Z Holdings Corp

TSE:4689

Earnings Call Transcript 2019-Q3

[Operator]

Thank you very much for your patience, and we are very grateful that you're here despite your very busy schedule.

We would like to start Yahoo Japan Corporation FY 2018 Third Quarter Business Results Presentation. We have live distribution of this presentation over the net, and we do have the archived service as well. So please understand that, that is how we are going to proceed today.

I would like to introduce the representatives of Yahoo! We have Mr. Kentaro Kawabe, President and Representative Director; Corporate Officer, CFO, Mr. Ryosuke Sakaue.

And today, we will have Mr. Sakaue talk about the consolidated results of Q3. And the latter part, which is the strategy portion, will be presented by Mr. Kawabe. A Q&A will be held after the presentation, and we plan to end at around 6:00.

Now without further ado, I would like Mr. Sakaue to give his presentation.

[Ryosuke Sakaue, executive]

Hello, my name is Sakaue. Nice to see all of you. Regarding Q3 business results, we were planning to have a telephone conference presentation and -- but PayPay actually had their performance and also release campaign, too, and also the analysts would like to know more about the growth strategy, and that was the request being made by the investors as well as analysts. Therefore, instead of having the telephone conference, Mr. Kawabe will give you live presentation on how we are going to conduct and pursue our strategy for growth.

So firstly, the results of Q3. There are 2 major topics I would like to cover today. Firstly, the 3 consecutive quarters we were able to enjoy double-digit growth year-on-year of Paid Search Advertising revenue. And second point, the cumulative number of registered PayPay users exceeded 4 million after 4 months since its start of the service. As compared to other application, this is the fastest in our history in terms of the growth.

Now our executive summary for FY 2018 and from here onward, I will talk about the cumulative figures covering Q1 and all the way up to 3Q. And for the quarterly number, we have the attachment, so please take a look at that.

Revenue-wise, we were able to record JPY 707.5 billion, up 7.4% year-on-year. And accounting policy has partially changed as of this fiscal year, and excluding this, we were able to grow 9.7%.

Second item is operating income. We recorded JPY 119.6 billion, minus 19% year-on-year. This fiscal year, we are reinforcing our investment and, therefore, as a company, this is within the range of the reduction of operating income.

Third point is the profit for the period, JPY 70 billion, minus 33.7% year-on-year. PayPay, which is the equity method company, is in the red, and 50% of that has been incorporated and, therefore, there has been a decline in our profit for the period.

Now I would like to talk about the 3 KPIs for the revenue. The first one is advertising-related revenue. As mentioned before, for the Paid Search, for 3 consecutive quarters, we were able to grow by 12% year-on-year and, therefore, in terms of the total, we were able to grow 7% year-on-year regarding the advertising-related revenue.

And we are proceeding with providing smartphone-related videos, so year-on-year, it grew by 2.5-fold, recording JPY 3.4 billion.

Another business pillar is EC transaction value. This shows the sale of goods. Shopping, for 3 consecutive terms, we were able to grow 23% year-on-year. And with YAHUOKU!, year-on-year, we were able to grow by 9%.

So 9-month period has been completed, so I would like to give you the guidance for the full year. The revised guidance is between JPY 140 billion to JPY 143 billion and the reason for change is threefold. Firstly, in terms of the expenses for our new challenges, we were scheduled to have JPY 30 billion, but it will go to the level of JPY 18 billion.

And also, Japan Net Bank, this is a bank that actually manages securities, so year-end securities holding valuation, we recorded a valuation loss.

And the third point is advertising-related revenue. In Q3, it slightly went up. And because of these 3 factors, we provided you with a new guidance, which is between the range of JPY 140 billion to JPY 143 billion.

Next, let's look at the results by segments. This shows the historical graph of revenue by segments. In the following page, I have the comparison year-on-year. Last year, the revenue was JPY 658.7 billion. So advertising and commerce, there was an increase in revenue, so year-on-year, we grew by 11%, recording JPY 732.4 billion.

And from here, we factored in the changes in the accounting policy. And also, IDC Frontier Incorporated doesn't have any sales contribution, therefore, by deducting these factors, we ended at JPY 707.5 billion. And this is operating income by segments and this is a comparison year-on-year.

Last year's Q1 to Q3 was JPY 147.8 billion and there was an ASKUL onetime income recorded in the previous year. And also, there was an impact of IDC Frontier Inc. sales of stocks. And also, there is no more revenue contribution from IDC. So FY 2018 Q1 to Q3 recorded JPY 143.4 billion. And there was an increase of revenue in Media as well as Commerce, and so gross profit-wise, we did JPY 156.2 billion. And I would like to comment on 2 other points.

Regarding Media, it looks as if COGS is increasing, but in terms of paid search, contract has changed since 2017. Therefore, you see the gross profit as indicated here. And also, in terms of Commerce, in terms of promotional sales activities as point reward, they are included. And the point reward has a high relationship regarding its proportionality with the revenue and, therefore, we actually had SG&A up by JPY 27.5 billion and also in other expenses for new challenges up JPY 9.2 billion. The total of Q1 to Q3 was JPY 119.6 billion. And also, there was a depreciation for data-driven business and also HR and consigned expenses went up.

And so this concludes my presentation on Q3 business performance. I would like to hand the microphone to Mr. Kawabe.

