WOW WORLD is gradually transforming itself into a company that provides operational support services bolstered by its operations centered on email distribution and the development and sale of associated peripheral software. In accordance with this expansion in its business operations, the company dispensed with its previous name, “Azia,” in favor of its current name, “WOW WORLD,” on July 1, 2021. The company holds a 12% market share of the emailing software space, making it the No. 4 company in the domestic emailing software market of over 200 companies. In FY03/21, the company had four reporting segments: Applications, Consulting, Custom Development, and E-Commerce. The Applications segment generates 80% of total revenue and nearly all the operating profit.
In its core Applications segment (the “Enterprise Software” segment from the start of FY03/22), the company is primarily focused on development and sale of the WEBCAS email distribution system, and cloud-based sales account for more than 80%. Additionally, it enhances the usability of cloud systems that provide same services by customizing various aspects to fit individual user needs. WOW WORLD’s services are clearly distinct from those of its competitors because WOW WORLD is the only company in the industry that performs these customizations. In FY03/21, the company acquired Connecty Inc., a company with considerable strength in the field of content management systems (CMS), and subsequently adjusted its reporting segments effective from the beginning of FY03/22.
The company’s main clients are e-commerce operators that communicate with a large number of consumers via email. WOW WORLD has about 1,300 accounts, from SMEs to large companies such as cosmetics manufacturer Fancl, with most (1,100 of the accounts) using its cloud-based services. Cloud services are mainly offered as yearly subscription plans, with users paying monthly usage fees averaging JPY60,000/month. WOW WORLD is steadily adding clients by following up on online inquiries and referrals from existing accounts. It has kept its monthly churn rate at 2–3%, and client numbers are growing at an annual pace of just over 10%. The company has a steady earnings base, underpinned by the recurring revenue of its cloud offerings.
The company is taking an aggressive stance toward the expansion of its business through M&A. On August 16, 2018, the company acquired an e-commerce business from unlisted firm Hamons, Inc., and thereafter established Mamachu. WOW WORLD is operating its own independent e-commerce operations while also attempting to leverage these operations as an opportunity to conduct research that will provide ideas for future product development. On August 18, 2020, the company announced that it would include Connecty Inc. in its group by acquiring its unlisted parent company, Connecty Holding. The acquisition aims to reinforce the company’s core businesses.
FY03/21 results: The company reported full-year consolidated revenue of JPY2.4bn (+25.6% YoY), operating profit of JPY412mn (-11.0% YoY), recurring profit of JPY425mn (-9.6% YoY), and net income of JPY223mn (-30.6% YoY). EBITDA was JPY565mn (+10.9% YoY). Revenue was up 25.6% YoY. This is attributable to strong performance in cloud services (ASP/SaaS), which were up 18.4% YoY, and sharp growth in Consulting (Digital Marketing Operation Support segment starting from the beginning of FY03/22), which saw revenue grow 75.9% YoY with addition of Connecty to the group. On the profit front, although EBITDA reached a record high, increases in amortization charges on goodwill and other items resulted in a decline in operating profit. Excluding those increases in amortization associated costs, operating profit would have been JPY518mn, up 12.1% YoY.
FY03/22 forecast: The company projects full-year consolidated revenue of JPY3.2bn (+33.7% YoY), operating profit of JPY600mn (+45.8% YoY), recurring profit of JPY600mn (+41.1% YoY), net income of JPY339mn (+52.3% YoY), and EBITDA of JPY850mn (+50.3% YoY). The company adopted new disclosure segmentation from FY03/22. The former Applications segment is now Enterprise Software, Consulting is now Digital Marketing Operation Support, and Custom Development is now “Other.” E-commerce remains unchanged. The company’s forecast of revenue and profit growth is based on a full-year contribution from Connecty Inc., adding an additional half-year contribution compared to the previous fiscal term, as well as stepped up sales and marketing activity to raise average customer billing, boost piggy-backed sales, and reduce cloud business (former ASP and SaaS businesses) churn rates with the launch of the new Customer Success division. The company projects cloud growth of 25%.
With the completion of the current medium-term business plan (from FY03/18 to FY03/20), the company plans to announce a new medium-term plan on May 14, 2020. By collaborating with Japan Growth Investments Alliance, Inc., it will cultivate existing businesses and incubate new pillars of business. On May 11, 2021, the company raised its objectives for the concluding year, FY03/23, from JPY2.6bn to JPY3.8bn for revenue and from JPY800mn to JPY1.1bn for EBITDA. These revisions reflect the addition of Connecty Inc. from October 2020 as well as stronger than anticipated growth in could service due to increased demand for digitalization as a result of the COVID-19 pandemic.
