LY Corp

XMUN:YOJ

Earnings Call Analysis

Strategic Growth and Cost Efficiency Plans

LY Corporation Group is focusing on profitable search and media businesses, leveraging group assets to promote cross-use among services for regrowth in FY 2024 and beyond. The group is integrating LINE and Yahoo! Japan accounts, exceeding expectations with over 19.48 million links. New initiatives like LYP Premium and LINE renewal will enhance user experiences and service utility. Improvements in search traffic and UI/UX across key domains are designed to boost search engine use and ad revenues. Fintech efforts involve consolidating overlapping businesses to improve efficiency and profitability, with the first half seeing a JPY 7.8 billion adjusted EBITDA increase. The management strategy targets a cost of capital conscious approach to recover adjusted EPS to its pre-integration level of JPY 18.7, with goals to optimize equity and profitability, forecasting recovery within 3 to 4 years.

Strategic Growth and Cross-Platform Synergy

LY Corporation Group outlines an ambitious plan revolving around leveraging assets and promoting interconnected use of services, particularly focusing on the Search and Media Businesses. The group is seeing smooth and exceeding success in linking LINE and Yahoo! JAPAN accounts, with nearly 20 million links already established. This initiative aims to expand service cross-use and bolster ad revenue, anticipating even stronger results once LINE and PayPay linking is introduced in fiscal 2024. LYP Premium, a rebranded premium plan launching at a monthly fee, is expected to draw new members and enhance group service utilization. A major LINE app renewal aims to entice users towards more diverse use of search and commerce offerings within the group, signifying a clear strategy towards integrating services and delivering a user-centric experience.

Optimizing the Search Experience and Strengthening Traffic

The group acknowledges the centrality of search in leading users to various internet domains, with Yahoo! Search serving as a key entry point. To optimize search traffic, the company has enriched the Yahoo! app with weather and sports content, witnessing a 5.6% year-on-year increase in views during Q2. Strengthening the search experience within commerce, local, and knowledge domains is also a top priority, as they represent the majority of search queries and revenue. New initiatives like shopping search ads and generative AI to enhance the search experience reflect the group's commitment to maintaining search relevance and satisfaction.

Fintech Initiatives and Drive for Efficiency

Fintech is a key focus area, with efforts to streamline overlapping businesses, such as the consolidation of the credit card and banking sectors. By integrating QR code payments and credit card payments within PayPay, LY Corporation aims to leverage synergies and bolster growth. These changes have led to an impressive adjusted EBITDA improvement of JPY 7.8 billion in the first half, significantly elevating the profitability of the financial business segment. The upcoming integration of financial services with PayPay and LINE is expected to provide seamless user experiences, potentially enhancing the growth further.

Capital Policy and Shareholder Considerations

The company emphasizes the importance of management that is mindful of the cost of capital and stock price, aiming to recover from the post-integration EPS dilution by aligning with the cost of equity. A strong recovery in adjusted EPS is foreseen, driven by profitability improvements, and capital optimization, with a goal to return to pre-integration levels in three to four years. This plan is underpinned by executive remuneration that mirrors adjusted EPS performance, thus aligning executive incentives with shareholder interests.

Advertising and Second-half Market Outlook

Despite witnessing a plateau in display ad revenues during Q2, the company is confident about a recovery in the market which may lead to growth acceleration in the latter half of the fiscal year.

Earnings Call Transcript 2024-Q2

[Operator]

Now, we would like to begin the meeting for LY Corporation's Business Results for the Second Quarter Fiscal 2023. Thank you for your participation today. In this presentation, we are going to use a presentation material that you'll find on LY Corporation's website.Today, representing LY Corporation, we have with us President and Representative Director, CEO; Mr. Takeshi Idezawa; Executive Corporate Officer, CFO, Mr. Ryosuke Sakaue; Executive Corporate Officer, Commerce Company CEO, Mr. Makoto Hide; Executive Corporate Officer, Media Company CEO, Mr. Hiroshi Kataoka; and Executive Officer, Marketing Solution Company CEO, Mr. Yuki Ikehata. First, Mr. Idezawa will explain business results for Q2 fiscal year 2023. That will be followed by a Q&A session. This session is scheduled for about 1 hour.This is also live streamed. In case you have a problem with sound or video, please try to go to a different server from the bottom of the screen.Now, let us begin the presentation.