[Kentaro Kawabe, executive]

Hello, everybody, this is Kawabe, CEO. Through the Investor Relations objectives, of course, we are honored to have -- to enjoy really good engagement with you and also the questions coming from you. What is going on, on the side of the PayPay. And actually, including PayPay, what is your plan in terms of growth initiatives and how profit is going to be secured.

Yes, I am receiving a lot of questions of this nature, and yes, the reason that we wanted to have a teleconference, but actually we decided to change that and we ask you to be with us face to face. And thank you, indeed, for your precious time despite your busy schedule.

And I'd like to cover 2 points. First is mobile payment. Our mobile payment, and of course the service name is PayPay, this was launched back in October last year. And the -- in terms of the actual substantial activity, actual JPY 10 billion giveaway campaign, is going to be the real human campaign. And as for the docent piece division to the left-hand side, this is what we have done.

All in all, I think it has created lots of excitement and moving toward the end of the year -- last year, actually, long queues actually were created for many stores. And PayPay was used in JPY 10 billion PayPay bonus and actually provided actually. This campaign was originally to be lasting up until March 31. Actually, we had to stop it in 10 days.

Actually, we stopped this campaign on the 13th and the PayPay bonus we provided as of now, JPY 11.5 billion. Actually, JPY 10 billion giveaway campaign was the official name, so up by JPY 1 billion.

On the last date, by the way, the -- on the social media world, PayPay is going to come to an end today in terms of campaign activities. So actually, that pushed up the introduction value just on 1 day resulted in this situation.

That's -- actually pending the bonus, two new factors. One is fraud, another is having to do with -- due to the lack of the understanding on the policies. Yes, we are having this situation pending PayPay bonus.

Of course, on the fraud side, of course, we are going to kick it out completely. But when it comes to the impending PayPay bonus, actually, due to the lack of understanding, of course, it's very important for us to have the better dialogues with users. And we are to see to it that, actually, they will have access to the bonus, actually, JPY 0.2 billion, as of January 31. So -- and there is no way that the bonus will go up. It may come down to some extent.

That said, what are the impacts we had out of this campaign? I'd like to use 2 slides. Well, being honest with you, PayPay, in this space of the mobile payment, of course, now we are -- we got started back in October and, actually, we are the last offering this -- the mobile payment services. The name Hana PayPay, and thanks to this naming, actually, awareness, actually, became #1. They have better awareness compared with other brands. And also, the PayPay can be used in real payment. Through the campaign that we have conducted, actually, we became #1 in terms of understanding of the service based upon the surveys we have conducted.

Moving on. So the actual number of users, it is not the number of downloads. Actually, it is the number of the registered users. I think this is going to give us a truer story. Actually, smartphone platform has been very critical since we moved into this technologies and working on applications and services and develop. Actually, within 4 months, we were able to actually have 4 million people registered.

Again, many people are using PayPay services and, as time goes on, we are truly hoping that PayPay can be more utilized by many more people. In terms of growth, it's been so fast because of that.

There has been some security issues and challenges. Yes, now we are fully aware of these security-related issues. I think we have to improve ourselves at much deeper level, and actually, actions are taking place so quickly.

One is having to do with credit card, the fraud usage opportunities. And actually, we decided to actually improve that structure. And also, we set up the upper limit in terms of the amounts that they can use with PayPay. So actually, we have already worked on this initiative.

So all in all, yes, we've gone through this on security efforts. And now we are ready to go for the second campaign, so we believe. And as of today, at 13:00 today, p.m. actually, we announced the second campaign of JPY 10 billion.

As for details, please look at this slide. Last time, it was very important for us not to have many people, regardless of the usage intention. We wanted to encourage them using PayPay for their mobile payment. Actually, that has been the concept, be it large and be it small in terms of payment, actually, this bonus was given to them. But this time, we are going to pay attention to more to the small amount payment.

So actually -- they, actually -- there are, actually still a large number of the users, so with that point in mind, actually, we are going to go through these main activities. For example, one of our intentions is full cash back or [ on hey ] one in certain times. And actually, this program actually turned out to be quite popular, yes. And we'd like to offer now this kind of benefits to the regular users.

That's, well, how we suffered from the security issues and challenges. Why? Because the bonus cashback, actually, payment, actually, was way too large.

So as you see in the bottom, actually, maximum cash back has been restricted. So now we like, actually, have prevented fraud issues. And also, we would like to encourage daily users using our services.

Talking about securities, of course, not only in PayPay company, but also we should be able to leverage the capabilities of the full group companies, and we should be up to the point to address whatever the potential issues.

It's very important for us to have good awareness on the side of the users in order to avoid potential issues. So coming out of this second campaign, actually, we're quite happy to, actually, offer lots of information first from the [ people ] in terms of security. Looking into the bank accounts, I think it's going to be well-addressed, well-communicated, 20% of the bonus is going to be there -- 20% bonus there.

So actually, on the politicians could be a possible challenge, so it's very important for us to work on this, to prove this, with regard to credit card information, not only in PayPay but also the -- it's very important for us to have really good download system in order to improve the literacy in utilizing clients, it's very important for cash customers to pay attention to what's written on the statement and also credit card numbers, as it should not be shared.

