CyberAgent Inc
TSE:4751
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CyberAgent Inc
Earnings Call Analysis
Q4-2023 Analysis
CyberAgent Inc
The company's outlook indicates a strategic pivot from a period of heavy investment towards achieving steady sales growth and improved operating profits. After laying groundwork in key areas such as media (ABEMA), advertising technology, and gaming—including substantial bets like the World Cup and developing new game titles—they are transitioning into what could be likened to a 'harvest phase'. This projected turnaround is expected as these investments start to yield returns, particularly as one-time expenses like those related to the World Cup will not recur in FY 2024 .
ABEMA, the company's media business, is highlighted as a prime example of transitioning to a harvest phase. After large injections of capital, the platform is now poised for easier sales acquisition and profit generation. The recent completion of World Cup expenses will also relieve financial strain, further easing the path to profitability.
The advertising segment has seen significant investments in Artificial Intelligence (AI) and Digital Transformation (DX). These advancements should pay dividends, with the company glimpsing the initial fruits of enhanced operating profit margins. The company ranks as a top-tier AI research entity in Japan, which serves as a competitive advantage in the ad sector. Collaborations with 30 major enterprises also herald the shift from initial investments to realizing growth.
Existing successful game titles are showing longevity, which bodes well for sustained revenue. The much-anticipated release of 'FINAL FANTASY VII' and over three major titles in the coming fiscal year are highlights—they're noted to potentially offer significant upside to forecasts, which have been conservatively estimated following downward revision in the prior fiscal year.
Sales in the Media sector, particularly from ABEMA, have increased considerably. Although investments like in the World Cup have temporarily affected operating profits, the Media segment is looking forward to a profitable horizon. ABEMA itself is still on the path to profitability, but the aggregate media segment is beginning to turn a profit. Furthermore, with a growing audience base and partnerships to enhance content offerings, ABEMA is strengthening its position.
The company is fostering several content segments, each gaining traction in their respective fields. Highlights include success in broadcasting sports content like MLB and Premier League, exclusive anime streaming, and popular shows garnering high ratings. Collaborations with Netflix have also projected their content internationally, indicating a robust content strategy meant to support the overarching aim of synergy across media, advertising, and gaming businesses.
Emphasizing their commitment to growth across all segments—Media, Ad, and Games—the company asserts that the operating profit will reach its nadir in FY 2023, with an expectation to ascend from there. As the investments of recent years start to come to fruition, the company aims to shake off sluggish share prices and step into a future characterized by quarter-on-quarter and year-on-year growth.
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We would like to begin CyberAgent's full year earnings briefing for the fiscal year ending in September. This session is being video streamed. With respect to the content we will be sharing today, please refer to the disclaimer that you will find in the presentation material.
Our President, Fujita, will be taking us through the results.
This is Fujita. I will be taking you through the FY 2023 full year results. Our fiscal year ends at the end of September, so this is the full year briefing.
In terms of overall sales. From 2021 onwards -- fiscal 2021, we saw Uma Musume becoming a big hit, and that had a great sales impact. But we have overcome that and sales has continued to grow for the 26th consecutive fiscal years. And in terms of the OP, we are on track.
With respect to the Media Business. ABEMA-related sales did well. So year-on-year, we saw an increase in 25.9% in terms of sales. And in terms of OP, we did have significant investments in the World Cup. But despite that, we have seen improvements and losses.
With respect to the Ad Business. We have outpaced market growth in terms of sales, and we have been able to expand market share as a result. And we have continued to invest in AI and DX actively, especially in the ad industry. And as a result, the OP is as you see here.
With respect to the Game Business. In FY 2021, Uma Musume became a global boom, global hit. And it was a hit in FY '21 and '22. In FY '23 it became a normal hit from a super hit, and as such, sales and operating profit have decreased. In September, we released FINAL FANTASY VII, and this is doing well. It's -- we're seeing a great start. So we've seen impact from that as well.
This is the full year results expressed as a bar graph. We have continued to grow our sales, increase sales, especially with Uma Musume, Other businesses are also growing.
