(IR) Masatoshi Kumagai talks about GMO Internet Group Strategy in 2014 Overview of the group’s current position and outline of strategy going forward.
■About GMO Internet
– Web Infrastructure & Ecommerce
– Internet Media
– Internet Securities
– Growth Strategy (Social & Smartphone)
■Business Performance, Outlook & Return to Shareholders
About the GMO Internet Group
– The GMO Internet Group consists of 76 consolidated subsidiaries (including 6 listed companies) and 3,800 staff. The business group is listed on the first section of the Tokyo Stock Exchange.(December 2013)
– Internet for Everyone has been our corporate slogan for 18 years, ever since we launched Internet business operations in 1995.
– In August 1999 we became one of the first Internet companies to execute an IPO in Japan. Today we are a comprehensive Internet group operating in four business segments, striving to be Japan’s leading all-in provider of Internet services.
– If you were to summarize in one sentence our business activities over the past 18 years you could say that we are the company who has most increased the number of websites in Japan, or the volume of information available over the Internet in Japan.
– The following diagram illustrates our four business segments.
– The Web Infrastructure & Ecommerce business, functions as a one-stop provider of everything required to communicate over the Internet for both businesses and individuals.
– The Internet Media segment provides online marketing solutions, and operates a number of online media properties to which advertising is distributed.
– The Internet Securities segment operates easy-to-use online securities and forex trading services.
– The Social & Smartphone segment was formed in 2011 and comprises the social apps, smartphone game, and group commerce businesses. Cash flow, technology and marketing expertise from the group’s existing business segments are reinvested into cultivating this segment as the fourth pillar of the Group.
Point program, GMO TokuToku Point links the four segments and promotes synergy throughout the group.
– We have four major strengths.
(1)The technology that allow us to build almost all of our services from scratch.
(2)The sales and marketing power right throughout the group to sell the products and services we develop.
(3)A level of customer support recognized as an industry benchmark.
(4)The research strength that allows us to identify trends early
– An analyst once said we were an organization made of steel. I would say that our greatest asset is the formidable organization that supports all of the above.
Web Infrastructure & Ecommerce
– When we talk about being the entity that has most increased the volume of websites on the Internet, this is the business segment where that happens.
– In this segment, five different businesses have captured leading shares of their respective markets in Japan.
(1) Domain Registration
– .com and .co.jp are examples of domains. Your domain name is your “address” on the Internet. We are the leading domain registrar in Japan.
– Our cumulative market share in Japan is around 92.1% (*1)
– We are overwhelmingly number one in Japan, and in the top 10 .com/.net registrars worldwide.
(2) Web Hosting
– Our web hosting business remains focused on responding to growing sophistication and diversification of client needs, through shared, dedicated and increasingly cloud based hosting solutions. In addition, the highly successful GMO AppsCloud specifically addresses the hosting requirements of social app providers. We are the leading web hosting service provider in Japan.
– Our cumulative market share in Japan is around 55.6% (*1)
In this field we are also overwhelmingly number one.
Some of our Services:
GMO AppsCloud http://cloud.gmo.jp/en/
Onamae.com Shared Server SD http://www.onamae.com/service/shared/sd/
Onamae.com VPS http://www.onamae.com/server/vps/
ConoHa byGMO http://www.conoha.jp/
Marugoto Server http://www.marugoto-server.jp/
GMO Cloud http://shared.gmocloud.com/
GMO Cloud VPS http://vps.gmocloud.com/
GMO Cloud Public http://www.gmocloud.com/
GMO Cloud Private http://private-c.gmocloud.com/
Lolipop! Rental Server http://www.lolipop.jp/
(3) Ecommerce Solutions
– We provide simple ecommerce site building tools. Unlike online shopping malls Yahoo! and Rakuten, we provide operational solutions for online stores.
– Our solutions are convenient and cost-effective, and with over 83,000 stores including 69,000 paid stores, we have the most widely used ecommerce service offering in Japan.
– The Secure Sockets Layer (SSL) is the most widely deployed security protocol today. It is essentially a protocol that provides a secure channel between two machines operating over the Internet or an internal network. In today’s Internet focused world, we typically see SSL in use when a web browser needs to securely connect to a web server over the insecure Internet and therefore SSL is essential in ecommerce businesses.
– This is the domain of GMO Cloud K.K.(English) (Tokyo Stock Exchange, Mothers Market: 3788) subsidiary, GlobalSign (English)
– Certificate issues grew 13.8% YoY in Japan and globally 61% globally. Growth in customer base is particularly strong in Europe.
