U.S. Markets open in 7 hrs 27 mins

Edited Transcript of 4689.T earnings conference call or presentation 26-Apr-17 7:30am GMT

Thomson Reuters StreetEvents

Full Year 2016 Yahoo Japan Corp Earnings Presentation

Tokyo Apr 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Yahoo Japan Corp earnings conference call or presentation Wednesday, April 26, 2017 at 7:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Gen Miyazawa

Yahoo Japan Corporation - EVP, Executive Corporate Officer and President of Media & Marketing Solutions Group

* Kentaro Kawabe

Yahoo Japan Corporation - COO and Senior EVP Corporate Officer

* Manabu Miyasaka

Yahoo Japan Corporation - CEO, President and President Corporate Officer

* Toshiki Oya

Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer

================================================================================

Conference Call Participants

================================================================================

* Haruka Mori

JP Morgan Chase & Co, Research Division - Analyst

* Hiroko K. Sato

Jefferies LLC, Research Division - Equity Analyst

* Keiichi Yoneshima

Crédit Suisse AG, Research Division - Analyst

* Masato Araki

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

* Ryotaro Sawada

* Yoshitaka Nagao

Nomura Securities Co. Ltd., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you very much for coming today despite your very busy schedule. Now we would like to start the Fiscal 2016 Full Year and Fourth Quarter Business Results Briefing of Yahoo Japan Corporation. We have a live streaming of this session, and also we'll be distributing the archived version. Now I would like to introduce the speaker from Yahoo Japan. We have the CEO, Mr. Manabu Miyasaka, President and CEO; and we have our CFO, Mr. Toshiki Oya. First, our CEO Mr. Miyasaka will be making a presentation, and then we take questions. We plan to end this session around 6:00 pm. Now let us start.

--------------------------------------------------------------------------------

Manabu Miyasaka, Yahoo Japan Corporation - CEO, President and President Corporate Officer [2]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen. Now fiscal 2016 full year as well as fourth business results are the ones that I am announcing today. In addition to these business results announcement, in the second half of my presentation I would like to talk about the future. So it might be a little bit longer than the usual presentation. So let's look at the full year results. The revenue JPY 853.7 billion up 30.9%. Operating income, adjusted operating income is shown and also as for EBITDA we also have our EBITDA as well as adjusted EBITDA. We will be using adjusted from time-to-time, this time. Adjusted means that last year fiscal was consolidated and because of that there was a onetime increase of the operating income of about JPY 559 billion. And as for this year JPY 13 billion loss that is the fire of the logistics center of ASKUL. This is a onetime and it would not be incurring next year. So next year there was a onetime addition to the operating income and this year there is a onetime loss on the operating income. So that's why we used adjusted operating income as well as adjusted EBITDA. So when we say adjusted that means that excluding the onetime loss or onetime gain. As for the total advertising-related revenue, it was JPY 286.4 billion up 7.3%. For the first time the smartphone-related was above 50%. So at the time of the anniversary of the 20th years we exceeded 50%. As for the total domestic e-Commerce transaction value it was JPY 1.85 million, up 23%, and also the number of the monthly active user IDs increased by about 15%. Now this shows the graph of the full year revenue. We have increased the revenue in the last 20 consecutive years. This shows the breakdown of the full year revenue, Marketing Solution, Consumer and others. As for the others, this is the payment-related revenue, all of the revenues grew. As for the operating income, this is before the adjustment. Last year out of this JPY 224.9 billion there was JPY 159.6 billion onetime addition. So without it -- without the adjustment it was down by 14.6%, which was JPY 192 billion. Now this shows the comparison between the adjusted and non-adjusted. 2015, it was JPY 165.3 billion, which was the operating income, and there was a gain from the remeasurement related to the business combination with the ASKUL Corporation. And as a result of that, it was JPY 220 billion. And this year this JPY 59.6 billion does not exist, and there was a loss related to the fire incident of the ASKUL, which was JPY 13 billion. So after all of those it was JPY 205 billion, which was up 24.1% year-on-year. Now looking at the cash flows. Cash flow from operating activities was plus JPY 127 billion. Now the interesting activity is mainly the capital investment, this for the future, and also there was a return in dividend for the shareholders. So the operating income -- sorry, the operating activity cash flow was used for the CapEx as well as the shareholder return. As for the new element, the card business is growing, and the operating income, operating capital for the credit card business is not now necessary. And we want to manage that separate from other businesses. And also we will be procuring externally for this credit card business. So financing activities is JPY 80.5 billion, which is a positive cash flow.

Now let me turn to the fourth quarter financial results for 3 months. I think this slide is self-explanatory, so I'm not going into the details. Now advertising and e-Commerce in the fourth quarter was good, especially the e-Commerce. For the first time the smartphone-related percentage increased above 50%. So I think that next year also this will be above 50%. Our quarterly revenue, showing you the trend, is on the rise, and the breakdown: Marketing Solution, Consumer and others, payment-related, all of them are growing steadily. Now sales promotional activities in comparison to 2015, 2016 was more efficient and more targeted in the area of promotional activities, and that's what I have been explaining. And similarly in the fourth quarter, it was JPY 10.9 billion last quarter and it has increased to JPY 12.7 billion. But with that, the transaction volume increased and that means that the sales capability at the forefront has increased. The breakdown of the sales promotion is shown here. As for the fourth quarter, adjusted operating income, the trend is shown on this slide. So up to now, I talked about the full year as well as the fourth quarter business results. Now let me talk about the overall usage trend of the services. Starting with daily unique browsers, it's growing steadily. Especially the usage via the smartphones is expanding. So right now, 65% or higher is from the smartphones on the daily basis. Another thing is the multi-device Internet usage is increasing. So for example, we are not dependent on the cookies, so using the Yahoo! ID to log in that is something that we're trying to encourage people to do and it has been actually growing by 15%, that is the number of the monthly active user ID's, and 38.98 million actually is the monthly active user IDs. When you use the smartphones, in addition to that using the application, the application is something that we're encouraging people to do, and is also increasing the number of the application downloads is increasing and 480 million download was recorded for 2016, fourth quarter. If you look at the full year results, by each publisher, this is the ranking of the download, the Yahoo! JAPAN ranked smartphone application download was #1.

