and factory / 7035
COVERAGE INITIATED ON: 2019.04.12 LAST UPDATE: 2021.01.14
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.
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INDEX
How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.
Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------7 Quarterly trends and results ------7 Q1 FY08/21 results ------9 Business ------15 Business description ------15 Segment overview and business model ------18 Smartphone Apps business (FY08/20 sales of JPY2.5bn, operating profit of JPY352mn)) ------18 IoT business (FY08/20 sales of JPY337mn, operating loss of JPY187mn) ------25 Other businesses (FY08/20 sales of JPY79mn) ------29 Market and value chain------30 Japan’s e-book market ------30 IoT industry ------33 Hotel industry ------34 Competitors ------36 Strengths and weaknesses ------38 Historical results and financial statements ------39 Income statement ------39 Balance sheet ------40 Cash flow statement ------41 Historical performance ------42 Other information ------49 History ------49 Mission ------49 News and topics ------50 Corporate governance and top management ------52 Dividend policy ------53 Major shareholders ------53 Employees ------53 Glossary ------54 Profile ------55
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Executive summary
Business overview
◤ A startup company with businesses in two areas, smartphone apps and IoT. In FY08/20, sales were JPY2.9bn (-24.8% YoY), and operating loss was JPY203mn (profit of JPY512mn in FY08/19). Earnings primarily come from manga apps in the Smartphone Apps business. The IoT business was severely impacted by delays and cancellations of in-house development projects due to the novel coronavirus pandemic, as the previous target customer base for the &AND HOSTEL smart hostels were inbound tourists.
◤ In the Smartphone Apps business (FY08/20 sales of JPY2.5bn, +41.4% YoY; operating profit of JPY352mn, -41.4% YoY), the company primarily develops and offers manga apps. The company has developed free-to-use manga apps with Square Enix and large publishers such as Hakusensha, Shueisha, and Shogakukan. In manga apps, the company obtains revenue by charging e-comic download fees (rental fees). These apps also draw advertising revenue based on the number of clicks made on banner ads placed through ad networks. Monthly active users (MAUs) in Q4 FY08/20 numbered approximately 9.9mn, mainly young people, ranking it first in the industry despite its late entry. Average revenue per user, or ARPU, after revenue sharing is approximately JPY21 for manga apps.
◤ In the IoT business (FY08/20 sales of JPY337mn, -83.6% YoY; operating loss of JPY187mn, versus profit of JPY194mn in FY08/19), the company plans, develops, and operates the &AND HOSTEL brand of smart hostels, where visitors can experience services made possible by IoT. In this segment, the company also provides IoT solutions for lodging facilities, including innto (a property management system), tabii (a tablet-based service), and totono (a tenant communication app). &AND HOSTEL (eight locations as of end-August 2020) breaks down into two business categories. The first category encompasses planning and developing &AND HOSTEL facilities on property owned by other parties. The company receives planning- and development-related compensation through consulting, real estate brokerage, and other means. The company manages the hostels and receives compensation from hostel owners in return. Outside of the hostel business, innto (installed at 272 locations on a contract basis as of end-August 2020) revenue comes from proceeds from sales and system maintenance and operation fees, which are shared with business partner Almex. tabii (4,460 tablets on a contract basis) also draws advertising revenue for the company. As for totono, the company launched the service in August 2020. Tenants will be charged a usage fee for the app as part of the property’s management fee. Revenue will be shared by and factory and Sumasapo (or split three ways in the case of a third-party management company). and factory will develop, operate, and plan the app while Sumasapo will be responsible for sales.
◤ Impact of COVID-19 pandemic and the company’s response: Manga app advertising revenue declined as some advertisers reduced the unit price of reward advertising (with some even halving the unit price) and ad volume and prices on ad networks declined due to deteriorating advertising market conditions caused by the COVID-19 pandemic. Meanwhile, there were delays and cancellations for &AND HOSTEL in-house development projects. The company invested in manga app advertisements as planned. In light of the current environment, the company decided it would not be starting any new in-house development projects of &AND HOSTEL properties, and that it would switch its target from inbound tourists to domestic customers.
◤ Earnings structure: Based on the sales mix of 2H FY8/20, GPM is around 50%. In terms of SG&A expenses, annualized fixed costs were around JPY6.0bn in 2H FY08/20, and the company plans to spend JPY1.2bn on advertising in FY08/21 (JPY1.1bn in FY08/20), mainly for manga apps. While the company does not plan to start any new in-house development projects for &AND HOSTEL, it completed some developments in FY08/20 and holds JPY3.2bn in real estate for sale as of October 2020.
Trends and outlook
◤ In FY08/20, and factory reported sales of JPY2.9bn (-24.8% YoY), an operating loss of JPY203mn (from operating profit of JPY512mn in FY08/19), a recurring loss of JPY260mn (from recurring profit of JPY484mn), and a net loss of JPY362mn (from net income of JPY328mn). Sales, operating loss, and recurring loss improved from the revised company forecast announced on June 2, 2020 by JPY85mn, JPY46mn, and JPY41mn, respectively, but the net loss was JPY142mn lower. This is mainly due
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to an impairment loss on head office fixed assets (approximately JPY21.9mn), an impairment loss on some software (JPY28.6mn), and reversal of deferred tax assets in Q4.
◤ For FY08/21, the company forecasts sales of JPY3.5bn (+20.2% YoY), an operating loss of JPY27mn (versus JPY203mn operating loss in FY08/20), a recurring loss of JPY177mn (JPY260mn loss), a net loss of JPY182mn (JPY362mn loss), and EPS of -JPY18.66 (-JPY37.01). Although and factory targets 30% CAGR for the Smartphone Apps business, it expects continued losses in FY08/20 due to the impact of the novel coronavirus pandemic, which is forcing the company to change its policy for &AND HOSTEL in the IoT business. The company explained that FY08/21 will be a period of investment to return the company to profitability in FY08/22.
◤ Medium-term management plan: The company does not disclose its medium-term management plans. In addition to monetization through revenue sharing programs with business partners, the company plans to expand its business over the medium- to long-term by creating new earnings bases, promoting M&A, and building a manga app ecosystem in the Smartphone Apps business. In the IoT business, the company plans to rebrand &AND HOSTEL to capture domestic demand and expand the business into new areas such as the residential sector. As for its tenant communication app, totono, the company aims to monetize by partnering with external services such as utility and insurance companies, as well as by integrating smart lock, security, and rent payment functions.
Strengths and weaknesses Strengths
◤ Provides a manga app-related one-stop service and is capable of making improvements more quickly than competing companies
◤ Has secure relationships (including capital and business alliances) with publishers who hold intellectual property and are strong in terms of manga
◤ Provides a wide variety of manga app types and has established a structure that minimizes the risk of cannibalization between different manga apps
Weaknesses
◤ Most intellectual property is owned by business partners
◤ Susceptible to impact from external environmental changes because most of its profit comes from the development and operation of manga apps
◤ Concept and target customer base revision needed for &AND HOSTEL smart hostels in the IoT business
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Key financial data
Income statement FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 FY08/21 (JPYmn) Parent Cons. Parent Parent Parent Parent Par. Est. Sales 112 372 689 1,916 3,917 2,946 3,540 YoY - 231.9% 85.2% 178.3% 104.4% -24.8% 20.2% Gross profit - 166 506 1,114 1,567 1,574 YoY - - 204.4% 120.0% 40.7% 0.4% GPM - 44.7% 73.5% 58.1% 40.0% 53.4% Operating profit -40 35 224 365 512 -203 -27 YoY - - 543.8% 63.2% 40.3% - - OPM - 9.3% 32.5% 19.1% 13.1% - - Recurring profit -42 37 223 361 484 -260 -177 YoY - - 500.8% 61.5% 34.2% - - RPM - 10.0% 32.4% 18.8% 12.4% - - Net income -43 -6 174 261 328 -362 -182 YoY - - - 49.9% 25.8% - - Net margin - - 25.3% 13.6% 8.4% - - Per share data (JPY) Shares issued (year-end; '000) 8,421.0 8,421.0 8,421.0 8,421.0 9,494.6 9,827.1 EPS -5.2 -0.8 20.7 30.9 34.8 -37.0 -18.7 EPS (fully diluted) - - - - 33.3 - Dividend per share ------Book value per share 3.0 2.2 22.9 53.8 189.4 147.4 Balance sheet (JPYmn) Cash and cash equivalents - 79 172 672 1,353 1,028 Accounts receivable - 103 129 302 484 623 Inventories - 0 108 16 284 3,171 Total current assets - 193 480 1,126 2,453 5,662 Tangible fixed assets - 148747721 Investments and other assets - 26 33 103 381 529 Intangible fixed assets - 0 32 41 130 132 Total assets - 220 594 1,323 3,040 6,344 Accounts payable - 21 13 63 98 359 Short-term debt - 80 97 136 404 786 Total current liabilities - 159 262 653 1,095 1,858 Long-term debt - 27 140 216 147 3,027 Total fixed liabilities - 27 140 216 147 3,036 Total liabilities - 185 401 870 1,242 4,894 Total liabilities and net assets - 220 594 1,323 3,040 6,344 Total interest-bearing debt - 107 237 352 551 3,812 Cash flow statement (JPYmn) Cash flows from operating activities - 36 46 516 -115 -3,283 Cash flows from investing activities - -27 -94 -131 -416 -316 Cash flows from financing activities - 22 130 116 1,211 3,274 Financial ratios ROA (RP-based) - 33.9% 54.9% 37.7% 22.2% -5.5% ROE - -18.9% 164.7% 80.7% 29.1% -22.3% Equity ratio 18.6% 15.6% 32.4% 34.3% 59.1% 22.9% Source: Shared Research based on company data; per-share data has been adjusted for stock splits. Note: The YoY comparison in the consolidated results for FY08/16 is based on the simple calculation versus non-consolidated results for FY08/15. The YoY comparison in the non-consolidated results for FY08/17 is based on the simple calculation versus consolidated results for FY08/16.
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Recent updates Highlights
On January 14, 2021, and factory, inc. announced earnings results for Q1 FY08/21; see the results section for details.
On November 16, 2020, Shared Research updated the report following interviews with the company.
On November 13, 2020, and factory, inc. announced a change in representative directors.
Chairman and representative director Takamasa Ohara will resign from his post of representative director on November 25, 2020, and will become chairman and director of the company. The change is intended to speed up management decisions and consolidate representative rights to president to further enhance earnings. As chairman and director of the company, Mr. Ohara will promote development of new businesses and support and give advice on overall management.
On October 15, 2020, the company announced earnings results for full-year FY08/20; see the results section for details.
For previous releases and developments, please refer to the News and topics section.
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Trends and outlook
Quarterly trends and results
Cumulative FY08/19FY08/20 FY08/21 FY08/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1% of Est. FY Est. Sales 470 995 1,531 3,917 802 1,485 2,217 2,946 719 20.3% 3,540 YoY 84.1% 62.6% 51.1% 104.4% 70.9% 49.2% 44.8% -24.8% -10.4% 20.2% Gross profit 261 586 889 1,567 466 841 1,208 1,574 360 YoY - - 22.0% 40.7% 78.3% 43.6% 35.9% 0.4% -22.6% GPM 55.6% 58.8% 58.1% 40.0% 58.1% 56.6% 54.5% 53.4% 50.1% SG&A expenses 219 483 734 1,054 429 892 1,254 1,776 491 YoY 55.2% 43.6% 41.2% 40.9% 95.9% 84.8% 70.9% 68.5% 14.6% SG&A ratio 46.6% 48.5% 47.9% 26.9% 53.4% 60.1% 56.6% 60.3% 68.3% Operating profit 42 103 155 512 37 -51 -46 -203 -131 - -27 YoY -7.8% -15.6% -25.7% 40.3% -12.3% - - - - - OPM 9.0% 10.3% 10.2% 13.1% 4.6% - - - - - Recurring profit 37 82 131 484 37 -86 -89 -260 -156 - -177 YoY - - -36.4% 34.2% -1.6% - - - - - RPM 7.9% 8.2% 8.6% 12.4% 4.6% - - - - - Net income 25 55 89 328 20 -64 -102 -362 -157 - -182 YoY - - -33.7% 25.8% -20.9% - - - - - Net margin 5.3% 5.6% 5.8% 8.4% 2.5% - - - - - Quarterly FY08/19 FY08/20 FY08/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Sales 470 526 536 2,386 802 682 732 729 719 YoY 84.1% 47.2% 33.5% 164.3% 70.9% 29.8% 36.6% -69.4% -10.4% Gross profit 261 324 304 677 466 375 367 365 360 YoY - - -58.3% 76.2% 78.3% 15.7% 20.9% -46.1% -22.6% GPM 55.6% 61.7% 56.7% 28.4% 58.1% 55.0% 50.2% 50.1% 50.1% SG&A expenses 219 264 251 320 429 463 363 522 491 YoY 55.2% 35.3% 36.7% 40.2% 95.9% 75.5% 44.3% 62.9% 14.6% SG&A ratio 46.6% 50.2% 46.9% 13.4% 53.4% 67.8% 49.5% 71.6% 68.3% Operating profit 42 61 52 357 37 -88 5 -157 -131 YoY -7.8% -20.3% -39.9% 129.0% -12.3% - -91.0% - - OPM 9.0% 11.5% 9.8% 15.0% 4.6% - 0.6% - - Recurring profit 37 44 49 353 37 -123 -2 -171 -156 YoY - - -76.1% 128.0% -1.6% - - - - RPM 7.9% 8.5% 9.2% 14.8% 4.6% - - - - Net income 25 30 34 239 20 -84 -37 -260 -157 YoY - - -75.0% 88.7% -20.9% - - - - Net margin 5.3% 5.7% 6.3% 10.0% 2.5% - - - - Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.
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Cumulative FY08/19 FY08/20 FY08/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Sales 470 995 1,531 3,917 802 1,485 2,217 2,946 719 YoY 84.1% 62.6% 51.1% 104.4% 70.9% 49.2% 44.8% -24.8% -10.4% Smartphone Apps 394 814 1,229 1,789 650 1,218 1,859 2,530 626 YoY 94.1% 74.7% 62.1% 62.8% 64.9% 49.6% 51.2% 41.4% -3.7% Composition 83.9% 81.8% 80.3% 45.7% 81.0% 82.0% 83.8% 85.9% 87.1% IoT 66 152 251 2,056 124 207 287 337 85 YoY 74.0% 13.1% 4.4% 157.0% 86.8% 36.7% 14.4% -83.6% -30.9% Composition 14.1% 15.2% 16.4% 52.5% 15.4% 14.0% 12.9% 11.4% 11.9% Other 9 29 52 72 29 59 72 79 7 YoY -33.5% 8.6% 78.3% 320.4% 212.4% 102.4% 38.5% 10.7% -74.3% Composition 2.0% 2.9% 3.4% 1.8% 3.6% 4.0% 3.2% 2.7% 1.0% Operating profit 42 103 155 512 37 -51 -46 -203 -131 YoY -7.8% -15.6% -25.7% 40.3% -12.3% -149.2% -129.6% -139.5% -451.3% OPM 9.0% 10.3% 10.2% 13.1% 4.6% -3.4% -2.1% -6.9% -18.2% Smartphone Apps 124 264 390 600 128 180 310 352 38 YoY 33.8% 36.5% 28.7% 25.0% 3.2% -31.8% -20.4% -41.4% -70.8% OPM 31.6% 32.4% 31.8% 33.5% 19.8% 14.8% 16.7% 13.9% 6.0% IoT -24 -35 -43 194 -14 -65 -112 -187 -70 YoY ---36.7%---- - OPM -35.6% -23.1% -17.2% 9.5% -11.2% -31.4% -39.1% -55.6% -82.3% Other, company-wide expenses -59 -126 -192 -282 -77 -165 -244 -367 -98 Quarterly FY08/19 FY08/20 FY08/21 (JPYmn) Q1Q2Q3Q4Q1Q2Q3Q4Q1 Sales 470 526 536 2,386 802 682 732 729 719 YoY 84.1% 47.2% 33.5% 164.3% 70.9% 29.8% 36.6% -69.4% -10.4% Smartphone Apps 394 420 415 560 650 568 641 672 626 YoY 94.1% 59.7% 41.9% 64.4% 64.9% 35.3% 54.5% 19.8% -3.7% Composition 83.9% 79.9% 77.3% 23.5% 81.0% 83.3% 87.5% 92.1% 87.1% IoT 66 85 99 1,805 124 84 80 50 85 YoY 74.0% -11.0% -6.6% 222.5% 86.8% -2.0% -19.7% -97.2% -30.9% Composition 14.1% 16.3% 18.5% 75.7% 15.4% 12.3% 10.9% 6.8% 11.9% Other 9 20 22 20 29 30 12 8 7 YoY -33.5% 53.8% 1019.4% -266.1% 212.4% 51.2% -45.2% -61.4% -74.3% Composition 2.0% 3.8% 4.2% 0.8% 3.6% 4.4% 1.7% 1.1% 1.0% Operating profit 42 61 52 357 37 -88 5 -157 -131 YoY -7.8% -20.3% -39.7% 128.8% -12.3% -245.1% -91.0% -143.9% -451.3% Smartphone Apps 124 139 127 209 128 51 131 41 38 YoY 33.8% 39.0% 14.9% 18.8% 3.2% -63.1% 3.2% -80.3% -70.8% OPM 31.6% 33.1% 30.5% 37.4% 19.8% 9.0% 20.4% 6.1% 6.0% IoT -24 -12 -8 238 -14 -51 -47 -75 -70 YoY - - - 226.5% - - - -131.5% - OPM - -13.5% -8.2% 13.2% -11.2% -61.3% -59.3% -150.5% -82.3% Other, company-wide expenses -59 -67 -66 -90 -77 -88 -79 -123 -98 Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.