With respect to the OP FY '21/'22, it grew significantly. But as a backlash from that, we have landed this year at JPY 24.5 billion. In principle, we have continued to plant seeds for the future. And over the last 3 years especially, we have planted many seeds for future growth. So going forward, we hope to increase sales and operating profit.
Number of employees and SG&A expenses. As you can see in these graphs, FY 2021 onwards, after Uma Musume became a hit, of course, we significantly increased the number of employees and SG&A. Employees advertising have continued to grow. These are related to the investments in different businesses and this will continue going forward.
This is the PL and the balance sheet.
With respect to the FY 2024 forecast. As mentioned during last quarter's briefing, we want to ensure that the OP bottoms out in FY 2023, and going forward, we want to continue to increase sales and operating profit. And you see the phases divided into 1, 2, 3 and 4 here. FY 2013 onwards, we have continued to increase sales and operating profit. But from FY 2017, we have started to make large investments in ABEMA, focusing not on short-term profits but to nurture a big business.
And then we entered Phase 3, where we saw a big -- Uma Musume becoming a big hit. And with respect to ABEMA, we invested in World Cup, planting different seeds. And in addition to that, especially in the Ad Business, we have been investing in AI and DX actively and we have planted seeds in terms of many game titles as well. And we have actively emerged into new fields, including the medical industry.
So as I mentioned before, we have continued to plant seeds while we're doing well. And so we are planting seeds over the last couple of years over this period. And going forward, we hope to reap benefits, start to harvest. And we have a clear outlook now, so we hope to continue to increase sales and operating profits steadily.
Looking at the different businesses. First, with the Media business, ABEMA. We have made large investments and now it's starting to enter the harvest phase. So it's easier to secure sales and operating profit. And FY 2023, we saw large investments in the World Cup as well, but this is going to disappear for -- temporarily. So we is going to make the situation easier.
And with respect to the Ad Business. With respect to the business, we have continued to grow over the medium to long term and we have continued to increase sales. On the other hand, we have significantly invested in AI and DX over the recent period and so we hope that we will be able to start harvesting. And we have started to also improve the operating profit as well.
With respect to the Game Business. Of course, the existing titles, if they become a hit, it's easier for them to become -- have a longer lifespan. And so that's a good trend for us. So we hope to make sure that we have a long lifespan for hit titles. And also, we just released FINAL FANTASY VII. And next fiscal year, we will be releasing over 3 large titles.
And these have not been included in the upside from the new games that we will be releasing, will not -- have not been included in the forecast, especially because we have revised the forecast downward last fiscal year. And so this is very conservative and it doesn't really include the upside. But we are quite confident that we will see a bright future in terms of the Game Business as well.
So in FY 2023, we want to make sure that the OP bottoms out and we are going to commit to increasing sales and profit. We have successfully nurtured this thinking company-wide as well. So this is an area that we hope to continue to focus on.
And this is the forecast.
Moving on to the individual businesses. First, starting with the Internet Advertising. Over the mid- to long term, we have continued to expand the market and have increased our sales steadily. In terms of OP, this decreased temporarily this fiscal year, but we have actively invested in new fields. And in terms of OP as well, we have already started to make improvements in OP.
This is the quarterly trends. As you can see, we are making steady growth. And this is the OP. You can see the OPM here as well. We have started to improve OPM in the fourth quarter. We have started to see improvement already, and we hope to further improve the OPM going forward.
I have mentioned a couple of times that we have been investing in the DX business. And we already have a partnership with 30 large companies already, and so we are moving from the upfront investment stage to the growth stage. So we hope to start reaping benefits from our efforts.
With respect to AI, especially in the Ad Business. We have already generated sales and results with AI. So there's not many companies that have done that. And we have been ranked 4th in Japan, 49th in the world as a leading AI research company. So we hope to utilize this as our competitive edge to produce even greater results.
In Odaiba, we have launched a new creative studio using AI and CG. So this is a new studio that we have established, and this is already -- has kicked into full gear. So the creatives that we will be creating in the studio, we hope to utilize them as our competitive edge.
Moving on to the Game Business. Uma Musume was a big hit and then it started to normalize, and after this process, the sales have gone down. And Uma Musume is our own IP and the profitability was very good, but we have seen the decrease in sales in OP.
