Z Holdings Corp

TSE:4689

Earnings Call Transcript 2022-Q3

[Operator]

[Interpreted] Thank you very much for taking part in the conference call for Z Holdings Corporation business results FY 2021 Q3. Today, we will be using the presentation materials posted on the website titled Z Holdings Corporation Business Results FY 2021 Q3.

Today, we are being attended by Mr. Takeshi Idezawa, Representative Director and Co-CEO of Z Holdings Corporation; and Mr. Takao Ozawa, Director and Senior Managing Corporate Officer; Mr. Ryosuke Sakaue, Senior Managing Corporate Officer and GCFO; as well as Mr. In Joon Hwang, Senior Managing Corporate Officer and CGIO.

We will first ask Mr. Sakaue to go over with us the results of FY 2021 Q3. After that, we will have Q&A session. The conference call is expected to last 1 hour and 30 minutes. This conference call will be live streamed. [Operator Instructions]

With that, we will start the conference call. Mr. Sakaue, please.

[Ryosuke Sakaue, executive]

[Interpreted] Ladies and gentlemen, thank you for joining us today for Z Holdings Corporation's Q3 financial results briefing.

Before I start explaining the financial results, I'd like to make an announcement. As of April 1, the President and Representative Director and CEO of Yahoo! JAPAN Corporation will become Takao Ozawa, as announced on January 31. Mr. Kawabe will focus on the role of Co-CEO of Z Holdings and will further strive to navigate the entire Z Holdings Group. We have decided on the change in management as we regarded that Mr. Ozawa was the best person to accelerate the further growth of Yahoo! JAPAN with his abundant experience to date.

I'd like to hand over to Mr. Ozawa for a few words.

[Takao Ozawa, executive]

[Interpreted] Hello. My name is Ozawa, and I have been appointed to navigate Yahoo! JAPAN as its President and Representative Director from April 1. For Yahoo!, in Z Holdings, it is one of the key subsidiaries, and I feel a great amount of responsibility. There are various services at Yahoo!. We would like to become a good company that offers great services to our shareholders, to our users as well as to our employees. I really hope that we can contribute to everyone even more. And I would like to ask for the ongoing support of our investors as well. Thank you very much.

[Ryosuke Sakaue, executive]

[Interpreted] Now let me move on to the explanation of financial results.

Please turn to the next slide. Here are the topics of financial results for Q3 FY 2021. There are 2 points I would like to make. First of all, performance came in quite nicely. Three months ago, compared to our assumptions, we were able to see our performance exceed expectations, and that is why we decided to take the upward revision and guidance. Secondly, for LINE GIFT and group synergies were generated, we were able to release new services during this quarter. Of course, great contributions to performance is still yet to be seen. However, with its contribution to preferred wins, we would like to make great efforts. So that was a summary comment for Q3.

So I'd like to go back to the main presentation to speak. So we were able to see continued growth in the advertising business, led to record high operating revenue of JPY 409.1 billion, up 29.2% year-on-year; and adjusted EBITDA of JPY 97.9 billion, up 24% year-on-year.

For profitability, the advertising business is high and the performance was good. And Yahoo! JAPAN license contract was terminated, and royalty expenses went down. Therefore, we made an upward revision on the adjusted EBITDA guidance to JPY 330 billion or more. And for the advertising business, it reached a new record high of JPY 153.4 billion of revenue, with growth in both Yahoo! and LINE due to new LINE advertising products and recovery in advertising demand.

In terms of topics, there are 4. LINE GIFT, quick commerce expanded. And also in the commerce area, we were able to generate synergies increasingly. In addition, the release of the PayPay Card and the change of the bonus brand for Yahoo! services expanded convenience across the commerce and financial domains. In addition, from yesterday, we launched in phases PayPay Atobarai. Finally, we continue to promote capital market and environmental initiatives, including the transition to the Prime Market and the declaration of carbon neutrality.

Please turn to the next slide. Company-wide adjusted EBITDA was revised up to over JPY 330 billion from the guidance announced at the beginning of the fiscal year. Adjusted EBITDA for each segment has also been revised in line with business progress. So I'd like to briefly go through by segment.

In the Media Business, the main reason for the increase in earnings were higher earnings in the advertising business and lower royalty expenses due to the termination of the Yahoo! JAPAN license agreement.

In the Commerce Business, the upside was due to investment and expense control in the shopping business with an eye on essential platform improvements, like we've been saying from the beginning of the year, as well as the fact that logistics-related investments linked to GMV did not increase as much as assumed. That is why we were able to exceed.

In the Strategic Business, the upside was mainly due to the delay in the release of PayPay Card and PayPay Atobarai, which was later than expected compared to what we were assuming at the beginning of the year, which resulted in a decrease in fixed costs, and we were also being selective about LINE-related investment projects.

For the final item, which is concerning other adjustments, as current performance is strong and the retention and recruitment of talented personnel is becoming tougher, as a company that strives for medium- to long-term growth, human resources and talent are truly important to us. And we believe that we need to make investments into our people. Therefore, common human resource-related investments have been increased, leading to a downward revision which is specific to this fiscal year. As a result of the strong performance of the advertising businesses of Yahoo! and LINE, we expect company-wide revenue to come in at the upper end of our previous guidance at JPY 1.57 trillion.

Please turn to the next slide. On December 3 last year, we passed a resolution to acquire treasury stock through a tender offer, retire treasury stock and issue stock acquisition rights as part of our efforts to transition to the Prime Market. Just to explain a little bit more, the exercise price of the stock acquisition rights has a minimum exercise price. And if the stock price falls below the tender offer price of JPY 663, the stock acquisition rights will not be exercised from the standpoint of economic rationality, a scheme that avoids dilution of the stock value. If all the stock acquisition rights are exercised in the future and the distribution to the market is completed, it is expected to meet the ratio of tradable shares required to maintain the listing on the Prime Market. In addition, as announced by the TSE on January 11, the company is scheduled to switch to the Prime Market on April 4.

