LY Corporation

Thank you very much for participating in our third quarter business results briefing today. Before we start, allow me to express our deepest sympathies to the victims of the Noto Peninsula earthquake that occurred on New Year's Day. We at L.Y. Corporation are committed to making contributions for the earliest possible recovery through various services we provide. We'd also like to apologize for your concerns and inconveniences caused by the information leakage that we announced on November 27 last year, which was caused by an unauthorized access. We are currently making every effort to formulate and implement measures to prevent the recurrence. We will provide more details at a later date. we will continue to make strenuous effort to ensure that our users and business partners can use our services with greater sense of safety and security.

This is Sakaue from LY Corporation. I'd like to explain the third quarter financial results. First, I'd like to explain the topics of the financial results for the third quarter fiscal 2023. Adjusted EBITDA for the third quarter was 109.8 billion yen, which was plus 17.4% year-on-year, and we revised upward our full-year guidance for adjusted EBITDA. Revenue also reached 475 billion, a record high for the third quarter. Consolidated results, total advertising revenue grew 3.7% YOY due to recovery in display advertising. Domestic merchandise transaction value turned to positive growth due to an improvement in shopping transaction volume. For strategic business, thanks to improved profitability from selective focus and business growth, adjusted EBITDA remained positive and full-year profitability is expected. Some additional topics. NYP PREMIUM. got off to a good start from November 29th, with daily new memberships more than doubling from the Yahoo premium days. New AI-driven services for ad creatives and delivery are planned to launch in April 2024. We will aim to utilize new technologies to grow ad revenue. Adjusted EPS is recovering at a faster-than-expected pace due to the effects of selective focus in key business areas, post-optimization, and one-time factors. I will now explain according to this agenda. Next, please. First, the consolidated business results for the entire group. Revenue increased mainly driven by growth in account ads, PayPay, Zozo, and Askool. Adjusted EBITDA increased by double digits in the third quarter due to cost optimization and the effect of selective focus. As a result, adjusted EBITDA margin was 23.1%, maintaining the same level as the first half. This shows factors behind change in adjusted EBITDA. Gross profit improved mainly in the media business, and SG&A expenses improved mainly in business commissions. factors behind change in operating income, excluding the re-measurement gain from the consolidation of PayPal that took place last year. Depreciation increased, but adjusted EBITDA grew, and operating income grew by 33% year-on-year. Next. This shows the factors behind change in adjusted net income. Corporate income tax grew, but increase in operating income and improvement in equity in earnings of affiliates as well as the absence of the impairment loss on DMAICON from the previous year resulted in a significant increase in adjusted net income. This slide shows the adjusted EPS trend. Due to growth in adjusted EBITDA and also one-time tax effect from the merger, adjusted EPS is recovering faster than expected. Taking into account the capital allocation policy explained in the second quarter, we will continue our efforts to bring adjusted EPS back to the pre-merger level as soon as possible. Next, efforts to utilize AI. In order to improve the efficiency of our development work, last October, we introduced GitHub Copilot. Since its introduction, we have seen a reduction in coding time, and improvements in development work indicators. In the area of search advertising, we plan to launch an automatic creative generation function in April of this year. This is expected to improve the efficiency and effectiveness of ad operations. In display advertising, we are enhancing the automatic targeting function, which was launched in April last year for line ads, and is scheduled to be launched in March this year for Yahoo. This is our consolidated full year guidance for PESCO 23. As a result of steady progress in selective focus, we have revised adjusted EBITDA upward to 390 billion yen. Adjusted EBITDA for each segment has been accordingly revised. Revenue was revised downward to 1.82 trillion as a result of selective focus and cost optimization. In addition, after the merger, the allocation of company-wide costs has been revised from the third quarter. Personnel costs and data center and internal infrastructure costs that had been recorded as adjustments were allocated to each segment and retroactively adjusted to fiscal 2022 that's shown in this table. Next, I'd like to explain our business results and topics by segment. First, the media business performance. Advertising saw continued gradual improvement from the second quarter, resulting in higher revenue and income. In particular, account advertising led the increase in income and improved margins, with adjusted EBITDA margin reaching 39.1%. As explained in the guidance slide, from the third quarter, We have reviewed the allocation of company-wide costs and made retroactive adjustments to the first quarter of fiscal 2022. Other segments have also been retroactively adjusted in a similar manner. In the third quarter, several services were transferred from other segments to media. The main one is the member services business, which was transferred from commerce to the media segment.

This is the entire group total advertising revenue. Search ads growth turned negative, but display ads turned positive in the third quarter as advertising market conditions gradually improved. Account ads grew by more than 20% year-on-year for the second consecutive quarter. Shopping-related ads, which had been declining due to cost optimization in the commerce business, started to pick up. As a result, the overall growth rate, including shopping-related ads, continued to improve moderately.