Aucfan 3674
オークファン
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Summary
Aucfan primarily makes inventory values (prices that can encourage early liquidation) visible while identifying related issues, redistributes problematic products (for example, products with older packaging, products nearing expiry, and returned items) for monetization, and optimizes sales prices and product lineups based on data.The company is developing total solutions through a particular focus on TATEMPO Guide (a system for linking inventory and orders across multiple e-commerce websites) and zaicoban (an inventory management AI for retailers that is linked with TATEMPO Guide) in the Inventory Management Solution business and the NETSEA business, which operates an eponymous B2B marketplace (B2B e-commerce site) for the primary distribution market (inventory sales and wholesaling), in the Merchandise Distribution Platform business.
Internet & Direct Marketing Retail
Key dates
2016-09-28
Coverage initiation
Executive Summary
Business
RE-INFRA COMPANY: In a briefing on FY09/20 financial results, Aucfan indicated that it would redefine its corporate identity and become a “RE-INFRA COMPANY.” According to the company, the term “RE-INFRA” describes a company that builds unparalleled infrastructure integrating what the company refers to as “society’s various types of ‘Re’.” This concept refers to a range of concepts represented by words beginning with “re,” including “reuse,” “resale,” “revalue,” “reverse,” “recover,” “reduce,” “rebalance,” and “reconstruct.” The company aims to promote happiness and well-being for society and the world at large by rediscovering value and establishing a better cyclical relationship between people and goods that leads to improved circumstances for both. Specifically, the company will establish an infrastructure for the redistribution of goods by consolidating and integrating the features of its services, rather than providing them separately. Furthermore, it will strive to become a one-stop solution for manufacturers, distributors, and retailers that can calculate resale values for product inventories, identify optimal sales channels, and facilitate automatic sales through its own channels as well as through crowdsellers (people operating side businesses and sole proprietorships, or SMBs).
Business domain: Aucfan primarily makes inventory values (prices that can encourage early liquidation) visible while identifying related issues, redistributes problematic products (for example, products with older packaging, products nearing expiry, and returned items) for monetization, and optimizes sales prices and product lineups based on data. It started out providing market data (via aucfan.com) to individuals hoping to make money, but then expanded its operations to include the provision of tools that improve the efficiency of procurement and solutions for inventory issues. In FY09/20, the company moved to three reporting segments—Inventory Management Solution, Merchandise Distribution Platform, and Incubation—and is currently focusing on further developing its NETSEA business (under Merchandise Distribution Platform), which operates a B2B marketplace (B2B e-commerce site) for the primary distribution market (inventory sales and wholesaling).
Inventory Management Solution: Earnings generated by Inventory Management Solution primarily comes from subscriptions (charged monthly), so the segment uses ARR (Annual Recurring Revenue) as its KPI. The contribution margin ratio is high at 60–70%, meaning that an increase in sales easily leads to improved profitability. Main businesses within this segment include Aucfan Pro Plus, Aucfan (premium), the Storoid analysis tool, the ARPAcart Amazon listing tool, TATEMPO Guide, and Aucfan Robo, a robotic process automation (RPA) tool. The old Media and Solution businesses have mainly been included in the Inventory Management Solution segment. For FY09/20, the Inventory Management Solution segment reported sales of JPY1.9bn (+0.8% YoY) and operating profit of JPY368mn (-8.6% YoY), declining due in part to rising advertising expenses.
Merchandise Distribution Platform: Sales and earnings generated by Merchandise Distribution Platform is primarily in the form of commissions and product sales amounts, so the segment uses GMV (Gross Merchandise Volume; includes only merchandise distribution handled directly by the company) as its KPI. The contribution margin ratio is low at 10–20%, and a certain transaction level must be maintained to recover fixed costs. Main businesses within this segment include NETSEA (distribution), ReValue (a service to help companies liquidate slow-moving inventory), Good sellers (a side-business support service that trains people in the details involved in online sales, including cross-border transactions, purchasing, and selling). Under its previous segmentation scheme, most of the Merchandising Distribution Platform business was under the Marketplace segment. For FY09/20, the segment reported sales of JPY4.8bn (+19.9% YoY) and operating profit of JPY324mn (+372.4% YoY).
NETSEA: A B2B marketplace (B2B e-commerce site) that serves the primary distribution market (inventory sales and wholesaling). The company is particularly focused on making investments in this business, which comprises the core of the Merchandise Distribution Platform business. With roughly 430,000 retailers and other companies as buyers (looking to purchase goods), the NETSEA website handles over JPY8.0bn in transactions annually (wholesale price basis), making it the largest online platform serving wholesalers and corporate buyers in Japan. Buyers can use NETSEA free of charge. Manufacturers, wholesalers, and other registered suppliers pay a monthly fee of JPY20,000 (plus tax) to be on the platform. In addition, NETSEA receives commissions of 8–10% on the transactions going over the platform from suppliers. One leading indicator of the transaction value the company watches closely is the number of fee-paying companies registered as NETSEA Standard Suppliers (those paying a monthly fee of JPY20,000 plus tax). As of end-Q3 FY09/21, this number was up to 898 versus 600 at the same time last year.