WOW WORLD’s strengths are its customized cloud-based services (the only emailing software company in Japan with such a product offering), wide range of support related to emailing software, and high name recognition that allows clients to seek out its products. Its weaknesses are the tendency for its key products to interfere with future breakthroughs, limited growth speed in the Applications segment (the Enterprise Software segment starting from the beginning of FY03/22), and overdependence on certain products in its portfolio. (See the Strengths and weaknesses section for details.)
|Gross profit margin||70.5%||67.2%||62.6%||65.3%||63.8%||61.9%||57.8%||61.6%||55.9%|
|Operating profit margin||17.4%||24.0%||17.3%||20.9%||21.6%||22.9%||21.8%||24.7%||17.5%||19.0%|
|Recurring profit margin||18.0%||23.7%||17.6%||21.2%||21.9%||23.8%||21.7%||25.1%||18.0%||19.0%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end: '000)||4,652||4,652||4,652||4,652||4,552||4,552||4,412||4,412||4,412|
|EPS (fully diluted)||13.1||32.7||27.0||39.5||42.7||58.0||32.3||-||53.4|
|Dividend per share||3.8||7.0||7.5||9.0||12.5||18.0||20.0||23.0||25.0||30.0|
|Book value per share||188.4||218.6||236.0||278.2||294.5||366.1||343.0||389.9||438.9|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||687||742||840||830||779||1,022||759||902||1,183|
|Total current assets||830||915||1,020||1,134||1,137||1,371||1,169||1,317||1,744|
|Tangible fixed assets||17||29||41||79||112||99||119||112||128|
|Investments and other assets||90||73||80||143||159||229||326||359||436|
|Total current liabilities||199||168||197||239||270||316||275||333||638|
|Total fixed liabilities||12||14||8||12||30||36||48||60||787|
|Total net assets||736||871||963||1,155||1,206||1,499||1,365||1,550||1,813|
|Total liabilities and net assets||947||1,053||1,169||1,406||1,506||1,851||1,688||1,942||3,238|
|Total interest-bearing debt||0||0||0||0||0||0||0||0||862|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||187||115||132||186||239||349||210||440||416|
|Cash flows from investing activities||-192||-42||-26||84||-168||-55||-218||-222||-478|
|Cash flows from financing activities||7||-18||-9||21||-123||-52||-269||-80||350|
|Segment revenue and profit||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21||Segment revenue and profit||FY03/21||FY03/22|
|% of total revenue||84.0%||84.6%||80.7%||75.3%||76.7%||71.4%||% of total revenue||71.4%||68.8%|
|Consulting||150||183||272||306||287||505||Digital Marketing Operation Support||505||907|
|% of total revenue||13.0%||13.7%||17.9%||18.0%||15.3%||21.4%||% of total revenue||21.4%||28.8%|
|% of total revenue||3.0%||1.7%||1.4%||0.8%||0.7%||0.2%||% of total revenue||0.2%||0.1%|
|% of total revenue||-||-||-||5.9%||7.3%||7.0%||% of total revenue||7.0%||5.8%|
|Operating profit||239||287||348||372||463||412||Operating profit||412|
|Operating profit margin||46.9%||46.6%||49.6%||47.7%||51.4%||43.0%||Operating profit margin||43.0%|
|Consulting||5||-2||10||15||6||47||Digital Marketing Operation Support||47|
|Operating profit margin||3.2%||-1.1%||3.8%||4.8%||2.1%||9.2%||Operating profit margin||9.2%|
|Operating profit margin||6.1%||37.4%||21.6%||40.9%||28.1%||36.6%||Operating profit margin||36.6%|
|Operating profit margin||-1.7%||-8.2%||-10.9%||Operating profit margin||-10.9%|
WOW WORLD Inc. announced earnings results for 1H FY03/22; see results section for details.
WOW WORLD Inc. announced that it had started jointly selling Connecty CDP—a CDP service developed by its group company, Connecty Inc.
On October 1, 2021, WOW WORLD Inc. announced that on the same day it had started jointly selling Connecty CDP—a new cloud-based CDP service developed by its group company, Connecty Inc., which is
Connecty CDP is a platform that enables information to be provided that is tailored to customer needs by integrating and analyzing various data held by a company and linking this with message delivery and marketing automation systems. CDP is the acronym for a Customer Data Platform, which is a system that integrates, manages and analyzes data such as on customer attributes, activity history on websites, purchase history on e-commerce websites, offline POS, and smartphone location. The system enables subscribing companies to carry out a comprehensive analysis of customers and create customer records by integrating various data, including data from first-party cookies issued by the company, website data, customer data acquired from e-commerce websites and applications, data from sales management systems, and data from POS registers.
