GMO Internet Inc

TSE:9449

Earnings Call Transcript 2021-Q2

[Masatoshi Kumagai, executive]

Hello, everyone. Thank you very much for your time today. I am Masatoshi Kumagai, Group CEO of GMO Internet. As our group's fiscal year ends in December, let me share the financial results for the second quarter of fiscal 2021, April to June period.

These are the agenda for today. First, I would like to explain the executive summary for our earnings of the second quarter of fiscal 2021, April to June period.

Even compared to the strong performance in the same period last fiscal year, we achieved increase in both sales and profits. Ensuing the record-high quarterly performance in January to March period, we generated high level of operating profit exceeding JPY 10 billion. It is thanks to the 3 points of continuing strong performance of Internet Infrastructure segment, V-shaped improvements of Online Advertisement & Media segment and Cryptoassets segment growing substantially to become the third pillar of business.

Please take a look at the next slide. This is the summary of segment performances. Signs on the right side indicate the overall evaluation of each segment. These scores of double circle, a single circle, triangle and X are my subjective views. So the overall evaluation for each segment is based on my subjective views. I have the evaluations of the first quarter and the second quarter next to each other.

Internet Infrastructure continues with double circle or excellent. Nesting demand, online consumption became fixed as new trends and our solid customer base became even more solidified. I renewed my confidence that we were right in continuing with the Internet Infrastructure business for the past 26 years.

Online Advertisement & Media changed from a single circle, meaning good, to double circle, meaning excellent. Business conditions are making V-shaped recovery. In addition to achievements through continuous internal initiatives such as technology shifts, replacement of products, renewal of our sales approaches and cost reductions, we were also able to capture strong advertisement demand in the quarter from customers who were not impacted much by COVID-19.

Internet Finance evaluation changed from double circle to a single circle. Both sales and profits declined compared to the booming market last year due to the impact of COVID-19. And the signs of X, double circle, arrow and a single circle means that the current market environment is X, meaning poor, however, our initiatives in the business are progressing well, and thus the double circle or excellent. As a result, the overall evaluation for the segment is a single circle or good. In order to make our FX domestic market share an overwhelming #1, we announced YJFX joining our group.

Next, Cryptoassets is double circle or excellent. While we invested proactively in marketing such as commercials for GMO Coin, Cryptoassets segment made contributions to our earnings as the third pillar of business after Internet Infrastructure and Internet Finance.

Next slide. This is a waterfall chart, an analysis of year-on-year changes in net sales and operating profits by segment. The left side shows the net sales; the right side, the operating profit. Consolidated net sales grew JPY 6.4 billion, and operating profits grew JPY 2 billion. You will notice the remarkable growth of Cryptoassets, which grew to be the third pillar of business. Internet Infrastructure continued to perform strongly, and online advertisement that suffered last year due to the pandemic recovered substantially. On the other hand, Internet Finance, which was booming in the previous year, was weak. Other than that, we sold shares in VC.

Now the next slide. I would like to explain about the shareholder returns. As you see at the top of the slide, the basic policy for our shareholder returns is total payout ratio of 50%. Out of this, dividends will account for 33% or more, and the remaining 17% will be appropriated to share buyback. In the middle, we have the dividends per share for each quarter. The dividends for the second quarter will be JPY 12.2, shown in the red circle here, which is an increase by JPY 6 year-on-year. This is a very big increase. At the bottom, you will see our share buyback status. We are planning to acquire a total of JPY 5.63 billion of our own shares this fiscal year. But as of the end of June, there has been no progress.

We have the financial results now from hereon. I would now like to hand over to Mr. Masashi Yasuda, our Group CFO.

[Masashi Yasuda, executive]

Hello. I am Yasuda. I would like to explain from here.

Please take a look at the dark blue part at the bottom of the graph. On top of the continued growth trend of the Internet Infrastructure's recurring earnings revenue base, shown at the bottom, contribution from Cryptoassets, shown in green, is expanding.

This slide shows the quarterly trend of operating profits by segment. Thanks to the contributions coming from the Cryptoassets segment that has grown to become the third pillar of business, we are posting operating profit of JPY 10 billion, again following the last quarter.

