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Edited Transcript of 3938.T earnings conference call or presentation 24-Jul-19 8:00am GMT

Q2 2019 Line Corp Earnings Call

SHINJUKU-KU Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Line Corp earnings conference call or presentation Wednesday, July 24, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* In-Joon Hwang

LINE Corporation - CFO & Director

* Jun Masuda

LINE Corporation - Chief Strategy & Marketing Officer and Director

* Satoshi Yano

LINE Corporation - Head of Marketing Communication Department

* Takeshi Idezawa

LINE Corporation - President, CEO & Representative Director

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Conference Call Participants

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* Eiji A. Maeda

SMBC Nikko Securities Inc., Research Division - Senior Analyst

* Haruka Mori

JP Morgan Chase & Co, Research Division - Analyst

* Keiichi Yoneshima

Crédit Suisse AG, Research Division - Analyst

* Masaru Sugiyama

Goldman Sachs Group Inc., Research Division - Associate

* Yoshitaka Nagao

Nomura Securities Co. Ltd., Research Division - Analyst

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Presentation

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Satoshi Yano, LINE Corporation - Head of Marketing Communication Department [1]

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Thank you for joining LINE Corporation's Fiscal Year 2019 Second Quarter Earnings Call. This is Satoshi Yano from LINE IR. Today, we have CEO, Idezawa; CFO, Hwang; and CSMO, Masuda joining the call. The presentation material is available on LINE Corporation's IR website. We have scheduled 1 hour for this call. Our CEO will present fiscal year 2019 second quarter results and business update, followed by CFO who will explain the financials. Please note the presentation will be conducted in simultaneous translation and the Q&A session in consecutive translation. We will be accepting questions for the Q&A session via e-mail today. If you have a question, please e-mail to irqa@linecorp.com. We will accept your questions any time during this call. However, we generally limit to 2 questions per person. And the questions will be read in the order received. Please note that we will read your questions as written. This call will be recorded and available on the IR website.

I would now like to hand over to CEO, Idezawa for his presentation.

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [2]

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This is CEO, Idezawa. Thank you for joining LINE Corporation's Fiscal Year 2019 Second Quarter Earnings Announcement Call. I would like to start with an overview of our second quarter results and explain our future business strategies. MAU for the line messenger this quarter was 164 million in our 4 key markets. In Japan, MAU was 81 million, an increase of 5 million in 1 year. Further, the DAU to MAU ratio that measures engagement, maintained a very high level at 86% with DAU ultimately exceeding 70 million. In our core business, we began full scale ad delivery on the smart channel achieving 25% growth year-on-year for display ads.

In our strategic business, several major promotional campaigns for our key business LINE Pay proved successful resulting in a significant increase in user numbers. One of our key KPI for this year as Global MAU climb to 7.41 million. Engagement metrics such as retention rate and the number of money transfers have also been extremely promising. More details will be given later.

Additionally, we passed a resolution on the issuing of stock options, a topic which was also outlined in the last call. So CFO, Hwang, will provide more information afterwards.

Next is our overall revenue. Consolidated revenue for this quarter was JPY 55.4 billion, a year-on-year increase of 9.5%. Ad revenue accounted for 55% of our overall sales and 74% of sales in Japan.

Next, I will explain our revenue and operating income by segment. The second quarter revenue for the core business was JPY 48.4 billion, a year-on-year increase of 8.6% thanks to the steady growth of our Ads business. Operating income improved from the last quarter to 17.8%. Regarding our strategic business, revenue increased 16.2% year-on-year to JPY 7 billion. Due to the large-scale LINE Pay promotional campaigns and other factors, operating losses this quarter were JPY 23.5 billion. Although the CFO will elaborate later, I would like to mention here that we expect this quarter to be the peak of our strategic business including LINE Pay investments for this year.

Next, I will explain about our core businesses starting with communication and content businesses. For content revenue, we recorded similar results as last year at JPY 9.3 billion. LINE Manga and LINE Music have continued to maintain a high-growth rate and games released in the first half of first fiscal year 2019 have been producing solid results. Communication revenue was also similar to last year at JPY 7.2 billion.

In the second half of fiscal year 2019, we are planning several major initiatives such as a subscription plan for stickers. All in all, total revenue for communication, content and other businesses increased 1.9% year-on-year to JPY 17.7 billion.