As a result of that, if we look at the quarterly trends, so in the recent quarter, we've seen improvements in sales and OP. We just released FINAL FANTASY VII in September and summer events. These have contributed to the recent performance. And this is the OP.
With respect to Uma Musume, we are airing the season 3 of the anime series. And there are a lot of topics, we're planting seeds for different -- a lot of topics, and each of these are very high quality. So we hope to transform them into a long-loved IP, and we believe that we are heading in the right direction.
We started providing FINAL FANTASY VII. We -- it might not be as a big hit as Uma Musume, but we have seen a good start. And with respect to the next fiscal year, we believe that it will start to contribute to our performance.
Jujutsu Kaisen Phantom Parade will be released in late November this month. So we have high expectations for this title as well. Also, Cygames are developing console games, which we will be releasing this fiscal year 2 titles for Granblue Fantasy. I personally believe that the quality is extremely high and have high expectations. Of course, this has not been reflected in our forecast. But if these become hits, of course, they will become an upside.
This is the release schedule going forward. Actually, we have been working on many console games. And in addition to that, of course, we have, at the same time, developed several big titles for smartphones. So we hope to release these games in a timely manner.
Next, the Media Business. With respect to the Media Business, especially ABEMA-related sales trended very highly. So we have seen great increase in sales. And in terms of OP as well, although we saw investments in the World Cup, but we have seen improvements in losses slightly.
And this is the quarterly sales ABEMA and Media overall. Of course, we've seen an increase in sales. And in addition to that, new consolidated company has contributed and so we're seeing great results. Of course, ABEMA on its own may not be profitable yet, but as a Media segment, we will soon see -- we will soon start booking profits.
This is the quarterly sales for ABEMA-related businesses. In the most recent period, we've seen related businesses as well as ads contributing to the performance.
And this is the trends in WAU. Of course, WAU target used to be 10 million, but 20 million is already within our sight. Especially, we had the World Cup broadcast. And this helped us increase the user base, but we continued to capitalize on this momentum.
With respect to sports content. MLB and Premier League, we are strengthening our sports content. Especially global football has been doing very well. And in order to enhance our content lineup, we are developing partners. So we are addressing this at the moment.
And regarding anime. Within the Internet services, of course, ABEMA is a TV so we provide our content for free. And if a new interesting anime becomes available, we can widely introduce that. So we have focused on the fastest and exclusive premier streaming of new animations. And this is an area that we are strengthening our efforts.
Dramas and variety shows. And of late, of course, in the last quarter we saw a program called [ Left Here In Some Corner of the World ] and Love Hyenas. They became -- generated a lot of buzz and became a great hit. And GIRL or LADY, a new romantic show. Of course, after it was aired, many people thought it was interesting. It spread by word of mouth. And the final episode that was aired this week, we saw many viewers and the ratings were quite high. So we have continuously released many content, many hits as well.
And we have started to provide content that we provided to Netflix. So dramas that we produced called Company Ain't No School or Who is the Wolf have actually ranked 3rd and 4th place, respectively. So we're seeing traction. So through Netflix, we want to introduce and produce world-class content that people all across the world can see.
With respect to WINTICKET, it is continuing to do well.
So our business will focus around ABEMA. Of course, we have Ads and Game, Media businesses. But ABEMA media content that we have, we can expect various synergies with ABEMA. So we would like to make sure that we can strengthen our collaboration with ABEMA, that is our key strategy, and we want to start monetizing this as well.
And lastly, medium- to long-term strategy. We have Media, Ad and Games. But we want to ensure that the OP will bottom out at in FY 2023, and we are going to be committed to increasing sales and profit. And we have continued to prepare, to plant seeds over the last couple of years to do so and we have a clear outlook now. So we want to make sure that we're increasing sales and profits in each quarter and the fiscal year as well and make sure that we can raise our somewhat sluggish share prices going forward.
Thank you very much. That concludes my presentation.
We would like to conclude CyberAgent's full year earnings briefing for this fiscal year ending in September. If you have any questions, please contact the IR team. Thank you very much for watching today.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]