Post on 31-Jul-2020
Second Quarter FY03/17 Results
Financial Results Presentation
TSE JASDAQ Standard; Code 2138CROOZ, Inc.
An important announcement
And there is good news…
In November 2016, CROOZ was reborn as a company
centered on SHOPLIST(Accordingly, we transferred our Social Games Business)
Victor Lauer / 223843708 © shutterstock
GOOD NEWS
FOREVER 21, a global fashion brand operatingover 760 stores in 49 countries, opened an onlinestore on SHOPLIST, which became Japan’s firstmail-order fashion platform to host the brand.
And there is more…
We acquired, among others, MARBLE,a fashion curation media platform which boasts over 15 million
monthly unique visitors, through M&A. With this new business, we will work to diversify our revenue.
GOOD NEWS
Next, about our announcements on October 13
A newly formulated policy
First, about our future business policies…
Revising the business portfolio to Revising the business portfolio to persist as a long-lasting company, persist as a long-lasting company, making SHOPLIST the brand that making SHOPLIST the brand that
represents fast fashion e-commercerepresents fast fashion e-commerce
About future CROOZ business policies
Three decisions were made based on the above. The first was…
Second…
1) Business restructuring:Main business switching from Social Games to E-commerce
To concentrate management resources including personnel, assets, and funds on fast-growing SHOPLIST, the Social Games Business excluding Elemental Story was transferred.
Incidentally, as employees will also be reduced, the office space strategy will be revised to create an ideal environment for efficient e-commerce business operations. Also, since the Social Games Business will be spun off as a subsidiary and become a leaner operation, optimization of rents in each area are under consideration.
And finally, the third…
2) Actively pursuing M&A
By using approximately JPY5.0bn of the JPY10.0bn in total generated from the business transfer combined with accumulated cash and deposits, we will work toward attracting customers, increasing sales channels, and strengthening branding for SHOPLIST and creating new group businesses.As one measure, we will actively consider M&A with a focus on quality over quantity.
3) Future Social Games Business strategy
From the high-risk development method that dispersed management resources with multiple active development lines and multiple game titles, we will shift to a low-risk development method utilizing a single development line that concentrates resources in a select team to produce a single high-quality title.Also, as strategies clearly differ between the main business and the game development division, it was spun off and established as a strategic subsidiary.
In summary, these decisions were…
High-risk, high-returndevelopment method
Previous development methodFuture development methodto be promoted by the Group
Hit rate?%
×Low-risk, high-returndevelopment method
Hit rate?%
×
We have experienced significant business transitions many times in the past…
In summary…
Through business restructuring to switch the main business from Social Games to E-commerce and concentrate management resources (personnel, assets, and funds) on fast-growing SHOPLIST, the Social Games Business excluding Elemental Story was transferred.
And, to strengthen SHOPLIST and aim to create new group businesses, M&A will be actively pursued.
Meanwhile, the Social Games Business will continue to challenge itself by shifting from the previous high-risk development method to a low-risk method featuring a single development line with a select team to produce a single high-quality title.
