LY Corporation

Kore yori,

We will now begin the LY Corporation financial results briefing for the second quarter of fiscal year 2025. Thank you very much for joining us today. We will be referring to the financial results presentation available on the LY Corporation website during today's session. We kindly ask you to follow along with the material. Joining us today from LY Corporation are Mr. Takeshi Idezawa, President and CEO, Mr. Ryosuke Sakaue, Executive Corporate Officer, CFO, Mr. Yuki Ikehata, Executive Corporate Officer, Corporate Business Domain Lead, Mr. Makoto Hide, Executive Corporate Officer, Commerce Domain Lead. Mr. Hiroshi Kataoka, Executive Corporate Officer, Media and Search Domain Lead. First, Mr. Itazawa will provide an overview of our financial results for the second quarter of fiscal year 2025. Following his presentation, we will hold a Q&A session. The entire briefing is scheduled to take approximately one hour. We will be live streaming this session. If there is any distortion or inconvenience in the video or audio, please try alternate server link. This is Idezawa of Elvai Corporation. First, before explaining our financial results, I would like to comment on the system failure caused by a ransomware attack that occurred at our group company, ASCO Corporation, on October 19, and the partial leakage of information held by the company. We sincerely apologize for the significant concern and inconvenience caused to our customers who use our services as well as to our business partners. The details regarding the damage, potential information leakage, and recovery status have already been communicated by ASCO. The company is continuing to work closely with external experts, prioritizing a safe and prompt restoration of systems, while investigating the cause and confirming the scope of impact, including any personal data. LI Corporation is fully cooperating with all recovery and investigation efforts. As the parent company, we take this matter seriously and are committed to restoring the situation and preventing recurrence. and strengthen the information security framework across the entire group now let me explain our second quarter financial results please turn to the next page first here is an overview of the second quarter results consolidated revenue was 505.7 billion yen up 9.4 percent y and y consolidated adjusted ebitda grew 11.3 percent y and y to 125.4 billion yen showing solid profit growth Additionally, progress in AI agentization and the expansion of line official accounts and mini-apps are progressing smoothly. Preparations for the line renewal are also steadily progressing. Home cab refresh scheduled within the year. We will now proceed with the explanations in the order of the agenda you see here. First, the consolidated company-wide results.

Next page, please. These are the results for the second quarter.

Although consolidated revenue was slightly behind the guidance due to the decline in surge advertising revenue, adjusted EBTA and EPS are on track with the guidance.

Next page, please. These are the consolidated performance trends.

Driven by the growth of PP Consolidated and progress in efficiency improvement at LY Corporation, adjusted EBITDA grew 11.3% while Y. Achieving double-digit profit growth, the margin also improved year-on-year.

Next page, please. These are factors of change in consolidated adjusted EBITDA.

Although expenses increased, revenue growth in the strategic business and commerce business outpaced the expense increase, resulting in an year-on-year increase of 11.7 billion yen in adjusted EBITDA. Binos and Linebank Taiwan have been fully consolidated since the second quarter, with the two companies contributing 900 million yen to adjusted EBITDA. This is consolidated total advertising-related revenue. This quarter, commerce advertising achieved double-digit growth driven by increased transaction value, and the total ad revenue grew by 2.4%. Next page, please.

This is consolidated e-commerce transaction value.

Domestic shopping transaction value grew 13.1% year over year, supported by last-minute demand ahead of the discontinuation for awarding points for hometown tax donation program. Reuse saw year-on-year growth of 15.7%, driven by Yahoo's lead market growth and Binos' contribution. Regarding the upward revision of the dividend forecast, we conducted share repurchase during the first half of the current fiscal year. and the cancellation of these shares was completed on September 3rd. Consequently, as the number of shares eligible for dividends has decreased, the annual dividend has been revised upward from 7 to 7.3 yen. Next page, please. This is some progress on the Line app revamp. The renewals of the Talk, Shopping and Wallet tabs have been rolled out in phases since September. Home tab renewal is scheduled to make a test release this year. Next page, please. This is on optimization of management resources.

Firstly, on human resources.

We are reallocating to growth areas such as AI agents, which will be explained later, official accounts, and mini apps. We will reallocate our human resources so that by FY2028, 50% will be allocated to growth areas. We will reduce the fixed cost by 15 billion yen by the end of fiscal year by 2026 and build a leader financial structure. Next page, please. From here, I will explain the financial results by segment.

