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FreakOut Holdings, inc. (6094)
President Yusuke Sato
President
Yusuke Sato
Corporate Profile
Company
FreakOut Holdings, inc.
Code No.
6094
Exchange
TSE Mothers
Industry
Service
President
Yusuke Sato
Address
Roppongi Hills Cross Point, 6-3-1 Roppongi, Minato-ku, Tokyo
Year-end
End of September
URL
Stock Information
Share Price Number of shares issued Total market cap ROE (Actual) Trading Unit
¥2,500 13,300,400 shares ¥33,251 million 23.4% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
¥0.00 - ¥19.57 127.7 x ¥309.99 8.1 x
* The share price is the closing price on December 6.
The number of shares issued is calculated by adding the number of shares newly issued in Oct. 2017 (144,000) to the number of shares as of the end of Sep. reported in the brief financial report for the latest period.
ROE and BPS are the values from the previous term.
 
Earnings Trends
Fiscal Year Net Sales Operating
          Income
Ordinary
       Income
Net
Income
EPS DPS
Sep. 2014 (Actual) 3,224 191 172 49 4.35 0.00
Sep. 2015 (Actual) 4,217 96 95 65 5.23 0.00
Sep. 2016 (Actual) 5,792 358 561 394 30.72 0.00
Sep. 2017 (Actual) 12,019 601 1,208 842 64.12 0.00
Sep. 2018 (Forecast) 16,100 30 720 260 19.57 0.00
*The forecasted values were provided by the company. On Sep. 1, 2016, the company conducted a 2-for-1 stock split.
EPS was adjusted retroactively.
Net income is profit attributable to owners of the parent company. Hereinafter the same shall apply.

This Bridge Report presents an overview of FreakOut Holdings, inc.'s earnings results for Fiscal Year ended September 2017, the interview with President Sato and more.
 
Key Points
 
 
 
Company Overview
 
FreakOut Holdings, inc. is a marketing technology company that solves advertisers' challenges of conveying the right message to the right consumers at the right moment with its cutting-edge technology using AI (artificial intelligence). Its chief business is the "DSP business," including the operation of "DSP (demand-side platform)"- a platform that enables advertisers and advertising agencies to buy Internet advertisements efficiently and distribute them to maximize profit - and OEM.
Its major strengths and characteristics include "holding vast amounts of data," "capability of securing good-quality ad space," and "active investment for developing a superior algorithm."
The company's philosophy is to "Give People Work That Requires A Person" with its technologies in various fields not limited to advertisement, and to contribute to the development of a creative society.
 
1-1 Corporate History
FreakOut was founded in October 2010 by its Founder & Global CEO Yuzuru Honda, an engineer with the previous experience of engaging in advertising businesses at Yahoo! Japan Corporation, who wanted to bring about a game change in advertising in Japan by introducing RTB(Real-Time Bidding) - a distribution method that automatically trades advertisement spaces in the form of bidding according to the number of times an Internet advertisement is displayed -, which already became a norm in the USA about a year earlier than in Japan. Joined the start-up by the Representative Director, Yusuke Sato, also an engineer who worked on advertisement products at Google Japan, the company was the first in Japan to commercialize the RTB technologies in January 2011.
Helped by the feature of high sensitivity to new products of the advertising industry, the company gained numerous corporate clients soon after its launch while its customer satisfaction level has remained high, pushing both its sales and profits constantly upward. In June 2014, the company was listed on TSE Mothers in less than four years after its founding.
In January 2017, the company changed its structure to a holding company to actualize faster decision-making and more dynamic business development.
 
 
1-2 Philosophy
FreakOut's philosophy is "Give People Work That Requires A Person."

As shown in the corporate history section, the company has its origin in the first commercialization of real-time transactions of Internet advertisements in Japan, with the aim of gradually changing the system of advertising transactions from manual operations to inter-computer transactions.

With the use of technologies, advertisers are now able to communicate with each and every consumer, approaching the true 1-to-1 marketing that was not possible with conventional mass-advertising.
At the same time, the "people" engaged in the advertising business are becoming freer from the transaction-related chores, and instead they are now able to dedicate more time to creative works such as planning more human-like communications and creating sympathetic messages.

