CyberAgent Inc

TSE:4751

Earnings Call Transcript 2023-Q3

[Unknown Executive]

It is time. So we would like to begin CyberAgent's earnings briefing for FY 2023 third quarter. This session will be live streamed. Please refer to the disclaimer regarding the information we will be sharing with you today. President and CEO, Fujita, will take us through the results.

[Susumu Fujita, executive]

This is the CEO, Fujita. I would like to take you through the results of FY 2023 third quarter. From April to June was the third quarter for our company.

First of all, overall, during this quarter, third quarter, the results were not that great but the Media and Ad sales have continued to increase steadily. However, Game business earnings were lower than we expected, and thus, profits dropped significantly. And as a result, we will -- we have announced a downward revision to this fiscal year's forecast, which I will take you through later.

So the Media business, ABEMA-related sales progressed on track and operating losses decreased steadily. And for the Ad business, we reached a record high sales. And for the Game business, the second quarter, the quarter before this quarter, we had multiple anniversary events. And as a backlash from that, we have seen lower sales and profits for this quarter.

This is the consolidated sales. About 2 years ago, Uma Musume started and it has become a megahit, and it has continued to expand. And we have come back to the -- it has started to normalize now. But the baseline, we are continuing to -- we will continue to see increase in profits.

And this is the consolidated operating profit. So the first quarter, 2 quarters ago, we had the FIFA World Cup. So we had extraordinary costs booked during this quarter. But for this quarter, the Game business in the second quarter did so well and it's -- we're seeing lower levels this quarter because it's -- we didn't have those anniversary events.

And this is the SG&A. In terms of the number of employees, we welcomed 431 new graduates to the group. So we have 7,241 employees at the end of this quarter. And this is the P&L. And this is the balance sheet.

And with respect to the FY 2023 forecast, when this fiscal year began, our IP, Uma Musume, which is highly profitable, and we saw sales grew. But it was very difficult to forecast how the sales might -- its growth might slow down. Unfortunately -- that is why we provided the range. Unfortunately, it slowed down more than expected. So we have revised the OP JPY 25 billion, revised downwards.

And we have revised our forecast downward. However, from -- going forward, our path looks bright. 2 years ago, Uma Musume started, and it became a social phenomenon and become a megahit. So we made a large upward revision twice during the fiscal year. But we have tried to land softly leases then, and it's starting to normalize now. Unfortunately, it was somewhat a harder landing than we expected.

But Uma Musume's performance, we will be able to normalize and absorb any impact going forward. And Uma Musume, we've seen some backlash this quarter, but we believe that it will become a title that will be loved for a long time going forward.

And we have the first phase, second phase and third phase. And this is our 10-year journey. And 10 years ago, we were focusing on increasing sales and profits, then we started making upfront investments into ABEMA. And while we were making the upward investments, we gave birth to a megahit, Uma Musume, and it was very difficult to forecast then. But it's been 2 years and now we believe that we have come to an end. It's starting to normalize.

And at the same time, ABEMA's upfront investments as well, we're reaching the final phase. So going forward, it will be more simpler. We are going to be committing to increasing sales and profits. That's how the top management sees our path going forward. I said that the path looks bright earlier, but there are no negative elements right now.

So this is how we will achieve earnings growth. For the Media business, every year, we booked JPY 20 billion in operating losses. So without that, we will be making JPY 20 billion more. So of course, ABEMA has entered a loss reduction phase after the investment phase. And in addition to that, we had the FIFA World Cup large losses booked in the first quarter. But we only was -- of course, going forward, it will settle down because the competition only happens once every 4 years.

In the Ad business, we'll continue to grow over the mid- to long term. This business has continued to expand and increase profitability. And we are -- it still looks bright. It's doing well. And the companies -- a lot of our clients are doing very well, so that's going to be -- have a positive impact on us.

And there is a challenge in terms of operating margin, but improving the operating margin is a very high priority for this division. So we might not see results right away. But next fiscal year onwards, we should start to see improvements in the OPM.

And for the Game business, Uma Musume Pretty Derby, we built high sales and profitability last fiscal -- last quarter, and so we're seeing an impact from that this quarter. But it is becoming a service that's loved for -- that can be loved for a long term. So we believe that the future expire for this title in the Game. So we hope to keep the momentum going.

Of course, each initiative takes time to plan. But this fiscal year, we will be releasing a new TV anime and we will also release a new console game as well. So we are continuing to invest in plan initiatives that will keep the momentum going. And on top of that, we have -- we will be releasing 2 highly anticipated games, FINAL FANTASY and Jujutsu Kaisen by the end of this year. So we believe that those will also have a positive impact.