Next page, please. First, the media business.

Although both revenue and adjusted EBITDA couldn't Declined continuous cost-laving efforts are yielding results leading to improvement of adjusted EBITDA margin on Q-on-Q basis. This is performance analysis of the media business. While search advertising revenue contracted, growth in account advertising drove an increase in total advertising revenue.

Next page, please.

Account advertising continues to perform strongly in both the number of paid line official accounts and pay-as-usual revenue. As this is an area we are strengthening alongside mini-apps, we will provide a more detailed explanation of future strategies and initiatives later. Next, the performance trends for the commerce business. Second quarter revenue reached 216.6 billion yen, a year-on-year increase of 7.2%. Adjusted EBITDA was 33.3 billion yen, although profit declined due to increased promotional expenses. Related to the hometown tax donation program, the decline narrowed compared to the previous quarter. Next page, please. Performance analysis of the commerce business. The business as a whole is expanding steadily. In addition to the full consolidation of binos, Yahoo Shopping and subsidiary growth contributed to increased revenue. Next page, please. Performance trends for strategic businesses such as payment and financial services revenue continue to be driven by PayPay consolidated, reaching 109.7 billion yen, a year-on-year increase of 35%. Adjusted EBITDA also continue to grow, reaching 22.9 billion yen, an ear-near increase of 52.1%, with margin remaining at a high level.

Next page, please.

Performance analysis of strategic businesses, payments, and financial services are both growing steadily. Furthermore, the full consolidation of LineBank Taiwan contributed to increased revenue.

They consult their business overview.

Each service is growing smoothly Number of payment per user and unit price, those KPIs are progressing smoothly. As a result, Consolidate has increased IOI plus 30.4%. Consolidate EBITDA was more than doubled. So the second quarter showed a significant strong growth. Next, from here, I will explain our key strategy going forward. Next page, please. As our company-wide key strategy, we will advance as two wheels, the agentization of all services and the enhancement of official accounts and mini-apps. Agentization for the 100 million users using our services will provide services like search, media, finance, and commerce more conveniently via AI agents. And for corporate clients, such as businesses, companies, stores, and brands, we will provide customer contact points and business support function through our functional enhances, official accounts, and learning apps. By improving the value provided to both users and clients, and by seamlessly connecting both via AI agents, we will realize new service experiences and expansion of revenue opportunities. Please turn to the next page. First, regarding our initiatives for AI agentization. First, our goal is daily AI agent use by our 100 million users in Japan, aiming for 100 billion DAU. Currently, in October, DAU for AI services is 8.6 million. Especially, AI answers on Yahoo! Japan search and line AI talk suggestions are used frequently, and user numbers have begun to expand. Also, for AI TalkSuggest, user billing has started and monetization efforts has also begun. Going forward, we will promote AI visualization of each service and aim to expand users. Next page, please. Next, regarding the enhancement of OA, of Shokan, and many apps. But before talking about the specific initiatives, I'd like to explain the structural transformation of the media business. Earlier, I explained the revenue decline and search advertisement in the media business. But while steadily bolstering the conventional search and display advertising businesses, We will achieve sales and profit growth by further growing OA and mini-apps where we can provide our original value. Over the next three years, we will increase the share of high gross margin OA and mini-apps to about 40% and aim for an adjusted EBITDA margin of 40 to 45%. First, regarding the performance of OA official accounts in Japan over the last three years, our track record, the number of paid OAs improved by a cager of 14%. And APA also improved and as a result, the pay revenue also grew 16% annually on average and the sales have grown to the scale of 100 billion yen in Japan and 140 billion yen including global. Please turn to the next page. On top of this OA growth foundation, by further building a mini-app platform and adding a SaaS-like store support solutions, we will create a multi-layered revenue structure and aim to double sales in three years.