The company believes its mission to be "generate surplus labor (the time for people to dedicate to their creativity) by letting computers do what they are good at."
The company is striving to contribute to a more creative society by "Giving People Work That Requires A Person" through the use of its advanced technologies in more diverse fields than just advertising.
 
1-3 Overview of the Internet Advertising Market
To understand FreakOut's businesses, it is necessary to have some knowledge of environmental and constituent elements surrounding the operation of the "Internet advertisement," such as the changing needs of advertisers and media, and advertising markets, as well as the technologies and the main players. A few essential points are outlined below.
 
≪Changing advertising market≫
In the conventional advertising market, especially with the advertising businesses that exploited the mass media such as television and newspapers, monopolization and exclusivity of stock were of paramount importance in terms of business development for the supply side (i.e. the media and advertising agencies).
Major advertising agencies would have a near-total monopoly over the limited television ad spaces, enabling them to hold onto their pricing leadership against advertisers to continually generate huge profits in tandem with the media.
However, with the end of the era of strong economic growth and the advent of Internet advertising characterized by its interactivity and low-cost, compared to the conventional media, the demand for mass advertising via TV and newspapers is apt to decline.

As shown in the graph below, while Japan's total advertising spending has not grown in the last 10 years, Internet advertising expenses of 377.7 billion yen in 2005 has grown 12% per year on average and reached 1,310 billion yen in 2016.
In 2005, its market size was less than 20% and 40% of that of terrestrial television and newspapers, respectively, but by 2016 it grew to 70% of the size of terrestrial television and 2.4 times of that of newspapers. (Data from Dentsu "Japan's Advertising Market in 2016")
 
 
Meanwhile, the needs from advertisers for even more effective advertisements keep growing, creating a significant challenge in delivering "the right message" to "the right consumers" at "the right moment."

In this situation, there appeared a marketplace with open advertisement space called "Ad Exchange."
This is indeed a "marketplace" in which advertisers, the media and advertising agencies can freely trade advertisement space. For advertisers, this means that it has become even more important that they buy optimal advertisement space for an even better advertisement performance and one of the key technologies that enable this is "RTB," which was commercialized by the company for the first time in Japan.
 
≪Real-time transaction of advertisement space through RTB≫
RTB (Real-Time Bidding) is a distribution method that performs automatic transactions of advertisement space through bidding per impression (the number of times an advertisement is displayed).

Before RTB debuted, "a pure advertising transaction" was the norm. This was, as it were, a 'set menu' in which the space for display advertisements (advertisements utilizing images, flash, videos, etc. displayed on websites) were sold to the media and advertising agencies as a package with impression guarantees and period guarantees attached.
In contrast, RTB analyzes the attributes of the user who accessed a display advertisement per impression, and performs a transaction by bidding as "an advertisement for a user with specific attributes" per impression.

The RTB technologies enable advertisers to engage with potential consumers whom it was previously difficult to reach through conventional pure advertising (buying advertisement space of specific websites at a pre-fixed price) or search advertising (relating to the keywords searched), and also make it possible to take recognition measures through a more effective advertisement distribution to elicit further interests and curiosity of users.
 
 
"RTB" requires two main players: "DSP (the demand-side system)" and "SSP (the supply-side system)" of advertisement space.
 
What is DSP (Demand Side Platform)?
DSP is a platform on which advertisers and advertising agencies can effectively purchase and distribute Internet advertisements so that they can maximize their profits.

More specifically, it is a platform where advertisers and advertising agencies perform an automatic bidding transaction and advertisement distribution per impression utilizing the RTB technologies and their own algorithms with Ad Exchanges, SSP, adnetworks and others.
Advertisers first determine the attributes of their target users and the maximum bidding price, and when a user who satisfies their criteria is found, bidding is instantaneously (within roughly 0.05 second) carried out and the advertisement with the highest bid is distributed on the medium.

Before RTB appeared, advertisers were forced to make an assumption as to which websites might be visited by the target users and then purchase specific advertisement slots at a pre-fixed price. However, DSP enables advertisers to make an assessment in real-time about the user to whom they want to distribute an advertisement. Furthermore, the advertisement can be distributed at a reasonable price through the bidding process, optimizing the cost effectiveness of the advertisement for the advertisers.

