Earnings call: LINE Yahoo! posts record Q2 revenue, revises guidance upward
LINE Yahoo! Corporation (LY), in its fiscal Q2 2024 earnings call, reported record highs in revenue and adjusted EBITDA, with a 4.7% year-over-year increase in revenue to ¥462.2 billion and a 9.1% rise in adjusted EBITDA to ¥112.6 billion. The company also announced upward revisions to its full-year guidance, citing strong performance in media and strategic segments, particularly account advertising and PayPay consolidation. Additional focus areas include share buybacks, enhancing digital solutions, and capitalizing on the growing domestic GIFT market.
Key Takeaways
Record high Q2 revenue of ¥462.2 billion, up 4.7% year-over-year.Adjusted EBITDA rose 9.1% to ¥112.6 billion.Full-year guidance increased by ¥20 billion for adjusted EBITDA and ¥4.1 for adjusted EPS.Share buybacks of ¥150 billion planned, 6.4% of total shares to be canceled.PayPay's GMV increased by 23.8%.Company aims for a cumulative payout ratio of over 70% over the next five years.Expected growth in LINE GIFT service and new shopping tab in LINE app.PayPay leads Japan's code payment service market with strong user and transaction growth.
Company Outlook
Revised full-year guidance anticipates continued strong performance.Plans to enhance official accounts, Mini Apps, LINE commerce, and PayPay Finance.Aims for over 10% year-over-year growth with a focus on results in the display advertising sector starting from the next fiscal year.
Bearish Highlights
Weaker performance in auctions due to currency fluctuations and user shifts.Display ads revenue projected to be flat or slightly negative in the second half of the fiscal year.Concerns over media display ads performance due to weak social media presence in video content.
Bullish Highlights
Strong growth in PayPay and LINE Credit expected to drive Strategic segment performance.Growth in consolidated business results due to increased monthly active users and cost reductions.Plans for cash allocation of ¥310 billion for share buybacks, subject to market conditions.
Misses
Downward adjustment of ¥15.5 billion in other areas due to internal distribution impacts and management accounting adjustments.
Q&A Highlights
Analysts inquired about the payout ratio, set at a cumulative 70%, and the growth potential of MINI apps.Management emphasized cost reduction and efficiency as key to driving PayPay's consolidation and growth.
LINE Yahoo! Corporation's earnings call reflected a company on the rise, with record revenue and a positive outlook for the future. The company's strategic initiatives, such as enhancing digital solutions and capitalizing on PayPay's market leadership, demonstrate a commitment to growth and shareholder returns. Despite some concerns over display ad performance and auction sector volatility, the overall tone of the call was optimistic, with a focus on maintaining strong growth and effective capital allocation strategies.
Full transcript - None (YAHOF) Q2 2024:
Operator: [Call Starts Abruptly] In today's briefing session, we have the participation of Mr. Takeshi Idezawa, President and Representative Director and CEO; Mr. Ryosuke Sakaue, Executive Corporate Officer and CFO. Mr. Yuki Ikehata, Executive Corporate Officer, Marketing Solutions Company CEO, and Mr. Makoto Hide, Executive Corporate Officer, Commerce company CEO. First, Mr. Idezawa will explain the financial results for the second quarter of 2024. We will then conduct a Q&A session. This session is scheduled for one hour. And this session is also broadcast live. If there is a problem in the audio or video, please try another server from the bottom of the screen. We would like to start the session now. Idezawa of LINE Yahoo! Corporation. Thank you.