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Quarterly FY08/19 FY08/20 FY08/21 (mn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Monthly active users (MAU) Smartphone Apps 3.30 4.01 4.60 5.61 6.68 7.36 9.19 10.03 10.37 YoY 65.0% 82.3% 79.0% 96.8% 102.4% 83.5% 99.8% 78.8% 55.2% QoQ 15.8% 21.5% 14.7% 22.0% 19.1% 10.2% 24.9% 9.1% 3.4% Gamer-forum apps 0.51 0.39 0.30 0.29 0.27 0.16 0.13 0.09 0.11 YoY -44.6% -44.3% -43.4% -38.3% -47.1% -59.0% -56.7% -69.0% -59.3% QoQ 8.5% -23.5% -23.1% -3.3% -6.9% -40.7% -18.8% -30.8% 22.2% Composition 15.5% 9.7% 6.5% 5.2% 4.0% 2.2% 1.4% 0.9% 1.1% Manga apps 2.79 3.62 4.30 5.32 6.41 7.20 9.06 9.94 10.26 YoY 158.3% 141.3% 110.8% 123.5% 129.7% 98.9% 110.7% 86.8% 60.1% QoQ 17.2% 29.7% 18.8% 23.7% 20.5% 12.3% 25.8% 9.7% 3.2% Composition 84.5% 90.3% 93.5% 94.8% 96.0% 97.8% 98.6% 99.1% 98.9% ARPU (Monthly sales / MAU; JPY) Gamer-forum apps 40 34 52 59 78 92 90 89 73 YoY 6.8% -43.9% -12.6% -19.8% 95.1% 168.1% 71.8% 51.6% -6.5% QoQ -45.4% -14.2% 52.8% 12.3% 32.7% 17.9% -2.1% -1.0% -18.2% Manga apps 25 27 26 24 22 23 21 21 19 YoY 33.9% 32.0% 18.6% -5.8% -14.4% -13.2% -19.0% -12.5% -14.0% QoQ 0.6% 7.0% -3.7% -9.0% -8.6% 8.5% -10.2% -1.8% -10.2% Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. Q1 FY08/21 results Overview
▷ In Q1 FY08/21, the company reported sales of JPY719mn (-10.4% YoY), an operating loss of JPY131mn (versus operating profit of JPY37mn in Q1 FY08/20), a recurring loss of JPY156mn (versus recurring profit of JPY37mn), and a net loss of JPY157mn (versus net income of JPY20mn). ▷ Sales of JPY719mn were down 10.4% YoY, with the Smartphone Apps business reporting sales of JPY626mn (-3.7% YoY) and the IoT business reporting sales of JPY85mn (-30.9% YoY). ▷ The operating loss of JPY131mn was down from operating profit of JPY37mn in Q1 FY08/20, with the Smartphone Apps business reporting operating profit of JPY38mn (-70.8% YoY) and the IoT business reporting an operating loss of JPY70mn (versus operating loss of JPY14mn in Q1 FY08/20). ▷ Full-year FY08/21 forecast: The company has made no changes to its initial earnings forecast. As of end-Q1, sales were 20.3% of the full-year target. The company indicates that Q1 sales and operating profit were commensurate with its projections. ▷ Ongoing economic impact from the COVID-19 pandemic is affecting the company’s business performance, having caused a deterioration in market conditions that shrank advertising revenue from manga apps and reduced both occupancy and
average customer spend at the company’s &AND HOSTEL facilities in Q1. Furthermore, the government of Japan declared a state of emergency effective on January 8, 2021, and making predictions regarding factors such as when the COVID-19 pandemic will subside is currently difficult. When making accounting estimates (e.g., appraising real estate held for sale, determining whether recording impairment loss on fixed assets is necessary, and judging the recoverability of deferred tax assets), based on information available when financial statements were prepared, the company has assumed that, impact from the pandemic will continue through FY08/21 and will begin to gradually abate in FY08/22.
Results by business Smartphone Apps business In Q1 FY08/21, sales in the Smartphone Apps business were JPY626mn (-3.7% YoY), and operating profit was JPY38mn (-70.8% YoY).
▷ The gains were driven by strong growth at existing apps such as Manga UP!, Manga Park, and Manga Mee. This growth was primarily thanks to aggressive advertising and promotion, new series launches, extended availability of popular content, and
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new manga additions. Additionally, MAUs for manga apps Young Jump! (jointly developed with Shueisha Inc.) released in April 2020 and Mecha Comics Daily Serial Manga (jointly developed with Amutus Corporation) released in May 2020, have steadily grown since release. Quarterly average MAU of and factory’s manga apps grew 60.1% YoY to 10.26mn users. The company encountered a notable exodus of existing users, which it surmises was likely due to increased use of websites offering pirated editions of manga. ▷ Meanwhile, ARPU was level YoY. ARPU from in-app purchases trended downward due primarily to reward points offered in exchange for short-term failures affecting some of the company’s apps and expansion in the use of websites offering pirated editions of manga. Unit price of reward advertising rose thanks to the addition of a targeted ad network and ARPU from advertising is on the rise. ▷ Sales generated by manga app development in Q1 FY08/20 were JPY140mn, but the company did not report any such sales in Q1 FY08/21. Excluding impact from these sales, overall sales in the Smartphone Apps business rose (+23% YoY).
IoT business In Q1 FY08/21, sales in the IoT business were JPY85mn (-30.9% YoY), and the operating loss was JPY70mn (operating loss of JPY14mn in Q1 FY08/20).
▷ In regard to the mainstay &AND HOSTEL smart hostels (lodging facilities that offer experiences made possible through IoT technology), the company opened no new facilities, retaining a total of eight facilities (with three closed temporarily). In contrast with FY08/20, during which the company incurred substantial impact from the COVID-19 pandemic, occupancy of &AND HOSTEL facilities followed a path of recovery as remote workers utilized these facilities for business purposes and the
company found success through long-term stay plans. However, average customer spend remains low (about half of what it was as of end-December 2019 and prior), and operating profit fell YoY at each facility. The Go To Travel campaign, which was launched by the Japanese government to support the tourism industries through subsidies, had a limited impact on the
company’s business. The company continued to conduct marketing activities for properties developed in house, but no progress was made in terms of sales. ▷ With regard to its guest room tablet service, tabii, the company worked to strengthen relations with partner companies (such as H.I.S. Hotel Holdings and TEPCO Energy Partners), expand its sales teams, and actively develop new functions aimed at boosting operating efficiency and increasing value-added. The total number of tabii tablets in operation at end-Q1 FY08/21 came to 4,933 (up 473 from end-FY08/20). As of end-Q1 FY08/21, the number of facilities using the company’s innto lodging
management system came to 285 (up 13 facilities from end-FY08/20). Performance from both tabii and innto experienced recovery thanks to rising demand for improved operational efficiency and avoidance of the Three Cs (closed spaces, crowded places, close-contact settings) in response to the COVID-19 pandemic.
Other businesses In Q1 FY08/21, sales in Other businesses were JPY7mn (-74.3% YoY), and operating profit was JPY7mn. The majority of earnings under this segment come from the company’s internet advertising agency services.
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
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Full-year company forecast for FY08/21
FY08/18 FY08/19 FY08/20 FY08/21 (JPYmn) 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. 1H Act. 2H Act. FY Act. FY Est . Sales 612 1,304 1,916 995 2,922 3,917 1,485 1,461 2,946 3,540 YoY - - 178.3% 62.6% 124.0% 104.4% 49.2% -50.0% -24.8% 20.2% Cost of sales 154 649 803 410 1,941 2,350 644 729 1,372 Gross profit 458 656 1,114 586 981 1,567 841 733 1,574 GPM 74.8% 50.3% 58.1% 58.8% 33.6% 40.0% 56.6% 50.1% 53.4% SG&A expenses 336 412 748 483 572 1,054 892 885 1,776 SG&A ratio 54.9% 31.6% 39.1% 48.5% 19.6% 26.9% 60.1% 60.5% 60.3% Operating profit 122 243 365 103 409 512 -51 -152 -203 -27 YoY --63.2%-15.6%68.3%40.3%---- OPM 19.9%18.6%19.1%10.3%14.0%13.1%---- Recurring profit na na 361 82 403 484 -86 -174 -260 -177 YoY --61.5%--34.2%---- RPM --18.8%8.2%13.8%12.4%---- Net income na na 261 55 273 328 -64 -298 -362 -182 YoY --49.9%--25.8%---- Net margin --13.6%5.6%9.3%8.4%---- Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.
Initial company forecast for FY08/21 (out October 15, 2020) For FY08/21, and factory forecasts sales of JPY3.5bn (+20.2% YoY), an operating loss of JPY27mn (versus JPY203mn operating loss in FY08/20), a recurring loss of JPY177mn (JPY260mn loss), a net loss of JPY182mn (JPY362mn loss), and EPS of -JPY18.66 (- JPY37.01).
▷ Although and factory targets 30% CAGR for the Smartphone Apps business, it expects continued losses in FY08/20 due to the impact of the coronavirus pandemic, which is forcing the company to change its policy for &AND HOSTEL in the IoT business.
The company explained that FY08/21 will be a period of investment to return the company to profitability in FY08/22. ▷ The company is continuing sales activities for self-developed &AND HOSTEL properties, and is not expecting to sell below cost. However, it has not factored this into its earnings forecast because of the uncertainty of outlook. The company says it will
disclose without delay any property sale that is agreed in FY08/21. ▷ The business alliance with Mirror Fit Co., Ltd., which was announced at the same time as the FY08/21 forecast, has been factored into the company forecast. ▷ The company expects GPM to be around 50%, in line with 2H FY08/20. Based on this, gross profit is estimated to come in at just under JPY1.8bn. Annualized fixed costs were around JPY6.0bn in 2H FY03/20, and the company expects similar levels in FY03/21. Additionally, it plans to spend JPY1.2bn in advertising expenses (JPY1.1bn in FY08/20). Directors’ pay cut (also announced at the same time as the FY08/21 forecast) has been factored into the company forecast. As a result of these factors, the company expects to book an operating loss of JPY27mn in FY08/21. ▷ Although the company expects operating loss to contract, having decided not to relocate its head office, it plans to book rent payable on the property it had planned to relocate to as a non-operating expense. As a result, rent on its current head office will be booked as an SG&A expense, and rent on the property it had planned to relocate to will be booked as a non-operating expense, resulting in a doubled rent burden at the recurring loss level. The company is considering canceling the rental agreement for the property it had planned to relocate to, but has not reflected rent reductions (reduction in non-operating expense) or cancellation fees (booking of extraordinary loss) in its plan as it is in the middle of negotiations. The company commented that it would disclose without delay any decision that will make a significant impact on FY08/21 earnings.
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Smartphone Apps business The company targets 30% CAGR for manga apps sales, with plans to grow sales through continued MAU expansion. It also aims to maintain high ARPU levels by turning around the downward trend in advertising ARPU with a gradual recovery from a bottom in Q4 FY08/20, and maintaining FY08/20 in-app-fees ARPU levels. The company is not expecting significant changes in the sales mix of advertising and in-app-fee ARPU.
▷ The company aims to continue acquiring new manga app development projects, although plans have not taken shape yet as of October 2020. Additionally, it plans to continue aggressive spending on promotions with an advertising budget of JPY1.2bn, while taking profitability into consideration amid the expansion of the e-book market. It expects high MAU apps like Manga UP! and Manga Mee to account for a larger proportion of advertising spend. ▷ The company expects MAU growth to slow down in FY08/21 compared to FY08/20. With the mainstay Manga UP! and Manga Mee apps, it anticipates a gradual slowdown in new user acquisition performance as the apps get older. Additionally, the company noted that new manga app releases are not reflected in its plan and that it expects newer apps to drive MAU growth in FY08/21.
IoT business In the past, the company focused on the accommodation business, but inbound tourism has dropped due to travel restrictions resulting from the coronavirus pandemic. To address this situation, the company is taking the following short-term measures. For details on medium- and long-term measures, please refer to the Medium- to long-term initiatives section below.
&AND HOSTEL The company thinks that recovery of occupancy rates to pre-COVID 19 levels is not possible in the short term given that foreign visitors accounted for the majority of users and restrictions on foreign visitors entering Japan remain in place.
▷ The company will temporarily close some locations where low occupancy is expected to reduce losses (one location in Tokyo and two in Osaka closed as of October 2020). The timing of eventual reopening will be based on a recovery in the market
environment and occupancy conditions at other hostels. ▷ The company will take steps for switching its target to domestic demand to improve occupancy rates in the short term. As a measure to improve occupancy rates, it will provide services tailored to increasingly diverse lifestyles. Specifically, the company
will partner with other companies to provide workspace and long-term accommodation services. However, its forecast is based on a continuation of recent occupancy rates and accommodation prices. ▷ It also clarified that it did not plan to hold any more properties for development, including for the residential sector. The company was not impacted by the Go to Travel campaign, an economic measure supporting the domestic tourism industry affected by the pandemic, as only a small number of guests staying at urban hostels have used the campaign.
Room reservation system innto Sales activities temporarily slowed down due to the coronavirus pandemic, but demand is recovering. In addition, the number of facilities using the smart check-in app, an optional feature, is on the rise. Although small, the business is already profitable, and the company plans to steadily grow profits.
Guest room tablet service tabii Previously, the company’s strategy was to prioritize PVs and unique user growth, then monetize the business. However, it shifted strategies to focus on monetization through PR advertising, where profits are not dependent on the number of PVs or unique users.
▷ Specifically, guests will watch a video ad on a tabii device in their room (recognize) and try out the product in the video ad (experience). Afterwards, they will be asked for feedback (share), and the company will plan and execute a PR and media
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strategy not limited to tabii devices (expand). The strategy uses the tabii device as a hook for proposal-based advertising services centered on the recognize-experience-share-expand cycle. Revenue is set per project, rather than on a contingency fee model linked to the number of products sold. ▷ The total number of tabii tablets in operation leveled off from February 2020 to August 2020. Meanwhile, the total number of tablets ordered has been rising steadily since March 2020. The company explained that this is due to some installation and configuration work being postponed at the request of customers due to the coronavirus pandemic.
Tenant communication app totono In FY08/21, the company will focus on increasing the number of units serviced through a nationwide rollout. Although recurring revenues will gradually build up in line with the number of units serviced, the company expects its contribution to earnings to be small in FY08/21 as the service was launched in August 2020.
▷ The property management market is a long tail market where the top five players (led by Daito Corporation [TSE1: 1878] with approximately 1.13mn units, Sekisui House [TSE1: 1928] with 0.64mn units, and three other players with just under 0.60mn units) account for 20% of the market, while small and medium-sized local management companies (ranked sixth and below with under 0.25mn units; over 1,000 companies including small companies) account for 80% of the market (2020 Ranking of Units Under Management, Zenkoku Chintai Jutaku Shimbun). Small and medium-sized management companies lack the
resources to develop and operate their own systems, so the company is targeting mid-tier management companies, which form the long tail market. According to the company, there are no players with high market share in tenant apps as of October 2020.
Financials The company is targeting a shareholders’ equity ratio of around 40‒50%. At end-August 2020, this was below target at 22.8%. Additionally, the company had JPY3.2bn in real estate for sale and JPY3.8bn in interest-bearing debt at end-August 2020.
Results versus initial estimates Results vs. Initial Est. FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Parent Cons. Parent Parent Parent Parent Sales (Initial Est.) - - - 1,810 3,070 5,999 Sales (Results) 112 372 689 1,916 3,917 2,946 Results vs. Initial Est. - - - 5.9% 27.6% -50.9% Operating profit (Initial Est.) - - - 343 511 580 Operating profit (Results) -40 35 224 365 512 -203 Results vs. Initial Est. - - - 6.5% 0.3% - Recurring profit (Initial Est.) 337 504 560 Recurring profit (Results) -42 37 223 361 484 -260 Results vs. Initial Est. - - - 7.1% -3.9% - Net income (Initial Est.) 220 350 390 Net income (Results) -43 -6 174 261 328 -362 Results vs. Initial Est. - - - 18.4% -6.3% - Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.
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Medium- to long-term initiatives
The company does not publicize its medium-term management plan. This section describes the company’s policy on the topics announced at the FY08/20 results briefing that are expected to be part of its medium- to long-term initiatives, including those that may take shape in FY08/21.
Smartphone Apps business The company reached 10.0mn MAUs in August 2020. In addition to monetization through revenue sharing programs with business partners, the company plans to expand its business over the medium- to long-term by creating new earnings bases, promoting M&A, and building a manga app ecosystem.
IoT business &AND HOSTEL Rebranding
▷ The company will switch its target from inbound tourists to domestic customers, mainly targeting millennials highly receptive to information. ▷ In addition to being a hostel offering an IoT-enabled lifestyle experience, the company will redefine its concept to also provide a wellness experience that lightens the body and spirit. It aims to become a hostel that people go to for the accommodation experience.
Expanding into new areas As of October 2020, securing profits through selling hotel assets has become challenging, so the company plans to approach the residential sector, which is less susceptible to changes in the external environment. Even in the residential sector, however, the company intends to plan and develop properties without retaining ownership.
▷ As an example, and factory will collaborate with Mirror Fit Co., Ltd., which offers an online live workout streaming service, to provide a service that adds the beauty concept to rental properties for residents.
Tenant communication app “totono”
The company aims to monetize totono by partnering with external services such as utility and insurance companies, as well as by integrating smart lock, security, and rent payment functions.
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Business Business description and factory is a startup company with businesses in two areas: Smartphone Apps*1 and IoT*2. In the Smartphone Apps business, the company explores and leverages the business potential of smartphones. In the IoT business, the company seeks to apply UI/UX technologies*3 accumulated in the Smartphone Apps business, along with expertise in data analysis and monetization methods. As a result, and factory aims to prompt innovation in areas where technology adoption is currently lagging, such as real estate, housing, and healthcare. In FY08/20, sales were JPY2.9bn (-24.8% YoY), and operating loss was JPY203mn (profit of JPY512mn in FY08/19). Earnings primarily come from manga apps in the Smartphone Apps business. Meanwhile, the IoT business was severely impacted by delays and cancellations of in-house development projects due to the coronavirus pandemic, as the previous target customer base for the &AND HOSTEL smart hostels were inbound tourists.