A history of changes
The path from our founding till today…
To respond to changes in the times, we have shiftedour main business over five times since our founding
History of change
As a result, new sales records since our founding counted…
Exited thebusiness
From 2001
2004 to 2009
From 2010
Contracted DevelopmentBusiness for mobile contentssuch as games and pachinko
Contracted DevelopmentBusiness for mobile contentssuch as games and pachinko
Contracted DevelopmentBusiness for mobile contentssuch as games and pachinko
Ad Networkbusiness utilizing
the “CROOZ” search engine
Ad Networkbusiness utilizing
the “CROOZ” search engine
Ad Networkbusiness utilizing
the “CROOZ” search engine
Sold thebusiness
EnteredMobage
From 2014
Enterednative
app gamesmarket
From 2016
TemporaryStaff Agency Business
specializing in theIT industry
TemporaryStaff Agency Business
specializing in theIT industry
TemporaryStaff Agency Business
specializing in theIT industry
2002 to 2009
2008
MobileCommerceBusiness
From 2003
ContentProviderBusiness
From 2007
SocialGames
Business
Commerce Commerce MakingMaking
BusinessBusinessthe mainthe mainbusinessbusiness
We have set a new sales record…
The number of operating losses in 15 years is…
times in 15 years1313
Sales(JPYmn)
27,787
FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08
Pre-IPO 上場前FY03/09 FY03/10 FY03/14 FY03/15 FY03/16FY03/11 FY03/13FY03/12
Post-IPO
20,841
23,352
13,878
8,935
5,282
3,651
5,1534,193
3,4942,807
1,851974
26232
We have had operating losses…
Essentially, CROOZ can be summed up as…
times in 15 years00
Sales(JPYmn)
FY03/02 FY03/03 FY03/04 FY03/05 FY03/06 FY03/07 FY03/08
Pre-IPO 上場前FY03/09 FY03/10 FY03/14 FY03/15 FY03/16FY03/11 FY03/13FY03/12
Post-IPO
2,4802,373
4,227
1,9231,955
1,130
432220
31829428064450.60.3
A company with the ability to change
It is not the strongest that survives,nor the most intelligent that survives.
It is the one that is most adaptable to change
In sum…
With the business transition, we have set new goals
Mid- to long-term goals for SHOPLIST
CROOZ will work toward the following goals…
Annual uniquepurchasers: ×
Average annualspend per user:
5 million5 million JPY20,000JPY20,000(As of Q2 FY03/17: Approx. 1.3mn) (FY03/16 results: Approx. JPY13,000)
First, an explanation on our target market…
FY03/??
*The above are calculated based on market scale and internal results data
Domestic B2C e-commerce market scale forecasts (JPYtn)
20152013 2014 2016 2017 2018 2021(FY)2019 2020
25.622.9
20.618.6
16.815.2
13.812.611.7
Additionally, the fashion e-commerce market is…
Our target market
The domestic B2C (business to consumer transactions)e-commerce market is forecast to grow to JPY25.6tn in five years,
about JPY10tn higher than FY03/17.
Source: “A Look at Trends in the ICT and Media Market Until FY2021,” Nomura Research Institute
The fashion e-commerce market has expanded in thehundreds of billions of yen; growth is forecast to continue
Next, an explanation on annual unique purchasers and targets
Fashion e-commerce market
2014 2015
JPY1.2822tn
About JPY15.8tnAbout JPY15.3tn
JPY1.3839tn
8.11%
9.04%
E-commerce ratio (Of all transactions, composition of electronic transactions)
E-commerce market scale of apparel and clothing, etc.
Overall market scale of domestic fashion market (CROOZ estimates)
Source: “Direct Selling Market 2016,” Yano Research Institute
Annual unique purchasers
What kind of number is five million?
5mn
Approx.1.3mn
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17 FY03/??Q1 Q2Q2 Q4Q3
Herenow
Trends and targets in annual unique purchasers
Total Japanese population
About 130mn people
Total Japanese population betweenthe ages of 16 and 45
About 46mn people
What kind of number is five million people?
Next, an explanation on annual average spend per user and targets
Reference
11%11%
The total number of people living in Japanbetween the ages of 16 and 45 is about 46 million;
we will work to acquire 5 million, or about 11% of this number.
About JPY13,000
Average annual spend per user
Trends and targets inaverage annual spend per user
Next, some frequently asked questions (FAQs)
JPY20,000
FY03/14 FY03/15 FY03/16 FY03/XX
2.56 times
4 times
Recentlyhere
Average annual number of purchases per user
FAQ
Q1: Why did you transfer the Social Games Business?
The games business is in a fast-moving business environment with high volatility, and as such, we determined that it would be too much of a risk to continue holding it as our main business. However, it is one type of today’ s Internet Business that could generate a significant revenue in a short period of time, and by spinning it off as a subsidiary with a select team, we will continue to pursue opportunities.