[Takeshi Idezawa, executive]

This Idezawa from LY Corporation. Thank you very much for taking the time out of your busy schedules to join us in the business results briefing for Q2 of FY '23 ending March 2024. I will present the overview. This is our first results meeting as a company. And I would like to start with the Q2 business results.From here, I would like to follow the agenda, please. First is the consolidated business results for the entire group. I'm sorry. I skipped some of the pages. I would like to start with the FY 2023 Q2 business results topics. Revenue and adjusted EBITDA, both reached record highs for the second quarter. Media Business increased both revenue and income through a gradual recovery of advertising business and the LINE digital accounts growth of over 20%, enabled partly by rate revision. Commerce Business increased both revenue and income with Shopping business continuing to show signs of improvement and travel business recording double-digit growth. Strategic Business achieved a positive quarterly adjusted EBITDA for the first time, thanks to the selective focus on key businesses we have promoted since the beginning of previous year.With the addition of LINE and the Yahoo! JAPAN account linkage already started in October and LYP Premium starting in November, we will continue to promote cross-use between services. We will aim for further growth through new initiatives such as the renewable LINE app.From here, I will present the items on the agenda one by one. First is consolidated business results for the entire group. Both revenue and adjusted EBITDA grew by double digits year-on-year. Revenue growth was attributable to -- mainly to consolidation by PayPay and the increase of Media Business revenue. Adjusted EBITDA increased by more than 25%, thanks to cost optimization and selective focus on key business areas, especially in Strategic Business. Adjusted EBITDA margin improved to 23.4%.The following slide shows variance analysis of adjusted EBITDA. Gross profit improved year-on-year, mainly driven by LINE Media Business, as well as Travel business. Adjusted EBITDA increased year-on-year as a result of selective focus on key business areas and the fixed cost reduction beyond what was expected.This is variance analysis in operating income. Operating income grew 14% year-on-year due to growth in adjusted EBITDA, others and in the previous year, we had a Line Music conversion into a consolidated subsidiary. Therefore, others and adjustment is down year-on-year.This is various analysis in adjusted net income, equity in losses of associates and joint ventures continued to improve in Q2 due to business growth and cost optimization.As a one-time factor, the recognition of a tax benefit from the merger due to a significant decrease in corporate income tax payment resulting in an increase in adjusted net income of approximately 6.1x year-on-year.Here is the consolidated full year guidance for FY '23. The progress as of the end of Q2 is 55% vis-a-vis the adjusted EBITDA target for the entire group. The results remained around the guidance level due to the continued uncertainty in the market and the continued focus on measures to promote the cross-use, including account linkage during the second half of the year. Due to the merger, LY Corporation is applying a revised cost allocation rules starting in Q3, allocating corporate admin and HR expenses and system expenses previously booked in others and adjustments to respective business segment.Next page, please. Let me explain the results and topics of by segment. First is Media Business. In Q2, recovery of advertising sales, mainly from growth in account advertising and the consolidation of Line Music supported a year-on-year growth in revenue. As for adjusted EBITDA, an improvement in gross profit due to higher sales and a tight control of our SG&A expenses through cost optimization measures resulted in revenue growth of 11.3%. As a result, adjusted EBITDA margin was 40%.Next page is total advertising revenue for the group. Despite the slowdown of search advertising, the negative growth rate of display and advertising was reduced. In addition, due to cost optimization of the Commerce Business, shopping-related adds gradually improved after continuous decline for some time. As a result, the overall growth rate, including shopping ads, also turned positive year-on-year.Next is breakdown of search advertising revenue. About 80% to 85% of our search and revenue -- search ad revenue is from search ads of LY Corporation services, which is shown as LY Corporation's websites. While the revenue from search ads distributed to our partner sites is shown as partners' websites. Revenue from partners' websites is declining, while the revenue from LY Corporation's websites has grown year-on-year.Next page shows account advertising. The number of paid accounts has increased steadily, functional enhancements are being implemented on an ongoing basis. To enhance monetization, we are offering a membership function that allows users to create a paid membership plan on their official LINE account. In addition, using generative AI to automatically generate a response to user inquiries, we are planning to launch a new function in FY 2023. We have already completed the preparation. We will continue to enhance functionality and improve operational efficiency to steadily grow LINE Official Account.Next page shows Commerce Business performance. Revenue grew year-on-year due to improvement in e-commerce transaction value. Adjusted EBITDA grew 16.9% year-on-year as we continue to reduce sales promotion expenses in Yahoo! JAPAN, Shopping and LINE e-commerce.Next page shows e-commerce transaction value. Growth in domestic merchandise was down 0.7% year-on-year due to continued reduction of sales promotion expenses, but it is on an improving trend. The total growth rate has turned positive at 0.4%.Next page shows domestic e-commerce transaction value. Domestic shopping transaction value was down 5.5% year-on-year, while the Q-o-Q growth rate continued to improve and remained in line with expectations. Domestic service