Z Holdings Corp

TSE:4689

Earnings Call Analysis

Strong Q2 Growth Leads to Upgrades in Guidance and Continued Strategic Focus

In the second quarter of fiscal 2024, LINE Yahoo! Corporation saw a revenue increase of 4.7% year-on-year, reaching JPY 462.2 billion, while adjusted EBITDA rose by 9.1% to JPY 112.6 billion. Due to these strong results, the company raised its full-year adjusted EBITDA forecast by JPY 20 billion and adjusted EPS by JPY 4.1. Innovations in its product offerings are expected to drive future growth, particularly in account advertising and with service integrations with PayPay. Share buybacks totaling JPY 150 billion further enhance shareholder value and maintain market standing.

Strong Performance in Q2 2024

In the second quarter of 2024, LINE Yahoo! Corporation demonstrated solid growth, with total group revenue increasing by 4.7% year-over-year to JPY 462.2 billion. Furthermore, adjusted EBITDA saw an even more impressive rise of 9.1%, reaching a record high of JPY 112.6 billion for the same period. This growth reflected the overall health of the company, suggesting a robust business model and market presence.

Upward Revisions to Financial Guidance

Given these strong results, the company revised its full-year guidance upwards, increasing the adjusted EBITDA forecast by JPY 20 billion and adjusting the adjusted EPS upward by JPY 4.1. This upward revision indicates a positive outlook for the remainder of the fiscal year, showcasing the company's confidence in sustained performance across its segments.

Segment Performance Insights

The performance across different segments has also been encouraging. The Media Business experienced revenue growth driven primarily by account advertising, which rose by 18% year-over-year. The adjusted EBITDA for this segment increased by 7.8%. Meanwhile, the Commerce Business showed resilience despite impacts from deconsolidation of subsidiaries, still managing to grow in areas like Yahoo! Shopping and Travel with transaction values expanding significantly. Importantly, the Strategic Business, chiefly composed of PayPay, contributed to a strong revenue uptick of 16.8%, highlighting growth in payment services.

Shareholder Returns and Capital Allocation

In terms of shareholder returns, LINE Yahoo! Corporation implemented a substantial share buyback program amounting to approximately JPY 150 billion. By the end ofSeptember, around 6.4% of total shares issued were cancelled, enhancing shareholder value. The company targets a cumulative payout ratio of over 70% over the next five years, similar to the previous five-year period. This aligns with the management's strategy to ensure shareholder returns while navigating future growth opportunities.

Ongoing Investments and Strategic Initiatives

Management emphasized the company's commitment to disciplined investments while strengthening product offerings, particularly through features like Official Accounts and MINI Apps. The management highlighted that the LINE GIFT service growth, expected at approximately 30% year-over-year, underlines the company’s strategic direction towards enhancing e-commerce capabilities. Continuous improvement in financial services, leveraging synergies with PayPay, remains a core focus.

Future Growth Prospects

Looking ahead, the guidance for fiscal year 2025 anticipates an adjusted EPS of over JPY 20, emphasizing both resilience in their business model and a strategic focus on capturing additional market share. The management expressed a clear commitment to improving their competitive positioning in the face of market shifts, particularly in the advertising domain, where video engagement and UI/UX improvements are pivotal.

Conclusion: A Promising Path Ahead

Overall, LINE Yahoo! Corporation's Q2 results indicate a company that is not only experiencing growth but also effectively managing its strategic objectives, including improving profitability and expanding its service offerings. With robust revisions to guidance and a clear roadmap for capital allocation and product enhancement, investors have much to look forward to in the coming quarters.

Earnings Call Transcript 2025-Q2

[Operator]

[Foreign Language] In today's briefing session, we have the participation of Mr. Takeshi Idezawa, President and Representative Director and CEO; Mr. Ryosuke Sakaue, Executive Corporate Officer and CFO; Mr. Yuki Ikehata, Executive Corporate Officer, Marketing Solutions Company CEO; and Mr. Makoto Hide, Executive Corporate Officer Commerce Company CEO.

First, Mr. Idezawa will explain the financial results for the second quarter of 2024. We will then conduct a Q&A session. This session is scheduled for 1 hour. And this session is also broadcast live. If there is a problem in the audio or video, please try another server from the bottom of the screen.

We would like to start the session now.

[Takeshi Idezawa, executive]

I'm Idezawa of LINE Yahoo! Corporation. Thank you for taking the time to attend today's fiscal 2024 second quarter business results briefing. I will first provide a summary of the Q2 business results. Here is the highlight of the Q2 business results. I'll first talk about business performance progress and revision of full year guidance. Q2 results, entire group revenue was up 4.7% Y-o-Y to JPY 462.2 billion, and adjusted EBITDA was up 9.1% Y-o-Y to JPY 112.6 billion. Both figures were record highs for the second quarter. And with this strong business results, guidance for adjusted EBITDA and adjusted EPS has been revised upwards. I will explain the details later.