Now I would like to talk about the group overview. These are the 10 listed companies in our group with their market cap and our equity share. As shown at the very bottom, the total market cap of the group is approximately JPY 1.6 trillion, and the equities we own exceeds JPY 500 billion.

This is an overview of our 4 business segments. The size of the areas of each business represents the sales composition. Our customer base, including the number of Internet infrastructure contracts, the number of accounts for FX, securities and crypto assets reached a total of 13.55 million customers, demonstrating our strong customer revenue base.

Next is about our partners. We call our employees and staff our partners. And this graph shows the status. The number of partners as of the end of June reached 6,554. Out of this, 46.2% are engineers and creators who possess technical capabilities to create. This ratio has increased in the latest quarter as a new company has joined our group. We have a target to increase this ratio to over 50%. In order to enhance our monozukuri capabilities or capabilities to create, we feel the need to increase this ratio. We are thus bolstering our efforts to have as many engineers and creators as possible join our group.

Next is Internet Infrastructure segment. These are the business contents we have in the Internet Infrastructure segment. It is a collection of #1 services made up of domain, hosting and cloud, e-signature, ASP cart, security, payment and provider. These are all indispensable, must-have services that will stay for the Internet and the society.

This is a slide on Internet Infrastructure segment's quarterly net sales by segment. Since the second quarter of last fiscal year, in addition to the strong nesting demand and online consumption, we continue to grow, leveraging our strength as a collection of #1 services. Sales of next-generation payment platform terminal stera, offered by GMO Financial Gate, performed strongly.

This slide shows the quarterly operating profits. Just like for net sales, we continue to grow our profits. We renewed our record-high profits while making investments in GMO Sign and others.

This slide shows the number of Internet Infrastructure contracts. It reached 11.72 million. What is showing an especially strong growth is e-contract service GMO Sign. Even after the Goodbye Seal Impression campaign our group launched from the end of June last year, the so-called network effect is still sustained, and we continue to see expansion of our customer base. As a result, the number of accounts as of the end of June increased to 220,000, which is 25x more year-on-year, and we are positioned the #1 in Japan.

This is a slide on number of contract transmissions. The number of contract transmissions means the number of electronic contracts sent to the counterparty and is the most important KPI, representing the activity levels of the customers. As you can see, it is growing well year-on-year as well as quarter-on-quarter. The ongoing demonstration experience -- experiments with municipalities are progressing smoothly also. We are aiming to achieve the #1 here as well in Japan.

Also, we released Japan's first My Number jitsuin or officially registered seal. We released it in July. Utilizing electronic contract, GMO Sign's smartphone app and My Number card, individuals will be able to give a highly reliable electronic signature on par with officially registered seal with ease and speed. Going forward, we are going to promote its use aggressively to companies and municipalities in order to penetrate My Number jitsuin.

Lastly, I would like to show you the changes in the transaction volume of the e-commerce solutions business. In addition to the EC platforms for Color Me Shop! and MakeShop, this business consists of new types of EC, such as minne and SUZURI. The quarterly transaction volume is close to JPY 120 billion. This is a slight increase compared to the previous year when the volume surged due to COVID-19, where the volume continues to be at a high level. About 40% of the total transaction is settled by GMO Payment Gateway. Excluding bank transfers and other payments, most of the transactions that settled through payment agency services like credit cards utilizes the group services, and we believe that the number shows the strong synergy between our EC solutions and payment businesses.

Next is Online Advertising & Media business. The chart shows the trend and the breakdown of the quarterly net sales, revenue was up 18.6% year-over-year. In both advertising and media, we were able to capture the advertising demand of our customers.

This chart shows the trend of quarterly operating income. As you can see, hitting the bottom in the same period last year, V-shaped recovery was achieved while we proceeded with reinforcement and development of owned media and products by ways of advanced investment, we posted our first quarterly loss year-over-year due to the impact of COVID that caused businesses to refrain from placing advertisements.

Against this backdrop, we further strengthened our internal initiatives such as replacement of commercial products, renewal of sales methods and cost reduction. Furthermore, in addition to our effort in focusing on customers who are less susceptible to the impact of COVID, the business environment, including advertising demand, has started to improve recently. This is the reason behind the upgrade from single circle to double circle or from good to excellent. In the second half, we plan to strengthen investments mainly in the media side as planned from the beginning of the fiscal year.