transaction value was impacted by the fading effect of reopening, while travel, it remained strong with double-digit growth.We have been asked about the synergies between ZOZO and ASKUL. So let me explain it once again. LY Corporation's user base and technical capabilities contributed to the growth of ZOZO and ASKUL. ZOZO opened a store in PayPay Mall in December 2019 and access the LINE Japan's broad customer base will help -- which helped expanding its merchandise transaction value. ASKUL's B2C business returned to profitability FY 2023, partly helped by the migration of LOHACO main store system to Yahoo! JAPAN system infrastructure. Both companies also contributed to the LY Corporation's ecosystem. For example, the average number of orders from Yahoo! JAPAN is about 3x higher for those who are the ZOZOTOWN Yahoo! JAPAN Store and about 4x higher for those who use the LOHACO Yahoo! JAPAN Store compared to general users.Next, the performance of Strategic Business. For Q2, adjusted EBITDA [ turned ] positive for the first time as a result of selectively focusing on key business areas. Revenue grew strategically Y-o-Y, mainly due to the growth of PayPay and PayPay Card. Adjusted EBITDA is improving steadily, partly due to improved profitability of PayPay. Going forward, in addition to PayPay growth, we will continue to optimize cost and reduce revenue loss-making -- review loss-making business in order to improve profitability and revenue growth.Here is the overview of PayPay business. Consolidated GMV was flat on Q-on-Q and up more than 20% year-on-year. Consolidated EBITDA was positive again in the second quarter. In addition to the increase in the number of registered users, the number of payments is also increasing steady supporting continued growth.There are PayPay Cards' major KPIs, synergies with PayPay continued to drive double-digit growth in the number of active cardholders. Transaction volume was up 31.8% year-on-year. Revolving balance also continued to expand, growing strongly by 56.4% year-on-year.Next page shows PayPay Bank's major KPIs. PayPay Bank also had a synergy with PayPay. Each KPI is steadily expanding. The number of accounts has maintained double-digit growth due to the acquisition of accounts through PayPay mini apps. Loan balance grew 30.5% year-on-year, thanks to the sales promotions of housing loans and the business loans.Next page. I'd like to talk about the initiatives in the future. In April, we presented a management policy for FY 2023. We made steady progress since then in streamlining our business, which is reflected in the income numbers, as we spoke earlier. So, what I would like to present today is the future initiatives for the regrowth of business, rather in FY 2024 and beyond. The slide illustrates the overall strategy of LY Corporation Group, we will leverage the group assets, promote cross-use among services and reinforce our businesses with a focus on highly profitable Search and Media Businesses.Today, I would like to explain some of our key initiatives with a particular focus on cross-use, search, commerce and finance. Next page. First is cross-use. Next page, please. Now, about cross-use, needless to say, we will further reinforce linkages among LINE, Yahoo! the -- Yahoo! JAPAN, PayPay and while promoting cross-use today has an important concrete measure, we will explain about account linkage LYP premium and LINE renewal. So these are the 3 that we are going to explain today. First, about -- the first point, account linkage. From October, we started linking LINE and Yahoo! JAPAN accounts. As of yesterday, November 6, the actual number of links was 19,480,000, which is progressing smoothly and exceeding expectations. By linking accounts, we can expect to expand cross-use of services and increase ad revenue. Please note that LINE and PayPay account linkage is scheduled for fiscal 2024. We will promote the use of PayPay by in LINE users.Next is the second major LYP Premium. LYP Premium is the premium membership plan by the new integrated company. It's scheduled for release on November 29. The monthly fee is JPY 508. The same as the current Yahoo! Premium. And in addition to the existing Yahoo! Premium benefits, new LINE benefits will be added. We aim to acquire new members by adding new benefits, and expand the use of LY Corporation Group services.The next point is the third major LINE renewal. Today, these are some examples we are still considering this. So there is a possibility of this to be changed. Now this is a major renewal. And with this renewal, we are preparing to further encourage users to visit various sites for them to use search and commerce more. There are 3 major changes. At the extreme left, you see the Home Tab. This has been redesigned into a portal, where news and content are gathered in order to attract more LINE users to search. This is going to be a very convenient place. On the second from the right, this is a Shopping Tab, and this is to be newly established for all commerce and shopping. This will be an easy-to-use UI that anyone can use. We will provide a purchasing experience beginning with the Messenger app. On the extreme right, we have the Place Tab, local information and mapping information are to be gathered here, and the up-to-date information about the information that customers are looking for will be provided. And so, these will allow users to use maps and reservations seamlessly. So through this major renewal, we will aim at improving the convenience of LINE and strengthening attracting users to important services within the group.Next is search. Next page, please. Search is the gateway to the Internet and the growth of search leads to growth in all domains. Now, I'd like to explain 2 important points to strengthen in order to grow search in the period ahead. The first is to strengthen search traffic. Approximately 80% of Yahoo! Search users go through Yahoo!'s Top Page. So we are taking measures about the Yahoo! Top Page through which a search comes in. Specifically, to make users want to use the Yahoo! app on a daily basis, we enriched weather and sports information. And