This fiscal year, as I mentioned,

doubling the 140 billion to 280 billion yen. In this fiscal year, we will first focus on expanding mini-apps based on OA and launching the SaaS business. Important KPIs for the revenue models of each areas are shown in the lower section of this page. In EAPS, scale expansion is very important for KPIs in the growth phase. And always ask, we set up our improvement as KPIs. I will link these KPIs as leading indicators to monitor our business growth. Next page. Let me explain structurally. First, there is an OA, official account, as a base. Currently, there are 1.3 million active official accounts used in Japan, which number of paid official accounts are 310,000. We see the target accounts for future expansion such as businesses, companies, stores and brands at about 5 million, so we can still grow the number of OA accounts and will also further increase the ratio of paid accounts.

The second layer, mini-apps.

To OA using companies and stores, we will propose a customer contact point via MiniApps, expanding MiniApps numbers, growing users, and creating businesses like payments and ads within them. The third layer is SaaS solutions. developing specialized support for high-affinity industries like Store DX or reservations aiming to raise ARPA. Service launch planned for the 2026 first half and we'll have more new solutions at the right timing and when we can introduce them to you we will provide a services more broadly and deeply and provide a deeper solution by a sauce by industry to expand our sales as well.

Finally, regarding the recent growth of our mini apps,

As you can see on the left-hand side graph, the number of apps has increased by 1.5 times, and the number of users has increased by 1.6 times.

Steady growth.

And we are strengthening our sales structures. We are enhancing proposals to bigger companies. And installations at large enterprises like these are beginning, as you can see. And as a measure to strengthen inflow, We are leveraging Line Touch, which allows users to instantly launch many apps at stores, and the Line Apps 3 bump focusing mini apps will also begin. So we will further expand both the number of apps and the users, and build a situation where businesses like advertising payments can be provided. Let's turn to the next page. And finally, a summary of the Q2 financial results. Sales and profit expanded steadily. Our company performance was experiencing solid growth. Going forward, centered on AI agentization and offshore accounts and mini-apps will accelerate the growth. We will promote AI agentization across all services offer AI services to 100 million users and create new value. Also, we will enhance OA and mini-apps, and while transforming the media portfolio, we will achieve growth and improved profitability. This concludes the Q2 financial results explanation. Thank you very much. We would like to now begin the Q&A session. For those of you who have questions, please use the raise hand button on your Zoom window. When it's turned for you, the MC will call your name and please ask your question. Repeat. Those who have questions, please use the raise hand function on Zoom. And when it's turned for you to speak, MC will call your name and then please ask questions. Also, regarding questions, please allow us to limit the question to two questions per person per session. And please ask your questions one by one. And questions asked in English will provide a consecutive interpretation, so please allow us some time to provide you that. Answer will be broadcasted in English via simultaneous interpretation. Now, let us begin the QA session.

First, from Goldman Sachs Securities, Munakata-san, please unmute and ask a question.

I'm Munakata from Goldman Sachs.

Thanks for the opportunity to ask a question. I'm allowed to ask two questions.

I have two questions. My first question is on search ads. In the first quarter and also in the second quarter, the impression I got is that this business is quite tough.

The degree of toughness, is it correct to understand that it's the extension of the first quarter?

Or are there any additional reasons?

And on the search ad, what would be the realistic guidance towards the second half? That's my first question. Thank you for the question.

I am Sakaue.

I'm the CFO. Let me reply to your question. the second quarter year on year is the worst compared to q1 one of the factor is one major client budget allocation was weak and that continued into the second quarter and in addition in other clients The budget reduction happened. I'm referring to large EC companies in Japan and vertical companies declined. And that can be called additional from Q1. So that was the additional factor for Q1 deterioration. And Q3, Q4, I think the degree of negativity is same as Q2 for Q3 and Q4 as well. That is our forecast.

Thank you very much. I have a follow-up question. There are other clients with budget reduction.

Is there any structural reasons such as shifting in-house or revisiting ROI of advertising? Is it more of an economic trend? What is the nuance? This is Ike Hatta. Let me reply to your question.

This is Ikehata. I would like to add some more comments.

In addition, there were some industry, well, in addition to prior quarters reduction trend in other industry, partially that is there was a reduction in ad spend for search ad. The concept of ad placement, I don't think that is such a reason, but overall, line Yahoo search ad performance is being monitored and the advertisers operate. So based on that, there was a decline in ad placement. We will continue to work on the performance improvement of search ads, and that would lead to getting these customers back. So rather than any unique circumstances, we are to continuously work on performance improvement of the search ads.

I understood fully. Thank you very much.