Second, group-wide issues are moving steadily towards resolution. It's expected that the company will meet the criteria for maintaining its listing on the prime market through share buyback and cancellation of treasury shares. Security measures are also progressing as planned. Third, product reinforcement. By enhancing Official Account and MINI App, we will support DX and CX for companies and stores and reinforce monetization. And we'll increase commerce transaction values through LINE GIFT and LINE revamp, and we will accelerate the growth of financial business through service linkage with PayPay.

Next page, please. I will explain in the order shown here. First, I'll explain the consolidated business results for the entire group. Second quarter results shown here. Q2 results are progressing smoothly in line with guidance presented at the beginning of the fiscal year, and the progress rates have exceeded 50%. For the revenue, progress rate has not reached 50%, but the revenue will be larger in the second half. So this is within expectations.

Next, fiscal '24 consolidated full year guidance. Profit is progressing more smoothly than initially expected. As a result, we've revised upwards our full year consolidated adjusted EBITDA forecast by JPY 20 billion and adjusted EPS by JPY 4.1. And at the same time, we have also revised our adjusted EBITDA guidance for each segment. This factors behind the revision of consolidated earnings guidance.

Adjusted EBITDA is expected to grow more than initially planned in Media Business due to account adds, and in the strategic business, due to the consolidation of PayPay. Adjusted EPS is expected to improve mainly due to the improvement in adjusted EBITDA and the effect of stock buyback and cancellation of shares.

Next, please. This is the entire group performance trends. Revenue grew 4.7% Y-o-Y. Adjusted EBITDA grew by 9.1% Y-o-Y. Margins also remained at a high level.

Next page, please. This is the entire group performance analysis. The main factor for higher profits was the increase in revenue. This was especially due to the growth in revenue from account advertising and the consolidation of PayPay. We also continue to make disciplined investments, and that has helped us to secure profit increase.

Next, share buyback and cancellation. We made share buyback worth approximately JPY 150 billion. And at the end of September, we canceled about 6.4% of the total number of shares issued. The tradable shares ratio is expected to exceed the 35% threshold for maintaining listing on the prime market. Of the JPY 515 billion in the capital allocation policies buffer for additional investments and capital policy, JPY 150 billion was used for the share buyback. The remaining JPY 365 billion will be used mainly for share buybacks and M&A. We will consider flexible capital allocation for this.

Next, I'll talk about return to shareholders. In addition to the stable dividends, we've also been implementing flexible share buybacks as a return to shareholders. The cumulative total payout ratio over the 5 years from fiscal '20 was approximately 70%. Over the next 5 years, we aim to achieve cumulative payout ratio of over 70%, the same level as the past 5 years.

Next, security measures. Security measures are steadily being implemented as planned. We expect this year's security countermeasures cost to be within the range of the initial forecast of about JPY 15 billion. Q2 costs expected to be approximately JPY 4 billion, and we expect the same level for the third and fourth quarters as well.

From here, I will explain the performance of each segment. First, about the Media Business performance trends. Account advertising grew faster than planned, resulting in increased revenue and profit. Margins also remained in the high 30% range, the same as in the first quarter.

Next, Media Business revenue. Overall revenue in the Media business increased by 4.2% year-on-year. Account advertising grew at a high rate of 18% year-on-year. Search advertising increased by 2.1% year-on-year, helped by the halt in the decline in revenue from partner sites.

Next, Media Business performance analysis. Although promotion expenses increased somewhat, the growth in revenue from account advertising exceeded this, driving profit growth. As a result, adjusted EBITDA increased 7.8% year-on-year. So I've been saying that account advertising has been strong. So let me explain that separately.

The impact of the fee plan revision for Official Accounts implemented in June last year, the impact of that has ended in the first quarter, but the number of paid accounts continued to increase steadily in the second quarter. In Thailand, there was a revision to the fee plan, and that has led to increased number of paid accounts. Revenue growth was at a high rate of 18% year-on-year.

Commerce Business performance trends. Revenue was affected by the deconsolidation of subsidiaries such as ValueCommerce and IPX, but Shopping and Travel grew, leading to increased revenue and profit. The margin also remained in the high teens.

Next, Commerce Business transaction value. Thanks in part to the promotional measures of Yahoo! Travel and Ikyu, travel grew by more than 20% year-on-year and drove expansion of transaction value. In the previous year, there was a revision of the hometown tax system. There was last-minute demand. So demand fell as a reaction to this in this fiscal year and affected Yahoo! Shopping. However, excluding this impact, Yahoo! Shopping transaction volume maintained the same growth rate as previous quarter with year-on-year growth of 8%.

Next, Commerce Business performance. Despite the revenue decline from the deconsolidation of subsidiaries, revenue growth at ZOZO, Yahoo! Shopping, and Reuse contributed to an overall increase in revenue. Adjusted EBITDA was up 9.2% year-on-year.