as a result, the view on the Yahoo! app grew by 5.6% year-on-year in the second quarter.Next is the second enhancement point. The key query domains were search or commerce, local and knowledge. These 3 domains account for over 50% of search queries and over 70% of search revenue from these 3 domains. We will improve the satisfaction level of the search experience in these 3 domains. We believe this is very important.Next page, please. So specifically on the left-hand side, these are the measures that we took in the first half. Now Yahoo! Search is available from within LINE app, contributing to an increase in the number of searches in the middle -- in the local domain, we have improved the UI/UX of restaurant search to improve convenience. And in the knowledge demand, we are enriching celebrity profiles. We are working to improve the search experience for our users. In the second half, we will strengthen our commerce domain by providing shopping search ads. So on the right-hand side, we're going to provide, for the first time, the -- when commerce search is made, the ability to display products at the top of the commerce search module has a high appeal effect. So in the second half, we are scheduled to start provision of this. And in the gray on the right, there is a product information site that started in April 2023. Again, the external advertisers product information, the -- we actually started in April '23 by offering a cost per acquisition type product. So this way, we would like to increase the number of searches and also in key query domains, we would like to strengthen the -- enhance the search.Next page. And now the service and AI are a very important combination. First, to use generative AI for search, we started testing the search experience using chat-type UI in October. On the right-hand side, on Yahoo! Chiebukuro, both humans and generative AI answer questions. This is a new place to share knowledge. This is to start to be provided in November 2023.Next page. Next is commerce. For commerce, in addition to the diverse services provided by the LY Corporation Group, we are now, of course, are providing diverse services. In addition to these diverse services, as we have -- I have been explaining with newly launched LYP Premiums, integrated commerce search and with the renewal of LINE SHOPPING tab, we will provide a convenient commerce experience at great value.Lastly, I'd like to talk about fintech. Next page, please. In the financial business, in order to consolidate overlapping businesses, we have been reorganizing since last year. In the credit card business, by making PayPay Card a subsidiary of PayPay, we are accelerating generation of the synergy by integrating QR code payments and credit card payments, banking, securities, insurance and consumer loans businesses overlapped within the group. So we aim to achieve further growth by unifying in each business and increasing efficiency. As a result of this selective focus on key business areas, adjusted EBITDA improved by JPY 7.8 billion in the first half, significantly improving the profitability of the financial business.Next page, please. Next is a linkage between PayPay and other financial services and LINE. First, on the left-hand side, we have PayPay Card. It has changed its company name and started offering credit. So after the linkage transaction volume, it continues to grow by more than 20%. As for PayPay Bank, with its trade name change and by providing services from the PayPay mini apps, the number of bank accounts opened via PayPay is steadily increasing. On the right-hand side with respect to linkages with the LINE, which are planned to allow for seamless PayPay payments on the LINE app and PayPay transfer to LINE Friends, which are more convenient features for users for further growth of PayPay.Next page, please. The LINE and Yahoo! JAPAN prepared the growth cycle financial services. With the influx of users on LINE and Yahoo! JAPAN, PayPay's user base will expand, sending customers to PayPay's financial mini apps. And furthermore, we will promote cross-use between financial services. And in addition, by improving convenience of points, we will create a positive cycle of increasing user engagement, expanding the customer base for financial services as a whole.Finally, I will explain action to implement management that is conscious of cost of capital and stock price. Please take a look at the next page. An issue we need to address for our capital policy is due to the increase in the number of shares and net assets from the business integration in 2021, we need to recover from the deterioration in EPS. On the other hand, considering that interest-bearing debt is at an appropriate level, we have adopted cost of equity as the cost of capital. We estimate the cost of equity for the last year to be around 6.5% to 7.5% towards achieving a positive equity spread. First, we will recover adjusted EPS to JPY 18.7, the pre-integration level.Next page, please. We will work to recover adjusted EPS by improving profitability and optimizing equity with a clear capital allocation policy. Capital allocation involves allocating operating cash flows, excluding those from the financial business to base investments and shareholder returns. Using this surplus and the increase in cash due to the merger effect, we will flexibly allocate it to additional investments that contribute to medium- and long-term business growth and additional shareholder returns, such as share buybacks. In addition, adjusted EPS has been adopted as a valuation criteria for executive remuneration. As a result, executives are now in the same boat with our shareholders. We will work on profit improvement, which is the numerator of the adjusted EPS and the optimizing capital, which is the denominator. In the first half, we were able to make a significant recovery in adjusted EPS, mainly through defensive initiatives, such as selective focus on key business areas and cost reductions. We aim to recover adjusted EPS to pre-integration level within adjusted --- around 3 to 4 years.Next page, please. So thank you so much for listening.

