*The share price is the closing price on August 6, 2018. The number of shares issued was taken from the brief financial report on the latest term.
ROE and BPS are actual results at the end of the previous term.

 

*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 First Half of FY December 2018 earnings results etc.

 

 

 

 

GMO Pepabo provides individual users who want to express themselves through the Internet with several services, including rental servers, domains, and online shop development ASP. Its characteristics and strengths include the diversity of services based on internal production and unique corporate culture. In addition to the stable revenue from the existing stock-type business (business with moderate yet stable income), the company aims to grow further based on "minne", an online C-to-C service of handmade market launched in 2012 for handmade products. 【Corporate history & profile of the president】 In January 2003, the founder Kazuma Ieiri established the limited company "paperboy & co." for the purpose of operating personal hosting business. 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.】 Under the following corporate ethos and missions, GMO Pepabo aims to offer an Internet environment that is attractive and easy to use for individual users. 【Business contents】 Under the above corporate ethos and mission, the company provides individual users who want to "initiate something through the Internet" with a wide array of Internet services at affordable prices, and supports individual expression activities with the Internet. Reported segments are "Hosting business", "EC support business", and "Handmade business". The company also has "Other business" segment, including the blog service "JUGEM" and PEPABO WiMAX. <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". <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 2018, the number of registered artists is 440,000, up 25.9% year on year and the number of products on display is 8.19 million up 39.9% year on year. 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 Jun. 2018, the number of app downloads is 9,540,000, up 22.8% year on year. <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 It is suggested that the following three factors exist behind 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. *minne's business model and payment settlement method 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. 【Characteristics and strengths】 1. 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. The estimated net income margin for the term ended Dec. 2018 is 3.3%. Its basic ROE is estimated to be at a high level.

 

 

