ZAPPALLAS, INC. (3770)

Transcription

SR Research Report
2014/7/4
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is
to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an
objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will
always present opinions from company management as such. Our views are ours where stated. We do not try to
convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at
[email protected] or find us on Bloomberg.
SR Research Report
2014/7/4
Contents
Executive summary..................................................................................................3
Key financial data ....................................................................................................4
Recent updates .......................................................................................................5
Highlights ............................................................................................................5
Trends and outlook ..................................................................................................6
Quarterly trends and results ..................................................................................6
Full-year (FY04/15) outlook ...................................................................................8
Outlook ...............................................................................................................9
Business ............................................................................................................... 11
Business description ........................................................................................... 11
Profitability snapshot, financial ratios.................................................................... 20
Strengths and weaknesses .................................................................................. 21
Market and value chain ....................................................................................... 22
Historical financial statements ................................................................................. 26
Income statement .............................................................................................. 33
Balance sheet .................................................................................................... 34
Other information .................................................................................................. 35
History .............................................................................................................. 35
News and topics................................................................................................. 36
Major shareholders ............................................................................................. 36
Top management ............................................................................................... 36
Company profile .................................................................................................... 37
http://www.sharedresearch.jp/
Copyright (C) 2013 Shared Research Inc. All Rights Reserved
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Executive summary
A web-based business, mainly offering digital contents centered on
divination
ZAPPALLAS runs a web-based business, mainly offering digital contents centered on divination. The
company excels in customer relationship management (CRM), i.e., accurately understanding and
analyzing users’ preferences and behavioral and psychological patterns based on their attributes, content
access log, and online activities. Utilizing such database, the company provides users with various types
of content and products via email publications, Internet advertising, etc.
The company was founded around the time of NTT DOCOMO Inc.’s (TSE1: 9437) i-mode launch (2000),
which it used to deliver many types of content. When it decided to list on the Tokyo Stock Exchange’s
Mothers market (listed in May 2005), the company narrowed its focus to divination because the topic
encouraged frequent visits to the company’s websites and presented an opportunity to create a valuable
database of accurate information that users themselves register online (see Business Description).
Trends and outlook
Full-year FY04/14 sales were JPY8.2bn (-8.3% YoY); operating profit was JPY722mn (-49.2%); recurring
profit was JPY752mn (-54.5%); and net income was JPY375mn (-59.0%).
In FY04/15, ZAPPALLAS forecasts sales of JPY7.5bn (-8.0% YoY), zero operating profit (operating profit of
JPY722mn in FY04/14), zero recurring profit (recurring profit of JPY752mn in FY04/14), and a net loss of
JPY13mn (net income of JPY375mn in FY04/14). According to the company, FY04/15 will be a year for
building the foundations for future growth. The company intends to cut costs and invest as necessary.
ZAPPALLAS aims to move away from advertising through carriers toward establishing its own contact
points with customers. The company uses page views of its own media to measure contact with
customers. From FY04/14, it has focused on increasing these page views as a means of creating more
contact points with customers.
Strengths and weakness
Shared Research believes that the three main strengths of ZAPPALLAS are its strong earnings power,
steady support from women in their 20s and 30s, and power to draw divination experts. Weaknesses
include its dependence on feature phone platforms, existing businesses focusing on a niche market and
current businesses relying on domestic market (see Strengths and weaknesses).
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Key financial data
Income Statement
FY04/10
FY04/11
FY04/12
FY04/13
FY04/14
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
11,225
11,813
10,088
8,890
8,155
7,500
-8.0%
(JPYmn)
Total Sales
YoY
8.9%
5.2%
-14.6%
-11.9%
-8.3%
Gross Profit
7,580
7,800
6,861
6,118
5,396
FY04/15
YoY
13.6%
2.9%
-12.0%
-10.8%
-11.8%
GPM
67.5%
66.0%
68.0%
68.8%
66.2%
3,016
3,073
2,584
1,423
722
0
YoY
11.3%
1.9%
-15.9%
-44.9%
-49.2%
-
OPM
26.9%
26.0%
25.6%
16.0%
8.9%
-
3,041
3,090
2,594
1,655
752
0
-
Operating Profit
Recurring Profit
YoY
12.8%
1.6%
-16.0%
-36.2%
-54.5%
RPM
27.1%
26.2%
25.7%
18.6%
9.2%
-
1,532
1,626
1,579
917
376
-13
Net Income
YoY
Net Margin
-3.1%
6.1%
-2.9%
-41.9%
-59.0%
-
13.7%
13.8%
15.7%
10.3%
4.6%
-
Per Share Data (JPY)
Number of Shares
13,346
13,411
13,471
13,531
13,651
EPS
116
131
127
73
30
EPS (Fully Diluted)
113
129
125
72
30
Dividend Per Share
Book Value Per Share
42
42
42
42
22
465
553
636
662
653
-1
Balance Sheet (JPYmn)
Cash and Equivalents
Total Current Assets
Tangible Fixed Assets, net
Other Fixed Assets
Intangible Assets
Total Assets
3,781
4,687
4,800
4,693
5,081
5,880
7,264
7,098
6,724
6,879
129
144
137
175
137
1,052
1,042
1,053
850
864
468
331
1,092
2,415
2,185
7,544
8,774
9,417
10,126
10,057
Accounts Payable
480
487
332
304
377
Short-Term Debt
-
-
32
191
184
1,738
1,846
1,320
1,085
1,182
Total Current Liabilities
Long-Term Debt
-
-
63
631
484
Total Fixed Liabilities
0
0
64
632
485
Total Liabilities
1,738
1,846
1,384
1,716
1,667
Net Assets
5,806
6,928
8,033
8,410
8,390
0
0
95
821
668
Operating Cash Flow
2,084
1,725
1,637
1,475
1,313
Investment Cash Flow
-329
-411
-841
-2,126
-272
-2,018
-508
-584
213
-660
ROA
19.5%
19.9%
17.4%
9.4%
3.7%
ROE
25.5%
25.7%
21.3%
11.3%
11.3%
Equity Ratio
76.3%
78.4%
84.4%
82.4%
182.4%
Interest-Bearing Debt
Cash Flow Statement (JPYmn)
Financing Cash Flow
Financial Ratios
Source: Company data
Figures may differ from company materials due to differences in rounding methods.
Gross profit excludes provision for sales returns.
ROA = Net income / Total assets
Per share data adjusted for the 100-for-1 stock split in FY04/14.
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Recent updates
Highlights
On June 30, 2014, Shared Research updated comments on ZAPPALLAS, INC.’s full-year earnings results
for FY04/14 and outlook; see the results section for details.
On June 13, 2014, the company announced full-year earnings results for FY04/14.
For corporate releases and developments more than three months old, see the News and
topics section.
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Trends and outlook
Quarterly trends and results
Quarterly Performance
(JPYmn)
Sales
YoY
GP
YoY
GPM
SG&A
YoY
SG&A / Sales
OP
YoY
OPM
RP
YoY
RPM
NI
YoY
Cumulative
Q1
2,369
-16.8%
1,658
-12.8%
70.0%
1,049
-7.5%
44.3%
604
-21.3%
25.5%
607
-21.1%
25.6%
348
-23.4%
Q1
FY04/13
Q2
Q3
2,205
2,053
-9.9%
-15.0%
1,520
1,411
-7.4%
-14.1%
69.0%
68.7%
1,229
1,122
23.6%
10.2%
55.8%
54.6%
307
289
-52.6%
-54.2%
13.9%
14.1%
315
419
-51.4%
-33.8%
14.3%
20.4%
247
299
-34.7%
-29.2%
Q2
Q3
Q4
2,262
-4.9%
1,530
-8.8%
67.6%
1,306
17.4%
57.7%
224
-58.6%
9.9%
315
-42.2%
13.9%
22
-93.1%
Q4
Q1
1,882
-20.6%
1,295
-21.9%
68.8%
1,120
6.7%
59.5%
175
-70.9%
9.3%
152
-74.9%
8.1%
86
-75.2%
Q1
FY04/14
Q2
Q3
2,017
1,912
-8.5%
-6.9%
1,371
1,331
-9.8%
-5.6%
68.0%
69.6%
1,275
1,138
3.7%
1.5%
63.2%
59.5%
93
191
-69.7%
-33.9%
4.6%
10.0%
100
247
-68.1%
-41.1%
5.0%
12.9%
72
161
-70.9%
-46.2%
Q2
Q3
Q4
2,343
3.6%
1,398
-8.6%
59.7%
1,123
-14.0%
47.9%
263
17.4%
11.2%
253
-19.7%
10.8%
56
151.2%
Q4
Sales
YoY
GP
YoY
GPM
SG&A
YoY
SG&A / Sales
OP
YoY
OPM
RP
YoY
RPM
NI
YoY
2,369
-16.8%
1,658
-12.8%
70.0%
1,049
-7.5%
44.3%
604
-21.3%
25.5%
607
-21.1%
25.6%
348
-23.4%
4,574
-13.6%
3,178
-10.3%
69.5%
2,279
7.0%
103.3%
910
-35.6%
41.3%
921
-35.0%
41.8%
596
-28.5%
8,890
-11.9%
6,118
-10.8%
68.8%
4,706
10.5%
208.0%
1,423
-44.9%
62.9%
1,655
-36.2%
73.2%
917
-41.9%
1,882
-20.6%
1,295
-21.9%
68.8%
1,120
6.7%
59.5%
175
-70.9%
9.3%
152
-74.9%
8.1%
86
-75.2%
3,899
-14.8%
2,666
-16.1%
68.4%
2,395
5.1%
118.7%
268
-70.5%
13.3%
253
-72.6%
12.5%
158
-73.4%
8,155
-8.3%
5,396
-11.8%
66.2%
4,656
-1.1%
198.7%
722
-49.2%
30.8%
752
-54.5%
32.1%
376
-59.0%
6,628
-14.0%
4,589
-11.5%
69.2%
3,400
8.1%
165.6%
1,199
-41.3%
58.4%
1,340
-34.6%
65.3%
895
-28.7%
5,812
-12.3%
3,997
-12.9%
68.8%
3,533
3.9%
459
-61.7%
500
-62.7%
319
-64.3%
FY04/14
% of FY
FY Est.