Next, Strategic Business performance trends. PayPay consolidation continued to drive revenue and profit growth, and revenue increased by 16.8% Y-o-Y to JPY 81.2 billion. Adjusted EBITDA was JPY 15.3 billion, including the impact of some cost transfers between segments.

Next page, please. This is the Strategic Business revenue breakdown. All of the strategic businesses, which are mostly financial services, grew steadily. PayPay GMV grew. PayPay Card revolving payment balances grew. PayPay Bank's mortgage loan businesses performed well. And LINE's Fintech services grew steadily and overseas Taiwan's business is also growing. As a result, the revenue of Strategic Business grew 16.8% year-on-year.

Next page, please. The Strategic Business performance analysis. Despite the increase in point expenses, profit increased thanks to sales growth of PayPay consolidated and improved profitability from cost control. This is PayPay Consolidated business overview out of Strategic Businesses. PayPay Consolidated GMV grew strongly by 23.8% Y-o-Y. As a result, PayPay's consolidated sales grew 15.2% Y-o-Y and consolidated EBITDA surpassed JPY 10 billion for the first time for a quarter.

Finally, I will explain the post-integration review of the first year after the merger and our future initiatives. This is the reflection on the first year. The reinforcement of profitability and enhancement of product development capabilities, these were the objectives we communicated at the time of the merger. We steadily accomplished these objectives. Profitability is improving with profit levels remaining high as shown in the EBITDA level. To improve our product development capabilities, we increased agility and flexibility by introducing company system and other measures.

Over the past year, we have been able to provide more than 100 new services, new features, functionality improvements. In particular, the number of introductions of Generative AI services exceeded 20 in 1 year. For example, on Yahoo! Chiebukuro, the number of responses by AI exceeded 1.6 million in 10 months. There are multiple cases where we have received great support from users.

From here, I will explain our future initiatives, the strengthening of our fintech business with 3 initiatives. They are Official Account, MINI App, LINE e-commerce, and PayPay Finance.

Next page, please. First, the acceleration of growth through LINE Official Accounts and LINE MINI Apps. The LINE Official Accounts offer functions to deliver messages to users, manage customers and others. Companies and stores are using this service and revenue from account advertising exceeded JPY 100 billion last fiscal year. On the other hand, LINE MINI App offers services that enable customers to easily create and offer functions such as mobile orders, membership, cards and queuing. This was launched in 2020 as web applications that can be provided online. These are used as DX applications for mobile ordering and others. And in the future, we will position the Official Accounts and MINI Apps as the core and evolve the service from a simple communication tool to a comprehensive DX tool for companies and merchants.

Next, please. We have been adding various new functions for the Official Accounts and MINI Apps. The left is the case of further increasing the number of messages sent. This is from Sagawa Express. Sagawa Express uses a service called LINE notification messages. Delivery date and time notifications are now possible even if the user has not added the official account as a friend. This led to the reduction of redeliveries. New functions are also designed to expand the number of messages delivered and the reach.

The right-hand side is an example of MINI App, example of Kushikatsu Tanaka reservations and mobile ordering functions online have been introduced. As a result, the number of reservations have increased and man hour spent on phone reservations and order fulfillment have been reduced. We expect that the expanded use of these functions will contribute to solving the social issues of logistics and labor shortage. Through additional features such as DX solutions, we aim to further improve convenience.

Next is, as a way to strengthen our commerce, we are strengthening LINE Commerce. There are 2. The domestic gift market is expanding and is projected to exceed JPY 11 trillion in the year 2024. LINE GIFT, a service that utilizes LINE's social graph, has continued to grow at a high rate, growing nearly 30% Y-on-Y in FY 2023. We expect the same growth rate this year. In the future, we will work on measures to boost products, functions and usage scenarios to further expand transaction value and convenience, aiming for continuous growth by more than 30% Y-on-Y every year in the next 5 years.

The second measure is LINE Commerce. 6 months ago, I communicated this as well. We are planning for renewal of LINE, and we plan to add new shopping tab through the renewal. The shopping corner will be newly created under the tab that attracts the most traffic online and create a shopping platform designed to suit the purchasing behavior of LINE users and propose products according to seasons and trends and reinforce sales promotion through LINE official accounts. The third area is PayPay Finance. Before explaining this, let me review PayPay's growth to date. Since the service was launched, the number of registered PayPay users, the number of payments and GMV has expanded rapidly and grown to become the #1 code payment service in Japan.