Takeshi Idezawa: Thank you for taking the time to attend today's fiscal 2024 second quarter business results briefing. I will first provide a summary of the Q2 business results. Here is the highlight of the Q2 business results. First, we talk about the business performance progress and revision of full year guidance. Q2 results entire group revenue was up 4.7% Y-o-Y to ¥462.2 billion, and adjusted EBITDA was up 9.1% Y-o-Y to ¥112.6 billion, both figures were record highs for the second quarter. And with this strong business results, guidance for adjusted EBITDA and adjusted EPS has been revised upwards. I will explain the details later. Second, group-wide issues are moving steadily towards resolution. It's expected that the company will meet the criteria for maintaining its listing on the prime market through share buyback and cancellation of treasury shares, security measures are also progressing as planned. Third, product reinforcement by enhancing official accounts and MINI Apps, we will support the X and CX for companies and stores and reinforce monetization and will increase commerce transaction values through LINE GIFT and LINE revamp, and we will accelerate the growth of financial business through service linkages, which is PayPay. Next (LON:NXT ) page, please. I will explain in the order shown here. First, I'll explain the consolidated business results for the entire group. Second quarter results shown here. Q2 results are progressing smoothly in line with guidance presented at the beginning of the fiscal year, and the progress rates have exceeded 50%. For the revenue progress rate has not reached 50%, but the revenue will be larger in the second half, so this is within expectations. Next, fiscal 2024 consolidated full year guidance. Profit is progressing more smoothly than initially expected. As a result, we've revised upwards our full year consolidated adjusted EBITDA forecast by ¥20 billion and adjusted EPS by ¥4.1, and at the same time, we have also revised our adjusted EBITDA guidance for each segment. This is factors behind the revision of consolidated earnings guidance. Adjusted EBITDA is expected to grow more than initially planned in Media business due to account ads and in the strategic business due to the consolidation of PayPay. Adjusted EPS is expected to improve mainly due to the improvement in adjusted EBITDA and the effect of stock buyback and cancellation of shares. Next please. This is entire group performance trends. Revenue grew 4.7% Y-o-Y. Adjusted EBITDA grew by 9.1% Y-o-Y. Margins also remained at high level. Next page, please. This is the entire group performance analysis. The main factor for higher profits was the increase in revenue. This was especially due to the growth in revenue from account advertising and the consolidation of PayPay. We also continue to make disciplined investments and that has helped us to secure profit increase. Next, share buyback and cancellation. We made share buyback worth approximately ¥150 billion, and at the end of September we canceled about 6.4% of the total number of shares issued. The tradable shares ratio is expected to exceed the 35% threshold for maintaining listing on the prime market. Of the ¥515 billion in the capital allocation policies buffer for additional investments and capital policy, ¥150 billion was used for the share buyback. The remaining ¥365 billion will be used mainly for share buybacks and M&A. We will consider flexible capital allocation for this. Next, I talk about return to shareholders. In addition to the stable dividends, we've also been implementing flexible share buybacks as a return to shareholders. The cumulative total payout ratio over the five years from fiscal 2020 was approximately 70% over the next five years. We aim to achieve cumulative payout ratio of over 70%, the same level as the past five years. Next security measures. Security measures are steadily being implemented as planned. We expect this year's security countermeasures cost to be within the range of the initial forecast of about ¥15 billion. Q2 costs expected to be approximately ¥4 billion and we expect the same level for the third and fourth quarters as well. From here I will explain the performance of each segment. First, about the Media business performance trends. Account advertising grew faster than planned resulting in increased revenue and profit. Margins also remained in the high 30% range, the same as in the first quarter. Next Media business revenue. Overall revenue in the Media business increased by 4.2% year-on-year. Account advertising grew at a high rate of 18% year-on-year. Search advertising increased by 2.1% year-on-year, helped by the halt in the decline in revenue from partner sites. Next media business performance analysis. Although promotional expenses increased somewhat, the growth in revenue from account advertising exceeded this driving profit growth. As a result, adjusted EBITDA increased 7.8% year-on-year. So, I’ve been saying that account advertising has been strong. So let me explain that separately. The impact of the fee plan revision for official accounts implemented in June last year, the impact of that has ended in the first quarter, but the number of paid accounts continued to increase steadily in the second quarter. In Thailand, there was a revision to the fee plan and that has led to increased number of paid accounts. Revenue growth was at a high rate of 18% year-on-year. Commerce Business performance trends, revenues affected by the deconsolidation of subsidiaries such as value commerce and IPX, but shopping and travel grew, leading to increased revenue and profit. The margin also remained in the high teens. Next Commerce Business transaction value, thanks in part to the promotional measures of Yahoo! Travel and IQ, travel grew by more than 20% year-on-year and drove expansion of transaction value. In the previous year, there was a revision of the hometown tax system, and there was a last minute demand. So, demand fell as a reaction to this in this fiscal year and affected Yahoo! Shopping. However, excluding this impact, Yahoo! Shopping transaction volume maintained the same growth rate as previous quarter with year-on-year growth of 8%. Next Commerce Business performance, despite the revenue decline from the deconsolidation of subsidiaries, revenue growth at ZOZO, Yahoo! Shopping and reuse contributed to an overall increase in revenue. Adjusted EBITDA was up 9.2% year-on-year. Next, strategic business performance trends. PayPay consolidation continued to drive revenue and profit growth and revenue increased by 16.8% Y-o-Y to ¥81.2 billion. Adjusted EBITDA was ¥15.3 billion, including the impact of some cost transfers between segments. Next page, please. This is the strategic