[Operator]

[Operator Instructions] First, UBS Securities, Fukuyama-san.

[Kenji Fukuyama, analyst]

My name is Fukuyama from UBS. I have 2 questions about advertising. The first is about the second half domestic ad market outlook. When you look at your performance, display ad in Q2 has stopped going down. But for the second half, can you accelerate your growth? If you can, what are the drivers for the growth in the second half? This is my first question.

[Takeshi Idezawa, executive]

Could you ask the first and second question together?

[Kenji Fukuyama, analyst]

Yes. For the second question, this is about Yahoo! News. What is the procurement price for News? You have already announced the new pricing. But what is the size of the advertisement revenue related to News if you raise the price? And then what will be the positive impact on the profits of medium (sic) [ Media ] business? Do you have any simulated calculation results?

[Takeshi Idezawa, executive]

Yes. Thank you very much for the question. For the first question about the second half outlook, Ikehata, who is in charge of advertising is going to respond. And for the Yahoo! News, CFO, Sakaue, would like to respond to your question.

[Yuki Ikehata, executive]

Yes. This is Ikehata speaking. Thank you very much for your question. For the first question about the ad market outlook for the second half, I would like to respond. In this presentation, we have already indicated that LY Corporation ad business, negative profit has been reduced. Therefore, we think that the market conditions has already bottomed out. And for the second half, gradually, we will see a recovery of the market conditions. It may be a moderate recovery, but we are expecting a recovery anyways. And this trend is something that we like to take advantage of as a group and for the display ad and other ads, we would like to expand our distribution -- ad distribution mechanism so that we can capture the opportunity. So that's my answer for the first question.

[Ryosuke Sakaue, executive]

The second question was about Yahoo! News. This is Sakaue speaking. I'd like to respond. Regarding News, sales, revenue or other information, we are not disclosing any details. We are afraid that we can't make any comments on Yahoo! News.In terms of the impact on earnings or the review of the rates have not been decided yet. With the information providers, we already have discussions. And we would like to explain about our logic for the information distribution and some of the simulation with the numbers. And so, that means that we have just started the conversation with them. So we have to proceed with the conversation. Otherwise, the impact on the earnings cannot be determined yet. So at this moment, we are not sure how much impact we will have. So when we have progress on this front, we would like to communicate more information with the investors.

[Operator]

Next, from SMBC Nikko, Mr. Maeda.

[Eiji Maeda, analyst]

I would like to ask 2 questions, if I may, the now black ink of the Strategic Business as well there might be, well, red ink if there's additional necessary investment. So EPS JPY 18.7. Now, in this process, to maintain the black ink for Strategic Business or expansion, what would be the pace at which to achieve that? Or what are your thoughts?My second question, again, about achieving JPY 18.7. The traditional KPI, the adjusted EBITDA, what do you think the size would be including the improvement of the equity method revenue? Well, what are your thoughts on EBITDA? So these are my 2 questions.

[Ryosuke Sakaue, executive]

Now, Sakaue speaking. I would like to answer the 2 questions. About the Strategic Business, for Q2, well, it's black-inked, PayPay has achieved the black ink. So it was profitable. But in the second half, short term, in the second half, PayPay, we've already begun [indiscernible]. And also in March, it's going to be a buoyant business period. So we're going to increase promotion. So in the second half, again, well, there is a possibility that it will be a loss in the Strategic segment. After fiscal '24, PayPay and other businesses, we will increase our profitability and the Strategic segment after fiscal 2024, we would like to achieve a profitability. That's my answer to your first question.And about EPS, your first -- second question. Well, there is an equity method investment profit and loss. So I can't really give you an indication about the size. But on the left-hand side, you see capital allocation, the ballpark number for 3 years. As you see from there, well, the messaging is, we would like to continue revenue increase. That's -- well, it's not a declaration, but that is something that we would like to steadily achieve. But, of course, JPY 18.7 cannot be achieved without increased profitability. So that's something we would like to achieve.So when it comes to the size of EBITDA, right now, at this moment, I would like to refrain from giving comments. Every year, we would like to show you guidance for EBITDA as we try to communicate with you.

[Operator]

Next is from Goldman Sachs, Munakata-san.

