Financial Results for the Second Quarter of FY2019: Transcript

The financial results for the second quarter of fiscal year 2019 reflect a strategic pivot toward overseas self-distribution and the nurturing of first-party intellectual property. Net sales reached ¥17.7 billion with an operating income of ¥1 billion, figures that largely aligned with internal forecasts. While the operating margin stood at 5.4%, results were slightly impacted by a ¥160 million accounting revision related to prior variable costs. Excluding this adjustment, operating income would have reached ¥1.13 billion. The company maintains a strong financial position, noting that its investment securities, valued at ¥17 billion on the books, have a fair market value estimated at over ¥25 billion.

A primary driver of recent performance is the successful international expansion of titles like DanMachi, which performed stronger than expected in North America and Asian markets. This success serves as a blueprint for the global launch of first-party IP, specifically Another Eden and Shoumestu Toshi. Management emphasizes that while self-distribution requires significant upfront marketing investment to build user communities from scratch, the long-term profitability is higher because development costs for localized versions are minimized. To streamline operations, the subsidiary funplex is withdrawing from unprofitable titles to improve the overall portfolio health.

Beyond mobile gaming, the strategy includes multi-platform expansion and diversification into live entertainment and media. The launch of Fishing Star on Nintendo Switch demonstrates a commitment to cross-platform IP utilization, while the REALITY Avatar app marks an entry into the VTuber livestreaming market. The development pipeline remains active with five titles currently under development, including a new first-party IP scheduled for release by the end of the fiscal year. Looking ahead to the third quarter, the company forecasts net sales between ¥16.5 and ¥17.5 billion, factoring in continued investment in new titles and global marketing initiatives.