Now turning to the e-Commerce transaction. At the bottom is the auction and then there's a shopping and ASKUL. Three of them are growing steadily.

Now I would like to talk more by the business unit. As usual, I'm going to talk about the core businesses and then talk about the future of potentials being categorized as upfront investment stage businesses. And firstly core businesses and firstly I will talk about advertising. The revenue went up by 9.6% year-on-year recording JPY 78.6 billion, in particular display grew and also paid search advertisement contributed in the overall revenue of the advertisement. This shows the trend of Paid Search Advertising. Yahoo! JAPAN's biggest revenue pillar is paid search advertisement and it was on a negative trend year-on-year. We have YDN and even though it was profitable its offsets each other, but from FY 2016 we decided to put yet another effort in growing paid search advertising. And as you can see, that we are seeing dramatic improvement in this term and it grew by 7.7%. We made small improvements one after another and so it's not that, that there was a killer change in the function but rather the cumulative improvements that we have made contributed to the growth of our paid search advertising. On top of this, the advertising revenue via smartphone went up year-on-year, it went up by 32%. So in the future, we want to grow new products, in particular, starting from March 15, we started in-feed video advertisement. We conducted technical tests for some time, but the time is right for us to officially launch, but it only was launched in March. So we would like to monitor how it will grow in the future. Long-term wise, video advertisement will definitely grow in the Japanese advertisement market. And so we will like to enjoy the momentum of the market to grow our in-feed video advertisement.

Next, let's move on to auctions. Auction is growing steadily as well, it recorded the transaction value at JPY 227.9 billion. And also the membership grew as well and the membership is 17.73 million and also the premium membership grew, as you can see over here, by 6.0%.

Next I would like to talk about upfront investment stage businesses. Firstly, shopping. The number of items is growing and we have about 270 million items sold together, and in Japan, we have the biggest selection. Transaction value is growing as well and year-on-year it grew by 21.4%. The transaction value grew by 21.4%, but the advertisement grew by double fold. As so the transaction value and also the advertisement revenue are growing. So we are creating an ecosystem in which we will be able to maximize on each factor.

Next, about credit card business. It is linked with e-Commerce growth, and the number of members is growing, and the card holders' membership grew by 1.6% both year-on-year. And in terms of the amounts used, the transaction value grew by 2.2x. So the members who use the card for transaction is growing. The number of wallet accounts increased in line with e-Commerce and also the transaction value went up by 18.7%. This is the overall environment of our FY 2016 including Q4.

Now from here onward I would like to talk about what we will do in FY 2017 and beyond. I would like to share my vision, which is mid to long-term. We celebrated the 20th anniversary and we are moving into the next phase of our company. And when I took presidency, I was told that we should move from PC Internet continent Yahoo! to smartphone Internet continent Yahoo!. And I have taken different measures to realize this end. Yahoo! is strong in PC but people were worried that maybe smartphone will not be used to access Yahoo!. But what is the reality? This graph shows that. Back in 2012, there were more PCs and only 35% of the people used smartphone. But now looking at DUBs, 65% is from smartphone. Yes, of course, we are #1 in PC, but in smartphone as well we can see there are more people are using Yahoo! via smartphone. And that number is increasing. We have to make smartphone in April, but in terms of smartphone screen, it is very small as compared to PC screen. Is advertisement, a viable business, by using YDN, we had in-feed advertisement, and also we made changes to the paid search, and by making some small improvements one after the other we were able to make the improvement in the usage via smartphone. And right now it exceeded 50% and now 53.1% of the advertisement revenue comes from smartphone. And the final point is, as Media business we are very strong, but in PC people were worried that we had a very weak position, and by conducting the changes in e-Commerce, we are still challenging to be #1 in this domain as well and not only in media domain. And Yahoo! JAPAN is growing the most in the E-market and that means that we have made a great investment in the area of PC. This shows the breakdown. It's not only that we were depending on PC but the ratio of smartphone EC is more than 50%. So we can become a strong position player in the smartphone area in the domain of e-Commerce as well. We were strong in PC and now we are strong in smartphone as well. The traffic, NPC and also e-Commerce wise we are tracking and trending very favorably and we haven't concluded our challenge into the smartphone domain and we will continue our effort, but I believe that we have completed the first phase of the shift to smartphones.

So now we need to have higher presence in the smartphone area, and also challenge new voters. And our new challenge is multi-big data. We want to be smartphone continent player and in that continent, there's a big mountain called multi-big data, and it will take several years for us to climb that mountain, but we will definitely climb that mountain. Why is multi-big data important? Smartphone service is becoming more and more personalized. So simply put during the time of PC, as you could see on the left, only the red frame section has been personalized. That means in the advertisement, it is no longer frame oriented but individual oriented. And so we have been conducting advertisement within the given framework, but now we are completely different, whether it be content, [advertisement] and also e-Commerce, we will look at an individual instead of looking at the given framework space that we can use. And so during the DNA age, we will be able to come up with many personalized services. So we have to improve the quality moving from given framework space to personalized service. We need to leverage on the data. We need to have more high-quality data as compared to the competitors so that we can win the battle. We have big data, and in order to evaluate big data, 3 parameters will be important. One is variety V, another one is volume V, and another one is velocity V. These are the three V parameters, and unless you have these three Vs you will not be able to maximize on the value of big data. So in terms of our diversity, we have more than 100 services, and we have diverse types of data that are accumulated on a day-to-day basis. And that is the conspicuous nature of Yahoo! JAPAN. It's not just the quantity, but we are #1, or 2, or 3 in the market, we are ranked at a high-level. So we have quite a big volume of the data from the users. So more than 50% or 60 million people are actually using the Yahoo! JAPAN and 40 million people actually have the Yahoo! JAPAN ID. So in terms of the quantity of volume, we have a very high level. As for the freshness, we have search, we have news, we have sports and the share price information. So those are the information that you access on a daily basis. It's not the weekly or monthly access but rather daily or every half day or every 2 hours. So in terms of freshness, we have a very high level freshness data. So the biggest potential of Yahoo! JAPAN once again, as I told you many times, is the multi-big data. So we want to promote multi-big data utilization and to personalize it and to increase the view-through rate to look at the time line or to increase the dwell time, and also click-through rate increasing advertising and increase conversion rate in e-Commerce. Among the many KPIs, those rates are important. It's not just through the UI but using the data. We want to increase those rates.