We also determined that we could increase our enterprise value over the mid- to long-term by transitioning our main business to the high-growth SHOPLIST and using funds from the transfer of Social Games Business to further strengthen it and actively pursue M&A.
Q2: What kind of service is SHOPLIST?
Q1: Why did you transfer the Social Games Business?
A one-stop shopping website where fast fashionitems in a wide range of genres can be
purchased for women, men and children
Q3: Is SHOPLIST growing?
Q2: What kind of service is SHOPLIST?
SHOPLIST transaction volume
First year Second year Third year
Over JPY2.2bn
About JPY7.0bn
About JPY10.0bn
About JPY15.0bn
Fourth year(FY03/16 results)
In the fourth year after launch, it quickly grew totransaction volume on the scale of JPY15.0bn
Q4: Will it continue to grow?
Q3: Is SHOPLIST growing?
Yes, we are very confident it will. To focus on increasing the number of annual unique purchasers and average annual spend per user, we will concentrate on strengthening aspects such as branding, promotion, logistics, and infrastructure maintenance.
Q5: Are measures in place for deliveries to meet increased transaction volume?
Q4: Will it continue to grow?
Currently, we are prepared for shipments for a transaction volume of JPY60.0bn. As volume continues to increase, mechanisms to ship items from warehouses will be a necessity. When the transaction volume in excess of JPY60.0bn is in sight, we will expand our warehouse capacity at a timing we consider appropriate.
Q6: Since the profitable Social Games Business was transferred,will profits decline in the near term?
Q5: Are measures in place for deliveries to meet increased transaction volume?
Yes. Although profits will decline in the short- to mid-term, we view the transfer as advance on several years of profits had we continued to hold the Social Games Business. Actively investing this fund in the high-growth SHOPLIST and realizing unprecedented growth in fast fashion e-commerce will produce higher transaction volume, and although we cannot state a specific time frame, we believe that we will eventually be able to generate profits similar to those seen when the Social Games Business was in operation.
Q7: Did you exit the Social Games Business because you were unable to generate hits?
Q6: Since the profitable Social Games Business was transferred, will profits decline in the near term?
Q7: Did you exit the Social Games Business because you were unable to generate hits?
No. We wish to change our strategy in light of changes in the business environment. When browser games were popular, development expenses were about JPY10mn per title with a development cycle of six months, and we were among the top companies in Japan. At the time, about 40% of our titles were hits that generated revenue in excess of JPY100mn per month. However, nat ive app games requi re development expenses of about JPY300mn to JPY500mn with a development cycle of over one year, representing a significant change. Additionally, looking at both CROOZ and peer companies, despite variance between the companies, the hit rates have dwindled. We believed that the risk was too great, and made a management decision to shift our development methods.
Q8: Why did you hold on to Elemental Story?
This is because we will continue with the Social Games Business as part of our investment. It is one form of today’ s Internet Business that could generate a significant revenue in a short period of time, but it also involves a high degree of uncertainty. Moving forward, we will gather select team members who have experience in the development and operation of Elemental Story, one of our hit titles, spin it off as a subsidiary separate from CROOZ to shift from a high-risk development method to a low-risk method, and continue operating Elemental Story while seeking opportunities in new development.
Q9: How will employee numbers change as a result of transferring the Social Games Business?
Q8: Why did you hold on to Elemental Story?
Other Infrastructure-related Back office Other (Subsidiaries, etc.)Commerce BusinessSocial Games Business
The number will be reduced to about half
Q10: Speaking of which, did you already quit the new business described about a year ago?
Q9: How will employee numbers change as a result of transferring the Social Games Business?
