SoftBank Corp
TSE:9434
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
131.3808
196
|
| Price Target |
|
We'll email you a reminder when the closing price reaches JPY.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
SoftBank Corp
You don't have any saved screeners yet
Thank you very much for waiting. We will now begin the presentation of the Earnings Results of SoftBank Corporation for the Three Months Ended June 30, 2022.
We would like to introduce today's attendees: SoftBank Corporation President and CEO, Miyakawa. Board Director, Executive Vice President and CFO, Fujihara.
Today's briefing will be broadcast live via the Internet. Thank you for your cooperation.
Now President and CEO, Miyakawa, will give an overview of SoftBank's consolidated financial results and business overview.
Hello, this is Miyakawa. Thank you so much for your attending. Now I would like to present our first quarter results.
The revenue was up 0.4%. By segment, Consumer business decreased due to a decline in merchandise sales and impact of mobile service price reduction. However, Enterprise business increased revenue in Yahoo! JAPAN/LINE and Distribution.
Operating income was down 13%. By segment, the Consumer business due to the impact of price reductions and increase in acquisition costs, it was down 16%. Enterprise business was unable to offset the onetime positive impact of last year, resulting in a 5% decrease in profit year-on-year. Yahoo! JAPAN/LINE business was down 3%, mainly due to strengthening hiring for the growth. Now net income was down 15%.
As the summary shows, the company was up in revenue and down in income. The progress rate is 25% for operating income and 24% for net income. The full year forecast includes the revaluation gain from the consolidation of PayPay and is, therefore, in line with the plan.
By segment, Consumer business continues to perform better than expected with a progress rate of 32%. Also, as mentioned earlier, PayPay's revaluation gain has not yet been yet been realized in Q1, so the progress rate of Yahoo! JAPAN/LINE business and others is low.
We are making good progress in achieving our management objectives. We expect to achieve more than JPY 1 trillion in profit. Also, we are disciplined and firm in our efforts to generate JPY 600 billion in cash.
As for the year moving forward, we are aware of the importance of business growth from next year onward. And this year, we are in a very strong profit environment where this year's valuation gains are expected. So we are rapidly preparing for the future.
Now let me start with the Consumer business segment. The revenue, due to the impact of price reductions and lower sales of devices, was down 4%. As for operating income, due to the price reduction impact, sorry to repeat the same words, but -- and the increase in acquisition costs and others, it was down 16%.
As I mentioned in the last presentation, operating income has been hit hard by the price reduction impact. So the number of smartphone subscribers, however, has been growing steadily, increasing by 7%. Especially, acquisition was strong in the Q1, with a 36% increase in net additions of smartphones year-on-year. Main subscribers also performed well, increasing [ 11% ] year-on-year.
Operating income progressed favorably at 32%. It is actually performing better than the forecast at the beginning of the fiscal year.
As I mentioned at the beginning of this fiscal year, this is the year in which the impact of price reductions will be the largest. Of the estimated JPY 90 billion impact, the Q1 had an impact of approximately JPY 25 billion.
At last, the impact of the price reduction appears to be almost peaked. So we expect it to gradually decrease towards the second half of the year. we would like to put our best efforts to recover this.
Now next is Enterprise business segment. Enterprise business revenue was up 3% year-on-year. The solutions continued to perform well with a 12% increase. Operating income was down 5% year-on-year. The income was down due to the reversal of onetime expense of JPY 2.7 billion recorded last year. Excluding this, however, income was up 2%.
Looking at the breakdown of solution business. Recurring revenue was up by 12%. Recurring revenue includes revenues from cloud business, security business. Once a customer sign up, they intend to stay with us long, which helps our enterprise business to build a strong business foundation. Especially in the areas of digital marketing, security, cloud, we have seen strong growth driving solution revenue. We expect further growth in those sectors.
Now move on to Yahoo! and LINE business. Yesterday, Z Holdings had an owning result announcement. So today, I am not going into detail here. Revenue was up by 5%. Operating income was down by 3%. For e-commerce merchandise transaction value, it was up by 6%. So Yahoo! business, LINE business, we saw a huge reduction of share today, but maybe you had expected that since yesterday's Yahoo -- excuse me, Z Holdings' announcement.
Now moving on to PayPay. It's been about 3 years and 9 months since inception. So far, SoftBank, Yahoo!, Paytm and SoftBank Group worked together to support PayPay's growth. As a result, registered users exceeded 48 million as of end of June. It should reach 50 million pretty soon.