So it's not for this year only but in the medium term, in order for Yahoo! JAPAN to sustainably grow we need to realize how we can utilize the multi-big data. There are 2 major factors in order to do that. One, I talked about the multi-big data and I think we have a very unique position. We want to improve that further, that is to promote our strength further. And also another factor is the data science. We have been enhancing the data science and we will continue to invest in this. Earlier, I said that we have a diversity volume and freshness and we have a superior information or data. This is just an image, but all those media users of the Yahoo! users are much bigger than the others. So EC and financial payment we are trying to grow those. But by growing EC and settlement, ultimately, we want to have a well-financed user profile. And when we have this, where there will be a revenue from EC and settlement and also multi-big data, quality and volume will improve. So what we would like to do that is to succeed in EC, so that we can change the balance into something like this.

So the multi-big data that we have, that we can improve the quality. And by doing so, we can use the data science, and so we can provide the services that is most suitable for the users. So users will be using those services, because it's suitable for them. And we can make better proposals using data science. So data-driven business and infinite ecosystem is something that we want to build. So that is the medium-term challenge that we would like to go for in the medium-term. So now let's talk about the 2017 policies, and there are 3 major measures or, challenges. One is the e-Commerce transaction value, we want to increase that. And two, become a rich media. Those 2 is to improve the volume and quality of the multi-big data.

Now let's look at the e-Commerce first. Before I do so, let's look at our achievements so far, and talk about the future. 2013, October, we wanted to become the #1 in e-Commerce, so we started free tenant fee, and by doing so the number of the tenants increased 6x and the number of the merchants increased, the merchandisers increased to 3x. And also the transaction volume increased doubling, and that led to the higher shopping-related advertising revenue, 6x higher, and booking transaction value twice, and so we used all of those records. So up to here was to increase the sellers, that was e-Commerce strategy 1.0. So we will continue to do that, but in addition to that, we will be increasing the number of buyers. That is the e-Commerce strategy 2.0 to increase buyers. When we say increasing the buyers, it would also lead to the higher cost. What we would like to do this year, to improve the efficiency of the sales promotion, we wanted to be more targeted, and we are starting to learn that, so we would like to further continue that efforts. Here it talks about the premium members and until 2014, there were not many people who were using Yahoo! but they use something else. But we wanted to focus on the Yahoo! premium members, and we started a campaign to give extra points, and which was successful. And initially, 2014 fourth quarter, it was -- the premium members were less than 50%, but now the percentage of the transaction from the Yahoo! premium members is 64%. So when we focus more on the premium members, the total value increases, and also we can increase this more efficiently. So these are the specific customer segments, we would like to have a very focused promotion, so that we can encourage people to buy in Yahoo!. So as a second strategy of the customer segment, we want to take advantage of SoftBank members. From February we started a campaign targeting SoftBank members. Until then the SoftBank members, even if they do the Yahoo! JAPAN shopping there were no extra benefits. But in February, if they buy on days ending in 5 they can actually have a 20x higher points. As a result of this additional point, before we started this, that is January, that was shown in gray, and in March, you see that there was a growth, and so just as we saw in the growth of the premium members who the targeted promotion on the SoftBank members, we were successful in increasing the value. Now looking at the percentage of the Yahoo! shopping buyers among the SoftBank members, it is only still 12%. In the long run, everyone is using the smartphone, PC will be doing the e-Commerce. So there's a huge growth potential. So the e-Commerce strategy 2.0, that's increased by years, it would be very much focused on the customers' segments, and we will continue to do so. So first thing we would do is to work on the SoftBank members as well as Y!mobile users. We would continue to run campaigns for them. And today, we had the press release. We started this 10x higher point for the Yahoo -- the SoftBank members, and we will continue this campaign. And we will enhance that further. It's not invitation to just 10x higher point provision, there are other premium member privileges. So SoftBank members will also use older privileges of the Yahoo! premium members, so that SoftBank members will be using more of our Yahoo! services.

Now the second part is Yahoo! Premium. The Yahoo! Premium customers, they are buying more on the Yahoo! Shopping, but there is still a big potential there. Especially, the benefits of the premium member needs to be promoted from the 1st of June when you buy the videos or e-book from the Yahoo! Store, Yahoo! Bookstore, there will be a 5% point provision so that they will be satisfied becoming the Premium members. The third strategy to increase the buyer is to utilize Yahoo! Group. Yahoo! Group among the e-Commerce of Yahoo! is the highest, and more than 50% is C2C. So that means that the sellers of the Yahoo! Group will be getting a lot of money via Yahoo! Book group. But when they sell something in Yahoo! that money proceeds are not likely to go to the Yahoo! Shopping. We thought it was a waste. So people making profit at Yahoo! who were now spending their money at Yahoo! Shopping. So we wanted to encourage them to do the shopping after making money at the Yahoo! Bookstore, utilizing the ecosystem.