-
-
-
-
-
-
-
% of FY
FY Est.
99.5%
8,200
-7.8%
103.1%
700
-50.8%
8.5%
710
-57.1%
8.7%
380
-58.6%
106.0%
98.9%
FY04/14 Results (out June 13, 2014; see tables above)
Sales fell due to declining feature phone sales in the mainstay contents segment. Operating profit
dropped 49.2% YoY, as sales fell but SG&A expenses were constant.
On a quarterly basis, sales grew significantly in Q4. This is due to strong sales in the commerce segment
as subsidiary BxE introduced a new product. BxE sales were up 3x, following the launch of the new
product, medel, in March 2014. CoGS also increased sharply quarter-on-quarter, in line with higher CoGS
at BxE. Labor costs were also up, partly due to bonuses paid in Q4. Excluding these factors, the basic cost
structure remains unchanged. Despite rising personnel expenses on the back of bonus costs, the
company has kept SG&A expenses down by cutting advertising costs. As a result, operating profit was up
YoY in Q4, despite having fallen YoY in Q1 through Q3.
In Q1 FY04/14, ZAPPALLAS established a new division aimed at securing advertising revenue, as part of its
strategy toward smartphones. The company also moved some content businesses from the contents
segment to the others segment. The company is revising the contents included in each reporting segment as
it changes its organization. Prior data is adjusted to the new segments for YoY comparisons.
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Contents segment
Sales: JPY5.6bn (-16.3% YoY); operating profit: JPY1.9bn (-23.2%).
ZAPPALLAS strove to enhance its range of smartphone services to secure new customers in the divination
business. Efforts included adding new content for light users, creating smartphone apps for existing sites
and adding separate monetization menus. The company also made efforts to expand genre content,
including educational and romance game smartphone apps. Smartphone related sales were up, but not
enough to make up for the decline in feature phone users. Sales and profits were down overall. Although
smartphone-related sales have been growing, they fell slightly quarter-on-quarter in Q4. According to the
company, reasons include less smartphone content in Q4, and changes to advertising regulations for the
carrier market.
Commerce segment
Sales: JPY1.6bn (-1.7% YoY); operating loss: JPY164mn (operating loss of JPY71mn in FY04/14).
ZAPPALLAS focused on new e-commerce sites launched in FY04/13 (Fujimaki Department Store, cuna
select and STYLEST). Sales were robust at the new sites, aided by promotional campaigns that made use
of facebook. However, overall segment sales were only slightly up, due to falling sales at existing mobile
e-commerce sites. SG&A expenses were up, as the company hired more staff and spent on advertising.
Sales were down YoY at subsidiary BxE, Inc., as the launch of new natural cosmetic products for
wholesale and retail in Q4 FY04/14 was delayed.
Overseas segment
Sales: JPY495mn; operating loss: JPY78mn (the overseas segment was created in Q3 FY04/13).
Advertising revenue is the main source of earnings in the divination content business in the US. The
company propped up advertising sales operations and grew clients. The result: robust advertising sales.
However, SG&A expenses were up as the company sent an executive to overhaul sales and management
operations, with an eye toward building a solid foundation in this business.
Others segment
Sales: JPY396mn (+10.3% YoY); operating loss: JPY380mn (operating loss of JPY285mn in FY04/13).
Telephone divination sales were robust. The consolidation of PINK, Inc. in Q4 also contributed to sales.
However, mobile website development sales and advertising sales on the Zenryaku Profile website were
down. Overall, segment profits were up slightly.
For details on previous quarterly and annual results, see the Historical financial statements
section.
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Full-year (FY04/15) outlook
FY04/15 Forecasts
(JPYmn)
Sales
YoY
CoGS
Gross Profit
YoY
GPM
SG&A
SG&A / Sales
Operating Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
1H Act.
3,899
-14.8%
1,233
2,666
-16.1%
68.4%
2,395
61.4%
268
-70.5%
6.9%
253
-72.6%
6.5%
158
-73.4%
FY04/14
2H Act.
4,256
-1.4%
1,526
2,729
-7.2%
64.1%
2,262
53.1%
454
-11.5%
10.7%
500
-31.9%
11.7%
217
-32.4%
FY Act.
8,155
-8.3%
2,760
5,396
-11.8%
66.2%
4,656
57.1%
722
-49.2%
8.9%
752
-54.5%
9.2%
376
-59.0%
FY05/14
FY Est.
7,500
-8.0%
0
0
-13
-
According to the company, FY04/15 will be a year for building the foundations for future growth. The
company intends to cut costs and invest as necessary.
ZAPPALLAS has formerly disclosed full-year and 1H forecasts. However, the company intends to focus on
marketing in FY04/15, and has forecast zero operating profit. The timing of marketing initiatives may
affect the balance of profit between 1H and 2H. So the company has only released full-year forecasts for
FY04/15. According to the company, it will likely book profits in Q1, but expects profits to fall from Q2 as
costs rise. It appears the company expects these initiatives will cause a turnaround in earnings the
following year.
From FY04/14, ZAPPALLAS has focused on attracting customers by driving up page views of in-house
media, in place of the earlier strategy of using advertising to attract customers. The company appears to
have achieved its target, with 24.5mn page views in FY04/14. In addition, in the contents segment
smartphone sales overtook feature phone sales for the first time in Q3 FY04/14.
ZAPPALLAS aims to make further inroads with its marketing strategy from FY04/15. It appears the
company considers about 100.0mn page views the benchmark for the new strategy—using in-house
media—to replace the old strategy of using advertising. In FY04/15, the company intends to build the
foundations of its future structure, and will do so by cutting costs and investing as necessary.
In FY04/15, ZAPPALLAS changed its reporting segments to reflect the new marketing strategy. The
company has various content categories aimed at women aged 20-34 (F1) and 35-49 (F2). Prior to
FY04/15, strategies were for everything from attracting users to monetization differed per content and
category. This approach hampered synergies between contents and categories. For example, users of
divination contents only paid fees on those contents. From FY04/15, ZAPPALLAS intends to focus on
different functions—customer appeal, analysis, and monetization—across different categories. The aim is
to maximize synergies across categories, and make content more appealing to the F1 and F2
demographics.
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One such function is attracting customers. In order to attract customers, the company aims to produce
quality, attractive media and increase page views by mass producing media for that purpose. Services for
attracting new users will focus solely on that, without attempting to monetize users. The company intends
to launch new smartphone media for the F1 and F2 demographics every month, starting July 2014. In
FY04/15, the company plans to release a total of 10 such new media.
Another function is analysis. The company aims to improve its capacity for analysis and recommend
content from across different categories to customers. The aim is to drive up LTV and lower the
acquisition cost per customer.
LTV: lifetime value. The total profit per user, calculated as the total each user spends on a single product or
company minus acquisition and other costs.
With regard to monetization, the company aims to improve the quality of existing contents and services
and offer new services with potential for a high average spend per customer. The company will focus on
developing quality content, but will not have different strategies for attracting customers per service. The
company divides target demographic services into two categories—romance (divination and romance
games) and mothers’ (e.g., education). The company plans to expand its range of content and
e-commerce offerings for these categories.