Incubation: Through its activities in this business, the company aims to acquire the expertise and network to gain and maintain a competitive advantage over the long term. In FY09/20, the Incubation segment generated sales of JPY1.3bn (+57.2% YoY) and operating profit of JPY504mn (-12.1% YoY). In March 2020, Aucfan’s portfolio company, Cyber Security Cloud (TSE Mothers: 4493), went public. Reflecting mark-to-market valuations of its share holdings, the company reported JPY2.1bn in unrealized gains on marketable securities holdings (net taxes) on its Incubation portfolio holdings at end-June 2021.
Trends and outlook
FY09/21 results: For FY09/21, the company reported full-year consolidated sales of JPY8.3bn (+6.0% YoY), gross profit of JPY3.5bn (+13.2% YoY), operating profit of JPY583mn (-28.9% YoY), recurring profit of JPY595mn (-26.4% YoY), and net income attributable to owners of the parent of JPY151mn (-64.7% YoY). In the mainstay businesses (excluding the Incubation segment andb usinesses it has withdrawn from), sales were JPY3.6bn (+13% YoY), gross
profit was JPY2.1bn (+22% YoY), and operating profit was JPY297mn (-12% YoY). Operating profit declined due to
upfront investments to expand Gross Merchandise Volume (GMV). In the Incubation segment, sales were JPY1.7bn (+36% YoY), gross profit was JPY1.0bn (+91% YoY), and operating profit was JPY751mn (+59% YoY). In businesses that the company has withdrawn from (zaicoban, otameshi, wholesale sales to
corporations, and others), sales were JPY3.1bn (-11% YoY), gross profit was JPY413mn (-52% YoY), and operating loss was JPY465mn (vs. an
operating loss of JPY7.0mn in FY09/20).
FY09/22 company forecast: The company projects sales of JPY5.2bn (-37.7% YoY), gross profit of JPY3.1bn (-12.4% YoY), operating profit of JPY100mn (-82.9% YoY), recurring profit of JPY80mn (-86.6% YoY), net income attributable to owners of the parent of JPY50mn (-67.0% YoY), and EPS of JPY4.84 was proposed. In its mainstay businesses (excluding Incubation and the businesses the company has withdrawn from), the company expects sales of JPY4.8bn (+35% YoY), gross profit of JPY2.8bn (+32% YoY), and operating profit of JPY0mn. The company expects to incur JPY600mn in upfront investments under SG&A expenses. If the company forecasts an acceleration in growth, it will consider further investment. The company expects Incubation segment to generate sales of JPY400mn, gross profit of JPY350mn, and operating profit of JPY100mn.
Medium-term targets and strategies: In a briefing on FY09/21 financial results, Aucfan indicated that it would focus on aucfan, NETSEA, and NETSEA Auction targeting SMB (small and medium-sized businesses and sole proprietors) and would withdraw from services for large corporations and individuals. Going forward, the company will consider Gross Merchandise Volume (GMV) as the most important indicator and will make upfront investments.
Strengths and weaknesses
Shared Research sees Aucfan’s strengths as expertise in the use of secondary distribution data; provision of the full line of services needed in secondary distribution; and a business structure that avoids direct competition with strong secondary distribution services from other companies.
Weaknesses: dependence on major auction sites for data; existence of merchandise categories in which it is difficult to leverage the company’s strengths; and significant and uncontrollable uncertainties in the Incubation business.
Key financial data
Note: Figures may differ from those reported by company owing to differences in rounding.
Note: Consolidated results shown from FY09/15; change versus parent company figures the previous year shown for reference purposes only.
Recent updates
Monthly data for business use accounts for October 2021
On November 12, 2021, Aucfan Co., Ltd. announced monthly data for business use accounts for October 2021.
The number of business use accounts in October 2021 totaled 1,448,578. The number of new registrations was 6,569.
Monthly data for business use accounts for September 2021
Aucfan Co., Ltd. announced monthly data for business use accounts for September 2021.
The number of business use accounts in September 2021 totaled 1,452,860. The number of new registrations was 6,794.
Monthly data for business use accounts for August 2021
Aucfan Co., Ltd. announced monthly data for business use accounts for August 2021.
The number of business use accounts in August 2021 totaled 1,446,066. The number of new registrations was 6,995.
Q3 FY09/21 report update
Shared Research updated the report following interviews with Aucfan Co., Ltd.
Trends and outlook
Monthly data (the number of business use accounts)
Significance of the number of business use accounts
Since the number of business use accounts includes both free and paid accounts, an increase in the number of accounts does not necessarily translate to an immediate boost in sales. On the other hand, it is one way to assess whether the company's strategy is progressing well.
Quarterly trends and results
Note: Figures may differ from those reported by company owing to differences in rounding.