Next, I will explain more about the ads business. The overall revenue for the ad business increased 12.9% year-on-year to JPY 30.7 billion. Revenue from account ads increased 11.6% year-on-year to JPY 15.6 billion, while the Smart Channel helped to drive display ad revenue to JPY 11.5 billion, a year-on-year increase of 24.8%. In particular, the number of impressions from display ads increased year-on-year by 78% thanks to the continued growth of LINE News and the full rollout of ad placements on the Smart Channel.

Next, I will give an overview of account ads for the first half of this fiscal year and explain about future business developments. For account ads, the revamp of our ad platform including redesign effort has proven successful and produced a solid foundation for our business going forward. We replaced the original fixed rate pricing plan with a pay-as-you-go-system based on the number of sent messages making it easier for more customers to get started. As a result, 396 new accounts were opened in the 7 months since the new plan's launch in December 2018. If we compare this to the 300 companies that opened accounts over a 7-year period in Japan since the launch of Official accounts, we can say that this is a good result. In the latter half of this year, we will help businesses increase their friend count with a UI overhaul of the LINE App's home tab to make it easier for users to find official accounts, as well as link the cost-per- friend solution with display ads. Pay-as-you-go system for sponsor stickers is also in the works. Further, from the first to second quarter, ad unit prices after the redesign improved around 2x. In the second half of this year, we will continue to work on improvements to help clients get the most out of the service such as an AV testing feature for multiple creatives, retargeting, look alike audience targeting and richer reporting features.

Next is display ads. In the first half of this year, migration to the new platform also helped speed up development of new features enabling us to improve the platform into a more user-friendly one for advertisers. In particular, automated bidding for in-apps ad has been valuable in improving advertising effectiveness with the feature already used for over 50% of placed ads. As for display ads, the 3 areas we will focus on in the second half of the fiscal year will be Smart Channel, LAP for Publishers and the launch of self-serve features.

For Smart Channel, we will strengthen video ads for brand advertisers and begin a full-scale rollout into overseas markets. For LAP for Publishers, we will now offer app spaces from partners in addition to those provided by LINE increasing touch points between users and advertisers.

Lastly, the launch of the self-serve feature will allow SMBs and many other advertisers with a small budget to get started with LINE display ads. Users will also benefit from more relevant ads, and we expect that this feature will contribute to the healthy growth of the display ad business overall. In addition to all this, we will also continue to improve the foundations of ad delivery such as targeting accuracy and deliver logic as we aim to further increase display ad revenue in the second half of this year.

Let me offer more details on Smart Channel as this is one of our key initiatives. Since beginning the pilot test in January, we have gradually expanded ad placement and began delivering ads to all domestic users in April. As a result, we recorded 2 billion ad impressions for the month of June alone. Also starting June, we launched Talk Head View, a video ad format on Smart Channel. Talk Head View reached 47 million unique users in 1 day, and was limited to audiences aged between 15 to 29. Our content was delivered to approximately 90% of the population in Japan.

Among media platforms, we are confident that Talk Head View is an ad product with the most extensive reach in Japan. Smart Channel's key concept is to deliver a good balance of contents and ads that match users' needs. We will continue to enhance our contents as well as increasing ad impressions and making service improvements. Smart Channel will begin a full-scale ad placements in our overseas market starting fourth quarter this year.

While various services are being nurtured on the LINE platform aside from Smart Channel, we are planning ad placements for other new locations. Starting with LAP for Publishers which was presented earlier, we also have plans to place ads in Openchat, which is scheduled to be launched this summer. Openchat allows users to create multiple profiles and start communities with other users who may not necessarily be their LINE friends. This feature is extremely popular in overseas chat platforms, and we see a great potential in Openchat as our new ad business.

In addition, as the LINE Pay business grows, there is an increasing number of users on the LINE Wallet app. We are currently planning to distribute location-based flier advertisements and ads for sales promotions that are highly compatible with digital payments. Going forward, we will accelerate the ad business by making further feature enhancements to our ad platform and actively seeking to increase new ad touch points on the LINE platform.

Next, I will talk about our strategic business first in the O2O and commerce domains. Our business growth is going well with GMV continuing to steadily increase in our shopping, gourmet and travel domains. In the shopping domain, GMV for Shopping Go, a service which targets the massive offline retail market has continued to rapidly increase beyond our expectations. While originally it mainly covered consumer electronics, we plan to accelerate expansions to merchants and other sectors such as apparel.