And also, 3D Secure technology has been now recommended, and so we'd like to, actually, share this important piece of information in order to further improve the security.

I think that we are one of the players in order to truly realize the cashless society here in Japan as time goes on. And yes, we still have some way to go, but again, we're quite happy to have deep engagement in this regard.

And this concludes my explanations as to the statements and the progress of the mobile payment. And of course, we're quite happy to share more information from the viewpoints of the growth and opportunities.

Next, the investors post many questions related to the future growth. Inclusive of PayPay, what kind of growth does Yahoo! have on its mind? Just in terms of revenue and operating income? And what will be the ballpark image of the future? I would like to use a few slides from here to walk you through our growth scenario.

Firstly, this slide. Internet industry and internet-related technologies, all the relevant parties believe that there is more leeway for future growth and there are different chances. But if you miss those chances, that will be a threat.

And so Yahoo! JAPAN looks at the changes in the business environment and take those events as opportunities as well as challenges. And that is what we have been doing it since President Miyasaka actually led the company. And you see the results of the investment under his leadership in the past.

We have smartphone services, and that is a given, so we shifted to smartphone. We were known for PC, Yahoo!, but we transited to be known as smartphone company and, therefore, we changed the system as well as different infrastructure. And looking at the society, we believe that e-Commerce will grow furthermore.

And so we conducted e-Commerce revolution so that we can further reinforce our e-Commerce business. Our loyalty fee was down to 0% and the transaction volume went up. And we tried to increase other revenue source so that we will be able to enjoy revenue growth in the future. YJ card credit card is one example of us going into the new domain.

As mentioned by Mr. Sakaue, our CFO, YJ Card actually is in the black right now, and starting from in this fiscal year, we are trending favorably, establishing many cardholders.

And so as a total organization, we have been shifting to the new domain. And I know that investment is not easy, but by conducting investment, we were able to grow revenue. And in order to become a data-driven company, the most important KPI, which is location ID user, the number is increasing. Therefore, we are, as a total organization, steadily moving toward the path of future growth by handling all those items written on the slide.

We would like to go into the brick-and-mortar domain as well to capture new opportunities. So Yahoo! is superb in online platform, and off-line platform should be agreed through PayPay, and so we will use these 2 platforms so that we can reinforce the services and, in the end of the day, grow our business areas and coverage.

We have services. And because of services, we can grow in the future. So what is the future of our service? I would like to explain about our future service using this slide. This past new year, we had a townhall meeting and stated that we would provide services that will astonish the users because of the convenience that they can enjoy.

All the employees as well as users know that Yahoo! services are convenient. But then we would like to refocus on convenience, and I think it is very important to refocus on this very concept of convenience. For more than 20 years, through the online services, we made people's lives more convenient. And I think we can head toward another horizon of convenience, and we will go into the off-line world.

Off-line life domain is larger than online. And in the past, there was a barrier between these 2 worlds. But with the advent of Society 5.0, that is becoming a reality. And we will be able to use online technology to make off-line world lifestyle more and more convenient to astonish people.

And so I guess, this is the cornerstone that we are heading toward, and all the employees are trying to work on making off-line world as well as online world more and more convenient. And we are very committed to realize these ends.

And so Yahoo! Services will look at 2 vectors, one being online and another one being off-line. We want to provide new convenience to the people at large so that we will be able to increase more monetization points.

Yahoo! JAPAN's characteristics must be fully leveraged to monetize furthermore. And as a top management, I believe that this is the direction that we should head toward. And this graph shows the core speaker's points of Yahoo! JAPAN. Firstly, media and e-Commerce and fintech services can be provided through us in a very large scale, and we do already have such a platform.

We will leverage on the characteristics of media and commerce and come up with more convenient services. And regarding monetization, we will look at both online and off-line worlds. So if we can multiply those 2 factors, we can provide more convenience to the users and also grow our business by several fold.

And I believe that there is much opportunity for us. And regarding the profit and revenue breakdown, we want to try a new domain by combining media and commerce. And I think this is the new internet companies' style in the future.

We want speed and we want to pursue size, so data science, i.e. data-driven approach, is very important to expedite this goal that we are aiming at. And by using data science, we will be able to monetize furthermore. We have current business, such as advertisement and YAHUOKU!, loyalty fee as well as premium membership fee.

We would like to combine in both online and off-line services so that we can create 4 new monetization points. I will explain to you what integrated marketing is later, but that's the first one, second one is e-Commerce and third one is fintech and the fourth one is data solution.

And many questions from the investors are around the advertisement because that is the pillar of our business proposition. So regarding the integrated marketing, I would like to focus on explaining what this is all about.

To explain to you about what we aim at. This shows in a simple form, which is from the entrance, meaning gateway to exit, from a perception and all the way to online and off-line activities. We would like to visualize the impact and value so that for the advertisers, purchase, i.e., conversion as well as repurchase, must be maximized. And by evolutionalizing from the current advertising equation, we would like to maximize on the business impact that can be enjoyed by the advertisers.

And so right now, we look at brand panel for perception. And when you search on the top, there is paid search advertisement on the top. So these are the current activities that we conduct.

For example, we have the Yahoo! Travel in order to, actually, get more business, moving onward -- moving forward. And actually, off-line and PayPay and online side, of course. And e-Commerce, e-Commerce is here to become a bit larger.