Please turn to the next page. In order to unify the loyalty program, we have expanded places where PayPay Bonus can be used. First of all, for online, we will change the use in granting our T-POINTS through Yahoo! services to PayPay Bonus in April. For off-line, from December last year, we started giving PayPay Bonuses for PayPay Card payments. In this way, by unifying the bonus brand for e-commerce and the financial businesses into PayPay, we aim to further improve the convenience for PayPay users. We plan to unify the loyalty program in the future, and we aim to further expand the ecosystem by encouraging cross-use of services from 3 action points, taking advantage of one of the largest user bases in Japan.

Please turn to the next page. Today, past noon, we announced that -- we announced the 2030 carbon-neutral declaration to reduce our greenhouse gas emissions to virtually 0 by fiscal 2030. In January of last year, Yahoo! JAPAN declared the 100% Renewable Energy Challenge for fiscal year 2023, aiming to achieve 100% renewable energy for electricity use in its business activities as soon as possible. This time, group companies such as LINE and ZOZO will also aim to become carbon neutral by fiscal year 2030.

To achieve this goal, we will convert more than 80% of our electricity to renewable energy by around fiscal year 2025 and promote the conversion to 100% renewable energy in the following 5 years. That is our road map. In addition, in order to absorb greenhouse gas emissions from other group companies, Yahoo! JAPAN, which is leading the way, will start carbon-negative initiatives. And the entire group hence will aim to become 2030 carbon neutral.

Please turn to the next page. From here on, I will explain the 3 agenda items in this order.

Please turn to the next page. First, I will explain the consolidated results for the entire company. Next page, please. Like I mentioned at the beginning, on a consolidated basis, revenue increased and profit increased on an adjusted EBITDA basis, mainly due to the effect of the integration of LINE. We achieved quarterly revenue of JPY 400 billion for the first time ever.

Please turn to the next page. Next are the consolidated results for LINE. Despite increased investments for growth in LINE GIFT and financial services, high growth in the advertising business and investment discipline resulted in our fifth consecutive quarter of positive operating profit.

Please turn to the next page. Group-related sales revenue for the entire group is shown here. In addition to the effects of the integration with LINE, demand recovery among advertisers and other factors led to solid growth in Q3, with company-wide revenue reaching JPY 153.4 billion, up 64.2% year-on-year.

Please turn to the next page. Next is the whole group's e-commerce transaction volume. Although the previous year's hurdle was high due to the strong performance of the service business as a result of the Go To campaign, the steady growth of the merchandise transaction value resulted in an e-commerce transaction volume of JPY 977.5 billion, up 6.5% year-on-year.

Please turn to the next page. Next, I will explain the topics and results by segment. Next page, please. First is the Media Business. Next page, please. LINE's new advertising product, Talk Head View Custom, is doing well since its release. We were able to take advantage of the demand for advertising in December, which is a high-demand month. And we were able to acquire brand advertisers that we had not been able to acquire in the past, such as jewelry and automobile advertisers. As a result, as a media section, we were able to improve profitability.

Please turn to the next slide. This is LINE VOOM. In November 2021, we started to offer the LINE VOOM service with Timeline being revamped. We renamed it as a video platform, and we'll strive to grow the business in the expanding video market. After the renewal, the number of users viewing videos per day increased by 37%. Going forward, we will increase video content in stages to promote user views and expand video advertising.

Please turn to the next page. Here, we show advertising revenue for Yahoo!. So the result for Q3 was JPY 102.4 billion, which was a growth by 9.6% year-over-year. Now again, this is backed by advertisers' demand recovering, and also, in Yahoo!, we have been able to switch the display ad to 1 platform. And so through these improvements, we have been able to find a quarterly revenue exceeding JPY 100 billion for the first time. Especially for search ads, we have been able to see a very continuous UI improvement, and so therefore, we have been able to mark a continuous double-digit growth.

Next page, please. Here, we look at LINE advertising revenue, which is also making a very good progress. As for display ads, just like Yahoo!, we have been able to see an increase in advertisers' demand. We have also been able to again introduce new products. And so therefore, we've been able to achieve JPY 29.3 billion in revenue, which is a 31% increase year-over-year. For account ads, again, we have been able to see number of accounts opening increase, and so therefore, we've been able to achieve JPY 20.1 billion in revenue, which is an 11.8% increase year-over-year.

Next page, please. From here, I will go over our Commerce Business. Please go to the next page. Now I know some institutional investors are asking about our shopping platform because there are various of them. And so this time around, we have decided to, again, revisit how we try to differentiate ourselves.

So starting from the left-hand side, you have Yahoo! Shopping, PayPay Mall, ZOZOTOWN, LOHACO. So for these existing e-commerce business, it is very much about making sure we'd be able to refine intrinsic service values to expand transaction value. And at the same time, from middle to right, here, these are exactly the platforms that we're trying to differentiate ourselves from the peers, in other words, quick commerce and social commerce. Now here, we're trying to make sure we'd be able to utilize our unique group assets so that we'd be able to offer new purchasing experiences opportunities.

Now the background behind that, we know that there are various of user needs now, and our group, we want to make sure that we'd be able to not just to offer our service in 1 platform, but then we want to make sure we'd be able to leverage the characteristics of each of the services we'd be able to do to put forth. In other words, that's how we want to leverage our collective strengths of the group, so that we'd be able to maximize the total transaction value of the group. And from here, I would like to explain other initiatives that we are going -- making to make sure we'd be able to see progress, which brings us to this slide. And this is measure to increase LINE official account.

Now the number of registered brands is expanding rapidly. And so our LINE official accounts is spreading gradually as CRM tool for e-commerce. And Yahoo! Shopping, PayPay Mall, we have many merchants there. And so to these people, other consulting provided through LINE sales team who would have operational know-how, a LINE official accounts. In other words, there's good collaboration with Yahoo! and LINE team. And so as a result, the stores that were provided this consulting improved its message open rate and CTR compared to average rate of store newsletter.