business revenue breakdown. All of the strategic businesses, which are mostly financial services, grew steadily. PayPay GMV grew, PayPay card revolving payment balances grew, PayPay Bank’s mortgage loan businesses performed well. And LINE’s fintech services grew steadily and overseas Taiwan’s business is also growing, as a result, the revenue of a strategic business grew 16.8% year-on-year. Next page, please. The strategic business performance analysis. Despite the increase in point expenses, profit increased, thanks to sales growth of PayPay consolidated and the improved profitability from cost control, this is PayPay consolidated business overview out of strategic businesses. PayPay consolidated GMV grew strongly by 23.8% Y-on-Y. As a result, PayPay’s consolidated sales grew 15.2% Y-o-Y, and consolidated EBITDA surpassed ¥10 billion for the first time for a quarter. Finally, I will explain the post-integration review of the first year after the merger and our future initiatives. This is the reflection on the first year, the reinforcement of profitability and enhancement of product development capabilities. These were the objectives we communicated at the time of the merger, we steadily accomplished these objectives. Profitability is improving with profit levels remaining high as shown in the EBITDA level. To improve our product development capabilities, we increased agility and flexibility by introducing company system and other measures. Over the past year, we have been able to provide more than 100 new services, new features, functionality improvements. In particular, the number of introductions of generative AI services exceeded 20 in one year. For example, on Yahoo!, Chiebukuro, the number of responses by AI exceeded 1.6 million in 10 months. There are multiple cases where we have received great support from users. From here, I will explain our future initiatives, the strengthening our FinTech business with three initiatives. They are official account, Mini app, LINE e-commerce and PayPay finance. Next page, please. First, the acceleration of growth through LINE official accounts and LINE Mini apps. The LINE official accounts offer functions to deliver messages to users, manage customers and others. Companies in stores are using this service and revenue from account advertising exceeded ¥100 billion last fiscal year. On the other hand, LINE Mini app offer services that enable customers to easily create and offer functions such as mobile orders, membership, cars and queuing. This was launched in 2020 as web applications that can be provided online. These are used as DX applications for mobile ordering and others. And in the future, we will position the official accounts and Mini apps as the core and evolve the service from a simple communication tool to a comprehensive DX tool for companies and merchants. Next, please. We have been adding various new functions for the official accounts and MINI apps. The left is the case of further increasing the number of messages sent. This is from Sagawa Express. Sagawa Express uses a service called LINE notification messages, delivery date and time notifications are now possible, even if the user has not added the official account as a friend. This led to the reduction of redeliveries, new functions are also designed to expand the number of messages delivered and the reach. The right-hand side is an example of MINI app. Example of [indiscernible] reservations and mobile ordering functions online have been introduced. As a result, the number of reservations have increased and man hour spend or on phone reservations and order fulfillment have been reduced. We expect that the expanded use of these functions will contribute to solving the social issues of logistics and labor shortage through additional features such as DX solutions, we aim to further improve convenience. Next is as a way to strengthen our commerce, we are strengthening LINE commerce. There are two – the domestic GIFT market is expanding and is projected to exceed ¥11 trillion in the year 2024. LINE GIFT as service that utilizes LINE's social graph has continued to grow at a high rate, growing nearly 30% Y-on-Y in FY2023, we expect the same growth rate this year. In the future, we will work on measures to boost products, functions and users scenarios to further expand transaction value and convenience, aiming for continuous growth by more than 30% Y-on-Y every year in the next five years. The second measure is LINE commerce. Six months ago, I communicated this as well. We are planning for renewal of LINE, and we plan to add new shopping tab through the renewal. The shopping corner will be newly created under the tab that attracts the most traffic online and create a shopping platform designed to suit the purchasing behavior of LINE users and proposed products according to seasons and trends and reinforce a sales promotion through LINE official accounts. The third area is PayPay finance. Before explaining this, let me review PayPay's growth to-date. Since this service was launched, the number of registered PayPay users, the number of payments and GMV has expanded rapidly and grown to become the number one code payment service in Japan. The growth of PayPay card. The left-hand side shows the transaction value of PayPay Card, PayPay Card became a consolidated subsidiary of PayPay in October 2022. We have been working to unify the payment experience between apps and credit cards and have been promoting PayPay cards as the main card. As a result, a card transaction value has been expanding, and in FY2023, it grew significantly by Y-o-Y of 30%. PayPay Bank launched a MINI app on PayPay on August 2022. The number of accounts via PayPay is steadily expanding. Since February of this year, PayPay's identity verification information can be linked greatly simplifying the process of opening a bank account and user convenience is also improving. In the financial services business, we will expand synergies centered on PayPay to further improve user convenience, increase revenue and accelerate the growth of each financial services. Lastly, a summary, business performance is progressing well, and the full year guidance for the current fiscal year is revised upward by ¥20 billion for adjusted EBITDA and by ¥4.1 for adjusted EPS. Security measures, which had been a company-wide concern and efforts to comply with the prime standards are making good progress. As a first step towards future growth, we will strongly drive forward each initiative such as strengthening our official accounts, MINI apps, LINE commerce and PayPay Finance to expand our business and our services. This is all for my explanation on the second quarter financial results. Thank you very much for your kind attention.