And then on purchase and repurchase, in addition, 2 points are now going to be quite critical for us. So now we would like, actually, offer our marketing solutions, particularly in these areas. Again we would like to, actually, have this good visualization of end-to-end point so that we can actually have compliance in terms of the budget and in terms of the money available to them.

Well, I may be sounding rather abstract, so now I would like to go through more practical aspects. Again on the -- what we call an integrated marketing, in order for us to, actually, go through this process, actually, we can plan on 2 major products in terms of solutions we'd like to offer.

First, on the online purchases first. We have Yahoo! Shopping and another. So Yahoo! e-Commerce services definitely, they are actually increasing their transaction values, that means, actually, many people now coming in order to buy something. So manufacturers who are offering the products and also service providers offering their services, actually they're going to become direct clients. I'm talking about paid search ad and also header and display advertising and, et cetera. Actually, this has been services offered to merchants in the past. But now going forward, we would like to, actually, offer this similar services to a much broader players.

Another important point here is on off-line purchases. That said, of course, the online industry, overall -- actually, we have a missing link when it comes to the Yahoo! JAPAN. There are things, actually, we became aware of whether or not they are fully utilized and purchased off-line. So we failed improving these 2 points actually for the past 4 months and, actually, PayPay is, actually, having more than 4 million users, so we're hoping that PayPay will be used more. Yahoo! -- this was exposed through the Yahoo! brand panel and also paid search ad and others. Actually, the coupons should be distributed to those people who are exposed to this. Actually, they made a purchase and that purchase maybe resulted in the repurchase.

Everything we would like to -- make visualize everything with such budget, actually. And this is going to be the ultimate, the result players can enjoy. That is the way we would like to go about.

I think this is going to be bigger on the advancement in terms of solution. And also, this is going to help us to actually go for the much bigger opportunities in the form of monetization.

And for example, the so-called advertisement. Actually, the marketplace, actually, is stupid about the situation here in Japan. Of course, we have had our baseline platform. Actually, we tried to grow here. Of course, this is going to be also important going forward as well. But beyond that, we have to look into the -- next to the -- just about to be purchased, the money available there, be it manufacturer and be it on shops. Actually, they have promotion budget. Actually, it is going to be almost 2x plus, actually JPY 15 trillion available according to the data we have received, due to the lack of -- due to the missing link, the situations we have had.

Actually we were not able to fully leverage our capabilities, but now, that missing link is going to fill up the -- which we'll be able to visualize things more clearly.

And that -- this promotion marketing budget and how it will come to us one after another. This is going to be the evolution I would like to work on very much. So all in all, actually, we're going to call it integrated marketing solution, not the regular marketing solution advertisement. The budget and also the promotion budget, both budgets are now going to be transferred into the core opportunities for monetization.

And Marketing Solution business, their revenue, what's going to happen to the Marketing Solution revenue as time goes on? 2023, actually, we are going to aim at JPY 500 billion. As for details, actually, advertisement market about JPY 6 trillion. Actually, our revenue is about JPY 300 billion now. Of course, that itself needs to be further extended, and so we are hoping, yes. But in order for us to actually enjoy really good job, I think an integrated marketing solution is going to be a lot more critical. I think we have to make a good shift toward that by FY 2023. And actually, we'd like to get JPY 200 billion out of this total outlook, and we keep an eye on.

Today, Yahoo!, of course, is going to help on our clients and the players actually both online as well as in off-line, our services are going to advance. There will be new 4 monetization points, and out of these 4 is going to be this integrated marketing solution. And this integrated marketing solution, I think, is going to give us opportunities like this.

How about other 3 approaches? Again, long-term revenue and operating income outlook is going to be the last section I would like to cover today.

First, when I started, I said there's some -- it's very important for us to adapt to the changes taking place on the marketplaces, otherwise, we are going to miss opportunities. And we have to be able to make really good solid investment, opportunity investment based upon good insight and investment done. Actually, the actual outcome results have to be there. But I have to say that this is quite challenging, quite difficult for us to do.

And of course, first, is going to be the revenue opportunities. Of course, it is going to be a difficult task. Again, the -- instead of just shooting blindly whole possible opportunities, rather, we'd like to actually keep an eye on 4 focal points. And going through this approach, we would like to generate revenue. And actually, we'd like to actually extend our activities on at above our baseline business activities.

Our full year revenue is going to reach, soon, JPY 1 trillion. And of course, existing business will be quite important for us to comply on. But again, in order -- we've got to grow 4 monetization point so that we can actually go beyond JPY 1 trillion. And revenue is going to be the baseline and we are hoping that revenue can grow as time goes on. Of course, this itself is going to be quite a difficult challenge. But again, I do believe that we have really good organization and we commit ourselves to this.

And that said, of course, the profit is going to be more challenging. But again, we're going to make investments, and if we can make money out of this, the business activities. Of course, we have to work on the returns to be paid to the initial holders.

Yahoo! Services' direction, online as well as in off-line, again, we'd like actually to make our users' daily lives more convenient and exciting, and that is going to give us therefore more monetization opportunities.

And actually, we are having really good discussions among the top executives. Actually, we had that dialogue since toward the end of last year. In order for us to reach a certain business level, I think we need to be given about 5 years, kind of a gut feeling.

