do with your Shopping business. So the malls integration that you talked about. So I think it was like on Slide 18 and onwards. But the promotion package, you said it was doing really well. And so what is the take rate from Q3? Like Q-on-Q or Y-o-Y, do you think it is going to -- you're going to find some growth because of this, the applications the promotion package plan?

And also for GMV. Within the earlier Q&A, I think you said versus first half, you're going to see a slowdown in growth rate in the second half. Now is this because of the economic impact or how do you assess the contribution or impact coming from the mall integration? Do you think it didn't really have much contribution to GMV growth, and that's why you're expecting a slowdown in the second half? So that's my second question.

[Kentaro Kawabe, executive]

Thank you very much for your question. So both questions will be responded by Mr. Ozawa.

[Takao Ozawa, executive]

Yes, thank you very much. This is Ozawa. So your first question, what is the impact from the reopening? Yes, we do expect there must have been some impact from the reopening of the economy. But then I think it all has to do with some of the activities that we've been seeing from the past. In other words, our existing users are purchasing more. And we did, of course, did campaigns, which seem to have fit well.

Also for the paid -- for example, the delivery, some of the paid option is also proving well. So reopening is, yes, one factor, but also the service enhancement is also playing its part. And so that is why we are seeing this year-over-year growth in the -- year-over-year growth. Now for the other numbers, and I hope you'll be able to follow up how this is going to trend. So that's my response to your first question.

The second -- your second question again, you talked about promotion package. And yes, it is doing well. And so yes, it was something that we knew that we had to do well. And so take rate, we didn't want to lower it. But still, we wanted to offer value being felt by the sellers. And so I think we have been able to do well in that sense.

So the PayPay Mall, we had taken 3%, but that's gone. But still, we have been able to cover up for that. And it's not like we're seeing an immediate ups and downs, but it seems like Q2 -- Q3, we seem to be well on track to be able to keep the previous trend. And if we -- and it's really within this 5% range, but it seems like we should be able to keep -- we'd be able to keep this good trend. And I think Sakaue can follow up, add on to my part.

Also, you talked about -- you said about excluding LINE Gift. Now the Shopping growth rate that we have disclosed. In other words, Yahoo! and the PayPay Mall, the growth rate is pretty much similar. LINE Gift is -- yes, it is growing. And the denominator itself is getting larger in that sense, but then Yahoo! and PayPay Shopping Mall, I mean, the absolute value, of course, is much larger. And so there will be a larger contribution coming from these parts. So that would be my follow-up comment.

[Yusuke Okumura, analyst]

If I can just add one follow-up question. So within the earlier Q&A, you said there has been some impact from the reopening. So when we say that, did you see some change in the frequency of the purchase? Like did you see any change in KPI? And that's why you said you do see some impact contribution coming from the reopening?

[Kentaro Kawabe, executive]

Yes, so reopening, the contribution coming from the reopening. It's not that we're seeing a specific change in KPI. In other words, it's not that we have been proactively trying to figure what the contribution is from the reopening, per se. So for example, if there's -- it's like we are seeing some growth in some segments.

And whenever we do some hearings to the shop owners, they're saying that, yes, they're seeing some favorable trend. And so that's really the feel that we have when I said seeing the contribution coming from the reopening. And so it's not like we saw this specific contribution through these trends. There must have been some takes and downs.

[Yusuke Okumura, analyst]

But then why do you expect the growth rate to decline in the second half, even though you're seeing a good moment right now? So that's my follow-up question.

[Ryosuke Sakaue, executive]

Well, sorry, I had not really been able to respond to your earlier question, and I think I need to follow up in answering your first question. So again, we have been doing some campaigns. And cost-wise, we have been really disciplined. So for example, last year or even in this first half, we have been launching campaigns. But compared to that, how much point people be able to enjoy is going to go down. And so the proportion of the cost per point against the GMV is going to go down. And so that is what -- that's the part that we expect to see some impact in.

[Operator]

CLSA, Mr. Oliver Matthew, please unmute and go ahead with your questions.

[Oliver Matthew, analyst]

2 questions. First question. Could you remind us what you think are the most important benefits from the ID linkage, please? Maybe if we could have comments from LINE and the Yahoo! side. So second question. You -- on PayPay app now, it seems PayPay Mall has disappeared and replaced by day-to-day mall or some new app. Could you tell us more about the changes there? And what synergies at PayPay will have with the Yahoo! Shopping business?

[Kentaro Kawabe, executive]

Thank you very much for your questions. I'll take the first question, this is Kawabe. And the second question, Mr. Ozawa will take that question. Regarding ID linkage, after conducted, the synergies that can be expected is, first of all, from a user point of view, LINE, Yahoo!, PayPay services will have a higher correlation therefore higher linkage. So it will be more convenient from the user point of view.

And from a business point of view, frequency of using the services should increase. And therefore, we'll have more opportunities to expose ads and sell through our e-commerce platforms. So that's the benefit from a user's point of view. And also from a business point of view, due to ID linkage, various pieces of data will be accumulated, especially for LINE advertisement, marketing precision will enhance and over the medium to long term.