And I will give you some tangible example. If you are a Yahoo! member, you can have your item on the mall and you will be able to use Yahoo! money. And what happened through this measure, Yahoo! Money was released some time ago. And at the very beginning it grew steadily, but after the campaign, Yahoo! Money, e-Commerce usage and its balance increased dramatically. We are focusing on the increase of members and we hope that this will move on to Yahoo! Shopping. Right now we are focusing on the point, but long-term wise, e-money has much potential. Therefore, Yahoo! has Yahoo! auction, and so we would like to use that backdrop to increase e-money usage. Another segment is Yahoo! JAPAN Card. The cardholders can get many points, so they use Yahoo! Shopping quite often. And Yahoo! commerce transaction value must increase and Yahoo! JAPAN Card must be used for the segment, and we included that as in-house payment ratio, and we want to increase the in-house payment ratio so that we can prevent the commission fee to go outside the world of Yahoo. E-Commerce strategy 2.0, we would like to increase the buyers, and we are not going to blindly focus on the magnitude, because we have limited budget, we will look at Yahoo! JAPAN's world and look at the customer segment that we have, and focus our budget on these segments. What will be the impact on the shopping, especially when it comes down to transaction value year-on-year, we want to have the growth of 30% in a sustainable manner. So it is not a onetime off endeavor but rather a continuous effort. After increasing the transaction value, how can we increase the amount of our revenue model. We have the shopping revenue, in the area advertisement, and we have auction, and also digital content will be increased, and also media, and financial and payment increase as well. And we believe that these will all work together to increase the unit price of the advertisement. And this is the ecosystem that we are aiming at. And so, so far I have talked about maximizing on the e-Commerce transaction value, but now let's move onto rich media. This is more or less media oriented endeavor, and we are increasing our media, and every day we have many visitors to Yahoo! Media, and that is another driver of increasing our e-Commerce. If Yahoo! Media becomes weak, then the overall Yahoo! business will suffer and thus, we need to further strengthen our media business, which is most important. There will be weekly or monthly service but rather than that we want to increase the frequent use of contents, and we should play the dominant role in that domain. Currently, we want to focus on Yahoo! News. Why do people come to Yahoo! top page? The major reason is to look at Yahoo! News. Yahoo! News is reliable and that is why many visitors come to our site. And News will be like utilities, like water and electricity, and PC wise about 50% of people watch other company's news, and smartphone-wise too about 50% of the people go to other company's news sites. So there is much leeway for further growth. We believe that we should focus on the video content. So far news was text and photographs. And that was the style of the past 20 years, but in the next 20 years, definitively people will enjoy news via video. So the position that we have in text and photographs must be realized in video area as well. And we want to increase the habit of people watching the video content via the Internet. And as of April 18 this year we tied up with MTV, and on the top page of Yahoo! we started the embedded streaming of 24 hour live news, and we are getting very good results, and we would like to strengthen this effort so people will think that oh, if I want to watch video news, we should go to Yahoo! News. And so the partner can enjoy win-win impact by working with us. So this was about rich media.

And thirdly, let's move on to data-driven company. As I have been saying for many years, that data is very important. And we have conducted CapEx in the application and accumulation of data. And what is the end result that we are aiming at? For example, in terms of the click-through rate, YDN is more grown as compared to the Q1 '14. We have improved by 70% or more. UI and UX must change if you want to increase that click-through rate. Another way to go is, look and feel doesn't change the quality, it will be personalized. And in terms of the first endeavor, it is not user-first and it is not continuous, and because you have to continue changing the UI and UX. So the important thing is, look and feel doesn't change, but personalization will be advanced so that very personal to the point content will be delivered. And the endeavor that we are focusing on is the last set. And we have similar endeavor in e-Commerce as well. This is just an example, but in the past, if you are not Yahoo! Shopping user, what kind of recommendation did we give? We provided the ranking. There was no way that we could have personalized, so we show the ranking. So we just use the space given on the stream rather than focusing on the individual needs. But maybe this person is using other applications other than Shopping, and so we can leverage on that data so that we can give the right recommendation. Look and feel doesn't change, but regarding click-through rate, it went up by 4.54. So by using the data, we were able to improve CTR. Another example, which is Yahoo! JAPAN top page. We made different improvements so far and time line uses data so that personalization can be conducted, but the usage of data has been made more elegant and more sophisticated. E and deep learning has been implemented. When you look at Yahoo! top page time line, look and feel hasn't changed so you might not understand that things have changed. But the distribution algorithm is improving every day. So dwelling time went up by 7%. So even though the look and feel doesn't change, by maximizing on data we can increase the different parameters and with the increase of 7% we will get more data and lead that to further improvement. And this is just example of how we can maximize on the data that we have. We have been, of course, using data and media, media service has been used for recommendation, and EC uses its own data per recommendation, and payment and settlement uses its own data to conduct personalization. But it was very siloed. Asia business had its own database and if we continue this, we will be not able to differentiate ourselves from others. So what do we want to do? We want to use Media Data to recommend EC and we can use the EC data to conduct credit worthiness checking of financial and payment. And we can use the financial and payment data to conduct the personalization of media. So we can leverage on these businesses. We can maximize on the total strength that we have as Yahoo!. As this is not a technical seminar, so I will walk you through very briefly. But we will come up with cutting-edge development environment. We have a great business model and we can import that but that does not lead to our success. We need to come up with modern technology and that is becoming the key to win the race. So Yahoo! will try to fine tune and advance our technology, so that nobody will be able to copycat us. And if we can be #1 in the area of technology, nobody will be able to beat us. We have celebrated the 20th anniversary, and so we believe that we need to modernize our technology. We are living in the house that is 20 years old, and maybe we have conducted some renovation, and but that is no longer sufficient. So we will dramatically modernize our technology, and if we do that once in 20 years, it will be so impactful, so we will change the management style of the technology so that every year and every month we will maintain the freshness of the technology. So the management style of technology that will change.

Otherwise, the multi-big data utilization will not realized. So we need to make steady efforts in investing in technologies. So that's something that we need to do. So those are the measures that we'll be working on for fiscal 2017.