Now one new year has been passed since a new leadership. In other words, we have to actually achieve all this important outlook and goals I'm talking about today, in 4 years. So 4 years, I'm sure there will be ups and downs, lots of things are going to take place in 4 years. Again, JPY 130 billion, actually, profit came down to that level. And mobile payment and video, actually, are going to be the baseline for our future growth, and we made a good strong articulation on that. And going through all these activities, actually for 4 years to come, JPY 140 billion plus is going to be the level I would like to achieve.

At the same time, I would like to make a strong investment, so they are the 2 of the baseline and activities and ideas we'd like to work on for 4 years to come.

Of course, JPY 140 billion, of course, is going to be quite not easy number for us to achieve, but I think we are learning quite fast this year. So JPY 140 billion needs to be achieved. At the same time, I think we have to be competitive in terms of making investment compared with other competitors, so please bear with us for some time to come.

So when are we going to actually increase our profit? Actually, I think we need to have 5 years to go, so 1 year has passed actually. By 2023, we are aiming at the record high level profit.

[Ryosuke Sakaue, executive]

In FY 2015, we did JPY 224.9 billion of our operating income. And ASKUL was consolidated, so there has been an increase in terms of revenue and operating income, but in terms of the advertisement, it was the core. And in 2023, we want to record the historical high, JPY 225 billion.

And in terms of the breakdown, we will, of course, have a steady share of the existing business and have it grow furthermore. And on the other hand, we have 4 new pillars, and we would like to nurture those new 4 pillars so that we will be able to contribute to the total operating income so we can do JPY 225 billion in FY 2023, recording the historical high. I do hope that you did understand our strategy and the direction that we are heading toward.

A year ago, a new management was established, and we mentioned that we want to create the future. We don't want to just reflect on the past, but want to look forward and create the future. And we want to create a future that only we can create, and we can embed our originality into the future.

Today, I delineated to you a concrete image of the user that PayPay has more than 4 million users, and we are seeing tangible results of our effort. And the market is changing, but we want to capture those changes as our business opportunities to create new future.

We need to harvest success from the said changes and unless we can do that the current services will go down and we'll not be able to grow furthermore. And so with that in our backdrop, I would like to do the record-high operating income of JPY 225 billion in FY '23.

And I do hope that you did understand my presentation. And I hope that you can deepen your understanding through Q&A that will be held right after this session.

One final point, we have 4 new pillars and B2B, data solution business is one of the pillars. And I guess, I was sometime around this time of last year we announced to you data-first initiative. And a year has passed in conducting a different experiments. And on February 13, we will be holding the announcement, this is not only for media, but I do hope that investors and analysts will look at this announcement on February 13. Thank you very much.

[Kentaro Kawabe, executive]

[Operator Instructions] So second row, please?

[Yoshitaka Nagao, analyst]

I am Nagao of Nomura Securities. I have 2 questions, so I have to ask one question at a time?

[Kentaro Kawabe, executive]

[Operator Instructions]

[Yoshitaka Nagao, analyst]

First question is about monetization for midterm and you mentioned about integrated marketing solution and you have the off-line purchase data will be used. And I believe that the number of stores you can cover will be very important in realizing this vision. And PayPay, how many stores accept PayPay? And I want to know what will be the trend of increase in the number of the stores that handle PayPay in the next 5 years. This is my first question.

[Kentaro Kawabe, executive]

PayPay, there are 3 important points. One is user experience, and the experience must be better than cash. And number two is number of users and the third important point is number of stores that can accept PayPay. We know the importance of these 3 points, therefore, from the very beginning, we increased sales force so that we can increase the number of stores where PayPay can be used. Our ultimate goal is to enable all the stores in Japan to accept PayPay. But right now, what is the situation? Well, the number is not that high to seek for any disclosure. And so we want to reach some proper figure before we disclose a number. And so for now, we don't disclose any number because this is not that large. So once we have the integrated marketing solution and if it goes to the size of JPY 200 billion by FY 2023, I believe that majority of the stores in Japan will be unmanned and we try to backdrop from the image we have on 2023 to reinforce our sales activities.

[Yoshitaka Nagao, analyst]

Now second question, it is on PayPay again. It is linked to credit card and YJ Card. You know that as compared to other credit cards, there are additional promotional merits that the users can enjoy. From here onward, in terms of the linkage to the bank, Japan Net Bank will be given preference. What kind of linkage do you plan to have with other banks as well?

[Kentaro Kawabe, executive]

Including PayPay, Yahoo! and SoftBank Group, commerce strategy-wise, needless to say, we want to increase and maximize in-house payment rate. So YJ Card-wise, in PayPay, as compared to other credit cards, the campaign will provide higher cash back and SoftBank, at the store, YJ Card is being used, so JNB also would like to contribute to the increase of in-house payment, so we want to provide a different points award. Thank you very much.

[Unknown Executive]

Raise your hand if you have any question. If I may now ask the gentleman with the purple necktie in this section?

[Masaru Sugiyama, analyst]

This is Sugiyama from Goldman Sachs Securities. Thank you for particularly sharing your thoughts concerning the long-term perspectives in terms of profitability. Before we move into the long-term aspects, looking back, what happened in the past, actually, the situations back in 2013. Display advertisement and having the high -- the gross margin actually in the JPY 70 billion, I think, and that was pure increase you had. At the same time your operating income became flat. And actually, I think you have lost some profit, if I'm not wrong. So I'd like to ask you to analyze what you did in terms of investment or the so-called waste of cost -- cost side, whether or not you are observing any wasted cost there?