Next page, please. Here, we introduced our social commerce, in other words, LINE GIFT. So this is Q3, and there's been lots of seasonal events. And along with that, we have been very proactive in launching marketing campaign. And so the cumulative number of users surpassed 20 million. As for transaction value, we have been able to increase this by approximately 4x year-over-year. And at the same time, we are making very good progress with group collaboration, and so store opening by group companies are accelerating. In Yahoo! Shopping, PayPay Mall, we have begun linkage in products and inventories between these platforms, which enables us to make sure we have better assortment. And for merchants, I do believe we are able to now offer new opportunities for sales. Looking from here, we are also focusing on, for example, a birthday gift. We're trying to make sure we'd be able to create a social gift service where people would be able to use on a daily basis and more casually.

Please go to the next page. Next is our quick commerce that we're working with, ASKUL and Demae-can. Just like we announced last week, as we try to make a full-fledged operation, we have decided to make a rebranding to Yahoo! Mart by ASKUL. At the moment, we have been able to expand the number of stores to 9, and we are leveraging ASKUL's product procurement capability. And so therefore, we have products -- 1,500 types of products to be handled.

Within the demonstration experiment, this is something that we have been doing from October to December. But then the total number of orders increased by tenfold. And so through this demonstration experiment, we have been able to answer some of the questions like, do we see really immediate needs for daily goods and food items? And we also have a question of, can we really make a good operation around this delivery? But we have been able to find confidence on that. And as we look ahead, we're trying to open several dozens of stores in the next fiscal year and establish a system that would cover all 23 wards in Tokyo.

Please go to the next slide. Here, we show merchandise transaction value. For Shopping business transaction value, we have been able to find a contribution by Cho PayPay Matsuri. And so therefore, we have been able to see a 21.1% increase year-over-year. For Reuse business, we have been able to find YAHUOKU! user expansion, PayPay -- a higher spend per user in YAHUOKU! and expansion in PayPay Flea Market, and so we have been able to achieve a double-digit growth.

Now moving on to our Strategic Business. So here, we show our PayPay initiatives. Now the impact of payment fee to small- and medium-sized merchants in terms of cancellation continues to be small. And so the first tier of what we call the first year of monetization, we are seeing a steady increase. And also in terms of the second tier, in other words, this is about PayPay My Store, we have been able to find a number of merchants that would sign up here increase steadily. And PayPay coupon usage is also increasing, which is again contributing to the revenue growth. And through these efforts, we have been able to find PayPay revenue increase.

Now when we look into the profit before acquisition costs, in other words, the profit divided by deduction -- deducting cost of sales, in other words, funds source, costs plus regular user rewards and fixed cost from revenue. We do offer this type of 0.5% PayPay Bonus. But then when we deduct that, this part of the profit, in other words, again, the profit before acquisition costs, we have been able to achieve profitability in Q3. And it has been 3 years since the launch of this service. And if we decided to stop, for example, not just a 0.5% PayPay Bonus, but then if we stop paying for that tentative acquisition cost, we know that profit is in sight. But on the other hand, we do not have intention to stop spending these acquisition costs. We do still want to keep on spending these acquisition costs because it would be a good seed for our future growth opportunities.

Next page, please. And also, in order to pursue our monetization, we're also looking into the top -- the third tier, in other words, financial services, and we are making very good progress here as well. First, starting from the left, this is something that we started back in last December, PayPay Card. And yesterday, you also see this on the right-hand side, but we have also launched -- introduced PayPay Atobarai, and we will make sure that we will be notifying the users once we would have more services available. But then in this PayPay Atobarai, you can use PayPay for your payment without having to charge to the PayPay balance upfront. And this PayPay service is not just available for PayPay merchants, but then this will also be available to Yahoo! JAPAN Shopping and PayPay Mall as well. Now with the PayPay Atobarai, we can increase PayPay users' usage, spending and balance, but also we can aim to enlarge these ecosystem through diversification of payment methods because we'd be able to really meet the various users, be it online or off-line.

Next page, please. Ever since last year, we know that NFT market is seeing a rapid expansion. And so LINE has also started its own work here, and this is something that we have not explained before, so I'd like to use the slide here. In Japan, from last June, we have started launching NFT Market ß. And so with LINE, you can easily send NFT. And we want to make sure we'd be able to expand this NFT business through competitive advantages, levering LINE's features. Now we will be starting LINE NFT in spring. In Japan, we want to become #1 NFT marketplace in Japan.

And also, last year in December, we started LINE NEXT for the global financial market, and we have an entity in the U.S. and South Korea. So we want to make sure we'd also be able to expand this NFT platform globally. So these new services like NFT, it is important that we capture the global market at an early stage. And that is very much why we have started this. In other words, our aim is to lead a service that popularizes NFT globally.

Next page, please. Here, this is something that we always show, in other words, major KPIs behind PayPay. So again, various KPIs performed well even after the introduction of payment fee to small- and medium-sized merchants. And so the quarterly PayPay transaction value grew to a scale of JPY 1.5 trillion. Here, we show the major KPIs for PayPay Card. Now PayPay Card, this is something that we launched last December, and it will be accelerating membership growth by utilizing group companies' assets. And for the transaction volume, especially in December, that was a very high season in terms of sales. And so the quarterly transaction volume exceeded for the first time with JPY 700 billion.

Next page, please. Here, we show the major KPIs of our banking business, PayPay Bank. After the change of trade name to PayPay Bank Corporation, acquisition of especially PayPay users increased. And so you can see that these KPIs have been making very good growth. And so from hereof, we do also want to make sure we'd be able to leverage PayPay ecosystem, so that we'd be able to expand our financial service.