Outlook
When feature phones were popular, ZAPPALLAS grew earnings and successfully differentiated itself by
focusing on divination services. However, the spread of smartphones and fall in feature phone content
sales—an earnings’ driver—has forced the company to rethink its strategy. According to the company, the
quality of its contents and the monthly ARPU (average revenue per user) have remained constant. The
company’s former model for attracting customers focused on advertising through carriers. But the
company views the weakening of this model—which accompanied the spread of smartphones—as an
issue.
ZAPPALLAS aims to move away from advertising through carriers toward establishing its own contact
points with customers. The company uses page views of its own media to measure contact with
customers. From FY04/14, it has focused on increasing these page views as a means of creating more
contact points with customers.
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ZAPPALLAS' growth strategies
Source: Company materials
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Business
Business description
ZAPPALLAS runs a web-based business, mainly offering digital contents centered on divination. The
company excels in customer relationship management (CRM), i.e., accurately understanding and
analyzing users’ preferences and behavioral and psychological patterns based on their attributes, content
access log, and online activities. Utilizing such database, the company provides users with various types
of content and products via email publications, Internet advertising, etc.
The company was founded around the time of NTT DOCOMO Inc.’s (TSE1: 9437) i-mode launch (2000),
which it used to deliver many types of content. When it decided to list on the Tokyo Stock Exchange’s
Mothers market (listed in May 2005), the company narrowed its focus to divination because the topic
encouraged frequent visits to the company’s websites and presented an opportunity to create a valuable
database of accurate information that users themselves register online.
The company’s websites cover a wide range of divination genres. Broad categories include augury, which
uses randomly generated images from Tarot cards, for example, to divine how certain matters or
circumstances will develop. Other methods, such as astrology and the Four Pillars of Destiny, involve
inherent characteristics (such as birthdays) for divination.
Segments comprise contents (69% of FY04/14 sales), commerce (20%), overseas (6%), and other (5%).
Segment Results
FY04/10
FY04/11
FY04/12
FY04/13
FY04/14
Cons.
Cons.
Cons.
Cons.
Cons.
8,828
2,085
8,920
2,640
7,911
1,811
312
253
366
6,741
1,649
141
359
5,644
1,620
495
396
3,526
187
3,786
93
3,234
-85
-1
42
128
2,536
-71
-1
-285
1,948
-164
-78
-380
(JPYmn)
Sales
Contents
Commerce
Overseas
Other
Operating Profit
Contents
Commerce
Overseas
Other
Business model
Contents
The company plans, develops, and provides content targeted to users of feature phones, smartphones,
and PCs. ZAPPALLAS provides official content, i.e., the content that phone carriers and Internet service
providers (ISPs) have screened and approved.
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Feature phones are traditional mobile phones whose main function is telephone conversations; they may also
have cameras and “one-seg” TV-broadcasting capability. Smartphones are multifunction mobile terminals
that replicate many of the capabilities of PCs, such as iPhones and Android phones.
ZAPPALLAS uses pure advertisements or affiliate advertising to invite users to one of its websites. Pure
ads can be traditional or online formats, and the advertiser itself specifies the media to use (i.e., not
involving particular ad networks). Affiliate ads are Internet ads with fees based on the purchase of goods
or the number of clicks. Once on the website, users register as subscribers and receive daily content. The
content may be free or paid, though the free content is a gateway product for the paid content. Ideally,
users become paying members after using the free service, though some users are paying members from
the start.
Contents Business Transaction Flow
Divination, Decome
(Divination experts)
Divination experts
Source: Company data, SR Inc. Research
The company’s feature-phone services cost 300 yen per month, and charges appear on users’ phone bills.
The smartphone business model is slightly different, offering monthly and pay-as-you-go plans. Those
charges vary depending on the volume of items and individual menus that user’s access. The company
also pays fees to Google and Apple when it sells services through the App Store for iPhone and Google
Play for Android phones. Users become subscribers via natural inflows (users who seek out the service);
pure and affiliate advertisements; social media; and word of mouth.
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Smartphone-Based Service Member Inflow
Pure/Affiliate Ads
Via Ads
Feature Phone-Based Services
Natural Inflows
Other (Voluntary)
Links, email magazines, etc.
SmartphoneBased Services
CRM
Source: SR Inc. based on interview with ZAPPALLAS
For PC content, ZAPPALLAS has an agreement with Yahoo Japan Corp. (TSE1: 4689) that includes
charges for each use. The price points for PC content are higher than for mobile content. The company
pays fees to Yahoo, and because settlement is by credit card ZAPPALLAS also pays interchange fees to the
credit card providers. The company’s main users are the F1 demographic (females 20-34). Their usage
pattern starts with a “trigger” (trouble in work or love, for example) that prompts them to use, and
sometimes pay for, the service. Once the “trigger” has been resolved, most users stop for a while, but for
many, the next time a trigger occurs, they come back to use divination and other services. Average
monthly revenue from smartphone services is more than 300 yen, according to the company. In contrast,
a face-to-face interaction with a divination expert can cost several tens of thousands of yen per hour.
According to ZAPPALLAS, competitive advantages in its core divination services depend on the quality of
divination experts, how easily the divination expert communicates with customers, and the ability to
produce a high volume of content. Divination experts with high media exposure are popular, and the
brand power of the famous astrologers is enough to bring in customers, so it is important to obtain
popular prognosticators. It is common to market to and contract with divination experts who are just
starting to get media exposure, but the company sometimes takes fledgling seers and promotes them.
This also benefits the divination expert’s professional image, so there is a tendency to want to link up with
a large company. Accordingly, scale may serve as a barrier to entry and a differentiation factor.
The company updates fortunes daily, making timely content creation important. The company applies
algorithms to users’ characteristics in order to prepare a month’s worth of content (daily fortunes) for
each user in advance. ZAPPALLAS’s writers create the custom content, overseen by a divination expert.
Looking at ranking data for April 2014, users rate the company’s divination contents highly overall.
Smartphone Divination Site Ranking (as of January 2014)
1
2
3
4
5
6
7
8
9
10
Western Divination
Kyo-no-unsei DX
365 Tanjoubi Daisenjutsu
Ishii Yukari-no-Hoshiyomi
Renai-no-kamisama DX
Kagami Ryuji Senseijutsu
Ketsuekigata Aisho Shindan
Saigo-no-RyukyuYuta-Haru
Karin Hyakuman-nin kanrui salon
John Hayes Eikoku-Senseijutsu
Unmei-no-koi-uranai
1
2
3
4
5
6
7
8
9
10
Eastern Divination
Hosoki Kazuko Rokusei Senjyutsu
Smart Uranai DX
Kiseki-no-chikara◆Ueji Kazumi
Getters Iida-no-uranai
Shimada Shuhei Tesou uranai
Shichiyo◆Seimei-kantei
Anzai-ryu Kaiun-kantei
Shinjuku-no-haha
Hashimoto Kyomei, the Last Onmyoji
Okinawa-no-chichi◆Kiseki-kantei
1
2
3
4
5
6
7
8
9
10
Diagnosis & Psychology
☆Ehara Hiroyuki☆
Getters Iida-ryu
Kaiun Yume Shindan
Dōbutsu uranai
Otona-no-kankei
Dōbutsu Charanavi
Otokogokoro-no-hontō-to-uso
Spiritual Yume Shindan
Seikaku Bijin-no-hōsoku
Honmono-no-Shinri-Test
Source: Company data, NTT DOCOMO Menu List
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The company also creates and distributes “decome,” “standby displays,” and “lifestyle products” targeted
to female users in their 20s and 30s. “Decome” stands for “decorated email.” This product enables users
to insert colored fonts, still pictures, or animated images into their emails, something that was very
popular among feature-phone users. “Decome” sales growth is ebbing with the penetration of
smartphones. “Standby displays” display “standby apps”: custom background pictures (wallpaper), the
time, or calendars mainly on mobile phones when they are in standby mode. “Lifestyle products” are
digital content on topics other than divination, such as recipes, beauty products, etc. The lifestyle content
also has editors; for example, famous chef Tatsuya Kawagoe supervises recipe content. Offering such a
wide range of content maximizes customers’ lifetime value (LTV) because it allows the company to
provide user-oriented content and products online through effective CRM.
The company analyzes each customer’s psychological tendencies, behavioral trends, preferences, and
interests based on information collected from the websites (age, occupation, gender, hobbies) and usage
(usage history, action history). The company uses the findings to offer a broad range of content popular
among female users (e.g., divination, “decome,” “standby,” “lifestyle”) through email publications, online
ads, etc.