In terms of GMV, we recorded an increase of 78.8% year-on-year. In the gourmet domain, we have continued to maintain a high loyalty rate thanks to successful initiatives such as reward points campaign and coupons. As a result, GMV increased 76.3% year-on-year.

As for our food delivery service LINE Delima, over 20% of payments come through LINE Pay exceeding credit card payments in the same service. And we are pleased with the synergy effect created between O2O and mobile payment businesses.

In the Travel domain, GMV for LINE Travel JP has also rapidly increased.

For our strategic business in the IA domain -- AI domain, we have moved from R&D investment into the commercialization stage. Recently we launched LINE Brain, a new B2B and AI SaaS business, which will now offer in-house AI technologies we have cultivated through the Clova AI Assistant and other services. Leveraging our expertise and accurately processing the Japanese language, we will launch a chat bot OCR and speech synthesis services, which are predicted to see a rising demand in Japan.

For Clova, we plan to strengthen its B2B2C model and begin offering it to hotels and consumer electronics manufacturers.

Let me explain the current conditions of LINE Pay in Japan. The global GMV for the second quarter was JPY 285.7 billion, a year-on-year increase of 10.1%. We saw a steady growth in GMV in each region from the previous quarter, where notably in Japan, it increased more than 2.2 folds relative to the previous year. As a result of our JPY 30 billion campaign, Global MAU significantly increased to 7.41 million, a 181% increase year-on-year, and we are making steady progress towards this year's KPI of reaching 10 million global MAU.

Let me explain the current conditions of LINE Pay in Japan focusing on the results of our recent JPY 30 billion campaign. The JPY 30 billion campaign was strategically launched as a result of increased retention rate following the e-KYC regulation amendment in Japan, which now allows users to send funds with a simplified identity verification process. With this, the campaign aimed to expand user base and leverage lines network effect to drive P2P money transfers. The total number of registered LINE Pay users exceeded 36 million and the number of new users who have completed identity verification increased by 3 million just through this campaign. MAU increased to 4.9 million, and we are very pleased with the results that exceeded our expectations. Retention rate or the subsequent month usage rate has increased in our 3 payment methods, LINE Pay Card, QR code and NFC exceeding 80% as of today. This proves that most users, who begin using LINE Pay, stay with us. GMV for LINE Pay's signature P2P money transfer has quadrupled compared to the previous months due to the P2P money transfer promotion that followed the JPY 30 billion campaign. These data indicate that LINE Pay offers a high level of convenience and with extremely high retention rate in those who use it at least once. And that LINE Pay has already established a foothold for payments and money transfer as part of users' day-to-day activities. And based on this cycle, we will focus on more cost-effective and efficient marketing efforts to further acquire new users. As a result of our continuous efforts, 1.71 million locations currently accept LINE Pay as of the end of June, after 350,000 additional locations joined after the end of the first quarter.

Next, the Mobile Payment Alliance, known as MoPA, enabling its members to mutually share their merchant bases recently welcomed NTT Docomo as a new member as part of its efforts to expand the merchant base. With Merpay and NTT Docomo onboard, the Alliance hopes to accelerate the spread of cashless payments. LINE Pay is also forming a global alliance to integrate with payment service providers outside of Japan. So far, LINE Pay has linked with NAVER Pay on June 17 and is preparing to link with more payment service providers including WeChat Pay. As was announced in the beginning of this year, LINE Pay and Visa has entered a partnership and recently announced the expansion of its scope. And attention -- in addition to the LINE Pay Visa credit card that would be accepted at Visa's 54 million affiliate worldwide once the cards are issued within the year, LINE Pay and Visa will jointly develop a new blockchain-based service and engage in co-marketing for the 2020 Tokyo Olympic Games.

Ahead of the consumption tax increase in October, Japan's public and private sectors are working together to carry out a variety of promotional activities to boost cashless payments, pushing mobile payments into a period of further expansion. As a registered participant of the point reward project for consumers using cashless payment, LINE Pay will also make efforts to provide a convenient payment experience to users.