[Kentaro Kawabe, executive]

Well, actually, it is not just limited to this particular period of time. Actually, our top management, actually, needs to make sure that we're going to be lean all the time. Whatever the investments we are making, I think we have to actually get to see the result, cost and benefit relationship. Yes, that's what we do. At high level of goods sold, we -- of course, the good investments are now going to stay with us. And if we did not make a good investment, those investments are now going to be gone, in natural.

[Masaru Sugiyama, analyst]

I wonder if you could help me -- give me more information as for the success.

[Ryosuke Sakaue, executive]

I think in 5 years from now, and I think it is going to be quite important for example the operation and also the business commissions and also the HR cost actually in these areas. I think we have to make sure that we can be truly lean going forward and as well as Kawabe-san mentioned about this.

[Masaru Sugiyama, analyst]

My second question, if I may. In your presentation, you talked about integrated marketing and 2 types of products were introduced, particularly, the search -- product and search. I think it's going to be the very specific explanation I haven't seen from you. Again, with this point in mind, do you have any timescale you have in mind? Maybe we could have -- ask Ozawa-san to respond to this question?

[Takao Ozawa, executive]

Well, let me double check on the question. You're talking about in terms of product search, which element are you talking about? I think you're talking about the Yahoo! Shopping orders and on the e-Commerce, the so-called commerce advertisement. Yes, if that's the case, for example, beta -- Amazon beta [ rock ], actually, they are all already doing this. And actually, we in Yahoo Japan actually, our manufacturers external actually, players, actually, in order to promote their product and services, they can actually have access to this kind of advertisement and advertisements can be yours. This is not necessarily new within the online space. Actually, it is going to be linked with [ JDV ], so the third point, revenue. Of course, definitely, we'll keep an eye on this and, definitely, we do believe that this is going to get further extended as time goes on. Well, then advertisement fee that we can get from the advertisers, of course, will be now limited. So we need to actually expand this going toward the external space and provision with the JNB.

[Masaru Sugiyama, analyst]

Any time line on the ideas?

[Takao Ozawa, executive]

Well, actually, we already conducted testing in this regard. Probably, it is going to be fully starting at large scale for -- starting from FY 2019.

[Unknown Executive]

So third row from the left, gentleman sitting at the center.

[Keiichi Yoneshima, analyst]

I am from Credit Suisse. I have a question on integrated marketing solution. And I want to ask in particular about off-line. You said that you work with PayPay, and right now, PayPay has 4 million users. And if the users go to the magnitude of 20 million or 30 million, do you think that should be the number of users? So statistically speaking, is there any significant number that you aim at regarding the number of users?

[Kentaro Kawabe, executive]

Needless to say, we are talking about business, so even though the users might not go up to the magnitude that you've mentioned, we can come up with a due solution. And the more users there are, that platform will be more convenient. And so even with 4 million users, we want to come up with the services that will be viable to all the relevant parties. And PayPay is not the only solution, we have other solutions as well, so we want to mix and match other solutions so that we can combine online and off-line and come up with a integrated marketing solution that realize the convergence of off-line and online. And I think that is a very practical solution that we can work at.

[Keiichi Yoneshima, analyst]

Another question is short-term related question. So in terms of expense for new challenges, you revised the figure and you spent about JPY 9 billion. So in Q4, you plan to spend JPY 9 billion as well? Because that will be about JPY 8.80 billion, calculation-wise. So in terms of Q4, you already have the budget that is mapped to a particular expense, so do you have any buffer?

[Ryosuke Sakaue, executive]

We have some tangible project, especially in terms of commerce, e-Commerce, YJ Card and PayPay will be linked together and we plan to invest in that area, and we will have the second campaign. And in terms of the lottery, Yahoo! will be paying for that as well. And in terms of media, we are going to procure a video in a very efficient manner. And in Q4, we will be purchasing more content that is video in nature and try to deliver that.

[Keiichi Yoneshima, analyst]

I have another additional question. So in terms of PayPay, JPY 10 billion, 50% will be paid by Yahoo! JAPAN. Is that correct?

[Ryosuke Sakaue, executive]

No, no, no. Not to that range. So 1 in 5 times in this JPY 10 billion campaign, we will be paying for that. And in first campaign, it was 1 in 20 times, or chances. Any other question?

[Unknown Executive]

Yes, the lady next to the gentleman, who just announced the question, please.

[Haruka Mori, analyst]

JPMorgan Securities, my name is Mori. I have 2 questions, if I may. My first question is having to do with PayPay. For the next fiscal year, the -- what is going to be the most important being in that sum I think the number of users is here to further grow. And also, small amount on payment, I think it's going to be one of the important areas you have to keep an eye on. Of course, you told us earlier that you simply cannot disclose a specific number of stores under your services. There are so many elements, I think, you would like to strike good balance among all these elements. But again, among all these elements, what has been the most important aspect you like to actually give the top priority if you happen to have such an index?

[Kentaro Kawabe, executive]

I'd like to ask Ozawa-san to respond to your question, and I may add more comments.