Note: Figures may differ from those reported by company owing to differences in rounding.
Note: A dash ( - ) indicates YoY of over 1,000%.
Full-year FY09/21 results
Overview
*Net income attributable to owners of the parent
In its mainstay businesses (excluding Incubation and businesses the company has withdrawn from), sales were JPY3.6bn (+13% YoY), gross profit was JPY2.1bn (+22% YoY), and operating profit was JPY297mn (-12% YoY). Operating profit decreased due to upfront investments to expand Gross Merchandise Volume (GMV). The number of business use accounts (total number of aucfan.com members and NETSEA buyers) in October 2021 was 1,449,000. The number of new registrations (change from the previous month) was 6,569, comprising 3,267 new NETSEA buyers and 3,302 new aucfan.com members.
In the Incubation business, sales were JPY1.7bn (+36% YoY), gross profit was JPY1.0bn (+91% YoY), and operating profit came to JPY751mn (+59% YoY). As of end-September 2021, the valuation difference on available-for-sale securities (net unrealized gains after tax effect) totaled JPY1.6bn.
In businesses the company has withdrawn from (zaicoban, otameshi, wholesale sales to corporations, and others), sales were JPY3.1bn (-11% YoY), gross profit was JPY413mn (-52% YoY), and operating loss was JPY465mn (versus an operating loss of JPY7mn in FY09/20).
Versus its revised full-year FY09/21 forecast, the company achieved 103.0% for sales, 92.6% for operating profit, 119.0% for recurring profit, and 100.9% for net income attributable to owners of the parent.
In a briefing for its FY09/21 financial results, the company indicated that it would focus on aucfan, NETSEA, and NETSEA Auction targeting SMB (small and medium-sized businesses and sole proprietors) and would withdraw from services for large corporations and individuals. Going forward, the company will consider Gross Merchandise Volume (GMV) as the most important indicator and will make upfront investments.
For FY09/22, the company forecasts sales of JPY5.2bn (-37.7% YoY), gross profit of JPY3.1bn (-12.4% YoY), operating profit of JPY100mn (-82.9% YoY), recurring profit of JPY80mn (-86.6% YoY), net income attributable to owners of the parent of JPY50mn (-67.0% YoY), and EPS of JPY4.84. The company expects sales of JPY4.8bn (+35% YoY), gross profit of JPY2.8bn (+32% YoY), and operating profit of JPY0mn in its mainstay businesses (excluding incubation and businesses the company has withdrawn from). The company expects to incur JPY600mn in upfront investments under SG&A expenses. If the company expects growth to accelerate, it will consider further investment. The company expects the Incubation business to generate sales of JPY400mn, gross profit of JPY350mn, and operating profit of JPY100mn.
Results by segment
Inventory Management Solution
The number of billing members of aucfan.com as of end-1H was 36,790 (36,296 in 1H FY03/21). The number of members reached 965,000 (925,000 as of November 2020). Since the introduction of the zaicoban inventory management AI for major companies requires lead time for orders and delays in sales estimates, the company has changed its strategy to utilize it for SMB (small and medium-sized businesses and sole proprietors), which is Aucfan's strength, and terminated the service.
Merchandise Distribution Platform
NETSEA and NETSEA Auction performed well. For the full year, NETSEA's GMV was JPY8.9bn (+14% YoY), and gross profit was JPY790mn (+24% YoY). This figure includes anti-infection goods. For the full year, the GMV of NETSEA Auction was JPY525mn, and gross profit was JPY277mn (+39% YoY). The number of NETSEA buyers as of end-FY09/21 was 483,000 (444,000 as of November 2020). The company strengthened sales and development structures and implemented proactive promotions in an effort to maximize the value of NETSEA distribution volume.
In line with the change in customer target to SMB (small and medium-sized businesses and sole proprietors), one of Aucfan's strengths, the company terminated operation of the donation-type e-commerce website otameshi.
Incubation
As in FY09/20, the company sold a large volume of investment securities in Q1. In Q2 and Q3, in light of the unpredictable economic situation, the company cautiously recorded partial write-downs on investment securities. As of end-September 2021, the valuation difference on available-for-sale securities (net unrealized gains after tax effect) totaled JPY1.6bn. Since Q3, the company has established a division to develop new businesses to serve as the foundation for future growth.
Company forecast for FY09/22
Note: Figures may differ from those reported by company owing to differences in rounding.
Note: Forecasts are the most recent company estimates.
Company forecast for FY09/22 (November 12, 2021)
For FY09/22, the company forecasts sales of JPY5.2bn (-37.7% YoY), gross profit of JPY3.1bn (-12.4% YoY), operating profit of JPY100mn (-82.9% YoY), recurring profit of JPY80mn (-86.6% YoY), net income attributable to owners of the parent of JPY50mn (-67.0% YoY), and EPS of JPY4.84. As part of SG&A expenses, the company expects to incur JPY600mn in upfront investments.