As a final topic on strategic businesses, I will reiterate our business model focusing on LINE Pay. LINE Pay is an independent payment platform built upon our original messaging platform home to an astounding number of monthly active users. This structure enables users to handle money safely and conveniently using their smartphone as a continuation of their daily communication over LINE. LINE has a track record of building a wide range of business models upon the LINE messaging platform with its high engagement rate. We believe in 3 strong revenue streams for LINE Pay. First is advertising. The value of LINE's ad business will increase as data collected through LINE Pay is used to improve ad relevancy while being mindful to user privacy. Second is OMO and sales promotion. By bridging the gap between online and offline marketing and helping to drive users to stores in addition to serving as a payment platform, LINE Pay will carve into the large untapped market yet to be hit by the digital wave including in-store sales promotions and fliers. The third and final revenue stream and establishment of a final -- is the establishment of a financial platform accessible through LINE Pay. Since most LINE Pay users have completed the KYC process, introducing them to financial services will be a simpler and seamless process. To add to our insurance and themes and investment products already available in the market, we will be launching a multitude of smartphone-based services including a credit score based lending, equity investment and online banking to become a major and comprehensive financial business. While the business requires continued investment in the short term, LINE Pay has grown significantly this quarter, and we are confident with the results. We will continue to commit ourselves to LINE Pay as the most important growth driver for our future.

This concludes my summary for the second quarter. Now CFO, Hwang, will explain the details of the second quarter financials.

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In-Joon Hwang, LINE Corporation - CFO & Director [3]

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Hello, this is CFO, In-Joon Hwang. Let me highlight some of the financials for the second quarter's earnings. Our consolidated revenues and other operating income for the second quarter of fiscal year 2019 was JPY 56.7 billion with operating loss of JPY 13.9 billion. As for revenues, we reported JPY 55.4 billion. This is an increase of 9.5% year-on-year and 0.2% quarter-on-quarter. Under other operating income, we recorded a dilution gain of approximately JPY 950 million from changes in equity interest in LINE Mobile Corporation.

Our second quarter revenue for the core business was JPY 48.4 billion, 8.6% increase year-on-year and 1.0% increase quarter-on-quarter. Operating income was JPY 8.6 billion, quarter-on-quarter increase of 4.0%, with operating margin of 17.8%. The operating margin growth was led by an increase of ad revenue and a decrease in marketing expenses for the game and sticker business. While we set our annual KPI for core margin at 15%, we continue to exceed our goal since to growth of ad business and strict cost control effort. We hope to continue to maintain and expand this margin level.

Next, our revenue for the strategic business was JPY 7.0 billion, with operating loss of JPY 23.5 billion. Compared to the last quarter, investment increased by JPY 8.5 billion quarter-on-quarter. Most of this amount is attributed to the marketing and promotion expenses relating to the JPY 30 billion campaign. The campaign resulted in activating about 3 million additional KYC users for a low acquisition cost. While this campaign was an incremental strategic initiative, aside from the original budget, we are pleased we executed at this juncture, and happy to see successful results. All other LINE Pay initiatives and investments are according to schedule.

Additionally, as the CEO mentioned earlier, we believe our investment amount peaked in the second quarter for this fiscal year. The LINE Pay business is growing faster than expected and, if necessary, we are willing to make further investment to accelerate its expansion. However, at this point, we project that the investment amount for the third quarter will return to a similar level to that of first quarter. We will continue to control our costs strictly and develop our business.

Next, I will discuss operating expenses. The second quarter's operating expenses were JPY 70.6 billion, 37.9% increase year-on-year and 11.4% increase quarter-on-quarter. Since personnel cost and marketing expenses will be covered in detail on a later stage, I will discuss the breakdown of the other expenses. Sales commissions increased to JPY 4.4 billion, 2.7% increase quarter-on-quarter, mainly due to increased sales from LINE Part Time jobs. Outsourcing expenses were JPY 11 billion, 21.1% increase quarter-on-quarter due to KYC related cost for LINE Pay and increased cost for development of upcoming financial services. Depreciation expenses increased to JPY 5.4 billion, 3.9% increase quarter-on-quarter. Other operating expenses increased to JPY 9.2 billion, 6.5% increase quarter-on-quarter. This is because of increased cost of goods sold relating to LINE Friends sales growth. Employee compensation decreased to JPY 16.6 billion, 3.5% decrease quarter-on-quarter. This is because while continuing to hire talent for LINE Pay and other financial services, the ESOP stock-based compensation decreased to reflect the stock price in the first quarter.