ZAPPALLAS Content Circulation Model
Expanding points of contact with users that do not depend on the device
Advertising
ZAP
mail
magazine
Menu
rankings
Services:
Facebook
ZAP
media
ZAP free
apps
New customers
Potential customers
(Free subscribers, withdrawn users, etc.)
ZAP
Content C
ZAP
Content A
ZAP
Content F
ZAP
Content D
ZAP
ContentＢ
ZAP
Content G
ZAP
Content E
Constructing wide-ranging CRM that is not limited by the
device or the fee format
The spread of smartphones has decreased monthly feature-phone service subscribers, though gradually.
On the other hand, monthly smartphone-service subscribers are steadily increasing with an increase of
monthly charged smartphone sites and new service menus (see Main Products in Main Businesses for
details). Smartphone sales have risen to over half of overall content sales (as of Q4 FY04/14).
Cost of sales in the Contents segment includes labor, royalties, outsourcing, and other expenses. At
24.4% of segment sales in FY04/14, it means high margins. As the divination results are basically text,
the service requires little bandwidth (low server costs) and simple programming (low software
development and running costs). The individual divination webpages are also inexpensive to develop,
feeding off standard development routines developed in-house and essentially replicated for each new
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site.
Contents Segment Costs (FY04/14)
Labor
6.2%
Cost of
sales
9.4%
34.5%
Outsourcing
Other
5.3%
Personnel
3.5%
2.2%
SG&A
23.1%
3.0%
Royalties
12.5%
Advertising
Collection
agency fees
Other
Operating profit
* Roy alties include those for editorial superv isors and rev enue shared w ith outsourced contributors.
S ource: C ompany data,
Advertising and promotion costs form the bulk of the segment’s SG&A expenses, and were 23.1% of
segment sales in FY04/14. The company says that it has kept customer-acquisition costs steady. In
smartphone services, Shared Research estimates that customer-acquisition costs are higher than for
feature-phone services.
Commerce
Commerce Segment Sales
(JP Ymn)
3,000
2,500
2,000
1,500
1,000
500
0
FY04/07 FY04/08 FY04/09 FY04/10 FY04/11 FY04/12 FY04/13 FY04/14
S ource: C ompany data
Commerce segment sales were JPY1.6bn (in FY04/14), about 20% of group sales.
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The company has undertaken a review of its Commerce segment portfolio, and sold off G-plus Co., Ltd.
(mobile phone sales business) in Q3 FY04/12. This resulted in a YoY segment sales decline in FY04/12.
The company’s mobile-commerce business is putting increasing emphasis on providing purchase
suggestions to individual customers, moving away from a traditional model in which shoppers search
online with specific products in mind. This segment is primarily composed of the online Fujimaki
Department Store, which offers product suggestions based on customers’ known interests and behaviors.
This is designed for shoppers seeking expert advice on what to purchase. The company is developing an
e-commerce service that fully utilizes detailed information on its customers to provide them with
suggestions on unique, high-value-added products.
Source: Fujimaki Department Store website
http://fujimaki-select.com/
Fujimaki Department Store’s producer and merchandiser is Yukio Fujimaki, a celebrity buyer who became
famous after launching several successful brands and businesses for Isetan, including Barney’s Japan,
Freedom Ward, and Re-Style. Fujimaki began his relationship with ZAPPALLAS after serving as an external
director at BXE, Inc., now a ZAPPALLAS subsidiary.
Fujimaki Department Store offers quality products made in Japan. Some well-crafted products are first
shipped to ZAPPALAS before they are sent to customer, while volume items are delivered directly to the
shopper. All items are shipped as Fujimaki Department Store products. The online store is a low-risk
business; the company sends an order to the manufacturer after the customer buys the product, thus
practically bearing no inventory risk. Shoppers make payments with a credit card and ZAPPALAS pays the
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manufacturer for the product. The difference becomes Fujimaki Department Store’s profit.
Fujimaki Department Store handled over 500 items as of end June 2014. According to the company, the
merchandise is mostly crafted in Japan and commands premium prices. ZAPPALLAS hopes to make the
store a successful model case and a material contributor to earnings while venturing into new genres,
such as a website for new mothers. Currently, the company does not have any inventory risk. However, it
believes that the next step is to start its own merchandising to increase profitability.
Commerce Segment Costs (FY04/14)
-10.1%
Cost of goods
Cost of
sales
17.2%
Shipping and
handling
Other
52.4%
4.1%
Personnel
3.3%
Advertising
8.5%
SG&A
Commission fees
Rent
19.3%
0.2%
1.9%
* Commission fees include sales and delivery commission fees.
Other
Operating profit
Cost of goods sold is a large portion of the Commerce segment’s overall expenses. As of FY04/14, there
was a great deal of up-front investment and expenses for business launches, so there were no profits. In
addition, popular e-commerce site Fujimaki Department Store ceased updates to its Facebook site for a
period following the passing of producer Yukio Fujimaki. For this reason, sales fell temporarily in Q4,
although the effect on group earnings was limited. The site restarted Facebook updates in May 2014.
According to the company, it will preserve Mr. Fujimaki’s style as it operates the site henceforth.
Overseas and others
Wholly-owned subsidiary Zappallas, Inc. offers divination contents in the US. Advertising revenue is the
main earnings driver for this subsidiary. In the others segment, the company takes orders for mobile site
development and telephone divination operations, sells advertising and operates free sites designed to
direct customers to paid content.
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Main content in the others segment
Logo
Name
Type
Details
Robamimi
Telephone divination
Listening, discussion, and divination services. Users speak
on the telephone to trained listeners and diviners,
allowing them to get pent-up complaints off their chest
and receive advice.
Free media
For those with love or marriage problems, and life or
work issues. Covers a range of popular free divination
services that offer users hints for how to eliminate
worries and stress in their life.
i-Muryo
Uranai
Main products
Noting users’ tendency to visit many different sites, ZAPPALLAS has expanded the number of sites it offers.
As of June 2014, the company offers products and services mainly focused on the F1 and F2 demographic
(women aged between 20 and 49).
Examples of contents sites
Logo
Name
Type
Details
This mobile divination site features Kazumi Uechi, a
clairvoyant who became famous after solving many
peoples' issues on television. She is said to hold
miraculous powers. On this site, she senses users'
subconsciousness and explains what lies beneath their
issues.
Kazumi Uechi:
Kiseki no
Chikara
Divination
365 Birthday
Horoscope
Divination
People birthdays may mean their destiny and personality
are different, even when they have the same star sign
and blood type. This site tells users their full potential
based on their birthday.
Tarot Uranai
Divination
The free version of a popular service that unlocks the
mysterious power of tarot cards. The series has a total of
3.8mn downloads.
Kid's Doctor
Educational game
An educational gamebased around doctors and hospitals.
Eternal Ring
PLUS
Romance game
A free romance simulation game for women. The app
version of a romance game for adults loved by 2mn
users.
In June 2012, the company established “cocoloni”, a divination content brand. In order to make the brand
top-of-mind among divination customers, ZAPPALLAS began offering the “cocoloni PROLO” website in
August 2012. This site combines divination and romance articles and is intended to attract new, light
users of its divination services.
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Logo of "cocoloni PROLO," a portal site
combining divination and romance
The company operates three e-commerce sites: the Fujimaki Department Store for smartphones and PCs
(described earlier in this report); Cuna Select, a specialty boutique offering goods for children and babies;
and STYLEST, a fixed fee womenswear e-commerce site.
Examples of commerce sites
Logo
Name
Description
Fujimaki Department
Store
An e-commerce site with a wide-ranging but select range
of bags, wallets, leather products, apparel, tableware,
food, and more. Items are presented alongside their history
and notes from their creators.
cuna select
An e-commerce site that maintains a specific focus and feel
to its products for both pregnant women and new mothers.
The site has a range of organic gifts for celebrating births
and other family occasions.
STYLEST
An e-commerce site that uses the fixed fee model popular
overseas. The items on offer are selected by top stylists,
with products at the height of their appeal offered for a
special "Happy Price."
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Profitability snapshot, financial ratios
Profit Margins
(JPYmn)
Gross Profit
Gross Profit Margin
Operating Profit
OP Margin
EBITDA
EBITDA Margin
Net Profit Margin
Financial Ratios
ROA
ROE
Total Asset Turnover
Inventory Turnover
Days of Inventory
Working Capital
Current Ratio
Quick Ratio
OCF / Current Liabilities
Net Debt / Equity
OCF / Total Liabilities
Cash Cycle (days)
Changes in Working Capital
FY04/10
Cons.
7,580
67.5%
3,016
26.9%
3,259
29.0%
13.7%
FY04/11
Cons.
7,800
66.0%
3,073
26.0%
3,528
29.9%
13.8%
FY04/12
Cons.