The growth of PayPay Card. The left-hand side shows the transaction value of PayPay Card. PayPay Card became a consolidated subsidiary of PayPay in October 2022. We have been working to unify the payment experience between apps and credit cards and have been promoting PayPay cards as the main card. As a result, card transaction value has been expanding. And in FY 2023, it grew significantly by Y-o-Y of 30% PayPay Bank launched a MINI App on PayPay on August 2022. The number of accounts via PayPay is steadily expanding. Since February of this year, PayPay's identity verification information can be linked, greatly simplifying the process of opening a bank account, and user convenience is also improving. In the financial services business, we will expand synergies centered on PayPay to further improve user convenience, increase revenue and accelerate the growth of each financial services.

Lastly, a summary. Business performance is progressing well, and the full year guidance for the current fiscal year is revised upward by JPY 20 billion for adjusted EBITDA and by JPY 4.1 for adjusted EPS. Security measures, which had been a company-wide concern, and efforts to comply with the prime standards, are making good progress. As a first step towards future growth, we will strongly drive forward each initiative such as strengthening our Official Accounts, MINI Apps, LINE Commerce and PayPay Finance to expand our business and our services.

This is all for my explanation on the second quarter financial results. Thank you very much for your kind attention.

[Operator]

[Operator Instructions] So let's start. Let's have questions. From SMBC Nikko Securities, Maeda-san.

[Eiji Maeda, analyst]

I have 2 questions, please. Payout ratio cumulative 70% is what you indicated. That has made things very clear. And the past results, so based on that, have you said 70% for the same level? Did you consider the JPY 365 billion buffer and you said 70% is appropriate? So the 70%, how did you arrive at this number? Please explain the background. And also talk about the growth investments. and the necessary expenses and the balance with return payout. Could you explain? That's the first question.

I should ask both questions at the same time?

[Takeshi Idezawa, executive]

Yes, please.

[Eiji Maeda, analyst]

You talked about new products like LINE MINI Apps and LINE revamp led to acceleration of these things, or is it just steadily growing? So LINE MINI Apps, that as a core, is that going to really drive growth in the future? Is that the message that you've tried to indicate there? So I'd like a clarification there.

[Takeshi Idezawa, executive]

Thank you for the questions. So about the payout ratio, Sakaue will explain later. About the MINI Apps, I'd like to talk about the current situation of them. First, so utilization -- use cases increasing, and the types of services increasing and number of merchants that use them are increasing. So we want to further accelerate this. And another major change that is on the platform side, there's been some change in the regulation. And so to some extent, it's become possible to offer these kinds of services. So going forward, I think we're entering a phase for full-fledged expansion. So 2020 and onwards, we have steadily increased. So we see that growth. And there's also the environment change in the market. And that has prompted us to talk about the strengthening of this area.

About the dividend, Sakaue will explain. And Ikehata may have additional comments about the MINI App. First, Sakaue will respond to the total payout ratio.

[Ryosuke Sakaue, executive]

About dividends, it's fixed. So that's the assumption. And about the capital buffer for a certain part of that, that is used for share buybacks. And so we calculate all of that. And so there will be ups and downs. So we talk about 5-year cumulative average. So 70% and more is what we would definitely like to achieve in terms of cumulative payout ratio. And so that is the background against which we have shown these kinds of numbers. And of course, we will disclose additional information on a timely basis.

[Operator]

Next question. Okumura-san from Okasan Securities.

[Yusuke Okumura, analyst]

I have 2 questions. First, during the past year, you worked on LYP Premium and Yahoo! JAPAN app renewal. I have several points I would like to reconfirm. For LYP Premium, on Q-on-Q basis, the number of members is declining slightly. In Yahoo! JAPAN app, the renewal was done, but the display ad revenue is declining Y-on-Y. And there is a Q-on-Q decline of the number of log-in IDs. Was there a special factor? In the background, is there something happening that the company did not expect. And in the future, how do you see the change in the trend? That is the first point.

The second point, the Official Account, MINI App, you're going to expand, and if you could talk about the potential, the EC and game and video are to be provided a new? And in terms of monetization, do you have any rate or other indications that you can disclose? Company side, you explained the benefit on the company side. But from the user perspective, generally speaking, MINI App UI may be inferior to other apps. Your product compared to direct usage, the users' UI and UX, how does it differ? What is the benefit on the user side to use MINI Apps? That is my second question.

[Takeshi Idezawa, executive]

Let me reply first LYP Premium. This is a very important initiative, and we are working on strengthening the functionalities. Frankly speaking, the numbers did not meet my expectations. That is my frank observation. The benefit on functionalities would be very important, especially LINE's functional benefit profile or stage function. Those have high user needs. So including e-commerce, comprehensive benefits are to be strengthened for the customers. So we are revamping. The renewal of Yahoo! JAPAN is progressing according to the plan. For this, the second tab on the real-time information would be the key. We are to further polish and make it sophisticated.

The second point on MINI App, I would like to ask Ikehata-san to add some more. The user side benefit. There are many apps out there. The number of apps is increasing. And MINI Apps can be added casually and easily by the merchant side, store side, and that is the benefit. As pointed out, in terms of the interface, the level of seamlessness may be lower compared to regular applications. So we plan to strengthen that part and take measures to improve. Ikehata-san, over to you.