Operator: We will now have a Q&A. [Operator Instructions] So let’s start, let’s have questions. SMBC Nikko Securities, Maeda-san, please unmute and ask your question.
Eiji Maeda: Thank you. It’s Maeda from SMBC Nikko. Two questions please. First, payout ratio cumulative 70% is what we indicated have made things very clear. I think that past results are based on that, have said 70% at the same level, did you consider ¥365 billion buffer. And you said that 70% is appropriate. So the 70%, how did you arrive at this number? Please explain the background? And also talk about the growth investments and the necessary expense and the balance risk return or payout. Could you explain, that's the first question? I should ask both questions at the same time?
Takeshi Idezawa: Yes, please.
Eiji Maeda: Second question is you talked about new products like MINI Apps, for renewal or revamp there to acceleration of these things or is it just steadily growing so LINE MINI Apps that as a core is that going to really drive growth in the future, is that the message that you’ve tried to indicate there? So I’d like a clarification there.
Takeshi Idezawa: Well, thank you for the questions. So about the payout ratio, Sakaue will explain later. But MINI Apps, like talk about the current situation of them. First, so utilization use cases increasing, not the types of services increasing and number of merchants that use them are increasing. So we want to further accelerate this. And one – another major change that is on the platform side, there’s been some change in the regulation. And so to some extent, its become possible to offer these kinds of services. So going forward, I think we’re entering the phase for full-fledged expansion. So 2020 and onwards, we have steadily increased. So we see that growth. And there’s also the environment change in the market. And that has prompted us to talk about the strengthening of this area. About the dividend, Sakaue will explain, and Ikehata may have additional comments about the MINI App.
Ryosuke Sakaue: First, Sakaue will respond to the total payout ratio about dividends, it’s a fixed. So that’s the assumption. And about the capital buffer for a certain part of that, that is used for share buybacks. And so we calculate all of that. And so there will be ups and downs. So we talk about a five-year cumulative average. So 70% and more is what we would definitely like to achieve in terms of cumulative payout ratio. And so that is how the background against, which we have shown these kinds of numbers. And of course, we will disclose additional information on a timely basis.
Eiji Maeda: Thank you very much.
Operator: Thank you very much. Next question, Okumura-san from Okasan Securities. Please unmute and raise your question.
Yusuke Okumura: Thank you. I’m Okumura. Can you hear my voice?
Operator: Yes, we can. Please go ahead.
Yusuke Okumura: Thank you. I have two questions. First, during the past year, you worked on LYP Premium and Yahoo! JAPAN app renewal. I have several points I would like to reconfirm. For LYP Premium, on Q-on-Q basis, the number of members is declining slightly. In Yahoo! JAPAN app, the renewal was done, but the display ad revenue is declining Y-on-Y. And there is a Q-on-Q decline of the number of log-in IDs. Was there a special factor? In the background, is there something is happening that the company did not expect. And in the future, how do you see the change in the trend? That is the first point. The second point, the official account MINI App, you’re going to expand and if you could talk about the potential, the EC and game and video are to be provided a new? And in terms of monetization, do you have any rate or other indications that you can disclose? Company side, you explained the benefit on the company side. But from the user perspective, generally speaking, MINI App UI may be inferior to other apps, your product compared to a direct usage, the users, UI and UX, how does it differ? What is the benefit on the user side to use MINI Apps? That is my second question.
Takeshi Idezawa: Let me reply first LYP Premium. This is a very important initiative, and we are working on strengthening the functionalities. Frankly speaking, the numbers did not meet my expectations. That is my frank observation. The benefit on functionalities would be very important, especially lines functional benefit profile or profile or stage function. Those have high user needs. So including e-commerce, comprehensive benefits are to be strengthened for the customers. So we are revamping the renewal of rack flue Japan is progressing according to the plan. For this, the second point, real time, the second tab on the real-time information would be the key. We are to further publish and make it sophisticated. The second point on MINI App, I would like to ask Ikehata-san to add some more the user side benefit. There are many apps out there. The number of apps is increasing. And MINI Apps can be added casually and easily by the merchant side, store side, and that is the benefit. As pointed out, in terms of the interface, the level of seamlessness may be lower compared to regular applications. So we intend – we plan to strengthen that part and take measures to improve. Ikehata-san, over to you.