And let's look at the outlook. As for the major investments, e-Commerce, including data payment, we need to maximize e-Commerce transaction values. So additional investment of JPY 25 billion will be made. And to become the data-driven company, to renew the technology, we'll be investing JPY 15 billion. Especially, 2017 sales promotion cost outlook is shown here. For this year, JPY 35.4 billion was the sales promotion cost, and that will be increased to JPY 51 billion. The breakdown is -- include shopping, 60%; financial payment, 30%; media and others 10%. So more focus on the financial and the commerce.

And outlook for the operating income is shown here for 2016. There was a loss related to the incident at ASKUL. It was JPY 25 billion. And as for 2017, we'll be making the proactive investment so that we can continue to grow in the next stage. But I can assure that we can maximize the e-Commerce transaction value. And based on that, we will be making a proactive investment. So outlook for operating income is JPY 175 billion to JPY 185 billion. So that will be lower than last year.

So that concludes my presentation. Now starting with April, there has been some changes in organization. I was -- I am the CEO and I -- there were executive officers under myself. Last year, the Media business and advertisement business and Marketing Solution company were integrated into the Media group. And last year, we did not make changes to the organization, but actually the way of doing business of e-Commerce auction, shopping and membership and the payment, each company were kind of like an integrated business. So based on that strategy, we reorganized ourselves. So commerce group was established. And under that group, there will be companies. So the Head of the Commerce Group is Kawabe, the Vice President. And as for Media, Miyazawa will continue to look at the Media as well as advertising to focus more on video. Technology updating and CEO -- CTO will be working on that. So that will be the new organization or formation of our company. And with that, I'd like to end my presentation. Thank you for your attention.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Unidentified Company Representative, [1]

--------------------------------------------------------------------------------

Now we will like to open the floor for Q&A. (Operator Instructions) If you have any question, please raise your hand. Person sitting at the center, on the right, person in the front. Woman sitting in the front, please.

--------------------------------------------------------------------------------

Hiroko K. Sato, Jefferies LLC, Research Division - Equity Analyst [2]

--------------------------------------------------------------------------------

I am Sato Hiroko. I am from Jefferies Securities. I have a few questions. Firstly, please turn to Page 96 talking about the sales promotion cost. And I'm sure that many of the people were surprised. Last fiscal year, you said that you will be spending about JPY 40 billion. But the previous year, you had the T points and other reward. And last fiscal year, every quarter you reduced the promotion cost by 20%. But shopping transaction value went up by 20%. So even though you reduced your budget, you were able to increase your transaction value. And I think that was a trial you made last fiscal year. But now you're increasing it to JPY 51 billion, and that means that the shopping transaction value, you want to increase it to 30% level year-on-year. And if you want to have year-on-year growth of 30% on a continuous basis, do you think that you need to increase your sales promotion cost every year? Or are you going to reduce the sales promotion cost to see whether you will be able to maintain that level of transaction value or not? This is not a negligible amount, and I believe that by having this as your budget you will have the decrease in the operating income next fiscal year. So can you comment on that?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [3]

--------------------------------------------------------------------------------

Regarding sales and promotion cost, after this fiscal year, we explained to you about our overall concept. As mentioned, we want to optimize the Consumer business. And there are 4 important businesses and the ecosystem must be strengthened. And that will contribute to the continuous growth. So Commerce Group has premium members as well as cardholders. And also we have SoftBank users. And we want to leverage on those segments that comprise our strong foundation, and we should maximize on this foundation and the e-Commerce transaction value and also increase the in-house payment ratio and also promote the usage externally. So we want to gain and the -- a profit in payment and financial business. And so in terms of transaction value, we want to increase in the total ecosystem environment, and we want to do that steadily. We had the take rate of advertisement as one of the important parameters. And by promoting this ecosystem, we believe that we will be able to grow as a company. And that is why we are vitalizing in this e-Commerce. So shopping and card were the important points we talked in the upfront investment-stage businesses. And in the past, we have focused the investment in those 2 areas. But on top of that, we're going to look at YAHUOKU! as well as membership service. And we believe that those 2 parameters are needed in increasing and strengthening our ecosystem and thus conducting CapEx. In terms of Auction, there is much leeway for reuse and Auction and Shopping, we need to overlap the users. So through money, we can have a cashback campaign. And we have different measures so that we can have more people participating in our ecosystem. And member-wise, we are reinforcing the privileges and benefits that can be enjoyed only by the members. So regarding the scope of CapEx, it has increased, especially in the area of e-Commerce. And I think that is new in our promotional cost. So it's not that we would just give T point, but you are going to link that to that ecosystem expansion. Yes. In terms of point award, there were times in which we tried giving out as many points as possible, but now we are focusing on a particular member segment. So that is the new policy that we are upholding and that will be upheld in the future as well. So regarding the area that we can become more efficient, we will improve our efficiency as compared to the previous year. Thank you.

--------------------------------------------------------------------------------

Hiroko K. Sato, Jefferies LLC, Research Division - Equity Analyst [4]

--------------------------------------------------------------------------------

Second question about advertisement. You have YDN and you have the paid search. And I know that you just started infeed recently. But can you tell me what is the forecast? And Q4-wise, I guess it went up by 7%. But do you think it will grow by 10% regarding paid search? And in terms of video, ad started? And in Q4 YDN, I guess the growth was flat, but it grew by 8%. Starting from January, you had video. So I want to know whether that was incorporated? Or in terms of infeed, you were able to have 8% increase. So can you give me some hint about what will be the growth of the advertisement this term?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [5]

--------------------------------------------------------------------------------

Regarding the forecast of advertisement, all in all, we believe that we can grow in the middle single digit by product regarding paid search. For organic factors, we were able to grow more than 7%. In the first half of FY 2017, I believe that we will be able to keep the momentum. But then afterward, we will complete one cycle, so growth rate will decelerate. But we will make improvement in the advertisement that we can provide, so we can continue growing. Now about display. Regarding the achievement, Shopping advertisement did well. And premium advertisement, there was demand in the end of the fiscal year. So we were able to enjoy the momentum. And video advertisement started in mid-March, so there was not a major monetary impact. Talking about the forecast of display. I believe that we can grow by 1 digit, say, about mid-1 digit. In video advertisement, I know that the market is having high expectation, but it's very difficult to see how it will grow. So the assumption is that we are launching this in a test phase. So I believe that if we extrapolate on the figure that we got during this time, we believe that we can record some growth. Another question.