[Yuki Ikehata, executive]

I will add some more explanation on MINI App. The benefit on the user side, as was mentioned, on LINE Yahoo! platform, this application can be operated. So when you make a purchase or take an action, you don't need to create a new ID or you don't need to log in, and you don't need to download additional app. That seamlessness and the convenience would be the major benefit that we can provide. For UI and UX, as pointed out, we intend to continue to strengthen, and that's already included in the plan. So we will strengthen that. That will be the assumption.

On MINI App, the development UI or guideline is provided by the platform, so that the business owners can release MINI Apps easier. And as service experience, the sophisticated unified design can be realized, and we intend to strengthen such support. Technology support will also be provided, so UX support will also be provided in the future to a variety of business owners, merchants, who we will be providing this app, MINI App service. So it is important that we provide an environment that is easy to use. That is all from myself.

[Yusuke Okumura, analyst]

I would like to ask additional questions. Yahoo! Japan compared to 3 months ago, there's a positive change on the traffic. Is there any advertising being inserted? Any additional comment on that?

[Takeshi Idezawa, executive]

Session is changing on positive manner. The entire advertising revenue is not increased in a significant manner through that.

[Operator]

From SBI Securities, Jose-san.

[Unknown Analyst]

Jose from SBI Securities. Two questions. First, PayPay consolidation was progressing faster than expected. What's the factor behind that? So you had partner relations and the cost reductions. Was this accelerated? New measures were effective? And then next term, what would be the outlook. I think there is further room for improvement in efficiency. So talk about that, please. That's the first question.

Second question is about the cumulative payback ratio. At 5 years, there was difference by year. And previously, you said that there will be difference by year. So how do you make a decision about the payout ratio level for each year?

[Takeshi Idezawa, executive]

Sakaue will answer both questions. But the consolidated business results, 2 reasons why that grew. One, as you mentioned, cost reduction progressed and outsourcing and human resource cost, fixed cost also decreased and acquisition cost was also reduced. That made the contribution. And MTU from Q2 that has started to grow again. That's been the top line positive impact. Up until several quarters before, there was a minor point reaction. And so the growth rate was a little weak, but that effect has run its course and the functions are getting better and better. And so MTU is increasing and monthly usage number is increasing. And so that has led to the payment transaction value.

And PayPay Card, that's also steadily growing. So revolving payment revenue is increasing. So that's the top line impact. So that's the second factor that led to the large growth. So the first point, well, we really focus on the fixed cost within PayPay. Next year, it doesn't seem that there's going to be a huge impact from that. But the MTU expansion and revolving payment increasing, that will continuously have an effect, because that will continue to grow going forward. So next fiscal year onwards, I think we can grow the GMV and revenue and PayPay EBITDA and operating income will grow. I think we're entering that kind of a phase.

[Ryosuke Sakaue, executive]

To answer your second question about the payout ratio that there is volatility year-by-year. In terms of stock buyback, we did this after consultation with the parent company. And it's difficult for us to make a decision all by ourselves. But maybe there would be some M&A possibility. We may prioritize that. So for each year, it's difficult for us to control that. So we look at the average and more than 70% payout ratio is what we are aiming for. That's why we presented that way.

[Operator]

From CLSA, Mr. Oliver Matthew.

[Oliver Matthew, analyst]

I have 2 questions. First question, could you explain a bit more about the e-commerce example you give? You talk about the new sales promotion link for LINE. Could you explain a bit more about the background and how this would work? And secondly, if you have any other points why the Auction was a bit weak and what we should expect there?

[Takeshi Idezawa, executive]

I believe the question was about LINE GIFT and Auction -- it was on LINE Commerce. So Hide-san will reply to the question.

[Makoto Hide, executive]

This is Hide speaking. On the first question, as Idezawa-san mentioned on LINE, we will add a new shopping service. The product, currently, we have LINE GIFT, and we also do Yahoo! Shopping. And the merchants on Yahoo! Shopping and sellers on LINE GIFT, among them, using the current system, the product information is to be extracted and start to sell on this new shopping service online. This is a new corner, new service. So with this as a trigger, we are hoping that we can acquire new sellers to start to sell on LINE. LINE GIFT and Yahoo! Shopping sellers and also new sellers, new merchants, the information on the product, that will be enriched, so that this shopping experience will be original.

The second point is on the Auction. In the short term, there are various factors. In the first half, at one point, the ForEx rate turned to stronger yen. And on cross-border basis, there are a lot of buyers. And when the yen strengthens, the unit price goes up for the cross-border transactions. So due to ForEx impact, the overall result was softer. And during the past 3 to 4 years, we have been providing 2 services, Yahoo! Auction and Flea Market. Right now, the user on Flea Market is rising. When we compare to the unit price, the price for Yahoo! Auction is higher. And when those users shift to Flea Market, then the overall unit price declines. So that is another factor.