6,861
68.0%
2,584
25.6%
2,909
28.8%
15.7%
FY04/13
Cons.
6,118
68.8%
1,423
16.0%
1,998
22.5%
10.3%
FY04/14
Cons.
5,396
66.2%
722
8.9%
1,288
15.8%
4.6%
19.5%
25.5%
1.43
250.4
1.5
1,454
338.4%
334.3%
0.14
-56.5%
0.14
18.3
-280
19.9%
25.7%
1.45
128.5
2.8
1,971
393.4%
388.0%
0.96
-58.9%
0.93
25.8
517
17.4%
21.3%
1.11
89.3
4.1
1,786
537.7%
529.8%
1.03
-52.3%
1.18
39.3
-185
9.4%
11.3%
0.91
58.8
6.2
1,460
620.0%
595.1%
1.23
-40.0%
0.86
42.1
-326
3.7%
11.3%
0.81
34.3
10.6
1,276
581.9%
567.2%
1.16
-46.6%
0.79
38.5
-184
Gross profit excludes provision for return of sales.
Net Debt / Equity ratio based on net debt.
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Strengths and weaknesses
Strengths
 Strong earnings power: The company has developed rich content offerings focused on divination,
and has been operating websites efficiently through a standardization of business operations. As a
result, the company does not require significant capital expenditures, resulting in a stable and positive
free cash flow. Its stable profitability and financial soundness should make investments and
acquisitions easy options while lending the company immunity to external changes.
 Steady support from women in their 20s and 30s: Core users of the company’s services are
women in the F1 demographic, i.e., women aged 20-34 who are generally believed to spend more
than other demographics. The extensive database of registered user information, solid customer base,
and customer relationship management (CRM) expertise mean the company is likely offering profitable
services that these users probably like.
 Power to draw divination experts: In general, divination experts, chefs and other external
contributors want to hook up with large companies or website operators with many registered users
because they themselves want to stay profitable. For website operators, having popular contributors is
important as their popularity helps acquire users. The company has been successful in this area.
Weaknesses
 Dependence on feature phone platforms: The company had a high share in the feature-phone
divination content market. This used to be a strength, but the rapid spread of smartphones (since
FY04/13) has forced the company to rebuild its business model. Given its successful service offerings
in the past, it is likely that the company will be able to replicate the success in the smartphone era but
uncertainties loom.
 Existing businesses focusing on a niche market: The company’s focus on a niche market has
worked well. Conversely, this means the company is strong in limited areas. So, it remains uncertain if
the company will be able to use its specialized expertise for growing new businesses in untapped areas,
such as its Commerce segment that contributed minor earnings as of FY04/13.
 Current businesses relying on domestic market: Its domestic growth potential is limited, and
the company is seeking growth overseas through the use of its successful business models and
expertise on the domestic front. Up until FY04/12, the company focused on the Japanese market, so it
could face many hurdles overseas, such as obtaining local market information and overcoming
language barriers. Buying Daily Insight Group (DIG) in the US in December 2012 was a good step. It is
too early to tell whether this acquisition has been a success, but it appears to be progressing favorably
(June 2013). The company expects positive developments from this venture.
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Market and value chain
Market overview
The rapid spread of smartphones is driving significant change in the mobile contents market. According to
the Ministry of Internal Affairs and Communications, the mobile related market—comprising mobile
contents and commerce—grew 23.3% YoY in 2012, to JPY2.4tn. The chart below shows that smartphone
growth is driving robust growth in the market as a whole (source: Survey on the Structure of the Mobile
Contents Industry 2012, Ministry of Internal Affairs and Communications [August 2013]).
The mobile contents and mobile commerce markets
(JPYbn)
2,500
2,000
1,500
1,000
500
0
2006
2007
2008
Mobile contents (feature phones)
2009
2010
Mobile contents (smartphones)
2011
2012
Mobile commerce
Source: Ministry of Internal Affairs and Communications
The mobile contents market
The mobile contents market—part of the mobile related market—increased by 15.9% YoY in 2012, to
JPY851.0bn. The feature phone market contracted by 26.7% to JPY479.3bn; the smartphone market
grew by 4.6x, to JPY371.7bn. It appears the shift from feature phones to smartphones is accelerating in
the contents market, reflecting the spread of smartphones.
According to the survey referenced above, 2013 was the year that saw the spread of smartphones result
in significant changes to the mobile contents market. The mobile contents market shifted to a model
based on multiple platforms on global smartphone operating systems (iOS, Android), from the former
feature phone model of monthly fees on carriers’ public sites.
According to the survey, the feature phone divination contents market shrank by 32.2% to JPY12.2bn,
and its share of the total fell by 0.3pp to 2.5%. Shared Research estimates ZAPPALLAS’ share of this
market at about 30%.
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Feature phone divination market
(JPYbn)
250
200
150
100
50
0
2007
2008
2009
2010
2011
2012
S ource: C ompany data, M obile C ontent F orum data
Statistical methods differ in this survey for the feature phone and smartphone markets. The smartphone
market comprises four categories—games and social games, video, music, others—meaning data on
divination is undisclosed. According to the survey, growth in games and social games are largely
responsible for growth in the smartphone contents market overall.
Smartphone contents market
Type
2011
2012
YoY
Details
481
2607
442.0%
Paid contents such as online games and social
networking services. Includes avatars and
items available for sale.
Video
-
262
-
Video distribution contents for use on
smartphones
Music
-
198
-
Music contents for use on smartphones
Other
325
650
-
Total
806
3717
361.2%
Games and social
games
It appears smartphone users use content more frequently and have a higher spend per content. Looking
at the company’s sales, Shared Research thinks ZAPPALLAS is yet to take full advantage of demand from
smartphone users, despite the popularity of divination contents among women. Shared Research expects
the keys to future performance will be how many smartphone users the company can attract, and how
appealing it can make its divination contents.
The commerce market
The commerce market—part of the mobile related market—grew 28.0% YoY in 2012, to JPY1.5tn, aided
by growth in the services market. The breakdown is as follows:
 Goods sales: JPY687.8bn (+17.8% YoY)
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 Services: JPY628.1bn (+47.8%)
 Transactions: JPY183.8bn (+12.9%).
According to the survey, the spread of smartphones means a greater range of people are using mobile
commerce in more situations. This is due to smartphones’ expressiveness—on a par with PCs—and the
ability to use them in any place at any time, like a mobile phone.
The mobile commerce market
(JPYbn)
1,600
1,200
800
400
0
2007
2008
2009
Tranactions
2010
Services
2011
2012
Goods sales
Customers
About 70% to 80% of the company’s contents segment customers are women aged 20-49 (the F1 and F2
demographics).
Suppliers
The company has over 100 external divination experts who supervise the company’s content production.
It is important to secure the services of many prognosticators, especially those who receive media
exposure. In the Commerce segment, the company’s suppliers are manufacturers of a wide variety of
products, from food to apparel.
Barriers to entry
External contributors, such as divination experts and chefs tend to prefer to work with websites that have
large numbers of customers, so scale is an effective way to sign them up and becomes an entry barrier
and point of differentiation. However, the barriers to entry for the Commerce segment are low. The
company is well aware of this and is developing a “shopping guru” suggestion-based model to avoid
competing on price.
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Competition
The company boasts a mobile divination content market share of about 30% (source: company data,
“2011 mobile content related market size”). Its competitors include Media Kobo Inc. (TSE Mothers: 3815),
MTI Ltd. (JASDAQ: 9438), and Pocke, Inc. (a subsidiary of Bellsystem24 Inc.). Media Kobo is trying to
specialize in divination content, but its sales are about 25% of ZAPPALLAS’s (FY2012).
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Historical financial statements
Q3 FY04/14 Results (announced on March 7, 2014)
The company also made revisions to its full-year forecasts for FY04/14.
Results in cumulative Q3 FY04/14 were as follows.
For cumulative Q3 FY04/14, sales were JPY5.8bn (-12.3% YoY), operating profit was JPY459mn (-61.7%),
recurring profit was JPY500mn (-62.7%), and net income was JPY319mn (-73.4%). In Q3 alone
(November 2013–January 2014), sales were JPY1.9bn (-5.2% QoQ), and operating profit was JPY190mn
(+4.3%).
The fall in sales in Q3 was attributable to a decline in wholesale operations at BxE, a subsidiary, and a fall
in subscribers to feature phone services in the Contents segment. However, operating profit rose QoQ as
the company cut back on promotional and marketing expenses.
Q3 only (November 2013-January 2014) sales in the Contents segment were JPY1.4bn (-3.7% QoQ);
segment profit was JPY503mn (+17.8%).
In the segment, shifting from services for feature phone users to those for smartphone users has
continued. Sales in the segment decreased due to the fall in the number of subscribers to feature phones.