Payment count, which is one of the most important KPIs in PayPay, it was up by 42% year-on-year, 1.1 billion count. For GMV, up by 38% year-on-year to JPY 1.7 trillion.
All in all, market share exceeded 1/3 in Japan. So PayPay has built a strong #1 position in Japan.
Since PayPay has become #1 in the Japanese market, we think that PayPay should shift from growth phase to monetization phase. For monetization, leveraging customer base and services at SoftBank and Z Holdings, PayPay should be able to monetize their assets. So we decided to establish an intermediate holding company jointly managed by SoftBank and Z Holdings to maximize PayPay's corporate value. Not only SoftBank, but also Yahoo! and LINE under Z Holdings' umbrella, it will be best to make sure that PayPay has closely linked with those businesses.
As of October 1, PayPay should be a consolidated subsidiary of SoftBank, and we expect to recognize revaluation value in the third quarter of 2022. Once the revaluation value is confirmed, we will disclose as soon as possible.
Like I said earlier, for the last 3 years and 9 months, we have made upfront investment in PayPay business. We have recognized so far as much as [ JPY 130 billion ] of loss. Against that investment, book value is 0. At the timing of consolidation, valuation is recalculated and we expect revaluation gain.
On top of that, PayPay is performing pretty well. So valuation should be better than the initial value of PayPay. Valuation gain will be recorded or should be recorded one time. But sooner rather than later, we expect PayPay to make profit. So PayPay's contribution to our net income should be great.
Going forward, LINE, Yahoo! and SoftBank's customer base should be fully leveraged to expand PayPay's ecosystem. By growing PayPay ecosystem, SoftBank's Consumer business, Enterprise business and Group companies should enjoy the synergy with PayPay's ecosystem. So those business should grow hand in hand.
This slide shows segments after consolidation of PayPay. As you can see, we consider to establish a new segment called Financial Business that should be in or after Q3 of 2022. And we want to communicate with you KPI and the strategy of Financial Business to make sure that we have better disclosure to you. Next earning results and later, we will explain this in detail.
Initially, we started our business focusing on telecommunications. After listing, we expanded into e-commerce, media and [ SNS ]. Going forward, payment, financial should be added to our portfolio to drive our Beyond Carrier strategy.
In summary, good progress toward full year forecast, revenue increased and profit decreased in first quarter as anticipated. We have sound growth in mobile net additions. SoftBank and Z Holdings to work jointly to maximize PayPay's corporate value. We will newly establish Financial Business segment to accelerate Beyond Carrier strategy. Information Revolution -- Happiness for Everyone, we will continue driving toward that philosophy. Thank you very much.
Now we would like to move on to a Q&A session. [Operator Instructions] We will now move on to the Q&A session. We'll take questions first from the audience in the venue, then from the press via Zoom. And then from analysts, institutional investors via Zoom. [Operator Instructions].
Well, in the middle, in the black shirt gentleman, please.
I am Ishikawa, Freelancer. My first question should be about your earnings results. However, a different question from me. Regarding KDDI [ AU ] network outage, what do you think about that? And also about roaming, I think President Miyakawa had mentioned about roaming before.
And the second is about Rakuten stop to zero-yen program. What do you think about that?
Thank you so much for your question. Regarding AU, KDDI's network outage, honestly speaking, we are not taking this as someone else's matter. We take this as a self-matter. So therefore, we've seriously considered about this. So this time's incident by KDDI and I think Dave answered to the questions very sincerely. I think everyone was relieved to hear that.
Regarding a network outage this time, by chance, if something similar things would have happened, we actually studied how it will be. But as far as SoftBank the same thing should not happen. However, due to the human error at this time, so as I look at our daily tasks, the similar thing or different incidents might happen. That is really possible for us as well.
Therefore, what we should be doing if this thing happens? So we established an internal committee so that we could restudy and reinvestigate if our measurements were sufficient.
Now about roaming. Initially, we also had experienced some failure related to roaming. So back then, these roaming things did not continue because of that instance in the past around the same time. Back then, why in Europe roaming was established but not in Japan? Because any outage or failure happened, intercarrier roaming should be available.
So right now, [ MIC ] has centered -- started discussion around this. So as far as roaming issue, now we see more importance as a social infrastructure compared to the instant we had gone through. Now this intercarrier roaming needs is in demand.
So there are a lot of things could be considered, like not being able to get deliveries or weather information is not deliverable. But what I see as most important is payment and authentication. Like online shopping, for example, a double authentication on SNS to identify ID and also dealing with stocks and the demand is very high.
