LY Corporation

Thank you for joining the LY Corporation Fiscal 25 Third Quarter Financial Results Briefing.

Before starting, we'd like to make some announcements. In this briefing, we will be using the financial resource briefing presentation materials available on the LY Corporation website. This briefing is also being live-streamed. If you experience any audio or video disruptions please try switching to another server using the link displayed at the bottom of the screen. We kindly ask that you wait a few more moments until we start the briefing. Thank you. We will now begin the LY Corporation Fiscal 25 Third Quarter Financial Results Briefing. Thank you very much for joining us today. In this briefing, we will use the financial results briefing presentation materials available on the LY Corporation website. Today's briefing is attended by the following members of LY Corporation. Representative Director, President and CEO, Takeshi Idezawa. Senior Executive Officer and CFO, Ryosuke Sakaue. Senior Executive Officer, Media and Search Domain, Domain Lead, Hiroshi Kataoka. Senior Executive Officer, Commerce Domain, Domain Lead, Makoto Hide. Senior Executive Officer, Corporate Business Domain, Domain Lead, Yuki Ikehata. First, Sakaue will provide an overview of the fiscal 25 third quarter financial results. After that, we will have a question and answer session. The entire briefing is scheduled to last about one hour. This briefing is being live-streamed. If you experience any audio or video issues during viewing, please use the link displayed at the bottom of the screen and move to another server. Now let us begin. This is Sakaue from YY Corporation. Thank you very much for taking time to join our fiscal 25 third quarter financial results briefing today. I will give you the overview of our third quarter financial results.

So this is the overview.

at our subsidiary there was a system outage due to a ransomware attack so to show the underlying business performance in an easy to understand manner we will present figures excluding askle for both the previous and current fiscal years First, excluding ASKUR, third quarter performance showed steady business growth, and as you can see, we had double-digit year-on-year increases in both revenue and profit. I will present following the agenda. First, the consolidated financial results.

So third quarter results.

Consolidated revenue declined 0.7% year-on-year, but as I said, excluding ASCO, it was 15.7% year-on-year increase. Adjusted EBITDA was down 2.3% year-on-year, but excluding ASCO, it was up 11.2% year-on-year. So this is the third quarter. So for the fiscal 25, we show our outlook, and we show also the outlook for next fiscal year. For fiscal 25, reflecting the impact of ASCO's system outage, revenue is projected at about 2 trillion yen. Adjusted EBITDA is expected to be around 500 billion yen, even after factoring the system outage impact. Revenue growth in strategic segment and company-wide cost reductions are supporting the overall performance. The media segment has been on an improving trend since bottoming out in the first quarter. Adjusted EPS is also expected to land within the initial guidance range. For fiscal 26, we aim to achieve for adjusted EBITDA 10 to 15% increase compared with the fiscal 25 outlook of approximately 500 billion yen driven by business growth and cost reductions. So on a consolidated LOI basis, we're targeting 550 to 575 billion yen.

So as I explained, the underlying business has remained solid.

Next. So EBITDA ear-on-ear analysis in the middle. This shows excluding ASCO last and this fiscal year. Revenue increased driven by expansion in the commerce and strategic businesses. Although SG&A increased due to PayPay consolidated in commerce, they were absorbed by revenue growth. We had 11.2% increased profit. So this is ad-related revenue. Commerce advertising grew 20.1% supported by the expansion of transaction value, and company-wide ad revenue grew 3%. Next, about the e-commerce transaction value. Reuse due to growth of Yahoo! free market and consolidation of Binos achieved double-digit growth. For shopping, so in Q2 there was a spike in hometown tax payments so there was a shift from Q3 to Q2 and last year there was high level of tax payment in Q3 so reflecting that it was a 2% year-on-year growth even including a school consolidated e-commerce transaction value was up 2.5% year-on-year next performance by segment For media, revenue achieved a slight positive growth year on year. Adjusted EBITDA declined 2.8% year on year, but the growth rate bottomed out in the first quarter and has continued to improve. Margins increased due to changes in the revenue mix. Next. So this is the media revenue and EBITDA year-on-year comparison. Revenue saw search advertising decline 9.5% year-on-year. Account ads rose 13.8% and display ads also posted positive growth. Total advertising revenue grew 0.4%. Adjusted EBITDA was down 2.8% year-on-year as decreases in costs such as outsourcing expenses were offset by increases in sales promotion and Gen AI related expenses.

As we have shared in the previous earnings result, this is the mid to long-term business development plan, leveraging on an online official account.