*1 Software that can be downloaded on a smartphone and used to access games, bulletin boards, social networking sites, email, calendars, and music players. This software uses smartphone operating systems, typically Android or iOS. *2 Short for the Internet of Things, IoT describes the concept of physical items being connected over the internet. IoT may refer to new services that make this concept a reality, to a business model, or to elemental technologies. Some industry pundits believe that the ability to connect a wide range of items over the internet, collect resulting data, and analyze and make use of this data will make the provision of innovative, high-value-added functions and services possible. *3 A user interface (UI) refers to all information the user sees, such as designs, fonts, and external appearances. The user experience (UX) describes the feelings and sensations the user experiences through a product or service.
In the Smartphone Apps business (FY08/20 sales of JPY2.5bn, +41.4% YoY; operating profit of JPY352mn, -41.4% YoY), the company primarily develops and offers manga apps. In the IoT business (FY08/20 sales of JPY337mn, -83.6% YoY; operating loss of JPY187mn, versus profit of JPY194mn in FY08/19), the company plans, develops, and operates the &AND HOSTEL brand of smart hostels, where visitors can experience services made possible by IoT. In this segment, the company also provides IoT solutions for lodging facilities, including innto (a property management system), tabii (a tablet-based service for lodging facilities), and totono (a tenant communication app).
*4 A device that can be connected to the internet. The 2017 White Paper on Information and Communications in Japan describes an IoT device as “a device that has a unique IP address and can be connected to the internet. Such electronic devices are broad in scope, ranging from devices used as sensor network terminals to devices with computing functions.” Worldwide, the number of IoT devices is expected to grow from an estimated 17.3 billion in 2017 to more than 30.0 billion in 2020.
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Sales and operating profit
Smartphone Apps FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Sales and profit (JPYmn) Act. Act. Act. Act. Act. Act. Sales na na 604 1,099 1,789 2,530 YoY - - - 82.0% 62.8% 41.4% % of total sales - - 87.7% 57.4% 45.7% 85.9% Gamer-forum apps na na 421 429 199 166 YoY - - - 1.9% -53.6% 3.3% % of total sales - - 61.1% 22.4% 11.1% 6.6% Manga apps na na 51 466 1,216 2,109 YoY - - - 813.7% 160.9% 96.7% % of total sales - - 7.4% 24.3% 68.0% 83.4% Other manga-related apps na na - 42 223 140 YoY - - - - 431.0% 91.8% % of total sales - - - 2.2% 12.5% 5.5% Other na na 132 163 151 116 YoY - - - 23.5% -7.4% -34.7% % of total sales - - 19.2% 8.5% 8.4% 4.6% Operating profit na na 394 480 600 352 YoY - - - 21.7% 25.0% -41.4% % of total OP - - - 77.0% 74.3% - OPM - - 65.2% 43.6% 33.5% 13.9% MAU (mn) -0.261.322.855.6110.03 YoY - - 407.7% 115.9% 96.8% 78.8% Gamer-forum apps -0.260.670.470.290.09 YoY - - 157.7% -29.9% -38.3% -69.0% % of total MAU - 100.0% 50.8% 16.5% 5.2% 0.9% Manga apps - - 0.65 2.38 5.32 9.94 YoY - - - 266.2% 123.5% 86.8% % of total MAU - 0.0% 49.2% 83.5% 94.8% 99.1% MAU (mn) Gamer-forum apps - - 48 73 59 89 YoY - - - 52.9% -19.8% 51.6% Manga apps - - 18 25 24 21 YoY - - - 39.7% -5.8% -12.5% IoT FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Sales and profit (JPYmn) Act. Act. Act. Act. Act. Act. Sales na na 63 800 2,056 337 YoY - - - 1179.6% 157.0% -83.6% % of total sales - - 9.1% 41.7% 52.5% 11.4% Operating profit na na -30 142 194 -187 YoY - - - - 36.7% - % of total OP - - - 22.8% 24.1% - OPM - - - 17.8% 9.5% - &AND HOSTEL (buildings) na na na 6 9 8 YoY - - - - 50.0% -11.1% innto installation (no. of facilities) na na na 89 232 272 YoY - - - - 160.7% 17.2% tabii (units) na na na 275 2,853 4,460 YoY - - - - 937.5% 56.3% Source: Shared Research based on company data Note: Figures for FY08/16 are consolidated. Other years are non-consolidated.
The Smartphone Apps business has been the core of the company since its establishment in September 2014. By developing smartphone apps, the company has accumulated in-house expertise in UI/UX design. UI/UX design is important because of the role it plays in the “conversion” of smartphone users (persuading users to tap on ads on their smartphone screens, register as members, send inquiries, or buy products). UI/UX design expertise enables the company to develop apps for the IoT business and generate synergies that go beyond the boundaries of the two businesses.
Both businesses offer services that provide value through experience gained by operating smartphone apps and devices. and factory thinks the value of services is determined by their operability, and by the benefits and experience they deliver; in other
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words, the UI/UX design. As UI/UX design capabilities indicate the ability to predict and fulfill user needs from user perspectives, and factory thinks these abilities are important across all aspects of business, not just when developing apps and devices.
The company’s 90 employees (as of August 31, 2019) are young (average age of 31) and led by a youthful management team. Three board members were born in the 1980s, including Takamasa Ohara (chairman and representative director, born in 1984), Rinji Aoki (president and representative director and born in 1983 and in charge of the Smartphone Apps business), and Yuki Umemoto (born in 1980 and in charge of the IoT business). More than half of employees are engineers and designers, with producers and administrators making up the remainder. The company forms small teams to work on each app title, allocating the staff needed to handle all aspects of app production. Within these units, the company pursues a plan-do-check-act (PDCA) cycle, progressing from planning to development, operation, analysis, improvement, marketing, and then back to planning. The company handles all processes in-house for each unit.
Earnings structure Based on the sales mix of 2H FY8/20, GPM is around 50%. In terms of SG&A expenses, annualized fixed costs were around JPY6.0bn in 2H FY08/20, and the company plans to spend JPY1.2bn on advertising in FY08/21 (JPY1.1bn in FY08/20), mainly for manga apps. While the company does not plan to start any new in-house development projects for &AND HOSTEL, it completed some developments in FY08/20 and holds JPY3.2bn in real estate for sale as of October 2020.
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Segment overview and business model
Smartphone Apps business (FY08/20 sales of JPY2.5bn, operating profit of JPY352mn))
Smartphone Apps FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Sales and profit (JPYmn) Act. Act. Act. Act. Act. Act. Sales na na 604 1,099 1,789 2,530 YoY - - - 82.0% 62.8% 41.4% % of total sales - - 87.7% 57.4% 45.7% 85.9% Gamer-forum apps na na 421 429 199 166 YoY - - - 1.9% -53.6% 3.3% % of total sales - - 61.1% 22.4% 11.1% 6.6% Manga apps na na 51 466 1,216 2,109 YoY - - - 813.7% 160.9% 96.7% % of total sales - - 7.4% 24.3% 68.0% 83.4% Other manga-related apps na na - 42 223 140 YoY - - - - 431.0% 91.8% % of total sales - - - 2.2% 12.5% 5.5% Other na na 132 163 151 116 YoY - - - 23.5% -7.4% -34.7% % of total sales - - 19.2% 8.5% 8.4% 4.6% Operating profit na na 394 480 600 352 YoY - - - 21.7% 25.0% -41.4% % of total OP - - - 77.0% 74.3% - OPM - - 65.2% 43.6% 33.5% 13.9% MAU (mn) -0.261.322.855.6110.03 YoY - - 407.7% 115.9% 96.8% 78.8% Gamer-forum apps -0.260.670.470.290.09 YoY - - 157.7% -29.9% -38.3% -69.0% % of total MAU - 100.0% 50.8% 16.5% 5.2% 0.9% Manga apps - - 0.65 2.38 5.32 9.94 YoY - - - 266.2% 123.5% 86.8% % of total MAU - 0.0% 49.2% 83.5% 94.8% 99.1% MAU (mn) Gamer-forum apps - - 48 73 59 89 YoY - - - 52.9% -19.8% 51.6% Manga apps - - 18 25 24 21 YoY - - - 39.7% -5.8% -12.5% Source: Shared Research based on company data Note: Monthly active users (MAUs) are as of Q4 of each fiscal year.
Overview The Smartphone Apps business is made up of the &AND COMICS service that provides manga apps such as Manga UP!, Manga Park, Manga Mee, and others developed in collaboration with large publishers. In FY08/20, manga apps accounted for 83.4% of sales in the Smartphone Apps business, gamer-forum apps 6.6%, and other apps 4.6%. Manga apps generate revenue from both advertising and in-app fees. As of 1H FY08/20, advertising revenue made up about 30 to 40% of total sales.
*5 Multiplayer: the ability to play social media games with other users. and factory’s gamer-forum apps offer an online message board where mobile gamers can recruit co-players and exchange tips and tricks that help them advance their play within specific games.
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Service categories
& AND COMICS & AND APPS
Source: Company data
Organization of the Smartphone Apps business Sell Distribute in-app ads Sell ad spaces ad spaces
Provide servicesProvide services Receive ad fees Receive ad fees
Ad fees Provide Provide Operate Consulting Sell Sell services services apps services ad spaces ad spaces and factory and Provide Customers (users) Customers materials Ad agencies, other Customers (advertisers) Customers Platform operators Platform Partners Partners
Distribute Receive Receive Receive profits consulting ad fees ad fees fees Source: Shared Research based on company data
Manga apps (&AND COMICS) and factory offers a number of smartphone manga apps developed with other companies: Manga UP!, developed with Square Enix Co., Ltd. (TSE1: 9684); Manga Park, developed with Hakusensha, Inc.; Manga Mee, developed with Shueisha Inc.; and Sunday Webry, developed by Shogakukan. The company provides these apps to smartphone users via distribution platforms such as the App Store (operated by Apple Inc.) and Google Play (operated by Google Inc.).
Since the apps are typically developed in cooperation with publishers, only content from these publishers is included, unlike general bookstore apps. On the other hand, these apps are characterized by their strength in targeting users and enticing them with each publisher’s unique content. The company’s idea is to control a number of manga apps, each with their own unique characteristics.
Other manga apps typically charge users per comic viewed (around JPY300–400 per title). By comparison, the manga apps and factory provides are basically free to read, in one-story units or chapters. (When not free, they are around JPY20 per story.) The strength of the company’s manga apps lies in its knowledge of how to boost MAU and ARPU, such as through mixing past well- known titles and original works, ending manga installments at cliff hangers to encourage continued reading, mixing free and paid-for manga, and the level and method of charging.
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Unlike companies simply focused on app development, and factory has in-house capabilities in planning, development, operations, analysis, improvement, and marketing. As such, it is able to provide a one-stop service to publishers, through which it can bring plans to fruition in a short amount of time. Manga apps (including “other manga-related apps”) accounted for 83.4% of sales in FY08/20.
Business model for manga apps The company receives both advertising revenue (obtained through ad networks*6 when users click on in-app advertising banners; there are also reward ads, also known as results-based ads) and fee revenue (download fees from the sale of e-comics) from the manga apps it develops and provides. Advertising is delivered primarily via ad networks, so the volume of ad placements across the ad networks as a whole have an impact on the company’s advertising ARPU.
*6 An ad network is an arrangement in which multiple advertising media (such as websites, social media, blogs, etc.) are bundled together to create an ad distribution network. It allows advertisers to place ads across multiple publishers without having to deal with each publisher individually
The company’s main costs are expenses paid to app developers and advertising expenses associated with attracting new users. In some instances, in order to attract new users, the company will pay advertising expenses equivalent to 100% of the preceding month’s income from the manga apps listed below for a specified period while keeping an eye on various key performance indicators (KPIs). The KPIs the company watches are cost per install (CPI), organic user acquisition rate (influx of users who discover the app due to its ranking), and various factors related to MAU and ARPU (retention rate, charging rate, ad price, charging rate-to-sales and advertising-to-sales ratios).
For Q4 FY08/20, MAUs numbered approximately 9.9mn people (+86.8% YoY). Despite being a latecomer to the business, launching manga apps first in January 2017, the company says its research shows it ranks first in the industry in terms of MAUs. ARPU during that period (revenue per month per MAU: based on the company’s share of net revenue after deducting platform fees and the share for publishers) was JPY21 (-12.5% YoY).
In November 2018, the company began collaborating with Shueisha Inc., launching a manga app called Manga Mee. Shueisha is a venerated member of Japan’s comics culture, having first published Ribon (a manga for young girls) in 1955. In December 2018, and factory began operating a manga app with Beaglee Inc. (TSE1: 3981). In August 2019, the company completely overhauled Sunday Webry through a business tie-up with Shogakukan Inc. The company added three manga apps in FY08/20: Mecha Comic Daily Serial Manga (Amutus), Young Jump! (Shueisha), and Manga TOP (Nihon Bungeisha).
The company’s manga apps publish a large volume of original manga content that is not published anywhere else. This makes it relatively difficult for pirating sites to negatively influence their MAU and ARPU.
Manga app ARPU typically rises to a certain level, but is difficult to increase beyond that level. Consequently, increases in MAUs are important in terms of securing sales growth. The company offers manga apps that are unique from one another (in terms of genre and reader attributes), thereby establishing a structure that minimizes the risk of cannibalization between different manga apps. Accordingly, new manga app releases are leading to increases in MAUs.
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and factory’s manga apps Collaboration partner Notes App Launch date Key lineup
Square Enix Holdings (TSE1: 9684) Manga UP! (Jan. 2017) Monthly Shonen Gangan (Boys' comics) Co., Ltd. Monthly Big Gangan (Youth comics) Monthly Gangan Joker (Youth comics) Young Gangan (Youth comics) Monthly Gfantasy (Women and youth comics) + original content Hakusensha Co., Ltd. (Unlisted) Manga Park (Aug. 2017) Hana to Yume (Girls comics) LaLa (Girls comics) MELODY (Girls comics) Young Animal (Youth comics) Le Paradis (Romance comics) + original content Shueisha Inc. (Unlisted) Manga Mee (Nov. 2018) RIBON (Girls comics) Margaret (Girls comics) BETSUMA (Girls comics) Cocohana (Comics for female adults) Cookie (Girls comics) + original content Beeglee Inc. (TSE1: 3981) Comic every (Dec. 2018) Over 15,000 episodes (one of the largest lineup for a free comic app) + original content Shogakukan Inc. (Unlisted) Sunday Web (Aug. 2019) Weekly Shonen Sunday (Boys' comics) Every Get The Sun! (Boys' comics) Gekkan Sunday GX (Youth comics) + original content Nihonbungeisha Co., Ltd. (Unlisted) Manga Top (Nov. 2019) Manga Goraku (Youth comics) Comic Heaven (Youth comics) Web Goraku (Youth comics) + original content Shueisha Inc. (Unlisted) Young Jump! (Apr. 2020) Weekly Young Jump (Youth comics) Ultra Jump (Youth comics) Grand Jump (Youth comics) Tonarino Young Jump (Youth comics) Dash-X Comic (Youth comics) + original content Amutus Corporation (a subsidiary of Mecha Comic (May 2020) Over 45,000 free episodes (one of the largest Infocom Corp. Daily Serial lineup in Japan) at the time of release (one of [TSE1: 4348]) Manga app the biggest among free comic apps) + original content Source: Shared Research based on company data
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ARPU by quarter for manga apps
Source: Shared Research based on company data Note: Figures are indexed with ARPU for Manga UP! in March 2017 set at a value of “100.” ARPU figures for dates after March 2017 indicate simple averages for multiple apps, excluding apps that were released less than one month prior.
Manga app MAUs and ARPU by quarter FY08/18 FY08/19 FY08/20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Monthly active users (MAU; mn) 1.08 1.50 2.04 2.38 2.79 3.62 4.30 5.32 6.41 7.20 9.06 9.94 YoY - 733.3% 558.1% 266.2% 158.3% 141.3% 110.8% 123.5% 129.7% 98.9% 110.7% 86.8% QoQ 66.2% 38.9% 36.0% 16.7% 17.2% 29.7% 18.8% 23.7% 20.5% 12.3% 25.8% 9.7% ARPU (Monthly sales / MAU; JPY) 18.8 20 22 25 25 27 26 24 22 23 21 21 YoY - 452.0% 45.4% 39.7% 33.9% 32.0% 18.6% -5.8% -14.4% -13.2% -19.0% -12.5% QoQ 4.9% 8.6% 7.1% 14.5% 0.6% 7.0% -3.7% -9.0% -8.6% 8.5% -10.2% -1.8% Source: Shared Research based on company data Note: MAU figures are average values for each quarter.
Manga apps business environment The paper-based manga market has continued to shrink, but in recent years, growth of the e-manga market has exceeded the rate of contraction of the paper-based manga market, and in a broad sense, the manga market as a whole is growing. In general, all players in the e-manga market are benefitting from growth of the e-manga market, but in the case of and factory, growth in MAUs of its apps is outstripping average growth of the market.
Manga is generally read for leisure, so it is in competition with other forms of entertainment for leisure time. With the spread of smartphones, though, manga can now be enjoyed even when time is short, and the company has been devising methods to encourage use of its apps even for a short period of time, such as by further dividing up manga apps instalments.
Manga UP!: A smartphone manga app developed with Square Enix Co., Ltd. and launched on January 7, 2017. In addition to content from the manga magazine Gangan, the app distributes original Manga UP! content.
Features:
▷ Square Enix’s popular manga lineup: Serial publication of the company’s manga magazines, such as Monthly Shonen Gangan for boys, Young Gangan for young men, and Monthly Gangan JOKER, as well as original works and other companies’ titles. Usually contains more than 100 works and is updated daily. ▷ Free to use: Under this consumption pattern, users are allocated “manga points” (MPs), which indicate how much content they may view free-of-charge. The balance is automatically refilled to a maximum of 80 MPs twice each day, at 8:00 am and 8:00 pm. (Generally, 20 MPs are required to view one chapter, so a user could view up to eight chapters per day for free.) In
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addition to MPs, users can earn MP+ points or buy Cs (coins)*8. MP+ points are obtained when users view commercial content, respond to surveys, or register and apply for affiliated companies’ services. The number of MP+ points that can be accrued is unlimited. Coins are used to make in-app purchases. An equivalent number of any of these types of points (20 MPs, 20 MP+ points, or 20 Cs) is needed to view one chapter, and exhausted points are subtracted in the same order (MPs first, then MP+ points, then and Cs). Some leading titles require MP+ points or Cs (cannot be viewed with MPs).