Next is Internet Finance business. The chart shows the quarterly trend. Sales and profits were down year-over-year because of the briskness enjoyed in the previous year due to COVID as well as the market slowdown due to recent decline in volatility. However, we are confident in the steady progress made by the business.

This page shows the trend of FX trading volume and domestic market share. Trading volume has become relatively calmer due to decline in volatility. On the other hand, we maintained the #1 share in the domestic FX market in the quarter.

Next is the Cryptoasset business. Cryptoasset business segment is consisted of 3 businesses. They are mining business, exchange business led by GMO Coin and payment business that issues stablecoin. The chart shows the trend of quarterly net sales and its breakdown. Compared to the first quarter that enjoyed the boom, volatility was lower. However, exchange business, pale blue bar at the bottom, and mining, blue bar at the top, remained at a high level and contributed to significant growth of 573% year-over-year.

The chart shows the quarterly operating income. GMO Coin remained active in marketing efforts, increasing the advertising spend. However, the business generated large amount of profit by absorbing the increase in advertising spend. Although it may not be the same level as the second quarter, GMO Coin will continue to invest in marketing to further raise the profile.

Let us cover the most recent topics in the last part of this presentation. The page summarizes our initiatives against COVID-19 pandemic. But first and foremost, I would like to express my respect and gratitude once again to those who are at the forefront of our battle against the pandemic, including those involved in the medical and other essential areas. Thank you very much.

Our group continued to further our efforts to protect the lives and safety of our partners. On January 27 last year, we became the first company in Japan to start work from home. And in response to the government's announcement on June 1 of our guideline for workplace vaccination, on June 2, the following day, we announced the group's policy for implementing workplace vaccinations and began accepting the applications on June 21. On July 16, we decided to close the new application period in order to provide the vaccine to all the people in Japan who are waiting to be vaccinated at their workplace.

During this period, we were able to vaccinate nearly 18,000 people in total, including our group partners, their families and loved ones and our business partners. The vaccination rate of our group partners is 86%, and the total cost was about JPY 120 million. We hope that many of you will be able to return to your normal lives as soon as possible.

With a strong sense of gratitude to all those concerned, we demonstrated the strength of the GMO Internet Group in terms of organization, technology and hospitality at the workplace vaccination. We developed our own reservation system for vaccination and a reception system using QR codes. And as a result, the waiting time was almost 0. We have also prepared novelty goods with a letter from Kumagai as souvenirs for our clients, partners, families and other important people who came to our company for vaccination.

The next topic is GMO Aozora Net Bank. On July 6, we held a business strategy briefing and announced our future vision. Now in its fourth year, GMO Aozora Net Bank will further strengthen services designed for corporate customers as #1 technology bank. Here, we show the trend of the number of companies that have signed up for the API. The bank API is a mechanism and specification for calling up bank functions, such as balance inquiries and transfers from our site. We provide the banking API itself free of charge, but we consider it an important KPI that will lead to future transfers. Our wish is to contribute to the acceleration of DX by having businesses incorporate the banking functions. We will continue to blast forward as the API top runner. Please look forward to the future development.

This shows the number of corporate accounts as a result of our efforts. The number of accounts has increased by 2.3x year-over-year. And the number of corporate customers, especially small and start-up companies, has been expanding. We believe that the reasons for our success are a less expensive fee structure supported by cost competitiveness as well as many and various support programs for companies in their early days. We will continue to grow to become the #1 bank for small and start-up businesses.

Now this is the final part. We would like to share information about our new promising businesses. So the first is OMAKASE that joined our group as announced back in May of this year. OMAKASE provides the #1 reservation management service that is supported by owners of well-sought-after restaurants with a mission of enabling chefs to devote themselves more and more to cooking. As a result, OMAKASE have become the #1 media that attracts epicure. Going forward, we will further strengthen our infrastructure business, especially through synergy with payment and EC support. Please keep your eyes on the business.

Lastly, I would like to talk about NFT marketplace Adam by GMO. We are now in the final stages of development to make Adam by GMO the #1 NFT marketplace by far that has an ease of use by anyone. Please look forward to the start of the business at the end of August.

This is the end of our presentation. Thank you for watching. This concludes the second quarter business results presentation. Internet for everyone. Thank you very much.

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