Q2 2020 DeNA Co Ltd Earnings Presentation
Tokyo Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of DeNA Co Ltd earnings conference call or presentation Wednesday, November 6, 2019 at 7:00:00am GMT
TEXT version of Transcript
* Isao Moriyasu
DeNA Co., Ltd. - CEO, President, Exec. Officer, Manager of IP Platform Business & Representative Director
Isao Moriyasu, DeNA Co., Ltd. - CEO, President, Exec. Officer, Manager of IP Platform Business & Representative Director 
[Interpreted] Hello, everyone. I would now like to start the DeNA Q2 fiscal year 2019 Operating Results briefing. First, I'd like to discuss the financial results summary.
Revenue was JPY 33.9 billion for Q2, which is slightly down on a year-on-year basis. As mentioned last quarter, processing settlement is no longer consolidated into our group performance. If we exclude its performance, revenue is up on a year-on-year basis overall.
IFRS operating profit was JPY 2.7 billion, which is down on a year-on-year basis. I'll discuss the factors behind this in our individual businesses later. Profit for the period attributable to owners of the parent was JPY 2.4 billion.
Next is the financial results summary by segment. I would like to discuss individual business performance here.
First, the core Game Business. At the beginning of the fiscal year, I talked about how many of our existing titles are several years old, and while there are some differences between each of these titles. In general, we were expecting them to all continue a gradual decline in revenue and operating profit. This is exactly what we have seen. Meanwhile, we also had new games planned for launch this fiscal year. Through the launch of new titles, we would grow our operating profit. That was the plan we discussed.
In Q2, we launched new titles, but the launches were during the quarter, and we have not seen major contribution yet. There was some revenue contribution. So revenue increased on a year-on-year basis, but we have not yet seen profit contribution.
Next, I will discuss the Sports Business. On a quarterly basis, our performance is impacted by the number of games held during the period and other factors. But in general, revenue and operating profit grew. So this business had solid performance.
For our New Businesses, including automotive, health care and other new businesses. We are in the investment phase.
Last fiscal year, we had about a JPY 7 billion to JPY 8 billion operating loss in the previous new businesses and other segments. And this fiscal year, we expect approximately JPY 10 billion. Within that investment, the spending on automotive, in particular, has been growing, especially for MOV.
MOV is our taxi dispatch app. Competition in the taxi dispatch app space has become more intense, more quickly than we had expected at the start of the fiscal year. So we are spending more on items, including promotional costs than we originally planned. Going forward, we will continue to carefully watch the competitive landscape for MOV and engage in agile investment for this business.
Next is IFRS cost and expense breakdown. We have our cost of sales and SG&A broken down in the chart.
Now I would like to discuss each business individually. This slide shows our virtual currency consumption and Game segment operating profit, which are roughly flat. During Q2, we had partial contribution from new titles launched during the quarter. Going forward into Q3, there are 2 factors to consider: one, how the new titles launched in Q2 will perform; and two, the decline in the existing titles, as I mentioned earlier.
I believe that we will be able to grow virtual currency consumption with the contribution from the newly launched titles. However, if the level of the virtual currency consumption from these titles does not meet our expectations, the contribution to operating profit will be limited. So the degree of contribution from new titles will be important for our Q3 and Q4 performance.
Now I would like to look at some individual titles. The first new title I would like to discuss is Mario Kart Tour, a Nintendo partnership title. This game was delayed from the original plan to launch in fiscal year 2018. It launched on September 25 in 163 regions and countries. It has been about 1 month since the launch. Downloads and the number of players are at the highest we have seen in a Nintendo partnership title. So this is a good start.
We have heard from many people that one of the key things they enjoy about Mario Kart is playing with friends and family around the world. And given that, going forward, we are working on a new multiplayer mode for the game. We believe this will be an important update to the game. There is a beta test planned for December. We believe this will drive activity and encourage people to keep playing over the long term.
Next, I want to talk about Pokémon Masters, which launched on August 29. In this game, you team up with distinct pairs made up of a trainer and their partner Pokémon, train them and go to battle. Users were excited about the game concept, and we had over 10 million downloads in 4 days. So we had a good number of people decide to try playing the game. But on the operations side, unfortunately, there were bugs and other issues, not enough content and the level design needed some adjustments. And all these factors would have made it difficult for many players to enjoy the game over the long term.