Yuki Ikehata: I will add some more explanation on MINI app. The benefit on the user side, as was mentioned, LINE – online Yahoo! platform, this application can be operated. So when you make a purchase or take an action, you don't need to create a new ID or you don't need to log in, and you don't need to download additional app. That seamlessness and the convenience would be the major benefit that we can provide. For UI and UX, as pointed out, we intend to continue to strengthen, and that's already included in the plan. So we will strengthen that. That will be the assumption. On MINI app the development UI or guideline is provided by the platform so that the business owners can release MINI apps easier. And as service experience, the sophisticated unified design can be realized, and we intend to strengthen such support, technology support will also be provided so UX support will also be provided in the future to a variety of business owners, merchants, we will be providing this app, MINI app service. So it is important that we provide an environment that is easy to use. That is all for myself.
Yusuke Okumura: I would like to ask additional questions. Yahoo! Japan compared to three months ago, there's a positive change on the traffic. Is there any advertising being inserted? Any additional comment on that?
Takeshi Idezawa: Session is changing on a positive manner. The entire advertising revenue is not increased in a significant manner through that. Thank you very much. That’s it for myself.
Operator: Thank you. SBI Securities, Hose-san, please unmute and ask.
Unidentified Analyst: Thank you. Hose from SBI Securities. Two questions. First, PayPay consolidation was progressing faster than expected. What's the factor behind that? So that relations and the cost reductions was this accelerated new measures were effective? And then next term, what would be the outlook, I think there is further room for improvement in efficiency. So talk about that, please. That's the first question. Second question is about the cumulative payback ratio. At five years, there was difference by year. And previously, you said that there will be difference by year. And so how do you make a decision about the payout ratio level for each year?
Takeshi Idezawa: Mr. Sakaue will answer both questions. But the consolidated business results, two reasons why that grew, as you mentioned, cost reduction progressed and the outsourcing and the human resource costs, fixed cost of decrease. And acquisition cost was also reduced that made the contribution and MTU from Q2 that has started to grow again. That's been the top line positive impact. Apart from several quarters before, there was a minor point of reaction. And so the growth rate was a little weak, but that effect has run its course. The functions are getting better and better. And so MTU is increasing and monthly usage number is increasing. And so that has led to more than in the payment transaction value and PayPay card is also steadily growing. So revolver payment revenue is increasing. So that's the top line impact. So that's the second factor that led to the large growth. So the first point – well, we really focused on the fixed costs that we see in PayPay. Next year, it doesn't seem that there's going to be a huge impact from that. But the MTU expansion, the revolving payment increasing. That will continuously have an effect because that will continue to grow going forward. So that's the fiscal year onwards. I think we can grow the GMV and revenue and EBITDA and operating income will grow. I think we're entering that kind of a phase. To answer your second question, the payout ratio, but there is volatility year-by-year. In terms of a stock buyback, we did this after consultation with the parent company. And it's difficult for us to make a decision or by ourselves maybe there would be some M&A possibility, we may prioritize that. So for each year, it's difficult for us to control that. So we look at the average and more than 70% payout ratio is what we are aiming for. That’s why we presented that way.
Unidentified Analyst: Thank you.
Operator: Thank you very much. From CLSA, Mr. Oliver Matthew, please mute and state your question.
Oliver Matthew: Hello. Thank you. I have two questions. First question, could you explain a bit more about the e-commerce example you give – you talked about the new sales promotion link for LINE. Could you explain a bit more about the background and how this would work? And secondly, if you have any other points why the auction was a bit weak and what we should expect there? Thank you.
Takeshi Idezawa: Thank you very much. I believe the question was about LINE GIFT and auction. It was on LINE commerce. So Hide-san will reply to the question.
Makoto Hide: This is Hide speaking. On the first question, as Idezawa-san mentioned, online, we will add a new shopping service. The product, currently, we have LINE GIFT, and we also do Yahoo! Shopping. And the merchants on Yahoo! Shopping and sellers on LINE GIFT among them, using the current system, the product information is to be extracted and start to sell on this new shopping service online. This is a new corner, new service. So with this as a trigger, we are hoping that we can acquire new sellers to start to sell on LINE, LINE GIFT and Yahoo! Shopping sellers and also new sellers, new merchants, the information on the product, that will be enriched so that this shopping experience will be original. The second point is on the auction. In the short term, there are various factors. In the first half at one point the forex rate turned to the stronger yen and on cross-border basis there are a lot of buyers and when the yen strengthens the unit price goes up for the cross-border transactions. So due to forex impact the overall result was softer. And during the past three to four years, we have been providing two services, Yahoo! Auction and flea market. Right now, the user on flea market is rising when we compared to the unit price, the price for Yahoo! Auction is higher. And when those users shift to flea market and then the overall unit price decline, so that is another factor. In the medium to long-term, we use growth, the overall growth of the market is starting to stabilize for reuse from 25 years ago, we have been providing Yahoo! Auction service and in the market more than 10 years ago MailCarry came in and new reuse customers that did not come into the Yahoo! Auction started to come in, thanks to the flea market expansion. So for medium to long-term our initiative is new reuse our customer development. We will strengthen that development in flea market and auction service, we are to add new services and new functions and so that we can offer opportunities for users to try. And through that, we would like to realize regrowth. Go back to the growth track that’s it.