--------------------------------------------------------------------------------

Manabu Miyasaka, Yahoo Japan Corporation - CEO, President and President Corporate Officer [6]

--------------------------------------------------------------------------------

If I may add, on page 83, there are many things which are shown here if you look at this. Mr. Oya talked about the transaction value increase, and Yahoo! Shopping advertising is the first part that we'll be doing to template. And so as the advertising revenue increases, the premium member number would increase, and the premium member would increase doing more shopping. And together with that, there will be an increase of the YJ cardholders. So in one business segment, if you only look at that, you might make a mistake. So that's why we started to have this group system so that inside the company, we would combine those businesses as a group. And another thing, 2 years ago -- well, last year, sales promotion expense was reduced. And targeting a specific customer group, we can grow. So now we know how to do that. And in the worst case, sales promotion cost, of course, when we had much higher 2 years ago. And it was revenue was growing because of the sales promotion cost. And there was a risk that if we stop spending more that the revenue might come down. But I think that the capability of the sales increasing and the conversion rate has been increasing. So once you use it, you will be happy with it. And when we reduced the number of the point, the people did not leave. So as we increase number of the customers, they will continue to do more business with us. So that's something that we learned.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yoneshima from Crédit Suisse Securities. I would like to ask a question about e-Commerce, 2 questions. First about the SoftBank synergy, working together with SoftBank, referring the customers from SoftBank. Up until May and also June and onwards, you mentioned that 10% is the same. But the T point burden -- I'm sure you cannot disclose everything. But up to May and June and onwards, your offer were not increased. Is that something that is correct?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [8]

--------------------------------------------------------------------------------

Well I cannot disclose the details. But it's not major changes happening. So the burden on our part, it doesn't change. That's correct.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So in relation to that first question, SoftBank users will continue to benefit 10%. So the premium, if you are a SoftBank user and the premium member. So you could have had 20% on the days ending 5. Is it still 10% or 20%?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [10]

--------------------------------------------------------------------------------

The premium member, the conventional premium members, well, in that sense, that will be 15% if they do the shopping on the days ending 5. So it's not 20%, but 15% for the premium members.

--------------------------------------------------------------------------------

Keiichi Yoneshima, Crédit Suisse AG, Research Division - Analyst [11]

--------------------------------------------------------------------------------

The second question. As (inaudible) asked the question. And on Page 95 of your presentation about the outlook guide would increase by JPY 5 billion, but additional investment is JPY 40 billion in total. And this additional investment, the breakdown of the cost other than the sales promotion cost, what are they? And if you can give us how much that will be for each item. Those are 2 major items. So it's difficult to understand the total picture. So what will be the investments that you will be making, and what are the purposes aside from the sales promotion cost?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [12]

--------------------------------------------------------------------------------

Well, then, the value about the investment and increase of the sales promotion cost, and let me explain the background. So we'll be making proactive investments, so JPY 25 billion and JPY 15 billion, as you see on this slide. Now this is defined as our investments. That is out of the cost increase from year-on-year cost increase. For example, the labor cost increased due to the higher salary. Those are excluded and those are what we call investments. And higher -- in addition to the higher costs, part of the point campaign will be offset from the revenue sales. So including that is actually we call that investment, mainly in e-Commerce transaction value. Let me explain, JPY 25 billion. And sales promotion cost increase on Page 96, JPY 15 billion to JPY 16 billion. So what is the difference? Most of them is the point campaign cost that will be offset from the sales. And there are other minor costs, but the major part is the promotion. And in order to become data-driven company, hardware, software, purchases -- and of course, we'll be making some of the software on our own. The labor cost and the business commission, those would increase. And the breakdown or the outlook of the sales promotion cost on Page 96, as for the breakdown, Shopping, YAHUOKU, or conventionally, as I said, shopping and card sales promotion was the major portion. But this time, in comparison to Shopping, YAHUOKU! is a little higher and the payment finance membership-related investments will be higher. So investment patterns, the value is large, but we are becoming more efficient. So that means that for the execution, probability is higher. As for the YAHUOKU! and membership services, there are many things which are planned, but we'll be doing some fixed-term campaign to see the effectiveness of that. And range of the investments -- there is a range of investment actually, not a fixed amount. As we are on Page 97, as for the outlook, so there is a range of this outlook. So this -- from the investment, there could be some variability of execution of the investments. So we wanted to communicate that. So that's why we have the range of JPY 175 billion to JPY 185 billion as our outlook for the operating income. So we will be making that JPY 40 billion investment, but organic revenue increased. And through the additional investments, there could be additional revenues. And including all those, we estimated this operating income. Now return for this investment, let me discuss that. Well, conventionally, the EC shopping card, we said that we will continue to make investments. And return on the investment in the past, more profitability of the business, I think we are becoming leaner. And the Shopping business, if you look at -- look on at the Shopping business, the deficit level is very small compared to the past. And as for the card business, this is on track, and next year, we would become profitable. And other than that, as for the EC sales promotion investment, we would collect in about 3 years. So we will make sure that we monitor this well. So if we find it effective, we will start small and scale up, and if not, we would stop. So that's how we intend to operate. So the data-driven ROI is -- it's difficult for me to explain each ROI. So we would -- or this time, we explained some examples so that you can understand this better. So that's how we intend to continue. Thank you. Thank you very much.

--------------------------------------------------------------------------------

Unidentified Company Representative, [13]

--------------------------------------------------------------------------------

Any other question? There, second row from the right.