However, as 3Q sales from subscribers to smartphones surpassed those from subscribers to feature
phones for the first time ever, the momentum in the segment is expected to improve.
Content Business Sales By Device
To attract smartphone users, the company is working to increase its contact points with potential
customers. This specifically involves such measures as increasing page views on major media sites and
building up “Likes” on its Facebook pages. Sites launched by the company last year targeting women are
steadily building user traffic. At end-January 2014, page views on major media sites were around 1.6x the
level as of end-October 2013, to total approximately 11 million. The number of “Likes” received on
Facebook was more than double the level in October 2013, reaching around 700,000. Partly due to a rise
in sales of applications to smartphones, the ratio of paid services for each user has been rising and the
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shifting from feature phones to smartphones has steadily been advancing.
In terms of costs, communication fees and other expenses decreased as the company shifted data
centers, and marketing and promotional costs also declined (mainly in the feature phone market).
*
For the period form April 2013 to January 2014
** PVs for primary media are the total for i-Muryo Uranai (PC/SP) and cocoloni PROLO (PC/SP).
*** The number of Facebook "Likes" is the total for i-Muryo Uranai and cocoloni PROLO .
In the Commerce segment, sales were JPY308mn (-16.1% QoQ), and segment loss was JPY75mn
(against a segment loss of JPY68mn in Q2).
Wholesale operations at BxE, a subsidiary under the segment that handles wholesale and retail
businesses for natural cosmetics, decreased due to delayed launches of new products like a shampoo.
The e-Commerce business also saw a continuous decline in mobile commerce sales, although sales at
Fujimaki Department Store (an e-commerce site launched by Zappallas in FY04/13) and STYLEST (a
fashion e-commerce site) both continued to rise. The overall result was that the Commerce segment’s
operating loss widened.
While STYLEST apparently continued high growth, the growth rate of Fujimaki Department Store was
slowing because of expansion of the business size and emergence of advertising costs, but the sales
amount kept rising stably, totaling JPY90mn (against JPY86mn in Q2).
In the segment, the company continued to increase the staff to strengthen the business base and
improve sales and administrative operations from the beginning of the quarter. As a result, sales rose in
line with increased advertising revenue, but the segment loss remained at the same level.
Q2 (1H) FY04/14 Results (announced on December 6, 2013)
The company maintained its full-year forecasts for FY04/14.
For 1H FY04/14, sales were 3.9 billion yen (-14.8% YoY), operating profit was 268 million yen (-70.5%
YoY), recurring profit was 253 million yen (-72.6% YoY), and net income was 158 million yen (-73.4%
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YoY).
In Q2 alone (August–October 2013), sales were 2.0 billion yen (+7.2% QoQ), operating profit was 93
million yen (-46.9% QoQ). The increase in sales in Q2 was attributable to higher sales in the Commerce
segment and a bottoming out in the Contents segment, which had been on a declining trend. However,
operating profit declined due to upfront investments in the Contents segment, such as advertising and
personnel expenses.
Looking at 1H performance by segment, Contents segment sales were 2.9 billion yen (-16.3% YoY), and
segment profit was 1.0 billion yen (-28.7% YoY).
The rate of sales contraction for feature phone services is gradually tapering off. Conversely, sales of
smartphone services are steadily increasing. On a quarterly basis, Q2 Contents segment sales stayed at a
similar level to Q1.
To attract smartphone users, the company is working to increase its contact points with potential
customers. This specifically involves such measures as increasing page views on major media sites and
building up “Likes” on its Facebook pages. Sites launched by the company last year targeting women are
steadily building user traffic. At end-October 2013, page views on major media sites were more than
double the level six months earlier, at approximately 7 million. The number of “Likes” received on
Facebook was about seven times the level six months earlier, reaching 350,000.
In the Commerce segment, sales were 618 million yen (-34.0% YoY), and segment loss was 161 million
yen (1 million yen segment profit in 1H FY04/13).
The decrease in sales in the Commerce segment in 1H was attributable to the continuing decline in sales
through existing mobile commerce sites. However, sales in Q2 (August–October 2013) were around 50%
higher than in Q1 (May–July 2013). This increase was due to a rise in wholesale sales by e-commerce site
BxE, which launched new products in its organic cosmetics business. Although the rate of growth slowed
for sales at Fujimaki Department Store—an e-commerce site launched by Zappallas in FY04/13—on a
quarterly basis, sales are still growing at double-digit pace year-on-year. In Q2, the gross profit margin in
the Commerce segment was 48% (Q1: 49%). This fall was attributable to an increase in low-margin
wholesale sales at subsidiary BxE, Inc.
In the Overseas, segment, sales were 236 million yen and segment loss was 40 million yen. Daily Insight
Group (DIG)—under subsidiary Zappallas, Inc. (US)—offers divination content services. In 1H, DIG
increased hiring while strengthening sales and management functions. The company’s US divination
business mainly derives revenues from advertising. However, the company has been implementing new
initiatives such as introducing some of its pay-as-you-go Japanese contents to the US market.
In the Others segment, sales were 106 million yen (-14.7% YoY), and segment loss was 235 million yen
(122 million yen loss a year earlier). The company focused on the development of mobile websites on
consignment, the operation of Y! Suica and other sites, advertising sales, and the operation of new media.
The company also worked aggressively to develop new services. Consequently, segment loss increased as
the company booked higher expenses to attract smartphone customers.
Sales in 1H fell 180 million yen short of company estimate. Despite the sales shortfall, operating profit,
recurring profit, and net income were about 100 million yen higher than estimates. The sales shortfall was
due to a delay in the rollout of new services However, according to the company, the impact on profit was
negligible since the company had not expected the new services to contribute to profit during 1H. The
better-than-expected profits were mainly due to lower-than-expected costs for building a business model
to draw in more smartphone users to the company’s websites. In 2H, the company plans to continue
strengthening services aimed at smartphone users, and allocate spending in the Commerce segment to
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promotion expenses and increased personnel.
Q1 FY04/14 Results (announced on September 6, 2013)
For Q1 FY04/14, the company achieved sales of 1.9 billion yen (-20.6% YoY), operating profit of 175
million yen (-70.9% YoY), recurring profit of 152 million yen (-74.9% YoY), and net income of 86 million
yen (-75.2% YoY). Management has maintained its full-year FY04/14 earnings forecast. In the Contents
segment, sales were 1.5 billion yen (-17.1% YoY) and segment profit was 589 million (-23.5% YoY).
As mobile users continue to move from feature phones to smartphones, the company worked to cultivate
media that is not device-dependent to attract customers, and sales from smartphone services increased
174% YoY. As a measure to increase contact points to attract customers, the company developed its own
sites, including “iMuryo Uranai” and “cocoloni PRORO,” as part of efforts to acquire new customers. As a
result, in Q1 FY04/14, the number of new smartphone subscribers based on customer relationship
management (CRM) (via links, mail magazines, etc.) exceeded the number of new feature phone
subscribers through CRM. By expanding the menu of pay-as-you-go content for smartphone users,
pay-as-you-go sales rose to account for 26.4% of total segment sales. Furthermore, in July 2013, the
company began offering packaged products comprising pay-as-you-go menus for applications. Based on
the company’s plan to aggressively launch products from Q2 onward, Shared Research anticipates
increases in pay-as-you-go sales. The company plans to make its content circulation model
non-device-dependent and build a CRM system covering a diverse array of services.
Although sales from feature phone services continued to decrease, the rate of decrease slowed. This
trend appears to be continuing in the current quarter (Q2), and it seems likely to bottom out in the near
future.
In the Commerce segment, sales were 251 million yen (-52.5% YoY) and segment loss was 83 million yen
(70 million segment profit in Q1 FY04/13). Although sales at existing mobile commerce sites declined,
sales grew at its e-commerce web site, Fujimaki Department Store, reflecting the success of promotional
programs using Facebook. The company plans to focus on generating further growth at Fujimaki
Department Store (September 2013). At subsidiary BxE, Inc., although sales declined YoY due to the
absence of new product launches, sales were in line with the company’s plan.
In the Overseas segment, sales were 110 million yen and segment loss was 32 million yen. Subsidiary
Zappallas, Inc. (US) completed the acquisition of divination content provider Daily Insight Group (DIG) on
December 14, 2012. Accordingly, ZAPPALLAS included DIG in its consolidated accounts from Q3
(November 2012–January 2013). During Q1 FY04/14, in addition to bolstering headcount to strengthen
the organization, the company also reinforced sales and management operations. Although the US
divination business mainly derives revenues from advertising, the company has begun to offer a portion
of its pay-as-you-go content from Japan in the US market as a new initiative. DIG principally offers
content for PCs, but page views are declining. In response, DIG is working to expand its site for mobile
devices.