In the medium to long term, Reuse growth, the overall growth of the market is starting to stabilize. For Reuse, from 25 years ago, we have been providing Yahoo! Auction service. And in the market, more than 10 years ago, Mercari came in and new Reuse customers that did not come into the Yahoo! Auction started to come in, thanks to the Flea Market expansion. So for medium to long term, our initiative is new Reuse customer development. We will strengthen that development. In Flea Market and Auction service, we are to add new services and new functions, so that we can offer opportunities for new users to try. And through that, we would like to realize regrowth -- go back to the growth track. That's it.

[Operator]

From Jefferies Securities, Sato-san.

[Hiroko Sato, analyst]

I have 2 questions. For the second half for Media, display ad and search ad, can you give us some clues. So search ad, so it will be in the lower single digit in the second half. I think that's what you said in the previous meeting. Is that the situation? And so is the effect going to turn its course in the next fiscal year. Account search, you said 15%, 20% growth is very strong. So display ad is low. So what's the outlook for the second half? And also margin, second half. Is the improvement trend going to continue? I mean that's what you're aiming for. But can we assume that is true? So for the Media business, so revenue growth in the second half, give us some clues.

Second question about the commerce, shopping peak season is coming in the next quarter in December. Overall, what's your image or what should be our image for GMV? I think Travel is going to be strong, but what about Shopping. What should be our expectation? And for sales promotion expense Q-on-Q, how much are you going to increase? Give us some pointers, please.

[Takeshi Idezawa, executive]

Sakaue will respond to the first question. Second question, Hide will respond.

[Ryosuke Sakaue, executive]

Within the revision in terms of investment budget, JPY 9 billion has been secured, put in the budget. So JPY 470 billion, that's the upper limit guidance. But all the products are becoming newer. So about JPY 9 billion for sales promotion put in the budget. And so JPY 460 billion upper limit in the guidance. So that's the background.

So JPY 9 billion, half and half go to LYP Premium in the Media or the Commerce segment, Yahoo! Shopping. So JPY 9 billion, half and half go to those 2. So that is what we're planning. So maybe ROI may not be sufficient, or there was LYP Premium talk from this. If functionally not so attractive, then that sales promotion, we may decide not to do it, but that is the assumption that we have in the new guidance. That's the background upon which we made a new guidance. So that's the supplemental comment.

And so in terms of ad revenue in the second half, we haven't changed the guidance. So sales revenue in the lower single-digit percentage. That outlook we have not changed. And as you say, Sato-san, for search ads, Q2 -- well, same level as Q2 in the second half. That's what we expect. For account search or account ads, the pricing has been -- the effect of pricing change has run its course. So maybe 20% is difficult, but higher teens we are going to aim for. And display ads, year-on-year flat to going to a little bit negative. So in the second half, we expect the Q2 level basically. For margin, the current margin we want to maintain or add on to that a little bit. Sorry for the long response. And the second one, Hide will answer.

[Makoto Hide, executive]

So this is Hide about Yahoo! Shopping third quarter, fourth quarter, second half image. So in the presentation -- 2 presentations back, we said that for the fiscal year, middle single digit to double-digit growth is what we're going to aim for is what we said. That hasn't changed. So in the first half, there was a hometown tax system impact. But excluding that, we had the growth close to 8% in Q2. Now Q3 and Q4 for second half, we would like to make sure we grow within that range. On a monthly basis, on a quarterly basis, depending on how it was the previous year, there will be volatility. But over 3 months, over 6 months, 105% to 110% will be the growth rate we'll be aiming for.

About the sales promotion expense, basically, we will have a disciplined investment. So middle of fiscal '22 onwards, we have really constrained investment. And so we have modified to healthy investment. That policy hasn't changed. So against the GMV, a certain percentage will be put into the point. So in line with the GMV growth, we will maintain the same ratio for the marketing expense. And so we're not thinking about any deterioration.

[Hiroko Sato, analyst]

One additional question. If you look at next fiscal year, search in middle of the single digit, is it going to come back to that after adjustment? That's one. And display ads, what's your view about the next fiscal year? Is it going to continue to be flat?

[Takeshi Idezawa, executive]

Second half, I'll answer. But for mid- to long term, for next fiscal year, Ikehata will talk from a sales perspective.

[Yuki Ikehata, executive]

Ikehata here. Looking towards the next fiscal year, for search ads, the partner site volatility expectation, not 0, but LINE Yahoo!, we expect steady growth. And Commerce search, we have the new products. Gradually, it's starting to have business impact, or we should start to see business impact. So as was mentioned, in terms of growth next fiscal year, Y-o-Y, lower single-digit percentage is what we expect.