By linking the system with its WEBCAS communication support system and carrying out sales and customer support together with Connecty, WOW WORLD has established itself as a one-stop service for solutions catering to digital communication between companies and their customers.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||1H Est.||% of Est.||FY Est.|
|Digital Marketing Operation Support||74||134||206||287||54||114||283||505||202||381||42.0%||907|
|Digital Marketing Operation Support||-3.6%||-10.4%||-8.6%||-6.2%||-27.9%||-15.0%||37.7%||75.9%||276.7%||233.7%||79.8%|
|Gross profit margin||57.7%||59.9%||61.1%||61.6%||59.9%||59.8%||54.7%||55.9%||53.2%||55.1%|
|Operating profit margin||15.7%||20.6%||23.5%||24.7%||19.1%||16.7%||16.0%||17.5%||14.8%||15.6%||16.6%||19.0%|
|Recurring profit margin||16.2%||21.5%||24.2%||25.1%||19.6%||16.8%||16.7%||18.0%||15.0%||15.4%||16.6%||19.0%|
|Digital Marketing Operation Support||74||60||71||81||54||60||169||221||202||179|
|Digital Marketing Operation Support||-3.6%||-17.5%||-5.2%||0.4%||-27.9%||1.1%||136.7%||172.6%||276.7%||195.5%|
|Gross profit margin||57.7%||62.1%||63.3%||63.0%||59.9%||59.6%||48.3%||58.4%||53.2%||56.9%|
|Operating profit margin||15.7%||25.4%||28.8%||27.8%||19.1%||14.4%||15.1%||20.8%||14.8%||16.3%|
|Recurring profit margin||16.2%||26.8%||28.9%||27.6%||19.6%||14.1%||16.6%||21.1%||15.0%||15.9%|
The COVID-19 pandemic continued to have a negative impact on the global economy, but with the progress in vaccinations and reduction in new cases, corporate activities have shown signs of recovery and digital-related demand has been firm.
On July 1, 2021, the company changed its name to WOW WORLD Inc. In Q1, it posted its 12th consecutive quarter of YoY revenue growth with a contribution from Connecty Inc., which joined the group in October 2020, along with an increase in cloud services in the Enterprise Software business, which was already a mainstay business.
Starting in FY03/21, the company has changed one of its key management indicators from operating profit to EBITDA (operating profit plus depreciation, goodwill amortization, and share-based remuneration expenses). The reason for the change is that one of the growth strategies set out in the medium-term management plan is the development of new businesses through M&A. If this strategy is fulfilled, the company may incur significant goodwill amortization expenses that do not involve cash payments.
1H EBITDA was JPY317mn (+62.1% YoY), marking a record high for the company. Costs during the period were mainly personnel expenses to bolster hiring centered on new graduates and to raise salaries, consulting fees to prepare for the transition to IFRS in FY03/23 and for the full-scale launch of the Customer Success division, and expenses on the website overhaul associated with the company's name change. These expenditures narrowed the growth in margins. However, profits increased YoY thanks to positive factors such as higher revenue, the normalization of outsourcing expenses following an uptick in FY03/21 due to large projects, and an increase in capitalization of software accompanying a shift in resources to large-scale product development.
1H FY03/22 results by segment are as shown below.
Connecty Inc., which was not yet a part of the group in 1H FY03/21, contributed to revenue. Further, the sale of the mainstay product WEBCAS e-mail (e-mail communication system) made progress as planned, following a lull in Q1 when companies refrained from making large investments. As a result of these factors, segment revenue increased 32.6% YoY.
The segment posted a huge rise in revenue. As with the Enterprise Software segment, this was mainly due to the revenue contribution from Connecty. Revenue at FUCA was up YoY but fell behind the company's plan due to sluggish performances of apparel and cosmetics companies that form the main customer base.
A new segment created in Q2 FY03/19, the E-commerce segment consists largely of subsidiary Mamachu, which sells baby clothes online through its website Babychu. The company established the e-commerce business with a goal of acquiring marketing expertise in the online retail sales arena. In 1H FY03/22, revenue declined due to a drop in demand related to outings, which is the sort of demand Babychu targets. This drop in demand was primarily the result of the government's prolonged emergency declaration related to the pandemic.
The Other segment comprises mainly the old Custom Development segment. The company is not actively seeking new orders, instead just continuing existing projects with high margins.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Est.||2H Est.||FY Est.|
|Digital Marketing Operation Support||134||153||287||114||390||505||907|
|Digital Marketing Operation Support||-||-||-||-15.0%||155.8%||75.9%||79.8%|
|Cost of revenue||354||366||720||371||670||1,040|
|Gross profit margin||59.9%||63.2%||61.6%||59.8%||53.4%||55.9%|
|Operating profit margin||20.6%||28.3%||24.7%||16.7%||17.9%||17.5%||16.6%||21.2%||19.0%|
|Recurring profit margin||21.5%||28.2%||25.1%||16.8%||18.8%||18.0%||16.6%||21.2%||19.0%|
The company forecasts FY03/22 EBITDA of JPY850mn (+50.3% YoY). Revenue and operating profit projections for individual segments have not been released.