In the Others segment, sales were 50 million yen (-25.3% YoY), and segment loss was 117 million yen
(39 million yen loss in Q1 FY04/13). The company developed mobile websites under contract, operated
such sites as Y! Suica, and worked to generate advertising revenues at its Zenryaku Profile website, which
mainly targets junior high and high school students. The company also focused on managing new web
sites and the development of new services.
Although Q1 profits are already ahead of the company’s 1H forecasts, the company anticipates the outlay
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of various expenses from Q2 onward relating to the strengthening of its smartphone services and
increased promotion and labor expenses in the Commerce segment.
FY04/13 Results (announced on June 13, 2013)
Sales and Gross Profit
For FY04/13, consolidated sales were 8.9 billion yen (-11.9% YoY).
In the Contents segment, the company aggressively launched new contents and a wider range of
pay-as-you-go items and services, aimed at acquiring new users as many mobile phone users were
increasingly switching from feature phones to smartphones. For FY04/13, the company launched 191
mobile websites (for both feature phones and smartphones) and 110 websites for PC users. On the other
hand, revenues in its mainstay Contents segment deteriorated due to a change in business environment
(decline in monthly subscribers of official contents for feature phones). As a result, sales in the Contents
segment were 6.7 billion yen (-15.4% YoY).
As of the end of Q4, the company continued to increase its smartphone subscriber base, which totaled
358,000 subscribers (324,000 a year earlier). On the other hand, subscribers of feature-phone services
fell to 1.0 million (1.1 million a year earlier), continuing a downward trend. The overall trend in net
subscribers for its smartphone and feature phone services have also been on a downward trend, but the
pace of decline appears to have bottomed.
In the Commerce segment, the company strengthened its product lineup, and expanded operations of a
new e-commerce website that it launched in FY04/13. Sales from the “Fujimaki Department Store”
website steadily grew due to better recognition and product lineup. However, growth was somewhat
sluggish for new e-commerce websites, such as “Cuna Select” (baby goods), which caused mobile
commerce sales to continue to decline. As a result, sales in the Commerce segment were 1.7 billion yen
(-8.9% YoY).
In the overseas business, subsidiary Zappallas, Inc. (US) completed the acquisition of divination content
provider Daily Insight Group (DIG) on December 14, 2012. Accordingly, ZAPPALLAS included DIG in its
consolidated accounting from Q3 (from November 2012 to January 2013). In fact, the company formed a
new Overseas segment, which had sales of 140 million yen (120 million yen in Q4). The company began
implementing initiatives to generate synergy from its domestic and US operations.
In the Others segment, the company continued to focus on generating advertising revenues via its
Zenryaku Profile website targeted at middle- and high-school students, developed mobile websites on
consignment, and conducted website operations such as Y! Suica. In addition, the company was
accelerating the development of new websites and services. As a result, segment sales were 410 million
yen (+10.9% YoY).
Operating Profit (Operating Profit Margin)
For FY04/13, consolidated operating profit was 1.4 billion yen (-44.9% YoY). By segment, the Contents
segment achieved an operating profit of 2.3 billion yen (-28.0% YoY); the Commerce segment posted an
operating loss of 71 million yen (85 million yen loss a year earlier); the Overseas segment had an
operating loss of one million yen (after write-down of goodwill); and the Others segment recorded an
operating loss of 70 million yen (130 million yen profit a year earlier). The company substantially
increased advertising placements (i.e., higher advertising expenses) in the Contents segment, as more
mobile-phone users were switching to smartphones. In the Commerce segment, it delayed the launch of
new services and had a high level of start-up expenses. In the Overseas segment, the company
strengthened its organizational structure and increased the number of staff during Q4.
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Operating profit was in line with the company’s downward revised forecast (1.4 billion yen) announced
following Q3 business results.
Recurring Profit
Despite recording a 220 million yen gain from foreign currency exchange gains (from its overseas
subsidiary), recurring profit declined 36.1% YoY to 1.7 billion yen.
Net Income
Consolidated net income was 920 million yen (-41.9% YoY) for FY03/14. The company booked an
impairment loss of 270 million yen that contributed to the significant decline over the previous year.
Q3 FY04/13 Results (announced on March 8, 2013)
Sales and Gross Profit
In the cumulative Q3 FY04/13 period, consolidated sales were 6.6 billion yen (-14.0% YoY). The YoY
decline in sales was due to lower sales in the core Contents segment in connection with changes in
operating conditions and the launch of a new website during the period following the review of product
lineups in the Commerce segment.
In the Contents segment, ZAPPALLAS continued to launch new contents and a wider range of
pay-as-you-go items and services. These launches were aimed at acquiring new users as many
mobile-phone users were increasingly switching from feature phones to smartphones. Over the
cumulative Q3 period, the company launches 191 mobile websites (for both feature phones and
smartphones) and 75 websites for PC users. As a result, sales in the Contents segment were 5.1 billion
yen (-14.0% YoY).
In the Commerce segment, ZAPPALLAS focused on handling high-value-added merchandise. While
strengthening the product lineups, the company was expanding the operation of the new e-commerce
website that it launched in FY04/13. Sales from the “Fujimaki Department Store” website were steadily
growing due to better recognition and product lineups. However, start-up for new e-commerce websites,
such as “Cuna Select” (baby goods) were delayed, while mobile commerce sales continued to decline. As
a result, sales in the Commerce segment were 1.3 billion yen (-19.1% YoY).
In the overseas business, subsidiary Zappallas, Inc. (US) completed the acquisition of divination content
provider Daily Insight Group (DIG) on December 14, 2012. Accordingly, ZAPPALLAS included DIG in its
consolidated accounting from this Q3. In fact, the company formed a new Overseas segment, which had
Q3 sales of 20 million yen. The company began implementing initiatives to generate synergy from its
domestic and US operations.
In the Other segment, ZAPPALLAS continued to focus on generating advertising revenues via its Zenryaku
Profile website targeted at middle- and high-school students, developing mobile websites on consignment,
and conducted outsourced website operations. In addition, the company was accelerating the
development of new websites and services. As a result, segment sales were 210 million yen (+18.0%
YoY).
Operating Profit (Operating Profit Margin)
In the cumulative Q3 period, consolidated operating profit was 1.2 billion yen (-41.3% YoY). By segment,
Contents had operating profit of 1.9 billion yen (-23.7% YoY); Commerce posted operating loss of 35
million yen (12 million yen loss a year earlier); Overseas had operating profit of two million yen; and Other
recorded operating loss of 102 million yen (66 million yen profit a year earlier). In the Contents segment,
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the company was substantially increasing ad placements (i.e., higher ad expenses) as more mobile-phone
users were switching to smartphones. In the Commerce segment, the company delayed the launch of
new services and had a high level of upfront expenses.
Recurring Profit
The company booked 130 million yen in forex gains (non-operating income at an overseas subsidiary).
Mainly due to this, cumulative Q3 consolidated recurring profit was 1.3 billion yen (-34.6% YoY).
Net Income
Consolidated net income was 890 million yen (-28.7% YoY) for the cumulative Q3 period. The YoY decline
for net income was smaller than for recurring profit mainly due to the impairment loss of 46 million yen
booked a year earlier.
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Income statement
Income Statement
(JPYmn)
Sales
Contents
YoY
Commerce
YoY
Overseas
YoY
Other
YoY
Total Sales
YoY
CoGS
Gross Profit
YoY
GPM
Provision for Sales Return
Reversal of Provision for Sales Return
Net Gross Profit
SG&A
SG&A / Sales
Operating Profit
YoY
OPM
Non-Operating Income
Non-Operating Expenses
Recurring Profit
YoY
RPM
Extraordinary Gains
Extraordinary Losses
Tax Charges
Implied Tax Rate
Minority Interests
Net Income
YoY
Net Margin
FY04/10
Cons.
FY04/11
Cons.
FY04/12
Cons.
FY04/13
Cons.
FY04/14
Cons.