[Minami Munakata, analyst]

Goldman Sachs, my name is Munakata. I have 2 questions as well. The first question is about ID linkage. Already 200 million members are gained. So this is beyond expectation you said. But from our perspective, ID linkage, you may not be pushing so much to the users. That's my impression. What kind of measures have you taken? What was the reason for the overshooting of the initial expectation? And in the second half onward, shouldn't we expect the same pace to continue? Given what is happening, if the linkage ratio is going back up to 70% or 80%, when do you think that is going to be achieved? That's the first question.And the second question is about Q2 progress, as well as the guidance. As of the end of Q1, you were overshooting the guidance. But in July to September quarter, you're overshooting, again, vis-a-vis the internal targets. Can I say that? Is that correct? You said you are maintaining the guidance. But if you have more progress going forward, simply you will have an upside, can we expect that? Or in the second half, there are important events such as the premium membership renewal. Therefore, you would like to increase the sales promotion in the second quarter. So we shouldn't expect overshooting of the guidance.

[Takeshi Idezawa, executive]

Thank you very much for the question. Regarding ID linkage, Munakata-san, you are right. We don't have a special promotion. Organically, we were able to increase the members. And nearly 20 million members, 19.58 million members were achieved. We don't think that this pace will continue going forward. In parallel with the consent from the LINE members, depending on that number, this LINE linkage number will be determined. Therefore, the organic addition maybe another several million members we can add to what we already have. And sales promotion will be starting from now, when the LYP Premium will start at the end of November. After that, we will be accelerating the full-fledged promotion expenses. Therefore, how much users will consent and decide to join us that that is something we want to see. We are not disclosing any specific numbers yet.So regarding guidance, Sakaue-san, could you respond?

[Ryosuke Sakaue, executive]

Yes. I would like to respond on guidance. In the first half, compared with the company's guidance or plan, the profit or earnings was greater -- higher. As was mentioned in the presentation, in the second half, at the end of this month, we are starting LYP Premium. Therefore, we are ingesting some sales promotions, and we will like to determine how much we are doing so. And for the ad markets, there are still uncertainties. So because of those 2 factors, at this point in time, we have decided not to revise the guidance.And another factor is, LYP Premium acquisition, whether we want -- rather than expanding the number in -- by using inefficient investment, we want to focus on the efficiency. Therefore, one possibility is that, highly efficient promotion plans if we can't find any and then we may have upside on earnings. But our priority is LYP Premium because this is a stock-type earnings source for the future. Therefore, we would like to secure a reasonable level of business there. And maybe in Q3, you will see more visibility into the initial dynamics. Therefore, in the next earnings announcement, we would like to make a decision probably.

[Operator]

Next from Citigroup Securities, Tsuruo-san.

[Mitsunobu Tsuruo, analyst]

I have 2 questions. Question one. This is a follow-up question from the previous question. Now, EBITDA, 55% progress rate. Now, the plan at the beginning of the year was 50%. If that is the case, then in the second half or the second quarter cost, top line growth or segment, please give us a breakdown of the number?And the second question, search-related question. Now, the linkage of the 2 accounts have generated various measures and how can the long-term decline be arrested, for example, if this is a [ mountain climbing ], how high have you achieved in terms of the level? Now, what's your analysis of the background of the share drop? The reason why I ask this question is, as the [indiscernible] commission say, the competition were [ obstructing ] actions or short level or mobile issue. There are a variety of issues, I think. So how are you going to -- how is the management looking at these issues and have started taking measures? I would like to explain I understand that in a dynamic question.

[Ryosuke Sakaue, executive]

To your first question, Sakaue speaking, I would like to answer the question. First, to break it down by segment. Now, Media segment. EBITDA -- from the prospective EBITDA, the progress rate is 48% -- about 48%. In the second half, well, display -- well, it's been coming back at [indiscernible], when it comes to search, as shown on the slide, partner website on a continuous basis. It will be a 30% decline. I think this kind of a situation will continue. And as for the search ad, last year, around the same time this year, well, UI/UX major -- well, the change will come to -- well some -- the effect will be come to an end. So as for Media, it's on trend, the ad revenue result, as shown on the guidance, the first half of the 2 digit is something we'd like to arrive at.As for commerce, EBITDA progress rate, it's about 52%. So it's on the plus side. For this, as it's been coming as expected. So in the second half, the Yahoo! Shopping, there's going to be a shopping period and also LYP Premium will start. And because of this, the GMV of Yahoo! Shopping is something we would like to bring to a positive in Q3 and Q4. Well, we would like to see a recovery to positive. So for commerce, the EBITDA in the breakdown, this will arrive at what we expect as planned. So in the internal plan, we are on the upside or strategy and the other adjustments have been contemplated and more than expected, the profit is being generated from the plan of the company, it's a positive point. And so, that's about the first half. So the progress has been good in the first half.As for the second half, now PayPay promotion, how aggressively we're going to do is, it will depend on it, but throughout the year -- well, compared with our expectation at the beginning of the year, the possibility of arriving at a positive might be better possibility. But LYP Premium, the membership acquisition will be the foundation for our future. So we'll do allocation and consider this issue. That's my answer to your first question.About search, Idezawa-san will answer that question.