*8120 coins = JPY120; 240 coins (plus 10 MP+ for free) = JPY240; 360 coins (plus 20 MP+ for free) = JPY360
Manga Park: A smartphone manga app developed with Hakusensha, Inc. (a Shueisha Inc. affiliate) and launched on August 2, 2017. For the first time in the history of manga apps, Manga Park offers audio content performed by voice actors.
Features:
▷ Hakusensha’s popular manga lineup: In addition to content from the manga magazines Young Animal*, for young men, and Hana to Yume, for girls, the app distributes original Manga Park content. ▷ Free to use: Under this consumption system, users are allocated FREE Coins, which indicate how much content they may view free-of-charge. The balance is automatically refilled to a maximum of 80 coins twice each day, at 6:00 am and 9:00 pm. (Generally, 20 coins are required to view one chapter, so a user could view up to eight chapter per day for free.) In addition to
FREE Coins, Bonus Coins and, simply, Coins are available. Bonus coins can be obtained by registering for other company services or installing certain apps, while Coins*9 are points that can be bought and used for in-app purchases. An equivalent number of any of these types of coins (20 FREE Coins, 20 Bonus Coins, or 20 Coins) is needed to view one chapter, and spent
coins are subtracted in the same order (FREE Coins first, then Bonus Coins, and then Coins). Some leading titles require Bonus Coins or Coins (cannot be viewed with FREE Coins).
*9120 coins = JPY120; 240 coins = JPY240; 360 coins = JPY360
▷ Other content: In addition to manga, the app offers audio content performed by voice actors and videos of pop idols.
Manga Mee: The company developed this free manga app together with Shueisha Inc. and launched it on November 1, 2018. This app provides Shueisha’s titles for girls and young women, including magazines Ribon, Margaret, Bessatsu Margaret, Cocohana, Cookie, The Margaret, and Monthly office YOU. The app also enables users to view original content and popular completed works that change daily. A number of projects are underway on the app to freshen up content, such as a special fan comic using the Chibi Maruko-chan character and a project that involves re-releasing past manga in color versions. The company has even created a new prize for popular new content.
Features:
▷ Shueisha’s popular manga catalog: Shueisha is one of Japan’s longest-selling comic publishers, having launched Ribon more than 60 years ago, in 1955. Users of the app have access to this catalog, which included some 90 works at the time the app was launched. ▷ Free to use: Content is distributed per chapter rather than per volume. The app adopts a “wait-to-read” formula, in which free app users need to wait 23 hours until they are issued a ticket to read the next installment. Users can also purchase coins that enable them to continue reading as much as they wish. ▷ Magazine subscription: Subscribers get access to the online editions of manga magazines, which are available on the app the day the print editions go on sale. Readers can avoid the hassle of carrying around printed magazines or forgetting to purchase the material. ▷ UI design: Two types of manga readers are available, allowing users to read horizontally or vertically.
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Comic every: On December 19, 2018, and factory launched Comic every, a free manga app, in collaboration with Beaglee Inc. (TSE1: 3981), Japan’s leading company in e-comics, in terms of performance. The company explains that the new manga app will incorporate and factory’s expertise in app operation and UI/UX design and Beaglee’s ability to source extensive content. The app will be aimed at creating an “individualized manga experience” for each user, providing a service that goes beyond generation and gender. The company recorded an impairment loss in FY08/20.
Features:
▷ At the time of its release, Comic every already offered more than 15,000 manga titles, one of the largest collections among free manga apps. It also distributes original content from Beaglee for free. Moving forward, and factory also plans on offering original manga exclusive to Comic every. ▷ Free to use: Content is distributed per chapter rather than per volume. The app adopts a “wait-to-read” formula, in which free app users need to wait three hours until they are issued a ticket to read the next chapter. Users can recover one of these free tickets for every three hours spent waiting and can possess a maximum of four tickets at once. A user can enjoy a maximum of eight chapters in one day if he or she does not forget to use these free tickets when they become available.
Sunday Webry: On August 2019, the company completely overhauled Sunday Webry through a business tie-up with Shogakukan and now operates the app. The app carries manga from three publications (Weekly Shonen Sunday, Gessan, and Monthly Sunday Gene-X) in addition to original content.
Features:
▷ Free to use: Users can use three types of items to gain access to manga: tickets, coins, and points. It costs one ticket to view one chapter of manga. Tickets (and viewable manga works) refresh every 23 hours. All works can be viewed for the cost of one ticket per chapter. Users can also purchase individual volumes of manga that contain multiple chapters. ▷ Users can read popular manga serialized in publications such as Weekly Shonen Sunday, in addition to exclusive Sunday Webry originals. Users also have the option of subscribing to Weekly Shonen Sunday, Gessan, and Monthly Sunday Gene-X.
Manga TOP: A smartphone manga app developed through collaboration with Nihon Bungeisha Co., Ltd. and launched in November 2019. Manga TOP carries popular titles, including Manga Goraku, Comic Heaven, and Web Goraku.
Features:
▷ Basically free to use: Grants points that are worth three story units at 7:00 AM, 12:00 PM, and 9:00 PM, allowing users to read manga while commuting, taking lunch breaks, and eating dinner. Users can read more manga by viewing advertisements. ▷ Offers a large amount of content for relatively older males, including titles of the horror, suspense, and outlaw genres.
Young Jump! In addition to the latest serials of manga magazines including Weekly Young Jump, Ultra Jump, Grand Jump, Tonari no Young Jump, and Dash X Comics, Young Jump! distributes popular past (completed) works as well.
Features:
▷ Basically free to use: Users can view manga series one story unit at a time with free tickets distributed for each title. However, some content such as new releases of Weekly Young Jump cannot be viewed free of charge. ▷ Since “Young Jump!” is also the name of a manga magazine that targets young adult men, the content provided through the Young Jump! app mostly targets relatively older users.
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Mecha Comic Daily Serial Manga app Mecha Comic Daily Serial Manga app is a general bookstore app providing content from multiple well-known publishers, including Shueisha, Kodansha, and Kadokawa Shoten.
Features:
▷ The app delivers one story from each work daily for free. ▷ In total, users can read more than 40,000 stories from about 2,000 works at no cost.
Collaboration with multiple large publishers The value chain for e-comics includes the author, production company, publisher, e-comics agent, and e-comics store. and factory has adopted a strategy of working with multiple large publishers: Square Enix Co., Ltd. (TSE1: 9684), Hakusensha, Inc. (an affiliate of Shueisha Inc.), Shueisha Inc., and Shogakukan. The company collaborates with these publishers to develop manga apps for smartphones, operating a separate app for each publisher. For this reason, and factory differs from many e-comics stores in that it does not need to source individual content via agents.
The company’s strategy in manga apps is to form alliances with large publishers rather than aggressively develop and launch original titles that could either be very successful or very unsuccessful. and factory works with large publishers, providing the popular titles they own. The two sides share the development and promotional risks.
Distribution infrastructure As of April 2020, the company outsources the development and operation of many manga app servers to Link-U inc. (TSE Mothers: 4446). Link-U provides original servers that are uniquely designed for individual services. The company uses servers from Link-U because it collaborated with Link-U when launching joint manga app development with Square Enix. Publishers do not direct the company in how it constructs its distribution infrastructure. Rather, the company mostly considers these decisions independently. The company set up its first in-house server for its Young Jump! app.
Gamer-forum apps for social media games (&AND APPS) The company develops and operates official strategy apps as well as the Saikyo Series (a series of gamer-forum apps), which provides online forums for popular social media games run by other companies through which app users can recruit co-players and discuss tips and tricks to advance their play. and factory distributes apps via Apple Inc.’s App Store and Google Inc.’s Google Play. In FY08/20, this category generated 6.6% of sales. In Q4 of FY08/20, MAUs numbered approximately 90,000 people (- 69.0% YoY). In the same period, average revenue per user, or ARPU (monthly advertising revenue per MAU) was JPY89 (+51.6% YoY).
IoT business (FY08/20 sales of JPY337mn, operating loss of JPY187mn)
IoT FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 Sales and profit (JPYmn) Act. Act. Act. Act. Act. Act. Sales na na 63 800 2,056 337 YoY - - - 1179.6% 157.0% -83.6% % of total sales - - 9.1% 41.7% 52.5% 11.4% Operating profit na na -30 142 194 -187 YoY ----36.7%- % of total OP - - - 22.8% 24.1% - OPM - - - 17.8% 9.5% - &AND HOSTEL (buildings) na na na 6 9 8 YoY - - - - 50.0% -11.1% innto installation (no. of facilities) na na na 89 232 272 YoY - - - - 160.7% 17.2% tabii (units) na na na 275 2,853 4,460 YoY - - - - 937.5% 56.3% Source: Shared Research based on company data
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In this segment, the company plans, develops, and operates the &AND HOSTEL brand of smart hostels. Also, in this segment, and factory provides IoT solutions for lodging facilities, including innto (a property management system), tabii (a tablet-based service), and totono (a tenant communication app).
Business model for &AND HOSTEL smart hostels The company plans, develops, and operates the &AND HOSTEL brand of smart hostel facilities, which enable guests to experience IoT devices. These smart hostels use the company’s platform app (called &IoT) and IoT to provide comfortable guest environments. The company had opened eight such hostels as of end-August 2020 and has plans to open two more.
&AND HOSTEL breaks down into two business categories: The first involves planning and developing facilities on property owned by other parties (seven locations planned as of end-2018). In the first instance, the company receives compensation for consulting, real estate brokerage and other services. In the second, and factory earns gains on the sale of real estate. The company runs the hostels itself in both cases and receives compensation from hostel owners in return.
Hostels are dormitory-style (shared room accommodation facilities). Prior to the COVID-19 pandemic, accommodation prices did not vary significantly by season and inbound tourists accounted for 60–70% of guests, who were mostly male. However, since the outbreak of COVID-19, inbound tourism has essentially disappeared, so the bulk of guests are Japanese business travelers and young travelers. Accommodation prices have also dropped substantially due to low occupancy rates in the accommodation industry as a whole.
The IoT business was severely impacted by delays and cancellations of in-house development projects due to the coronavirus pandemic, as the previous target customer base for the &AND HOSTEL smart hostels were inbound tourists. In light of the current environment, the company decided it would not be starting any new in-house development projects of &AND HOSTEL properties. It would rebrand the hostels and switch its target from inbound tourists to domestic customers, primarily millennials highly receptive to information. In addition to being a hostel offering an IoT-enabled lifestyle experience, the company will redefine its concept to also provide a wellness experience that lightens the body and spirit. It aims to become a hostel that people go to for the accommodation experience.
Exterior of ＆AND HOSTEL AKIHABARA
Source: and factory website
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&AND HOSTEL locations Facility Location Opened Capacity No. of rooms ＆AND HOSTEL AKIHABARA Chiyoda-ku, Tokyo Jan 2018 54 12 rooms (Three minutes' walk from the nearest station) + 30 beds ＆AND HOSTEL KANDA Chiyoda-ku, Tokyo Feb 2018 61 11 rooms (Four minutes' walk from the nearest station) + 42 beds ＆AND HOSTEL ASAKUSA Taito-ku, Tokyo Feb 2019 56 14 rooms (8–10 minutes' walk from the nearest stations) + 28 beds ＆AND HOSTEL HOMMACHI EAST Chuo-ku, Osaka Aug 2019 150 66 rooms (Five minutes' walk from the nearest stations)
＆AND HOSTEL KURAMAE WEST Taito-ku, Tokyo Oct 2019 58 17 rooms (Six minutes' walk from the nearest station)
＆AND HOSTEL SHINSAIBASHI EAST Chuo-ku, Osaka Nov 2019 150 63 rooms (Six minutes' walk from the nearest stations)
＆AND HOSTEL MINAMISENJU Arakawa-ku, Tokyo Nov 2019 120 53 rooms (Six minutes' walk from the nearest station) &AND HOSTEL NAMBA Naniwa-ku, Osaka Feb 2020 138 62 rooms (Eight minutes' walk from the nearest station)
Source: Shared Research based on company data
Business model for innto innto is a property management system* for smart hostels that and factory developed jointly with open innovation partner Almex Inc., a wholly owned subsidiary of USEN-NEXT Holdings (TSE1: 9418). As of end-August 2020, the system had been installed at 272 locations on a contract basis. innto enables the centralized management of information related to guest rooms: reservations, room rates, available rooms, and fees.
▷ To date, most systems of this sort have been aimed at medium- to large-scale facilities. Such systems were ill-suited to smaller properties because startup costs were high and the time between initial contract and the start of service was long. Aimed at simple lodging facilities, innto is cloud-based, can be launched quickly, and has low initial costs (no launch costs) and running costs (monthly usage fees starting at JPY199). The service also draws on and factory’s UI/UX design expertise, which the
company says makes operations intuitive and convenient. ▷ The company shares revenue with Almex on system sales and also receives recurring revenue from system maintenance and operation. According to the company, the business was profitable as of August 2020.
* The broad definition refers to management systems that cover entire hotels or other facilities. In a narrow sense, a property management system is used for rooms only. innto, which is used only for rooms, aims to make the operation of lodging facilities more efficient and save resources. Its principal functions are reservation management, scheduling, room status monitoring, guest management, ledger and report generation, accommodation plan and fee scheduling, and master planning.
Comparison of property management systems Company System Description and factory innto and factory developed this property management system with an open innovation partner (Almex Inc., a wholly owned subsidiary of USEN-NEXT Holdings). Aimed at simple lodging facilities, this system enables the centralized management of information related to reservations, selling prices, room rates, availability, and fee. Almex Inc. Wincal This portal system is provided by Almex Inc., a wholly owned subsidiary of USEN-NEXT Holdings. Designed for use at business hotels and other hotels where lodging is the focus, the system has a simple interface and is designed to reduce the amount of work for front desk staff. The system is available in on-premise and cloud-based versions. NEC NEHOPS This cloud-based hotel system has a market share of around 70%. Use ranges widely, from lodging-focused hotels to large city hotels. The company has installed the system in numerous large-scale city hotels and nationwide chains of hotels with more than 300 locations.
Fujitsu GLOVIA This cloud-based hotel system, provided by Fujitsu, has the top share of the market for simple, non-customized, multitenant cloud-based property management systems.
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TAP Co., Ltd. TAP This system has a high share of the market for resort hotels, its forte. Oracle Corporation Japan OPERA This cloud-based hotel system has a top share of the market at foreign-owned hotels and is installed at more than 40,000 locations worldwide.
Source: Shared Research based on data from the company and the Hotelier website (https: //www.hotelier.jp/support/pms.html)
Business model for tabii tabii is a service that and factory developed and is based around tablet devices placed in hotel guest rooms (4,460 tabii tablets on a contract basis as of end-August 2020). The tablets not only offer information specific to the facility but also information on local restaurants and tourist spots, as well as a wide range of selectable entertainment content (including music and comedy videos). According to the company, this service, designed to enhance the guest’s travel experience, raises the perceived room value for the hotel’s diverse customer bases.
▷ Facilities that use tabii save costs by making service guides, terms and conditions, and other documents available electronically. The company explains that tabii-based help screens and Q&A chatbots address many guest questions, reducing the need for guests to telephone staff or request personal assistance. As a result, hotels can increase operating efficiency without boosting running costs. ▷ As tabii uses an advertising-based model, lodging facilities pay no monthly fees, and the service is available free of charge to guests. Previously, the company’s strategy was to prioritize PVs and unique user growth, then monetize the business. However, it shifted strategies to focus on monetization through PR advertising, where profits are not dependent on the number of PVs or unique users. Specifically, guests will watch a video ad on a tabii device in their room (recognize) and try out
the product in the video ad (experience). Afterwards, they will be asked for feedback (share), and the company will plan and execute a PR and media strategy not limited to tabii devices (expand). The strategy uses the tabii device as a hook for proposal- based advertising services centered on the recognize-experience-share-expand cycle. Revenue is set per project, rather than
on a contingency fee model linked to the number of products sold. ▷ Since tabii is not a cloud-based service, once the company receives an order, it procures tablets, adjusts settings, customizes the tablets, and provides them to the lodging facility. For this reason, it typically takes one or two months between receipt of a
contract and booking of sales.
Business model of tenant communication app “totono” The company entered the rental property business. In this field, the company makes use of the rental network of its capital and business alliance partner Sumasapo Co., Ltd., and leverages expertise it has cultivated in the accommodation business. The app allows tenants to contact the company managing their property in real time, and was released in August 2020. The company plans for the first release to include an FAQ section in addition to chat, application, message board, and optional services functions. Over the medium- to long-term, the company aims to monetize by partnering with external services such as utility and insurance companies, as well as by integrating smart lock, security, and rent payment functions. It plans to kick off the business by serving the approximately 20,000 units managed by Sumasapo, and two property management companies have decided to roll out the app to more than 600,000 tenants as of October 2020.
▷ Tenants will be charged a usage fee for the app as part of the property’s management fee. Revenue will be shared by and factory and Sumasapo (or split three ways in the case of a third-party management company). and factory will develop, operate, and plan the app while Sumasapo will be responsible for sales. ▷ The rental property management market is large and earnings grow with the number of properties under management. The company has accordingly high expectations for this business. The property management market is a long tail market where the
top five players (led by Daito Corporation [TSE1: 1878] with approximately 1.13mn units, Sekisui House [TSE1: 1928] with 0.64mn units, and three other players with just under 0.60mn units) account for 20% of the market, while small and medium- sized local management companies (ranked sixth and below with under 0.25mn units; over 1,000 companies including small
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companies) account for 80% of the market (2020 Ranking of Units Under Management, Zenkoku Chintai Jutaku Shimbun). Small and medium-sized management companies lack the resources to develop and operate their own systems, so the company is targeting mid-tier management companies, which form the long tail market. According to the company, there are no players with high market share in tenant apps as of October 2020.