--------------------------------------------------------------------------------

Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division - Analyst [14]

--------------------------------------------------------------------------------

I am Nagao of Nomura Securities. About EC, I know that you are strengthening EC. And you have the accounts receivable as well as payable, and you will leverage on the payment and the financial business in order to come up with the ecosystem. And you have Japan Net Bank as one of your partner. And do you think you can further strengthen the relationship, because in terms of credit business, you need to have the banking leg as well. So regarding Japan Net Bank, how do you plan to reinforce the relationship with the bank?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [15]

--------------------------------------------------------------------------------

We have the EC ecosystem and not only us, but Rakuten is yet another company that has the ecosystem. And I believe that the collaboration with the bank is one of the important pieces. So we want to acquire new accounts. And also for stores, we are providing loan and -- to some extent. So we will try to deepen the current relationship we have with Japan Net Bank.

--------------------------------------------------------------------------------

Yoshitaka Nagao, Nomura Securities Co. Ltd., Research Division - Analyst [16]

--------------------------------------------------------------------------------

The second question about becoming a rich media? How do you plan to come up with the budget? Are you going to come up with the budget to procure content, or are you going to create your own content? I want to know how you plan to use the budget to reinforce the Media business, Miyazawa san, please.

--------------------------------------------------------------------------------

Gen Miyazawa, Yahoo Japan Corporation - EVP, Executive Corporate Officer and President of Media & Marketing Solutions Group [17]

--------------------------------------------------------------------------------

Yesterday, with MTV, we have partnership, and we will make news richer. We plan, if possible, if there is any other partner, we want to expand our partnership with other entities as well. And there are other areas that we can leverage on video. So we will try to increase more video in different media domain, and we will include that in our budget. And I think that we will be able to allocate such a budget continuously. In our commerce area, we have GyaO. And in GyaO! we'll have a budget for the investment, and that will be quite aggressive in nature.

--------------------------------------------------------------------------------

Unidentified Company Representative, [18]

--------------------------------------------------------------------------------

Any other questions?

--------------------------------------------------------------------------------

Ryotaro Sawada, [19]

--------------------------------------------------------------------------------

Sawada from Research Institute. I have 2 questions. Page 82 about the shopping transaction value, 30% increase -- sorry, the sales promotion cost related question. So in the next year and onwards, the 30% or more, that is what you try to achieve. So based on that, you try to come up with the budget distribution.

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [20]

--------------------------------------------------------------------------------

Yes, 30% or about 30% transaction value increase is something that we would like to realize. So we will be focused on that.

--------------------------------------------------------------------------------

Ryotaro Sawada, [21]

--------------------------------------------------------------------------------

Second question. Well, in the case of Amazon Marketplace, there are some froze going on taking over accounts or the long delivery of the product. In your case, I think that your system is very similar to Marketplace. So what are your views on that? It has to do with the credibility and there could be some risks, so any countermeasures, any comments?

--------------------------------------------------------------------------------

Manabu Miyasaka, Yahoo Japan Corporation - CEO, President and President Corporate Officer [22]

--------------------------------------------------------------------------------

Yes. To be able to sell for anyone and with reliability, I think it's very difficult to do both. In our case, especially we started Yahoo! Auction, 1999. So anyone can come and sell. We have the knowhow, I think. We have technology. We use data. For the safety, for example, patrolling, using data and to prevent the froze, I think we have been quite successful. And also we monitor using people. And just as a security, if I say -- if I explain what is done specifically, that will be a tact. So using data and using people, we try to take countermeasures in the area of the safety.

--------------------------------------------------------------------------------

Unidentified Company Representative, [23]

--------------------------------------------------------------------------------

Then the next person, the person sitting way behind him, please.

--------------------------------------------------------------------------------

Haruka Mori, JP Morgan Chase & Co, Research Division - Analyst [24]

--------------------------------------------------------------------------------

I am Mori of JPMorgan Securities. I have 2 questions, firstly about aggressive investment, the additional investment. And maybe I should talk about sales promotional expense. You have point expense and also advertisement expense. And if you talk about the breakdown of this additional investment, can you tell me the proportion and also what is the saving for this fiscal year? And another point related to data-driven, I think this is an endless endeavor. So regarding the investment amount, do you think it will increase in the future? So midterm-wise, do you think this as the nature of growing year-on-year?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [25]

--------------------------------------------------------------------------------

I don't have the material with me right now. But I can tell you some ballpark image. Regarding shopping, premium members and SoftBank users will be the focal point in conducting promotion. So that will be the core countermeasures. And regarding YAHUOKU!, we will have charge back using money. So if premium member has item on the mall, then that will be free of charge. And that's the campaign that we have on mind. About payment, we will have the [cost pool] acquisition of new members. And if you become a member, we can provide about 10,000 points. Next membership services, we will reinforce the privilege that they can enjoy. And if you purchase the detail or content, there will be points provided. When the transaction value goes up in relationship to it, the point will increase, but of course, there will be increasing revenue accordingly. So we try to balance those 3 factors together. About other promotion, we will be disciplined. So we look at the transaction value and try to have a certain percentage as the saving of all the expense. And we will realize that by seeking efficiency. When the transaction value goes up, we want the equation to be such that we can enjoy higher profit. Talking about YAHUOKU!, we want to grow it further more. So mass promotion will be conducted. That's on our plan.

