(IR) Masatoshi Kumagai talks about GMO Internet Group Strategy in 2016 Overview of the group’s current position and outline of strategy going forward.
About GMO Internet
– Internet Infrastructure
– Internet Securities
– Online Advertising & Media
– Mobile Entertainment
– Focus in 2016 (.shop, minne investment strategy, global growth)
Business Performance, Outlook & Return to Shareholders
About the GMO Internet Group
– The GMO Internet Group consists of 105 consolidated subsidiaries (including 9 listed companies) and 5,100 staff. The business group is listed on the first section of the Tokyo Stock Exchange.(as of September 2016)
– Internet for Everyone has been our corporate slogan for 20 years, ever since we launched Internet business operations in 1995.
– If you were to summarize in one sentence our business activities over the past 20 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.
– Internet Infrastructure functions as a one-stop provider of everything required to communicate over the Internet for both businesses and individuals.
– Online Advertising & Media segment provides online marketing related services.
– The Internet Securities segment operates low-priced online securities and forex trading services.
– The Mobile Entertainment segment was formed in 2011 as the Social & Smartphone segment(As of 2014 the segment is renamed Mobile Entertainment). 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.
– 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 phase.
– 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.
– 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 90.1% (*1)
– We are overwhelmingly number one in Japan, and in the top 10 .com/.net registrars worldwide.
(2) Hosting & Cloud
– 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. We are the leading hosting provider in Japan.
– Our cumulative market share in Japan is around 54.2% (*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/
Z.com Web Hosting https://hosting.z.com/jp/en/
Z.com for WordPress https://wp.z.com/jp/en/
Z.com Cloud https://cloud.z.com/
ConoHa byGMO https://www.conoha.jp/
Marugoto Server http://www.marugoto-server.jp/
GMO Cloud (Rental Server) https://shared.gmocloud.com/
GMO Cloud VPS https://vps.gmocloud.com/
GMO Cloud Altus http://www.gmocloud.com/
GMO Cloud Private https://private-c.gmocloud.com/
Lolipop! Rental Server https://www.lolipop.jp/
VALUE SERVER https://www.value-server.com
(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 74,000 paid stores, we have the most widely used ecommerce service offering in Japan.
-Let me explain about the C2C market.
-We provide ecommerce platforms.
Even if customers don’t have much knowledge about the web, they can easily begin using our services, because our system responds to customer’s various eccomerce needs
(4) Internet Security
– 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, First Section: 3788) subsidiary, GlobalSign (English)
– Certificate issues grew Growth in customer base is particularly strong overseas. In addition to our own Certificate Authority, we have a highly sophisticated that enables certificate management in a secure environment. This is one of the reasons we are able to grow so quickly.
Google recently recommended in the Google Webmaster Central Blog that people should change their website from HTTP to HTTPS for more secure website browsing, and have moved to make encrypted connections a signal in search algorithims.
Hence, we can expect SSL demand will further increase. This is a current trend worldwide.
– GlobalSign offers the only site seal for government elections in Japan. The GlobalSign site seal can be seen on the website of Japanese Prime Minister Shinzo Abe, and other members of parliament.
Some of our Services:
– 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.
– 74,000 merchants use our services in this segment. Transaction volume in the most recent quarter totaled 5.18 billion yen and approximately 230 million transactions were processed. We also have the leading market share in this sub-segment as well. (July-September, 2016).
– As one of the leading payment companies in Japan, we aim to continue driving innovation and growing ecommerce participation in Japan.
– 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/
GMO Payment Service http://www.gmo-ps.com/
GMO PAYMENT GATEWAY PTE. LTD. http://www.gmo-pg.com.sg/
SMBC GMO PAYMENT https://www.smbc-gp.co.jp/
GMO FINANCIAL GATE https://gmo-fg.com/
(6) Web Site Brokerage
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 Internet Infrastructure Segment
– Overall the Internet Infrastructure 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 Internet Infrastructure businesses has large customer bases. Building an economy of scale grows our operating profit margins.
– The Internet Infrastructure 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.
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.
– For the past four consecutive years 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)
(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.
– On April 1, 2015, GMO CLICK Holdings was listed on the Tokyo Stock Exchange JASDAQ market. As a finance group with an edge in technology, we aim to accelerate growth by expanding into global markets.
Online Advertising & Media
– 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 Internet Infrastructure
Customers who start up ecommerce businesses need advertising in order to increase sales. By providing search ranking services, SEO, SEM, SNS 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 Online Advertising & Media segment can be roughly divided into two businesses; the business of “creating” media and the business of “selling” media.
– GMO Research, Inc. (TSE:3695)
The business of Internet Research is operated by GMO Research,Inc.
(3) Online Advertising & 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.
– In 2010, we entered the mobile game market with the objective of building a history-making smartphone game platform. We have been streamlining external titles and brought operations in-house, building expertise and bringing costs under control.
Important Themes in 2016
Cannot be copied – the only one, global strategy product .shop.
There are more than 300 million “domains” (or Internet addresses) worldwide. Approximately 6 million domain names are registered every month worldwide as the Internet continues to expand.
For this reason, it is hard to acquire short and memorable character strings these days. Hence, new domains are liberated to substitute conventional domains, “.com” , “net” and so on. Approximately 2,000 domain names are newly applied. “.shop” is the most well-reputed domain in terms of potential.
●Acquiring operational rights
Group company and wholesale registry operator, GMO Registry has started preparation to acquire “.shop”in 2009. It has been 9 years since we began the preparations to acquire .shop.