Other businesses (FY08/20 sales of JPY79mn)
In this segment, and factory mainly conducts an advertising agency business, distributing ads to smartphone apps and media operated by other companies.
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Market and value chain Japan’s e-book market
Market scale and composition E-book market scale In FY2019, the market for e-book publishing was estimated to be worth JPY375.0bn, up 20.1% YoY (2020 survey on the e-book business, by Impress Corporation).
▷ The FY2019 e-books market turned out to be larger than the previous estimate of JPY332.0bn. Impress speculates that the growing public attention to the issue of internet piracy may have helped raise awareness of e-books, leading to an increase in readership and higher average user fees. The FY2020 projection was also significantly upgraded to JPY444.2bn (from JPY393.5bn previously). This is likely a reflection of shelter-in-place demand resulting from the COVID-19 pandemic. ▷ Japan’s e-book publishing market is set to keep growing in FY2020 onward, although the pace of growth may level off. By FY2024, Impress expects the e-book publishing market to have a value of around JPY566.9bn. ▷ This survey projects a value of JPY539.8bn for the e-book publishing market in FY2023. This figure represents a 24.7% upward revision from JPY433.0bn in its 2019 survey.
Survey on the e-book business, by Impress Corporation This survey does not include e-magazines within e-books; “e-publishing” includes both e-magazines and e-books.
E-book market scale FY2020 FY2021 FY2022 FY2023 FY2024 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 (JPYbn) Fo recast Fo recast Forecast Fo recast Fo recast e-books 62.9 72.9 93.6 126.6 158.4 197.6 224.1 282.6 347.3 e-magazines 2.2 3.9 7.7 14.5 24.2 30.2 31.5 29.6 27.7 Total 65.1 76.8 101.3 141.1 182.6 227.8 255.6 312.2 375.0 444.2 481.2 512.4 539.8 566.9 YoY - 18.0% 31.9% 39.3% 29.4% 24.8% 12.2% 22.1% 20.1% 18.5% 8.3% 6.5% 5.3% 5.0% Source: Shared Research, based on “Results of 2020 Survey on E-Books” by Impress Corporation
Manga as a percentage of e-books Of the FY2019 e-book market, manga accounted for JPY298.9bn (86.1% market share), with text-based and other content (e.g., literature, practical guides, and photo collections) accounting for JPY48.4bn (13.9%), according to a 2020 survey on the e-book business by Impress Corporation. Media Do Holdings thinks the market for text-based e-book content will increase as people who are more accustomed to reading text electronically grow.
Manga as a percentage of e-books (JPYbn) FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 Comics 51.4 57.4 73.1 102.4 127.7 161.7 184.5 238.7 298.9 Text-based 11.5 15.5 20.5 24.2 30.8 35.9 39.6 43.9 48.4 Total 62.9 72.9 93.6 126.6 158.5 197.6 224.1 282.6 347.3 Comic ratio 81.7% 78.7% 78.1% 80.9% 80.6% 81.8% 82.3% 84.5% 86.1% Source: Shared Research, based on “Results of 2020 Survey on E-Books” by Impress Corporation
Size of market for manga (including printed manga) In 2014, the manga market had a total value of JPY313.8bn, with paper manga making up JPY225.6bn (72% market share) and e- manga JPY88.2bn (28%). In 2019, the market for paper manga had a value of JPY166.5bn (39.1% market share), and the e- manga market size was JPY259.3bn (60.9%) according to Research Institute for Publications.
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▷ The company summarizes that the growing popularity of smartphones has increased the number of reader contact points and prompted growth in the e-manga market. Also, the overall market for manga is increasing, and e-manga demand is replacing demand for paper manga, to some degree.
End-customers (readers) Individuals are the end-customers (readers) for e-books and e-book apps.
▷ Usage is high among people aged 10–39 (2020 survey on the e-book business, by Impress Corporation).
▷ People aged 10–19 are less likely than other groups to use paid content, but access to free content is high (ditto), likely because this age group has low disposable income.
E-book consumption by gender and age 10s 20s 30s 40s 50s 60s or older 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Paid 14.6% 20.6% 24.7% 25.2% 27.0% 27.2% 22.0% 22.6% 18.5% 19.2% 14.9% 15.0% Male Free 30.3% 30.8% 26.8% 28.2% 25.4% 27.6% 24.3% 22.6% 19.5% 20.9% 17.1% 19.7% Paid 14.3% 14.5% 20.6% 21.4% 25.1% 23.6% 19.9% 18.8% 13.1% 15.3% 9.9%10.3% Female Free 36.2% 38.9% 31.6% 29.2% 25.1% 25.0% 21.7% 25.0% 21.1% 22.3% 13.5% 15.8% Source: Shared Research, based on “Results of 2020 Survey on E-Books” by Impress Corporation
Overview of domestic online advertising market
Here we provide an overview of the domestic online advertising market, based on Advertising Expenditures in Japan from Dentsu Inc. (TSE1: 4324) and Advertising Expenditures in Japan: Detailed Analysis of Expenditures on Internet Advertising Media from Dentsu and group companies D2C Inc., Cyber Communications Inc., and Dentsu Digital Inc. It should be noted that 2020 has seen a decline in ad placement due to the COVID-19 pandemic, which is likely to blunt the growth trend started in 2019.
▷ Total advertising expenditures (including expenditures for offline advertising) have accounted for 1.16‒1.32% of Japan’s nominal gross domestic product (GDP) since 2005. These figures indicate that total ad spending is impacted fairly directly by economic trends. ▷ The ratio of online ad spending to total advertising expenditures has been growing each year, reaching about 30% in 2019. Total advertising expenditures grow at just a few percent annually, so it appears that online advertising is replacing non-online advertising. ▷ Starting in 2019, Dentsu has added ad spending associated with merchandise-related e-commerce platforms (the spending a company operating a store on an e-commerce platform conducts to advertise on that same platform) as a new item. For this reason, 2019 online ad spending saw substantial growth on a statistical basis. ▷ In 2019, online ad spending surpassed television media ad spending for the first time (this is true even if the impact of the aforementioned ad spending associated with merchandise-related e-commerce platforms is excluded). ▷ The bulk of internet advertising media spending is for programmatic advertising.
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Breakdown of online ad spending (JPYbn) 2012 2013 2014 2015 2016 2017 2018 2019 Total advertising expenditures 5,891.3 5,976.2 6,152.2 6,171.0 6,288.0 6,390.7 6,530.0 6,938.1 YoY 3.2% 1.4% 2.9% 0.3% 1.9% 1.6% 2.2% 6.2% Internet advertising expenditures 868.0 938.1 1,051.9 1,159.4 1,310.0 1,509.4 1,758.9 2,104.8 % of total advertising expenditures 14.7% 15.7% 17.1% 18.8% 20.8% 23.6% 26.9% 30.3% YoY 7.7% 8.1% 12.1% 10.2% 13.0% 15.2% 16.5% 19.7% Medium expenditures 662.9 720.3 824.5 919.4 1,037.8 1,220.6 1,448.0 1,663.0 Product sales EC platform ad expenditures 106.4 Production costs 205.1 217.8 227.4 240.0 272.2 288.8 310.9 335.4 Transaction Performance-based 339.1 412.2 510.6 622.6 738.3 940.0 1,151.8 1,326.7 method Reserved 153.8 175.8 197.1 231.4 Affiliate 145.7 104.8 99.1 104.9 Device Mobile 80.0 207.3 345.0 497.9 647.6 831.7 1,018.1 Desktop 582.9 513.0 479.5 421.5 390.2 388.9 429.9 Ad Display 498.8 563.8 554.4 category Paid search 483.1 570.8 668.3 Video 29.0 51.6 86.9 115.5 202.7 318.4 Affiliate 104.9 99.0 104.9 Other 18.311.717.0 Social Social media ads 389.0 489.9 Social networking 228.0 Video sharing 113.9 Other 148.0 Other than social ads 1,059.0 1,173.1 Source: Shared Research based on Dentsu Group’s Advertising Expenditures in Japan and Advertising Expenditures in Japan: Detailed Analysis of Expenditures on Internet Advertising Media
Definitions of transaction methods Programmatic advertising: Paid search advertising and advertising that is bought and sold via auction through a digital platform (tool) or ad network Reserved advertising: Pure advertising and tie-up advertising sold via advertising agencies or media representatives, or sold directly to the advertiser, and advertising that is bought and sold through a digital platform (tool) or ad network using a non-auction method (fixed price) Performance-based advertising: Advertising for which remuneration is paid when a user views an ad and subsequently performs some predetermined action.
Definitions of ad types Display advertising: Ads and tie-up ads (using images and text) that are displayed in the advertising space of a site or app Paid search advertising: Ads displayed on a search results page based on their relevance to search keywords Video advertising: Ads in video file format (video images and audio) Performance-based advertising: Advertising whereby if a user views an ad and then performs some predetermined action, the media or user is paid some remuneration Other online advertising: Online ads in formats other than the foregoing; for example, email advertising and audio advertising
Definition of social advertising Advertising placed on social media* services *Media (platforms) providing services enabling users to share and exchange information posted by users as content Source: Japan Interactive Advertising Association’s Fiscal 2019 Internet Advertising Glossary of Basic Terms Examples of social media: social networking service, blog service, mini (micro) blog, video sharing website, social bookmarks, and electronic bulletin boards
Online advertising trends Shift to mobile A breakdown of ad spending by device was last released in 2018, but as of that year mobile ads accounted for two thirds of online advertising media expenditures. It is likely that mobile advertising will continue to drive the online advertising market as long as there are no major lifestyle changes.
Video advertising Among the different types of advertising, video advertising in particular has shown a high growth rate in recent years. Although the rate of growth dulled somewhat in 2019, it was still nearly 60%.
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Social advertising Starting in 2019, data on social advertising was released, including a breakdown. As of 2019, social advertising accounted for about 30% of online advertising media expenditures. Furthermore, according a separate survey by MIC Research Institute, Online Advertising and Web Solutions Market Status and Forecast 2019, the market is likely to be worth JPY448.6bn in 2023 (CAGR of about 24% versus 2018). However, it must be noted that this report was issued in June 2020, so the forecast likely does not take into account the impact of the COVID-19 pandemic. The social advertising market scale projected by the MIC Research Institute report is probably larger than the market scale projected by Dentsu due to differences in definitions, research scope, and survey methods.
Social advertising market scale Market size 2015 2016 2017 2018 2019 2020 2021 2022 2023 (JPYbn) Act. Act. Act. Act. Est. Forecast Forecast Forecast Forecast Social media ad agency 34.0 61.4 114.3 154.0 214.3 260.0 307.4 362 449 YoY - 80.6% 86.2% 34.7% 39.2% 21.3% 18.2% 17.6% 24.1% Source: Shared Research based on MIC Research Institute’s Online Advertising and Web Solutions Market Status and Forecast 2019
Ad spending over the long term
In 2009, just after the start of the global financial crisis, online advertising maintained slight growth despite a double-digit drop in total ad spending. The biggest difference between 2009 and now in 2020 is the share of spending on online advertising rose to over 30%.
Long-term trends in advertising spending
(JPYbn) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total advertising expenditures 6,823.5 6,939.9 7,019.1 6,692.6 5,922.2 5,842.7 5,709.6 5,891.3 5,976.2 6,152.2 6,171.0 6,288.0 6,390.7 6,530.0 6,938.1 YoY 1.7% 1.1% -4.7% -11.5% -1.3% -2.3% 3.2% 1.4% 2.9% 0.3% 1.9% 1.6% 2.2% 6.2% Traditional media 3,740.8 3,666.8 3,569.9 3,299.5 2,828.2 2,774.9 2,701.6 2,880.9 2,893.5 2,939.3 2,869.9 2,859.6 2,793.8 2,702.6 2,609.4 Newspapers 1,037.7 998.6 946.2 827.6 673.9 639.6 599.0 624.2 617.0 605.7 567.9 543.1 514.7 478.4 454.7 Magazines 484.2 477.7 458.5 407.8 303.4 273.3 254.2 255.1 249.9 250.0 244.3 222.3 202.3 184.1 167.5 Radio 177.8 174.4 167.1 154.9 137.0 129.9 124.7 124.6 124.3 127.2 125.4 128.5 129.0 127.8 126.0 Television 2,041.1 2,016.1 1,998.1 1,909.2 1,713.9 1,732.1 1,723.7 1,877.0 1,902.3 1,956.4 1,932.3 1,965.7 1,947.8 1,912.3 1,861.2 Terrestrial TV 2,041.1 2,016.1 1,998.1 1,909.2 1,713.9 1,732.1 1,723.7 1,775.7 1,791.3 1,834.7 1,808.8 1,837.4 1,817.8 1,784.8 1,734.5 Satellite media 101.3 111.0 121.7 123.5 128.3 130.0 127.5 126.7 Internet 377.7 482.6 600.3 698.3 706.9 774.7 806.2 868.0 938.1 1,051.9 1,159.4 1,310.0 1,509.4 1,758.9 2,104.8 % of total advertising expenditures 5.5% 7.0% 8.6% 10.4% 11.9% 13.3% 14.1% 14.7% 15.7% 17.1% 18.8% 20.8% 23.6% 26.9% 30.3% YoY 27.8% 24.4% 16.3% 1.2% 9.6% 4.1% 7.7% 8.1% 12.1% 10.2% 13.0% 15.2% 16.5% 19.7% Medium expenditures 280.8 363.0 459.1 537.3 544.8 607.7 618.9 662.9 720.3 824.5 919.4 1,037.8 1,220.6 1,448.0 1,663.0 Product sales EC platform ad expenditures 106.4 Production costs 96.9 119.6 141.2 161.0 162.1 167.0 187.3 205.1 217.8 227.4 240.0 272.2 288.8 310.9 335.4 Promotional media 2,656.3 2,736.1 2,788.6 2,627.2 2,316.2 2,214.7 2,112.7 2,142.4 2,144.6 2,161.0 2,141.7 2,118.4 2,087.5 2,068.5 2,223.9 Source: Shared Research based on Dentsu Group’s Advertising Expenditures in Japan and Advertising Expenditures in Japan: Detailed Analysis of Expenditures on Internet Advertising Media
IoT industry
According to data from IHS Technology cited in the Ministry of Internal Affairs and Communications’ 2018 White Paper on Information and Communications in Japan, the number of IoT devices* connected to the internet is expected to rise from 27.5bn in 2017 to 40.3bn in 2020 (growth of 1.47x). Due to the continuous progress of internet and sensor technologies, around the world a host of new items (such as consumer electronics, automobiles, buildings, and factories) are slated for connectivity, in addition to those that are already connected (such as PCs and smartphones). As of 2017, smartphones and other communication devices made up the largest share of IoT devices around the world. As this market is maturing, the authors of this white paper predict growth in this category will be relatively low. They anticipate sharp increases in the categories of “automobiles and transportation equipment,” due to the shift to IoT as connected cars become more common; in “healthcare” as the digital healthcare market expands; and in “industrial applications (factories, infrastructure, and logistics)” as the numbers of smart factories and smart cities increase.
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* According to IHS Technology’s definition, an IoT device is a device or sensor network terminal that has a unique IP address and can be connected to the internet.
IoT devices around the world
(bn) 50 45 40.30 40 0.617 35.44 1.44 Medical, defense, 0.507 35 31.05 1.16 aerospace 0.416 9.49 Automotive 30 27.49 0.92 7.28 0.345 2.19 24.10 0.284 0.75 5.45 Industrial 25 0.234 4.24 2.2 20.51 2.21 7.63 0.203 3.27 0.60 2.22 6.72 20 17.07 2.2 5.93 Computer 2.49 5.2 15 1.82 2.11 0.47 4.53 1.93 0.38 3.89 Consumer 3.38 10 17.57 18.93 13.22 14.73 16.12 Communication 5 9.36 11.31 0 2014 2015 2016 2017 2018 Est. 2019 Est. 2020 Est.
Source: Shared Research based on data from IHS Technology from the 2018 White Paper on Information and Communications in Japan, Ministry of Internal Affairs and Communications
Hotel industry
According to the Ministry of Health, Labour and Welfare, 85,617 facilities provided accommodation to tourists as of March 31, 2019 (+3,467 YoY). Of this figure, 49,502 facilities were hotels or ryokan (Japanese-style inns) and 35,452 fell under the simple lodging facility category. The number of the latter (includes hostels) has been trending upward since 2015.
Tourist accommodation in Japan
(no. of facilities) Ryokan+Hotel Hotel Ryokan (Japanese-style hotel) Common lodging house Boarding house 120,000 94,910 100,000 84,411 85,617 25,150 81,087 81,404 80,412 79,519 78,898 78,519 79,842 82,150 80,000 23,050 23,719 24,504 25,071 25,560 26,349 27,169 29,559 32,451 35,452 60,000
40,000 67,891 50,846 46,906 46,196 44,744 43,363 41,899 40,661 39,489 38,622 49,502 20,000
7,944 9,603 9,710 9,863 9,796 9,809 9,879 9,967 10,101 10,402 0 00 0 FY98 FY08 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Shared Research based on data from the 2016 Report on Public Health Administration and Services, Ministry of Health, Labour and Welfare Note: Hotels and ryokan were combined into a single category in FY18.
In 2019, there were 31.9mn overseas tourist arrivals in Japan (+2.2% YoY). Hotel occupancy rates have been trending upward, since bottoming out in 2011, as the number of overseas tourists to Japan has increased. However, in 2020, the COVID-19 pandemic is expected to impact the number of overseas tourists.
