| GMO Pepabo, Inc. (3633) |
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Company |
GMO Pepabo, Inc. |
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Code No. |
3633 |
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Exchange |
JASDAQ |
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Business category |
Information and communications |
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President |
Kentaro Sato |
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Address |
Cerulean Tower, 26-1 Sakuragaoka-cho, Shibuya-ku, Tokyo |
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Year-end |
End of December |
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*The share price is the closing price on February 8, 2018. The number of shares issued, ROE, and BPS were taken from the latest brief financial report.
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*The forecasted values are from the Company. Consolidated values have been used from the term ended Dec. 2012. Non-consolidated values have been used from the term ended Dec. 2017.
We introduce GMO Pepabo's FY December 2017 earnings results etc. |
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| Key Points |
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| Company Overview |
 Corporate history & profile of the president Around that time, the Internet environment had already advanced from the early period to the spread period, but it was still necessary to install your own server in order to distribute information through your website. Most services were targeted at corporations, and too expensive for individuals to use. In that circumstance, the company launched a hosting service while setting a monthly charge at several hundred yen, with the aim of offering Internet infrastructure for "individuals who want to express themselves" at affordable prices. One year later, it started the service of obtaining a domain on behalf of each customer. The company grew its business steadily, by grasping the multifaceted needs of individual users who want to distribute information and express themselves through the Internet. The company's far-sightedness both in recognizing the commercial potential of blogs, which had already been showing a sign of spread in the U.S., and in developing the environment for using blogs in Japanese, was a significant growth driver. In March 2004, the company conducted the allocation of new shares to a third party, which was GMO Internet, Inc. (named Global Media Online Co., Ltd. at that time), and became a member of the GMO Internet group. Around that time, several leading Internet firms had strong interests in paperboy & co., and requested capital participation. Among these firms, the GMO Internet group, which operated services with a main focus on corporations, was judged as the most appropriate collaborator for exerting synergetic effects, creating new services, etc. After that, the company launched a succession of new services, including online shop development ASP and rental servers for creators, achieving steady business expansion. In December 2008, it was listed on the JASDAQ market. In April 2014, the company was renamed as GMO Pepabo, Inc.. President Kentaro Sato was born in January 1981. He created websites, etc. on his own, and was invited by Mr. Ieiri to offer help to the predecessor of the company while he was still a student. In January 2003, he participated in the establishment of the company. After serving as Executive Secretary, and Representative Director, Vice President, and Head of the Management Planning Section, he was appointed as Representative Director and President in March 2009. He also serves as Director of GMO Internet. Corporate ethos, etc.  Business contentsIts business is composed of the 4 major segments: "hosting business," "EC support business," "handmade business," and "community business." (In January 2016, the C-to-C handmade product market "minne," which had belonged to the EC support business segment, was redefined as an independent segment called "handmade business.")  <Hosting business>
GMO Pepabo offers servers, functions, domains, etc. for establishing websites. Sales is derived mainly from the usage fee of such services.
 <EC support business>
GMO Pepabo offers the services for developing online shops, operating online shopping malls, and establishing the websites of stores for supporting e-commerce (EC) at low rates. The sales of this business are mainly from charges for use and commissions.
 <Handmade business>
At present, the company is committing most of its efforts towards developing the customer to customer handmade crafts market "minne," and as its quantitative importance has increased, from this period onwards, the company has decided to place it in a segment of the report separate and independent to the EC support business.
