(IR) Masatoshi Kumagai talks about GMO Internet Group Strategy in 2015 Overview of the group’s current position and outline of strategy going forward.
Quarterly Overview
Q2 2015 business results (latest quarter)
Older business results (here)
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Contents
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■About GMO Internet
– Internet Infrastructure
– Internet Securities
– Online Advertising & Media
– Mobile Entertainment
– Focus in 2015 (minne investment strategy, global growth)
■Financial Forecast
■Business Performance, Outlook & Return to Shareholders
■In Closing
■Disclaimer
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About the GMO Internet Group
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– The GMO Internet Group consists of 86 consolidated subsidiaries (including 8 listed companies) and 4,400 staff. The business group is listed on the first section of the Tokyo Stock Exchange.(June 2015)
– Internet for Everyone has been our corporate slogan for 20 years, ever since we launched Internet business operations in 1995.
– In August 1999 we became one of the first Internet companies to execute an IPO in Japan. Today we are a comprehensive Internet group operating in four business segments, striving to be Japan’s leading all-in provider of Internet services.
– If you were to summarize in one sentence our business activities over the past 20 years you could say that we are the company who has most increased the number of websites in Japan, or the volume of information available over the Internet in Japan.
– The following diagram illustrates our four business segments.
– Internet Infrastructure functions as a one-stop provider of everything required to communicate over the Internet for both businesses and individuals.
– Online Advertising & Media segment provides online marketing related services.
– The Internet Securities segment operates low-priced online securities and forex trading services.
– The Mobile Entertainment segment was formed in 2011 as the Social & Smartphone segment, As of 2014 the segment is renamed Mobile Entertainment. Cash flow, technology and marketing expertise from the group’s existing business segments are reinvested into cultivating this segment as the fourth pillar of the Group.
Point program, GMO TokuToku Point links the four segments and promotes synergy throughout the group.
– We have four major strengths.
(1)The technology that allow us to build almost all of our services from scratch.
(2)The sales and marketing power right throughout the group to sell the products and services we develop.
(3)A level of customer support recognized as an industry benchmark.
(4)The research strength that allows us to identify trends early
– An analyst once said we were an organization made of steel. I would say that our greatest asset is the formidable organization that supports all of the above.
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Internet Infrastructure
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Overwhelmingly, the market leader.
– When we talk about being the entity that has most increased the volume of websites on the Internet, this is the business segment where that happens.
– In this segment, five different businesses have captured leading shares of their respective markets in Japan.
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(1) Domain Registration
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– .com and .co.jp are examples of domains. Your domain name is your “address” on the Internet. We are the leading domain registrar in Japan.
– Our cumulative market share in Japan is around 91.5% (*1)
– We are overwhelmingly number one in Japan, and in the top 10 .com/.net registrars worldwide.
– Some of our Services:
Onamae.com http://www.onamae.com/
MuuMuu Domain http://muumuu-domain.com/
VALUE-DOMAIN http://www.value-domain.com/
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(2) Hosting & Cloud
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– Our web hosting business remains focused on responding to growing sophistication and diversification of client needs, through shared, dedicated and increasingly cloud based hosting solutions. We are the leading hosting provider in Japan.
– Our cumulative market share in Japan is around 55.6% (*1)
In this field we are also overwhelmingly number one.
Some of our Services:
GMO AppsCloud http://cloud.gmo.jp/en/
Onamae.com Shared Server SD http://www.onamae.com/service/shared/sd/
Onamae.com VPS http://www.onamae.com/server/vps/
ConoHa byGMO http://www.conoha.jp/
Marugoto Server http://www.marugoto-server.jp/
GMO Cloud http://shared.gmocloud.com/
GMO Cloud VPS http://vps.gmocloud.com/
GMO Cloud Altus http://www.gmocloud.com/
GMO Cloud Private http://private-c.gmocloud.com/
Lolipop! Rental Server http://www.lolipop.jp/
heteml http://heteml.jp/
CORESERVER.JP http://www.coreserver.jp/
VALUE SERVER http://www.value-server.com
VDSV.JP http://vdsv.jp/
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(3) Ecommerce Solutions
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– We provide simple ecommerce site building tools. Unlike online shopping malls Yahoo! and Rakuten, we provide operational solutions for online stores.
– Our solutions are convenient and cost-effective, and with over 86,000 stores including 73,000 paid stores, we have the most widely used ecommerce service offering in Japan.