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Number of International Visitors to Japan (mn) and hotel occupancy rates (%) Foreign travelers visiting Japan (mn) Occupancy (nationwide; right axis) Occupancy (Tokyo right axis) Occupancy (Osaka; right axis) Occupancy (Aichi; right axis) 70 100% 95% 60 90% 84.2% 84.8% 84.5% 82.7% 87.8% 83.3% 50 85.2% 85.1% 85% 80.6% 80.0% 83.2% 86.3% 79.0% 80.7% 80% 40 78.6% 78.7% 76.6% 77.7% 70.9% 73.9% 74.1% 75% 72.7% 75.3% 75.5% 30 74.2% 74.4% 60.00 69.6% 72.1% 70% 65.0% 67.0% 67.7% 69.5% 65% 20 68.3% 67.3% 40.00 60.1% 28.69 31.19 31.88 60% 62.3% 24.04 10 19.73 13.41 55% 8.61 6.21 8.35 10.36 0 50% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2030 Government Government plan plan
Source: Shared Research based on Japan National Tourism Organization’s Foreign Tourists in Japan Statistics, and Ministry of Land, Infrastructure, Transport and Tourism, Accommodation Travel Survey
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Competitors Smartphone Apps business Manga apps Many companies in addition to and factory have manga apps (operate e-bookstores). The largest company is Amazon, followed by a number of listed companies and many others. Listed companies include Amutus Corporation (a subsidiary of Infocom Corporation [TSE1: 4348]), Papyless Co., Ltd. (TSE JASDAQ: 3641), Beaglee Inc. (TSE1: 3981), and eBOOK Initiative Japan Co., Ltd. (TSE1: 3658).
Main companies involved in e-comics
Sources: Shared Research based on official journals and individual company data
Manga apps: Comparison with major competitors Ticker Company Fiscal Sales OP OPM ROA ROE year (JPYmn) (JPYmn) (RP-based) 4348 Infocom FY03/20 58,375 8,211 14.1% 12.1% 16.2% 3678 Media Do FY02/20 65,860 1,853 2.8% 5.4% 17.4% 3641 Papyles FY03/20 23,347 1,532 6.6% 12.0% 13.7% 3658 eBOOK Initiative Japan FY03/20 21,281 793 3.7% 9.8% 15.3% 3938 LINE FY12/19 227,485 -38,997 - - - 3981 Beaglee FY12/19 10,401 817 7.9% 10.9% 10.3% 7035 and factory FY08/20 3,917 512 13.1% - - Source: Shared Research based on company data
IoT business Real estate transactions are often characterized by information asymmetry between buyer and seller. A wave of “real estate tech” companies has entered the market, aiming to reduce these asymmetries by using internet, big data, AI, and other technologies.
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For example, portal and online appraisal sites offer property pricing information. Builders can use crowdfunding to raise money from individual investors over the internet to construct condominiums or buildings, and AI can be used to analyze property values.
Although these companies exist, few are taking the same approach as and factory, using smartphone apps as leverage to enter the real estate business. Shared Research believes Robot Home Co., Ltd. (subsidiary of TATERU, Inc. [TSE1: 1435]) serves as a useful reference.
▷ Robot Home Co., Ltd. (subsidiary of TATERU, Inc.* [TSE1: 1435]) provides “Apartment kit,” a smartphone-based property management app for apartment owners and “TATERU kit,” an app aimed at people who live in TATERU apartments. TATERU kit can be used to open and close smartphone-activated doors and provide security by using smartphones linked with tags. The app for IoT-enabled equipment also allows the use of smartphones for controlling air conditioners, televisions, other home electronics, and lighting. It also offers features through which tablets inside of apartments serve as central controllers, facilitating chats with the management company.
* TATERU, Inc. (TSE1: 1435): The company operates TATERU Apartment**, an apartment management platform it developed. This platform handles a variety of services, such as providing land information, facilitating the planning and construction of designed apartments, and managing rentals. **This platform matches people online (via smartphone) who are interested in managing apartments with people who own land. It also provides a host of other services, such as proposing IoT apartments, construction services, and rental management.
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Strengths and weaknesses
Strengths
◤ Provides a one-stop manga app-related service and is capable of making improvements more quickly than competing companies
The company forms teams for each manga app and provides fully inclusive services that cover design, development, operation, analysis, improvement, and marketing. As the company has internalized these functions, it is able to implement improvement proposals more quickly than other companies that outsource some of these functions. As a result, it is able to improve the MAUs and ARPUs of its manga apps at a higher rate of speed.
◤ Has secure relationships (including capital and business alliances) with publishers who hold intellectual property and are strong in terms of manga
In July 2019, Square Enix Co., Ltd. announced that it would retain a 4% share in the company. Later, in October 2019, Shueisha, Shogakukan, and Hakusensha announced that they would each retain a 2% share in the company. One important factor that enables the company to offer a large number of original titles from publishers through its manga apps is the secure relationships it has built with publishers like these that are strong in terms of manga. This is one major attribute that helps set the company’s manga apps apart from the competition.
◤ Provides a wide variety of manga app types and has established a structure that minimizes the risk of cannibalization between different manga apps
Manga app ARPU typically rises to a certain level, but is difficult to increase beyond that level. Consequently, increases in MAUs are important in terms of securing sales growth. The company offers manga apps that are unique from one another (in terms of genre and reader attributes), thereby establishing a structure that minimizes the risk of cannibalization between different manga apps. Accordingly, new manga app releases are leading to increases in MAUs.
Weaknesses
◤ Most intellectual property is owned by business partners:
and factory is a platform provider rather than a content producer. The development of smartphone games, manga, and other IP requires huge investments of time and money, and the chances of failure are high. For this reason, rather than developing IP itself the company tends to source these assets from other companies or enter alliances for development and operation. Taking less risk means the company reaps commensurately lower rewards than IP owners obtain when their ventures are successful.
◤ Susceptible to impact from external environmental changes because most of its profit comes from the development and operation of manga apps
Most of the company’s profit comes from the development and operation of manga apps. Since a portion of the revenue (about 30‒40% as of 1H FY08/20) comes from advertising, the business is susceptible to fluctuations in ad prices. In addition, with the rise in e-book demand triggered by the coronavirus pandemic, competitors are aggressively investing in advertising, and the company needs to continue investing heavily in advertising to sustainably grow MAU.
◤ Concept and target customer base revision needed for &AND HOSTEL smart hostels in the IoT business
The previous target for &AND HOSTEL smart hostels in the IoT business were inbound tourists. Until 2019, this was one of the company’s strengths as inbound tourism continued to rise. However, the company needs to revise its concept and target customer base as it is unlikely to have many inbound tourists in 2H FY08/20 due to the coronavirus pandemic. Although the company already started working on revising its concept and target customer base, the shift takes time, and there is uncertainty as to whether the company will be able to restore profits back to previous levels.
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Historical results and financial statements Income statement
Income statement FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Parent Cons. Parent Parent Parent Parent Sales 112 372 689 1,916 3,917 2,946 YoY - 231.9% 85.2% 178.3% 104.4% -24.8% Cost of sales - 205 182 803 2,350 1,372 Gross profit - 166 506 1,114 1,567 1,574 YoY - - 204.4% 120.0% 40.7% 0.4% GPM - 44.7% 73.5% 58.1% 40.0% 53.4% SG&A expenses - 132 282 748 1,054 1,776 SG&A ratio - 35.4% 41.0% 39.1% 26.9% 60.3% Operating profit -40 35 224 365 512 -203 YoY - - 543.8% 63.2% 40.3% - OPM -35.7% 9.3% 32.5% 19.1% 13.1% - Non-operating income (expenses) -45221 Interest income -00000 Commission income - - 1 - - - Outsourcing fees --2--- Gain on donation of noncurrent assets - - 1 - - - Tax refunds ---0-- Subsidy income - - - 2 - - Other income -40020 Non-operating expenses - 1 5 6 30 58 Interest expenses -116820 Rents - - 3 - - - Guarantee fees - - 0 1 - - Other expenses - 0 0 0 - - Recurring profit -42 37 223 361 484 -260 YoY - - 500.8% 61.5% 34.2% - RPM -37.5% 10.0% 32.4% 18.8% 12.4% - Extraordinary gains ------Extraordinary losses - 8 16 4 - 129 Income taxes -203497156-26 Implied tax rate - 68.6% 16.3% 27.0% 32.3% 6.8% Minority interests ----- Ne t inc o me -43 -6 174 261 328 -362 YoY - - - 49.9% 25.8% - Net margin -38.2% -1.7% 25.3% 13.6% 8.4% - Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods. SG&A expenses FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 (JPYmn) Parent Cons. Parent Parent Parent Directors' bonuses 35 41 Salaries and allowances 31 51 102 132 Hiring and training expenses 9 Advertising expenses 47 293 527 Compensations 16 29 R&D expenses 10 19 Depreciation 10 Provision for doubtful accounts 1 -0 0 Provision for bonuses 3 16 Other 0 84 87 276 395 Total 0 132 282 748 1,054 Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.
In FY08/20, sales and profits fell YoY due to the impact of the coronavirus pandemic. Manga app advertising revenue declined as some advertisers reduced the unit price of reward advertising (with some even halving the unit price) and ad volume and prices on ad networks declined due to deteriorating advertising market conditions caused by the COVID-19 pandemic. Meanwhile, there were delays and cancellations for &AND HOSTEL in-house development projects.
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Balance sheet
Balance sheet FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Parent Cons. Parent Parent Parent Parent ASSETS Cash and deposits 79 172 672 1,353 1,028 Notes and accounts receivable 103 129 302 484 623 Inventories - - 108 16 284 3,171 Income taxes receivable - - - - 128 Consumption taxes receivable - - - - 213 Prepaid expenses 5 12 14 21 - Advances paid 5 42 86 278 - Deferred tax assets - 8 22 - - Other - 110145380 Allowance for doubtful accounts -1 -0 -1 - -0 Total current assets 193 480 1,126 2,453 5,662 Buildings 1 39 62 65 47 Machinery and equipment - - - - 1 Tools, furniture, and fixtures 2 16 28 45 53 Accumulated depreciation -2 -7 -16 -35 -80 Total tangible fixed assets 1 48 74 77 21 Software 130 132 Total intangible fixed assets - 32 41 130 132 Investment securities 1 1 11 79 229 Deferred tax assets - 8 35 28 - Other 25 24 8 11 11 Investments and other assets 26 33 103 381 529 Total fixed assets 27 113 218 587 682 Total assets 220 594 1,323 3,040 6,344
LIA BILITIES Notes and accounts payable 21 13 63 98 359 Short-term debt - 80 97 136 404 786 Accounts payable–other 30 101 285 401 662 Income taxes payable 20 39 91 109 - Provision for bonuses - 9 24 - 3 Provision for directors' bonuses - - 16 - - Other -27 2397251 Total current liabilities 159 262 653 1,095 1,858 Long-term debt - 27 140 216 147 3,027 Other -----9 Total fixed liabilities 27 140 216 147 3,036 Total interest-bearing debt - 107 237 352 551 3,812 Total liabilities 185 401 870 1,242 4,894 NET A S S ETS Capital stock 34 34 34 543 550 Capital surplus 33 33 33 542 548 Retained earnings -34 125 385 713 351 Treasury stock - - - -0 -1 Total net assets 34 192 453 1,798 1,450 Total liabilities and net assets 220 594 1,323 3,040 6,344 Working capital - 82 224 256 670 3,435 Total interest-bearing debt - 107 237 352 551 3,812 Net debt - 28 64 -320 -801 2,784 Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.
The company is targeting a shareholders’ equity ratio of around 40‒50%. At end-August 2020, this was below target at 22.8%. Additionally, the company had JPY3.2bn in real estate for sale and JPY3.8bn in interest-bearing debt at end-August 2020.
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Cash flow statement
Cash flow statement FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 FY08/20 (JPYmn) Parent Cons. Parent Parent Parent Parent Cash flows from operating activities (1) 36 46 516 -115 -3,283 Pretax profit 29 208 357 484 -388 Depreciation 57203245133 Amortization of goodwill - - - - - Increase (decrease) in accounts receivable -76 -38 -173 -182 -139 Increase (decrease) in inventories - -108 92 -267 -2,908 Increase (decrease) in accounts payable 19 -2 50 36 261 Other 8 -35 159 -231 -241 Cash flows from investing activities (2) -27 -94 -131 -416 -316 Purchase of tangible fixed assets -9 -60 -67 -19 -23 Purchase of intangible fixed assets -0 -34 -22 -108 -91 Payments and collection of guarantee deposits -17 3 -31 -218 -46 Purchase of investment securities - - -10 -69 -160 Other -0 -4 -11 -70 -156 Free cash flow (1+2) 10 -48 385 -531 -3,599 Cash flows from financing activities 22 130 116 1,211 3,274 Change in short-term borrowings 65 - - - 450 Change in long-term borrowings -43 130 116 199 2,811 Proceeds from issuance of stock Source: Shared Research based on company data Note: Figures may differ from company data due to differences in rounding methods.
In the past, the company invested in in-house &AND HOSTEL development projects, but it does not plan to make any new investments from FY08/21 on. As for properties developed in FY08/20, the company has JPY3.2bn in inventory as of end-August 2020, which contributed to a net cash outflow of JPY3.0bn from operating activities. This was funded by proceeds from long- term borrowings (financing activities).
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Historical performance
Full-year FY08/20 results Overview
▷ In FY08/20, the company reported sales of JPY2.9bn (-24.8% YoY), an operating loss of JPY203mn (from operating profit of JPY512mn in FY08/19), a recurring loss of JPY260mn (from recurring profit of JPY484mn), and a net loss of JPY362mn (from net income of JPY328mn). Sales, operating loss, and recurring loss improved from the revised company forecast announced on June 2, 2020 by JPY85mn, JPY46mn, and JPY41mn, respectively, but the net loss was JPY142mn lower. This is mainly due to an impairment loss on head office fixed assets (approximately JPY21.9mn), an impairment loss on some software (JPY28.6mn), and reversal of deferred tax assets in Q4. ▷ Sales of JPY2.9bn were down 24.8% YoY, with the Smartphone Apps business reporting sales of JPY2.5bn (+41.4% YoY) and the IoT business reporting sales of JPY337mn (-83.6% YoY). ▷ The operating loss of JPY203mn was down from operating profit of JPY512mn in FY08/19, with the Smartphone Apps business reporting operating profit of JPY337mn (-41.4% YoY) and the IoT business reporting an operating loss of JPY187mn (from operating profit of JPY194mn in FY08/19). ▷ Accounting estimates: The company made accounting estimates, such as evaluation of real estate for sale, as well as determining whether to record impairment losses on fixed assets and assessing the recoverability of deferred tax assets, based
on information available at the time of the preparation of financial statements, and the assumption that the economic impact of the COVID-19 pandemic will continue through FY08/21 and gradually subside in FY08/22. ▷ Full-year FY08/21 forecast: For FY08/21, the company forecasts sales of JPY3.5bn (+20.2% YoY), an operating loss of JPY27mn (versus JPY203mn operating loss in FY08/20), a recurring loss of JPY177mn (JPY260mn loss), a net loss of JPY182mn (JPY362mn loss), and EPS of -JPY18.66 (-JPY37.01). Although and factory targets 30% CAGR for the Smartphone Apps business, it expects continued losses in FY08/20 due to the impact of the coronavirus pandemic, which is forcing the company to change its policy
for &AND HOSTEL in the IoT business. The company explained that FY08/21 will be a period of investment to return the company to profitability in FY08/22. For details regarding the forecast, please refer to the Full-year company forecast for FY08/21 section. ▷ Policy for new in-house development properties: The company clarified that it would not be starting any new in-house development projects, including for the residential sector, going forward. The company is continuing sales activities for self- developed &AND HOSTEL properties, and is not expecting to sell below cost. However, it has not factored this into its
earnings forecast because of the uncertainty of outlook. The company says it will disclose without delay any property sale that is agreed in FY08/21.
Results by business Smartphone Apps business In FY08/20, sales in the Smartphone Apps business were JPY2.5bn (+41.4% YoY), and operating profit was JPY352mn (-41.4% YoY).
▷ The gains were driven by strong growth at existing apps such as Manga UP!, Manga Park, and Manga Mee, where a combination of aggressive advertising and promotion, new series launches, and stay-at-home demand led to an increase in monthly active users (MAUs). Extending the availability of popular content and new manga additions also contributed to growth. Additionally, MAUs for manga apps Young Jump! (jointly developed with Shueisha Inc.) released in April 2020 and Mecha Comics Daily Serial Manga (jointly developed with Amutus Corporation) released in May 2020, have steadily grown
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since release. Quarterly average MAU of and factory’s manga apps grew 86.8% YoY to 9.94mn users. The number of monthly active users for its manga app exceeded 10.0mn in August 2020. ▷ Meanwhile, ARPU was flat, and advertising revenue declined due to lower unit price of reward advertising for some advertisers and an overall decline in advertising market conditions due to the COVID-19 outbreak. The downward trend in advertising ARPU bottomed out in June and has been improving since July. In-app fees ARPU remained flat thanks to efforts to step up app operation by using return on advertising spend (ROAS), attract more paying users by providing content with a high purchase rate, and take steps to raise average revenue per paying user (ARPPU). ▷ The company booked impairment losses on Comic every and Final Fantasy Brave Exvius (FFBE) related software. Comic every sales did not grow as initially expected. The official FFBE strategy app was profitable despite a decline in users following the transition to a newer release of the game.
IoT business In FY08/20, sales in the IoT business were JPY337mn (-83.6% YoY), and the operating loss was JPY187mn (operating profit of JPY194mn in FY08/19).
▷ Although the company continued the planning and development of &AND HOSTELs smart hostels (lodging facilities operated by the company that offer experiences made possible through IoT), all in-house development projects were either delayed or
cancelled due to the COVID-19 outbreak, and the company closed some facilities due to ownership changes resulting in brand transfers. The company did not open any new hostels, keeping a total of eight hostels. Due to the declaration of a state of emergency by the Japanese government, all hostels were temporarily closed, and after they reopened, they were impacted by
the slump in overseas visitors who were their main target, resulting in a YoY decline in operating profit for each hostel. ▷ With regard to its guest room tablet service, tabii, the company worked to strengthen relations with partner companies (such as H.I.S. Hotel Holdings and TEPCO Energy Partners), expand its sales teams, and actively develop new functions aimed at
boosting operating efficiency and increasing value-added. However, sales activities were less than usual due to the worsening business conditions of target lodging facilities caused by the COVID-19 outbreak. As a result, the total number of tabii tablets in operation at end-Q4 FY08/20 came to 4,460 (up 1,607 from end-FY08/19 and up 210 from end-Q3 FY08/20). ▷ As of end-Q4 FY08/20, the number of facilities using the company’s innto lodging management system came to 272 (up 40 facilities from end-FY08/19, up four facilities from end-Q3 FY08/20). ▷ As for the tenant communication app, totono, two property management companies have decided to roll it out to over 600,000 tenants.
