Financial

FY2017 4Q Result Presentation

3 August 20178 pages3,921 words

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GREE, Inc. reported its fiscal year 2017 fourth-quarter results, highlighting a successful turnaround of its game business and a strategic shift toward global distribution. For the full year, the company achieved net sales of ¥65.4 billion and an operating income of ¥8 billion. The fourth quarter saw quarter-on-quarter growth with ¥19.2 billion in net sales and ¥2.4 billion in operating income, driven by the successful launch of four native games—including Another Eden and SINoALICE—all of which reached the top 20 rankings. A primary finding is the completion of a strategic pivot in overseas operations. The company decided to close international subsidiaries and consolidate all game development within Japanese studios to focus on global distribution. This transition resulted in a one-time extraordinary loss of approximately ¥6 billion due to asset write-downs and closure costs. Despite these charges, the company restored a double-digit operating income margin and reported that native games now account for more than half of total coin consumption, which reached a target of 10 billion coins. The outlook for fiscal year 2018 emphasizes a medium-term growth strategy centered on three pillars: game engines, intellectual property (IP), and global distribution. By reusing technical bases across different titles, the company aims to reduce development costs and increase investment in content quality. The pipeline includes six approved titles, with a focus on balancing first-party, co-developed, and third-party IPs. Additionally, GREE plans to expand its advertising and media business as a second major earnings pillar, focusing on high-retention apps and video production. While net sales are forecast to grow to ¥20.5 billion in the next quarter, operating income is expected to decline temporarily due to aggressive front-loaded investments in marketing and promotion to ensure long-term sustainability.

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FY2017 Fourth Quarter Financial Results

Fiscal year 2017 marked a significant strategic turnaround for GREE, characterized by a successful transition toward native mobile gaming and a robust recovery in financial performance. The company reported annual net sales of ¥65.4 billion and operating income of ¥8.0 billion, figures that exceeded initial projections. This growth was primarily driven by a fourth-quarter release blitz where four new native titles reached the top 20 sales rankings. Consequently, quarterly coin consumption surged to 21.5 billion, with native games surpassing 50% of total consumption for the first time. This shift underscores a fundamental evolution in the revenue model from legacy web-based games to modern mobile applications. The operational focus for the upcoming 2018 fiscal year centers on a Japan-based global development model, leveraging established intellectual property and a proprietary game engine to scale international operations. Plans include the release of six new titles and aggressive upfront investments to solidify this global footprint. Beyond core gaming, there is a concerted effort to diversify earnings through the expansion of advertising and media segments, supported by high-quality video production and strategic joint ventures like Library Cross Infinite. These initiatives aim to establish a secondary pillar of profitability alongside the revitalized game business. Financial stability remains a cornerstone of the corporate strategy, as evidenced by a strong cash position of ¥82.38 billion at the close of the fiscal year. While native game consumption saw temporary fluctuations earlier in the period due to title transfers, the year ended with high momentum and a workforce of 1,463 employees concentrated in Japanese development hubs. Projections for the first quarter of fiscal year 2018 anticipate net sales of ¥20.5 billion, reflecting continued confidence in the current release pipeline and the long-term viability of the multi-genre investment strategy.

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FY2018 4Q Financial Results Presentation Transcript

This transcript details the financial results for GREE, Inc. for the fourth quarter and full fiscal year ending in 2018. The primary thesis of the presentation is that the company has successfully transitioned from a period of declining sales to a growth phase driven by a three-pillar strategy: mobile gaming, advertising and media, and the emerging live entertainment sector. For the full fiscal year 2018, the company reported net sales of 77.9 billion yen and an operating income of 9.4 billion yen, marking the first increase in both sales and profit in six years. Fourth-quarter sales reached 19 billion yen with an operating income of 1.6 billion yen. While sales grew quarter-on-quarter, operating income was impacted by aggressive investments in growth businesses and an impairment loss on goodwill related to the acquisition of Three Minutes. To celebrate its 10th anniversary and reflect this return to growth, the company issued a commemorative dividend, bringing the total annual dividend to 14 yen per share. The game business remains the company's foundation, with key titles like SINoALICE and Another Eden showing strong performance through reinforced operations and one-year anniversary events. A significant portion of the growth strategy involves global expansion; for example, the North American release of DanMachi increased its business scale by 1.5 to 2 times. Looking toward FY2019 and beyond, the company plans to release four to five titles annually and expand existing IPs into multi-platform environments, including Nintendo Switch and Facebook Instant Games. The company is also heavily prioritizing its new live entertainment pillar, specifically focusing on the Virtual YouTuber (VTuber) ecosystem. This includes a planned 10-billion-yen investment and the establishment of a dedicated subsidiary, Wright Flyer Live Entertainment. Simultaneously, the advertising and media segment is being developed to create one of Japan’s largest vertical media portfolios. The geographic scope is primarily Japan, with increasing emphasis on North American, European, and Chinese markets.