[Takeshi Idezawa, executive]

To answer your second question, what is the structure and how far we have come? Now, as you pointed out, structural issues are there, and we are where we are because of that. For example, the engine -- well, we have been provided with that. And also the things are changing drastically. And so, OS and also the hardware impact is getting greater. And also, the situation is changing and also generative AI is coming along. So there's a complex or a pretty big change is happening right now. And from that perspective, how far have we come? Well, at long last, we are now taking -- we can take positive measures at this moment. So as I explained before, well, the areas where we can -- will differentiate on the run, we would like to differentiate ourselves certainly. And also, we would like to, well, establish a partnership and also generative AI is something -- of course, there are a lot of choices. So how to work on it is another factor for further growth.

[Mitsunobu Tsuruo, analyst]

A follow-up question to the first question. In the first half, the cost reduction has been accelerating. But in the second half, what is the progress of cost reduction?

[Ryosuke Sakaue, executive]

Right. In the second half, just like the first half, we are proceeding at around the same pace. To add in the first half, as shown on the slide, the promotion -- better efficiency was positive, both in Q1 and Q2. Well, after Q3, again, there's going to be a shopping period -- buoyant shopping period. And so, the -- for the sales promotion, the efficiency for the fixed cost might be weakened. But, of course, the outsourcing will continue JPY 2 billion, JPY 3 billion per quarter, that kind of reduction will continue on a Y-o-Y basis.

[Operator]

Next, from Okasan Securities, Okumura-san.

[Yusuke Okumura, analyst]

From Okasan, my name is Okumura. I have 2 points. First, ID linkage impact from this already linked users compared with the conventional users, the targeting accuracy is higher or is CTR better? Any positive impact on KPIs? You were talking about 5% to 10% efficiency -- 5% to 15% efficiency increase in advertising. Has it changed? And when do you think you can hit that target or benchmark in terms of the effectiveness of advertisement?Second question is about capital allocation. You explained it in the presentation. According to your explanation, buyback is one of the choices or options. So what is your ideas about buyback? EPS, if you are putting it back to FY '19 level, maybe with the earnings growth, is it difficult? Is that why you included as an option? Or is there any option to do buyback every year little by little? How about the floating shares? Maybe because of your situation, it's difficult to buy from the market. How about A Holdings? Is it -- are you thinking about them in the buyback program? That's my second question.

[Takeshi Idezawa, executive]

Yes. For the first question, Ikehata and Sakaue.

[Yuki Ikehata, executive]

Yes, I'm going to ask -- I'll respond to the second question. This is Ikehata. Thank you for the question. Regarding ID linkage, expected impact from that was the question. And in the presentation, we mentioned that when there is progress in ID linkage for Yahoo! Media and LINE media, user activation will increase over to Media. And with the ID linkage, the user resolution will increase and distribution accuracy of ads will increase. So that means increasing advertising revenues we should have in the end. And that's what we said in the presentation.And then what is the time line for realizing such an impact? If that's the question? For the short term, for FY '23, are we expecting any impact in accuracy of advertising from ID linkage? No, we are not. So through the cross-use of users where we cultivate more and more. And then we will start the data utilization and the improvement of the advertising targeting accuracy at the same time. So that means in the medium term, we would like to realize those effects and the expansion of the business.You said that at the beginning, we were thinking about 10% effect or impact, and that was your comment or question. And this benchmark or level is unchanged. And we think that this is a kind of initiative that can achieve the level that high.

[Takeshi Idezawa, executive]

The second question regarding capital allocation. Sakaue would like to respond.

[Ryosuke Sakaue, executive]

Well, in terms of the EPS recovery, basically, we are going to achieve it through the earnings growth. That's the basic stance. And secondly, our stance by capital allocation is something that we like to respect for the 3-year term or so for the cash inflow and cash outflow, we would like to keep it even. And the priority is M&A and other investments into the future. And so, that the [ IRI ] or as we have more and more profitability, that will be the priority. When there is an excess cash and then we would like to reinvest the cash into our own business or conduct share buyback.In terms of the floating share ratio, you are right in mentioning that. And from -- we don't have to buy necessarily from the parent company. But from the parent company, more than prorated ratio, we have to buy. Otherwise, the floating share ratio will deteriorate if you think about the numerator and the denominator. So regarding that, with A Holdings, we would like to continue to have discussions, including the timing of the share buyback and conduct the program.