Here, this is the financial business that we have underlying brand. And here, again, we have the major KPIs. For example, the number of accounts for LINE Securities, the loan balance of LINE Pocket Money as well as the loan balance for LINE Bank. And so here, we show the growth rate, although we don't have the specific number itself.

Now again, in Japan, we want to make sure we'd be able to utilize securities and pocket money to tap into potential financial needs through LINE. And for the global financial business, we want to make sure that we'd be able to tap into the local users, which would be different from the needs with the people in Japan.

Next page, please. And finally, I'd like to go over with you again the business results forecast. Next page, please. And so like I mentioned at the outset, the adjusted EBITDA for the total group company is now going to be revised upward to over JPY 330 billion. Now if you look at each segment, the revenue and adjusted EBITDA has also been revised accordingly to the business progress. So the group total revenue is now at JPY 1.570 trillion, which is marking the top range of the guidance.

And that concludes my explanation. Thank you very much.

[Operator]

[Interpreted] [Operator Instructions] So the first person will be Mr. Maeda from SMBC Nikko.

[Eiji Maeda, analyst]

[Interpreted] This is Maeda from SMBC Nikko. Can you hear me?

[Unknown Executive]

[Interpreted] Actually, your voice is pretty low. Can you speak a little bit louder?

[Eiji Maeda, analyst]

[Interpreted] How about this?

[Unknown Executive]

[Interpreted] It's better.

[Eiji Maeda, analyst]

[Interpreted] My first question, for this fiscal year, an adjusted EBITDA guidance of JPY 330 billion. I think as a start, after the integration, you are off to a good start and you analyze the reason why you were going to go through the upward revision. For the ongoing components as well as for delay of execution of expenses, which may be a negative for next fiscal year, I think there's going to be 2 types of items. So towards the next fiscal year, what does this fiscal year's performance imply? And for JPY 390 billion that you're aiming for in 2024, if you have any implications, can you share that with us? Because I think at this pace, you will probably be able to aim higher.

My second question is about PayPay. The loss equity pickup is becoming greater by quarter. You talked about acquisition cost and that you have no intention of reducing it at this point in time. So what is your tolerance around that amount of losses generated? Or do you think that losses are going to start decreasing from next fiscal year? And about the timing of when you expect profitability to turn positive, can you share with us your thoughts about the P&L PayPay?

[Unknown Executive]

[Interpreted] Thank you very much, Mr. Maeda. I will take both of the questions. For the first question about next fiscal year onwards as well as fiscal '23 or March '24 and what we think about the targets we have in place right now. Well, for next fiscal year, at this timing, we are currently in the budgeting process, and we are revising our midterm plan at this phase. So unfortunately, we are not able to speak about next fiscal year at this point in time. But by the end of the fiscal year, when we have a results briefing, we will probably be able to give you more direction. And for March '24, JPY 2 trillion and -- JPY 390 billion in adjusted EBITDA and JPY 2 trillion of revenue, we view this as a commitment from us. So we would like to ensure that we achieve these target numbers. We do understand where you're coming from Maeda-san. But JPY 2 trillion revenue and JPY 390 billion of adjusted EBITDA are numbers that we would like to definitely achieve.

So for the second question and PayPay and the losses associated with it, for this as well, expanding the user base and increasing the penetration of cashless payments will, in turn, in the future, become a good foundation for the finance business in the future. So we are not going to aim for product viability right at once and aim to reduce costs. That's not what we're thinking about right now. So for the scale of losses as well as the timing of when we would like to turn profitable, we are talking and having dialogues with the PayPay company. So once we are able to share some direction with you, we hope to do so. So for both of the questions, I apologize that I wasn't able to directly respond to them, but that's basically our response.

[Operator]

[Interpreted] The next question will be asked by Ms. Mori from JPMorgan Securities.

[Haruka Mori, analyst]

[Interpreted] I also have 2 questions I'd like to ask. My first question is about your Strategic Business. So when you look into Q4, I'd like to ask your plan. So for example, fintech sales, I believe it is expected to grow more. But then at the same time, there's also going to be a loss that would also increase in Q4. Now PayPay Card and Atobarai, I guess, it is partly because of that. But then can you give us a little more about the flavor of your plan for Q4 and also for next year?

These new services that you have, I suppose, will start to contribute to at least shrinking some of the loss that you already have. Or is that what you have in mind? Or do you think you still need to be on the investment phase? For example, I do believe that within your Strategic Business, there are some areas where you still haven't been able to make some investment, and you will just keep on making an investment. Is that really your thoughts? So that's my first question.

My second question is around your Commerce Business. So like social commerce, quick commerce, these new initiatives and also for smart stores, I believe each of these new businesses would be in a different phase. But when you look into next fiscal year, what kind of contribution do you think these new initiatives would start to contribute? This year, Commerce Business, I think you've been able to work a good control in the cost, and GMV has been increasing very well. But now that you have new initiatives, will there be more investment next fiscal year? Or are you going to keep on controlling the cost and be able to see the benefits coming from the contribution coming from these new initiatives?

[Unknown Executive]

[Interpreted] Yes. Thank you very much. I would again like to answer these -- your 2 questions from Sakaue, but then I do believe perhaps Mr. Ozawa can follow up the second part of your question as well. But again, so Q4, what is our outlook for the Strategic Business, that's your first question, and also, how do we see the next year. I took that as your first part of the question.

So for the Strategic Business in Q4, of course, if you just calculate, you'll be able to calculate what kind of EBITDA are we expecting. But then for PayPay Card, and we also have the Atobarai, and so for these, we need to, first of all, invest so that we'll be able to capture new users. So that's one thing that we will have to do. There is a portion of investment for that. But then at the same time, it may not be as large as a PayPay Card, but then LINE Securities and LINE Credit, this is, again, where we are seeing an expansion of user base. We want to make sure we'd be able to accelerate that, in other words, invest as for sales promotion in these areas. In other words, there will be a loss that will increase in Q4 in that sense. So that's my response to your first part of the question.

