CyberAgent Inc

TSE:4751

Earnings Call Transcript 2018-Q2

[Unknown Executive]

Ladies and gentlemen, its time. So we would like to begin. The FY '2018 second quarter ending in -- second quarter presentation of the results. Thank you. We would like to introduce President, Mr. Susumu Fujita; and Managing Director, Mr. Go Nakayama; and IR, SR Division Senior Manager, Ms. Sonoko Miyakawa. President Fujita will be giving us the briefing of the results for second quarter.

[Susumu Fujita, executive]

Thank you very much for taking time out of your busy schedule to join us today. So if I may begin, I would like to give you -- explain the quarter results starting in January, ending in March. This quarter, the sales -- and if we exclude AbemaTV's investment, the existing business mark the highest business results. So overall, it was a great quarter. With respect to Media Business, we are investing in AbemaTV, but we are expanding sales steadily. And we have been able to also sell a lot of advertising. And in terms of Advertising, Advertising Business as well is doing well. And the Game Business was -- remained stagnant for a while. But this quarter, we released a new title, recording the record-high sales.

This is the consolidated sales by quarter. It has continued to increase. The second quarter, we just reached a new record high. And this is the OP. We mentioned, excluding AbemaTV earlier, but we exclude AbemaTV, we have JPY 16.4 billion and we have actually invested JPY 4.9 billion, around JPY 5 billion. So the total -- the OP was JPY 11.4 billion.

In terms of SG&A, there is no major changes. But people, who know our company for a long time, know that we welcome new employees -- many new employees in April. So in the third quarter, personnel cost will increase quite a bit. So that's where we will be. But in terms of the advertising cost, it has actually remained around the same. And in terms of new employees, we will have a lot that will be joining in April, and some people may leave, but we will also have experienced hires as well. So the number of employees hasn't really increased or increased slightly for the last couple of quarters.

And if we look at the PL, this is PL for this quarter. I will get into this later, but this quarter, the extraordinary loss. We think that we've already have all the extraordinary loss out there. So that is why it has been recorded in the PL -- reflected in the PL.

And this is our balance sheet. On February 19, we issued convertible bonds. So we have JPY 40 billion in convertible bonds. So the fixed liabilities has gone up to around JPY 40 billion. So we are going to be investing that in ways to monetize AbemaTV. In terms of the business forecast for 2018, as we mentioned earlier on at the beginning of the year, this will continue to be the investment period for -- so the OP, we will be aiming to hit around JPY 30 billion. So we've finished up the second quarter, so half of the year is done. So sales is around 50% and operating profit, ordinary profit, we are increasing -- we have gone beyond our target and net profit as well -- we -- the progress seems quite high and maybe we over did it, but the Game Business is also volatile and if we take that into consideration, we don't intend to change these targets.

And if you look by segment, the progress, as you can see, Internet -- as -- is at 57% higher and Game Business is 55%, so that's a trend that we are seeing. So we mentioned that we are going to be investing JPY 20 billion per year. So investing JPY 20 billion means that we will be in the red for JPY 20 billion. So each quarter, this means that we will be, on average, investing JPY 5 billion. But so far we have invested JPY 8.9 billion of that.

And if we look at each segment more closely, going from -- starting with Internet Advertising, Game and Media. The Internet Advertising Business has been doing well for a while, so it's growing steadily. The second quarter we usually tend to do well, but even taking that into consideration, we did better than usual. If we look at the OP by quarter, it was JPY 6.55 billion in the second quarter, so this is record high as well.

We say this each time, but what's driving the Internet ad growth is smartphone adds. So this has continued to grow. So this is the growth driver. But among smartphone advertising video ads is where our company -- entire company is putting a lot of effort into. So branding ads, branding marketing, many advertisers who did not have internet advertising before are now starting to do brand marketing on Internet, so this is actually the -- entire industry is being energized. So with the Internet Advertising Business, we have ad agency and also other subsidiaries as well. So ad technologies, video ads and video production studios, we are offering a one-stop. We already have a structure in place that will offer one-stop services. So this is our -- becoming our forte.

In terms of the Internet Advertising Business going forward, we are specialized in Internet ads so we have a lot of know-how in this arena -- this field. But most of the know-how is in the operating capabilities. So we want to maximize advertising effectiveness through operating capabilities. And we also -- because the video ads are growing as well, we are seeing an influx of new advertisers. So we believe that we want to continue to put our effort into developing new clients.

And in terms of the Game Business, at the first quarter results announcement, we have said that it has remained around the same for the last 5 quarters. Of course, we had new titles or existing titles weren't doing as well, so if we offset that it's been around the same. But this quarter, in the middle of February, we released a new title, PRINCESS CONNECT!Re:Dive. So this has become a new hit. And by introducing this new title, this has helped increase sales revenues. And if we look at the OP, this has gone up significantly as well. The PRINCESS CONNECT!Re:Dive was released February 15 as a new title. So this has become a new -- this has joined the other major titles. So we believe that we can say it's become a major title, a new hit.

Right now by adding PRINCESS CONNECT!Re:Dive, we actually have 8 major titles in total. So this is our forte strength. Every year, we introduce a few titles and grow the -- will grow the entire base. That is our policy.

In terms of future releases, we've already started preregistration for some of these -- of KEMONO FRIENDS FESTIVAL. So this will be released soon. And also UMA MUSUME Pretty Derby. We've also started broadcasting the animation on AbemaTV. And it's quite interesting, it's very funny and the Game for this animation -- of this animation will be released by Cygames. And we've also started preregistration for this came.