Oliver Matthew: Okay. Thank you very much.
Operator: Jefferies Securities, Sato-san, please unmute and ask.
Hiroko Sato: Sato from Jefferies Securities, can you hear.
Takeshi Idezawa: Yes we hear you.
Hiroko Sato: I have two questions. Toward the second half for media and the display ad and the search ad, can you give us some clues? So search ads, so it will be in the lower single digit in the second half. I think that’s what you said in the previous meeting. Is that the situation? And so is the effect going to run its course next fiscal year? Account search you said 15%, 20% growth is very strong. So display ad is low. So what’s the outlook for the second half? And also margin, second half is the improvement trend going to continue? I mean that’s what you're aiming for. But coming from that it's true, so for the media business, so revenue growth in the second half, give us some increase. Second question about the commerce, shopping peak season is coming in the next quarter in December. Overall, what's your image or what should be our image for GMV? I think travel is going to be strong, but what about shopping? What should be our expectation? And for sales promotion expense Q-on-Q, how much are you going to increase? Give us some pointers, please.
Takeshi Idezawa: Sakaue will respond to the first question. Second question, Hide will respond.
Ryosuke Sakaue: The revision in terms of investment budget, ¥9 billion has been secured put in the budget, so ¥470 billion, that's the upper limited guidance, but all the products becoming newer, so about ¥9 billion for sales promotion put in the budget and so ¥460 billion upper limit in the guidance. So that's the background. So ¥9 billion haven't go to LYP premium in the media or the commerce segment, Yahoo! Shopping. So ¥9 billion, half and half go to those that is what we're planning. So maybe ROI will not be sufficient, there was a premium talk from this if functionally then that sales promotion, we may decide not to do it, but that is the assumption that we have in the new guidance. That's the background upon which we made a new guidance. So that's the supplemental comment. And so in terms of ad revenue in the second half we haven’t change the guidance so sales revenue in the lower single digit percentage that outlook we have not changed. And as you say Q2 well same level of Q2 in the second half that’s what we expect for account search or account adds pricing has been the effective pricing change is of course, so maybe 20 is difficult, but higher teens we are going to enter. And the display a year-on-year flat too, I'm going to a little bit negative. So in the second half, we expect the Q2 level basically, for margin current margin, we want to maintain or add on to that a little bit – sorry for the long response. The second one, Hide will answer.
Makoto Hide: So this is Hide, Yahoo! Shopping, third quarter, fourth quarter, second half image. So in the presentation, the two presentation back, we said that for the fiscal year single-digit to double-digit growth is what we're going to infra is what we said, that hasn't changed. So in the first half the hometown tax impact but excluding that we had growth close to 8% in Q2. Now, Q3 and Q4 for second half we will like to make sure we growth in that range. On a monthly basis and quarterly basis depending on how was the previous year there will be volatility, but over three months, over six months, 105% to 110% will be the growth rate will be aiming for. About the sales promotion expense, basically, we will have a disciplined investment. For fiscal – middle of fiscal 2022 onwards, we have really constrained investment, and so we have modified to healthy investment that policy hasn't changed. So against the GMV a certain percentage will be put into the point. So in line with the GMV growth, we will maintain the same ratio for the marketing expense. And so we're not thinking about any deterioration.
Hiroko Sato: One additional question, if you look at next fiscal year, search in the middle of the single-digit is it going to come back to that after adjustment that’s one. And display ads what’s your view about the next fiscal year is that going to continue to be flat. Second have I said about the mid to long term for next fiscal year Ikehata will talk from sales perspective.
Yuki Ikehata: Ikehata here, looking towards the fiscal, for switch ads the partner site volatility expectation, is not 0, but LINE Yahoo, we expect steady growth and commerce search, we have new products gradually is starting to have business impact or you should start to see business impact. So as was mentioned, in terms of growth next fiscal year, Y-o-Y, lower single-digit percentage is what we expect for the display, the – there's a gap with the market growth rate, so we think that is a big issue. And therefore Yahoo! JAPAN renewal and LINE renewal and cross-sectoral data utilization expansion will be taken those mid- to long-term measures. Next, we’ll start to see the impact of that next fiscal year and the year after that. So we are working on those measures. So if you look at just next fiscal year, currently, it’s negative, but we’re working to bring that back to positive territory. So Y-o-Y, lower single digit growth is what we’re going to be aiming for. As for the accounts, so we thought – we said that, that’s continuous. So the impact has run its course, but more than 10% growth Y-o-Y is what we would like to maintain. That is my response. So next year, I have expectations of all your measures. I think that’s the only comment I can make. But we really want to see come back here. So for me then.
