Kadokawa Dwango Financial Results for the 3rd Quarter Ended December 31, 2018

Key insights

6 takeaways

01
Kadokawa Dwango significantly lowered its full-year fiscal 2019 operating income forecast from 8,000 million yen to 1,900 million yen, representing a 76% decrease from initial projections.See it on page 9
02
The company recorded a 3,799 million yen impairment loss on fixed assets in the first nine months of the fiscal year, contributing to a net loss of 3,875 million yen for the period.See it on page 7
03
The Web Services segment, which includes Niconico, swung to an operating loss of 700 million yen for the nine months ended December 31, 2018, compared to a 139 million yen profit in the prior year.See it on page 7
04
Niconico premium membership declined to 1.88 million as of December 31, 2018, negatively impacting revenue and operating income across the portal, live, and mobile businesses.See it on page 19
05
New game titles including 'Teku Teku Teku Teku', 'ARTILIFE', and 'Engage Princess' all underperformed against initial budget expectations, with 'Teku Teku Teku Teku' suffering from high promotional costs and delayed monetization.See it on page 8
06
While the Publication segment remained the company's strongest performer with 5,582 million yen in operating income, the overall consolidated revenue remained nearly flat at 152,102 million yen, a marginal 0.1% increase year-over-year.See it on page 5

Summary

The financial results for the nine-month period ending December 31, 2018, reflect a challenging fiscal environment for Kadokawa Dwango, characterized by significant impairment losses and a downward revision of full-year earnings forecasts. While consolidated revenue remained stable at 152.1 billion yen—a marginal 0.1% increase year-over-year—the company faced substantial bottom-line pressure. Operating income reached 3.18 billion yen, but the company recorded a net loss attributable to owners of the parent of 2.17 billion yen, contrasting with a profit of 1.7 billion yen in the same period of the previous year.

The primary driver of this underperformance was the Dwango segment, which struggled with increased operating costs and the commercial failure of the mobile game "Teku Teku Teku Teku." The game’s inability to generate expected revenue, coupled with high promotional expenses and a lack of monetization features, necessitated a lump-sum depreciation of development costs. Consequently, the company recorded an impairment loss of 3.8 billion yen on fixed assets within the Dwango business. Furthermore, Kadokawa Corporation recorded a 14.9 billion yen loss on the valuation of its subsidiary shares, reflecting the decline in Dwango’s actual value.

Segment performance was mixed: the Publication segment remained a strong performer, driven by the continued growth of e-books and e-magazines, which helped offset declines elsewhere. Conversely, the Web Services segment, anchored by the Niconico platform, saw a decline in premium membership numbers to 1.88 million, contributing to an operating loss. In response to these results, management announced a corporate reorganization effective April 1, 2019, aimed at revitalizing the Dwango business and streamlining group-wide strategy. The full-year consolidated revenue forecast for the fiscal year ending March 31, 2019, was revised downward from 231 billion yen to 207 billion yen.