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Edited Transcript of 4751.T earnings conference call or presentation 24-Jul-19 7:00am GMT

Q3 2019 CyberAgent Inc Earnings Presentation

Tokyo Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of CyberAgent Inc earnings conference call or presentation Wednesday, July 24, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Susumu Fujita

CyberAgent, Inc. - Co-Founder, President & Representative Director

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Presentation

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Unidentified Company Representative, [1]

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We would like to begin the live broadcast, live streaming of FY 2019 third quarter presentation. With regards to today's presentation, please refer to the disclaimer written in the document.

So President Fujita will be giving the briefing of our results for the third quarter.

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Susumu Fujita, CyberAgent, Inc. - Co-Founder, President & Representative Director [2]

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I am Fujita, the President of the company. I just uploaded the blog, the reasons for why this quarter, the first and third quarter going forward, we will be having a live streaming of our presentation. We apologize in advance, but the Q&A will be reserved for the second and fourth quarter. The first and third quarter, I will not be able to answer any questions. So if you have any questions, please contact the IR division.

So from -- I would like to give you a briefing of the overview of the third quarter starting in April, ending in June this year. In a nutshell, this quarter, we made a downward revision last quarter and we reviewed the costs, and that had a positive impact. So it was a very steady good quarter for us. In terms of the OP, it went up by 38.3% year-on-year and landed at JPY 9.4 billion.

In Media, as we said from the onset, we wanted to achieve 10 million WAU, and we surpassed that this quarter, and so we have been continuing to grow our scale. So this has grown healthily. And what we -- the Advertising business has grown healthily as well and Games as well, we believe that the (inaudible) so this has also grown steadily.

This is the sales for the quarter. Year-on-year, it grew by 8.8%, so it's slightly lower than 10%. But the top line is starting to not grow as fast, but we would like to continue to make efforts so it does.

With respect to the OP, by reviewing the cost structure, and we had a big campaign internally to review the cost, and that has resulted -- has yielded positive results and the OP was JPY 9.4 billion.

This is the SG&A. So getting rid of the redundancy was a concept of our cost controlling. And as a result, we have been able to decrease SG&A by JPY 1.5 billion quarter-on-quarter.

In terms of the number of employees, every year, we mainly accept new graduates in April. So 392 new graduates joined us, and our headcount now is 5,433.

This is the P&L and BS, balance sheet. There are no major changes for these charts.

So we only have fourth quarter left for this fiscal year. But today, we announced an upward revision. 6 months ago, the first quarter, we weren't off to a good start, so we announced downward revisions. And even before that, we announced it on January 30, but 2, 3 months before in November -- from November, we have started to review costs internally, so we started a little bit before, but the entire company worked very hard to control costs.

And as a result, in just 6 months, we actually initially had forecasted an OP of JPY 30 billion, but we're very close to that now, so we made an upward revision. So we made a downward revision 6 months ago. And 6 months later, we made an upward revision. So it may seem odd, but we believe that we need to revise -- announce a downward revision because we need to make sure that we're reacting speedily, quickly to make the necessary changes. We hope that you understand why we've done so.

So we're back to our initial plans, basically, but we are still making investments in AbemaTV, so we want to continue to make an upward in OP of about JPY 30 billion and continue to invest in AbemaTV.

So in terms of the business forecast, this is the forecast. And we finished 3/4 of the year and this is the progress against the full year. And we've already done 81% of the operating profit, so we hope to surpass our JPY 29 billion in OP at the end of the fourth quarter.

Looking closely at individual businesses, starting with the Internet Ad Business. The third quarter, April through June, mainly the peak in advertising is from January to March, so it falls in April to June. Having said that, the year-on-year quarter comparison, we've actually grown steadily. So year-on-year, it was up by 7.9%. OP has also grown healthily as well.

The top line for our company is getting -- I mentioned that it's getting harder to grow the top line, but -- and this is impacted by that. But Internet Advertising Business actually is what impacts the top line the most. But 6 months through the year, we have started to approach brand clients, national clients that we didn't have in the past. So that was our focal area for the last 6 months of the year. And as a result, we have welcomed cosmetics, auto manufacturers and other manufacturers as well. So they have joined our portfolio. And fourth quarter onwards, we want to make sure that our dealings with these new clients expand. So that will be our focal area in the fourth quarter.

Next is the Game Business. Unexpectedly, there are seasonal factors impacted the Game Business. January to March is the New Year, and there are many anniversaries, so it's easier to grow the business spend. But April into June, we don't have many anniversaries or those factors. Having said that, our existing game titles performed well.

Looking at the OP, we actually got rid of redundancies in the promotion costs and reviewed other costs as well. So the OP ended up at JPY 8.3 billion, which is significant growth.