[Takao Ozawa, executive]

Well, ultimately, actually, the impairment amount -- payment value, of course, actually, we have to maximize the payment value. That is going to be definitely one of the important goals we have to keep an eye on. And you're right, so what has been the most important things we have to look at moving into the next fiscal year? For example, number of the registered users, and we'd like to actually increase the number of registered users by another digit. And in regards to the stores, 2 aspects you have to look at, of course, in stores nationwide. And also, in order for us to be successful in integrated marketing. And to what extent are you going to actually give the top priority to stores? Actually, here in Japan, in terms of business practice and, actually, in enterprises. Actually, I'm talking about where our payment is going to be taking place and again for chain operators. So chain operation definitely is going to be quite important in terms of impairments. So we have to keep an eye on that number and it will take several years before we can cover -- again have the full coverage, as Kawabe-san mentioned. Lawson, actually, is going to join us. And as of March, I think that is going to give us good opportunity. So definitely, we are going to chase after those numbers.

[Haruka Mori, analyst]

My second question is mid-term performance outlook. Let me double check on the following point. In the 4 years to come, JPY 140 billion profit is going to be maintained according to your explanation. And FY '24 March, there is going to be the big jump up in terms of profit or would you tell us that, regardless of the timing, when you put them all these numbers together, actually, that you are actually going to aim at the ultimate goal. How you're going to actually generate a profit is what I'm trying to ask in 4 years to come.

[Ryosuke Sakaue, executive]

So it is not that actual rate of time, and the returns to shareholders could be among the important things you have to look at. I believe that moving into the next fiscal year, there's going to be more increase than the loss coming from PayPay's side. So if you could help me in these regards. And JPY 140 billion, of course, that is going to be the minimum profit we would like to generate, that's for sure. And 4 years to come, again, our integrated marketing solution we're talking about, I think investment there is going to affect us ups and downs in terms of profitability. But the revenue graph we showed to you earlier I think is indicating this possible pattern. That if for example, FY '21, something new needs to be launched. If that's the case, probably we may be reaching at level of JPY 140 billion. So in the beginning of the new fiscal year, there is going to be the guidance through our communication programs. The second aspect is having to do with return to shareholders. Well, actually, as for the shareholders' return, actually there has been no new change as of now for the current fiscal year.

[Unknown Executive]

Any other questions? Please raise your hand. The person sitting in the front with eyeglasses.

[Ryotaro Sawada, analyst]

I am Sawada from Ace Securities Research Center. I have 2 questions. First question is about advertisement. In the last presentation, you took fraud measures, and there is a dip. And I believe that there will be a rebound, an improvement. So can you tell me the point of improvement and how it is trending now?

[Kentaro Kawabe, executive]

So the numbers will be mentioned by Mr. Sakaue.

[Ryosuke Sakaue, executive]

So in Q3, so from Q1 to Q3 revenue, it was negatively impacted by JPY 1.2 billion. And in Q4, I believe that it will be in the magnitude of JPY million. And Mr. Miyazawa will comment on this later and some areas we will not be able to recover. So in terms of the negative impact of JPY 100 million-some, it will remain as is. We are reassessing the sites that we have closed down and once we complete the reassessment and make sure at the executive level, we can reopen the site. So I think it was Mr. Sakaue mentioned, but already there has been a revenue recovery of about JPY 700 million. And this is not Yahoo!, so in terms of operating income, impact will be less than the figure that I have mentioned, right now.

[Ryotaro Sawada, analyst]

And second question is on PayPay. So PayPay started from the end of last year and there were some issues, especially, security-related issues, and sometimes I wonder why that had happened. And SoftBank and Yahoo! and KPN actually conducted these services. And I cannot believe that there was no problem in India. And I don't understand why those pieces of information from the lessons learned in India was not shared with you. And what is the lesson learned and if you have changed the organizational structure, please let me know.

[Kentaro Kawabe, executive]

So there were some shortcomings in terms of the development. So on the top, you see card security code, the number of times that you can enter, there was no threshold. So this is the shortcoming that we had and we feel accountable for. And in terms of what had happened, it all boils down to the cybersecurity standard here in Japan and not being attributable to PayPay, per se. And Paytm actually is only for bank and not for credit card connection. And in Japan, we have Yahoo! Wallet, and we tried to combine in the positive points of these 2. And there were some additional developments and the credit card was the main driver of fraud. So it was not the PayPay, per se, but credit cards were already stolen or dark web actually sold a different credit card information and those credit card information was used for PayPay purchase. And Paytm is actually involved, and I believe that, that was the reason why such fraudulent cases emerged. And I think this is the cybersecurity issue that Japan is facing. And the Japanese society is heading toward more cashless society, and we believe that, basically, the users' literacy must be increased and enhanced in order to prevent this from happening in the future.

[Unknown Executive]

Any other questions? If I may now like to ask the person actually wearing a blue shirt, actually. Second one from the front, please.

[Masato Araki, analyst]

Mitsubishi UFJ Morgan, my name is Araki. My first question is having to do with the end of growth in premium advertisement, actually. Extraordinary shopping, actually, it is growing. But again, a smart and the video has actually come down in the third quarter compared within Q2, according to the data I got in your slide. So if you could help me there, why smartphone and video actually went down in the third quarter compared with Q2 and why premium advertisements actually grew is my first question.