8,828
9.3%
2,085
7.6%
8,920
1.0%
2,640
26.6%
7,911
-11.3%
1,811
-31.4%
312
7.1%
11,225
8.9%
3,644
7,580
13.6%
67.5%
7,580
4,565
40.7%
3,016
11.3%
26.9%
40
15
3,041
12.8%
27.1%
2
322
1,177
43.2%
12
1,532
-3.1%
13.7%
253
-18.8%
11,813
5.2%
4,014
7,800
2.9%
66.0%
7,800
4,726
40.0%
3,073
1.9%
26.0%
19
3
3,090
1.6%
26.2%
7
233
1,233
43.1%
4
1,626
6.1%
13.8%
366
44.6%
10,088
-14.6%
3,228
6,861
-12.0%
68.0%
32
14
6,843
4,259
42.2%
2,584
-15.9%
25.6%
18
7
2,594
-16.0%
25.7%
56
98
970
38.0%
3
1,579
-2.9%
15.7%
6,741
-14.8%
1,649
-9.0%
141
359
-1.9%
8,890
-11.9%
2,771
6,118
-10.8%
68.8%
10
6,129
4,706
52.9%
1,423
-44.9%
16.0%
239
7
1,655
-36.2%
18.6%
0
296
428
31.5%
14
917
-41.9%
10.3%
5,644
-16.3%
1,620
-1.7%
142
396
10.3%
8,155
-8.3%
2,760
5,396
-11.8%
66.2%
17
5,379
4,656
57.1%
722
-49.2%
8.9%
69
39
752
-54.5%
9.2%
13
44
329
45.6%
17
376
-59.0%
4.6%
FY04/15
Est.
7,500
-8.0%
0
-100.0%
0.0%
0.0%
0.0%
-13
-
ZAPPALLAS changed its structure, meaning some content formerly included in the content segment is now included in the others
segment.
Reporting segments for data for FY04/13 are based on the new segment divisions (after the change above).
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Balance sheet
Balance Sheet
(JPYmn)
ASSETS
Cash and Equivalents
Marketable securities
Accounts Receivable
Allowance for Doubtful Accounts
Inventories
Deferred Tax Assets
Other Current Assets
Total Current Assets
Buildings
Equipment, Plant
Total Tangible Fixed Assets
Investments
Deferred Tax Assets
Other
Total Other Fixed Assets
Software
Goodwill
Other
Total Intangible Assets
Total Fixed Assets
Total Assets
LIABILITIES
Accounts Payable
Other Accounts Payable
Accrued Bonuses
Short-Term Debt
Income Taxes Payable
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Other Fixed Liabilities
Total Long-Term Liabilities
Total Interest Bearing Debt
Total Liabilities
Shareholder Equity
Issued Capital
Reserves
Retained Earnings
Treasury Stock
Total Other Comprehensive Income
Share Warrants
Minority Interests
Total Shareholder Equity (Net Assets)
Working Capital
Interest-Bearing Debt
Net Debt
FY04/10
Cons.
FY04/11
Cons.
FY04/12
Cons.
FY04/13
Cons.
FY04/14
Cons.
3,278
503
1,918
-31
17
141
54
5,880
95
48
144
697
133
222
1,052
212
214
42
468
1,664
7,544
4,084
603
2,413
-36
46
100
55
7,264
82
55
137
629
189
224
1,042
244
49
38
331
1,510
8,774
4,296
504
2,092
-30
27
132
78
7,098
66
109
175
608
194
250
1,053
468
586
38
1,092
2,320
9,417
4,189
504
1,697
-15
68
80
202
6,724
59
79
137
500
226
124
850
369
1,992
53
2,415
3,402
10,126
4,577
504
1,560
-13
93
77
81
6,879
41
89
129
493
209
149
864
193
1,943
48
2,185
3,178
10,057
480
346
635
276
1,738
0
1,738
487
537
51
646
126
1,846
0
1,846
332
485
32
349
122
1,320
63
1
64
95
1,384
304
454
191
0
135
1,085
631
1
632
821
1,716
377
292
184
132
197
1,182
484
1
485
668
1,667
1,446
1,371
4,436
-1,496
0
49
5,806
1,454
0
-3,278
1,452
1,378
5,543
-1,496
-2
52
6,928
1,971
0
-4,084
1,458
1,384
6,600
-1,496
0
38
48
8,033
1,786
95
-4,202
1,464
1,390
6,953
-1,419
-41
63
8,410
1,460
821
-3,368
1,476
1,402
6,799
-1,419
53
79
8,390
1,276
668
-3,909
Dividends
ZAPPALLAS distributes year-end dividends and has a payout-ratio target of 30% of non-consolidated net
income. However, the company expects a net loss in FY04/15, and thus has not disclosed a year-end
dividend target.
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Other information
History
2000
Founded as Cyber-Biz Inc. (now ZAPPALLAS, INC.). Started B-to-C e-commerce business through
mobile-content planning, creation, development, and operation for third parties. Digital content business
started with the launch of official i-mode content (Standby Display Gallery).
2001
Changed company name to ZAPPALLAS, INC.
2004
Launched a divination website and began supplying digital content to PC users.
2005
Listed on the TSE Mothers market. Launched the first free i-mode divination site, i-Free Fortunetelling.
Began distributing EZweb’s first completely free divination portal site, Kanzen Otameshi Uranai 2006.
Made G-plus Co., Ltd. (a mobile phone retailer) a consolidated subsidiary.
2006
Formed business alliances with East Japan Marketing & Communications, Inc. and Connect Technologies
Corp., and began providing “Suica.jp” service. Made Ares & Mercury Co., Ltd. (a company involved in
planning, development, and production of mobile contents) a subsidiary (now a 48.6% owned
equity-method affiliate). Formed capital and business alliance with Transcosmos, Inc. to develop new
lines of business in the mobile space.
2007
In cooperation with Yahoo Japan Corp., began operating mobile Yahoo! divination service.
2008
Launched Pocket Market comprehensive shopping site.
2009
Listing transferred to TSE First Section. Launched iPhone app “Today’s Star Fortune” together with
Transcosmos and Ares & Mercury. Together with JR East, Yahoo Japan, and East Japan Marketing &
Communications, launched Y! Suica, a mobile website exclusively for users of Suica (rechargeable
contactless smart card). Launched Tarot Uranai, a divination application for iPhone and Android.
2010
Launched divination i-mode app Docomo Market. Launched English and Chinese versions of Tarot Uranai
Premium product on global market through App Store.
2011
Launched portal site “cocoloni Honkaku Uranaikan” for PCs, a collection of ZAPPALLAS’s most popular
divination sites. Acquired BXE Inc., which plans, develops, and sells organic cosmetics.
2012
Acquired Zenryaku Profile from Rakuten, Inc. After management review, divested G-plus Co., Ltd.
Established wholly owned subsidiary Zappallas, Inc. (US), which acquired Daily Insight Group (divination
content provider) from NameMedia, Inc.
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2013
Launched a divination service in English featuring the Japanese divination expert, Ryuji Kagami. The
company also launched a Japanese-version of “Tarot.com” operated by Daily Insight Group (DIG), an
affiliate of Zappallas, Inc., its US subsidiary.
News and topics
June 2013
On June 20, 2013, the company announced a stock split and revised its dividend forecast for FY04/14.
The company will execute a 100-for-1 stock split effective October 31, 2013, and changed its trading unit
from one share to 100 shares. The company also stated that it will likely distribute a year-end dividend of
22 yen per share, compared with its previous forecast of 2,200 yen. Despite the change in trading unit,
the amount of the year-end dividend distribution remains unchanged from the previous year.
Major shareholders
Top Shareholders
Mari Kawashima
BBH For Fidelity Puritan TR: Fidelity Sr Intrinsic Opportunities Fund
Crimson Group, LLC
BARCLAYS CAPITAL SECURITIES LIMITED
JP Morgan Chase Bank 385093
The Master Trust Bank of Japan, Ltd. (Trust Account)
Japan Trustee Services Bank, Ltd. (Trust Account)
The Chase Manhattan Bank NA London
Japan Trustee Services Bank, Ltd. (Trust Account 1)
Japan Trustee Services Bank, Ltd. (Trust Account 6)
Amount
Held
21.33%
8.05%
4.89%
2.21%
1.28%
1.05%
1.05%
0.99%
0.86%
0.83%
As of April 2014
Top management
President & CEO Mari Tamaki (born 1969) established Dial Q network in 1989 (CEO). After setting up
Family-Biz, Inc. (CEO) in 1994, she joined InterQ Co., Ltd. (now GMO Internet, Inc.) as a director. Ms.
Tamaki established Cyber-Biz Inc. (now ZAPPALLAS, INC.) in 2000 as the representative director.
Although she stepped down from the advisor post in 2007, she was once again appointed as president &
CEO in 2011.
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Company profile
Company Name
ZAPPALLAS, Inc.
Head Office
2-12-19 Shibuya Shibuya-ku
Tokyo, Japan 150-0002
Phone
Listed On
+81-3-6434-1036
Established
March 27, 2000
Website
http://www.zappallas.com/en/
IR Web
http://www.zappallas.com/en/index.php?action=index&
module=irweb
Tokyo Stock Exchange 1st Section
Exchange Listing
May 27, 2005
Fiscal Year-End
April
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SR Research Report
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