 <Overview>
Launched in 2012, "minne" is a C-to-C online market for connecting artists, who want to exhibit and sell their handmade products, and consumers, who want to purchase one-of-a-kind items or characteristic works.As of the end of June 2017, the number of registered artists is 390,000 and the number of products on display is 6.89 million. These numbers indicate that "minne" is the largest C-to-C handmade product market in Japan. Pepabo aims to further accelerate its growth and make it overwhelming No.1. The development of this service was started because it turned out to be consistent with the corporate policy of "supporting those who want to express themselves" when the company discussed various plans for increasing its growth rate further. This service is provided through the website and app, and most of users use the app. As of the end of Dec. 2017, the number of app downloads is 8,630,000. <Market scale and background of growth>
The "C-to-C" business, which means the trade of products and services among customers through the Internet, is growing rapidly. Products and services offered on the Internet are diverse, which include auctions, flea markets, ticket sale, and accommodation in private houses, but the company estimates that distribution amounts of the C-to-C market and handmade product websites in the domestic hobby market are approximately 100 billion yen and 20 billion yen, respectively, and both are experiencing double-digit growth continuously. The distribution amount of "minne" for the year 2017 was 10.29 billion yen, up 22.6% year on year.  Background of the growth of the C-to-C market(1) Spread of smartphones When an artist puts his/her artwork on display by using a PC, he/she needs to take pictures, import images into a PC, input and upload the description of his/her work. At present, however, anyone can put his/her products on display just by taking pictures of the products with a smartphone and inputting necessary text in a form. Namely, the hurdle for presenting artworks to the market has been significantly lowered. (2) Change in awareness from ownership to sharing As the age of mass production and consumption ended and the way of thinking for valuing materials, including the environment and sustainability, has spread, "sharing economy," in which items you own but do not use are shared with others, is growing. Auctions, flea markets, etc. are typical of this trend. (3) Place where individuals can exert their abilities Many cases substantiate the fact that since the Internet can connect you with people around the world, you can flourish by yourself as long as you are competent, like celebrities, leading companies, etc., even if you are not famous. Stimulated by this trend, an increasing number of individuals aim to express themselves and flourish in the C-to-C market. The artists who exhibit their artworks in "minne" are the very examples of such individuals.  When a product is sold, the company pays the amount calculated by subtracting 10% from the selling price to the seller (artist). As for the transfer of proceeds from sale, the company adopted the escrow service for satisfying the needs of both buyers: "I want to pay the price after receiving the product" and sellers: "I want to ship the product after receiving the price." <Progress of minne>
The trend of the number of app downloads and the volume of trade is below.Both the trade volume and the number of downloads are increasing steadily. But, the company is promoting various measures for more expansion.  <Community business>
The company offers services based on communication through the Internet, such as blogs. The sales of this business are mainly from ad fees for charge-free services, and usage fee and commissions for paid services.
 Characteristics and strengths1. Provision of a variety of services based on internal production
As mentioned in the section "Business contents," the company offers a wide array of services, differentiating it considerably from competitors. According to President Sato, such diversity of services can be achieved only because the company possesses a system capable of not only development, but also the ability to design and market services by itself. This leads to excellent speed and quality, and is essential for making the Internet business successful. 2. Unique corporate culture
The mission of the company is to root for "individuals who want to express themselves." To do so, the company itself needs to express itself, and the active outputting through the Internet is now its established homegrown corporate culture.
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| Fiscal Year December 2017 Earnings Results |
 Sales and profits grew year on year. Sales did not meet the estimate, but profits exceeded the estimates.
Sales were 7,365 million yen, up 8.1 % year on year. "minne" grew and the core business was steady. Gross profit and its rate increased 14.9% and 3.5%, respectively.Operating income was 143 million yen, up 6.6% year on year. Although SG&A expenses augmented as the advertisement cost for "minne" was 1,100 million yen, up 9.4% year on year, due to active online advertising and the broadcasting of television commercials in the 4th quarter (Oct.-Dec.), they were absorbed by increased sales. As there was no such an extraordinary gain as "50 million yen of gain on sales of shares of subsidiaries and associates" and no extraordinary loss as "73 million yen of bad debt expenses for loans to affiliates" like the previous term, net income was 119 million yen this term, up 41.0% year on year. Because the distribution amount of "minne" fell short of the forecast, sales fell below the initial forecasts and revised forecasts announced in October 2017. However, profits exceeded the forecasts as profitability improved with an increase in the average sale per customer of a rental server service "Lolipop!" and a shopping cart ASP service "Color Me Shop".   (1) Hosting Business
Both sales and profit grew.The number of subscriptions to rental server services slightly grew to 438,000 from the previous term. Among them, "Lolipop!" enjoyed increased sales per customer, resulting from development of functions and improvement of the user interface as part of rebranding, and promotion of upselling (encouraging customers to use one grade higher service). In addition, prior to the official release of a newly developed plan "Managed Cloud," the company began offering the Closed alpha version in July 2017 and Open beta version in November 2017. The subscription renewal rate of "Muu Muu Domain" (a domain acquisition agency service) remained at a high level, thanks to efforts to retain customers by offering discount for a multi-year contract for a domain. As a result, the number of registered domains as of the end of the term grew to 1,230,000, up 3.0% from the previous term. (2) EC Support Business