Effective from the beginning of FY03/22, the company has adjusted its reporting segments, renaming the former Applications segment the ”Enterprise Software” segment and the former Consulting segment the “Digital Marketing Operational Support” segment. Meanwhile, the company also transferred its Custom Development segment into the "Other" segment. No changes have been made to the E-Commerce segment. See below for more details.
The company’s forecast of revenue and profit growth is based on estimated full-year contributions from Connecty Inc. as well an improvement in the CMS businesses in the Enterprise Software and Digital Marketing Operation Support segments. The company lifted its FY03/22 revenue forecast JPY950mn from the JPY2.2bn figure initially shown in its medium-term management plan (to JPY3.2bn), though management ascribes JPY840mn of this to the consolidation of Connecty. As such, Shared Research estimates that most of the expected JPY793mn YoY increase in revenue for FY03/22 is attributable to the consolidation of Connecty.
Through the launch of its Customer Success Division in FY03/22, the company will aim to strengthen sales activities focused on lowering the churn rate associated with cloud services, raising average revenue per customer, and increasing upward impact from cross-sales. At the same time, the company will attempt to generate higher revenue through CRM-related operations in its Enterprise Software segment (previously referred to as cloud services in the Applications segment).
The company has already begun implementing sales activities enhanced through integration of customer success management methods. In Q1, ARPU associated with WEBCAS SaaS Standard trended upward while the corresponding churn rate also declined compared to Q4 FY03/21 (January–March 2021). WOW WORLD will obtain useful information and suggestions through consultations with organizations and individuals such as Hiroko Razavi (recently added as an outside director) and strengthen these customer success initiatives while expanding their scope to include WEBCAS SaaS Premium. Through these efforts, the company projects that it can achieve a growth rate of 25% for cloud-related performance.
The company aims to lower its churn rate to half its current level at some point in the future. Additionally, the company will focus on developing new applications for its core series of WEBCAS services with the goal of achieving future expansion in the scope of sales activities associated with overall customer success management.
The company forecasts OPM improving 1.5pp YoY to 19.0%. Management expects improved profitability thanks to the fading impact from low profit on-premises projects booked in FY03/21 and the strengthening of customer services contributing to enhanced operational efficiency at Connecty and the company’s existing cloud services (for details, see the following section on the company’s medium-term outlook).
Signs of business area expansion
The company has positioned FY03/22, the second year of its medium-term management plan, as a year in which it will see how well its initiatives in customer success, which it views as vital to the company's growth moving forward, contribute to revenue growth.
In FY03/22, the company also announced that it will begin conducting business operations in the customer database platform field that leverage services currently being developed by Connecty Inc.
A customer database platform (CDP) is a database system for the aggregation, synthesis, and analysis of personally identifiable customer data (first-party data). Clients equipped with the appropriate system infrastructure can utilize CDPs to ensure effective implementation of marketing measures (analysis and data transmission). CDPs are also capable of handling anonymous customer data (third-party data) that has previously been utilized with digital marketing systems such as data management platforms. Due to these attributes, Shared Research believes that the company’s primary business domain will begin to shift from email distribution services to marketing support services at an accelerated pace.
|FY03/21||FY03/22||YoY||% of total SG&A expenses|
|Digital Marketing Operation Support||503||907||80.3%||18.6%|
|Results vs. Initial Est.||FY03/13||FY03/14||FY03/15||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21|
|Revenue (Initial Est.)||720||900||1,120||1,130||1,265||1,445||1,700||1,950||1,900|
|Results vs. Initial Est.||8.2%||7.0%||-7.9%||1.4%||5.2%||5.4%||0.2%||-3.8%||24.0%|
|Operating profit (Initial Est.)||56||170||245||220||265||318||420||446||330|
|Operating profit (Results)||135||235||179||239||287||348||372||463||412|
|Results vs. Initial Est.||141.7%||38.4%||-27.1%||8.8%||8.3%||9.5%||-11.5%||3.7%||24.7%|
|Recurring profit (Initial Est.)||60||170||245||220||270||321||420||445||330|
|Recurring profit (Results)||140||239||181||243||292||362||370||470||425|
|Results vs. Initial Est.||133.9%||40.7%||-26.1%||10.4%||8.1%||12.8%||-11.8%||5.7%||28.9%|
|Net income (Initial Est.)||30||100||145||140||180||208||275||300||225|
|Net income (Results)||49||125||109||161||177||236||130||321||223|
|Results vs. Initial Est.||63.0%||25.0%||-24.9%||15.0%||-1.7%||13.6%||-52.8%||6.9%||-1.1%|
In FY03/15, earnings declined YoY following sharp demand growth ahead of the consumption tax hike in the previous year, and this, coupled with the absence of major projects, forced the company to revise down its forecast. Over the last three years, however, earnings have largely surpassed forecast supported by a steady increase in monthly subscription fees for cloud services. In FY03/19, a gap has opened up between net income forecast and actual net income. This is due to an impairment loss caused by the reduction in the asset value of software assets that had already been recorded, as a result of the change in direction of the company’s business strategy.