But then as for next year, of course, when we look into next fiscal year, we still expect that there will be loss coming from most of these new initiatives. Within the appendix of the presentation deck, we do have a specific PL for card business and securities business. And for example, depending on the phase, some will turn profitable, some will still have some loss, but that's where we are. So that's how we view the Strategic Business, and that really follows what Mr. Maeda was asking before, but then this is how we look with the Strategic Business.

Now second part is about the Commerce Business, social commerce, quick commerce, MySmartStore, how -- what kind of contribution would these have. Now for next fiscal year, again, this is something that we internally are yet discussing. But we do not exactly believe that we'd be able to hold such a high expectation that these new initiatives will start generating contribution because we do believe next year, it is still during a phase where we need to sort of start growing, keep on investing to grow these new initiatives.

But if Ozawa-san would have anything to add.

[Takao Ozawa, executive]

[Interpreted] Yes. So these new commerce part of the business, so where -- what is the status? We're still waiting to see if we'd be able to find a good win. So yes, we have been making some sizable investment. But then at the same time, we're not just staying calm. Of course, when it comes to quick commerce, there's the delivery part of the cost. We need to create sites. And so the -- it's different from pure digital e-commerce. It's not like a business where we'd be able to increase the revenue by like five or sixfold immediately. And so we do have to plan out what the investment would be.

Now as we look into the next fiscal year, it's -- for example, we can say that there is going to be a large investment and that is why we're going to make a loss, no, but that's not what we're trying to say here. But then when it comes to like the -- when it comes to the entire phase mix and if we find that there needs to be a good investment made, especially for future growth, we will make sure that we'd be able to tell that to you uphand. At the moment, we're still trying to clarify what the requirements are.

[Haruka Mori, analyst]

[Interpreted] If I may, a follow-up, the LINE GIFT. I do believe there is a good growth. I don't exactly know the exact value, so I can't really say much about here. But then when it comes to the growth and if there is any like a contribution to GMV, is it correct to say that LINE GIFT does have a good presence already?

[Unknown Executive]

[Interpreted] Yes. That's something that Ozawa would like to answer.

[Takao Ozawa, executive]

[Interpreted] So LINE GIFT, In terms of absolute value, yes, we are finding a good sizable number now. We are expecting that we will start to see a good contribution, some contribution. And of course, it will start to generate profit under the economics, of course, depending on how things go. And so yes, this is a business where we do have lots of expectation in looking into the next fiscal year.

[Operator]

[Interpreted] Next person is from Citigroup, Mr. Tsuruo.

[Mitsunobu Tsuruo, analyst]

[Interpreted] My first question is about numbers. For EBITDA guidance, you made an upward revision this time around. So how do the following numbers sit into this equation? First of all, Yahoo! licensed the termination of the contract. How much is that worth?

Secondly, LINE's performance, previous outlook and the current outlook and the difference.

Thirdly, strategic expenses. You were saying originally JPY 20 billion to JPY 30 billion. But how are you accounting for this, this time around? So that's my question.

[Unknown Executive]

[Interpreted] Please wait a moment. Let me answer in order. First of all, for the Yahoo! license, it's about JPY 9 billion that we are accounting for.

The next one is LINE's outlook. We don't give out the guidance in detail, but for media, about JPY 26 billion of an upward revision is accounted for. So a certain portion of it is accounted for by LINE. That's the way you should look at it.

And also, for the strategic expenses that we originally communicated at JPY 20 billion to JPY 30 billion, currently, we are expecting of about JPY 22 billion in investments. So that's what's accounted for in the current guidance.

[Mitsunobu Tsuruo, analyst]

[Interpreted] Understood. So I'm sorry, this is my second question. When you look at LINE's performance for Q3, JPY 4 billion went down to JPY 3.8 billion OP-wise. Why was that? And how should we view the outlook going forward?

[Unknown Executive]

[Interpreted] So the Media Business continued to perform brisk. But LINE GIFT, it appeared in the GMV as well, but we made aggressive investments. So we were incurring more expenses, and that is why our profits declined on a year-over-year basis.

For Q4, ad revenue is expected to continue to be brisk, but JPY 10.6 billion for Q4 2020, there was a onetime divestment gains included in this number. So compared to that, we are expecting a decline in profits. However, the trend of heading towards profitability is unchanged. And for next year, we're currently in the middle of the budgeting process like we are for the overall company. So we are not able to speak to that.

[Operator]

[Interpreted] Next, we will have Okumura-san from Okasan Securities.

[Yusuke Okumura, analyst]

[Interpreted] This is Okumura from Okasan Securities. I hope you can hear me.

[Unknown Executive]

[Interpreted] Yes, we can hear you clearly.

[Yusuke Okumura, analyst]

[Interpreted] I also have 2 questions. My first question is I know we're coming back to this again, but how you are looking at next year's outlook. So next year, it is going to be the 2 years before you end your current MTP. And so there could be -- for example, you may want to be making investment to. And you can speak to the extent you can, but what is your plan for, for example, how much investment and how much profit do you mean to make for the next fiscal year?

And also for Q-on-Q, I know there's a bit like 200,000 increase. Now, of course, ever since you launched PayPay Card, there must have been a net increase from December, and does that have to do with that? I know that your peers have also been seeing this type of increase. But then from Q4 and onwards, are you expecting to see a net increase in this number? Or are you trying to accelerate? So if you'd be able to comment. So those are my 2 questions.

[Unknown Executive]

[Interpreted] Thank you very much. So first of all, how we see the next fiscal year. So I'm sure Mr. Okumura, you must have a lot of your thoughts, but then again, it is something that we are discussing internally. So I would have to apologize, we will not be able to specifically answer your questions.