The company expects sales of JPY4.8bn (+35% YoY), gross profit of JPY2.8bn (+32% YoY), and operating profit of JPY0mn in its mainstay businesses (excluding Incubation and businesses the company has withdrawn from). As part of SG&A expenses, the company expects to incur JPY600mn in upfront investments. If the company expects growth to accelerate, it will consider further investment.
The company expects the Incubation business to generate sales of JPY400mn, gross profit of JPY350mn, and operating profit of JPY100mn.
Medium-term goals and strategies
Selection and concentration of businesses
In a briefing for its FY09/21 financial results, the company indicated that it would focus on aucfan, NETSEA, and NETSEA Auction targeting SMB (small and medium-sized businesses and sole proprietors) and would withdraw from services for large corporations and individuals. Going forward, the company will consider Gross Merchandise Volume (GMV) as the most important indicator and will make upfront investments.
Redefinition of corporate identity
In a briefing on FY09/20 financial results, Aucfan indicated that it would redefine its corporate identity and become a “RE-INFRA COMPANY.” According to the company, the term “RE-INFRA COMPANY” describes a company that builds unparalleled infrastructure integrating what the company refers to as “society’s various types of ‘Re’.” This concept refers to a range of concepts represented by words beginning with “re,” including “reuse,” “resale,” “revalue,” “reverse,” “recover,” “reduce,” “rebalance,” and “reconstruct.” The company aims to secure happiness and well-being for society and the world at large by rediscovering value and establishing a better cyclical relationship between people and goods that leads to improved circumstances for both.
ALL WELL
The company has decided upon a slogan that reads, “ALL WELL.” The company indicates that this term describes a cycle, which thanks to contributions from the company, leads to better circumstances (represented by “WELL”) for all entities involved, including companies, cloud sellers, consumers, goods, and the company itself.
Companies can reduce waste loss and convert inventories into cash
Cloud sellers can secure appropriate levels of gross profit and gains through sales channels and categories in which they specialize
Consumers can purchase inexpensive items that would have been discarded otherwise
The company can secure earnings by acting as a mediator for companies, cloud sellers, and consumers
Goods can be redistributed to consumers and reach the ends of their lifespans. The company has expressed an intention to handle goods as if they were also valuable stakeholders moving forward
Business
New segments (applied from FY09/20)
Aucfan primarily makes inventory values (prices that can encourage early liquidation) visible while identifying related issues, redistributes problematic products (for example, products with older packaging, products nearing expiry, and returned items) for monetization, and optimizes sales prices and product lineups based on data. The company will establish an infrastructure for the redistribution of goods by consolidating and integrating the features of its services, rather than providing them separately. Furthermore, it will strive to become a one-stop solution for manufacturers, distributors, and retailers that can calculate resale values for product inventories, identify optimal sales channels, and facilitate automatic sales through direct (to customers) and indirect (to cloud sellers) routes.
It started out providing market data (via aucfan.com) to individuals hoping to make money, and then expanded its operations to include the provision of tools that improve the efficiency of procurement and solutions for inventory issues. The company continues to be named after aucfan, one of its core businesses. However, as a result of expansion in business scope, aucfan.com is currently one of its businesses. In FY09/20, the company changed to reportable three segments: Inventory Management Solution, Merchandise Distribution Platform, and Incubation. The company is focusing especially on its B2B marketplace (B2B e-commerce site) for the primary distribution market (inventory sales and wholesaling) operated under the NETSEA brand at its Merchandise Distribution Platform segment.
Inventory Management Solution
Revenue generated by Inventory Management Solution primarily comes from subscriptions (charged monthly), so the segment uses ARR (Annual Recurring Revenue) as its KPI. The contribution margin ratio is high at 60–70%, meaning that an increase in sales easily leads to improved profitability. Main businesses within this segment include Aucfan Pro Plus, Aucfan (premium), the Storoid analysis tool, the ARPAcart Amazon listing tool, TATEMPO Guide (a system for linking inventory and orders across multiple e-commerce websites), and Aucfan Robo, a robotic process automation (RPA) tool. The old Media and Solution businesses have mainly been included in Inventory Management Solution. In FY09/20, sales were JPY1.9bn (+0.8% YoY), and operating profit was JPY368mn (-8.6% YoY), declining due in part to advertising expenses.
Services for cloud sellers: Aucfan Pro Plus, ARPAcart
Services for e-commerce stores: TATEMPO Guide, Storoid
RPA tool: Aucfan Robo
Merchandise Distribution Platform
Revenue generated by Merchandise Distribution Platform is primarily in the form of commissions and product sales amounts, so the segment uses GMV (Gross Merchandise Volume; includes only merchandise distribution handled directly by the company) as its KPI. The contribution margin ratio is low at 10–20%, and a certain transaction level must be maintained to recover fixed costs. Main businesses within this segment include the NETSEA business, which operates an eponymous B2B marketplace (B2B e-commerce site) for the primary distribution market (inventory sales and wholesaling), B2C e-commerce business horidashi, donation-type e-commerce website Otameshi, ReValue (for the liquidation of slow-moving inventories), cross-border e-commerce, and Good sellers (providing training in the procurement and sale of goods, as well as follow-up consultations). In FY09/20, sales were JPY4.8bn (+19.9% YoY), and operating profit was JPY324mn (+372.4% YoY).