For FY03/20, although the company did not achieve its revenue target, profits cleared the company’s target thanks to major profit contributions from the (former) Applications segment, notably growth in lucrative cloud services. In FY03/21, both revenue and profits exceeded initial targets thanks to brisk demand for digitalization and contributions from a newly acquired consolidated subsidiary.
In light of FY03/21 results, the company upwardly revised the targets in the medium-term business plan it initially announced on May 14, 2020. While making no substantial changes to its fundamental management policies, the company lifted its targets for each year for the reasons outlined below. In particular, the revised plan reflects the company’s belief that it has built up a customer base that exceeds that initially envisioned for FY03/23, the last year in the plan.
Connecty Inc., joined the group in October 2020.
The COVID-19 pandemic has contributed to increased digitalization demand and growth in cloud services has exceeded what was expected when the medium-term plan was formulated.
Details regarding the revisions to the plan are as follows. Factoring in cloud services growth, the company lifted its revenue and EBITDA targets by about JPY100.0bn and JPY300mn, respectively for both FY03/22 and FY03/23 (the final year in the plan).
FY03/22: Initial revenue target of JPY2.2bn lifted to JPY3.2bn, initial EBITDA target of JPY585mn lifted to JPY850mn.
FY03/23: Initial revenue target of JPY2.6bn lifted to JPY3.8bn, initial EBITDA target of JPY800mn lifted to JPY1.1bn.
The company in May 2021 upwardly revised its medium-term business plan targets. The company around the same time also released a series of important management-related releases, including releases regarding the company changing its name and its management structure. Shared Research believes that the upward revisions to medium-term plan targets, the change in the company’s management structure (to a holding company structure), as well as its name change, is part of the company's medium-term growth strategy. The company is focused on building the foundation for medium- to long-term growth in line with its revised medium-term plan.
The company in FY03/20 clarified its intention to pursue growth through M&A, announcing a tie-up with Japan Growth Investments Alliance, Inc., a company specializing in growth investment in small and medium-sized companies showing the potential for expansion, creating funds for small buyouts, and supporting the growth of portfolio companies (its major shareholders at Monex Group (TSE1: 8698), Japan Tobacco (TSE1: 2914), and Hakuhodo DY Holdings (TSE1: 2433). In FY03/21, the company made Connecty Inc. a consolidated subsidiary, with the collaboration and integration of the two company’s businesses made in a way that complemented the areas of expertise at each, which resulting in a sharp improvement in revenue in FY03/21.
With the full-year contribution coming into play, the consolidation of Connecty is likely to continue to play an important role in the company's expansion of its business in FY03/22. Management has also indicated that it aims to achieve M&A activity on roughly the same scale as Connecty in each year remaining in the current medium-term business plan. Shared Research believes that the company will continue to narrow down its M&A targets through cooperation with Japan Growth Investment Alliance and other business partners, as well as through its own internal efforts.
The WOW WORLD group comprises the company and subsidiaries Connecty Inc., FUCA Co., Ltd., and Mamachu, Inc. It also includes equity-method affiliate Gliese Co., Ltd.
Connecty develops and provides SaaS-based cloud content management system (CMS) services as well as digital transformation (DX) consulting services. In 2005, Connecty’s current executive director, Yasuyuki Hattori, launched Japan’s first cloud enterprise CMS, called Connecty CMS on Demand. In 2011, Connecty became a consolidated subsidiary of Works Applications (Tokyo, unlisted), but Hattori bought back the company in 2019 through his holding company. Connecty's customer base mainly comprises major corporations.
In terms of customer base and products, Connecty has a high affinity with WOW WORLD’s Applications and Consulting segments (These two segments have been restructured along with businesses handled by Connecty, and, effective from the beginning of FY03/22, subsequently became the “Enterprise Software” segment and the “Digital Marketing Operational Support” segment), and brings strengths in new customer development and consulting methods to the table. Revenue for FY06/20—reflecting Connecty’s content management system (CMS) and Web consulting businesses only—totaled JPY589mn (+9.7% YoY), while operating profit was JPY75mn (+11.9% YoY). Connecty Inc. became a consolidated subsidiary in October 2018 following the company’s acquisition of shares in holding company CONNECTY HOLDING on August 18, 2020. Connecty has been contributing to consolidated earnings since Q3 FY03/21 and revised its fiscal term to end in March following its consolidation.
FUCA provides proposal, planning, production, and analysis services for websites and email newsletters. It was added to the group in October 2013, and operates under what was previously known as the "Consulting" segment. FUCA excels in website design and has a solid track record in this field (for example, it handles website development for a major cosmetics manufacturer). WOW WORLD has managed to secure its largest client through a joint proposal with FUCA.