That is why -- although we made a downward revision, we want to ensure that the JPY 25 billion will be the bottom line. And going forward, we will simply commit to increasing sales and profitability.

This is the -- achievement rate based on the new forecast. We finished 3 quarters, and the remainder is about 25%. So we believe that the downward revision is achievable, is reasonable.

Going forward, we would like to look at the individual businesses. As I mentioned before, we reached record high for the Ad business, Internet Ad business. On the other hand, OPM is -- we're seeing a downward trend in the OP margin and we're starting to address that already. So we hope to -- we plan to improve the OPM going forward.

And we also released the LLM to the general public -- to the public. And in terms of gen AI, we are basically the only company in Japan that's booking sales in this business. And of course, this will have more -- this will be more effective because we will be using gen AI. And we are already seeing results from this business.

And for the Game business, I mentioned before that we're seeing a downward trend from the second quarter, because in the second quarter, it grew significantly. Especially Uma Musume, our own IP, it does impact our profitability quite a bit. So that's the major impact that we saw for this quarter.

We are implementing various initiatives and we are doing cross-media marketing. We're working with -- we are going to be releasing manga live events and theater as well. And we will also be releasing Season 3 of the TV animation very soon. And we will be releasing new manga. And we will also make the console game available on Switch.

Uma Musume Pretty Derby - Party Dash, it's a great title. It looks like it's -- it will be a lot of fun. So we can't really talk about all of the initiatives that we are planning right now, but we will continue to make -- we will make sure that the momentum will continue going forward as well.

And this fiscal year, we are -- we'll be releasing highly anticipated titles. One is FINAL FANTASY. And we finished the closed beta test already and it will be released quite soon. And Jujutsu Kaisen as well, a new season animation has just begun and the game. We want to make sure that we keep at pace with that boom as well and release it by the end of the year.

And next year onwards, we have not publicize this yet, but we are working on major titles. So we have -- it is great that we can finally release games that we've been working on for a long time. And it's taking longer and longer for us to release games, but we highly -- have highly anticipated games coming in the next here onwards as well.

And for the Media business, ABEMA's growth is contributing significantly. But every quarter, we can't grow drastically. But over the mid- to long term, we want to make sure that the ground will remain solid and we can continue to grow. And OP as well, we -- the operating losses are also increasing.

This is the breakdown of ABEMA. And this is the weekly active user, WAU. Over the mid- to long term, you can see -- we can see that it is growing, ABEMA is growing. With the World Cup, it grew drastically. But we continue to increase our user base, and we are seeing many couple of weeks where we're exceeding 20 million WAU.

And for the Sports business -- sports industry, we have signed a partnership with KDDI, especially in terms of sports content acquisition. We are putting a lot of effort into sports content acquisition and distribution as well. But it does take a lot of costs, and we want to make sure that it can be viewed by a lot of people as well. So KDDI is going to be a very strong partner for us to enable us to do so.

We are putting a lot of effort into sports and anime. But our partner, TV Asahi, we are working closely with them as well to distribute World Aquatics Championship. As well as All-Stars as well, we saw quite a significant growth. And also, we will be -- from August 6, you will be able to see all the high school baseball games on ABEMA as well. So please take a look.

And WINTICKET is -- continued to grow very strongly right now. The Keirin the online bedding market is 42%. And we also have a partnership with Netflix, and this is the first example of our partnership. Is She the Wolf? is -- well, it has been available on Netflix since June 11, and we're getting a lot of traction on that.

And we also announced this already, but the Nelke Planning, which is a top company for 2.5-Dimensional Musical, and they have joined our fold. They are a very effective company in the industry and they're creating a lot of great content. And they are a very steady, stable and highly profitable company, and it is great that they have joined our group.

This is -- you've seen this many times before, but we will be -- we will continue to make sure that ABEMA will become profitable by ensuring the advertising subscription PPV and related business will perform well.

And lastly, we have 1, 2, 3 and 4 here, but this is the mid- to long-term strategy. But we went from the growth phase. ABEMA investment phase. And then we saw a big hit in Uma Musume Pretty Derby, and it has become just -- it has started to settle down and normalize. And going forward, we want to make sure that the JPY 25 billion will be the bottom line. And we want to, as a top management, focus on improving sales and profitability.

So we hope that you will continue to support us over the long term even though we have made a downward revision. Thank you very much. That concludes my presentation.

[Unknown Executive]

This concludes CyberAgent's FY 2023 Third Quarter Earnings Briefing. If you should have any questions, please contact the IR team. Thank you for joining us today.

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