Sales and profit grew. Sales were 4,015 million yen, up 9.5% year on year. The core business was healthy as a whole. Operating income was 288 million yen, up 215.2% year on year. While sales grew, the increase rate of SG&A expenses was as low as 2.1%. The quarterly sales marked a record high. (1) Hosting Business Both sales and profit grew. As for "Lolipop!", the company released the full-featured version of the new plan "Managed Cloud" adopting monthly charges and a pay-per-use system in Apr., and strived to increase target customers and improve convenience by enhancing optional functions. The number of subscriptions to the rental server service increased 0.7% year on year to 439,740. As for "Muu Muu Domain", the discount campaign for major domains, such as .com and .net, satisfied customers well, and the company promoted the acquisition of domains, by renewing its website design, strengthening the search function, etc. The number of registered domains rose 2.2% year on year to 1,243,384. The average spending per customer increased for both services. (2) EC Support Business Both sales and profit grew. As for "Color Me Shop", the number of contracts decreased 2.1% year on year to 44,208, because the company refrained from implementing promotional measures in the wake of the incident of information leakage in Jan. 2018, but thanks to the continued upselling strategy, average spending per customer rose year on year, and both sales and profit grew year on year. As for the original goods production and sale service "SUZURI", the T-shirt sale held in Jun. 2018 attracted customers, and caused a buzz in SNS, etc. Then, the order amount per week skyrocketed about 9 times from the same period of the previous year, the number of members increased, and the cumulative number of members exceeded 200,000. Since the launch of "SUZURI" in 2014, the distribution amount and the number of users have been increasing steadily, and the company plans to officially open a platform for supporting creators as a new service in late August. As the company took over "Canvath," an on-demand original goods production service for shop owners, in Apr. 2018, the company established "SUZURI Business Division" with the aim of expanding its service and market by strengthening its management and systems. (3) Handmade Business Sales grew, and loss shrank. In "minne", the company held the third large-scale event "minne Handmade Goods Market 2018," to boost off-line popularity and strengthen online advertisement. While enhancing sales promotion through active coupon campaigns, the company strived to propel purchase by installing the "Instagram shopping function" as a tool for creators. In addition, the company started a project for supporting artists in cooperation with "haco!," which is operated by FELISSIMO CORPORATION in May 2018. It assists artists in creating (producing), selling, promoting, and shipping their works. The distribution amount from Jan. to Jun. 2018 was as healthy as 5.9 billion yen, up 20.5% year on year. Total assets increased 19 million yen from the end of the previous term to 5,396 million yen, due to the decline in cash and deposits, the growth of intangible assets, etc. Total liabilities dropped 190 million yen to 3,963 million yen, due to the decrease in other accounts payable, etc. Net assets rose 209 million yen to 1,432 million yen, due to the rise in retained earnings. As a result, equity ratio increased 3.8% from the end of the previous term to 25.4%. The surplus of operating CF shrank due to the decline in other accounts payable, etc. The deficit of investment CF augmented due to the expenditure for taking over business, etc., and free CF became negative. The cash position improved. (4) Topics ◎ Takeover of the on-demand original goods production service "Canvath" In Apr. 2018, the company took over the on-demand original goods production service "Canvath" from Basic Inc. (Chiyoda-ku, Tokyo). (Outline of the "Canvath" business) "Canvath" is an on-demand original goods production service, which Basic Inc. has been offering since November 2014 and it enables users to produce unique items such as smartphone accessories using original illustrations and photos. Because of its competitive pricing and the ease of use that allows users to order from just one item, it has attracted the attention of numerous shop owners as the useful merchandise resources for the online shops, and its service volume in 2017 was even larger than that of "SUZURI", operated by GMO Pepabo. (Background & Objectives of Takeover) GMO Pepabo decided to take over the business having judged that sharing the marketing and operating methods, as well as the product development knowhow nurtured by both "SUZURI" and "Canvath", while making full use of the strengths of both services, would create the synergy, which in turn would contribute to a further expansion of the market for on-demand original goods production and sales. The company is keen to continue with further tie-ups and M&A with the businesses that would generate synergy effects such as management resources and knowhow for its extra business growths. ◎ Investment in Neworld CO., LTD. - marketing support company for traditional craftspeople In June 2018, the company accepted the third-party allocation of shares of Neworld CO., LTD. (Setagaya-ku, Tokyo) - a company that offers marketing support for traditional craftspeople - in order to achieve a further business expansion of its handmade goods market service "minne". The amount of contribution was 11 million yen. Neworld is not reorganized as an affiliated company accounted for by the equity-method. (Outline of Neworld CO., LTD.) Neworld was founded in 2013 with the concept to "connect videos and shopping". It operates the video commerce site "CRAFT STORE" which specializes in Japanese traditional crafts, and currently deals in about 400 items by 50 brands. Additionally, on the back of its business connections with the traditional crafts producers, it has so far expanded its customer base to about 100 businesses through producing the video contents to promote their sales and promotions utilizing SNS, and the company is constantly broadening its businesses of marketing support for Japan's crafts-manufacturers. * "CRAFT STORE" is a video commerce site that sells tableware such as "Cedar Craft Japanese-lacquer Bento Box" created with the traditional mage-wappa (bentwood) technique, accessories, bathroom goods and other sundries. https://www.craft-store.jp/ (Background & Objectives of Investment) GMO Pepabo thinks that it would be able to create new business synergies by combining the high recognition and customer attraction of "minne" with the connections and sales strengths with the traditional craftspeople of "Neworld". "As for "minne", it will continue to lead the expansion of handmade goods market as the industry's No.1 service in the country and increase its trading volume by diversifying the range of traditional crafts - the "ultimate manufacturing" as it were - as well as the handmade goods produced through traditional methods. ◎ Investment Strategy Division and SUZURI Business Department newly set up In July 2018, the Investment Strategy Division and the SUZURI Business Department were newly set up. (Investment Strategy Division) In the current year, the company has been aggressive with takeovers and capital tie-ups and it places the strategic investments as the key to the company's future business expansion. For this reason, the company has set up the new "Investment Strategy Division" which specializes in the company's investment strategies to facilitate the medium- to long-term continuous growth and the rapid development of the company's business strategies. The company is preparing the two types of strategies: the "share expansion type" aiming to expand the volume by adding the other company's service to its own service as in the case of "SUZURI" and "Canvath"; and the "synergy creating type" generating business synergy to combine the other company's service to its own service as in the case of "minne" and "Neworld". (SUZURI Business Department) In the general climate of on-demand original goods production and sales markets growing both inside and outside Japan, the company newly set up the "SUZURI Business Department" by unifying the management teams of "SUZURI" that had been in operation since April 2014 and the aforementioned "Canvath", in order to strengthen the management and the systems.