So a payment transaction as we also repeat PayPay. So this payment transaction is now available online on smartphones. So it has been penetrated to our daily lives. So now smartphones are a must for our daily lives.
So when it comes to a normal situation, then what we could do? So now that's been discussed in case of emergency. When we need urgent call, like in Europe, there is a need for full roaming. Or is it possible to establish roaming, especially for urgent or emergency situation? So when we face a normal situation, is it good enough to secure emergency situations for like police or fire stations? I don't think it is not sufficient so that the society could function well in case of emergency.
Therefore, some functions like roaming has to be seriously considered. I haven't started discussion with other carriers yet. But for example, like SoftBank, from KDDI or Docomo, in case of emergency, switching should be available. Otherwise, traffic is going to be congested on one carrier. In order to avoid that congestion, I believe that kind of intercarrier roaming should be available. This should be one of the options I would like to suggest moving forward.
In case of emergency or a normal situation, in order for us to minimize the panicking situation in the society and community, e-mails, telephone calls or minimum information should be available online and also like line functions should be available at the minimum level, at least. How we should be able to make it in use in the actual situation, we would like to focus on working on that.
And about zero-yen program of Rakuten, as I mentioned, it could be just one-time impact in a positive way. But after the announcement of stopping the zero-yen program, yes, our net addition has increased and KDDI's outage was also onetime. So the Q1 net additions was good.
And also, we see more and more inflow from Rakuten and lower outflow to Rakuten, which we keep a good balance in terms of net additions. So I'm sure Rakuten will be coming back at strength. So that's the situation so far.
Have you ever like thought that Rakuten would stop zero-yen program? No never expected.
Next question. Gentleman at the front. Ichikawa from Yomiuri Newspaper.
Consumer business in the first quarter was not bad. And my question is about agent, sales agents. Maybe performance management should be reviewed of that agent. And looking at the major agent business results, it seems they are struggling. I'm sure their business was based on assumption of subsidies from mobile carriers, but they are struggling right now. So MIC is expecting review of the incentive target system, if you will, to value agents. So what do you think is the best relation between carrier and agent?
There is no who's boss and who's servant between carrier and agents, we are partners. In the past, when sales was really good, we were in a good position. But now that competition is very fierce, we need to have a lot of discussions, each other. But signing inferior contract with customer is something that we should prevent. So customer first is the top priority. And from that perspective, we should have a lot of discussions with agents. And we should work together to help creating very healthy industry. So under the current circumstances, we want to make sure that we have a very good, better communication with agents.
So reviewing incentive target system requested or expected by MIC, are you going to do that?
Well, incentive structure has been reviewed from time to time. And I don't think we are in urgent situation to change the incentive scheme right now. But again, like I said earlier, through discussions with agents, if you think it's better to change, we will change. But if we keep it, that's better, we will keep it. But again, I want to have a better discussion with agents to come up with a better structure.
Next question is about KDDI. They decided to return JPY 200 to affected customer according to the standard of their contract terms. So I wonder if you think you need to review your contract terms from the perspective of penalty or return -- refund to customers.
Whether JPY 200 is small or big? I should not make a comment for KDDI. But to their contract agreement, I'm sure that they have decided to refund that amount to the affected customers. So the question is, are we going to review or change our contract terms? At the moment, we don't think it's necessary to change terms and condition.
And if something like that happened, as a SoftBank, should we refund as much as JPY 200 or not? Again, we should calculate according to our terms and conditions. And depending on the circumstances, we want to figure out the best number for the refund.
Next question. In the middle line, the second row, in blue shirt. Gentleman, please.
I'm Hugo from Bloomberg. First is about Financial Business segment. You mentioned that you would add to your current segments. So SoftBank before invested in [ Aozora ] Bank. In terms of financial segments, I think you also put efforts so far. As for your future overview, what kind of plan you're thinking about? What's your blueprint in terms of financial segment? And when you compare to the previous investment, what is your scale expected in order to achieve the Beyond Carrier strategy? I would like to hear more in details.
Regarding financial segment of SoftBank, now PayPay is the major one and also SoftBank Payment Service and also securities and banks. For now, PayPay's business plan has not yet been disclosed. But I would say it's quite aggressive plan.
As for PayPay ecosystem, this financial segment should be enhanced more and more which we expect highly for growth. And telecommunications and Yahoo! JAPAN/LINE business, online media business, [ SNS ] closer to advertising business. Also the telecommunications-related, electricity and other services we are providing. Among those, we would like to nurture PayPay as our core businesses which account for 1/3 of our business. That's our expectation. I hope this suffices your answer.