Some of our services are:
MakeShop: http://www.makeshop.jp/
Color Me Shop: http://shop-pro.jp/
JugemCart: http://jugemcart.com/
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(4) Internet Security
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– The Secure Sockets Layer (SSL) is the most widely deployed security protocol today. It is essentially a protocol that provides a secure channel between two machines operating over the Internet or an internal network. In today’s Internet focused world, we typically see SSL in use when a web browser needs to securely connect to a web server over the insecure Internet and therefore SSL is essential in ecommerce businesses.
– This is the domain of GMO Cloud K.K.(English) (Tokyo Stock Exchange, Mothers Market: 3788) subsidiary, GlobalSign (English)
– Certificate issues grew 17.3% YoY in Japan. Growth in customer base is particularly strong in Europe. We operate our own Certificate Authority and this is one of the reasons we are able to grow so quickly.
– GlobalSign offers the only site seal for government elections in Japan. The GlobalSign site seal can be seen on the website of Japanese Prime Minister Shinzo Abe, and other members of parliament.
Some of our Services:
GlobalSign:http://www.globalsign.com/
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(5) Payment
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– We provide payment processing services for the sale of products via the Internet. When users provide their credit card numbers to our customers we check the credit limit and process the payment.
– This is a Payment Gateway Inc. (Tokyo Stock Exchange, First Section: 3769) service.
– Over 57,569 merchants use our services in this segment. Transaction volume in the most recent quarter totaled 440 billion yen and approximately 240 million transactions were processed. In this sub-segment we also have the leading market share.
– As one of the leading payment companies in Japan, we aim to continue driving innovation and growing ecommerce participation in Japan.
– As long as the ecommerce market grows and transaction volume continues to increase our earnings will also increase.
-In May 2013, the Osaka government adopted the GMO-PG public sector payment processing solution for automobile tax payments.
– Going forward we will continue to identify new markets for credit card payment processing services, while expanding existing solutions as a leading innovator in ecommerce payment gateway services.
Some of our Services:
GMO Payment Gateway http://www.gmo-pg.com/global/
Payment-One http://www.payment-one.com/
GMO Epsilon http://www.epsilon.jp/
CCS http://www.gmo-pg.com/service/product/
Social Appli Payment Service (SAPS) http://www.saps.jp/index.html
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(6) Web Site Brokerage
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– Over the past few years web sites have come to be recognized as assets.
Our web site brokerage service is also a market leader, helping expand business opportunities for our customers.
Site M&A: http://www.sitema.jp
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(7) Features and Strengths of the Internet Infrastructure Segment
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– Overall the Internet Infrastructure segment is overwhelmingly number one in its field. Despite being in competition with major carrier businesses, our domain registration and web hosting businesses boast leading market share, customer satisfaction, revenue and profit.
– Each of the Internet Infrastructure businesses have large customer bases. Building an economy of scale grows our operating profit margins. The operating profit margin on each of our products and services is 25%-30%.
– The Internet Infrastructure segment has five exceptional features.
(1) A steadfast income model
Once a customer signs a contract we have a continuing source of income creating a stable income business.
(2) An industry that will exist indefinitely
The Internet industry will continue to exist indefinitely. Take the example of the automobile industry. People get a new car about once every four years. However, even when cars change, the need for roads, traffic lights, parking lots, toll booths and other infrastructure remains. Imagine websites as the cars, ISP services as the roads, domains as the traffic signals, rental servers as the parking lots and payment processing as the toll booths. As long as the Internet continues to exist so will our business.
(3) People rarely change web service providers
Migrating to new web or mail servers is time-consuming and tedious.
(4) Customers don’t stop using our services
Customer URLs and e-mail addresses are printed on the business cards they hand out every day. These are services that they don’t stop using.
(5) Natural Cross Sell
The structure of this segment promotes a natural cross-sell among products and services. A customer who purchases a domain name cannot do anything with it unless they have a server.
Those that are using web hosting services for ecommerce will need payment processing, security and shopping cart services as well.
– The infrastructure business is (1) stable (2) permanent and (3) a high margin business with a large market share. It is a price leader that continues to grow.
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Internet Securities
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– Internet securities trading company GMO CLICK Securities, Inc. rejoined the group in October 2010.
The Internet securities segment complements our existing Web Infrastructure & Ecommerce and Internet Media businesses and helps to further generate synergy throughout the group. We aim to build a group that will succeed for hundreds of years and this is part of the reason why we brought this business into the group.