[Kentaro Kawabe, executive]

Miyazawa-san, please?

[Gen Miyazawa, executive]

In regard to the premium advertisement, of course, on our side, we believe there is a challenge in there. As we have tried to compare this point to your next time actually. Actually, no, it is not necessarily in the device -- designer change, actually. We, actually, tried to modify the product and structure and the -- that's what happened in December. I think that had a positive impact upon us to some extent. That said, though, of course, smartphone and video definitely is a mainstream. And Q2 and Q4, of course, are moving in that transition -- in that transition, definitely there is going to be growth.

[Masato Araki, analyst]

My second question concerning PayPay. Actually, JPY 300 billion becoming JPY 500 billion, and off-line lifestyle is one of the points, including d point, and whether or not you are going to be the only company covering everything including d point, or are you going to be actually thinking about alliance with other players, real holding companies? So with that being a point, would that being an approach you have in mind, in order to actually JPY 3 billion. And probably we have to think about specific use cases of PayPay or are you going to be alone or are you thinking about the off-line strong players, thinking about alliance?

[Kentaro Kawabe, executive]

Well, off-line advertisement, let me put this way. Of course, in off-line players, without them, it is going to be impossible for us to have valid business activities. And so all these players and actually on they're using PayPay definitely is going to be the important players. And also they are going to be possible partners. And we gave this answer earlier, actually, PayPay is not only payment and correlation with T-POINT, definitely, it's going to be further strengthened. What is bought with the PayPay and just getting to know the total number, I don't think that is going to be any good approach for you to have the successful integrated marketing solution. Yes, you are right, we are actually receiving that kind of point coming from many people. So to what extent, actually, we can expect them to come along with us, to think about possible partnership alliance with us, we'd like to spend several years for that. And that included -- you are talking about the JPY 300 billion and JPY 500 billion. You are right, so I would like to go through that evolution before we again raise that targeted number.

[Unknown Executive]

So person sitting in the very back at the center.

[Eiji Maeda, analyst]

I am Maeda of SMBC Nikko Securities. I have 2 questions. Firstly, PayPay. So equity method-wise, it is minus JPY 10 billion, is that contributed to PayPay? And I believe that you invested about JPY 20 billion. So in a year or so, the total investment will actually be nil, and so you're going to use equity method or are you going to invest again next fiscal year? And so in terms of the shortcoming portion, should Yahoo! complement that? So what is the overall scheme with PayPay?

[Ryosuke Sakaue, executive]

In Q3, so we had to cover for JPY 9 billion, and they started their business from Q2. So if you add these 2, Yahoo! actually had a negative JPY 10 billion. So this is red in PayPay. And with Softbank, we paid JPY 40 billion. And in the future, of course, we have to discuss the matter with Softbank. We should continue being equal partners and provide necessary capital injection to PayPay.

[Eiji Maeda, analyst]

The second question about existing business heading toward Q4 and next fiscal year. I think there will be growth in paid search as well as video and also shopping transaction value as well as take rate. What is the KPI for the next quarter? What is your take for the upcoming Q4?

[Ryosuke Sakaue, executive]

We are coming up with a budget for FY '19, so let me just focus on Q4. Regarding paid search, it will be on par with Q3, and that is the rate of growth that we expect in Q4. Regarding display, it will be flat, and that's what we expect for Q4. Talking about shopping, regarding transaction value, year-on-year, I believe that it will grow by 20%. Talking about take rate, we see steady growth, but it's not that it's going to make a big leap, but rather, it will grow by about a full percent in the next 3 months.

[Unknown Executive]

The gentleman in the first row and far right inside, please.

[Koki Sato, analyst]

Mizuho Securities, my name is Sato. I have 2 questions concerning PayPay. My first question is in-house ratio, according to your lecture grow it, and also you're talking about credit card frauds. And actually, when you had very first new payment in the third quarter, actually linking it with an account and actually it was in cards and also external. What has been the breakdowns among these 3?

[Kentaro Kawabe, executive]

As for the breakdowns, we had on the press conference and actually this afternoon. Sorry, I have to repeat what we said. Things are not -- things are confidential. Of course, in terms of number, actually, credit card the connectivity was the biggest one, thank you.

[Koki Sato, analyst]

My second question again on the cashless panel, QR code format actually has been discussed just the other day. And if there are too many codes, QR codes, and that is not going to be good. But again, with that one in mind, the merchants, what kind of relationship are you going to maintain with the merchants? Are you just going to be free and anyone can come and join you? Or is it going to be based upon the competition again? Or what is going to be your outlook as time goes on, on the long-term basis again, vis-à-vis, the QR code's overall landscape?

[Kentaro Kawabe, executive]

Well, as of now, the -- of course, we have to take into account our future business model. And existing -- instead of using the existing network, rather, I think we would like to actually build our network of stores from scratch, that's the way we got started. So we'd like to actually maintain our uniqueness in this regard. But some day in the far future years, whether or not we'll be leveraging some of that networking technologies, that I don't know. But as of now, we actually -- I think our existing networking is going to give us the biggest strength.

[Unknown Executive]

Any other question? No more question? Then we would like to end today's business results presentation. Thank you very much for joining us today.