September 30, 2016 November 1, 2016
406
219
341212
266
77
93283
87
77
We will and are already working on it. New businesses can come from within, but there is also the method of acquiring external services and resources and commercializing them. The acquisition of Candle announced on October 13 is part of the approach to creating new businesses via the M&A method. Candle operates multiple curation media platforms, and in the future, we believe it can contribute to our earnings through advertising and other means.
Q11: What are policies on new businesses?
Q10: Did you already quit the new business described about a year ago?
We will actively pursue them. However, we will not engage in myriad businesses nor cover wide varieties. Regardless of internal or M&A, we will focus solely on “businesses and measures that can have a significant effect on the expansion of SHOPLIST” and move forward with an emphasis on quality over quantity.
Next, an explanation on our earnings…
Q11: What are policies on new businesses?
Our earnings for Q2 FY03/17
But first, an important announcement…
An Important Announcement
First, company-wide earnings…
This earnings announcement covers the period from July to September, and is thus unaffected by the business transfer. Effects will take shape from the next earnings announcement (scheduled for February 2017) onward.
The Commerce Business sets a new quarterly sales record
Meanwhile, trends in expenses were…
4,569
1,248
656565
5,884
1,500
4,495
1,535
363636
6,067
952
25.5%
15.7%
4,005
2,054
767676
801
6,136
13.1%
2,886
2,086
757575
693
5,048
13.7%
2,546
3,172
313131
724
5,749
12.6%
2,217
2.300
373737
486
4,555
10.7%
2,008
3,058
353535160
5,102
3.2%
3,098
3,596
343434
551
6,728
8.2%
4,086
4,632
434343
828
8,762
9.5%
3,887
3,279
262626
939
7,193
13.1%
3,249
4,523
262626
775
7,799
9.9%
3,300
4,728
700
8,048
8.7%
3,582
1,649
313131
973
5,264
18.5%
3,295
2,167
242424
469
5,486
8.5%
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17Q1 Q2Q2 Q4Q3
191919
Company-wide Earnings
(JPYmn) Operating profit OPMOtherSocial games Commerce
Cost-to-sales ratioSubcontractingPersonnelAdvertising (%)(JPYmn)
Trends in employee numbers were…
(5.0%)
272
590
295
303
613
(13.0%)791
367
694
(10.9%)666
310
664
488(9.3%)
404
723
(10.7%)588
300
708
(8.2%)412
183
673
(10.4%)598
185
590
(7.7%)349
184
605
(13.8%)702
244
583
(17.1%)1,149
276
577
(16.2%)1,166
457
580
(11.5%)893
422
581
(11.9%)960
294
525
(19.3%)1,693
There were no significant changes in Q2 versus Q1
Company-wide expenses
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17Q1 Q2Q2 Q4Q3
Other internal infrastructure-related Back officeCommerceSocial Games(Persons)
262626
47
44
373
490
29292939
42
406
516
21212143
42
412
518
222222
46
42
395
505
212121
49
43
427
540
22222245
46
415
528
20202038
52
360
470
16161637
51
309
413
16161633
58
302
409
14141431
54
277
376
12121233
53
270
368
16161633
59
273
381
20202036
63
294
413
12121234
77
283
406
Trends in employee numbers were…
Appropriate employee number levels continuerelative to our sales
Company-wide employee numbers
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17Q1 Q2Q2 Q4Q3
(JPYmn) OP OPMCommerce Business sales
2,167
87
4.0%
1,649
24
1.5%
2,055
179
8.7%
2,086
68
3.3%
4,523
132
2.9%
4,728
206
4.4%
3,279
9
0.3%
4,632
173
3.8%
3,172
39
1.2%
2,301
63
2.7%
3,058
-13-0.4%
3,596
202
5.6%
1,536
97
6.3%
1,248
47
3.8%
3131
↑31%↑31%UPUP
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17Q1 Q2Q2 Q4Q3
Meanwhile, trends in expenses were…
Q2 sales were up % YoYSet a new record for quarterly sales
earnings
Seasonalfactors
Seasonalfactors
Seasonalfactors
Commerce
3166
188(8.7%)
38
83
190(11.5%)
47
71
186(9.1%)
2956
151(9.8%)
2860
113(9.1%)
22222270
232(11.1%)
21212174
547(17.2%)
19191983
258(11.2%)
48
86
469(15.3%)
49
83
393(11.0%)
100
90
529(11.7%)
119
92
484(10.2%)
53
90
428(13.1%)
57
72
623(13.5%)
And an important announcement regarding the Commerce Business…
We plan to continue implementing large-scale promotionsPersonnel and subcontracting expenses to trend upward asbusiness scales up
Commerce expenses
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17Q1 Q2Q2 Q4Q3
Cost-to-sales ratioSubcontractingPersonnelAdvertising (%)(JPYmn)
Next, earnings in the Social Games Business…
As the company-wide cost balance is not optimal following the transfer of the Social Games Business, operating profit at SHOPLIST will appear to be temporarily lower.