With respect to the Game Business, we will continue to create new hit titles. So that is our policy. So we hope to take care for each title. Creating games is a large project than its were -- investing more and more, but we have the know-hows that we have cultivated so far. And we hope to carefully create new hits. That is our policy. And also, online games, the lifespan is very long. So we want to also strengthen operation of existing titles as well. Often original IPs, third-party IPs are a talk of a lot of debate, but we will continue to focus on both.

And then going on to Media. So there are some -- areas of the business is actually shrinking, but we have added AbemaTV and dating services, matching applications are actually doing well. So the sales are beginning to increase. And I will describe what's happening with AbemaTV. The downloads for AbemaTV has exceeded 29 million. So the graphs is a very clean growth graph. In the beginning, we used a lot of PR advertising cost to encourage downloads. But we haven't really advertised AbemaTV itself. So when new programs are released, there's news about that and also fans of the celebrities are casted in these TV shows and also live performances. Those are continuing to increase -- help increase the number of downloads. So that's the side goal that we've entered. And the MAU is surpassed 11 million. So weekly active users is about 5 million, 6 million. But if you look at the mid- to long-term trend, we actually try to work on the foundations and then continue to add to that. So sometimes you might think if we have a big hit, it will jump suddenly, but that's not the way we want to proceed. We want to continue to create great content and also continue to improve our service. And that is why we will be focusing our efforts on. So those are the policy going forward. And then also, we've added the total viewing hour's graph. This is quite similar to MAU. But this may be hard to picture, but 50.72 million hours is the total viewing hours.

Users by age group, as we have estimated, people in their teens and 20s is the highest. So this is a service mainly for youth right now. And also female ratio by putting a lot of effort into dating reality shows, we wanted to make this pie 50-50, but we have become quite close to the ideal female-male ratio of 50:50. When we entered FY 2018, we mentioned that this year, we will also be pumping up sales and also increasing content production cost and that is why we've set the investment JPY 20 billion. But this also means that we will also be pumping up sales and also increasing content production cost. So that's exactly what we have been doing. We're not actually disclosing the sales from advertising, but it has grown significantly. And we've also increased the production costs quite significantly as well. And this is a third original drama, which we created.

[Presentation]

[Susumu Fujita, executive]

So this drama, we just broadcasted the first episode last Saturday. So it was actually doing great and on Saturday and on-demand wise, it's actually -- is doing very well. And it's been generating a lot of buzz that it's really, really interesting. So we think that it's going to be doing very well. It's based on the story of how CyberAgent was founded. So there is a subsidiary -- President of the subsidiary who said ”Company is not a School”, so that is something it's based on that. And also on, maybe, it's about a young person who's actually creating an influencer business. But it's like the [indiscernible] now a key drama for young people. So if you haven't seen it yet, please take a look at the first episode. You can watch it for free on AbemaVideo. So please take a look.

And so this was -- this is very popular now. And then dating reality show, I won't be fooled by a wolf, it's actually has been selected by teens -- female teens as is the best TV program, including those on terrestrial TV. So we have created a lot of dating reality shows and all of these are doing very well in terms of viewership. And so this school as well, this period, we will be introducing 6 new dating reality shows. And some people may think we're making too much, but young people really have a thirst for dating reality shows.

And I also said this in 1 of the announcements for the -- our results that we have mentioned that we are going to be creating regular programs. So this quarter, after April, so we are going to have 3 celebrities, who'll be making 7.2 hours of the TV shows. And we also have a show where we are giving away JPY 100 million for the winner. So it's a TV program, which we will broadcast live on the last day when we decide the winner of the JPY 100 million. And then also on the Anime TV channel, we created a voiceover talent channel and we didn't really have morning news in the past, but a Abema Morning is something that we have started from 7 in the morning every day. And TV Asahi, we're investing 40%, but we want to fortify our cooperation. So we are creating -- we have created a variety of stations slot and so we will be working together with TV Asahi to create programs for those variety station.

In terms of ad sales, we started with selling spots. So we actually were looking for advertising for spot sales and also there were a lot of different length, 1 minute and various other lengths as well. So -- or also original commercial that focuses on 1 company, so that we have a various different variation of shows. So together with the advertisers, we're trying various different types of advertising.

In monetizing AbemaTV, of course it's not full-scale yet. So we're still thinking that it's more important to actually get them a higher number of viewers. But we don't want to only focus on advertising. We want to focus on other areas where we make get synergy effect. Of course it's -- synergy with advertising business is going to be big and esports, matching service that we will try to find synergies there. And also Anime IPs we'll be investing in and M&A.

So we issued JPY 40 billion in convertible bonds, but with respect to M&A, we want to acquire businesses that may contribute to the monetization of AbemaTV. And we also have a shopping channel called AbemaTV. And going forward for AbemaTV, next 6 months, we will continue to make up for investments. And this field, watching video on smartphones is going to be a given. So we want to become a pioneer. So we need to -- that's where we need to put our backs into. So that's where we will be focusing on. So we want to fortify content and become a mass media in the end.

So just to give you a summary at the end, every quarter, I say the same, but we want to make sure that AbemaTV becomes a mass media. So this is a mid- to long-term new pillar of revenue. And ad Business and Game Businesses, they are doing both -- they are doing well. And in terms of the ad Business, we want to -- the market is growing as well, but we want to exceed market growth. And with respect to Games, we did produce a hit title, but we would like to continue to introduce new titles going forward. And this is a graph that we show every time as well. We will invest in the media -- or we've also invested in the smartphone and it's now has become a key pillar. So we're focusing on video now. So that's somewhere we want to focus our efforts. And thank you very much for coming today.