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GREE, Inc. reported its financial results for the first quarter of fiscal year 2018, ending June 2018, highlighting a period of strategic transition and growth. The company achieved net sales of ¥21.6 billion and an operating income of ¥2.7 billion, marking four consecutive quarters of revenue growth. This performance was driven primarily by the successful release and operation of native mobile games and a stable browser-based business. While net income appeared lower year-on-year, the decline was attributed to a one-time ¥10 billion tax and profit effect from the previous year’s North American reorganization; excluding this, net income showed an upward trend. The company’s strategy focuses on three pillars: native game development, global expansion, and media operations. In the gaming segment, GREE is leveraging high-profile intellectual properties (IP) and engine-driven development. Key titles such as Another Eden and SINoALICE performed well, with the latter benefiting from major collaborations. To drive future growth, the company is expanding into overseas markets through partnerships with entities like Crunchyroll and Sumitomo Corporation. The development pipeline remains active, with one title scheduled for release in the first half of the year and five more in the second half. In the media and advertising sector, GREE is aggressively investing to expand its user base. Monthly active users for the LIMIA platform reached one million, and total page views across media properties grew 2.4 times quarter-on-quarter. To support this growth, the company increased advertising spending by over ¥500 million, focusing on domestic markets and TV commercials. Despite these rising variable costs and commission fees, GREE maintained stable operating margins by reducing fixed costs and optimizing its labor structure following the closure of certain overseas operations. The company expects moderate performance in the second quarter before a new wave of product releases.

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GREE’s financial results for the second quarter of fiscal year 2017 highlight a significant strategic pivot toward native games and new business segments, resulting in the first quarter-on-quarter sales growth in four years. Net sales reached ¥15.3 billion with an operating income of ¥1.5 billion. While sales grew, operating income saw a ¥1.0 billion decrease from the previous quarter, primarily due to increased advertising investments and depreciation costs following the acquisition of the DragonSoul title. The domestic native game market showed strong momentum, driven by a major update to Shometsu Toshi 2, which doubled coin consumption. The company maintains a robust development pipeline with ten titles in progress, including high-profile collaborations like the smartphone version of Wild Arms with ForwardWorks. Overseas, the acquisition of DragonSoul in October 2016 contributed to an upturn in the top line, with coin consumption in international markets rising to 3.6 billion. Conversely, the legacy web game business continued its downward trend, with coin consumption falling to ¥11.9 billion. Beyond gaming, there is a concerted effort to diversify into video-related and virtual reality (VR) businesses. The acquisition of 3Minute in February 2017 aims to accelerate growth in video media, where sales have already increased 3.5 times year-over-year. In the VR sector, the company began supplying attractions to amusement facilities like VR PARK TOKYO. Looking ahead to the third quarter, net sales are forecast to remain stable at ¥15.3 billion, while operating income is expected to decrease slightly to ¥1.2 billion as fixed costs rise with the launch of new titles in the second half of the fiscal year.

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FY2018 Fourth Quarter Financial Results

GREE achieved significant year-over-year growth during fiscal year 2018, recording net sales of ¥77.9 billion and operating income of ¥9.4 billion. This performance was primarily driven by the robust operational success of mobile titles such as SINoALICE and Another Eden, alongside the successful North American expansion of DanMachi. While the company missed initial profit forecasts due to aggressive upfront investments and a ¥3.15 billion impairment loss in the advertising and media segment, it maintains a strong financial foundation with ¥87.2 billion in net cash. A notable shift in consumer behavior is evident as coin consumption recovered to 22.9 billion in the fourth quarter, fueled by modern mobile applications that effectively offset the ongoing decline of legacy web-based gaming. The strategic focus for the 2019 fiscal year centers on diversifying revenue through three core pillars: mobile games, vertical media, and live entertainment. The company is committing ¥10 billion to a dedicated subsidiary focused on the virtual YouTuber ecosystem while simultaneously scaling its vertical media platforms, which saw a nearly fivefold increase in page views across lifestyle and travel sectors. To support long-term sustainability, investments are being directed toward proprietary game engines and multiplatform development, including the Nintendo Switch, to broaden market reach beyond traditional mobile environments. Geographically, the company is prioritizing full-scale overseas expansion to capitalize on the global mobile market. This transition is supported by a workforce of over 1,500 employees concentrated in the games and entertainment divisions. By balancing aggressive investment in emerging technologies like VTubers with the steady optimization of its existing game portfolio and media assets, the organization aims to establish a more resilient and diversified earnings structure for the coming years.

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Summary of Main Questions and Answers at the FY2016 Fourth Quarter GREE Results Briefing

GREE’s financial performance for the fourth quarter of fiscal year 2016 was characterized by significant one-off costs and a strategic pivot toward native game development. These non-recurring expenses, which impacted the quarter’s bottom line, were primarily driven by increased advertising spend, goodwill amortization, and rental costs. The latter was framed as an upfront investment intended to reduce long-term operational overhead. While these specific costs are not expected to recur, the company anticipates a narrower operating margin in the first quarter of fiscal year 2017 due to continued aggressive investment in domestic game operations and North American business units. The strategic roadmap for fiscal year 2017 focuses on a "release blitz" of eight new native games for the Japanese market, with approximately one-fourth of these titles targeted for the first quarter. Management defines a successful "hit" as any title reaching the top ten in the App Store rankings. To achieve this, GREE is leveraging specialized internal studios: Wright Flyer Studios focuses on action RPGs and quantitative analysis, while Pokelabo concentrates on the Group-versus-Group (GvG) genre. Both studios are increasingly integrating external intellectual property (IP) to enhance market competitiveness and mitigate the risks associated with the shift from web-based to native mobile gaming. Capital allocation remains focused on long-term stability and strategic expansion. GREE intends to maintain a strong financial base to support multi-year development cycles while remaining active in the M&A market, as evidenced by the recent acquisition of ADFULLY to bolster its ad media business. Future profitability and the return to an operating margin above 20% are heavily contingent on the successful launch and sustained performance of the upcoming pipeline, as the company moves past its initial optimistic scheduling toward a more disciplined, quality-driven development process.

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FY2017 4Q Result Presentation

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