Currently, we are working on new titles, and we hope to release about 5 new original games a year. So it is becoming more and more difficult to have a hit game, but we hope to continue to release new titles that will become a hit.

And next, Media Business. The Media Business, we announced that Ameba Pigg service will be ending at the end of December. So that has impact -- negatively impacted the sales. And this is also mainly advertising business, so in comparison to January through March, the April-June period, we are impacted by seasonal factors so that it tends to be lower.

Moving on to AbemaTV. As I mention every time, AbemaTV, we don't have to invest a lot in promotional costs anymore because we have major programs, which is attracting a lot of fans and there's a -- and also, when we have news, the downloads grow naturally organically. So currently, we have more than 42 million downloads.

Next, 10 million WAU. When we launched, I mentioned that I wanted to create a mass media on the Internet. But on a big -- the business would only work if there is a big media and there's a lot of big media -- there's a big media and we also need a lot of viewership as well. So even if the scale is -- scale as small as -- scale is small, it doesn't really make sense. And that's what I said every time.

But recently, we've surpassed 10 million MAU 3 times. First time was the announcement of marriage for Ryota Yamasato and Yu Aoi. The second time is the program featuring Tenshin Nasukawa and Koki Kameda. And the third one was the press conference by comedians from Yoshimoto, especially the third comedians' press conference, this actually has hit a new record high.

When we started AbemaTV, well, I modeled the business after is that they were portal size when the Internet first launched, and many people watched -- went to Yahoo! because they had news. There was always news. And then that also led to different content. So with AbemaTV as well, I launched the news program first. So news is going to be the core nucleus. And then on top of that, we will have animation, sports, variety programs. So -- and having said that, breaking the record by news with 2 news programs is something that I've had forecasted or expected.

With respect to news programs, we are working with TV Asahi mainly. But other than that, we are working with other terrestrial programs more and more. So we mentioned the Nasukawa Tenshin and Kameda Koki's boxing program, so we had a lot of traffic from terrestrial viewers. And it was Golden Week and it was a late-night show, but they also broadcast a lot of AbemaTV-related programs. And when they broadcasted Weathering With You or Your Name, they also -- we also broadcasted related programs as well. So we're working very closely.

The new programs on AbemaTV from July, we've launched one of the biggest content regular program. "You can't fool me, Mr. Wolf" was our biggest show. But we actually launched a role-reversal version, "You can't fool me, Miss. Wolfy," and it's off to a very good start, a better start than any other programs in the past. So that is going to be a new foundation.

And from August 8, we are going to have a Steal Your Heart summer. It's actually a very dramatic and very interesting script. So we will be showing this drama. TV Asahi used to show the Steal Your Heart winter, and this is a sequel to that. But since we announced that we will be airing this show, it's actually spread by word-of-mouth. So this will start from August 8.

This is the transition of AbemaPremium subscribers. We have 448,000 subscribers now in AbemaPremium. So subscription fee is around JPY 1,000 per month. So compared to Netflix and Amazon video -- Amazon -- there are a lot of other players. But in terms of differentiating factors, it's usually content that's only available on that service. So alluring content is key. So AbemaTV, the more programs that we show, the more exclusive content only shown on AbemaTV increases. So in that sense, we are in a very advantageous position.

Next in peripheral business, Keirin's WinTicket, we sell tickets to Keirin cycling. So we started in April. And in June, the transaction volume was JPY 220 million already. So in the Keirin channel, we show -- cycling channel, we show cycling and they can -- as they watch cycling, they can buy tickets and bet while they're watching the race.

And going forward, TV business is actually subscription or advertising is the main pillars, but we are an Internet company and we have a wealth of experience in the Internet business, so we want to have a multifaceted business model. So we want to increase IPs and related businesses. WinTicket is one that I mentioned and also shopping channel, e-commerce and also gifting, tipping as well is something that we've started and we offer. And in order to grow our Advertising business, we want to have a business alliance with the advertising agencies like Dentsu and Hakuhodo, which will be important. So we will -- we'd like to focus especially on those 2 areas.

So we started with linear broadcast and had advertising. That's where we focused on in the beginning. But at the same time, we also wanted to monetize subscription and also focus on related businesses as well, WinTicket and -- as well, so we want to continue to focus on these key monetization factors.

So it will take time for people to get used to watching on the Internet, but we don't want our investors to hope for results very quickly because it takes time to get people into the routine, but we actually hit a WAU of 10 million. So of course, we're not saying we're going to be in the black, but monetization going forward will continue to expand and scale. And please know that we believe we are at a time where we can actually start to focus on monetization.

The reason why we're focusing on AbemaTV is because we want to have a next pillar of business while the other businesses are doing well, like advertising, so we hope that you will continue to hold our shares for a long time.

We hope to have your continued support. Thank you very much.

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