-After a ban on online election campaigning in Japan was repealed, GMO GlobalSign began providing digital certificates to parliamentary members, candidates and political parties ahead of the 2013 national elections.
-By July 21, 2013, the date of the elections, one quarter of all candidates had adopted GMO GlobalSign digital certificates.
According to police reports on the evening of the election, there were no cases of online fraud during the election campaign.
-GMO GlobalSign also conducted its own research and found no cases of online fraud involving websites of parliamentary members, candidates or political parties during the election campaign period (July 4-21, 2013).
Some of our Services:
(5) Payment Processing
– We provide payment processing services for the sale of products via the Internet. When users provide their credit card numbers to our customers we check the credit limit and process the payment.
– This is a Payment Gateway Inc. (Tokyo Stock Exchange, First Section: 3769) service.
– Over 46,108 merchants use our services in this segment. Transaction volume in the most recent quarter totaled JPY330 billion and approximately 148 million transactions were processed. In this sub-segment we also have the leading market share.
This is another business area in which we hold the number one market share.
– As long as the ecommerce market grows and transaction volume continues to increase our earnings will also increase.
-In May 2013, the Osaka government adopted the GMO-PG public sector payment processing solution for automobile tax payments.
– Going forward we will continue to identify new markets for credit card payment processing services, while expanding existing solutions as a leading innovator in ecommerce payment gateway services.
Some of our Services:
GMO Payment Gateway http://www.gmo-pg.com/global/
GMO Epsilon http://www.epsilon.jp/
Social Appli Payment Service (SAPS) http://www.saps.jp/index.html
(6) Web Site Brokerage
– Over the past few years web sites have come to be recognized as assets.
Our web site brokerage service is also a market leader, helping expand business opportunities for our customers.
Site M&A: http://www.sitema.jp
(7) Features and Strengths of the Web Infrastructure & Ecommerce Segment
– Overall the Web Infrastructure & Ecommerce segment is overwhelmingly number one in its field. Despite being in competition with major carrier businesses, our domain registration and web hosting businesses boast leading market share, customer satisfaction, revenue and profit.
– Each of the Web Infrastructure & Ecommerce businesses have large customer bases. Building an economy of scale grows our operating profit margins. The operating profit margin on each of our products and services is 25%-30%.
– The Web Infrastructure & Ecommerce segment has five exceptional features.
(1) A steadfast income model
Once a customer signs a contract we have a continuing source of income creating a stable income business.
(2) An industry that will exist indefinitely
The Internet industry will continue to exist indefinitely. Take the example of the automobile industry. People get a new car about once every four years. However, even when cars change, the need for roads, traffic lights, parking lots, toll booths and other infrastructure remains. Imagine websites as the cars, ISP services as the roads, domains as the traffic signals, rental servers as the parking lots and payment processing as the toll booths. As long as the Internet continues to exist so will our business.
(3) People rarely change web service providers
Migrating to new web or mail servers is time-consuming and tedious.
(4) Customers don’t stop using our services
Customer URLs and e-mail addresses are printed on the business cards they hand out every day. These are services that they don’t stop using.
(5) Natural Cross Sell
The structure of this segment promotes a natural cross-sell among products and services. A customer who purchases a domain name cannot do anything with it unless they have a server.
Those that are using web hosting services for ecommerce will need payment processing, security and shopping cart services as well.
– The infrastructure business is (1) stable (2) permanent and (3) a high margin business with a large market share. It is a price leader that continues to grow.
– We advanced into a second business area directly after being listed on JASDAQ on August 27, 1999.
(1) Why We are in this Industry
– There are two reasons why we are in the Internet media business.
(1) Synergy with the Web Infrastructure & Ecommerce business
Customers who start up ecommerce businesses need advertising in order to increase sales. By providing search ranking services, SEO, SEM and other tools we achieve better customer satisfaction, capture more customers (cross sell) and achieve a higher profit ratio.
(2) Our Long term Plan (55-Year Plan)
We have a long term plan we call the 55-year plan. We plan to create an Internet group that by 2051 consists of 207 companies that are valuable to society and its people. In the Internet industry, companies that succeed are companies that can attract customers. Having our own media that attracts customers gives us an advantage over our competitors in virtually any market we enter.
(2) Companies and Services
– The Internet Media segment can be roughly divided into two businesses; the business of “creating” media and the business of “selling” media.
(3) Internet Media Segment – Strengths
– We have the advanced technology to develop services used by millions of people, the marketing force to attract large numbers of Internet users and the stable operational capability to give tens of millions of users an enjoyable Internet experience. These are our three strengths.