In FY03/18, FUCA contributed over 10% of consolidated revenue. In FY03/19, the subsidiary posted revenue of JPY273mn, recurring profit of JPY10mn, and net income attributable to parent company shareholders of JPY7mn.
In August 2018, Mamachu was established to take over operations of an e-commerce business transferred from Hamons, Inc. (Osaka, Japan). The business operates the babies’ clothing e-commerce website “Babychu.” In FY03/19, the company launched its new E-commerce segment with Mamachu as its main constituent. According to the company, the e-commerce workers at Hamons are highly proficient in merchandising and sales promotion efforts, and are quite willing to utilize new marketing tools. The company believes that by assimilating and making the best use of this expertise, it will be able to boost the functionality of its products and improve its consulting service capabilities.
The purpose of the E-commerce segment is to enable the company to gain consulting know-how and make functional enhancements to the company’s mainstay WEBCAS series through the management of an e-commerce website. In FY03/19, Mamachu had revenue of JPY101mn, an ordinary loss of JPY3mn, and a net loss attributable to shareholders of JPY3mn.
Gliese provides communications and writing services and also offers training seminars for employees of client companies. It has a strong reputation for its written content generation capabilities, and engages in joint operations with WOW WORLD.
In its medium-term management plan, the company states that it is targeting “dramatic” growth for its existing businesses. More specifically, while average annual growth in cloud services over the three years through 2020 trended at about 10%–15%, the company targets average annual growth for the cloud business over the period covered by the medium-term plan of 25%. In order to achieve this, the company is introducing “customer success” and bolstering promotions.
Customer success entails providing active support to the customer in order to achieve customer success, i.e., the business results the customer targets, and profit at the company itself (the seller). Management recognized the importance of customer success in cloud services, and by strengthening its customer success activities aims to improve the churn rate and unit price per contract in its cloud services. To strengthen its efforts in this area, the company has established a Customer Success division. In addition, the company plans to invite Hiroko Razavi, a leading authority on the introduction of customer success in Japan, as an outside director to provide advice on initiatives and progress associated with the company's customer success activities.
In terms of strengthening promotions, the company will implement promotional measures on a joint basis Japan Growth Investments Alliance, Inc. Shared Research believes the company aims to expand its customer base through this effort, with content designed to effectively attract new customers. While the company has provided no disclosure on specific promotional efforts, one of the key shareholders of partner Japan Growth Investments Alliance, Inc. is Hakuhodo DY, under which operates Hakuhodo Inc. as a major advertising agency.
M&A is one of the company’s growth strategies. However, corporate groups formed this way are often a collection of companies with different histories, ways of conducting business, and corporate cultures. As such, there is the possibility that a company’s individual dynamism could be lost if they are integrated into another company in the manner often undertaken to date. In order to maintain the growth potential of these group companies while maintaining central management, the company believes that a holding company system, in which each operating company is under the control of a management company, is the best management option. Based on the idea that the entire group will undergo great change, the company decided to change its name in July 2021.
Following approval at the shareholders’ meeting, the company will invite two outside directors, Kazuo Miyata and Hiroko Razavi, to join the board in 2021. Mr. Miyata, who has served as a senior executive officer of Fujitsu Limited (TSE1: 6702) and as president and representative director at Fujitsu Group companies, has a wealth of personal contacts as well as experience in the field of project management. Management has strong expectations Mr. Miyata will use his leadership to improve the company’s development structure and root out large projects. As noted earlier, the company is also extending an invitation to Hiroko Razavi, a leading expert in customer success, which is key to the growth of the company's cloud services. The company looks to Ms. Razavi to advise it as it pursues growth in its cloud services.
Inviting outside directors means the company could not only benefit from advice on business operations, but also to strengthen its compliance. The idea of compliance refers not only to laws and regulations, but also to corporate ethics in a broader sense, and strengthening the function of outside directors is an important measure to advance the monitoring of corporate activities from a third-party perspective.
As of FY03/2021, the company's compliance status based on the revised Corporate Governance Code stood at 93.8%. Management has indicated that it intends to achieve 100% compliance by the end of FY03/22. The company has not achieved compliance with principle 2.3, which focuses on the response to sustainability issues and includes the following four sub-points.
①The board of directors should further explore measures for proactively and efficiently addressing sustainability issues.
②Listed companies should improve the quality and quantity of disclosure based on the Task Force on Climate-related Financial Disclosure (TCFD), or equivalent framework, recommendations.
③The board of directors should duly supervise the systematic fostering of candidates as successors to the CEO, etc.
④Listed companies with a controlling shareholder should have independent outside directors as at least one-third of their board members (or a majority in the case of companies listed on the prime market) or establish an ad hoc committee.
