CyberAgent Inc

TSE:4751

Earnings Call Transcript 2018-Q3

[Unknown Executive]

It is time. So we will like to begin the 2018 third quarter presentation of the results. So we will like to introduce the presenters today: President, Susumu Fujita; Managing Director, Go Nakayama; and IR, SR Division Senior Manager, Sonoko Miyakawa.

President Fujita will now take us through the third quarter results.

[Susumu Fujita, executive]

Thank you for coming. I know it's a very hot day, so we appreciate you being here. So 2018, we will like to give you an overview of the quarterly results -- the third quarter results.

Overall, and we're right on track to hit forecast. If you are here -- but there's nothing much to actually point out this quarter, I apologize.

In terms of the Media Business, sales also includes AbemaTV sales as well, so this is has it's become a growing business in terms of sales. Our Ad Business, as usual, we have continued to achieve high growth. And with respect to Games, from January to March, the second quarter, we actually had titles that celebrated their anniversary. And due to that, even despite those anniversary events, we are still achieving stable growth.

So these are the quarterly consolidated sales. So mid to long term, we have continued to grow steadily. And with respect to OP, we -- if we exclude the upfront investment to -- in AbemaTV, it was JPY 4.4 billion, but if we subtract that from investment, it brings us to JPY 6.8 billion. And in terms of SG&A, this is basically the same level as the previous quarter. A large portion of that is due to the number of employees, and we see the same trend every year. But in April, we actually hire around 300 new employees. So because we have new graduates, this hasn't had an impact on the SG&A.

And if we look at the PL, this is the results. And I say this every time, but we are investing in AbemaTV, and that's -- that impacts us 100%. And we also have -- and this is also impacted by the noncontrolling equity interest in Cygames. So we don't see a very high net profit.

And this is the balance sheet. So this is forecast for 2018. Our fiscal year ends in September, so we only have the fourth quarter left this year. But overall, we want to finish with an OP of JPY 30.0 billion and still continue to make a firm investment in AbemaTV.

In terms of the progress rate, we've basically done about 3 quarters of the sales. So we're on track. And operating profit onwards, we're nearly at 90% already. So we have -- we can say that most definitely we'll probably hit our forecast for this year.

And if we look by different businesses, the progress rate, we look at the Internet Ad and Game, we've done about 80%. So these existing businesses are leading the way.

Next, going into Internet Advertising, Game and Media, respectively. So many of you who have been to these presentations quite often, we actually see a high demand in March and April through to May. This is the first quarter for many companies. So in general, we don't do as well in the third quarter. It is lower. But even if we take that into consideration, it was a very good quarter for us.

And in terms of the OP. This is a shift in OP. So it seems like the OP has gone down in the third quarter, but it's not due to the gross margin. But we've actually did -- made some upfront investment in the advertising business.

Within the Internet ads, video ads are growing quite strongly. Quarter-on-quarter, it's around the same level, but in principle it is still growing quite healthily.

And within the Internet Advertising business. Our clients -- we do have a lot of -- we have been able to add a lot of national clients on to our roster. And bearing that in mind, it has become important to strengthen our creativity in advertising. So for each category -- to address the creativity needs for each category, we have added companies to our group and created new ventures, joint ventures as well.

With respect to Internet Ad Business, operating capability is our excellence, so we want to maximize advertising effectiveness through excellent operating capability, and we would also like to develop new clients. Of course, we are seeing more and more national clients on our roster, but we will like to increase this area. And video ads will become a weapon for us, so we will continue to strengthen our prowess in the video ads.

Next, Game Business. In the second quarter, Princess Connect! Re:Dive was a great hit. But in addition to that, there were a couple of titles that celebrated their anniversaries. And so it was -- it did very well. So that has impacted, and that's why we arrived at these results.

And if we look at the OP, as you can see, this is where we ended up. We have 7 major titles at the moment. And every year, we add about 1 or 2 titles. We'll like to add 1 or 2 titles every year to grow the entire business. And within that, I actually have very high expectations, personally, for this. So we have partnered with Nintendo to -- and we will be launching a new title, Dragalia Lost, this summer. So we're making preparations to get ready for the launch.

And animation has been a great hit as well. So UMA MUSUME is our new game, and we've seen a lot of preregistration as well. So we want to launch this in the winter, and we're making preparations to be ready for that as well.

So going forward, we'll like to continue to release new titles for preparing -- we're getting ready to release a lot more titles as well. So we want to focus on that and also strengthen with respect to some titles that may seem like it's growing a little bit slower, but it doesn't drop that significantly and that's a characteristic for the smartphone games, so we'd like to strengthen our operation of our existing titles. And UMA MUSUME is an original IP, and we also would like to focus on third party IPs as well.