The first point is

capitalizing on OA's expanding customer base. And then we will build up services and layout structure from mini-apps to SaaS to be offered from the first half of FY26. So from number one to number three, I will give you the progress to date. So regarding the account advertisement, both pay-as-you-go building accounts and plan reopening accounts increased. On the back of that, on the right-hand side, you can see that the sales grew by 13.8%. So this is regarding the second point, the mini-apps. The number of mini-apps grew by 57.8% year-on-year, and the MAUs continue to grow at a high rate of 63.8% YOY. The promotions, growth in development partners, and improved convenience of mini-apps led to increase in usage.

So this is the third point regarding SARS.

For SARS, we are starting with the SMB sector and the beauty category. For solutions targeting restaurants, we are acquiring Toreta to build a reservation capability, which was a missing piece for us. And this was recently announced. This acquisition covers the functionality required for store operations, i.e. the reservation functions. Toreta's services, as you can see on the right-hand side, have a proven track record. And it's a reservation log, strong in table management, and it is used mainly by casual restaurants. In the future, together with official accounts and reservation log, they will be linked to provide a one-stop solution from customer attraction to customer management and CRM. Through these efforts, we aim to enhance the probe. Next page, please.

This is regarding the commerce business.

Consolidated revenue and profits were down. Excluding ASCO, impact revenue consolidation and strong reuse business contributed. And as presented on slide 4, excluding ASCO, revenue grew by 31% year-over-year and adjusted EBITDA grew by 15.5%.

So this is again the commerce business.

On the left-hand side and the right-hand side, both exclude the numbers from ASCO. For revenue, For line Yahoo! commerce, it increased by 64.4% YOY due to the consolidation of Lineman and Venus. Higher promotion expenses for Yahoo! Japan shopping and Yahoo! Japan free market was absorbed by revenue growth, as you can see on the left-hand side. So the impact on consolidation is 1.1 billion, as shown on the right-hand side. But excluding that, the EBITDA grew by 11.9% YOY, and we were able to achieve organic growth. This is a strategic business. Revenue rose sharply by 30% year-on-year. We are achieving high growth. Adjusted EBITDA also expanded significantly. A steady growth continues with more margin expansion to 22.2%.

Our next, this is the only comparison for the strategic business.

Pebe consolidated revenue growth by 24%, and it is driving the segment growth. Another fintech sub-segment, LineBank Taiwan, which was consolidated in the current fiscal year, contributed. Higher S&G and expenses was offset by revenue growth, and we achieved growth in adjusted EBITDA.

This is focusing on the PayPay consolidated business.

In addition to continued growth in QR code payments, interest income increased at banks on the back of loan back growth, leading to growth in both payment and financial services. As a result, both the consolidated GMB and revenue grew at a high rate of more than 20% year-on-year. Consolidated EBITDA grew 59.1% year-on-year to over 30 billion yen for the quarter. So this will be my last slide, and that concludes my presentation on the Q3 earnings results. To wrap up, in Q3, despite the impact on earnings stemming from ASCO's system outage, the fundamentals were solid, with double-digit growth in both revenue and profit. Our focus areas such as official accounts and many apps are also growing steadily, and we aim to maintain this growth trend and increase profit by 10-15% next fiscal year for FY26. Thank you very much for your attention. Now we would like to move on to the Q&A session. If you have a question, please use the raise hand button on Zoom. Please wait for your turn, and when your name is called, please ask a question. Let me repeat, if you have a question, please use the raise hand button on Zoom. Please wait for your turn, and when the MC calls on your name, please ask a question. And please limit to two questions per round per person, and please ask a question one by one. And if you wish to ask a question in English, there will be a sequential translation, so we ask for your patience. The response will be simultaneously translated into the English channel. So now, without further ado, we'd like to begin the Q&A session. The first question, please.

From Goldman Sachs Securities, Munataka-san, Munakata-san, please unmute and ask your question.

