Quarterly Transition by Business Segment: Japan

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.