Another question is Omini asked, this time various figures were presented and outlines were explained and I was able to learn a lot. Thank you very much for that.

The portfolio shift chart is being shown.

Just to reconfirm, display and search basically is very difficult to grow these areas. Is that the assumption you are setting? 440 billion to be expanded to 280 billion. That has been rather difficult. And what is the pathway you envision? For example, from the first half of 2026, you're going to start fast service. So from the second half of next year, do you expect the sales to accelerate?

this is it is our let me ask answer your question display search surely the

measures to rebound or we to boost them we are taking measures and also thanks to the organizational change that we have implemented we are able to implement activities to work on recovery but structurally speaking I don't think this is an area where we can expect high growth rate. So from that perspective, we will support the baseline for the display search. And then apps will drive the growth. And we have the target of official account doubling. And CAGR-wise, it has been 16%. And so we have this growth of OA, official account, as basis. And to add on top of that, we are going to provide many apps and SaaS services. So we will be pursuing the target by having breakdowns or compositions in mind. A mini-app, it's not a linear growth, but when we have a certain number of clients, then we can expect a significant activation. So the mini-app platform will be stronger in the later half, and then that would be the overall picture.

Understood quite well.

Thank you.

Thank you very much. Next question from SMB Niko.

Mr. Maeda, please.

Hello, this is Maeda from SMBC Nikko.

I have two questions as well, please. I'll be recapping the previous comments regarding a search link tab. Together with population of GenAI, the negative impact to queries, and when I look at the performance of some of the clients, It looks like ad placements are declining in numbers. So because of JNAI, the performance is having a negative hit on the flip side. If you could please share more recent trends. And also for the market, there is still a concern that JNAI rise can be a negative for a search links ad. If you could please share outlook, that would be great. Thank you, Mr. Maeda. Sakao AI will start, then possibly Kataoka will follow. At the moment, Yahoo search, 10% of query comes from AI search. And at the same time, the answers from AI search are business query. where there's no opportunity for search linked ad, like a question and answers. Those are the search keywords that we get. So that doesn't have much impact to our revenue and profit making. But at the same time, mid to long term, regarding those business query, I would think that more, it will be more use on, use of JNAIs. media and search we expect the next three years to be a flood plus extra

Hello, this is Kataoka speaking. As I mentioned, number of queries for search have not resulted in significant decline in the number of queries.

There's no major time shift in the search trend. And the performance itself hasn't deteriorated So within this big global trend, there's more use cases from J&I are increasing. And I'm sure more of our clients' companies are considering to further use J&I. We believe that there will be opportunity, the monetization business opportunity when it comes to GNI-led search as well. So we are considering various different means to monetize. Thank you very much. Second question, regarding commerce business. In second quarter, each services grows on the page 8. Regarding Yahoo Shopping,

The hometown tax, I wonder how much of that impact is included.

I wonder in the second half, there can be a significant decline in the growth of the reversal factor. And if you exclude the Venus impact, what is your true growth opportunity? So the growth in the cruising pace and growth from one-off reason, if you could please share for the results in the first half and what you expect for the second half, please. Okay, Sakaue would share some figurative indication then, and I'll have my colleague... he did to provide additional information and regarding Yahoo search I'm sorry sorry yeah shopping for second quarter the growth was about 19% one nine so quite significant and hometown tax late high single digits mid single-digit to high single-digit growth and for reuse This includes Yahoo Auction, Yahoo Frima, and Beano's. as to be about 15% growth. So excluding Venus, we do have mid-single-digit growth. Second quarter has this last-minute demand for home town tax. So that led to this significant growth rate. Hello, this is Hide to provide additional information. Regarding Yahoo Shopping, significant impact from on-time tax this is something that was happening at the end of the year in December time so it's a front-loading of that demand now compared to the last year q3 growth rate will be second will slow down for reuse excluding Venus I do see the trend continuing. In other words, Yahoo Auction growth is quite steady, and Prima is growing significantly. So when you take the weighted average, our growth is amidst single digits. I would think that for the second half, we can expect similar growth, and we'll have a synergy, as you can see on the right-hand side, to have more significant growth in the midterm.

Thank you. Thank you.

Next, Okamura-san from Okasan Securities. Please unmute and ask your question.

Thank you.