Services for wholesalers and manufacturers: NETSEA (distribution)
Liquidation of slow-moving inventories: ReValue
Support for side businesses: Good sellers
Incubation business
There are no particular changes from the old segment. The company invests mainly in startups and earns revenue from selling investment securities and consulting for investee companies. However, in regard to new investment in the Incubation business, Aucfan is changing its funding method, so that investment is conducted via a fund operated by the company instead of directly. In FY09/20, this segment generated sales of JPY1.3bn (+57.2% YoY) and operating profit of JPY504mn (-12.1% YoY). In March 2020, Aucfan’s investee company, Cyber Security Cloud (TSE Mothers: 4493), went public. As of end-June 2021, the valuation difference on available-for-sale securities (net unrealized gains after excluding tax effects) stood at JPY2.1bn due to the impact of mark-to-market valuation of shares.
(For reference) Old segments through FY09/19
Through FY09/19, Aucfan had four reportable segments: Media, Marketplace, Solution, and Incubation. Shared Research has left the following information on the old segments in this report for reference.
Media business
Core business since the company’s inception. Operates aucfan.com, Japan’s largest price comparison and search website for products sold through online auction and other e-commerce websites. Also operates Aucfan School (now Good sellers), which specializes in teaching expertise and techniques for internet auctions and receives course fees. Earns revenues from membership fees by providing paying members access to market data based on transactions, Aucfan School sales, as well as revenues from ads placed on the website.
Marketplace business
New business expanding since 2014. Acquired companies like NETSEA that operate B2B online markets for manufacturers, wholesalers, and retailers in primary (inventory sales and wholesales) and secondary distribution (surplus inventory and returned goods) markets. Offers one-stop services handling everything from full-priced goods to clearance goods, surplus inventories, and returned products. Bought all the shares of netprice (e-commerce business targeting consumers) in December 2017 and made it a subsidiary.
Solution business
Offers business support services including the TATEMPO Guide software system, which allows users to set up and manage multiple online shops (user fee of JPY29,800 per month), crowdsourcing services for large corporate clients, and other support services including one-time or ongoing sales support.
Incubation business
Invests mainly in startups and earns revenue from selling investment securities and consulting for investee companies.
Inventory Management Solution and Merchandise Distribution Platform segments
Customer bases of mainstay services and billing formats
The company’s mainstay services can be categorized by customer base and billing structure.
The company’s billing structure can be divided into two categories: monthly billing (SaaS model) and revenue from sales and commissions.
Generally, services under the Inventory Management Solutions business follow monthly billing (SaaS model) and the services under the Merchandise Distribution Platform business generate revenue from sales and commissions. Because of these differences, sales in the Inventory Management Solutions business have a tendency to build up as the number of users increases, while sales in the Merchandise Distribution Platform business are sensitive to fluctuations in GMV.
The company is focusing especially on its B2B marketplace (B2B e-commerce site) for the primary distribution market (inventory sales and wholesale) operated under the NETSEA brand at its Merchandise Distribution Platform segment.
Mainstay service details
aucfan.com
The company operates Aucfan.com, Japan’s largest price comparison and market price search website. In addition to being the company’s legacy business, it is also the company’s main earnings base and accounts for much of the sales and earnings generated by the Inventory Management Solution business. The main sources of sales and earnings at this business are service fees paid by members and charges for ads placed on the website. The company does not provide a detailed breakdown of sales and earnings here but has said that more than half of sale and earnings comes from membership fees, followed by ad revenue.
Service fee revenue
On aucfan.com, users can search for, compare, and analyze prices for goods offered through various auction and e-commerce websites. The site provides access to transaction data going back more than 10 years (product and price information for more than 68bn transactions). Buyers and sellers can refer to this data when conducting transactions. According to the company, it had 68.0bn records of data as of August 2020 (cumulative 2007–2019).
Some services available on aucfan.com are offered to users at no charge, but for a fee, members can gain access to more detailed market price information and data analysis. Paying users range from individuals seeking to earn money by trading in online auctions, to entrepreneurs and companies looking to find the right price at which to sell their products.* According to Aucfan, it is the largest provider of such varied online transaction data in the world. Other large price comparison websites mainly provide buyers with information on the lowest price.
According to the company, the majority of users that pay for premium services are individuals or small business owners that are looking to make money on the side by buying and selling goods through online auctions. However, Aucfan also reports that the steady improvement and expansion of its database has led to an increasing number of corporate users looking to establish fair selling prices for the goods they have on hand.