– Internet securities trading company GMO CLICK Securities, Inc. rejoined the group in October 2010.
The Internet securities segment complements our existing Web Infrastructure & Ecommerce and Internet Media businesses and helps to further generate synergy throughout the group. We aim to build a group that will succeed for hundreds of years and this is part of the reason why we brought this business into the group.
(1) Internet Securities Segment – Objectives
– With the growth of the Internet and the expansion of broadband usage during the late 1990s, as well as the 1999 relaxation of regulations on trading fees in Japan, online securities services became an essential tool for retails investors.
– Providing new technologies, added value, and innovative concepts through solutions that are universally user-friendly is core to the group’s fundamental mission.
– Our ultimate aim in this segment is to provide an easy to use online securities trading service to all of our customers.
(2) Users & Market Share
– Our Internet securities business has grown rapidly to become one of the major players, driving growth in the industry.
– In 2012, and in 2013, we achieved the highest transaction volume in the domestic FX market, and in comparison with global companies we have the highest transaction volumes in the world.(*2)
– In September 2012, FX PRIME Corporation (JASDAQ Standard: 8711) joined the group. In October 2013, the company became FX PRIME by GMO. Combining the strengths of the two companies is expected to accelerate synergies within the segment and further boost customer satisfaction.
– In the online securities trading market our market share of trading volume is fourth highest of the 6 major online securities services in Japan.
(3) Internet Securities Segment Strengths
– All of our backend systems are developed, operated and serviced in-house. Most other securities companies outsource technology functions. A large percentage of GMO CLICK Securities staff are engineers, and the company boasts industry-leading technology.
– This enables us to provide an agile service with highly cost effective operation and management. In other words technology gives us our competitive edge.
Growth Strategy – Social & Smartphone Segment
– Positioned in the rapidly growing smartphone market, G-Gee is a smartphone game publisher. G-Gee now features over 500 games. Featuring 100% native apps and rich content, G-Gee has become one of the largest publishers of premium game content in Japan.
– Daily deals website, Kumapon by GMO became profitable last year and we are now aiming to expand profit contribution from this service. The cartoon character associated with this service, the bear named Kumapon has become the offical character of the Group in Japan.
– I’d like to also update you on the status of our new domains. Of the seven new domains that we applied for, .tokyo. .nagoya, and .yokohama have been confirmed.
We are now preparing to launch .nagoya in February and .tokyo in April this year. This year we will be investing heavily in the promotion of new domains
While there are several competing applications, we are also continuing with efforts to acquire ecommerce domain, .SHOP and two other domains.
Business Performance, Outlook & Return to Shareholders
(1)Business Performance & Outlook
– The following graphs represent business performance since 2009 together with guidance for the 2014 fiscal year. In 2012 we invested 2.1 billion yen in new businesses and still achieved a record high 9.1 billion yen operating profit. In 2013, actual results came in at approximately revised forecast levels.
Since 2010, for four consecutive years we have achieved our forecast targets. Here are our consolidated forecasts for fiscal year 2013.
(2) Return to Shareholders
– Our dividend policy aims to pay out 33% of consolidated net profit in dividends. In fiscal 2013 the full-year dividend forecast was initially 14 yen per share, however. in line with the revision to forecast earnings, dividend per share forecast was raised to 15 yen per share. In 2014 dividend per share forecast is raised a further 1 yen to 16 yen per share.
– We aim to be a comprehensive Internet services group that provides industry-leading services in four business segments Web Infrastructure & Ecommerce, Internet Media, Internet Securities and Social & Smartphone.
– We will continue to build an Internet group that contributes to the growth of the Internet based on the concept“ Internet for Everyone”
* This presentation document includes predictions based on expectations, premises and plans for the future that are accurate as of February 6, 2014. These predictions may differ from actual results due to factors including changes in the global economy, competition and exchange rates or unforeseen events such as natural disasters. Some of the figures given such as market share are based on our own calculations. These figures may differ from research agency figures.
* Information published on this site is provided for information purposes only and does not constitute a solicitation of investors. Further, the results forecasts and other forward-looking statements contain factors that are uncertain. Please understand that actual results may differ significantly as a result of forces including economic conditions and market environment. No responsibility is accepted for any damage sustained as a result of actions taken based on this information regardless of the reason.
*1 According to on our own research
*2 ForexMagnate (http://jp.forexmagnates.com/2013/08/01/forex-brokers/12259)
Please visit the here for an overview of Q4 2013 business results.