This is Okumura from Okasan Securities. Can you hear my voice?

Yes.

Thank you.

I have two questions. On page 26, you have been explaining on the account ad and mini ad expansion.

And double the sales from this. I would like to reconfirm official account, the platform part, base part. The assumption is the current growth rate and through mini app. is wonderful but what is the background for being so bullish at the time of launch the assumption of the mini app or mau in order to achieve your assumption, what kind of measures and scale of investment you are going to make in order to achieve your strategy? That is my first question. Firstly, the growth image of official apps, I would like to explain. And the strategy to grow will be replied by Idezawa-san and Ikihata-san. The existing OA part, the current level of growth can be maintained. To be more specific, 10% to 15%. Currently, it is growing at nearly 15%, so maintaining the same growth level, the paid can be expanded in this space, but that will not bring us to double, so the gap will be compensated by mini-app and SaaS. The strategy will be explained by Ichihata. Thank you for your question. Let me just add some more comments. in your question you said that it's still the starting phase and this forecast may be bullish at the starting place but right now we already have official accounts and many apps although partially we are not monetizing yet To many customers, similar solutions are offered and being used, and the customers are satisfied. Therefore, many apps, we will increase the number, and at the same time, we will focus on monetization. That is for next year and beyond. Official account SaaS solution. already including third-party solutions we are collaborating with various companies and various solutions are already being utilized so our strategy is to monetize them from next year and onward we haven't been able to try or Something that does not fit the market to start from scratch. Well, that is not the case. We already have existing foundation of official accounts and we are offering various services and we will expand and further monetize. So that is the basis of our assumption to achieve these targets. thank you very much what about the scale of investment 10 billion was the media investment for this year what about the investment going forward the details will be discussed but we are working on the awareness strengthening through advertising for many apps and we are going to focus on promotion And regarding manufacturing or production, as shown on the slide, we are to reassign human resources to these growth domains to speed up the launch of products.

Thank you.

My second question. Online, you are going to implement AI agents. I would like to ask about that. ChatGPT has instant checkout and strengthening the functionalities and they are expanding partners. The user side, rather than ChatGPT, why do they use Lines and Chat? or AI agent, what is the value that you offer in the future?

The relationship is that parent company has strong ties with open AI and

What kind of positive influence will that relationship with OpenAI have with your company? Let me reply to your question. Our company does not have our own LLMs, so we use OpenAI solutions or other solutions. We pick and choose. It's not just LIME, but within our company, we have variety of services news commerce of finance also as each service will be agent eyes and that is what we're working on right now and Yahoo and line or integrated agent will be created and so that is the perspective of our user interface we do not have LLM ourselves but on the other hand we have a lot of touch points with so many users and services so within one ID hours can be used in a seamless manner, that is the value we offer. So that is why we are working on agentization of various services.

Thank you.

Thank you for your comprehensive reply to my question.

Next, from Mizuho Securities, Mr. Kishimoto, please. Hello, thank you for taking my questions. My name is Kishimoto from Mizuho. I have two questions, too. Both are about line ads. The first is commerce functions of line. Stopping functions I would think that it will be launched quite soon as a new platform. I know you've done some testing. So I wonder what is lacking in order to have a full launch? That's my first question. Hello, this is Hide speaking.

We are providing bucket test.

We have already launched the test launch for this within the line shopping tab. we are not offering any service actively or making a big self-promotion we are testing system stable operations then within this test bucket we are trying to expand our product and services or to enhance sales promotion activities so that we'll be able to have a hundred percent full launch we have been working together with various internal stakeholders You know, the situation is a bit different from the users of Yahoo Shopping, where they already know what they want to buy or they want to buy certain things. We need to propose what is appropriate and right that would resonate to the line users. once we know that right business model solutions then we will be able to launch under such a use case and sell products as well so there's a great opportunity and we've been very much on the page 27 please you mentioned about second tier, third tier.

I'd like to ask you a question about the capability for the third tier.

I understand that you have been reallocating your staff together with AI agents. I wonder whether you'll be able to run all these initiatives under the current manpower, or are you going to strengthen your perhaps sales capabilities? with more new recruits. Is this something you can do with a current resource? I'm sure it's based on the selection criteria. Thank you for your question.

Your point.