For the display, there's a gap with the market growth rate. So we think that there is a big issue. And therefore, Yahoo! JAPAN renewal and LINE renewal and cross-sectoral data utilization expansion will be taken, those mid- to long-term measures. Well, we'll start to see the impact of that next fiscal year and the year after that. So we're working on those measures. So if you look at it just next fiscal year, currently, it's negative, but we're working to bring that back to positive territory. So Y-o-Y, lower single-digit growth is what we're going to be aiming for.

As for the accounts, we said that, that's continuous. So the impact has run its course, but more than 10% growth Y-o-Y is what we would like to maintain. So next year, I have expectations for your measures. That's the only comment I can make. But we really want to see a comeback here.

So from Hide.

[Makoto Hide, executive]

Yes. Thank you. In any case, it's an important agenda. And we think that we are making efforts there. So we should have results in the mid- to long term. And so from next fiscal year, in the display ad area, you should be able to see the outcome. And so we're going to make efforts for that.

[Operator]

From Nomura Securities, Mr. Masuno.

[Daisaku Masuno, analyst]

I have 2 questions. One is shareholder return. Let me reconfirm, next fiscal year, 3-year cash allocation will apply. So of JPY 310 billion remaining, if nothing happens, will be used for share buyback? I think that would be a rational expectation. If that is the case, the 5-year period, including next fiscal year, 5 years are set. So if you implement the 3-year plan in next fiscal year, then in the following year, the amount may be smaller.

Personally speaking, I do not understand the reason why you don't do share buyback. The parent company may have an intention, but when the stock price is higher than you can maintain, you can sell. But if you do it on pro rata basis, you can maintain the liquidity. Can you once again talk about the combination of the plan?

And second is the adjusted EBITDA upward revision. The Strategic Business is revised upward. And the other area was revised downward. How much of the results are switched to a different category? And what about the PayPay's impact?

[Takeshi Idezawa, executive]

Sakaue will reply to the question.

[Ryosuke Sakaue, executive]

I understand your point. 2025 is the final year for capital allocation. With regards to M&A, there is still possibility in next year. So it's a matter of how that turns out. And we need to comply with the standard of prime listing and also pro rata base is one option, and we need to consult with our parent company. So nothing final I can tell you. And 5-year cumulative will be dependent on that and total shareholder return will be dependent on that. And 5-year period will include next fiscal year. So for now, the plan for FY '25 to create and finalize that plan is our priority, and I intend to work on this together with the parent company.

Your second point, the guidance revision per segment, segment breakdown. Strategic segment upward revision of JPY 20.5 billion was made and JPY 5 billion was transferred to other segment. So JPY 15 billion is Strategic segment. And that was the upward revision. PayPay consolidated, that breakdown, we do not disclose, but PayPay Bank and LINE Credit are progressing well. And overall, in the Strategic segment, the business is performing well. So overall, we are making upward revision. Naturally, in terms of the size of the profit, PayPay Consolidated makes up a large portion. So the factor of the upward revision, main factor would be the increase of the top line.

[Daisaku Masuno, analyst]

Other adjustment, JPY 15.5 billion downward revision and JPY 5 billion shift of segment and the remaining JPY 10.5 billion of downward revision, what is the content of this?

[Ryosuke Sakaue, executive]

Internal distribution impact is included, and that is roughly JPY 8 billion. For this, our management accounting concept wise, for centrally allocated expenses, there we have drivers for allocation such as sales and headcount, and we allocate. Overall, the human resources, each segment was quite lean in terms of human resources, and there are parts that cannot be allocated to each segment, and that was booked under others.

The more efficient others segment becomes, it's like a paradox, but there will be others allocation for JPY 8 billion to JPY 7 billion. We regularly review the management accounting and the reserve or allowance is booked, and that amounts to JPY 2 billion. So that is the breakdown of the others.

[Daisaku Masuno, analyst]

The JPY 7 billion to JPY 8 billion of internal distribution, that is linked to the upward revision of others segment or overall company adjustment is this JPY 7 billion to JPY 8 billion?

[Ryosuke Sakaue, executive]

The former is correct. In each segment, there are costs charged from the company, and that part is declining.

[Operator]

We'll take 2 more questions who have already raised their hands. From Citigroup Securities, Tsuruo-san.

[Mitsunobu Tsuruo, analyst]

Yes, please. Two questions. Before that, you had solid results and upward revision, thank you for that. First question, that will be Page 6, EPS guidance. So next fiscal year, JPY 20 or higher EPS is what you're going to aim for. And thinking that you have done share buyback, you'll be able to achieve JPY 20 without any change. But what realistically should we expect in terms of results? You've talked about some top line numbers, but can you go through that again?