You're talking about profitability more than 1/3 in terms of profitability. So how long do you think it would take to achieve that profitability?
Well, if I say something, then CEO Nakayama might not like it. So I'm not going to say definitely, but as long as I'm in this position. So which means it's quite long. Well, my tenure may be not long.
The second question is about PayPay's IPO. So your message -- SoftBank's message was basically it's a great expectation. However, recently, the direction has been a bit different. It may not listed. And on the 27th last month, it was announced that if a company is in negative figure, there is no way that this company would be listed. So how hot this topic is in terms of IPO of PayPay?
Well, if I were to give you optimistic answer, then yes, it is positive. However, under the current market and looking at other competitors who are listed, I think this is not the right timing to go to the public. So we would like to wait and see once this business shows in positive figure.
But now we have established an intermediate holding company. Even the company goes to the public, we would like to continue to get involved in the business management. So therefore, we don't say that there is no way for IPO. We also consider to do that. At the earliest timely manner, we would like to realize its listing. However, the timing is not determined yet. Therefore, I would like to avoid the straight answer.
Next question. Gentleman in blue, please.
[indiscernible] from Nihon Keizai Shimbun. First question, related to someone else's question about PayPay and consolidation of PayPay. At the last earnings call, you talked about profitability and monetization phase. But now that a consolidation announcement is made, I wonder if you have to shift your views.
Now the user number is close to 50 million and growth has not stopped yet. So while they can grow, we want them to grow in terms of subscriber numbers. So when timing is still there, we want them to keep aggressive. So when they are in aggressive mode, maybe it's difficult to make profit soon. But again, their performance is getting better and better. So maybe they can make profit while they are still in aggressive mode. But at a certain point, we need to put some control in place, if you will. But again, we want them to keep enjoying aggressive mode. But again, in 1 year or 2 years' time, we will see when we will put a certain brake on their aggressive mode, if you will.
Any other questions from the venue? On the right -- right side, the gentleman in gray shirt.
Sano, I'm a FreeUp writer. You mentioned about the increased subscribers of smartphones which is also impacted by Rakuten. I think, so far, why mobile had the better results? But other brands, any positive impact? Not only Rakuten, but you also mentioned about some inflow from KDDI just before. Inflow from KDDI or how is the increased inflow from KDDI? Can you give me the breakdown?
Yes. Mainly, it's been Y!mobile. Related to Rakuten zero-yen plan, LINEMO has been contributing. So compared to the previous net additions of LINEMO, now it is increasing. So LINEMO is increasing now in terms of net additions.
As for the impact of KDDI instant, it is -- it is just a onetime impact. There was not as many churn as our regular time. So previously, the number was moving out to KDDI. However, now, due to this incident of KDDI, I think the customers once stopped and considered whether they should switch the brand or the carrier or not. So I think that was the case.
In the interest of time, one last question from the venue. The lady over there, please.
[indiscernible] from Nikkan Kogyo newspaper. I have a question related to energy price increase. The government, in order to secure electricity supply in winter, they are planning to strengthen power supply from electric power generators.
Yes, electricity price, when it goes up, because we are consuming energies to run our business, definitely, energy price increase has impact on our business. But currently, our business plan takes into account our potential energy price increase. So I don't think it will have a negative impact to us soon.
But if energy price goes up every year, which we have not anticipated yet, we will never know what will happen in the future, but at the current level of energy price, we should be okay because it's being factored in our business plan.
About reopening of power plant, radioactive power plant, as a company, we are against the idea of restarting nuclear power. But without that, maybe we may not be able to meet demand of energy. So maybe we have no choice but to allow nuclear plant to be restarted. But we want to be actively involved in the future energy discussions. In fact, we have a task team to study energy areas.
But at the moment, we don't have any answer. But if there is an opportunity, we may go into an area of energy as a part of our business.
Now we would like to take questions on Zoom from media. [Operator Instructions] There is no one from media.
Now we would like to take questions from analysts and institutional investors on Zoom. Now SMBC Nikko Securities, Mr. Kikuchi, please mute and ask questions.
This is question -- this is Kikuchi. I have 2 questions. One is about next fiscal year's growth is the most important for your company. So you are preparing for that. So in the previous presentation, you mentioned the same thing. So towards the next fiscal year, do you have any solid ideas what would be the major profit driver? Can you share if you have any solid ideas of major drivers for business contribution?
To answer your first question, first of all, our core business, which is telecommunications business, compared to the previous fiscal year, now we have been very patient to go over the price reductions impact and we have established our structure. Now also, we are facing the time for the depreciation cost reductions. JPY 50 billion of the impact of price reduction.