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(1) Internet Securities Segment – Objectives
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– With the growth of the Internet and the expansion of broadband usage during the late 1990s, as well as the 1999 relaxation of regulations on trading fees in Japan, online securities services became an essential tool for retails investors.
– Providing new technologies, added value, and innovative concepts through solutions that are universally user-friendly is core to the group’s fundamental mission.
– Our ultimate aim in this segment is to provide an easy to use online securities trading service to all of our customers.
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(2) Users & Market Share
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– Our Internet securities business has grown rapidly to become one of the major players, driving growth in the industry.
– In 2012,2013 and 2014 we achieved the highest transaction volume in the domestic FX market, and in comparison with global companies we have the highest transaction volumes in the world.(*2)
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(3) Internet Securities Segment Strengths
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– All of our backend systems are developed, operated and serviced in-house. Most other securities companies outsource technology functions. A large percentage of GMO CLICK Securities staff are engineers, and the company boasts industry-leading technology.
– This enables us to provide an agile service with highly cost effective operation and management. In other words technology gives us our competitive edge.
– On April 1, 2015, GMO CLICK Holdings was listed on the Tokyo Stock Exchange JASDAQ market. As a finance group with an edge in technology, we aim to accelerate growth by expanding into global markets.
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Online Advertising & Media
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– We advanced into a second business area directly after being listed on JASDAQ on August 27, 1999.
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(1) Why We are in this Industry
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– There are two reasons why we are in the Internet media business.
(1) Synergy with Internet Infrastructure
Customers who start up ecommerce businesses need advertising in order to increase sales. By providing search ranking services, SEO, SEM and other tools we achieve better customer satisfaction, capture more customers (cross sell) and achieve a higher profit ratio.
(2) Our Long term Plan (55-Year Plan)
We have a long term plan we call the 55-year plan. We plan to create an Internet group that by 2051 consists of 207 companies that are valuable to society and its people. In the Internet industry, companies that succeed are companies that can attract customers. Having our own media that attracts customers gives us an advantage over our competitors in virtually any market we enter.
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(2) Companies and Services
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– In 2014, GMO Research,Inc. (TSE:3695) and GMO TECH,Inc. (TSE:6026) were listed on the Tokyo Stock Exchange.Including GMO AD Partners, there are now three
listed companies supporting this segment.
– The Online Advertising & Media segment can be roughly divided into two businesses; the business of “creating” media and the business of “selling” media.
– These companies “create” media:
GMO Media Inc. http://www.gmo-media.jp/
JWord Inc.http://www.jword.jp/
GMO Mobile Inc.http://www.gmo-mobile.jp/
GMO TECH, Inc.http://gmo-seo.jp/
GMO KUMAPON, Inc.http://kumapon.jp/
– These companies “sell” media:
GMO AD Partners Inc. (JASDAQ Growth: 4784)
GMO NIKKO,Inc.
GMO Innovators,Inc.
GMO Solution Partner,Inc.
GMO China Concierge, Inc.
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(3) Online Advertising & Media Segment – Strengths
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– We have the advanced technology to develop services used by millions of people, the marketing force to attract large numbers of Internet users and the stable operational capability to give tens of millions of users an enjoyable Internet experience. These are our three strengths.
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Mobile Entertainment
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– In 2010, we entered the mobile game market with the objective of building a history-making smartphone game platform. Since then we have steadily built industry-expertise and top-line growth while reducing losses. We are now on the verge of breaking even on a quarterly basis.
Introducing No. 1 Products
We remain committed to enhancing our strengths and reinforcing weaker segments with number one products, and are progressing steadily with focusing on technology, proprietary product development
– The current focus in this segment is on enhancing in-house development and operation of fully native apps. By combining the development strength of reputed online game developer GMO Game Pot with the operational expertise of G-Gee, we are in a position to produce a hit title,
while maintaining controlled costs.
On July 24th, the completely in-house product, Chain Heroes was released.
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Important Themes in 2015
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(1) Strategic Investment in minne
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– This year we are concentrating strategic investment into the GMO Pepabo operated, minne. minne is a C2C online market specializing in handmade items. Currently the minne marketplace hosts more than 128,000 sellers and more than 1.34 million products, making it the number one service of its kind in Japan. Going forward we aim to strengthen our number one position through large-scale promotions and events.