On January 28, 2016, GMO Registry finally won an auction and acquired the rights to operate .shop at a record USD41.5 million.
(Consolidated Subsidiary Acquires Rights to Operate New Domain, .shop)
These are “.shop”’ strengths as shown. It cannot be copied. Additionally,it will be an ongoing source of earnings in Internet Infrastructure.
●Off to a great start
.shop was launched in Q3 2016, and just like all other new domains, it went through three sales phases. It’s currently in the “General Availability” phase, as shown on the far right.
In all the phases, .shop broke the previously held records set by other companies, setting things off to a great start.
As I mentioned earlier, preliminary surveys showed that “.shop held the No.1 potential,” and I think those predictions were proved right with these figures.
●Targeting the global market and cross -selling
The domestic focus for .shop, shown at the bottom left, is to make it a ”de facto standard.”
Our current marketing strategy is to make it a given that “If you want to start an Ecommerce website, the domain to use is .shop.”
The upper left shows our focus for overseas operations, which is to partner with local registrars. The point is how much “.shop” will be prioritized by registrars in each country.
The bottom right shows potential tie-ups for .shop, with the first being .shop SSL.
Building off of our success in Japan, we want to team up with local registrars in each country to see Ecommerce sites worldwide operate safely on secure domains and help support a high level of information sharing, so please look forward to the results.
(2) Strategic Investment in minne
– This year we will be concentrating strategic investment into the GMO Pepabo operated, minne. minne is a C2C online market specializing in handmade items. Currently minne is No.1 in terms of sellers and products in Japan. Going forward we aim to strengthen our number one position through large-scale promotions and events.
(3) Global Strategy
– Outside of Japan, GMO Internet Group has 1,073 global staff in 60 locations throughout 18 countries. Global sales still only account for around 5% of the Group’s total Net Sales. However, we will step up global expansion in both the infrastructure and securities segments, and unifying global marketing efforts under the Z.com brand.
With the objective of contributing to the further expansion of the Internet on a global scale, and accelerating global business growth, GMO Internet Group is providing revolutionary global number 1 services under the world’s most memorable domain with the “Z.com” brand further driving global sales ratio..
(4) Finance and Payment – Alliance Strategy
In line with our motto of “strengthening strengths”, our group actively pursued an alliance strategy with major financial institutions in the area of FinTech,
In Net Banking, we officially announced a capital and business alliance with Aozora Bank and set up the “Internet Bank Project Launch Office” for the next-generation net bank. We are aiming to begin business by March 2018. Aozora Trust Bank will be the base of new net bank. Although our current share ratio is 14.9% as of July 21, we will acquire more of Aozora Trust’s share to raise it to 50% and take on responsibility as an equal partner in the future.
Business Performance, Outlook & Return to Shareholders
(1)Business Performance & Outlook
– The following graphs represent Net Sales and Operating Profit trends since 2009 together with guidance for the 2016 fiscal year.
-There is no change to management themes in 2016.We remain committed to enhancing our strengths and enhancing weakness with number one products. As a growing company, we make a strategic investment for our own growth as well as making customer smile with providing number one products. We will do our best to achieve our committed business results.
In 2016 we forecast double digit growth for the Internet Infrastructure and media segments. Forecast of net profit in 2016 represents a return to normal range after extraordinary profit was reported on the sale of shares in GMO CLICK HD in 2015.
(2) Return to Shareholders
1. Total Shareholder Return Ratio
-The company will continue to invest in corporate growth as needed, but with the objective of returning greater value to shareholders, we have a dividend payout ratio objective stated in our articles of incorporation that aims to payout 33% of consolidated net profit in dividends.
-In addition to the current payout of 33% the remainder of the 50% total shareholder return ratio will be put toward share buybacks.
In June 2005, we entered the loans and credit business when we acquired a consumer loans business. Shortly after the supreme court reached a decision in regard to the overcharging of interest and the Japanese Institute of certified public accountants implemented changes to accounting standards related to provisioning allowances. This caused significant damage to our balance sheet. In order to compensate for the losses incurred by shareholders at this time, total shareholder return ratio has been raised to 50%, part of which is being put toward share buybacks.
. We believe that a share buyback of the shares issued during this time is an appropriate means to return profits to shareholders. In order to achieve this, the company will implement this new total shareholder returns policy that includes share buyback plans over the long term.
The company will take a flexible approach and any share buyback decision will take into account company performance, financial condition and current share price.
We completed the retirement of treasury shares.
The amount was approximately 17% of our net profit in FY2015.
In the current term, the group remains committed to growth as we continue initiatives in Fintech while growing recurring revenue primarily in the Internet infrastructure segment with new revenue pillar, .shop.
In addition to normal full year dividend of JPY19, we had additional dividend from the sales of share of GMO CLICK HD in 2015. As a result, JPY19 was added to our total share. Our total dividend per share forecast for 2016 is JPY 20.
Without extraordinary profits this year,our dividend forecast is JPY 20, an additional JPY1 from ordinary dividend.
Under our current policy of ”Strengthening Strengths” and ”Reinforcing weaker segments with number one products”. We are offering number one products with sophisticated technology and ambition.
– We aim to be a comprehensive Internet services group that provides industry-leading services in four business segments Internet Infrastructure, Online Advertising & Media, Internet Securities and Mobile Entertainment.
– 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 November 7, 2016. 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/2015/01/30/forex-brokers/19379)
Older business results (here)