Recently, we do have a certain amount of resources that we have to allocate, that we have to secure from other departments to this department. So, as mentioned on this page, we are going to have 50% of this existing business to new domain or the focus domains. So we will be shifting our business focus as well as resource allocation as well. And we also are considering more partnership, leveraging outside resources as well. We have many different ideas. Thank you very much. Thank you.

Next, Nagao-san of B of A Securities.

Please unmute and ask your question.

Please unmute.

Can you hear? Yes.

And this is Nagao speaking.

My first question is a mini app.

mau uh is uh to be increased from 25 a million to 75 million uh and uh from 35 000 uh the kpi direction is being presented as a price charging app or how you consider retention what are the methods you're going to take. 60% comes from OA and 40% comes from mini-apps, so proactive monetization will be necessary. So can you explain concrete ways you have in mind for monetization of mini-apps? Thank you for the question. This is Ikehata speaking. Let me answer your question. Right now, well, mini-apps numbers are to be increased and we are to increase the number of users significantly that is the plan so on many apps themselves from mind application and there will be a lot of touch point from the users so we are increasing touch points by linking with Line App and Line Media to increase the opportunity for as many people as possible to touch Mini App. On the monetization of Mini App, the payment function and also advertising within Mini App and receive ad placement fee. So those are two monetization sources. The application that can generate fruits in terms of profitability is what we are planning to build. The sales force we are strengthening right now so that as many people as possible will utilize mini app and open official accounts from next fiscal year and beyond we expect our monetization of revenue we already are seeing the account openings by many on official ads so we have confidence thank you for that my second question is related to the pool of the material the target of eba 40 to 45. Right now, 37 or 38% is the media business margin. Official account, mini app, domain, overlaps, SaaS domain. So when you expand the scale, the sales, staff, or development cost will be the heavier upfront and I have a concern that the profitability may decline. The existing search and display ad by the sales of that part decline will affect the overall margin. So what is the overall ad margin and in achieving 40 to 45, What would be the contribution of OA and mini apps? If possible, could you disclose those information? Rather than speaking on any concrete number, it's more of a guide, the search. The basis is that profitability is not that high, and we have been communicating that from before. There's a certain fee that we pay to Google, so the search margin originally is low. adding with the display it's shown as flat but the search will be down to friend and display we achieved certain growth in q2 so the ratio of display will likely need to expand so the margin on the lower part will increase will improve and on display As you know, there is a commission with agents that is included in the COGS, so that is the margin structure. OA, the margin will be similar to display COGS. The SaaS part, it will be dependent on the pricing structure, but vertical mini-app or SaaS peers, when we look at them, the profitability is quite high. Compared to ad business, it's low, but still it's high enough to be able to support. On top of that, mini-apps, the add-on mini apps and within many apps we will place as in a network style so that's the type of ad business that we would like to deploy within apps so we expect that we can secure profitability on a certain thank you very much one quick question on page 11. The $15 billion reduction plan is shown in the medium term. the media business at some part will increase, in some part it can decline, but the fixed cost of the media business will be unchanged. This slide is the company-wide figure.

This fiscal year,

10 billion for LLM cost will be incurred, and next year and beyond, LLM expense will continue to rise. But through various programming, we can expect improvement of operational efficiency, so 15 billion yen, even LLM commission rises next year, we intend to reduce the fixed cost, even including that 15 billion. The promotion expense and advertising for commerce, it is linked with GMB. So that is not included in this figure. And on media segment, There are subcontractors and some of the human resources cost through use of AI. We can create a leader structure. So those are combined to set the target margin at 40%.

Thank you.

Thank you for the question. Next, from Nomura Security, Mr. Masuno, please unmute yourself and ask us a question.

Hello, this is Masuno speaking from Nomura.

Can you hear me?

Yes, we can. I just have one question, please.