But then your next question, so how -- what kind of growth are we seeing ever since we launched PayPay Card. So for Q3, so again, it is just December, the month of December alone, so we have been able to make a good start, but then it's not that we've been able to find a large impact or a large contribution yet. But then for Q4 and onwards, we talked about this is exactly where we want to spend the strategic investment. So that means in terms of the membership, we're trying to make sure we'd be able to accelerate the growth. At the same time, we have to think about efficiency in the investment. But then when it comes to the effective number -- user number, we want to make sure we'd be able to see an increase, and we do want to make an investment for that purpose. So that's my response.

[Operator]

[Interpreted] Next is Mitsubishi UFJ Morgan Stanley Securities, Mr. Araki. Over to you.

[Masato Araki, analyst]

[Interpreted] I have a numbers-related question. For Q3 and the equity pickup gains and losses, it was JPY 14.4 billion, I believe. It was pretty big. For Q2, it was JPY 10.9 billion, and you're saying half of that is attributed to PayPay and the other Demae-can. And I think this time around, it was JPY 14.5 billion, so can you break that down for me? And for the October to December quarter, for PayPay, you started to charge the payment fees to the small- to medium-sized retailers. So if you can talk about the way that worked, that will be helpful.

Secondly, ID tie-up with LINE, has that started or not? My understanding is that it has not yet started. So if we're going to do this next fiscal year, how much would you need to spend? And what kind of spending would that look like? In the case of Yahoo!, there are people who have ID, some other people do not. For LINE, I think pretty much people are not sure if they have an ID, but they do. So when you're going to start the integration, are you going to send a notice or e-mail? And if they agree, are you going to spend sales promotion costs, like to give them 10,000 points or something? So can you also talk about that as well?

[Ryosuke Sakaue, executive]

[Interpreted] So I will take both of your questions, and Mr. Idezawa, Ozawa, if they would like to add any questions -- comments about the second question, they will.

So first of all, for the equity pickup gains and losses, which is minus JPY 14.5 billion. For the breakdown, we do not disclose the actual details, but out of the JPY 14.5 billion, PayPay is about 10% and former LINE Group, it's about 1 to 2, meaning it's about 1/3 PayPay and 2/3 the rest. And out of that 2/3, half of that is about Demae-can. So the loss pickup between Demae-can and PayPay is about the same.

For the balance, in Southeast Asia, LINE MAN as well as LINE financial services-affiliated companies has been generating losses, which we also capture and pick up. On a quarter-on-quarter basis, there has been an increase, as you pointed out, and that is attributed to the Southeast Asian business as well as Demae-can when you compare on a Q-on-Q business. But Demae-can is a listed company, so I'm not able to give you clear numbers. But they were doing a free delivery fee campaign in Tokyo as well as peripheral prefectures right now, just to mention. So that's the answer to the first question.

For ID integration, the second question, at early point next fiscal year, we hope to move things forward. And currently, we are preparing internally. In order to promote ID integration and various promotional measures, we are actually having discussions right now about them. So we are not able to give clear guidance as to what kind of scale of promotions we have -- we are considering.

Do the other 2 gentlemen have anything to say about this question?

[Takao Ozawa, executive]

[Interpreted] Well, this is Ozawa. Internally, we are brainstorming right now, so let me share some thoughts we have. For ID integration, we basically want to say that it's going to become even more convenient and communicate benefit to the users without spending cost. And we also want them to actually feel that convenience has been enhancing, so that they will agree to ID integration. That's the base way of thinking. But that may not be enough number-wise, and if it's incentivized as a program, we will be able to promote ID integration.

So the unit price for advertisement may go up. And due to the synergies, there should be an uplift. And then after deducting costs, if we think we should go ahead with that, we will talk about points that people can get if they engage in ID integration or there might be a lottery through which they can win something. So the incentive that we are currently providing may have ID integration as a condition, and we already have that kind of track record in doing Yahoo! JAPAN and PayPay-related ID integration. And we didn't have to spend that much in doing so. So we would like to use money in a way that would be effective. Thank you.

[Masato Araki, analyst]

[Interpreted] For the first point, on a Q-on-Q basis, has PayPay losses decreased on a Q-on-Q basis? Or have losses for PayPay increased?

[Ryosuke Sakaue, executive]

[Interpreted] It slightly increased. It's pretty much flat, though.

[Operator]

[Interpreted] Our next question will come from Mr. Sawada from Ace Economic Research Institute.

[Ryotaro Sawada, analyst]

[Interpreted] Yes. This is Sawada from Ace Economic Institution. I also do have 2 questions I'd like to raise. My first question is around your e-commerce. So if you'd be able to recap what -- how you were able to find for this high-season sales because I did realize that for this December, there was not much of a promotion or discounts, but then users as well as the merchants, what were their reaction? If you'd be able to recap that for us.

My second question is about LINE NFT. So within your strategy, what is your goal? And also how you try to position your services, if you'd be able to give a little more explanation there.

[Ryosuke Sakaue, executive]

[Interpreted] So thank you. If I may repeat your question. So first of all, how we look into the year-end marketing campaign, how that went and what was the response from the users for the -- in the e-commerce, and also for NFT, what kind of service are we trying to roll out. And so we will make sure that we'll be able to answer your question. So the first question.

[Takao Ozawa, executive]

[Interpreted] Yes. This is Ozawa. So again, for the December marketing for e-commerce, of course, we're trying to make sure we'd be able to achieve a good growth year-over-year. That's what we always expect to do. However, this time, when we look at the results, we do believe that it was pretty much in line with our expectation. In other words, yes, we were able to find a good growth. Now we do want to make sure that we'd be able to put an eye to expect that e-commerce will keep on growing, especially because we're still in the pandemic. And at the same time, this hometown tax, that's also another part where we are seeing a very interesting growth. We are also doing a lot of the sales promotion together with ZOZO. We've been able to see a good growth trajectory in both. And so in total, if you look at on a year-on-year trajectory, we do believe that we have been able to find a very good turn this time around as well. And also for the reuse side of the business, like YAHUOKU!, PayPay Flea Market, again, towards December, there has been a very good move, and we've been able to capture all the interest, all the sales.