FreakOut's main businesses are the sales of its uniquely developed DSPs "Red" and "FreakOut" as well as the "DSP business" that supplies OEM.
To be able to regularly distribute advertisements to the right users and bid at the best price requires building highly advanced algorithms and training the AI (artificial intelligence) to be "even more intelligent" through repeated machine learning based on vast amounts of data. The company has a powerful competitive advantage on this matter (for more details, please refer to 1-6 Characteristics & Strengths).
 
What is SSP (Supply Side Platform)?
SSP is a system that supports the maximization of advertisement effectiveness from the viewpoint of the media. It is a platform used by the media to manage and sell advertisement space and has the technologies to respond to real-time biddings from DSP.

This type of cost-effective advertising, based on the RTB technologies, which cleared the hurdles of optimization that were difficult to realize with conventional pure advertising is termed "performance-based advertising" and it is growing at a speed that is faster than that of Internet advertising as a whole.
In 2016, roughly 60% of Internet advertising in Japan was performance-based advertising.
 
 
*Performance-based advertising: an advertising method which utilizes platforms that employ ad technologies processing vast amounts of data to provide automatic or instantaneous optimization of advertising. In addition to search engine advertising and some ad networks, major types include recently developed demand-side platforms (DSPs), ad exchanges, and supply-side platforms (SSPs). Performance-based advertising does not include ad space sales, tie-up ads, or affiliate advertising

The company's RTB commercialized in Japan is currently only less than 10% in size of its US counterpart, but it is growing rapidly.
 
 
As seen here, "performance-based advertising" based on the remarkably fast-growing RTB technologies even within the Internet advertising, the sector showing the highest growth compared to the other media, is the company's main field. It is assuredly capitalizing on the robust demands and expanding its business operations.
 
1-4 Business contents
1. Business segments
There are three business segments: "DSP business," "DMP business," and "Other business."
 
 
①DSP business
◎Business model
The Group purchases ad spaces through SSPs, ad exchanges, and media, and provides internet ad spaces to advertisers and ad agencies and provides the OEM service on DSP to some ad agencies.
 
 
 
◎Service model
The company offers the following two types of services.
 
After the launch of these services, the company first concentrated on the direct sale to advertisers for the purposes of collecting a large amount of important data and directly receiving the voices of users, but now it mainly engages in the sale including OEM to ad agencies with the aim of boosting its sales growth.
For the ad agencies operating the company's service under their own brands, it is difficult to develop a DSP by themselves and newly enter this field from the viewpoints of server cost and difficulty in development, however, by utilizing the basic function of DSP and infrastructure of FreakOut Holdings, it makes it possible to enter the field early.
 
◎Major products and services
The company aims to maximize the effect of ad distribution via DSP "Red" and "FreakOut," by utilizing the private DMP "MOTHER," an original analysis software which analyzes big data such as access data to each advertiser's website, ad distribution data, membership data, and purchase data.

"Red" and "FreakOut" have various methods for ad distribution, in order for advertisers to target prospective customers. In detail, they distribute ads that choose targets based on the behaviors of consumers using the following methods: (1) methods such as "Audience Expansion" for reaching "those who do not know the advertiser's products/services (prospective customers)," (2) methods such as "Keyword Match" for reaching "those who know advertisers' products/services (people who have interests)," and (3) methods such as "Retargeting" for promoting "those who want advertisers' products/services (expected customers)" to take action by purchasing products, requesting a brochure, getting registered as a member, etc.
 
 
②DMP business
DMP stands for Data Management Platform, which is a data integration management tool for managing and analyzing the data of access to advertisers' websites, ad distribution, membership, etc. and enabling the use of the data in cooperation with data utilization channels, for email distribution, analysis, surveys, etc.

In order to actualize the optimization of data marketing conducted by client companies and ad agencies, the company collects vast amounts of data from data providers, including media companies and research firms, and stores and analyzes data on DMP to provide the unique DMP for an enormous amount of public data, support the development of the DMP for large-scale portal sites, and offer consulting services utilizing the company's own data with optimal marketing channels, etc.
 