[Operator]

Next, from Mizuho Securities, Kishimoto-san.

[Akitomo Kishimoto, analyst]

Kishimoto from Mizuho Securities. I have 1 major question about Media Business. What is your outlook? Well, Page 12 of the material, well, mix will change. The partners' website proportion is coming down, and that may be contributing to the reduction of the profitability. If this trend continues, then margin for the second half will increase. Is this an expectation?And also about ID linkage, the targeting precision will improve, and that will push up the profitability. Is this a correct understanding? So introducing these new systems, the advanced investment will be necessary. So the targeting -- well, the precision will improve. So what is the outlook of the margin going forward? This is my -- the single question.

[Ryosuke Sakaue, executive]

Well, my name is Sakaue speaking. Well, as you say, right, the search ad, the low-margin partner websites will reduce and the LY Corporation's website will increase. And also as Ikehata-san, the unit price will increase, and that wishes up the profitability. And so, your understanding is correct. However, the margin, well, it's large. So to improve just 1% or 2% is enormously difficult. So we'd like to make steady efforts in trying to achieve that. And so far, well, 40% is something that we'd like to aim toward but new -- the allocation rule with integration, the overall cost, the allocation rule from the second half will be adopted. And so, the Media segment side, the other adjustment cost, that's negative for profitability. So the way we show you the margin, we would like to strategize that and explain that in the second half.

[Operator]

[Operator Instructions] From Goldman Sachs, Munakata-san.

[Minami Munakata, analyst]

This is the second time. My name is Munakata from Goldman Sachs. I have just 1 question. You disclosed today the renewal of LINE app. I have a question about it. Specifically, when is it that you are changing the LINE app? Maybe you are not changing all at once. What is the time line for the changes upcoming? And I don't -- you said that this is not going to be the first product. But at a glance, it seems that you have less new staffs, but for news ad revenue news, are there any negative impact anticipated from this? That's all.

[Takeshi Idezawa, executive]

Thank you for your question. The timing for renewal is within FY 2024. That's what we can say. The reason is as follows: as you pointed out, the change is going to be a complex change. And so, from users, they will see a change in the displays that they are familiar with. Therefore, we would like to take necessary steps while doing various tests with the users. So FY 2024 from the beginning of the fiscal year, we would like to start the testing and gradually change and complete the implementation of changes around the end of FY '24. So when we have made more concrete plans, and then we would like to let you know.Another point is about the impact on revenue. Well, that is another reason why we are trying to take cautious steps implementing various tests. At the moment, in total, the effectiveness on revenue should be unchanged or even improve. So that's how we would like to think about the balance with the user acceptance. Therefore, from different aspects, we would like to think about the changes and proceed with the change.

[Operator]

Next, MST Financial Services Pty Ltd, Mr. David Gibson.

[David Gibson, analyst]

Just 1 simple question. Do you expect in the next 12 months for PayPay to your IPO? And similarly, do you expect WEBTOON by NAVER to IPO, which would actually both would realize significant value for LY Corp. and shareholders?

[Takeshi Idezawa, executive]

Thank you for the question. Yes, I would like to answer those questions. Now, with respect to PayPay as before, well, IPO is one choice that we are thinking of. Specifically, have we decided anything? No. That is the current situation.And about WEBTOON, well, NAVER is the parent company. So I really cannot decide it. So we would like to have a good conversation with NAVER going forward and study about this. So, well, the intention of the NAVER is something we would like to confirm. To the extent I know specifically is, well, any specific -- well, no specific plan about IPO has been decided.

[Operator]

Thank you. It seems that there are no further questions. So we would like to close the Q&A session. Lastly, Mr. Idezawa would like to say a few words in closing.

[Takeshi Idezawa, executive]

Yes. Thank you very much for participating in our earnings results meeting despite your busy schedule. This is the first analyst meeting as LY Corporation. In terms of progress, we think that we have made a good progress, but we don't want to relax yet. And we would like to continue to become a lean structure and continue to make efforts and pursue further growth strategy because we have finally been integrated. Therefore, we would like to make this as a trigger in increasing the top line, as well as the number of users. And we would appreciate your continued guidance. Thank you very much.

[Operator]

This concludes the business results meeting for Q2 of FY 2023 of LY Corporation. Thank you very much for joining us today.[Statements in English on this transcript were spoken by an interpreter present on the live call.]