Ryosuke Sakaue: Yes, thank you. In any case it’s an important agenda. And we think that we are making efforts there. And so we should have results in the mid- to long-term. And so from next fiscal year in the display ad area, you should be able to see the outcome. So we’re going to make efforts for that.
Hiroko Sato: That’s very clear. Thank you very much.
Operator: Thank you very much. From Nomura Securities, Mr. Masuno, please unmute and raise your question. Masuno [indiscernible] from Nomura Securities, please unmute and raise your question.
Takeshi Idezawa: The audio is not heard. Could you please check your microphone?
Daisaku Masuno: Can you hear?
Takeshi Idezawa: Yes. We can hear you now. Please raise your question.
Daisaku Masuno: I have two questions. One is shareholder return. Let me reconfirm next fiscal year, three-year cash allocation will apply. So of 310 billion remaining, if – nothing happens will be used for share buyback. I think that would be a rational expectation. If that is the case, the five-year period, including next fiscal year, five years are set. So if you implement the three-year plan in next fiscal year, then in the following year, the amount may be smaller. Personally speaking, I do not understand the reason why you don’t do share buyback. The parent company may have a intention, but when the stock price is higher then you can maintain – you can sell. But on a pro rata basis, if you do it on a pro rata basis, you can maintain the liquidity. Can you once again talk about this plan, the combination of the plan? And second is the EBITDA – adjusted EBITDA upward revision. The Strategic business is revised upward. And the other area was revised downward. And how much of the results are switched to a different category? And what about the PayPay’s impact?
Takeshi Idezawa: Sakaue will reply to the question.
Ryosuke Sakaue: I understand your point. 2025 is the final year for capital allocation. With regards to M&A, there is still possibility in next year. So it’s a matter of how that turns out. And we need to comply with the standard of prime listing and also pro rata base is one option, and we need to consult with our parent company. So nothing final I can tell you. And five-year cumulative will be dependent on that and total shareholder return will be dependent on that. And a five-year period will include next fiscal year. So for now, the plan for FY 2025 to create and finalize that plan is our priority, and I intend to work on this together with the parent company. Your second point, the guidance revision per segment breakdown, Strategic segment upward revision of 20.5 billion was made and 5 billion was transferred to other segment so 15 billion is Strategic segment and that was the upward revision. PayPay consolidated that breakdown, we do not disclose, but PayPay Bank and LINE Credit are progressing well. And overall in the Strategic segment, the business is performing well. So overall, we are making upward revision. Naturally, the – in terms of the size of the profit PayPay’s consolidated, it makes up a large portion. So the factor of the upward revision, the main factor would be the increase of the top line. Other adjustments ¥15.5 billion downward revision and ¥5 billion shift of segment and the remaining ¥10.5 billion of downward revision. What is the content of this? Internal distribution impact is included and that is roughly ¥8 billion. For this, our management accounting concept wise, for centrally allocated expenses there we have drivers for allocation such as sales and headcount and we allocate. Overall the human resources, each segment was quire lean in terms of human resources and there are part that cannot be allocated to each segment and that was booked under others. The more efficient other segment becomes, it's like a paradox but there will be others allocation for ¥8 billion to ¥7 billion. We regularly review the management accounting and the reserve or allowance is booked, and that is – that amounts to ¥2 billion. So that is the breakdown of the others. The ¥7 billion to ¥8 billion of internal distribution that is linked to the upward vision of other segment or overall our company adjustment is the ¥7 billion to ¥8 billion, the former is correct. In each segment, there are costs charged from the company, and that part is declining.
Daisaku Masuno: Understood. Thank you.
Takeshi Idezawa: [Foreign Language] Thank you very much.
Operator: Thank you very much. [Foreign Language] We'll take two more questions. Who have already raised their hands? From Citigroup (NYSE:C ) Securities, Tsuruo-san. Please unmute and ask your question.
Mitsunobu Tsuruo: Yes, please. Two questions. Before that, you had solid results and upward revision, thank you for that. First question that will be Page 6, EPS guidance. So next fiscal year, ¥20 or higher EPS is what you're going to aim for. And thinking that you have done share buyback, you'll be able to achieve ¥20 without any change. But what realistically should we expect in terms of results? You've talked about some top line numbers, but can you go through that again? Second, about capital allocation. [Foreign Language] Capital allocation sorry, this is comprise of two questions, and I would accept a short answer. So what kind of acquisition are you planning – corporate acquisition are you planning? What's in the pipeline? And 70% payout ratio over five years. We – that will be more than ¥100 billion buyback on average? So midterm plan is until next fiscal year, but so it's – you've extended the capital allocation in five years. So if you can sort out relationship amongst these things? So two major questions.