 
③Other business
This is a new business segment established in the term ended Sep. 2017, as the company shifted to the holdings company system. New businesses and business administration in the group companies inside and outside Japan are included in this segment.
 
1-5 Group companies
Under the management of the holdings company FreakOut Holdings, inc., the followings are the companies that constitute the corporate group as of the end of June 2017.
 
 
 
As for the overseas business, they have been mainly operating the native ad platform business with FreakOut Pte. Ltd. (headquartered in Singapore) serving as the headquarters.
Since a native ad platform was released for the first time in Southeast Asia in 2015, the company has formed tie-ups with mainly the leading media in each country, and currently over 700 advertisers use the service of FreakOut.
In July 2017, the company entered the Hong Kong market and established local subsidiaries in Vietnam, Malaysia, the Philippines, India, and Iran as new bases in Southeast Asia, following the existing ones in Singapore, Thailand, and Indonesia. The company forms alliances with the premium media in each country and offers the native ad platform in Asia and the Middle East.
 
1-6 Characteristics and strengths
As mentioned above, in order to distribute ads to the right users and submit a bid at the best price, it is necessary to develop an extremely advanced algorithm and repeat machine learning based on a large amount of data to actualize "smart artificial intelligence (AI)." At this point, the company possesses a significant competitive advantage. Having good ad spaces is its advantage as well.

①The largest amount of data
Since the company commercialized the RTB technology for the first time in Japan, it possesses the largest amount of data in Japan.
No matter how superior AI is, it will not grow to a practical and effective AI, unless machine learning is repeated with vast amounts of data.
With accurate data of 3 million users (5%) out of 60 million mobile users in Japan, it is possible to predict the thoughts and behaviors of the remaining 57 million users according to age and gender. Therefore, the satisfaction level of advertisers towards this strength of the company is high.

②Securing of good-quality ad spaces
After RTB debuted, the "smartness" of a platform in an open environment has become important, whereas the gap in technology levels shrank over a certain period of time. As a result, the quality and exclusiveness of ad spaces, in particular, became the major competitive conditions in the mobile field again.
In these circumstances, LINE Corporation and FreakOut Holdings hold 50.4% and 49.5%, respectively, of M. T. Burn Inc., the company's equity-method affiliate. Accordingly, FreakOut Holdings exclusively secures the ad spaces of LINE apps and presents high performance to advertisers.

③Active investment for developing a superior algorithm
For targeting advertisement, it is possible to win a bid by submitting the highest bid. As the company aims to expand sales, it wants to purchase as many ad spaces as possible, but if ad performance is poor, advertisers will not evaluate it highly, which will make it difficult to continue transactions with them.
This indicates that it is essential to produce reasonable results for clients even when the ad cost was high.
Therefore, the company has developed "a model for predicting rate of clicking" and "a model for predicting rate of conversion," boosting the capability of giving proposals to advertisers, and constantly carries out investment for further improving the accuracy of these models.
The data science team of the company has top-level abilities among Japanese mid-sized companies, so their accumulated active investment is leading to continuous high performance.
 
 
For the term ended Sep. 2017, all three elements contributed to increase ROE considerably.
 
 
Fiscal Year September 2017 Earnings Results
 
 
Sales and profit grew considerably, because both of the businesses were healthy.
Sales were 12,019 million yen, up 107.5% year on year. Both of the businesses were healthy.
Since variable cost (expenses for procuring ad spaces and outsourcing) augmented significantly as sales grew considerably, gross profit rate declined by 8.2%, but gross profit increased by 58.7% year on year. SG&A rose because of the recruitment of engineers and the investment in a new business, but it was offset. Operating income increased by 67.8% year on year to 601 million yen.
As a business performance indicator, the company adopted "EBITDA," which is an international indicator for operating cash flow that is not affected by accounting standards, for the purposes of giving explanations to investors with unified indicators and measuring permanent profitability excluding temporary fluctuations. (EBITDA = operating income + depreciation + goodwill amortization + investment gain on equity method).
EBITDA doubled to 1,428 million yen.
Both sales and profit exceeded the respective initial estimates.