The primary factor is that CROOZ is still a social games company with an office and structures for 400 employees.
Moving forward, we will advance cost optimizations including an office environment for 200 employees and revising personnel and hiring plans.
Our policy to achieve OPM of 8% by March 31, 2019 has not been changed.
An Important Announcement
4,569
1,422
4,495
840586
4,005
966
3,58231
378
3,295361
592
2,886144
679
2,546101
417
2,217157
177
2,008358
1,320
349
3,098
1,655
637
3,249
1,908
494
3,300
2,004
924
3,887
2,303
654
4,086
31.1%
18.7%
14.6%
26.4%
11.5%
20.5%26.7% 18.8%
8.8%11.3%
16.0%
19.6%
23.8%
15.0%
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17Q1 Q2Q2 Q4Q3
earningsSocial Games
(JPYmn) OP OPMNative app games sales Browser games sales
280280
Meanwhile, trends in expenses were…
Q2 native app games sales were up JPY mn QoQElemental Story led the way for gains
Q2 advertising expenses increased by JPY100mn QoQ
366
646
397(12.0%)
296
524
291(8.1%)
354
580
477(11.9%)
299
522
639(14.2%)
226
476
178(3.9%)
268
627
179(6.2%)
154
590
49(1.9%)
160
494
89(4.0%)
120
506
231(11.5%)
179
488
751(24.3%)
353
480
362(11.1%)
299
478
473(14.3%)
219
477
734(18.9%)
218
442
1,062(26.0%)
FY03/14Q1 Q2 Q3 Q4
FY03/15Q1 Q2 Q3 Q4
FY03/16Q1
FY03/17Q1 Q2Q2 Q4Q3
expensesSocial Games
In summary…
Cost-to-sales ratioSubcontractingPersonnelAdvertising (%)(JPYmn)
FourFour key points for Q2 FY03/17
Actively seeking M&A with the aim of strengthening SHOPLIST and expanding into new businesses
Transferred the Social Games Business, excluding Elemental Story, to concentrate management resources and shift the main business from Social Games to E-commerce
Changed the Social Games Business approach from the previous high-risk development method to a low-risk method with a select team, and by spinning if off as a subsidiary, for its visions and strategies differ from the E-commerce business, will continue to seek opportunities
About earnings forecasts…
Mid- to long-term targets for SHOPLISTAnnual unique purchasers: 5 million peopleAverage annual spend per user: JPY20,000
And that concludes our Q2 FY03/17 earnings announcement.
Since FY03/15, we have not disclosed earnings forecasts.
Accurate forecasting is difficult in our type of business
due to a volatile industry.
About earnings forecastsReference
The material herein contains medium- to long-term plans andforecasts made by CROOZ.
The information contained in these pages is not intended to guarantee the future business results of the company and bears certain risks and
uncertainties.
As future business results can be affected by various factors and may change from the company outlook, we ask the reader to refrain from
relying solely on the information presented herein.