 

 

Increased sales and profits Sales are estimated to be 7,800 million yen, up 5.9% year on year. Operating income is estimated to be 330 million yen, up 129.7% year on year. Profit progress rate is nearly 90% but due to planning the aggressive promotions for "minne" during the second half, the full year forecast remains unchanged. The dividend is expected to be 50.00 yen/share. The expected payout ratio is 50.9%

 

 

The following are the expectations, visions and projects concerning "minne", the service in which the company is currently putting its strongest effort to expand its business. ◎ "Environment surrounding "minne" * CtoC market in general areas for sales of goods expected to continue expanding As the use of smartphone apps, with which the goods can be traded easily, continues to grow amongst the younger generation and housewives in the CtoC markets in the general areas for sales of goods, its market size in 2017 recorded a 51.5% growth year on year at about 1 trillion yen, and the growth trend is expected to continue. * Positioning of "minne" When the CtoC market in the field of goods sale is classified, flee-market apps, including "Mercari", deal in all genres of products put on sale by general sellers, while "minne" handles handmade goods produced by skilled craftspeople. Additionally, the company considers "minne" as a kind of "sharing-economy service" that is able to support the ideas of "regional revitalization" and "work-style reforms for women", because the service enables the residents of provincial areas and housewives to generate income without leaving their homes by utilizing their free time and manual skills. ◎ Expectations for "minne" at the company "To connect and expand possibilities through the Internet" as its mission, the company keeps pursuing the possibilities of the Internet and aims to offer the services that stimulate the producers' creativities and lay down the environment in which all people and companies are able to be active. Its handmade goods market "minne" launched in 2012 was the company's answer to its own business development strategies under such visions as above, in order to support individuals' expressive activities through creating websites, assisting the opening of online-shops, blogs, etc. ever since the founding of the company. "minne" was born out of the in-house competition for new ideas. Back in 2011 when the service was still in its planning stages, there were not so many examples of creators selling their creations over the Internet as there were many obstacles in doing so such as creating the website and accurately exchanging the goods and the payments. In such an environment, "minne" was created to offer an online platform to facilitate the human-to-goods and human-to-human encounters for everyone involved in an easy to understand manner through the gathering of wonderful items on offer. In the near future, the company plans to develop handmade-goods related services in addition to the handmade goods markets, and also looking into expanding to overseas markets, and eventually hoping to become the world No.1 CtoC handmade goods general platform. The company as a whole is keen to build upon stable growths of the existing services, and accumulate the sales through aggressive investments into "minne" and "SUZURI" as well as the non-organic sales via capital participations and affiliations, so that the growth ratio of sales will be further improved.

 

 

The target distribution amount of "minne" in 2018 is 12.5 billion yen. The distribution amount in the first half (Jan. to Jun.) was 5.9 billion yen, indicating a progress rate of 47.2%. In the previous term, the distribution amount in the first half was 4.9 billion yen, indicating a progress rate of 39.4% toward the annual goal (12.5 billion yen). In the previous term, the annual distribution amount was about 2.2 billion yen smaller than the target amount. Compared with the previous term, the progress in this term showed some improvement, but there remain some uncertainties. The outcome of the active promotion scheduled in the second half is noteworthy.

 

 

◎ Corporate Governance Report Last update date: March 19, 2018 "We are implementing all the basic principles of corporate governance code," says the company.