Basic services for paying members are included in the Aucfan Premium service package. The company also offers a number of optional additional services to these users. For users who want more convenient features or data, the company offers advanced features including Aucfan Pro Plus (data analysis tools).
Service charges
Monthly charges are JPY908 (excluding tax) for Aucfan Premium and JPY10,000 (excluding tax) for Aucfan Pro Plus. In July 2018, the company introduced the Aucfan Pro Plus service with expanded features, such as Storoid (tool for detailed analysis of Yahoo! Shopping stores and items for sale) and Global Aucfan (search and comparison service for the least expensive products worldwide) for a revised fee of JPY10,800 (excluding tax, consumption tax rate of 8% at the time) a month versus the previous fee of about JPY3,800 (including tax). Shared Research thinks that fee changes affected about 5,000 of the paying members.
Number of fee-paying members, fees per member
In FY09/18, the number of fee-paying members for Aucfan Premium, Aucfan Pro Plus, and Aucfan School (now Good sellers) totaled 48,887 (vs. 52,837 in FY09/17). Although the number of members declined following the revised fees for Aucfan Premium Plus from July 2018, fees per member increased. Average monthly fees per member were JPY2,782 (vs. JPY1,585).
In 1H FY09/19, service fees (for Aucfan Premium and Aucfan Pro Plus membership) accounted for 59% of sales and Aucfan School (now Good sellers) 34%. Aucfan expanded its services at Aucfan Pro Plus and hiked the average monthly fee (tax inclusive) from around JPY3,800 to JPY10,800 in July 2018. As a result, fee-paying members declined from 52,837 at end-1H FY09/18 to 48,887 at end-1H FY09/19; monthly fee per customer went up from JPY1,585 to JPY2,327. The number of Aucfan paying members (Premium, Pro, and Light combined) has been on a recovery trend since bottoming in May 2020 following price revisions. The company attributes this to increased need for side businesses due to declining incomes after the COVID-19 pandemic-fueled state of emergency declaration was lifted in Apr–May 2020.
Online advertising revenues
The majority of segment revenues come from ads on the company’s mainstay website, aucfan.com. Whenever the website user clicks an ad or purchases a product being advertised, Aucfan collects ad revenues from an advertising agency or a media representative working for the online marketplace or the e-commerce website advertised.
The company breaks down its online ad revenues into pay-for-performance, paid search, and network advertising, but the majority comes from pay-for-performance ads. Aucfan’s online advertising revenue model is distinguished by a focus on ads that provide measurable results, which means the company can manage the ads to improve effectiveness. These ads are used by clients as sales promotions that lead directly to product sales.
Interdependence between Aucfan and major auction/shopping websites
Aucfan gets its transaction data for free from operators of auction and shopping websites such as Yahoo! Japan and Amazon. (See following table.) In return it sends its visitors to those sites at no charge.
Aucfan.com links to the various auction and shopping websites from which Aucfan receives data, so users who come to aucfan.com to compare prices can directly access the websites. Much of the traffic to major Japanese auction websites is routed via aucfan.com. In recognition of this interdependence, Aucfan and Yahoo! Japan are working together to increase activity in the auction market, including holding joint seminars on auctions.
Overview of users and services
Aucfan has three classes of users: unregistered users (who use its website at no cost), general members (registered but non-paying members), and paying members (who pay a monthly fee). All users of aucfan.com can conduct keyword searches using product names or characteristics, and use the product and price comparison, search, and analysis tools. Non-paying members can create their own page (My Page) where they can save product and price information. They can also use of some of the features offered to paying members, though with more restrictions. Paying members have access to more detailed data or convenient features that make it easier to buy or sell goods.
Demographic profile of Aucfan members
According to company materials (Media Guide), roughly 80% of Aucfan members are men. People in their twenties, thirties, and forties account for 80%, likely because those age brackets (typically with high internet literacy) would be most comfortable with Aucfan’s online services. Otherwise, there are no visible trends based on marital status or annual income.
Still, this could change, as the company expects its user base to expand with the rise in smartphone users and internet access. Aucfan believes that as more auction-related smartphone apps are rolled out, more women and beginners will participate in online auctions, such as for secondhand fashion and household goods.
Aucfan members are most interested in affordable shipping prices, low product prices, inventory procurement, and side businesses. Roughly half of all members have or are considering starting their own business or are self-employed. Roughly 35% of members check auction or shopping websites every day using apps.
Profile of Aucfan users
TATEMPO Guide
TATEMPO Guide is a service that allows users to set up and manage multiple online stores from a single location. TATEMPO Guide helps improve operational efficiency by handling the many problems that come with running multiple online stores relating to order management, inventory management, and product records.
Because it is compatible with a wide variety of online stores, TATEMPO Guide is used in more than 1,000 online stores, most with monthly sales of more than JPY100mn, and run by large or listed companies. Aucfan reports that at least 90% of its customers have experienced increases in average sales after installing TATEMPO Guide. Because TATEMPO Guide can be customized to handle changes such as growth in scale or flow of business, it can be used over many years. As replacement is complicated, TATEMPO Guide leads to long-term business once implemented.