Takeshi Idezawa: Sakaue will respond to both.
Ryosuke Sakaue: So EPS for fiscal 2025; so more than ¥20 is the current target. We've had share buyback, and next year's budget, we are just starting to have discussions about. So ¥20 plus, how much of a plus, we will show you in the fiscal 2025 EPS guidance. Please wait for that. Second question about M&A. What we're focusing on is media and commerce strategies. So in the periphery, for the strategy that we're working on, we want if see a strong company that we can grow further. And we're – we have competitiveness but if we team up with some company, we can enhance our competitiveness further, we would be interested. So we're listing up the candidates, and we're in negotiations with some. So PayPay is small, but has been will be thinking about acquisition for functions that we deem lacking. So the five-year payout ratio and share buyback relationship, so what mention that could be a plan? I mean so on average you can calculate that way. We've done that internally, but for that as well the fiscal 2025 capital allocation results we will looking at that, and then think about our past toward the 70% payout ratio, we will indicate that at that time.
Mitsunobu Tsuruo: One follow-up for the first question. So ¥20 can you achieving it? Well, I mean, you're not going to loosen things because you can achieve that because the IRR is still lower than capital cost. So just give us the management's enthusiasm that you intend to work on that?
Ryosuke Sakaue: Yes, no change there. As you point out, I mean we're not going to be satisfied with ¥20, we're not going to be complacent. We're not going to loosen up, we're going to aim higher. That will be our stance. Thank you so much. [Foreign Language]
Operator: Thank you very much. BofA Securities, Nagao-san, please mute and raise your question.
Yoshitaka Nagao: I'm Nagao of BofA Securities. Thank you for extending the time. I have two questions. First question, I'm sorry to have to repeat this in the briefing session material, Page 9 capital allocation policy, I am aware that this is difficult to respond. FY 2025 plan additional investment buffer you have ¥365 billion. Is it correct to understand that this will be dissolved towards next fiscal year, utilized towards next fiscal year? That is the first question. Second is on businesses, in the appendix, Page 17, on quarterly basis, you have partner site search sales is in ¥6.2 billion to ¥6.3 billion, it has stabilized and is it going to stay stable. If there is any risk factors, please let us know. And media display ad is weaker, and that is because you do not own social media which is strong in video. So room on online is an area to strengthen for video, and you have invested so please update on this status.
Takeshi Idezawa: [Foreign Language] Thank you for the question. First question will be answered by Sakaue-san later. And on partner service of search and also video and boom, we are devoting our efforts and this summer, record high numbers were reached, and this is back on the growth trajectory. As you pointed out, the user spending less time on short on video, so there's a shift to shorter video and we do not have such a platform. And that is a challenge that we need to overcome going forward. And we are to put our effort in that area going forward.
Ryosuke Sakaue: This is Sakaue. On this perspective, let me add some more. The search partner site that you raised the question on. When we look at the future, it's very difficult to foresee on a definitive way. In the next two quarters, during the past two quarters, when I look at the progress, to a certain extent, the current ratio is maintained on a continuous basis. However, the search ads has – is quite volatile. So we need to take that into consideration in implementing initiatives. On top of that, display ad gap with the competitors, let me comment on that. As you pointed out, there are several measures that we need to implement in order to catch up with the average market growth. One big area is a media service experience. On social media or global platformers have video media and the user's time is shifting to video platforms and many users are staying on such a platform. So platform side can deepen the understanding of the users and optimize the ads and the impact of the ad is improving. That is the situation. As was mentioned previously, social media feed type or room type of video platform, the LINE Yahoo! platform renewal is being worked on. And from there, we are to capture data of the users with high resolution so that we can use such data to the existing ads. So that was my additional comment on the video and search ad. And on the first question on the capital allocation. This ¥365 billion share buyback and M&A, we will continue to try to invest in those areas, and we are working on coordination and investments.
Yoshitaka Nagao: Thank you very much for your through reply.
Operator: Thank you for joining us. Idezawa will say the final concluding remarks.
Takeshi Idezawa: We went over time, but thank you for staying us – staying with us to the end. And thank you for the active Q&A. And we will reflect that in management going forward. And it's been one year since the merger, and we have made upward revision, strong growth to be reestablished. That is very important, we think. So we like to solidly work to grow our business as we explained. And for capital allocation, we will make sure to implement it in a strong way toward a high goal. So we ask for your continued cooperation. Thank you so much.
Operator: With that, we would like to conclude fiscal 2024 Q2 business results meeting of LY Corporation. Thank you for staying with us to the end.
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Source: Investing.com