Munakata from Goldman Sachs Securities, thank you for this opportunity to ask a question. I'd like to ask two questions. Should I state the two questions together? Yes, please. So for the media business, so it seems to be bottoming, but at demand, how has it trended the past three months? Was it in line with expectations? In what areas was it not? And also SG&A, what's the ratio of the AI in SG&A? So that's the first question. Second question, Maybe we're getting ahead of ourselves, but next fiscal year. This fiscal year, ad business was in a tough situation, but you did renewable line apps and you introduced AI agents. So I think you're quite aggressive on those fronts. So next fiscal year, 10% to 15% adjusted EBITDA increase is what you're expecting. But so... How is that going to contribute next year? What is going to drive the growth next fiscal year? Thank you. Let me respond to the first question, and Ikehata will follow up. search ads improved quite a bit compared with Q2. So search ad product has been improved. We have improved it. And so the negative number has shrunk somewhat. The display ads, Q2, there was a suspicious demand from hometown tax. And so it was just the same as Q1. But the display ads is strong. It's moving into the higher revenue direction. For account ads, it seems that globally account as using points not so active, not so vibrant. So why a little less than Q1, Q2? But account ads using points not so profitable, not high margin. So in terms of profit impact to the segment, not so big impact. And for SG&A, AI for media segment, it's about $1 billion. Plus alpha. Ikehata, please. This is Ikehata. So throughout the fiscal year, ad business, you asked was it in line with expectations. So let me give you our impressions. So Sakaue has explained, and so I may be repeating some parts, but the three major things about the account business, well, there's account and display and the search ads. So for account ads, what's in line with expectations? So for next fiscal year, as was mentioned in the presentation, we are taking various measures for next fiscal year. So we are prepared for expansion and we're able to maintain growth rate. For display ads, this fiscal year, it was negative, but now it's becoming flat. And then single-digit growth is what we would like to realize. We've been saying that for some time. And looking back in terms of numbers, so from flat to single digit growth, we are able to show for display ads. And so the ad platform construction that we've been working on and data sharing to increase ad performance, we are starting to see results. And so we've We've finally been able to come flat and entering the single digit growth. So it's based on our plan. It's going. So next fiscal year, is it going to dramatically increase the growth rate? Maybe not. So let's be conservative. We will aim for flat or higher. That's what we will aim for. And one thing that may be out of line with expectations and something that we have to take measures is the search ads. So in terms of numbers, you can see, and Sakawe also mentioned, commented about this as well. So for next fiscal year, Certainly the existing search ads and the new shopping search ads and the AI initiatives, those new challenges are going to be pursued to improve the search ad business itself. That's how we look at this. So that's my supplemental explanation. So for the next question about our image for next fiscal year, for media, So I think we have become leaner and we are improving productivity and raising margin. And so next fiscal year, we would like to solidly make profit increases. That's one thing. For commerce, So this fiscal year, we have taken various measures for flea market and others. So reuse part, I showed you the number including BINOS, and the reuse part is getting on growth trajectory. So next fiscal year in terms of profit, we are expecting it to bloom. So media commerce, 10 billion each profit increases is what we'd like to achieve. For ASCO, There are some uncertainties, so we would like to get a plus alpha with a rebound. And for strategic segment, it's still growing around pay-pay, so about 20 billion increase in profit we'd like to achieve, mainly around pay-pay. And others, well, 15 billion reduction in fixed costs is what we explained last time. And so that's outside of the three segments and 15 billion reduction in fixed costs. So if you add that, that would be 50 billion plus. And then at school, we're going to provide strong support if sales recovers. well, if they can contribute more to profit, I think we can create strong numbers. Thank you. Thank you for the detailed answer. For the first one, about the media business, if I may follow up a bit, For SG&A increase, so the ratio of AI, not so big was the impression I got, but the AI search usage rate, any changes in such numbers in the third quarter? Comparing Q2 and Q3 in search, the ratio of AI ads hasn't changed so much. 10 plus, a little less than 20. 10 plus percentage we're controlling at that level. Understood. Thank you very much.

Thank you for the question. Next question is from Maeda-san from SMBC Nikko. Please unmute yourself and ask a question. Thank you for this opportunity. I have two questions. The first question is regarding the AI search that you just explained. So you said that you're managing that in 10 plus percent range, but going forward, by using the AI search to try to improve the impact of the ad so that it can eventually lead to revenue growth for ad. Google has been quite successful in that space. So to grow your search business, would AI be a driver for that growth? And do you have any good feeling for that right now? So are you managing that at Temple Center? Do you just manage to have it used at Temple Center? So if you could just give us some nuance to that. And also for next fiscal year on page 13, you talk about the rollout of OAA mini apps. So you talked about the market outlook, but for your revenue and profit, what are going to be the impact on your numbers? And also the timeline and the adjustable market and the scale, can you elaborate on those points as well for those strategies? Yes. So I will respond to both of the questions. So Kataoka-san and Ikata-san, I will follow up. For AI search, as a major direction, The AI search proportion will be increasing in the search results, so we are noting some tests and trying to incorporate the art for the AI results as well.