The company estimates that there are several hundreds of thousands of potential customers for this service, as it targets small and medium-sized businesses. The company offers a 1,000-order plan with a monthly fee of JPY24,000 or more (free for six months) plus commissions. Competitors include Next Engine of Hamee Corporation (TSE1: 3134).
Aucfan Robo
Aucfan Robo is a purely domestic RPA (business automation solution) that can be operated intuitively without any technical knowledge. Aucfan Robo is particularly strong in the retail, logistics, and EC fields. EC order flow, for example, requires a lot of manual work and additional manpower to handle, such as supporting industry-specific malls, dealing with frequent business changes and seasonal campaigns, but Aucfan Robot can automate these tasks. The monthly fee for this service is over JPY120,000 (excluding tax, as of March 2021).
NETSEA: wholesaling and procurement platform connecting sellers and buyers
Effective August 2021, the company unified its various inventory liquidation services under the NETSEA brand name, changing the name of ReValue B2B Mall (specializing in returned goods) to NETSEA Auction; in September the same year the company rolled out a new service, NETSEA Bulk Mall, a joint purchasing platform to help sellers liquidate large lots of slow-moving inventories. With the addition of NETSEA Bulk Mall, the NETSEA brand will include not only primary distribution services for new goods and secondary distribution services for used goods, but also distribution services for goods that are not considered new or used, such as returns, new-but-outdated goods, goods designed for sale thru outlet malls, and older models. (If primary distribution is considered 1.0 level distribution and secondary distribution 2.0 level distribution, this would be 1.5 level distribution.) By unifying these different services under the NETSEA brand, the company believes it will be able to increase both the efficiency and effectiveness of its marketing efforts which had previously been divided among different types of services. The change will also be helpful for users, as they will have a single account ID giving them seamless access to all NETSEA services.
NETSEA
NETSEA business operates an eponymous B2B marketplace for the primary distribution market (inventory sales and wholesaling). Aucfan acquired NETSEA, the predecessor of the business, from DeNA Co., Ltd. (TSE: 2432) in July 2015. NETSEA is the primary business under the company’s Merchandise Distribution Platform segment, and is the service area where the company is directing the largest portion of its investment spending.
With roughly 430,000 retailers and other companies as buyers (looking to purchase goods), the NETSEA website handles over JPY8.0bn in transactions annually (wholesale price basis), making it the largest online platform serving wholesalers and corporate buyers in Japan. Buyers can use NETSEA free of charge. Manufacturers, wholesalers, and other registered suppliers pay a fee of JPY20,000 (plus tax) per month to be on the platform. In addition, NETSEA receives commissions of 8–10% on the transactions going over the platform from suppliers. One leading indicator of the transaction value the company watches closely is the number of fee-paying companies registered as NETSEA Standard Suppliers. As of end-Q3 FY09/21, this number was up to 898 versus 600 at the same this last year.
The NETSEA business gives suppliers and buyers an online platform to do business. In line with standard wholesaling practices, to complete the transaction the buyer must send the supplier a transaction request. The wholesale price is displayed with the permission of the supplier, and then the transaction can occur. At this time, mostly apparel and miscellaneous goods are traded on NETSEA. NETSEA handles only goods sold through primary distribution channels (inventory sales and wholesaling), but is planning to move into the secondhand market.
In October 2020, the company launched “NETSEA Cross-border wholesale,” a sales site for overseas buyers. To handle other overseas sales, the company has established a network of partner companies.
Competing services include Super Delivery by Raccoon Holdings (TSE Mothers: 3031).
NETSEA Auction (formerly ReValue)
In 2016, Aucfan acquired ReValue, the predecessor of the current business, from Dream Incubator Inc. (TSE: 4310). Now under the name NETSEA Auction, this business operates an online B2B mall that serves as a secondary distribution channel where companies can find the appropriate price and liquidate returned goods and surplus inventory. The switch to the NETSEA Auction name came in August 2021, when the company moved to unify its different services under the Merchandise Distribution Platform business under the NETSEA brand name. This move included giving account users a single account ID, giving them seamless access to all NETSEA services.
ReValue B2B Mall is a members-only auction website. In some cases, companies offer goods directly on the website. While this involves taking some inventory risk, the company can get fairly accurate estimates for fair-value prices that allow it to turn over inventory quickly and earn attractive margins. Buyers using ReValue B2B Mall include secondhand stores, online stores, individual business owners, and overseas companies.
NETSEA Bulk Mall (launched September 2021)
NETSEA Bulk Mall is a joint purchasing platform designed to help manufacturers, wholesalers, and other suppliers liquidate large lots of slow-moving excess inventories.