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(2) Global Strategy
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– Outside of Japan, GMO Internet Group has Approx. 700 global staff in 40 locations throughout 17 countries. Global sales still only account for around 3% of the Group’s total revenue,however that figure is growing and already 26.1% more than the previous year.
This year, we will step up global expansion in both the infrastructure and securities segments, and global marketing efforts will be unified under the Z.com brand.
In order to increase our global revenue ratio, GMO Internet Group will launch revolutionary new services under global brand Z.com – one of the easiest to remember domain names in the world. Z.com will provide No.1 services worldwide, accelerating global growth.
On March 2nd 2015, GMO CLICK Holdings’s UK subsidiary started operating as “GMO-Z.com Trade UK Limited “（URL:http://trade.z.com/uk/ ）in UK.
Please watch our advertising video featuring Genki Sudo with World Order shot in London.
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Business Performance, Outlook & Return to Shareholders
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(1)Business Performance & Outlook
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– The following graphs represent business performance since 2009 together with guidance for the 2014 fiscal year. In 2012 we invested 2.1 billion yen in new businesses and still achieved a record high 9.1 billion yen operating profit. In 2013, actual results came in at approximately revised forecast levels.
From 2010 to 2014, for five consecutive years we have achieved our forecast targets.
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(2) Return to Shareholders
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– Our dividend policy is to pay out 33% of consolidated net profit in dividends. In 2015, we will be paying out a 2 yen per share commemorative dividend to celebrate exceeding JPY100 billion in net sales.
This brings the total forecast full-year dividend per share up from 19 yen per share to 21 yen per share for 2015.
1. Total Shareholder Returns
The company will continue to invest in corporate growth as needed, but with the objective of returning greater value to shareholders, we have a dividend payout ratio objective stated in our articles of incorporation that aims to payout 33% of consolidated net profit in dividends.
Now we have announced a revised policy that will aim for a total shareholder return ratio of 50% with the objective of improving capital efficiency and enabling a more agile capital policy.
In addition to the current payout of 33% the remainder of the 50% total shareholder return ratio will be put toward share buybacks.
The company will take a flexible approach and any share buy back decision will take into account company performance, financial condition and current share price.
Following its exit from the loans and credit business the company executed capital increases throughout 2006 and 2007. We believe that a share buyback of the shares issued during this time would be an appropriate means to return profits to shareholders. In order to achieve this, the company will implement this new total shareholder returns policy that includes share buyback plans over the long term.
The effective date of this new policy will be the FY2016 fiscal year, and we will be announcing more details at the Q4 FY2015 earnings presentation.
Following its exit from the loans and credit business the company executed capital increases throughout 2006 and 2007. We believe that a share buyback of the shares issued during this time would be an appropriate means to return profits to shareholders. In order to achieve this, the company will implement this new total shareholder returns policy that includes share buyback plans over the long term.
The effective date of this new policy will be the FY2016 fiscal year, and we will be announcing more details at the Q4 FY2015 earnings presentation.
2. Dividends
After net profit forecasts were revised upward for the current quarter, we revised dividend per share up 5 yen to 26 yen for the year.
Under our current policy “Strengthening Strengths” and “reinforcing weaker segments with number one products”. We are offering the number one product with sophisticated technology and ambition.
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In Closing
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– We aim to be a comprehensive Internet services group that provides industry-leading services in four business segments Internet Infrastructure, Online Advertising & Media, Internet Securities and Mobile Entertainment.
– We will continue to build an Internet group that contributes to the growth of the Internet based on the concept“Internet for Everyone”
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Disclaimer
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* This presentation document includes predictions based on expectations, premises and plans for the future that are accurate as of July 30, 2015. These predictions may differ from actual results due to factors including changes in the global economy, competition and exchange rates or unforeseen events such as natural disasters. Some of the figures given such as market share are based on our own calculations. These figures may differ from research agency figures.
* Information published on this site is provided for information purposes only and does not constitute a solicitation of investors. Further, the results forecasts and other forward-looking statements contain factors that are uncertain. Please understand that actual results may differ significantly as a result of forces including economic conditions and market environment. No responsibility is accepted for any damage sustained as a result of actions taken based on this information regardless of the reason.
*1 According to on our own research
*2 ForexMagnate (http://jp.forexmagnates.com/2015/01/30/forex-brokers/19379)
Please visit the here for an overview of Q1 2015 business results.
Please visit the here for an overview of Q2 2015 business results.