Following approval for a change in the Articles of Incorporation at the general shareholder’s meeting in June 2021, the company moved to revise its name from July 2021 from Azia to WOW WORLD. While strengthening the company brand was the main reason for changing the company name, management also noted that it decided to change its name in line with the goal of being a “relationship engineering” professional group with the ability to create a world of surprises through the power of its people and technology. According to the company, “wow” is a word used to describe a situation exceeding hopes or expectations, and the change in the company’s name reflects its desire to contribute through its activities to a society full of such wonders. In order to connect the “wow” of the employees working within the company, the “wow” of the customers the company serves, and the “wow” of the people who receive the customer's services, the company will use the latest technologies to provide "services that deliver the best information at the best time.” To achieve this goal, the company plans to expand the functions of WEBCAS and strengthen the integration of external systems, including AI tools.
Under its previous medium-term plan (which extended through the end of FY03/20), the company had initially been looking to move into the marketing automation market, but it changed directions to focusing more on building up existing businesses (see the “Change in direction for medium-term vision” section below) and ended up realizing record-high earnings in FY03/20.
Still, the company recognized that it might not be able to sustain growth in the future based on existing products alone, and that it would also need to emphasize the development of new products with sales and earnings comparable to its existing mainstay products, as well as the creation of new businesses with the help of M&A. Towards this end, for the sake of more thoroughly implementing its medium-term business plan, the company decided to form a business and capital alliance with Japan Growth Investments Alliance, Inc., consummating the capital alliance by issuing warrants via a private placement, and using this new business partnership to aid its efforts to grow through innovation under its new medium-term business plan covering the years FY03/21 through FY03/23.
The new three-year plan will be guided by the company’s desire to create another major source of earnings to support its drive to grow through innovation. Major strategies aimed at helping the company reach the performance metrics under the new plan call for three points: (1) rapid growth at existing businesses, (2) the creation of new businesses for another major source of earnings, and (3) optimizing its financial strategy. More specifically, the company is looking to increase the annual growth rate at its mainstay cloud services business from 10–15% up to 25%, lean heavily on M&A to develop new businesses, and use its large cash position to finance growth investments.
Earnings trends indicated by the company are shown above. It plans on business growth via expansion in existing domains along with new business undertakings. Under the new three-year plan extending through FY03/23, the company is targeting final-year revenue of JPY2.6bn and EBITDA of JPY800mn.
Under its new tie-up agreement, the company expects the role of Japan Growth Investments Alliance, Inc. (J-GIA) to be to work toward the success of the medium-term business plan by leveraging its investments and business support experience in the domains of business administration, M&A, and marketing.
On May 10, 2017, the company unveiled a medium-term business plan ending in FY03/20. The company’s three-year management vision calls for “the development of a cross-channel marketing platform*,” and the company aimed to achieve its management targets through the launch of such a product. The marketing platform had been envisioned as a system that would facilitate comprehensive management and automated execution of various marketing activities undertaken by client companies. It was an extension of the company’s present efforts to develop mechanisms that allow clients such as e-commerce operators to maximize revenue by using a wide range of communication channels such as email, LINE, and texting. The company expected its latest major product, WEBCAS Auto Relations, to help realize this objective. It launched Version 1.0 of the system in June 2016, followed by Version 2.0 in March 2017, and Version 3.0 in 2018. In FY03/20, the final year of the plan, the company intended to release Version 4.0, which would have marked the initial completion of the product.
However, the company set off on the above-mentioned change in direction at the end of FY03/19, announcing a pivot in its product strategy toward “message delivery optimization solutions.” With this change the company put an end to substantial new development of its WEBCAS Auto Relations platform beyond Version 3. Figures for FY03/19 reflected the impairment loss from abandoning software assets relating to its old initiatives.
The company cited the following three reasons for its change in direction.
The companyhe company had been aiming to create “cross-channels,” but this was dependent on actual demand for marketers, which it judged would take too much time to increase. In other words, the company had preempted the market’s needs by too great a margin. Also, as a latecomer to the Marketing Automation industry the company judged it would be difficult to differentiate its products from those of its competitors.
The company thinks it would be able to maintain its technical superiority in email delivery performance by focusing on that field.
From the perspective of managerial efficiency, the company thinks it advantageous to focus its present development resources in areas where it has already demonstrated excellence while coordinating with data-related solutions companies.
The company explained its decision as follows: “Rather than dispersing our developmental resources across the board, we believe it more strategically sound to focus on our strengths while entering the Marketing Automation (MA) market through coordination with other MA companies.” The company at first intended to build a cross-channel MA platform capable of handling collection, analysis, and management of consumer data, which it would use to select optimized marketing channels while also managing delivery. However, the company will now focus its development on channel optimization in which it has technological advantages, leaving data integration to be handled by cooperative partners.
As concerns data integration, the company feared it would be caught in development competition with companies that already had a presence in the market. Moreover, the company explained that through the creation of its E-commerce segment in FY03/19 (operation of an e-commerce site by fully owned subsidiary Mamachu) it began to think that integrated automation platforms would not necessarily fulfill the needs of e-commerce businesses. Considering market trends and investment efficiency, the company chose to focus on maintaining leadership in its strong areas rather than pouring investment in development for a market already occupied by competitors.