Other businesses In FY08/20, sales in Other businesses were JPY79mn (+10.7% YoY), and operating profit was JPY31mn. The majority of earnings under this segment come from the company’s internet advertising agency services.
Q3 FY08/20 results Overview
▷ In cumulative Q3 FY08/20, the company reported sales of JPY2.2bn (+44.8% YoY), an operating loss of JPY46mn (from operating profit of JPY155mn in cumulative Q3 FY08/19), a recurring loss of JPY87mn (from recurring profit of JPY131mn), and a net loss of JPY102mn (from net income of JPY89mn). Manga app advertising revenue declined as some advertisers reduced the unit price of reward advertising (with some even halving the unit price) and ad volume and prices on ad networks declined due to deteriorating advertising market conditions caused by the COVID-19 pandemic. Meanwhile, there were
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delays and cancellations for &AND HOSTEL in-house development projects. The company invested in manga app advertisements as planned. ▷ Sales of JPY2.2bn were up 44.8% YoY, with the Smartphone Apps business reporting sales of JPY1.9bn (+51.2% YoY) and the IoT business reporting sales of JPY287mn (+14.4% YoY). The Smartphone Apps business accounted for 83.8% of sales and the IoT business 12.9%. ▷ The operating loss of JPY46mn was down from a profit of JPY155mn in cumulative Q3 FY08/19, with the Smartphone Apps business reporting operating profit of JPY310mn (-20.4% YoY) and the IoT business an operating loss of JPY112mn (operating loss of JPY43mn in cumulative Q3 FY08/19). ▷ Extraordinary losses: The company recorded a JPY29mn loss on the temporary closure of &AND HOSTEL smart hostels as well as a JPY23mn impairment loss. The company made accounting estimates, such as determining whether to record impairment losses and assessing the recoverability of deferred tax assets, based on information available at the time of the preparation of financial statements and under the assumption that the COVID-19 pandemic will gradually come under control from July 2020 forward. ▷ Subsequent events: On June 30, 2020, the company obtained a five-year, unsecured, JPY300mn loan from Mizuho Bank, Ltd. ▷ Full-year FY08/20 forecasts: The company has made no changes to its FY08/20 forecasts revised on June 2, 2020. Cumulative Q3 sales progress against the revised forecast was 77.5%, progressing as expected as of July 14, 2020. Accordingly, the company decided there was no need to make additional revisions to its forecasts. For details regarding the revised forecasts,
please refer to the Full-year company forecast for FY08/20 section. ▷ Manga app ARPU expectations: The company expects the downward trend in advertising ARPU to bottom out in June and improve from July onward. ▷ FY08/21 policy for in-house developed &AND HOSTEL properties: The company indicated that it would not be starting any new in-house development projects in FY08/21 (but will conduct development consulting depending on circumstances). The two properties it is currently holding should be completed on schedule, and the company says it will continue sales activities.
As of July 2020, it still expects the selling prices of the properties to exceed cost, but believes they may fall short of the initial plan. As of end-Q3 FY08/20, the company conducted a real estate appraisal to decide whether a write-down was necessary due to any possible decline in profitability, and concluded that it was unnecessary. The company has not identified any events
or changes in the environment that would significantly reduce profitability, and does not intend to write-down its properties in FY08/20.
Results by business Smartphone Apps business
▷ In cumulative Q3 FY08/20, the Smartphone Apps business reported sales of JPY1.9bn (+51.2% YoY) and operating profit of JPY310mn (-20.4% YoY). The gains were driven by strong growth at existing apps such as Manga UP! (jointly developed with Square Enix Co., Ltd.), Manga Park (jointly developed with Hakusensha, Inc.), and Manga Mee (jointly developed with Shueisha Inc.), where a combination of new series launches and aggressive advertising and promotion led to increases in monthly active users (MAUs). Extending the availability of popular content and new manga additions among other factors also contributed to growth. Additionally, MAUs for manga app Young Jump! (jointly developed with Shueisha Inc.) released in April 2020 and Mecha Comic Daily Serial Manga app (jointly developed with Amutus Corporation) released in May 2020, has steadily grown since release. Quarterly average MAUs of and factory’s manga apps grew 110.7% YoY to 9.06mn users. Stay-at- home demand and an increase in free users attributable to the release of free content contributed to growth in MAUs for existing apps in particular.
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▷ Meanwhile, ARPU was flat, and advertising revenue declined due to lower unit price of reward advertising for some advertisers (with some even halving the unit price) and an overall decline in advertising market conditions due to the COVID-19 outbreak. Adoption of overseas ad mediation platforms for key manga apps was nearly completed in June. This adoption has effectively made up for the deterioration of the advertising market and the decline in unit price of reward advertising, halting the decline in advertising ARPU. In addition, the company expects advertising ARPU to improve from July onward. In-app fees ARPU remained flat due to an increase in stay-at-home demand (causing an increase in in-app fees, which is the numerator) and an increase in free users attributable to the release of free content (causing an increase in total user count, which is the denominator). ▷ With the hiring of personnel accompanying the release of the Young Jump! and Mecha Comic Daily Serial Manga apps, there was an increase in development-related personnel costs (cost of sales).
Mediation A system that calls on a network of third-party advertisers in order of profitability in response to an ad request. Companies can increase mobile app earnings by using such systems.
IoT business In cumulative Q3 FY08/20, the IoT business reported sales of JPY287mn (+14.4% YoY) and an operating loss of JPY112mn (operating loss of JPY43mn in cumulative Q3 FY08/19).
▷ Although the company continued the planning and development of &AND HOSTELs smart hostels (lodging facilities operated by the company that offer experiences made possible through IoT), all in-house development projects were either delayed or
cancelled due to the COVID-19 outbreak, and the company closed some facilities due to ownership changes resulting in brand changes (to the brands of the new owners). The facilities that were temporarily closed were not ones the company managed under contract, so there was no impact on the company’s earnings. The company did not open any new hostels, keeping a
total of eight hostels. Due to the Japanese government’s state of emergency declaration, all hostels were temporarily closed, resulting in a YoY decline in operating profit for each hostel. ▷ On July 27, 2020, the company announced confirmation that two employees of the outsourcing vendor to which it had outsourced management of lodging facility &AND HOSTEL SHINSAIBASHI EAST (the employees worked at the front desk) had contracted COVID-19. and factory cooperated with the outsourcing vendor and the relevant public health center to determine the recent actions of the affected employees and to disinfect the facility. In addition, the company worked to determine who
had been in close contact with the two employees, saw that PCR testing was conducted, and had them work from home for 14 days. and factory says this incident expects to have no impact on the company’s FY08/20 performance and that it will promptly disclose the details if such disclosure is deemed necessary. ▷ As of end-Q3 FY08/20, the number of facilities using the company’s innto lodging management system came to 268 (up 36 facilities from end-FY08/19, but down 63 facilities from end-1H FY08/20). Some small lodging facilities ended their contracts to reduce their costs, being affected by an impact of the COVID-19 pandemic. ▷ With regard to its guest room tablet service, tabii, the company worked to strengthen relations with partner companies (such as H.I.S. Hotel Holdings and TEPCO Energy Partners), expand its sales teams, and actively develop new functions aimed at boosting operating efficiency and increasing value-added, although sales activities were less than usual due to the worsening business conditions of target lodging facilities caused by the pandemic. Lodging facilities have become rather reluctant when it comes to capital investment. As a result, the total number of tabii tablets in operation came to 4,250 (up 1,397 from end- FY08/19 and up 413 from end-1H FY08/20).
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Other businesses In cumulative Q3 FY08/20, Other businesses reported sales of JPY72mn (+38.5% YoY) and operating profit of JPY23mn. The majority of earnings under this segment come from the company’s internet advertising agency services.
1H FY08/20 results Overview
▷ In 1H FY08/20, the company reported sales of JPY1.5bn (+49.2% YoY), an operating loss of JPY51mn (from operating profit of JPY103mn in 1H FY08/19), a recurring loss of JPY86mn (from recurring profit of JPY82mn), and a net loss of JPY64mn (from net income of JPY55mn). ▷ Q2 (December–February) FY08/20 sales missed the company’s forecast. The main factors were an impact of approximately JPY51mn from ARPU for manga apps falling short of the target in the Smartphone Apps business, an impact of approximately JPY23mn from lower than forecast project orders in the manga-specific ad network business, COMIAD, and an impact of approximately JPY97mn from &AND HOSTEL development projects in the IoT business. The company has stated that it plans to book sales on &AND HOSTEL development projects in 2H. ▷ Sales came in at 24.7% of full-year FY08/20 forecast. Against forecast for 1H FY08/20, sales came in at 88%, and operating profit missed the forecast by JPY140mn. The company invested JPY548mn in advertising expenses, which was an increase of more than double YoY (the figure for 1H FY08/19 was JPY263mn). ▷ Sales of JPY1.5bn were up 49.2% YoY, with the Smartphone Apps business reporting sales of JPY1.2bn (+49.6% YoY), the IoT business sales of JPY207mn (+36.7% YoY), and Other businesses sales of JPY59mn (+102.4% YoY). The Smartphone Apps business accounted for 82.0% of sales, the IoT business 14.0%, and Other businesses 4.0%. ▷ The operating loss of JPY51mn was down from a profit of JPY103mn in 1H FY08/19, with the Smartphone Apps business reporting operating profit of JPY180mn (-31.8% YoY), the IoT business an operating loss of JPY65mn (operating loss of JPY35mn in 1H FY08/19), and Other businesses operating profit of JPY15mn. ▷ As of the 1H earnings announcement, the company had made no changes to its FY08/20 forecast disclosed on October 11, 2019. Although some of the company’s businesses were being affected by the spread of the COVID-19 pandemic, the company believed the impact was not large enough to warrant the revision of its earnings forecast. However, based on the impact of COVID-19 and recent earnings trends, the company decided to revise its earnings forecast on June 2, 2020. The
revised full-year forecast for FY08/20 call for sales of JPY2.9bn (decrease of JPY3.1bn versus previous forecast of JPY6.0mn), operating loss of JPY248mn (decrease of JPY828mn versus previous operating profit forecast of JPY580mn), Recurring loss of JPY300mn (decrease of JPY860mn versus previous recurring profit forecast of JPY560mn), and net loss of JPY220mn (decrease of JPY610mn versus previous net income forecast of JPY390mn). See “Full-year FY08/20 forecasts” for more details.
Results by business Smartphone Apps business In 1H FY08/20, the Smartphone Apps business reported sales of JPY1.2bn (+49.6% YoY) and operating profit of JPY180mn (- 31.8% YoY). The gains were driven by strong growth at existing apps such as Manga UP! (jointly developed with Square Enix Co., Ltd.), Manga Park (jointly developed with Hakusensha, Inc.), and Manga Mee (jointly developed with Shueisha Inc.), where a combination of new series launches and aggressive advertising and promotion led to increases in monthly active users (MAUs). Extending the availability of popular content and new manga additions among other factors also contributed to growth. MAUs have been increasing steadily since the release in August 2019 of Sunday Webry, a manga app jointly developed with Shogakukan Inc., and the release in November 2019 of Manga TOP, a manga app jointly developed with Nihon Bungeisha. However, ARPU was weaker than planned, and project orders fell short of forecast in the manga-specific ad network business, COMIAD. Quarterly average MAUs of and factory’s manga apps grew 98.9% YoY to 7.20mn users.
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▷ Regarding advertising ARPU for manga apps, while the ratio of active users is high, the clickthrough rate decreases when users become accustomed to seeing the ads. To improve on this front, the company plans to increase advertising ARPU by using overseas mediation with its in-house system to increase the chances of displaying ads that achieve higher ad prices such as overseas game ads. However, even if measures to improve advertising ARPU achieve the intended results, advertising ARPU
will still not be as high as the company’s initial plan, nor will it reach the highs achieved in 2H FY08/18‒1H FY08/19.
Mediation A system that calls on a network of third-party advertisers in order of profitability in response to an ad request. Companies can increase mobile app earnings by using such systems.
▷ The in-app fees ARPU for manga apps is growing steadily. The company plans to increase in-app fees ARPU (and the proportion of ARPU it represents) by providing content with a high purchase rate based on user analysis. If the measures to improve in-app fees ARPU yield the expected results, the company believes in-app fees ARPU may exceed the initial plan and hit a record high. ▷ Advertising ARPU currently accounts for around 30% to 40% of total ARPU, but the company expects this ratio to decrease due to greater focus on improving in-app fees ARPU moving forward. ▷ The company started the YouTube channel “Manga UP! TV” in collaboration with Square Enix Co., Ltd. This move has significance in terms of testing its ability to fill new demand for manga read through a video format. If the test results are good,
the company will consider distributing similar content through the company’s manga app. Although the company expects to generate some ad revenue from “Manga UP! TV,” it does not expect this to be a significant amount in the short term.
IoT business In 1H FY08/20, the IoT business reported sales of JPY207mn (+36.7% YoY) and an operating loss of JPY65mn (operating loss of JPY35mn in 1H FY08/19). Thanks to progress in planning and development work for its mainstay &AND HOSTEL brand of smart hostels (lodging facilities offering experiences made possible through IoT), the total number of &AND HOSTEL brand lodging facilities in operation increased to 12 after the company opened &AND HOSTEL NAMBA. The company also brought the number of facilities using its innto lodging management system up to 331 as of end-1H FY08/20 (an increase of 99 facilities from end- FY08/19). With regard to its guest room tablet service, tabii, the company worked to strengthen relations with partner companies (such as H.I.S. Hotel Holdings and TEPCO Energy Partners), expand its sales teams, and actively develop new functions aimed at boosting operating efficiency and increasing added-value, although sales activities were less than usual due to the New Year holiday. As a result, the total number of tabii tablets in operation at end-1H increased to 3,837 (up 984 from end- FY08/19). At the same time, the company made active investments, including spending to support the openings of new &AND HOSTEL facilities, expand its innto and tabii services, and develop the tenant communication app, totono, as part of efforts to develop new services in the rental property market.
Other businesses In 1H FY08/20, Other businesses reported sales of JPY59mn (+102.4% YoY) and operating profit of JPY15mn. The majority of earnings under this segment come from the company’s internet advertising agency services.
Q1 FY08/20 results Overview
▷ In Q1 FY08/20, the company reported sales of JPY802mn (+70.9% YoY), operating profit of JPY37mn (-12.3% YoY), recurring profit of JPY37mn (-1.6% YoY), and net income of JPY20mn (-20.9% YoY). ▷ Sales came in at 13.4% of full-year FY08/20 forecast, operating profit 6.4%, recurring profit 6.5%, and net income 5.1%. Q1 sales came in at 97.8% of the forecast for the quarter and operating profit at 97.9%, mostly in line with projections. The
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company invested JPY267mn in advertising expenses, which was an increase of more than double YoY (the figure for Q1 FY08/19 was JPY116mn). ▷ Sales of JPY802mn were up 70.9% YoY, with the Smartphone Apps business reporting sales of JPY650mn (+64.9% YoY), IoT business sales of JPY124mn (+86.8% YoY), and Other businesses sales of JPY29mn (+212.4% YoY). The Smartphone Apps business accounted for 81.0% of sales, the IoT business 15.4%, and Other businesses 3.6%. ▷ Operating profit of JPY37mn was down 12.3% YoY, with the Smartphone Apps business reporting operating profit of JPY128mn (+3.2% YoY), the IoT business an operating loss of JPY14mn (operating loss of JPY14mn in Q1 FY08/19), and the Other businesses operating profit of JPY7mn.
Results by business Smartphone Apps business In Q1 FY08/20, the Smartphone Apps business reported sales of JPY650mn (+64.9% YoY) and operating profit of JPY128mn (+3.2% YoY). The gains were driven by strong growth at existing apps such as Manga UP! (jointly developed with Square Enix Co., Ltd.), Manga Park (jointly developed with Hakusensha, Inc.), and Manga Mee (jointly developed with Shueisha Inc.), where a combination of new series launches and aggressive advertising and promotion led to increases in monthly active users (MAUs). Extending the availability of popular content, new manga additions, and improved average revenue per user (ARPU) also contributed to growth. MAUs have been increasing steadily since the release in August, 2019, of Sunday Webry, a manga app jointly developed with Shogakukan Inc. The company also received revenues related to the development of new manga app Mecha Comic, in a new partnership with Amutus Corporation formed in October, 2019, and manga app Manga TOP, jointly developed with Nihon Bungeisha Co., Ltd. and released on November, 2019. Quarterly average MAUs of and factory’s manga apps grew 123.5% YoY to 6.41mn users.
IoT business In Q1 FY08/19, the IoT business reported sales of JPY124mn (+86.8% YoY) and an operating loss of JPY14mn (operating loss of JPY14mn in Q1 FY08/19). The top-line gains were driven by revenues linked to the progress on ongoing planning and development work for its mainstay &AND HOSTEL brand of smart hostels (lodging facilities offering experiences made possible through IoT) and consulting and real estate brokerage fees related to the development of hostel-type lodging facilities. With the opening of &AND HOSTEL KURAMAE WEST, &AND HOSTEL SHINSAIBASHI EAST, and &AND HOSTEL MINAMISENJU, the company brought the total number of &AND HOSTEL brand lodging facilities in operation to 11. The company also brought the number of facilities using its innto (lodging management system) up to 295 as of end-Q1 FY08/20 (an increase of 63 facilities from end-FY08/19), and the number of lodging facilities using its tabii (a guest room tablet service) up to 3,713 as of end-Q1 (an increase of 860 from end-FY08/19) with the help of stronger relations with partner companies (such as H.I.S. Hotel Holdings and TEPCO Energy Partners), expansion of its sales teams, and active development efforts to create new functions aimed at boosting operating efficiency and increasing added-value. At the same time, the company made active investment, including spending to support the openings of new &AND HOSTEL facilities and the expansion of its innto and tabii services.