We're aware of these issues, and we have communicated with users through producer letters about the changes we plan to make in the game. We have announced our plan through the end of the fiscal year. Excitement about this game has come down somewhat, but we continue to think there is great potential and users still have high expectations. So we plan to drive excitement back up through our changes.
Next, let's go to Slide 7 for some other title highlights. Megido 72, which we have shown in the earnings briefing before, won an award for excellence at the Japan Game Awards. 10 titles are chosen every year, and they are usually console games. This year, Megido 72 was the only smartphone title selected. For us, this shows that the industry has recognized that our game is at a console game level of quality.
Previously, I mentioned that we were working on marketing efforts to efficiently bring in new users, and it didn't progress as we expected. This game is popular among the type of dedicated fans who enjoy a console-style RPG experience. So we have decided to change course on our marketing plan and return to mainly targeting mid-core fans. The second anniversary is coming up soon. So we will have events and initiatives to celebrate and use our marketing initiatives to return this title to growth.
For Slam Dunk, some time has passed since we originally announced this game for China. We had been waiting to receive Chinese government approval. And now we have it, so we can go ahead with getting ready to launch the game, including running a closed beta test. The Slam Dunk IP has many core fans in China. And this game is a basketball game played as 3-on-3 real-time battle. We're excited about the potential and want to turn this into a hit.
Now I would like to talk about Sports. We're seeing good growth in attendance, assisted by the additional stadium seating, which you can see on the right. For the business overall, revenue is growing steadily. We only show the results for the first half year, but given that we made it to the Climax series, we expect that for the full fiscal year, this business will have increased revenue and operating profit versus last fiscal year.
Since we have more seats newly available, we have achieved record-high attendance. But in addition, we continue to maintain attendance levels at close to capacity, going beyond our great performance from last year, where we were already at a full stadium.
We are working on expanding the left side stands in the stadium for next fiscal year. So we expect to have 2,000 to 3,000 more seats available next season. This additional capacity will give us additional scope for growth. Also through the stadium expansion, we have been planning initiatives to create an appealing community ballpark. We want to encourage both baseball fans and those who may not be interested in baseball to come to our stadium and enjoy sports, communication or other entertainment.
Now I would like to touch on MOV. I mentioned that competition is heating up in this space. We feel that our offering has advantages over the competition, both in terms of our system and our service, so we are investing in going after share.
A unique characteristic of this type of service is that no matter how easy the app is to use, the user needs to see the core value. In this case, if a user hails a Taxi, a Taxi has to come to them, and it needs to come quickly. This is the core product value. This means that we need to have a certain number of vehicles already on our platform in order to convey the value of our service, so we are working on getting share in each individual region.
First, in Kanagawa, we are already the dominant player, so we're now working on the business model, essentially how we will get revenue, making sure the unit economics work and validating it.
For Tokyo, we launched at the end of 2018, and we have steadily added taxi operators to our platform, and we expect to have a good number of vehicles on our platform. We launched in Kyoto and Osaka in July 2019, the beginning of Q2. Around this time, competition was fierce in the area, so we invested in promotions, such as coupons. And that was a contributor to the quarter-over-quarter growth in dispatches service will be launching soon in Kobe, and we're going to do our best to beat the competition in this area.
Now I would like to talk about social live streaming services. In this space, we have 2 services, Showroom and Pococha. This time, I would like to talk about Pococha specifically. Pococha differs from Showroom in that Pococha is a mobile-only service and optimized for smartphones. Also, the live streamers on Pococha are amateurs. So everyday people are the ones using the service to communicate with others. As you can see from the graph, around summer last year, we struggled somewhat. And our compensation structure wasn't working well for the live streamers. But from the end of 2018, the gear started turning, leading to growth in live streamers, listeners, communication happening in the service, and all of this led to higher revenue. This positive cycle is now established. Pococha is seeing high-growth now, and we expect that to continue going forward.
This concludes my presentation. Thank you.
[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]