As tabulated below, sales and profit grew considerably for two consecutive years.
 
 
 
(DSP business)
The company offers the DSP platforms "Red" and "FreakOut," a native ad platform, and trading desks, and also developed and released the new product "Red for Publishers." The company made efforts to maximize the effect of advertisement made by advertisers and the profit of media companies.
Mainly because the smartphone ad market expanded, the DSP platform for mobile phones "Red" contributed to business performance continuously. The results of overseas subsidiaries were healthy.

(DMP business)
Sales and profit grew considerably, as popularity improved and the number of client companies increased through data-based data marketing.

(Other business)
The company invested in HR Tech, etc.
 
 
Current assets grew 963 million yen from the end of the previous term due to the increase in trade receivables. As goodwill and investment securities rose, noncurrent assets grew 3,327 million yen from the end of the previous term and total assets increased by 4,291 million yen from the end of the previous term to 9,992 million yen.
Total liabilities augmented by 3,174 million yen from the end of the previous term to 5,677 million yen, due to the increase in short-term loans payable.
Net assets grew 1,117 million yen from the end of the previous term to 4,314 million yen, due to the rise in retained earnings.
As a result, equity ratio dropped by 13.9% from 54.7% at the end of the previous term to 40.8%.
 
 
The surplus of operating CF expanded due to profit growth, etc.
As the payment for purchase of investments in subsidiaries resulting in change in scope of consolidation augmented, the deficits of investment CF as well as free CF increased.
The surplus of financial CF grew due to the augmentation of short-term loans payable, etc.
The cash position was nearly unchanged.
 
(4) Topics
◎ Regarding fund procurement
In Oct. 2017, the company announced its plan to procure funds totaling up to 9.15 billion yen, composed of 500 million yen through the allocation of new shares to a third party, 4.5 billion yen through the allocation of convertible bonds to a third party, and 4.15 billion yen through TIP (target issue program with a provision about approval for exercise).
Out of them, a total of 5 billion yen, composed of 500 million yen through the allocation of new shares to a third party and 4.5 billion yen through the allocation of convertible bonds to a third party, is to be procured promptly for the following purposes of use:
Funds for expanding business in new fields for actualizing the "Vertical Cloud" scheme and improving business through investment in systems, etc. for the entry to new fields: 3 billion yen
Personnel cost and system investment for fortifying the system for the DSP business: 480 million yen
Repayment of debts to financial institutions: 4.14 billion yen
 
The remaining 4.15 billion yen is to be procured through TIP in the future, for the purposes of M&A, business tie-ups, etc. This is a scheme for securing funds for growth and minimizing the impact of dilution.
 
 
Fiscal Year September 2018 Earnings Estimates
 
 
Sales are estimated to grow considerably, but profit is forecasted to decline due to upfront investment.
The company recognizes the term ending Sep. 2018 as the year for implementing active investment for achieving the goals in 2019 and 2020 while improving its existing business steadily.
Sales are forecasted to grow 34.0% year on year to 16.1 billion yen. Both of the businesses are estimated to remain healthy.
Operating income is projected to drop by 95.0% year on year to 720 million yen. Since the company will carry out upfront investment in a new business, a temporary decline in profit is estimated.
As for the performance by segment, both of the businesses are forecasted to increase profit on the EBITDA basis. As for the performance by region, its overseas business is estimated to move into the black on the EBITDA basis. As for the performance by business field, the ad business is projected to keep thriving.
 
 
 
Business Priority Areas and Medium-Term Plan
 
①Business priority areas
≪Overseas business≫
The situation of the overseas business, whose sales expanded significantly and EBITDA is estimated to become positive, is as follows.
1. Increase in new bases
They operate the ad distribution business, mainly the native ad platform business, throughout Southeast Asia, with FreakOut Pte. Ltd. serving as the headquarters.
In the term ended Sep. 2017, the company established or acquired 8 companies in Iran, India, Vietnam, Taiwan, the Philippines, Malaysia, and Indonesia.