If we're able to reach ID linkage of 80% or more, which we're targeting, the unit price for LINE Ads can go up by presumably 5% to 15%. And also for LINE, Yahoo!, PayPay, sales promotion or advertisement products that has linkage will be easier to provide. Target-wise, we would like to generate top-line worth of JPY 100 billion through this kind of linkage-based advertising products. And also, for LINE, PayPay, Yahoo! data, because we will be seeing an accumulation of the data, we'll be able to understand our users more and we'll be able to be more precise in the recommendations that are made.

So for the buyers of Yahoo! Shopping, their average spend or amount of users may increase. That's another benefit. And we would like to -- the number of buyers of the ads by double. And also by understanding users better, we will be able to recommend relevant financial products as well in our financial business. So we'll be able to increase the users.

And also for PayPay Card, we would like to increase the number of members by 3x by generating synergies. However, the more progress we make on ID linkage, the impact is going to become greater. But next year, if -- when ID linkage starts, we're not going to see an immediate result come through, it's going to happen over time. So it's going to happen in several years' time. That is the time range we are considering and generating synergies. So that was the first question's answer. So the next question will be taken by Mr. Ozawa.

[Takao Ozawa, executive]

For e-commerce at Z Holdings as well as Yahoo! Shopping to PayPay users, we would like to have them use our services as much as possible, and that's what we've been doing from the past. And specific measures where on the PayPay app, we had PayPay Mall so that PayPay users can use PayPay and accumulate a lot of points if they buy through the PayPay Mall. So that was a mini app through which we were providing our services and many users were buying products through PayPay Mall through the PayPay app.

So we wanted to make this longer. So we're doing 2 things. So PayPay Mall, Yahoo! Shopping, we integrated them together so that the sales platform can be consolidated. So up until now, there may have been some PayPay users that were just buying through PayPay Mall because they can accrue a lot of points. But now we are including Yahoo! Shopping products as well.

So all the products are subject and if they pay through PayPay, they can get plus 5%. And on top of that, on the PayPay app, up until now, PayPay users were using a lot of billing necessities and we have updated the offering on the mall so that we can increase the frequency because there are some customers who are using their service for the first time. They may have not been a Yahoo! Shopping user, but rather than trying to recommend Yahoo! Shopping, if it's [ water ], we could just give them a value approach that is at a reasonable price.

So we're not sure whether this initiative is going to work out well. We're midway in our efforts. But like I mentioned at the beginning, we want to capture as many PayPay users as much as possible so that they could use e-commerce at Z Holdings. So we're implementing a variety of initiatives, and we're going through a trial one, and this is one of the measures we're implementing. That's it for me.

[Operator]

[Operator Instructions]

The next question will be asked by MST Financial Services PTY LTD, Mr. David Gibson. So. Mr. David Gibson, can you please check your audio because we don't hear you. So as we wait for your audio, we'd like to entertain other person's question.

[Operator Instructions]

So David Gibson, please make sure you check your audio, but while we wait for you, we'd like to entertain questions from Ms. Mori of JPMorgan.

[Haruka Mori, analyst]

Sorry, this is my second time, but I wanted to ask follow-up question, given this opportunity. So for your equity loss. And I think in the others, you have more numbers in Q2. And so as a result, the PayPay part has gone down, but then overall, you're saying it hasn't changed. And so can you give us a little more information what you mean here? And also, as you look into the next fiscal year, anything below EBITDA, what is your outlook? Can you also share your thoughts?

[Kentaro Kawabe, executive]

Yes. Thank you very much for your questions. So we will ask Mr. Sakaue to answer that question.

[Ryosuke Sakaue, executive]

Yes, I will respond. So on that other's part, more than half of the others is what we do in Thailand. In other words, LINE Man. It's a food delivery service, and there is a loss there. LINE Man, we're trying to make this profitable. We're working on that. But still, it is a loss-making service. So that is why these others in FY '22, you're seeing a tangible figure there.

Now as we look down the road, yes, there will be some seasonal factors causing some ups and downs every quarter, but then even as we look into the next fiscal year, be it LINE Man service or be it other services that we'd be doing in Thailand or -- and be it in the bank business and -- this is something that we do want to make sure that we'd be able to boost likewise, the Demae-can service as well. So anything the loss for the equity method held businesses, we do want to make sure we'd be able to boost the biggest.

Now otherwise, anything below EBITDA line. So again, most would be, again, loss coming from equity method entities. But then, of course, there will be some other factors causing some plus or minus. But then again, it's really the equity method and entities that will be the larger portion of this. So that's my response.

[Haruka Mori, analyst]

And so also, EBITDA. So you -- so can we expect that from next year and onwards, there is going to be like a positive trend? So can you be clear? So the trend for EBITDA as well as net profit trend, do you think it's going to be moving in tandem?

[Ryosuke Sakaue, executive]

Yes, basically, yes, that's the idea.

[Operator]

Does anyone have a question?