Second, about capital allocation. Capital allocation sorry, this is comprised of 2 questions, and I would accept a short answer. So what kind of acquisition are you planning -- corporate acquisition are you planning? What's in the pipeline? And 70% payout ratio over 5 years. That will be more than JPY 100 billion buyback on average. So midterm plan is until next fiscal year, but you've extended the capital allocation 5 years. So if you can sort out relationship amongst these things? So 2 major questions.

[Takeshi Idezawa, executive]

Sakaue will respond to both.

[Ryosuke Sakaue, executive]

So EPS for fiscal '25. So more than JPY 20 is the current target. We've had share buyback, and next year's budget, we are just starting to have discussions about. So JPY 20 plus. How much of a plus? We will show you in the fiscal '25 EPS guidance. Please wait for that.

Second question about M&A. What we're focusing on is Media and Commerce strategies. So in the periphery, for the strategies that we're working on, we want to see a strong company that we can grow further and where we have competitiveness. But if we team up with some company, we can enhance our competitiveness further, we would be interested. So we're listing up the candidates and we're in negotiations with some. So PayPay is small, but has been -- we'll be thinking about the acquisition for functions that we deem lacking, so the 5-year payout ratio and share buyback relationship. So what you mentioned, that could be a plan. I mean, so on average, you can calculate that way. We've done that internally. But for that as well, the fiscal '25 capital allocation results, we will look at that and then think about our path toward the 70% payout ratio, we will indicate that at that time.

[Mitsunobu Tsuruo, analyst]

One follow-up for the first question. So JPY 20, can you achieve -- well, I mean, you're not going to loosen things because you can achieve that, because the IRR is still lower than capital cost. So just give us the management's enthusiasm that you intend to work on that.

[Ryosuke Sakaue, executive]

Yes, no change there. As you point out, I mean, we're not going to be satisfied with JPY 20. We're not going to be complacent. We're not going to loosen up. We're going to aim higher. That will be our stance.

[Operator]

BofA Securities, Nagao-san.

[Yoshitaka Nagao, analyst]

I'm Nagao of BofA Securities. I have 2 questions. First question, I'm sorry to have to repeat this. In the briefing session material, Page 9, capital allocation policy, I am aware that this is difficult to respond. FY '25 plan. Additional investment buffer you have JPY 365 billion. Is it correct to understand that this will be dissolved towards next fiscal year -- utilized towards next fiscal year? That is the first question.

Second is on businesses. In the appendix, Page 17, on quarterly basis, you have partner site search sales is JPY 6.2 billion to JPY 6.3 billion. It has stabilized and is it going to stay stable? If there is any risk factors, please let us know. And Media display ad is weaker, and that is because you do not own social media, which is strong in video. So VOOM on LINE is an area to strengthen for video, and you have invested. So please update on this status.

[Takeshi Idezawa, executive]

Thank you for the question. First question will be answered by Sakaue-san later. And on partner service of search and also video and VOOM, we are devoting our efforts, and this summer, record high numbers were reached, and this is back on the growth trajectory. As you pointed out, the user spending less time on video, so there's a shift to shorter video and we do not have such a platform. And that is a challenge that we need to overcome going forward. And we are to put our effort in that area going forward.

[Ryosuke Sakaue, executive]

This is Sakaue. On this perspective, let me add some more. The search partner site that you raised the question on, when we look at the future, it's very difficult to foresee in a definitive way in the next 2 quarters. During the past 2 quarters, when I look at the progress, to a certain extent, the current ratio is maintained on a continuous basis.

However, the search ads is quite volatile. So we need to take that into consideration in implementing initiatives. On top of that, display ad gap with the competitors, let me comment on that. As you pointed out, there are several measures that we need to implement in order to catch up with the average market growth. One big area is a media service experience.

On social media, our global platformers have video media and the users' time is shifting to video platforms and many users are staying on such a platform. So platform side can deepen the understanding of the users and optimize the ads and the impact of the ad is improving. That is the situation.

As was mentioned previously, social media feed type or VOOM type of video platform, the LINE Yahoo! platform renewal is being worked on. And from there, we are to capture data of the users with high resolution, so that we can use such data to the existing ads. So that was my additional comment on the video and search ad.

And on the first question on the capital allocation. This JPY 365 billion share buyback and M&A, we will continue to try to invest in those areas, and we are working on coordination and investments.

[Operator]

Thank you for joining us. Idezawa will say the final concluding remarks.

[Takeshi Idezawa, executive]

We went over time, but thank you for staying with us till the end. And thank you for the active Q&A. And we will reflect that in management going forward. And it's been 1 year since the merger, and we have made upward revision. Strong growth to be reestablished. That is very important we think. So we like to solidly work to grow our business, as we explained. And for capital allocation, we will make sure to implement it in a strong way toward a high goal. So we ask for your continued cooperation. Thank you so much.

[Operator]

With that, we would like to conclude fiscal '24 Q2 business results meeting of LY Corporation. Thank you for staying with us till the end.

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