2. Acquisition of global partners
In Sep. 2017, the company reorganized adGeek in Taiwan into a subsidiary.
adGeek, which conducts trading desk business and media monetization support business in Taiwan, was established by Chien-Ming Chen, the former representative of Yahoo Taiwan, and the former Partnership VP of Yahoo APAC in 2014. The company has great influence on the digital marketing industry of Taiwan from holding industry events with over 1,000 participants. It provides solutions for advertising agencies and media companies. adGeek has continued to grow sharply since its foundation.
The cooperation in provision of solutions which adGeek offers to the Southeast Asia region. This is expected to contribute to business results expected from FY2018.

3. Shift from investment to securing profits
Since the start of the overseas native business in 2016, Q o Q growth has continued.
For the current fiscal year, mainly the four bases established early (Thailand, Turkey, Indonesia, Taiwan) have started to generate profits.
Investment in the six bases to be established in the future will continue.
Also, M&A will be actively conducted if such opportunity becomes available to expand the business/sales channels.
 
≪Release of "Red for Publishers"≫
Targeting the media that boast a considerable traffic amount and advertisers, the company released "Red for Publishers" in Sep. 2017 as a service package in addition to the technologies that support the establishment of their original platforms from a sales support, operation support, development support, and project management prospective.
Media companies can entrust "Red for Publishers" with the maximization of profit through ad distribution, and concentrate on the enrichment of content and activities for attracting customers, to which their resources should be allocated.
Advertisers can pursue the maximization of ad value, which is the original objective of "Red," because the DSP "Red" is connected to the ad slots of competent media companies on a priority basis.
In the first month after release, it occupied 17% of sales of DSP, indicating a good start. The company will concentrate on further expansion.
 
≪Launch of No-Show Guarantee Service≫
In Oct. 2017, the company modified "No-Show Guarantee Service" operated by the 100% subsidiary Gardia, Inc. for service providers, so that restaurants could use it, and started offering it to favy inc., which specializes in gourmet marketing, under the title: "favy No-Show Guarantee Service."

(Outline of "favy No-Show Guarantee Service")
If a customer does not appear at a restaurant on a booked date without notice (called "no show") and the restaurant fails to collect the compensation for damage caused by cancellation from the customer, Gardia will compensate for the total amount of damage. This is the first service in Japan.
No matter whether users are individuals or corporations, Gardia will make up for damages to restaurants. Accordingly, restaurants can concentrate on operation and the improvement of their customer services without being exposed to the risk of abrupt cancellation.
Gardia can pay up to 500,000 yen for each no-show case.
If any no-show cases do not occur for one year after a client signs up for this service, favy inc. will present an editorial ad worth the guarantee so that the paid guarantee fee will not end up being wasted.

FreakOut HD holds a large amount of data about smartphone users, and Gardia aims to become a credit information institution in the era of smartphones with the deep learning technology, which is their specialty.
The FreakOut group will seize business opportunities brought by the guarantee service of Gardia through the new ad business and the Fintech business.
 
②Medium-term plan
FreakOut HD aims to achieve "sales of 33 billion yen and an EBITDA of 3 billion yen" in the term ending Sep. 2020. In the coming three years, the company will strive to increase sales and EBITDA by 2.8 times and 2.1 times, respectively, from the results for the term ended Sep. 2017.
It is expected that the sales of domestic ads will grow steadily while the overseas ad business will serve as a growth driver.
 
 
 
Interview with President Sato
 
Investment Bridge asked President Yusuke Sato about FreakOut Holdings' competitive advantage, future efforts, issues and solutions, his message toward investors, etc.
 
Q: "What do you think is your company's strength?"
A: "Our excellent machine learning engine and the fact that we own abundant data to further improve it."
No matter how superior the algorithm of a machine learning engine is, it cannot become "a clever engine" without accumulating results by using abundant data.
What made our company establish the competitive advantage is not only the fact that we commercialized RTB technology for the first time in Japan in 2011 and became the first mover, but also that we managed to own a large amount of data by taking advantage of that position.
We will keep working on brushing up the engine and accumulating data, and further strengthen our advantage.
However, while our company is superior in technology, securing good quality advertising space exclusively is a great appeal for advertisers and ad agencies. In that sense, M.T. Burn Inc., a joint venture with LINE Corporation, has greatly contributed to our company's income increase in a rapid shift to the mobile environment in recent years.
 