As mentioned during the last earnings call, we implemented various initiatives to prepare and execute the strategically important 3-year plan such as establishing our Compensation Committee to strengthen our governance and introducing our company in company organization. As part of these initiatives, we reserve to issue stock options for this year. All employees and officers will be eligible to take part in and benefit from the stock option plan based on performance. As a commitment to align interest with shareholders and to increase mid- to long-term shareholders' value, the internal board members will have a stock price based vesting condition of JPY 7,518.

The next page shows the current estimate of costs relating to stock-based compensation. Increase in marketing expenses quarter-on-quarter was attributed to the campaign for LINE Pay. The overall marketing expense was JPY 13.1 billion, 74.8% increase quarter-on-quarter. Our operating loss for the second quarter was JPY 13.9 billion, with a net loss of JPY 17.3 billion.

This concludes my presentation. We would now like to take your questions.

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Questions and Answers

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Operator [1]

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[Interpreted] We will now start the Q&A session, which will be conducted in consecutive translation. We are accepting questions via e-mail today. If you have a question, please e-mail to irqa@linecorp.com. We will accept your questions any time during this call. However, we generally would like to limit to 2 questions per person. And the questions will be read in the order received. Please note that we will read your questions as written.

The first question is from Mr. Sugiyama from Goldman Sachs.

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Masaru Sugiyama, Goldman Sachs Group Inc., Research Division - Associate [2]

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[Interpreted] You have explained in the presentation that the operating loss will peak during the second quarter. Can you explain how your promotion costs will be used, especially for LINE Pay and the overall direction of your marketing spend going forward?

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [3]

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[Interpreted] Thank you very much. Regarding promotion costs and for LINE Pay, we have strategically launched the JPY 30 billion campaign at this timing when the various index for LINE Pay has been extremely high and where e-KYC regulation has been amended in Japan. So we have chosen this timing strategically in order to launch this massive campaign. And we saw very good results from this campaign. As the CFO explained in this presentation, for the third quarter we expect that the promotion costs will drop to the same level as the first quarter. As a result of the JPY 30 billion campaign, we saw various positive effects, especially on retention rate. We were able to create a very virtuous cycle of where we can acquire users and users use the LINE Pay as a campaign and from the rewarded points, they will continue to use LINE Pay. And based on this positive cycle, we will continue our marketing efforts and be able to spend our marketing efforts more efficiently.

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Masaru Sugiyama, Goldman Sachs Group Inc., Research Division - Associate [4]

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[Interpreted] My second question is regarding your strategic business. Excluding LINE Friends, your revenues have decreased quarter-on-quarter. Can you provide some color why this happened? And also your plan to revive revenues going forward.

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [5]

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[Interpreted] Thank you for your question. As for the Q1 -- Q2 results, we are seeing slight growth in Q-on-Q revenues putting in the factor of onetime investment. However, we are still very early in making our strategic investments. And on a quarter-on-quarter basis, we expect to see some fluctuations in numbers. As for overall direction, our O2O and shopping domains revenues are increasing very rapidly as with our launch of offering B2B solutions in our AI domains. We believe that this is showing promising trends for further growth.

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Operator [6]

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[Interpreted] The next question is from Mr. Yoneshima of Credit Suisse.

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Keiichi Yoneshima, Crédit Suisse AG, Research Division - Analyst [7]

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[Interpreted] On Page 8, regarding the LAP Impression that you've told on Q-o-Q increase of JPY 11.3 billion. Even though you include that impression of the 4.4 from the Smart Channel from the April to June, but is it included? And also if you include that, the positive impact from the new source Smart Channel but the Q-o-Q increases amazingly. Therefore, I'm wondering if there were any positive factors to increase the Impressions? On the other hand, even though the Impression has greatly increasing, however, increased -- however, the display as the revenue itself has not accordingly increased on quarter-quarter basis, so please let me know the reason for that.