Lastly, the Media Business. So I mentioned that it has started to grow. It's on the growth path. Until the 2016 third quarter, it seemed like the -- it was stagnant or it was coming down a little bit, but Tapple is growing and that's impacted our recent growth. But AbemaTV as well we're seeing advertising revenue as well as subscription as well. So with all of those, it has actually started to contribute to sales. And with -- we said that AbemaTV, we've exceeded 31 million downloads. And as I mentioned previously, we didn't really do any large promotions for AbemaTV. So the content of the programs and also the celebrities or -- that we have, we've actually been able to generate exposure just with that and impacted the growth in downloads as well.

And the MAU as of now is about 11 -- more than 11 million. But mid- to long term, we will like to increase this. And April through June, we didn't have a big major topic, so it didn't grow significantly, but we would like to continue to do so. And especially, if we look at the total viewing hours, which might be more significant in terms of the KPI, but this has grown steadily. So winter holidays, Golden Week. So we had a great program, so that was a great hit. So it was much longer during those period, but the foundation of base is growing steadily as well.

So we thought that we were prepared to actually invest for 10 years -- invest our time, energy. So we would like to hang in there to operate and try to create better content, and if PDCA -- to continue to have this steady growth.

And then from 2017 to 2018, we see a change in viewing style. So -- of course, it's a TV. So we were actually focused on linear viewing, and the users are watching it likewise, as a linear viewing. But we have a lot more archives now. And we also -- the AbemaVideo has now become widespread so in the last year. We're seeing actually a higher percentage of linear and on-demand viewing. So this is what we were aiming for from the beginning, so this is a viewing style that we had aspired to, and we're seeing these right now. And we actually haven't released these numbers, but Abema Prime, which is 1,000-unit a month, but we're seeing more and more members of Abema Prime.

So we haven't been able to do a lot of time shift, and that's actually been a challenge, and this is a business model that's what we created as a result of the TV networks not being to -- being able to take advantage of time shift. So if you -- of course, linear is free of charge, so there's the advertising, and on-demand, there wasn't. But we wanted to give the option for viewers who watch both. So in terms of linear viewing advertising, we want to also offer advertising options for on-demand viewing styles as well. And Hoshikuzu Revengers is a new drama that just started this week, and we also have 7.2 hours new, different window TV program, and we're seeing a lot of viewers, and we're also doing a sumo live, OZUMO LIVE. And we also have a Japanese Chess Shogi tournament, AbemaTV, on AbemaTV, and it's actually very well received as well. And, You can't fool me, Mr.Wolf, is a dating reality show that was a big hit. So we've been focusing on dating reality shows. And this quarter -- this is the last week actually for -- but we've actually have started to offer dating reality shows for more mature adults, and these titles have become a great hit as well. And in the last quarter, the third quarter, we've actually put a lot of effort into creating dating reality shows, and we've also continued to focus on the younger generation as well.

And as you can see, AbemaTV button is now -- will now appear on Sony's remote controls, and we are negotiating with other manufacturers as well to add our button to their TV remotes. So if you buy a new TV, you can watch AbemaTV on that. So with respect to AbemaTV, of course, advertising and subscription will be a sufficient revenue streams, but because we have AbemaTV, we want to take advantage of the synergies that it could create with the peripheral businesses. So we will continue to expand this area. So we actually have a division that's focusing on this. So as you can see on the right, there's a M.League, which is the Mahjong Pro-League, which was announced quite recently, and I am the Chairman of this league.

So the content from the M.League, all of it, will be broadcast on AbemaTV as well. And I say this every time as well, but there is not a similar investments model anywhere in the world, so we want to establish a pioneering business model without any competitors, and we'll continue to do this. So as 'Content is King,' is what has been said in the age of Internet, but that is truly the case. And so when the Internet was a little bit stagnant -- when people make a statement, it's actually become -- many of those statements have become true, but we will continue to make investments in its content.

And I said that we were committed to this biz for 10 years, but -- so with the smart TVs and 5G penetration, the environment is going to change as well as the users viewing style as well. So that will change drastically in the future, and we believe that when that happens, AbemaTV will grow significantly dramatically. So we will like to continue to invest with that in mind. So we're often asked when we -- by investors and analysts, when we are going to continue -- if we're going to -- until when we are going to continue to make our prime investments, but we will continue to hang in there to do so. So mid to long term, we will like to establish AbemaTV as a mass media. So we'll continue to focus in this area.

In terms of ads, it's doing well, as usual. So we will like to continue to make the same level of efforts. And with the Game business, if we have a hit title, it will contribute significantly. So we will like to focus on doing that as well.

So we have -- when we invested in [ indiscernible ], we invested in smartphones, and we are also investing in video content right now. So we will like to continue to make steady investments to achieve dramatic growth going forward.

Thank you very much.