Both sales and profit grew.The sales per customer of "Color Me Shop" was 1,538 yen, up 7.2% year on year, resulting from development of functions, improvement in the user interface, seminars held at real places (held 31 seminars during the year, over 800 participants in total), expansion of payment function responding to Amazon Pay and also Rakuten Pay and continuous promotion of upselling. The cumulative membership of "SUZURI" , which is a service for production/sales of original goods, was 185,000, up 32.8% year on year, thanks to various campaigns carried out and a new item "Sacoche" becoming a popular topic mainly on social networking sites in efforts to expand creatable items. (3) Handmade Product Business
Sales increased, while the loss amount decreased.The distribution amount of "minne" in Dec. 2017 exceeded 1 billion yen and reached the highest-ever amount of 1.06 billion yen, resulting from the broadcast of its television commercials in the metropolitan area and enhancement of promotional activities and campaigns for the year end sales battle. The distribution amount for the year 2017 was 10,290 million yen, up 22.6% year on year. The sales per order was 2,930 yen, up 8.6% year on year. To optimize the activities of artists to allow them to focus on their work, online management service of statement of delivery and works and access analytical function were improved. Furthermore, functions for purchasers were enhanced by providing search functions to enable them to find the desired items easily and enriching helpful reviews. In addition, efforts were put to enhance brand development such as renewal of the logo and homepage and releasing a movie on the brand. The number of artists, works and app downloads at the end of Dec. 2017 grew well to 390,000 (up 29.9% year on year), 6,890,000 (up 48.6% year on year) and 8,630,000 (up 27.2% year on year), respectively. (4) Community Business
Sales decreased, while profit increased.Because of decline in advertisement sales of the blog service "JUGEM", sales are on a decreasing trend. But the company focused on securing profits through cost control. Consequently, profit increased.  Due to increase of other accounts payables and advances received, total liabilities increased 626 million yen from the end of the previous term to 4,153 million yen. As legal retained earnings increased, net assets increased 39 million yen from the end of the previous term to 1,223 million yen. Consequently, equity ratio dropped 2.2% from the end of the previous term to 21.6%.  Balance of financing CF was negative due to the payment of dividends. The cash position was 2,300 million yen. (4) Topics
◎ Regarding the information leak in "Color Me Shop"On Jan. 7, 2018, the "Color Me Shop" service was illegally accessed using the function of an original application for a wrong purpose, and it was found that information was viewed, and the information of the shop owners as well as the purchasers might have been leaked. The intrusion route was blocked right after that, and the function of the misused application was terminated to prevent any illegal program to be carried out.  Credit card information of the shop owners 22 itemsCredit card information of the shop owners that might have been leaked max. 9,430 itemsCredit card information of the purchasers that might have been leaked max. 2,711 itemsShop owners' login IDs that are currently being used or have been used in past, address, name, etc. max. 77,385 itemsThe company completed the resetting of passwords for all the shop owners by Jan. 22 and it is contacting the shop owners individually, while shop owners are communicating the details to their respective purchasers, whose credit card information might have been leaked. In addition, the company established a "recurrence prevention committee," where external technical advisors are included, with President Sato as the chairperson. This committee carries out the investigation of the facts and causes, proposal of preventive measures, disclosure of search reports, etc., and the whole company puts efforts for recurrence prevention. Effect of sales of mainly "Color Me Shop"Increase in SG&A due to enhancement of security of the whole companyExtraordinary loss due to incident response Extraordinary gain due to insurance proceeds from the insurance company |
| Fiscal Year December 2018 Earnings Estimates |
 Increased sales and profits
Sales are estimated to be 7,800 million yen, up 5.9% year on year. The hosting business and handmade product business are anticipated to grow steadily. Operating income is estimated to be 330 million yen, up 129.7% year on year. The loss from the handmade product business is anticipated to decrease. The dividend is expected to be 50.00 yen/share. The expected payout ratio is 50.9%.  Growth in sales and profits. Earning capacity is to be enhanced from 3 aspects, i.e., increased subscriptions, sales per customer and profitability, by raising added-values of services. By officially releasing "Managed Cloud", the conventional domain acquisition agency service is to be evolved to a domain integrated service that enables user to use various functions. ②EC Support Business A slight increase in sales and a decrease in profits. The incident is anticipated to affect this business the most. A sales model "Color Me Repeat", that delivers the product periodically for a period of time specified by the customer, on paying a fixed amount every month, was introduced on November 2017. "Color Me Repeat" can set up a page exclusively for regular sales with settlement functions in 3 steps at the shortest (approx. 10 min). Costs are: no initial cost, 9,800 yen/month and settlement fee of 3.4% + 30 yen per item. A further growth of the business is expected with this model that adds on fees involved in the expansion of distribution amount to the stable recurring fee revenues. ③Handmade Product Business An increase in sales and reduction in the gap of loss. In addition to existing efforts on retaining the current users and acquisition of new users by online promotion, etc., focus is to be put on "real" exposure and promotions, such as displaying "minne" at Shibuya Hikarie to develop it into such a brand that instantly flashes in people's mind when they think of handmade products, holding events at Tokyo Big Sight and organizing campaigns at Umeda Loft. With 12,500 million yen, up 21.4% year on year, as the target of distribution amount, the plan is to improve profitability while controlling the advertising cost. |
| Conclusions |
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| <Reference : Regarding Corporate Governance> |
 ◎ Corporate Governance Report
"We are implementing all the basic principles of corporate governance code," says the company.
Last update date: March 19, 2018 |
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Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However, we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.Copyright(C) 2018 Investment Bridge Co., Ltd. All Rights Reserved. |
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