[Ryosuke Sakaue, executive]

[Interpreted] So thank you very much. The second question will be answered by Idezawa-san.

[Takeshi Idezawa, executive]

[Interpreted] Yes. So this is Idezawa. I'd like to answer your question around NFT. Now as you know, for NFT, there's a lot of global players. A lot of global players are already in this space. And so within the current trend, we know that this is a very good momentum. And it's really like the new platform or business trend that we need to capture. And so that's exactly what -- how Z Holdings will be looking at this NFT.

At LINE, ever since 2018, I have been working on blockchain. We have very much been spearheading this move. We have our original platform, and also, we have -- do have experience of the marketplace. And so we actually do have knowledge around offering a full package service around these, for example, fintech and NFT. And so we do have great assets to work on this field.

In addition, Z Holdings, we do have a lot of entertainment-related content. And from that perspective, I think there's this great affinity with what we'll be able to do in this NFT space as well, Japan global market or trying to make sure we'd be able to expand this platform in both. But then it is probably not exactly like a continuous growth that we'd be able to expect that we -- like we've been seeing in other parts of the business, but that's how we look at this NFT business.

[Ryotaro Sawada, analyst]

[Interpreted] If I can just make a follow-up question to the second part of the question that I asked. So LINE NFT, what is going to be the content there? So is this something that Z Holdings will be bringing? Is my understanding correct?

[Takeshi Idezawa, executive]

[Interpreted] Well, we will be making announcements in the upcoming spring. So I hope you'll be able to stay tuned. It's not that it's just going to come from just Z Holdings. For example, we know that there are right holders that would have great content. And so we want to make a platform that would be open to these other people as well.

[Operator]

[Interpreted] [Operator Instructions] Next question is from Mizuho Securities, Mr. Kishimoto.

[Akitomo Kishimoto, analyst]

[Interpreted] This is Kishimoto speaking. Can you hear me?

[Unknown Executive]

Yes, we can.

[Akitomo Kishimoto, analyst]

[Interpreted] Well, you made an upward revision, and in the Media Business, I presume that LINE's ad business did well. And for Yahoo!, for Q3, the market was brisk, I believe. But in light of that, for search ads, display ads, can you give us more flavor on how they performed? And when you do the math, what are your assumptions for the fourth quarter? That's my only question.

[Unknown Executive]

[Interpreted] For the Media Business, especially with the ads in the Yahoo! side and that its outlook was the point of your question. So there are several things I would like to communicate. For Yahoo! ads in Q3, first of all, for search for talent, property, finance, it picked up as well as the unit price has also picked up from advertisers, too. To that end, we were able to see 12% growth. So performance continues to be brisk.

For display ads, for this part as well from reservation type, we were shifting to programmatic. So that was a positive on performance, too. We also were focusing on 1 platform so that the tender offer can be automatic and the distribution can become improved. So we implemented that. So quick unit price saw an uplift. And so for Q3, I do believe performance was good.

For Q4, it is the end of year season, so there are some unpredictable parts, especially due to the economic trends as well as the Omicron variant that we are currently seeing spreading. But for Q4, our outlook is quite on the conservative side from that point of view.

[Operator]

[Interpreted] The next question will come from Mr. Oliver Matthew from CLSA Securities.

[Oliver Matthew, analyst]

I have 2 questions. The first question is, could you tell us more about the e-commerce -- sorry, the Commerce Business? Sales were up 7% and profits were down. Could you explain more about the performance of each part of commerce?

And secondly, in the guidance, you increased the others' adjustment quite significantly. Could you explain why that is going up? And do you expect some special adjustment in the fourth quarter?

[Unknown Executive]

[Interpreted] Yes. Thank you for your questions. So allow me to answer your first question. So for the Commerce Business, so again, the year-end sales, the season, and as well as LINE GIFT, this social gift area, we have been investing, in other words, sales promotion. And so that is one reason. And that is why even though we were able to see an increase in the sales of revenue, there's been a lot of costs associated with that. And that is why profit, or in other words, the profitability went down. So that's really the details to explain the first part of your question.

And also for the second part of the question, in other words, about the adjustment, so again, should we focus more on Q4? In that case, just like we said in the presentation, again, we want to make sure we'd be able to invest for human talent. This is because it is going to be very important as we try to fight with the peers in the mid to long term. And so again, alongside with the very good performance with the business, we have also made sure that we'd be able to make a good investment for human talent and also for retention purposes so that we'd be able to have a good base -- business base. And so that is why for this others part, there's more increase in the number of the loss.

[Operator]

[Interpreted] [Operator Instructions] The next person is Mitsubishi UFJ Morgan Stanley Securities, Mr. Araki.

[Masato Araki, analyst]

[Interpreted] I originally had 3 questions, so I'm going to ask 1 more question. For the Shopping business, out of your overall upward revision, it is actually on the lower end. So originally, at Q2, you were talking about sales promotions for Q3, and you are saying that it's going to be slightly higher than Q2, Sakaue-san. And from JPY 27.4 billion in Q2, it went up to JPY 33.1 billion in Q3. And I'd like to ask Ozawa-san this question. Spending a lot of sales promotion costs in order to just increase GMV, have you stopped doing that? And in your original guidance, you were anticipating 12% to 25% growth. But then in Q3, you have decided to go ahead with 12%, which is the lower end of guidance. Has something changed from the beginning of the year? Or was 25% a stretched target? Because you were saying end of year season was in line with your expectations. So is this number not weak at all? So GMV, sales promotion cost and your thoughts on profit would be appreciated. So the beginning of your target of 25%, why are we going with the lower end of your guidance range this time around? That's my question.