Renewal of line apps, you are talking about adding a commerce tab, and I know you have been trying various scenarios under a beta. Fundamentally, are you trying to transition the info traffic to service like line gifts, or are you going to provide a brand new shopping experience to the line users? So, I wonder what kind of user experience are you trying to create through this commerce tab? What we are testing right now, under the current version, All the products that are on line tabs are line gift products. Going forward, in addition to the line gift products, the stores that are present in yahoo shopping are some of their merchandises we like to post there so not just for gift needs line shopping commerce products we would like to offer through that tab so comprehensive portal shopping corner is how we like how we like this service to grow to be is so what type of stores what type of products from yahoo shopping really has to do with the previous questions and answers that we had uh what kind of products would be the right fit best resonate to the line user it really depends on that that's what we are testing right now so we have to have a right product mix on top of the gift products uh we've been Carefully studying and what would be the type of product group that is worse promoting heavily? Okay, so this is Not a purchase intent visit I Can understand line gifts. I wonder for those users who are not thinking of purchasing anything would ever be a real whether they would convert by visiting that site. Out of Yahoo Shopping, our customers right now are searching for what they want out of tens and thousands of products with a certain purpose. Compare prices and make decision-making. We have a massive number of products on Yahoo Shopping. It doesn't make sense to put all of that on the Yacht Mining tab. I don't think it would drive sales. so out of what's available in yahoo shopping those stores we need to focus on products with more uniqueness originality and some product group with extremely high demands once they release they always sell out so those will be the right products we think to be on the line those will be the right products for this casual shopper

Are you talking about hundreds or thousands?

I don't think you're talking about dozens of thousands. So I just have no idea about the scale of the products that would be available through this line. That is exactly what we are trying to get to. That's why we've been repeating the test. So it really depends on the We don't know. There's nothing that we can share with you regarding the size of scale of the stores of that type of products or the scale of the products.

Thank you very much.

Next, Kumazawa-san of Daigo Securities, please unmute and ask your question.

Thank you.

On page 11, fixed cost reduction of 15 billion yen.

This is the topic of my question.

Currently, what is the fixed cost and how much is this 15 billion yen? And from last year, you have been...

spending on security-related costs.

Is that included in this reduction of 15 billion? I believe it must be outsourcing that you can reduce. Are there any major items that you expect to reduce significantly? and I believe AI agent is contributing to reduction. So compared to last year, how much reduction is this? This is Sakaue. I will answer your question. LY, standalone fixed cost, is roughly 700 billion yen. As you stated in your question, security-related costs will come down. On the other hand, LLM commission will almost offset that and increase. From April of next year, we will increase the office space to accommodate a three-day commuting of our employees. And that means a cost increase. And by using AI, we intend to reduce 15 billion in total. If we do not take any action, the fixed costs will likely to go up by 2.5 to 2.6 billion yen. in the areas of reduction outsourcing part and software license from outside and the system that employees use we can make progress in the integration of them the platform so double payment can be eliminated and so that is included as the cost reduction on software license the areas you can reduce I understand it's difficult to name the concrete name or ServiceNow or others or sales force is it possible to cut them entirely rather than specific ones. It's an overall effort, frankly speaking. And for example, there are licenses that are given to all of the employees. But if we identify the staff that really uses, then we can reduce the number of licenses. And also, there may be redundant functions on the software. Cut one of them.

Thank you very much. Next, from SBI.

Mr. Hosei, please.

Ms. Hosui, please.

Thank you for allowing me to ask you the questions. I have questions regarding capital structure and security governance.

I understand in the past administrative instruction was given from Ministry of Internal Affairs and Communications.

administrative guidance pointing out your capital structure. Now that under new administration, any risks that you foresee or any changes to the relationship with the government regarding capital structure, please. Regarding the administrative guidance, we've been responding appropriately. and from 2000 for the 2026 march we are making progress toward it and regarding the capital movements We've been continuing the discussions, reflecting our past track records. No major changes to all that.

I understand.

So for 2026 March, you will conclude all the measures to meet the administrative guidance, correct? Correct.

That's on track.

Thank you very much.

Thank you very much.

Now we would like to close because the scheduled ending time has arrived. I would like to now have Idezawa to offer final agreement. Before it is our final remarks, I mentioned about the fixed cost of $700 billion mistake. It's roughly $4 billion.

400 billion to 500 billion.

Thank you very much.

This is Ideza speaking. Thank you very much for raising a lot of questions. The environment surrounding AI is rapidly changing, and our two core strategy is AI agents and OA. and we will continuously grow by changing our business structure. That is the message of today's presentation. I will ensure that these plans will be executed steadily and would like to ask for continued support with this. We would like to close LY Corporation's FY2025 second quarter earnings call. Thank you for staying with us until the end.