Second Quarter FY03/17 Results Financial Results Presentation · Games Business excluding Elemental...

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



Ad Networkbusiness utilizing

the “CROOZ” search engine





Sold thebusiness

EnteredMobage

From 2014

Enterednative

app gamesmarket

From 2016

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


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


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


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…


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.

Second Quarter FY03/17 Results Financial Results Presentation · Games Business excluding Elemental...

Documents

Transcript of Second Quarter FY03/17 Results Financial Results Presentation · Games Business excluding Elemental...