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [8]

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[Interpreted] Thank you. I would like to first answer what the impression of -- from the Smart Channel of the 4.4 billion was included or not, yes it was included. And hence due to composition, yes there was some -- the large amount of impression from Smart Channel. However, the least contributor was the increase of the Impression from the news in Japan. As you saw, that we have experienced a great increase or the growth of the Impression. But unfortunately, the -- as a unit price has not increased accordingly, so there are some gaps in the growth of the 2 indicators. Then in this quarter the Impression has been greatly increased, therefore I hope that unit price will be gradually increasing accordingly. When it comes to Impression, actually we received other questions. So I would like to also touch upon this. So as I explained in the presentation, we will change the definition of Impression this June. This is related to the video ad and how to count the video ads. Actually, this definition change is relatively strict and the strict definition is now implemented. Therefore, such change in definition could be actually lowering the Impression. Therefore, this change of the definition that's not contributing to the increase of Impression rather than that, that could be decreasing the Impression. However, the impact of that has not showed a bit. Therefore, we are refraining from disclosing the details of this impact.

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Keiichi Yoneshima, Crédit Suisse AG, Research Division - Analyst [9]

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[Interpreted] Following the second question, on Page 16, I can see that there is a drastic growth of the domestic MAU in the quarter 2 for the LINE Pay. On the other hand, Page 15, suggests that the LINE Pay's global GMV has not so accordingly increased from Q1 to Q2. That could be interpreted that although the MAU has increased, however, probably the average amount of the spend per user has not accordingly increased. Therefore, I believe that you need to either promote or drive users to spend more using LINE Pay. What kind of strategy do you have for that purpose? And also, please give us some guidance and also the guidance of the projection and the budget for the promotional cost for LINE Pay in the second half of this year.

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [10]

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[Interpreted] I understand your question is about correlation between the MAU increase and the GMV increase. Simply speaking, we were seeing a great increase in number of the MAU in Japan and who are using LINE Pay for [coupon] card payment purpose. As you know, that in Taiwan, we have a large number of the user base, and we have the market -- a great number of the market share there. And most of your Taiwan users there are using the credit card functionality. That means they are using quite a lot, using the LINE Pay. On the other hand, as I mentioned, the increase of the MAU in Japan, this is ascribed to the increased number of the coupon payment using the LINE Pay. That means, as you may be aware of that, that users tend to be using such coupon card payment for, for example, the purchase at convenience stores on a daily basis. That means that they could be using very frequently. However, the unit price or average spend per user would not be so high. This is kind of the reason why the increase of the MAU does not directly have the positive impact of the increase of the GMV itself.

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In-Joon Hwang, LINE Corporation - CFO & Director [11]

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[Interpreted] In Japan, we believe that [coupon] card payment is kind of a main target. Therefore, we don't interpret these figures negatively. But of course going forward, we will be launching -- releasing the credit card functionality through the corporation and the partnership with Visa and Oracle. Therefore in the next quarter, probably as we will be again just thinking about how to increase average spend per users because of using that credit card. But actually the current step that these figures are actually on our target.

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Operator [12]

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[Interpreted] The next question is from Ms. Mori from JP Morgan.

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Haruka Mori, JP Morgan Chase & Co, Research Division - Analyst [13]

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[Interpreted] You've mentioned that the operating loss for the strategic business in Q3 will reduce to the same level as that of Q1. Can you explain exactly how this will be reduced together with an explanation of specific strategy that you plan to take for LINE Pay in the second half of the year? Also at the beginning of the year, you've mentioned that the overall operating loss for the strategic business is forecasted at JPY 60 billion. Does this remain unchanged for the time being?

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [14]

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[Interpreted] Yes. First, I would like to mention that the JPY 30 billion campaign that was rolled out in Q2, we would like to mention that the timing was strategically picked and this was a strategic investment from our side. There are 3 key reasons why we have launched JPY 30 billion campaign: #1, the various index including retention rate for LINE Pay has been extremely high; and #2, the e-KYC regulation has been amended in Japan; and #3, there is an increase of consumption tax coming up in October, and we would like -- our aim was to increase user base before the increase of this consumption tax in October. So as such, this JPY 30 billion campaign was an onetime special spending that we have chosen this timing very strategically in order to spend. For Q3, therefore, because this spending will not be used for Q3, this is the reason why our operating loss for Q3 will come down to the same level as Q1.

As I mentioned, LINE Pay retention rate and other index remain quite high, and our marketing spend will be spent in a most effective way going forward in order to increase user base and further increase retention rate.