[Takao Ozawa, executive]

[Interpreted] So this is Ozawa speaking. I will take your question. First of all, for the 25% number, from the time we set that target up, internally, we did think it was a very aggressive target. Because last year, in light of COVID, we were able to see quite good growth, and we did also spend sales promotion expenses that also supported the growth. Of course, We did control it quarter by quarter. So in light of COVID-19 and its unpredictability, we weren't sure if 25% was possible, but we did set a range of 12% to 25%. And throughout the year, we ended up going back and forth. But now we are expecting that at the end of the fiscal year, we will be at 12%. So -- and we are currently looking at the trends in GMV growth as well as the rising cost. Of course, we would have loved to have achieved the 25% stretched target, but our guidance is different from that.

[Operator]

[Interpreted] Next question will come from Citigroup Securities, Mr. Tsuruo.

[Mitsunobu Tsuruo, analyst]

[Interpreted] So I have a question around your strategic part. I know this is my second round, and I'm so sorry that I had kept myself muted. Now I want to ask this to Ozawa-san. And I know yesterday, we heard that you're going to be leading Yahoo! from now, and you've already went through some press conference, and you probably will be making a more formal announcement at the point of April. But then if you have any message to the investor community at this point, I would love to hear that.

[Takao Ozawa, executive]

[Interpreted] Thank you for raising that question. So just like you said, it's going to be from next fiscal year. And we, at the moment, are trying to compile the strategy so that we'll be able to show you. And this is something that, of course, that we want to show to our internal employees as well. At the same time, we do want to make sure that we'll be clear in what the new plans are to the investor community.

Now when I was given the baton from Mr. Kawabe, now Mr. Kawabe as well as SoftBank and NAVER, who the -- our large shareholder, they've given the message that they have large expectation. And this is very much because Yahoo!, if we compare it to the peers on a relative manner, is getting a bit weaker, and this is something that we can say when we look at various fields. And when we look at the commerce side of the business, it's not exactly where we had always been very, very strong here. And so in this aspect, how could we be able to essentially increase the scale or the capacity of the service is going to be very important. Now we have LINE and what kind of true synergy we'd be able to practice, and there's also the PayPay, and what kind of synergy in a true sense that will we be able to pursue, that is what Yahoo! is really going to be required to show.

Now I myself is more on the service development side. I'm not exactly from the marketing side. And so advertisement and commerce, I'm not just going to look at commerce, but I also want to look at, for example, what we'd be able to do on the advertisement side. Now marketing is not exactly just -- of course, marketing is a promotion. But then it also needs to be linked to what kind of service we'll be able to create.

And -- so again, how we'd be able to pursue the real growth, utilizing all these capabilities, the potentials that we have is really going to be important. And so that's exactly where I do want to focus as we try to show our strategy. And I do want to have an occasion where we'd be able to hear of your advice. I do want to do my best. Now Yahoo! after 20 years, we're in a state where people would be a bit worried, but we want to make sure that everyone will feel confident in looking at Yahoo! and say, yes, this is a very interesting company.

[Mitsunobu Tsuruo, analyst]

[Interpreted] So a follow-up question to that. Now we don't have Mr. Kawabe today, but Mr. Kawabe, do you know how long he's been spending his time for Yahoo!? And now that part of time, where is it going to be spent from here as he tries to focus as a CEO -- Co-CEO of Z Holdings? Do you know?

[Takao Ozawa, executive]

[Interpreted] Well, again, Mr. Kawabe is not here. So we can't really answer how many hours he's been spending for Yahoo! per se. But then from next year and onwards, Z Holdings and Mr. Kawabe is going to be looking at Z Holdings as well as all the group entities, that would include Yahoo! as well as LINE. There's also other fintech entities as well as overseas entities. And Mr. Kawabe needs to spearhead the growth in these areas as well. So I'm sure he is going to be looking over all these various of business, so that Z Holdings as a group will be able to enhance the performance. That's exactly what he's going to be focusing on. At least that is my understanding.

[Mitsunobu Tsuruo, analyst]

[Interpreted] So just one more question, if I may. So as for the stake in Demae-can, I know you haven't been able to win great reputation and some accounting issues. We've observed that, witnessed that. Now with all these issues and what kind of return you'd be able to expect, including what you'd be able to do on a quick commerce, that's something I would like to hear from you.

[Unknown Executive]

[Interpreted] Yes. So first, for Demae-can, I know there's been a lot of concerns then raised by many people. And I, myself, as I'm looking into the accounting and finance areas, I do want to make sure that we do not cause anything of the like again. Now for Demae-can, the app download, of course, this is something that we cannot really specifically say, but at the point of December, we know that, for example, within the delivery service, Demae-can has been able to really come to a #1 position, thanks to a lot of promotion that's been launched. And of course, loss, there's still loss. But in terms of the delivery, Demae-can, I do believe, will be able to increase the market share. But of course, when it comes to unit economy mix that we have to make sure that we'd be able to work more on that for Demae-can. But we do have confidence that we'll be able to have a good growth.

Now if Ozawa-san would have anything to add.

[Takao Ozawa, executive]

[Interpreted] Yes. For food delivery, we are looking forward for great growth here. Quick commerce, Demae-can, the role of Demae-can and the quick commerce space is something that is worth paying attention to. And so I -- as a member of the director, I think so. Well, I have been appointed to join as the Director of Demae-can. So I am hoping that we'd be able to exercise group synergy. We will make sure that we enhance governance so that we'll be able to create Demae-can even a better business. So please look forward.

[Operator]

[Interpreted] [Operator Instructions] There seems to be no additional questions, so we'd like to end the Q&A session. Finally, Mr. Sakaue will speak closing remarks.

[Ryosuke Sakaue, executive]

[Interpreted] Well, thank you very much for coming to the Q3 business results call, and thank you for your valuable feedback and advice today as well. So we would like to continue to work hard to enhance shareholder value. And we would like to ask you for your ongoing support. Thank you very much for your time today.

[Operator]

[Interpreted] This concludes Z Holdings conference call. Thank you for participating until the very end.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]