Q: "Please tell us about your future efforts."
A: "We aim to become a vertical cloud vendor that utilizes our technological assets for various businesses rather than sticking to the ad field."
Our company started with the automation of Internet advertisement transactions by technology, and we, of course, will work further on expanding the advertising business, but we don't intend to cling to advertising.
Our management philosophy is "Give People Work That Requires A Person." To fulfill this, we will expand our business by entering fields which have room for utilizing data and technology.

One of such fields is "HR Tech," which is related to recruiting activities of companies.
As indicated in the press release in March 2017, Talentio, Inc., which develops a cloud-type recruiting management system, became our wholly-owned subsidiary.
The medium-to-long term business goal of Talentio, Inc. is to become "No.1 HR Tech company in Asia." They manage "Talentio," a cloud-type recruiting management system that has a function to reduce workload of recruitment and automatically visualize recruiting activities by accumulating information regarding recruitment.
While the society focuses on the "work style reform," our company plans on realizing our vision, "Give People Work That Requires A Person," in human resource business as well, by making HR Tech known with Talentio, Inc., which works on setting human resource workers and managers free from troublesome recruiting operations.
For example, answers for questions such as "what kind of company is likely to recruit them?" and "will they perform well after employment?" can be found from the data of applicants' resumes that show their skills. Working further on automation of the recruiting process like this can lead to improvement of efficiency such as omitting unnecessary interviews and cost reduction.

As mentioned above, our business strategy is to evolve into "a vertical cloud vendor" for various businesses while aiming to realize our vision "Give People Work That Requires A Person," by providing our products based on our technological assets including the data analysis foundation and the machine learning engine, in other industries than just advertising, under the holdings company system.
 
Q: "On the other hand, what are the current issues and solutions?"
A: "We will steadily work on revising the algorithm and increasing the amount of data, in order to improve gross profit rate."
We recognize that we need to improve cost ratio, which has been high for several years.
 
 
However, this is not about what to do with marketing, but purely a problem of product investment.
It is about how to realize a situation where the performance of advertisers does not change even if we raise our company's gross profit, by revising the algorithm and increasing the amount of data. We plan to work on them steadily.

Although it is very pleasing that advertisements for LINE are growing strongly, there is a possibility that it will augment performance fluctuations. Therefore, I think it is also necessary to secure other advertising to be less dependent.
 
Q: "Finally, please give investors and shareholders a message."
A: "Our company is one of the few companies that are working on 'AI' and 'machine learning' as a core business and earning profits. We hope that you will support us from a medium-to-long term perspective as we provide people with human jobs and contribute to building a more creative society."
Our company is listed on TSE Mothers as one of the few companies that are working on "AI" and "machine learning" as a core business in Mothers.
There are not so many companies including ours that are steadily expanding sales and profits based on their own technologies in the fields of "AI" and "machine learning," which is expected to be a theme for a medium-to-long term investment.

In addition, although our business domain currently includes advertising, we do not consider our company to be part of the advertising sector.
Advertising is just one of our business fields and we would like you to understand that by using our excellent technology base, we have a great deal of room for expanding into other fields including businesses related to the recruitment of human resources.

We hope that you will support us from a medium-to-long term perspective as we provide people with human jobs and contribute to building a more creative society.
 
 
Conclusions
 
Sales and profit grew considerably, because both of the businesses were healthy. This term is thought to be the investment phase, so profit is forecasted to drop, but the overseas business is expected to move into the black, intensifying a momentum for growth. Unfortunately, cost rate being high, which is recognized by President Sato as a problem, is still to be improved. We would like to monitor the quarterly trend of gross profit rate in the short term, and the speed of expansion of its overseas business in the mid-to-long term. The expansion of "Vertical Cloud" in other business fields than the ad field is very intriguing, from which we can expect their growth taking advantage of the company's advanced technology. We would like to pay attention to the progress in the "HR Tech" field.
 
 
<Reference: Regarding corporate governance>
 
 
◎Corporate Governance Report
Last modified: January 11, 2017.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
It is mentioned that "our company follows all of the basic principles of the Corporate Governance Code."
 
Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However, we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or 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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