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Haruka Mori, JP Morgan Chase & Co, Research Division - Analyst [15]

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[Interpreted] Thank you. This is my second question. Regarding revenue growth for the ad business in the second half of the year, please tell me how you intend to grow revenue in the ad business? I assume that the accounts revenue will show sluggish growth, where display ads will accelerate in growth. Is this correct? Also, for the account business, can we expect that the growth rate for the account business will accelerate because of the full-scale launch of Smart Channel in the second half of the year?

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [16]

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[Interpreted] Yes, as you mentioned, the account business is a recurring model, and therefore, it shows -- basically shows a stable growth. And we assume that we will see stable growth -- same stable growth as we see in Q2 will continue on to Q3. For our display ads, the Smart Channel has fully contributed to our revenue stream, and we continue to see that for Q3, which will continue to push up our growth rate. And overall for the account business as a whole, we expect to see continuing growth rate.

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Operator [17]

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[Interpreted] The next question is from Mr. Nagao from the Nomura Securities.

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Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division - Analyst [18]

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[Interpreted] My first question is about domestic MAU of LINE Pay in Japan. In the second quarter of the fiscal year 2019, the LINE Pay's domestic MAU reached to 4.9 million. This is actually beyond your expectations. Could you tell me the specific age group you have newly acquired at most? Also, please give us some comments regarding the average spend per user as well as the frequency of usage?

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Jun Masuda, LINE Corporation - Chief Strategy & Marketing Officer and Director [19]

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[Interpreted] I would like to answer this question sir, I'm Jun Masuda. And when it comes to the LINE Pay, the reason why the LINE Pay could increase the domestic MAU, then specific age group, we have mostly acquired was females of ages between 20 to 30 as well as above 30, but also below 20, so teenage users. When it comes to the average per spend because the -- we are focusing on -- we are -- the partnership with lots of the convenience stores or the drug stores, where the user could be visiting very frequently, even on a daily basis. Therefore, the part spent on these locations could be less than JPY 3,000. When it comes to the frequency, thanks to the high retention rate, some users could be using our service on a daily basis, but also some other users could be using on weekly basis.

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Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division - Analyst [20]

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[Interpreted] My second question about LINE is at this moment, LINE's video ad load is not so high, then when I interpret this, that the composition of the video ad will be the exponentially the increase in going forward. And also, at this moment, the LINE video ads only accept card form. That means, are you going to diversify the type of video ads? And also what kind of direction or what -- which you will be taking?

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [21]

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[Interpreted] Yes, as you mentioned, we have been preparing lots of initiatives in the second quarter including the video ad forms. But also, this is not only for the news, but the overall for display ads. As I mentioned in July, that we changed the definition for Impression. So that actually it will be much easier for advertisers to understand and to see the actual -- the effectiveness of the video ads. Going forward, we will be supporting various other formats and also we are preparing for the other initiatives for the video ads.

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In-Joon Hwang, LINE Corporation - CFO & Director [22]

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[Interpreted] Thank you for your questions. We are approaching the hour, and we'll entertain 2 more questions.

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Operator [23]

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[Interpreted] The final question is from Mr. Maeda from SMBC Nikko Securities.

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Eiji A. Maeda, SMBC Nikko Securities Inc., Research Division - Senior Analyst [24]

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[Interpreted] You have mentioned that the operating loss for the strategic business is forecasted at JPY 60 billion. For the first half of this year, you've already accumulated an operating loss of JPY 38.5 billion, and that you've hit the bottom in the second quarter. Are there any changes in your investment plans that will reach JPY 60 billion operating loss for the entire year?

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Takeshi Idezawa, LINE Corporation - President, CEO & Representative Director [25]

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[Interpreted] Thank you for your question. As the CFO has mentioned in his presentation, the JPY 30 billion campaign that we rolled out in Q2 was invested strategically aside from the JPY 60 billion investment that we have for the strategic business. The reason was because the timing was key considering the competitive landscape of the current times. Therefore, I would like to reiterate that the JPY 30 billion campaign has been strategically invested. Other than the JPY 30 billion campaign, other investments are going as progress within the JPY 60 billion forecast that we have made at the beginning of the year.

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Operator [26]

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[Interpreted] Thank you for your questions. This concludes LINE Corporation's Fiscal Year 2019 Second Quarter Earnings Call. Thank you for joining the call today.

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