The company says its business strategy hereafter will utilize cooperative partnerships on the data integration front while focusing development in the email delivery field. The company entered into alliance with a solutions software company Marketo Inc. (headquartered in the US) specializing in the marketing automation field in September 2018 and Marketo has already adopted the company’s delivery engine for email delivery to its Japanese customers. By expanding its client base through these kinds of partnerships, the company will concentrate on increasing its competitiveness in the fields in which it excels.
WOW WORLD previously sold in-house developed emailing software and related software and services to companies such as e-commerce operators. During this period, the company described itself as a global provider of solutions that boost e-commerce revenue (solutions that combine application software and related services).
Currently, the company is utilizing the mechanisms it established during this period to transition toward providing operational support services, including the construction of database systems that facilitate the management, analysis, and transmission of various data held by client companies.
It generated revenue of JPY2.4bn in FY03/21, when the email distribution software market was valued at roughly JPY13.0bn. WOW WORLD estimates its market share at about 12%, putting it among the top four companies in a market with over 200 companies.
Until the conclusion of FY03/21, the company’s business portfolio consisted of four segments: Applications, Consulting, Custom Development, and E-commerce. The growth engine was the mainstay Applications segment, in which WOW WORLD developed and sold emailing and related software systems. This segment accounted for approximately 70–80% of the company’s total revenue and earned nearly all of its total profits.
*Effective from the beginning of FY03/22, the company has adjusted its reporting segments. The company made this change because it added Connecty Inc. as a consolidated subsidiary in FY03/21 and combined its businesses with the former Applications and Consulting segments. As a result of this change, the former Applications segment has become the “Enterprise Software” segment, and the former Consulting segment has become the “Digital Marketing Operational Support” segment. The Enterprise Software segment comprises customer relationship management (CRM) operations that the company has been performing for some time and a content management system (CMS) business administered by Connecty. Meanwhile, the company’s CRM operations partly consist of business activities related to SaaS Premium (formerly known as “SaaS”) and SaaS Standard (formerly known as “ASP”), which the company collectively refers to as “cloud services.” These operations also include on-premises services (formerly known as “Licensing”). The Custom Development segment has been scaled down and consequently transferred into the Other segment. No changes have been made to the E-Commerce segment. Here, FY03/21 results have been explained using the former segment alignment.
The company’s mainstay cloud services have expanded to account for approximately 60% of total revenue, and the company has built a business model that ensures steady revenue growth driven by monthly subscriptions. As of end FY03/20, the company had 1,358 client accounts for its cloud services (about 232 SaaS accounts and 1,126 ASP accounts). Rather than pursuing only large accounts, the company aims to keep its client base diversified, which contributes to overall stability. Half of the revenue from on-premises services (roughly 200 accounts) is derived from maintenance fees, and nearly 70% of the company’s total revenue is recurring.
Client flows underpin earnings stability, and the company is steadily adding clients on a net basis. The company’s new clients are secured roughly half through the internet and the other half via referrals from existing clients or in the form of new functions added for existing clients. Unlike its competitors, WOW WORLD does not engage in telephone sales because order conversion for sales calls is low, as emailing systems require a certain degree of explanation, making it difficult to gauge demand over the telephone.
Specific sales activities are as follows. In the case of online recruitment, the company dispatches sales representatives to potential clients who have established contact through a listing ad. According to the company, it typically faces competition from rivals, but it signs up 30–40 new clients on 200–250 inquiries per month. There are 40 total new accounts per month when including client referrals. In addition, in cloud services, clients for ASP (low-priced plan) outnumber those opting for SaaS. In on-premises services, the company adds an average of five new clients per year. Meanwhile, the monthly churn rate is 2–3% (which is the sector average, according to the company), resulting in 100–150 net customers added per year.
We understand the average spend per account for ASP has remained generally flat at about JPY33,000/month) over the last few years due to difficulties in differentiating offerings in an extremely competitive environment. For SaaS (JPY239,000/month) and on-premises services (JPY5mn/account), however, the average spend per account has increased due to higher customer numbers at these accounts (i.e., increase in email addresses calculated on a pay-as-you-go basis), and an increase in the number of client companies requesting integration with related systems (using a wider range of software). As a result, WOW WORLD says the average spend per account is steadily rising for cloud services.
The company revised its segment classification system in FY03/22. A breakdown of the reported segment changes is as follows.
The Applications segment is now the Enterprise Software segment. The Applications segment was broken down into the cloud and licenses business, but these businesses are replaced in the Enterprise Software segment by the CRM and CMS businesses. The Consulting segment is now the Digital Marketing Operation Support segment, comprising the CRM and CMS businesses, while Customer Development is now “Other.” E-commerce remains unchanged.