[Operator Instructions]

From CLSA Securities, Mr. Oliver Matthews.

[Oliver Matthew, analyst]

Could you tell us more about competition? How much do you think the Japan Internet advertising market is growing currently? And do you see yourself losing market share or gaining market share going forward? And who are you targeting to gain market share from?

[Kentaro Kawabe, executive]

Thank you very much for your question. Our marketing and sales -- Mr. Idezawa, the Marketing and Sales Officer, will take that question.

[Takeshi Idezawa, executive]

Thank you very much for your question. Regarding the digital media market in Japan, it's shown on Page 11. It is expanding quite nicely and steadily compared to other countries around the world, compared to their digital ratio, we believe in Japan, there's still space to grow. Regarding the market, one of our features is we have search and display ads. And through LINE, we have CRM-type Official Accounts available. For search, we share the market with Google. So that's a pretty steady situation.

For Display Ads, currently, there is shift to video like YouTube as well as like TikTok, which is short videos. So those are the 2 major trends we're seeing in the shift to video. And for our case, we are attempting to grow this part of the business, starting off at LINE -- to LINE VOOM. And for the CRM Official Account, the LINE is a unique asset as is said the Holdings, and we don't face competitors. So overall market share-wise, in line with market growth, we are growing as well. But for video, our imminent challenge is to focus and grow the video offering we have. So that was the market environment as well as where we stand in the market. So that's it for me.

[Oliver Matthew, analyst]

Okay. Could I just check, do you consider PayPay coupons as an advertising product or not? And could you talk us through the economics of PayPay coupons? Are the brands paying something to PayPay to push these coupons? And does Z Holdings benefit from this?

[Kentaro Kawabe, executive]

Thank you very much for your question. I, Kawabe, will take your question and there might be someone who's going to follow up. So first of all, for PayPay coupon and what kind of service it is. Roughly speaking, it's an advertisement. So we have the advertisement aspect and the sales promotion aspect, and this is a typical sales promotion type of product. That's how we position it. Revenue-wise, PayPay merchants pays to PayPay. So Yahoo!, LINE does not recognize any sales. So, that's the end of my comment. Thank you.

[Oliver Matthew, analyst]

So how do they pay? They pay us some of the discount portion or they pay per click or -- what is the economics of PayPay coupon?

[Kentaro Kawabe, executive]

Thank you very much for your follow-up question. We have a director of PayPay, Mr. Ozawa, so he will take your question.

[Takao Ozawa, executive]

I will take your question. Regarding the source of the discount, the seller is going to shoulder the amount of discounts that are provided. And the manufacturer, in some cases, also broaden the discount. PayPay does not account for any of the discounts. But campaign-wise, in a rare case, there might be times when PayPay subsidizes a certain program. But they hardly shoulder the cost in most cases. That's it for me.

[Operator]

So next, from MST Financial Services PTY Limited, David Gibson.

[Operator Instructions]

Sorry, we still don't hear you, David. We still have not been able to hear from you. So I know you have your hand raised, but we hope you'll be able to send us your question later on. I'm sorry about that.

So with that, we are now coming to the end of this session. Or maybe we might be able to take -- just like a couple more questions.

[Operator Instructions]

We are now going to take a question from Mr. [indiscernible] Morgan Stanley Securities. Mr. Araki, please unmute yourself.

[Unknown Analyst]

Yes. Sorry, just one thing I wanted to confirm. You said there's going to be revaluation gain. And this is -- is this going to be counted in your adjusted EBITDA?

[Kentaro Kawabe, executive]

Yes. So we'll ask Mr. Sakaue to respond to that.

[Ryosuke Sakaue, executive]

Sorry, I know this is -- this must have been difficult to read from our materials, but it is not going to be counted in our adjusted EBITDA. Thank you very much.

[Operator]

So with that, the time has come, so we will end the Q&A session. So before we close, we will ask Mr. Kawabe to give a closing remark.

[Kentaro Kawabe, executive]

Yes, this is Kawabe. Thank you very much once again for joining this session, and thank you for staying with us til the very end. Now the progress for this fiscal year as well as how we are trying to go for the next fiscal year, we want to be very -- we do want to keep our intention in doing our activity. And we want to make sure that we'd be able to raise the better possibility in achieving our guidance. And that is why we are going to be making sure we invest. But then there's going to be more, of course, a rationalization, but the main focus is how we'd be able to make a more muscular robust management of this business.

But then, of course, when we look at the current economy, globally, there's more uncertainties. And so if there is even more uncertainty in the market condition, we do want to make sure that we disclose promptly to share with you our thoughts then. It's not that we have any plans at this moment to share with you our next views. But then I just wanted to make sure everyone knows that you will hear more from us if we find any changes. But with that, thank you very much for joining our Q2 result announcement.

[Operator]

Thank you very much, and we apologize that there were some audio troubles this time. So with that, we will close Z Holdings 2022 Q2 Results Announcement. Thank you very much for staying until the end.

[Statements in English on this transcript were

Spoken by an interpreter present on the live call].