Now this JPY 50 billion should be offset by the cost reduction by our own efforts. So what we have to do is to grow our other business segments. Of course, we cannot keep the same pace of business growth of other businesses. So -- however, next fiscal year, we expect to see upside.
In terms of free cash flow, as for CapEx, this fiscal year is going to be at the peak. So therefore, once we complete 5G coverage establishment, which therefore we had made upfront investment, so we should be able to also reduce CapEx moving forward so that we see some contribution to free cash flow of JPY 100 billion.
In terms of revenue increase, we would like to challenge more, including IoT area, 5G area. Yes, we have implemented some measurements for growth. However, as for upside expectation, we still see the telecommunications business is our core.
And also, Yahoo! JAPAN and LINE is our expectations as well. So including Yahoo! JAPAN/LINE and others, we expect to see a better figure. I hope this answers your question.
Sorry, I missed some part. As for new business, do you have any new business areas for contribution to the business?
Yes. Regarding the new business segments, IoT device-related business is what we see positive. And as for telecommunications-related, private 5G, which is designated for enterprises, which we have implemented. And this is a new revenue source for Enterprise business segment.
As for Consumer business, as I said, we have prepared to boost our growth and we are going to -- go into the next positive phase. So we expect some upward.
The second question is about net additions, you mentioned it was going well. In terms of the churn rate, last fiscal year, there was more outflow to Rakuten. And now you have fewer outflow to Rakuten. At the end of last year, I think the similar trend is still continuing. And also acquisition costs increased. I think there are some deferred costs which incurred this fiscal year. If this fierce competition continues onwards, I think the business will be affected next fiscal year as well. So what kind of direction you're giving to the actual business operations?
Among the 3 carriers, yes, liquidation is more active, I would say, which means it's moderate right now rather than before which was locked. So the situation should not change much.
Regarding acquisition cost, this year is the toughest year. Now next year, if we -- whether we're going to go through the same situation or not, I don't think we see big differences.
And how we communicate with on the ground, now PayPay is doing well and LINE is under our group and now those 2 profitable drivers we do have. So net additions, we would like to focus on increasing even more.
Now the area that the figure -- figure by ARPU and the number of contract, and if we have more of this number, the company would grow. So this is what we are targeting. So therefore, with the sales team, we encourage them to increase the number of smartphone users. Now once we have the increased the number of users, then we also get some users from group companies. So once group companies utilize this to grow further, as total, as a group company, we have positive revenue. So this is the kind of communication we have with the sales team. Thank you.
The last question is from Mr. Masuno from Nomura Securities.
I have 2 questions. First, related to the last question. Of course, we want to see increased revenue in mobile business. How are you going to make it happen? That's my first question.
To put simply, add new ARPU, that's something that we are planning. And we are trying to figure out the best timing to implement the plan.
The second question is about PayPay. Overall, I think PayPay itself will be the strongest. And banking, securities and cars, if you run the business 100% in those areas, that should be the great strength to you. But I wonder if something like if we ask about PayPay to Z Holding, Z holding to say, ask PayPay. So I don't know how you are going to manage different businesses, including PayPay.
So card has become 100%, and we decided to create intermediate holding company together with Z Holding. And we also announced that we plan to consolidate PayPay. But why did we have Z Holdings engage that much? Because in order to increase the value of PayPay's corporate value, we wanted to have Z Holdings to have an ownership to make them feel that's their own business, not somebody else's business. That should help increase the corporate value of PayPay.
And if PayPay was listed, which is better to buy, SoftBank shares or Z Holdings share, which is better when or if PayPay was listed? That question may come. Maybe somebody said that we should buy PayPay share as opposed to buy SoftBank [ Corp. Group ] share if or when PayPay is listed. But SoftBank -- SoftBank as a company to implement social infrastructure, including AI and digital transformation capabilities.
In terms of DX, for example, finance is one segment that should drive digital transformation. And transportation and retail, we want to work together with companies in different sectors to drive digital transformation. And we have been studying how best we can work with those partners and customers. And PayPay, we position PayPay as a partner in finance business. Of course, we want to expand our business into different areas and finance business has been sorted out against that background that I just explained.
Now we would like to conclude Q&A session. This concludes the presentation of earnings results for the 3 months ended June 30, 2022, of SoftBank Corporation. Today's presentation will be available on demand on our website later today.
Once again, thank you very much for taking time out of your busy schedule to attend the earnings presentation for the 3 months ended June 30, 2022, of, SoftBank Corporation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]