▷ The company closed one &AND HOSTEL facility when its fixed-term lease expired and indicates that this was in accordance with its plans. It booked impairment loss of JPY6mn in connection with the closing.
▷ The company states that strengthened collaboration with TEPCO Energy Partners contributed greatly to the increase in lodging facilities using tabii. Collaboration is steadily progressing because TEPCO Energy Partners can offer value beyond its prices by providing other products with electrical power as a set.
Other businesses In Q1 FY08/20, the Other businesses reported sales of JPY29mn (+212.4% YoY) and operating profit of JPY7mn. The major of the earnings under this segment come from the company’s internet advertising agency services.
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Other information
History
Date Description September 2014 Company established October 2014 Entered the Smartphone Apps business by acquiring Dokodemo Mirror, a smartphone app, from Ignis Ltd. Began offering an iOS version of the Saikyo Series bulletin board-style app where users can exchange tips and tricks and recruit co-players April 2015 Entered into a capital alliance with Ignis Ltd. June 2016 Opened &AND HOSTEL, a smart hostel, in Fukuoka, marking the launch of the IoT business January 2017 Launched iOS and Android versions of Manga UP!, a smartphone manga app, in collaboration with Square Enix Co., Ltd. April 2017 Opened &AND HOSTEL ASAKUSA NORTH May 2017 Opened &AND HOSTEL UENO June 2017 In collaboration with the city of Yokohama and NTT Docomo, Inc., began operating the Homes of the Future project, which leverages IoT Smart Home August 2017 Launched iOS and Android versions of Manga Park, a smartphone manga app, in collaboration with Hakusensha, Inc. February 2018 Opened &AND HOSTEL AKIHABARA March 2018 Opened &AND HOSTEL KANDA Began providing innto, a property management system for simple lodging facilities, which was developed in collaboration with Almec Corporation, of the USEN-NEXT Group May 2018 Developed and began offering tabii, a tablet-based service for hotel rooms September 2018 Listed on the Mothers Market of the Tokyo Stock Exchange October 2018 Launched COMIAD, an ad network service that bundles ad space on multiple manga apps October 2018 Announced business alliance with TEPCO Energy Partner, Inc., in the tablet service business November 2018 Launched iOS and Android versions of Manga Mee, a smartphone manga app, in collaboration with Shueisha Inc. Entered into a business alliance with Tepco Customer Service Co., Ltd. December 2018 Launched iOS and Android versions of Comic Every, a smartphone app, in collaboration with Beeglee Inc. February 2019 Opened &AND HOSTEL ASAKUSA and &AND HOSTEL MINOWA April 2019 Entered into a business alliance with Nihonbungeisha Co., Ltd. June 2019 Launched iOS and Android versions of uraraca, a fortunetelling app July 2019 Entered into a business alliance with Shogakukan Inc. Entered into a capital and business alliance with Square Enix Co., Ltd. Launched iOS and Android versions of Final Fantasy Brave Exvius (FFBE) Digital Ultimania, a smartphone app, co-developed with Square Enix Co., Ltd. August 2019 Launched iOS and Android versions of fully renewed Sunday Web Every, a smartphone app, in collaboration with Shogakukan Inc. Opened &AND HOSTEL ASAKUSA and &AND HOSTEL HOMMACHI EAST
Source: Shared Research based on company data
The company was established in September 2014 as a wholly owned subsidiary of famous, Inc., which itself had been established in May 2012 by Takamasa Ohara (and factory’s CEO) to conduct business as an advertising agency. While running famous, Ohara became aware of business opportunities in the smartphone apps business, so he set up a subsidiary to pursue the business full time. In October 2014, Ohara and other directors of famous acquired the company’s shares, as they believed that further expansion of the smartphone apps business would require independence.
Mission and factory sees itself as a “smartphone idea company” that pursues business opportunities that smartphones make possible. The company’s employees have varied backgrounds and the company encourages them to leverage their areas of expertise to generate ideas and actively pursue areas with new potential. As the “and” in its name suggests, the company’s mission is to provide services that make people’s lives more fulfilling by bringing a little “something extra” to their everyday lives.
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News and topics September 2020 On September 23, 2020, the company announced that it is temporarily closing some &AND HOSTEL properties.
The company has decided to temporarily close some of its &AND HOSTEL locations as follows.
▷ Target locations: &AND HOSTEL SHINSAIBASHI EAST (from October 1), &AND HOSTEL ASAKUSA (from November 1), and &AND HOSTEL NAMBA (from November 1) ▷ Reason for closure: The company has decided that, based on recent occupancy conditions at these stores, temporary closure of these units will reduce operating losses compared to if the hostels remained open. ▷ Impact on business performance and future approach: At present, the company thinks the impact of the temporary closures on business performance will be limited, but will promptly disclose any changes to this as required in future. The timing of eventual reopening will be based on a recovery in the market environment and occupancy conditions at other hostels.
On September 11, 2020, the company announced that the number of monthly active users for its manga app exceeded 10 million in August.
June 2020 On June 8, 2020, the company announced the reopening of all of its &AND HOSTEL smart hostels.
Effective July 1, the company has decided to reopen all of its &AND HOSTEL smart hotels, which it had previously closed temporarily in response to the state of emergency declared by the Japanese government on April 7, 2020. On the same day, the company will begin offering workspaces at some of these hostels to the rising number of remote workers, in addition to its previous lodging services. The company is currently conducting a minute investigation into this move’s potential impact on business results and will promptly make any necessary disclosures moving forward.
On June 2, 2020, the company announced a revision to its full-year earnings forecast for FY08/20.
Revised FY08/20 forecast
▷ Sales: JPY2.9bn (decrease of JPY3.1bn versus previous forecast of JPY6.0mn) ▷ Operating loss: JPY248mn (decrease of JPY828mn versus previous operating profit forecast of JPY580mn) ▷ Recurring loss: JPY300mn (decrease of JPY860mn versus previous recurring profit forecast of JPY560mn) ▷ Net loss: JPY220mn (decrease of JPY610mn versus previous net income forecast of JPY390mn)
Reason for revision The company’s initial forecast called for significant Q3 and Q4 profit growth and full-year profitability. However, and factory revised its forecast based on the impact of the spread of the novel coronavirus disease (COVID-19) and recent earnings trends. For details regarding the revised forecast and risk factors, please refer to the Full-year company forecast for FY08/20 section.
▷ For Q3 and beyond, the company expects a JPY351mn decline in sales and a JPY261mn decline in operating profit in the Smartphone Apps business as well as a JPY2.5bn decline in sales and a JPY444mn decline in operating profit in the IoT business. ▷ Sales were revised down significantly as the deteriorating hotel industry environment greatly affected the company’s lodging businesses such as &AND HOSTEL and tabii. In addition, while the company implemented measures to improve the advertising ARPU of manga apps and generated some positive results, it expects lower manga app advertising revenue due to a recent decline in unit price of reward advertising (prices halved for some advertisers) and the overall deterioration of the advertising market caused by the COVID-19 outbreak. These factors have been accounted for in the revised forecast.
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▷ and factory also made downward revisions to profit items from operating profit and below as a result of the downward revision to its sales forecast. In addition, the company plans to book the losses incurred during the closure of &AND HOSTEL as an extraordinary loss, which is reflected in the revised forecast. ▷ Due to uncertainty over the impact of the COVID-19 outbreak, the company conservatively reflected various assumptions from Q3 FY08/20 in its earnings forecast.
April 2020 On April 8, 2020, the company announced the decision to temporarily suspend operation of its &AND HOSTELs.
Due to the declaration of a state of emergency by the Japanese government on April 7 in response to the spread of the novel coronavirus disease (COVID-19), the company decided to temporarily suspend operation of all &AND HOSTELs smart hostels (lodging facilities operated by the company that offer experiences made possible through IoT). The duration of closure for each &AND HOSTEL is yet to be determined. The company will decide when to resume operations on a property-by-property basis.
Although there is the possibility of an impact on FY08/20 earnings, depending on when business recommences at &AND HOSTELs and the nature of operations after reopening, the company’s view at present is that the effect on results will be limited, and it has determined that there will not be an effect of such a scale as to require revision of the full-year earnings forecast disclosed on October 11, 2019. The company has stated that it will promptly disclose any changes that significantly affect the &AND HOSTEL business as a whole, or the company’s overall performance.
March 2020 On March 26, 2020, the company announced its response to the spread of COVID-19 and the effects on the company.
In regard to the COVID-19 outbreak, the company noted it did not see the need to revise its forecast for FY08/20 (out October 11, 2019) at this time. The company’s explanations regarding each business are outlined below.
Smartphone Apps business Following school closures in response to the COVID-19 epidemic, the company began offering some of the manga works available through its manga apps for free. The development of a new manga app scheduled for release during FY08/20 is proceeding smoothly, so the company does not see the outbreak impacting its earnings on this front at this time.
IoT business Some of the &AND HOSTELs operated by the company are experiencing cancellations and lower YoY occupancy rates. However, the drop in earnings related to the operation of these facilities will only have a minor effect on earnings, says the company. Additionally, the sale of its in-house developed &AND HOSTEL properties is progressing as planned. As such, the company determined there was no apparent need to revise its full-year FY08/20 forecast at this time. The company will make prompt disclosure should any changes that have a significant impact on its business results transpire.
February 2020 On February 7, 2020, the company announced it received approval from the Tokyo Stock Exchange to upgrade the listing of its shares to the First Section.
As of February 14, 2020, the listing of the company’s shares will change from the Mothers market to the First Section of the Tokyo Stock Exchange.
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Corporate governance and top management
Form of organization and capital structure Cont rolling shareholder None Parent company ticker - Directors Number of directors under Articles of Incorporation 10 Directors' terms under Articles of Incorporation 1 year Number of independent outside directors 2 Audit & Supervisory Board Number of members of Audit & Supervisory Board under Articles of Incorporation 10 Number of independent outside members of Audit & Supervisory Board 3 Other Number of independent outside officers (directors and members of Audit & Supervisory Board) 5 Part icipat ion in elect ronic vot ing plat form None Other initiatives to enhance voting rights of investors None Providing convocation notice in English None Disclosure of directors' compensation None Disclosure of executive officers' compensation None Policy on determining amount of compensation and calculation methodology In place Takeover defenses None Source: Shared Research based on company data
Top management Takamasa Ohara, Chairman and Representative Director Born in August 1984, Ohara started a number of companies between his days as a university student and the launch of and factory. He joined CA Mobile in April 2009. That June, he was dispatched to a subsidiary, zeronana Inc. He established docks Inc. in 2011, famous Inc. and Tsutekoto Inc. (now Eichi, Inc.) in 2012, and Day’s Inc. in 2014. As explained in the History section above, and factory was formed in September 2014 as a wholly owned subsidiary of famous, Inc. In October, Ohara and other directors acquired and factory’s shares from famous, Inc., with the aim of expanding the company.
Ohara explains that when he established the company, he brought together people with whom he had come into contact through work since his 20s. Qian Kun, CEO of IGNIS Ltd. (TSE Mothers: 3689), was an older colleague of Ohara’s when they were both at zeronana, a subsidiary of CA Mobile. IGNIS is one of the major shareholders of the company.
Rinji Aoki, President and Representative Director Born in November 1983. Joined CA Mobile in 2006. Dispatched to zeronana Inc. in 2008. Joined docks, Inc. in 2012. Became a director of and factory in 2015. Was a colleague of Ohara at zeronana, a CA Mobile subsidiary, when Ohara was stationed there. Has led the company’s Smartphone Apps business since its founding.
Yuki Umemoto, Director (in charge of the IoT Division) Born in September 1980. Joined Fujitsu Ten Ltd. (now Denso Ten Corp.) in 2004. Joined GREE, Inc. in 2010. In 2013, joined FreakOut Inc. (now FreakOut Holdings, Inc.). Became an executive officer at curations Inc. in 2015. Joined the company in January 2016. Appointed executive officer in August 2016 and named director in 2017.
Ryo Okada, Director (in charge of the Corporate Strategy Division) Born in February 1988. Joined Deloitte Touche Tohmatsu LLC in February 2012. Joined and factory in October 2017. Became a director at and factory in November 2019.
Tomoki Hasumi (in charge of the BA/HR Division) Born in September 1983. Joined KPMG AZSA & Co. (now KPMG AZSA LLC) in 2006. Joined and factory in April 2016. Became a director at and factory in November 2019.
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Corporate governance and factory has put a management and administrative structure based on its fundamental shareholder orientation in place, with policies focused on expanding earnings as a sustainable company and enhancing corporate value. The company also strives to increase management efficiency and speed. Recognizing its corporate responsibility to society, the company provides various services that contribute to society and seeks to achieve harmony among parties that hold an interest in the company.
To ensure the transparency and objectivity of its business activities, when putting a management and administrative management system in place, the company intends to establish a structure for monitoring the business execution process and disclosing information in a timely manner.
Dividend policy
The company recognizes shareholder returns as an important management priority. However, having been established only recently, the company believes that, rather than dividends, the best ways to increase shareholder returns are augmenting retained earnings in preparation to expand the business; increasing working capital in order to build a robust financial system and increase the company’s operations; and making capital investments.
For this reason, and factory has paid no dividends since its establishment, and the company plans to continue expanding retained earnings for the foreseeable future. While concentrating on boosting profitability and expanding its base of operations, and factory plans to provide shareholders with stable ongoing returns, taking the status of retained earnings expansion and the business environment surrounding the company into consideration. Furthermore, the company has no current plans regarding the potential timing or amount of dividends.
If the company does pay dividends from surplus, its fundamental policy is to pay these dividends annually, at the end of the fiscal year, with the dividend amount determined at the general meeting of shareholders. The company’s Articles of Incorporation provide for the issuance of interim dividends, based on a resolution by the Board of Directors.
Major shareholders
Shareholding Top shareholders Shares held ratio Takamasa Ohara 3,386,246 34.47% Rinji Aoki 587,573 5.98% The Master Trust Bank of Japan, Ltd. (Trust account) 570,600 5.81% Square Enix Co., Ltd. 379,784 3.87% Japan Trustee Services Bank, Ltd. (Trust account) 321,400 3.27% Shu Takehana 284,236 2.89% The Nomura Trust and Banking Co., Ltd. 273,900 2.79% Shogakukan Inc. 193,627 1.97% Shueisha Inc. 193,627 1.97% Hakusensha Co., Ltd. 193,627 1.97% SUM (as of February 29, 2020) 6,384,620 64.99% Source: Shared Research based on company data
Square Enix, Shogakukan, Shueisha, and Hakusensha are business partners from whom the company receives app content.
Employees
FY08/15 FY08/16 FY08/17 FY08/18 FY08/19 Number of employees 8 17 41 65 90 YoY - 112.5% 141.2% 58.5% 38.5% Source: Shared Research based on company data
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In order for and factory to release a new app, it needs to increase the number of engineers and marketing staff, so the employee count tends to trend upward.
Glossary
UI/UX: A user interface (UI), which refers to all information the user sees, such as designs, fonts, and external appearance. The user experience (UX) describes the feelings and sensations the user experiences through a product or service.
Ad network: An arrangement in which multiple advertising media (such as websites, social media, blogs, etc.) are bundled together to create an ad distribution network. It allows advertisers to place ads across multiple publishers without having to deal with each publisher individually.
Affiliate: An arrangement through which an advertiser’s products or services are made available within a third-party app or site. The company managing the app or site receives compensation (advertising revenue) if the user purchases the products or services.
API: An application programming interface is a set of subroutine definitions, communication protocols, and tools for building software that provides building blocks for computer programs. An API allows applications and programs to interact with other software and functions.
Fourth Industrial Revolution: Technological innovation in areas such as IoT (described below), big data, and artificial intelligence. (AI) is a core element of this revolution. “Big data” refers to massive quantities of data that are difficult to register, store, manage, and analyze using conventional database management systems. “Artificial intelligence” indicates intelligence that resides in artificial (i.e., not human) computer systems and is capable of learning, reasoning, recognizing, and decision-making.
ICT: Information and communication technology
IoT: Short for the Internet of Things, IoT describes the concept of physical items being connected over the internet. IoT may refer to new services that make this concept a reality, to a business model, or to elemental technologies. Some industry pundits believe that the ability to connect a wide range of items over the internet, collect resulting data, and analyze and make use of this data will make the provision of innovative, high-value-added functions and services possible.
IoT device: A device that can be connected to the internet. The 2017 White Paper on Information and Communications in Japan describes an IoT device as “a device that has a unique IP address and can be connected to the internet. These electronic devices are broad in scope, ranging from devices used as sensor network terminals to devices with computing functions.” Worldwide, the number of IoT devices is expected to grow from an estimated 17.3 billion in 2017 to more than 30.0 billion in 2020.
Labor force: The number of people aged 15 years or more who are able and willing to work.
MAUs: The number of monthly active users (MAUs) indicates the number of people who use an app in a given month.
Multiplay: The ability to play smartphone game apps with other users.
On-premise: Servers, software, and other information systems located within facilities managed by their users
Open innovation: Bringing together knowledge and technologies from a broad range of sources when developing new technologies and products.
Platform: The foundation upon, or environment in, which applications operate.
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Revenue share: The allocation of obtained revenue to partner companies according to standards set in advance.
Test marketing location: A location where products under development can be provided to target consumers to gauge their reactions.
Profile
Company Name Head Office 1F and 2F, Sumitomo Fudosan Aobadai Tower and factory, inc. 3-6-28 Aobadai, Meguro-ku, Tokyo, Japan Phone Listed On - The First Section of the Tokyo Stock Exchange Established Exchange Listing September 16, 2014 September 9, 2018 Website Fiscal Year-End https: //andfactory.co.jp/ August 31 IR Contact IR Web - https: //andfactory.co.jp/ir/
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