Also, on top of the genuine

Search advertisement will have the AI portion, which will be an uplift on the revenue. And Kataoka-san, please. Yes, I will follow up. So first on the search ad, we have the existing search ad, a shopping search ad, and what we're testing right now is the AI ad. So we have a mix of the three. so that we can improve the decline we're seeing with the search ad business. So right now, AI results account for roughly 10 plus percent, and we are now planning to add the new initiatives. So within the search, the AI results, AI usage will be increasing, and we are now testing the AI ads so that we can monetize on that opportunity. So we will be growing the AI ads, and on top of that, with the existing search ad business and the shopping type ad business, we are now rolling out measures to improve. So all in all, we aim for growth. Also, we are intentionally managing that to just 10%, I mean the AI ad. And this is because we are still brushing up the functions for AI ads to be as competitive as the other ads. So as we brush up the functionalities, we will be able to raise the proportion from 10 plus percent. And on your second question, as we have shared in the previous earnings results for FY28, We are now trying to double the revenue from the current 140 billion to 280 billion yen. And in terms of the mix, in the first layer, which is official account, we are expecting 10% to 15% stable growth. And then what's assured to the doubling of the revenue, maybe 100 billion yen, that would be covered by the second layer, the mini-app, and also the third layer, SaaS business. And in terms of the margin, for the first layer, for the official account, the margin will be the highest. And then for the mini app, we have to think about the mix between the ad and the payment. But if the payment is larger, then the margin may not be that high. Thank you for the question. So maybe let me put this into the context of the timeline. By FY28, That target remains unchanged. And for next fiscal year, for FY26 and also beyond that, FY27-28, first looking at FY26, for the existing official account, the first layer on the diagram, we aim to achieve further growth. And that is going to drive the revenue growth. And on top of that, simultaneously from this fiscal year to next fiscal year, we are going to be working on the monetization of the second layer mini-app and also doing the marketing for SaaS. So for monetizing, FY27, FY28 will be the timing for incremental revenue for the mini-app in the SaaS business. At the same time, Toreta coordination is something that we have in the plan. So then the SARS product launch may be happening earlier than expected. So for the FY27-28 timeline and the impact on profit, as we get more clarity, we will be showing our outlook. But at this point, this is the timeline that we are expecting for the monetization opportunities. Thank you very much.

Thank you very much.

Next, from Okasan Securities, Okumura-san, please ask your question. Thank you. So can you hear? Yes, this is Okamura from Okasan. Two questions.

First, clarification of the previous question.

Next fiscal year, 10 billion profit growth for media is what you're aiming for. And mini apps and SaaS, as of Q3, you don't have revenue yet. So in increasing 10 billion profit, mini apps and SaaS, what's the contribution expectation for next fiscal year? Should we not expect much in the next fiscal year? Second question. Several years ago, there was a security incident and talking about the response to that. So end of next month, those measures are to be completed. Is that understanding correct? And From April onwards, any restrictions be removed? So pay-pay implemented in line-up or that kind of more collaboration within the group, is that going to be strengthened? Are you going to enter that phase? So what are the measures you have in mind with the ending of the measures against the incident? So I'd like to respond to both questions. So median numbers for next fiscal year. As Ikehata mentioned, in Q3, we had no revenue. And for next fiscal year, mini apps and SaaS So it will be single-digit billions, so 1 to 1.5 billion yen. It's very small, and it should be tens of billions in 2027-2028. So we're preparing to achieve those numbers in terms of sales for 2027-2028. So it will be mainly around official account. And we're going to increase margin to achieve profit growth. As for the security incident, so end of March, we are planning to end the measures. So going forward after that, PayPal, online, Yahoo, ID link, some parts that have not been completed, those areas we would like to work on and prepare for those measures.

That's all.

Thank you for the detailed response.

Thank you for your question.

And next, Nagao-san, F&B of Base Securities. Please unmute yourself and ask your question. I have one question. At the outset, you talked about the next year's outlook and aiming for 10 to 15% growth. So thank you for sharing that. So that would mean the profit growth will be 50 to 75 billion yen profit growth. And I'd like to confirm, also media plus 10 billion yen, commerce with existing business plus 10 billion, and for the remaining, how do you aim to grow by 10 to 15 percent? You have a cost reduction and also recovery of ASCO. Did you say that together will be 30 billion yen? Can you clarify those numbers once again, please? Yes, as I was repeating my answer, so media commerce, 10 billion plus each. Commerce does not include ASCO. Strategic businesses, plus 20 billion yen is my image. And media commerce and strategic segment, outside of that, as cost reduction, it will be roughly 15 billion yen cost savings across organizations. Sorry for repeating my question, but these numbers does not incorporate ASCO's performance recovery. That is correct. I see. That's clear. Thank you very much. Thank you.