--------------------------------------------------------------------------------

Manabu Miyasaka, Yahoo Japan Corporation - CEO, President and President Corporate Officer [26]

--------------------------------------------------------------------------------

Now I would like to talk about data and then the representative will chime in later. We will invest in data. And we are a technology company, so I'm sure that this is an endless effort. We need to look at the traffic growth and profit and sales growth, and we need to strike a balance between all those parameters. The more you have the technical advancement, for example, per server, you can process more. And if we don't have the technical development, we have to increase the number of servers. Let's say if the number of needed servers might be focal, but by having the technical advancement, we can reduce the need to only twofold. Talking about data center, the electricity bill is very high. And as long as we have data centers here in Japan, we have to live with the situation. And part of our data resides in the U.S. right now because of the cost factor. And so there will be traffic between the U.S. and Japan. But in terms of our communication speed, we will be able to distribute them to other parts of the world so that we will be able to reduce the cost. Equipment procurement-wise, we are looking into ways to jointly purchase the equipment. The data might be fourfold, but the investment should not be fourfold, because we have to factor in the technical advancement so that the CapEx can be reduced. So those are the 3 important points. Any other comment that you want to make?

--------------------------------------------------------------------------------

Unidentified Company Representative, [27]

--------------------------------------------------------------------------------

Talking about data-driven, we want to become a data-driven company, and we want to reinforce our capability to accumulate more data and try to reinforce the processing capability. And I believe that those 2 are the key. Talking about the first point, we have much data already. And by advancing the technology, we should be able to more efficiently store date. R&D is underway in mid- to long-term wise, and the investment will grow as our business grows. But in terms of investment in accumulating data, it will go down as time passes by. Talking about processing and by having IA server in parallel, that is how we accommodate the Internet world. And -- but we have AI. We have deep learning, and we have something akin to supercomputer. And so very small footprint can actually have a very high processing capability as that supercomputer. And if this R&D becomes successful, then at one point in time our CapEx will go down. So mid- to long-term wise, we will grow our investment, but in the end of the day the CapEx will be flat.

--------------------------------------------------------------------------------

Haruka Mori, JP Morgan Chase & Co, Research Division - Analyst [28]

--------------------------------------------------------------------------------

But e-Commerce, 30% is shown for this year -- previous year. I think at the beginning of the year, there was the target value and we revised that. But this year, as a result of the campaign together with the SoftBank, you are looking at how it will be. And so we came up with 30% growth. And also, the ease of use from the users' perspective, anything that you'll be doing or improvement that you'll be making in the area of the Shopping? Or also the distribution or logistics issues are drawing a lot of attention. So any improvements or changes for the users?

--------------------------------------------------------------------------------

Toshiki Oya, Yahoo Japan Corporation - CFO and Senior EVP Corporate Officer [29]

--------------------------------------------------------------------------------

30%, frankly speaking, in the past several years, it's growing very rapidly. So it's very difficult to forecast the future. Definitely about the 30% year-on-year, this is quite a high target, I think. So of course, that -- not everything is visible. But to become #1 in terms of the transaction value, we would like to -- in order to do that, we'd like to achieve that level of growth. So it's not really a single-year target. But in a few years, this is still kind of the growth that we want to realize. That is our intent as management.

--------------------------------------------------------------------------------

Manabu Miyasaka, Yahoo Japan Corporation - CEO, President and President Corporate Officer [30]

--------------------------------------------------------------------------------

Well, concerning EC, I think we have a person in charge of the commerce segment, so he would comment on that.

--------------------------------------------------------------------------------

Kentaro Kawabe, Yahoo Japan Corporation - COO and Senior EVP Corporate Officer [31]

--------------------------------------------------------------------------------

So I am COO, and I am in charge of the commerce. My name is Kawabe. You asked 2 questions. 30% is the first question. And also what do we do this year. As for the first question, to grow the service or to grow the business, making investments, sometimes it doesn't work. Those of you who have started the service understand that in most of the cases, we do not succeed. So in the case of commerce, when we have -- if we find a methodology to come with the return on the investment, then we will continue to make investment. So in that sense, compared to last year, this year, as we made announcement today, the 30 million SoftBank members, we will be doing marketing for them. There's an opportunity to do so. And we have done that in January, March, and it has been successful. So we know how to make improvements. So in comparison to last year, now we have those methodologies or the methods that we can use. So that's better than last year. As for functions that we want to improve this year, in order to become more data-driven in the area of Shopping, search the item has become #1 in Japan. But the search is not 100%. If we are more accurate, then we can propose whatever -- which are more relevant to the users. So we will be spending our resources for that. And Y money, yahoo! user and YAHUOKU! user using Y money so that they can have shopping experience seamlessly. That is a kind of mechanism that we want to realize. Yahoo! Shopping and YAHUOKU! items can be shown as a result of the search. So that's something that we're going to do so that we can increase the transaction value of both, and also including LOHACO. So we can benefit from that. So the results of the search is something that we want to promote. So I hope you would use it. And if you have any suggestions to improve our search, please let us know. Thank you.

--------------------------------------------------------------------------------

Unidentified Company Representative, [32]

--------------------------------------------------------------------------------

And then it is close to 6 o'clock, so can I take one last question. Then on the right, second row from the front, please.

--------------------------------------------------------------------------------

Masato Araki, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [33]

--------------------------------------------------------------------------------

I'm Araki, Mitsubishi UFJ. I have one question. You know what is happening with Yamato. So I want to confirm about your logistics situation. Based on your business model, when the distribution cost goes up, then the -- a seller must be -- absorb that increased cost. Right? And do you have any plan to assist in the logistics? Are there anything that you can do to help with the current situation, that is to say, do you have any plan to provide more points or maybe you might subsidize the store, because the distribution cost will be increasing in the future?

--------------------------------------------------------------------------------

Manabu Miyasaka, Yahoo Japan Corporation - CEO, President and President Corporate Officer [34]

--------------------------------------------------------------------------------

There are companies who have their own logistics. And on the other hand, we have a partnership with a distribution company. So actually, we cannot have any say in what they would do. So we will listen to the voices of the stores. So if needed, we will try to see what we can do. For ASKUL, we have our own logistics. And so on-time delivery is very accurate. So we want to leverage on that, group company's capability to overcome the current situation.

--------------------------------------------------------------------------------

Masato Araki, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [35]

--------------------------------------------------------------------------------

Thank you very much. We would like to end the presentation. Thank you very much for your participation.