From Nomura Securities, Harahata-san, please unmute and ask your question.

Thank you.

Thank you for the opportunity. Two questions. Media, business, the business environment change next fiscal year onwards. On chat GPS, there's going to be a trial at and Gemini also, so that may expand to Japan. So how do you see the change in the competitive environment? Second, there was a report in Nikkei in January, so data system foundation integration between So Nikkei has several tens of billions of savings with the integration. So when are you going to see the impact of the cost reductions based on that?

Thank you.

To answer your first question, the media competitive environment change may be including ads. So Kataoka will answer that one. This is Kataoka. Let me respond. So GPT and Gemini, the number of users are increasing in the market, so there is the user need, and so there's going to be further usage. In addition to that, we are also doing testing. So with the increased number of users, there will be ad space, and testing has started to add ads to those spaces. So ad market, we think, will grow gradually. That's our expectation. So there will be more users and ads will grow for them. But from existing search ads, is it going to simply switch from there to that? Well, the market itself is growing now. So the overall pie is growing. And in terms of the weight, there's going to be this search ad So in terms of how we understand the market, well, there's going to be various solutions, so we consider that a positive thing. That's all. The second question, next fiscal year, I talked about three segments. And then outside of that, there will be 15 billion cost reduction. And one part of that is the line in Yahoo Technology Foundation integration, lowering the infrastructure cost. So that is included in that 15 billion. So that's going to bring about impact over several years. So next fiscal year, yes, we would like to achieve impact so that there will be several tens of billions of yen total. So I don't have the numbers at hand about what's the specific number for next fiscal year, but that's my response. Thank you for the questions. Responses.

Thank you.

So, we are still open for your questions. If you have a question, please use the raise hand function on Zoom. Next, from Jefferies Securities. Sato-san, please unmute yourself and ask your question. This is Sato from Jefferies. Can you hear me? Yes, we can. I have one question.

In Q3, vis-à-vis the internal plan, how did you do for media for the internal target?

Was your result in line with the internal target? How about e-commerce excluding ASCO? And also for strategic businesses, I think you outperformed the original plan, or maybe in line with your internal projections. So briefly, compared to the internal target, how did you do with the Q3 results? Yes, for commerce, it was pretty much on par with the plan. It's difficult to say which point, but about a year ago, from that base point, compared to the internal original target, we were slightly short, but that was offset by strategic segment and others. So if that's the case for Q3, compared to the internal target, media was slightly weaker than your projection. Is that correct? Yes, just very slightly. Thank you very much.

Thank you very much.

From Daiwa Securities, Kumazawa-san, please unmute and ask your question.

Thank you.

For the EC service, so foreigners, maybe Chinese people, may not be able to come to Japan. And EQ and the hotel reservation, what's the expectation for January, March quarter and onwards? What's your current outlook? Hide will respond.

This is Hide.

Ikkyu and Yahoo travel. So the current users are mostly domestic users. So Chinese people not coming to Japan, leaving to lower reservation, that's not going to happen because our main user base is Japanese users. Where there will be, in fact, is inventory of hotels. So until recently, there were many inbound customers, and so there was competition, strong demand, and so unit price had gone up, but in some areas, the unit price is coming down, so there is some impact there. Overall, not such a big impact. But in some areas like Kyoto and Okinawa, we see a slight decline in unit price of hotels.

Thank you.

We still welcome your questions. If you have any questions, please use the raise hand function on Zoom. It seems that there are no further questions, so we will complete the Q&A session. Lastly, we would like to have Mr. Sakaue give a closing remark. Yes, so I have explained the presentation, so I will hand over to Idezawa-san for the closing remark. Yes, this is Idezawa, and thank you very much for your time today. As we reported, We had the ASCO impact, but setting that aside, the businesses fundamentally have been making steady progress. For next fiscal year, we are aiming for 10% to 15% growth, and we are now putting together the plan for next fiscal year. And important thing is going to grow with the product. So we are now working on AI agent and also working on all the other services. So focusing on that and also with the ant business, we will try to revive that to achieve growth. So we would like to achieve multifaceted growth and we hope to continue to enjoy your general support. Thank you very much for participating today. So with that, I would like to complete Elba Corporation's Q3 earnings result for FY25. Thank you very much for joining us today.