Prior to the establishment of NETSEA Bulk Mall, the company directly purchased slow-moving inventories from individual suppliers and then resold those items to interested retailers. The problem with this setup was there were many cases the quantities and prices at which the supplier wanted to sell did not match the quantities and prices at which buyers were interested in buying, and the deal was either never done or was completed only after considerable time was spent in price negotiations. NETSEA Bulk Mall works around this problem and greatly speeds the sales process by having suppliers list the inventories they are interested in selling directly on NETSEA Bulk Mall, thus allowing wholesale sales in different lot sizes to multiple buyers in a timely fashion.
Good sellers (formerly Aucfan School)
Good sellers is Aucfan’s proprietary program established for the purpose of providing education/training in online buying and selling with the aim of getting individuals to move up from simply buying online to also selling online. The services offered depend on the type of the user but the end-goal is the same, to train individuals that will then become new, fee-paying users (thereby adding to its fee-paying user base) and then get them to move up from basic-level services to more expensive services. One way the company goes about this is its price comparison website, which is available for use by most consumers at no charge. Among the users of that website, the company indentifies high-frequency buyers/sellers and then offers to help them move up to the status of “reseller” with the help of its auction training program and fee-charging data services.
The company’s Good sellers auction training program draws its students from a wide variety of backgrounds, including office workers, retirees, and women with children at home. The cost of the program amounts to several hundred thousand yen for several months of coursework/training. Because instructors are needed for every class, this is a labor-intensive business and cannot be scaled up quickly. While this limits the growth in sales, profit margins can easily go up as more students are added to existing classes because the number of classrooms and teachers do not need to change. Because the timing of when classes are in session (with most being four to five months long) are set in advance, the tuition and other fee income from the program is also predictable to a large extent. Prior to the pandemic, classes were mainly in-person, but since the pandemic the classes have only been offered as online seminars (as of August 2021).
Follow-up consultations (fixed monthly rate)
Some Good sellers auction training program graduates also go on to sign up for the company’s follow-up consulting services, which gives them regular access to the counsel of the Good sellers course instructors.
Key group companies (as of September 2021)
The group consisted of Aucfan Co., Ltd. and four consolidated subsidiaries.
SynaBiz Co., Ltd. (wholly owned): operates B2B/B2C marketplace business, NETSEA, etc.
Aucfan Partners Inc. (wholly owned): new customer development, e-commerce site contract management, system development, web design, and other business process outsourcing services
Aucfan Incubate Inc. (wholly owned): formation of investment partnerships and operational management
Aucfan Incubate Fund No. 1 Investment Limited Partnership: investment in domestic and overseas venture companies. The company held a 100% investment stake as of May 2020, but expects its stake to decline to about 51% due to external funding in the future.
Market and value chain
B2C e-commerce market for consumers
Aucfan’s price comparison website, aucfan.com, is aimed primarily at the B2C e-commerce market.
According to a survey by Japan’s Ministry of Economy, Trade, and Industry (METI), in 2020 Japan’s B2C e-commerce market was worth JPY19.3tn, down 0.4% YoY. The decline in the overall B2C e-commerce market in 2020 was driven by a sharp decline in sales of services amid the COVID-19 pandemic, not products. Online product sales in 2020 of JPY12.2tn were up 21.7% YoY. As a percent of all B2C sales in Japan, online B2C accounted for 8.08%—up 1.32pp YoY but still well below the worldwide figure of 18.0% (according to eMarketer, as of 2020). Given the still-small percentage of B2C sales accounted for by online sales in Japan, the company believes the domestic B2C e-commerce market still has much room to grow going forward.
B2B e-commerce market
Aucfan began a full-scale push to build up a B2B marketplace with the acquisition of NETSEA Cp., Ltd. in July 2015 and ReValue Inc. in January 2016. According to a METI survey, in 2020 Japan’s B2B e-commerce market was worth JPY335tn (-5.1% YoY) and accounted for 33.5% of all B2B sales (+1.8pp YoY). Of the B2B e-commerce market, wholesale transactions accounted for JPY92tn (-10.3% YoY). The percent of wholesale transactions conducted via e-commerce continued to rise, hitting 30.6% (+1.8pp YoY).
Competitors
The company aims to establish an infrastructure for the redistribution of goods, and therefore concentrates and integrates the functional capabilities of its services, rather than making them available individually. As a result, the company only faces partial competition related to individual services.
One Japanese company that resembles Aucfan’s existing (media) business is Kakaku.com (TSE1: 2371), which operates kakaku.com and other websites that provide price and product information comparisons and personal product reviews.
Similar companies to NETSEA business include Raccoon Holdings Co., Ltd. (TSE Mothers: 3031), which operates a wholesaling and purchasing website called Super Delivery aimed at connecting manufacturers of fashion and accessories to retailers, MonotaRO Co. Ltd. (TSE1: 3064), which focuses on online sales of construction-related products, and Askul Corp. (TSE1: 2678), which focuses on online sales of office products. Raccoon can be viewed as a competitor in a few areas, but the rest do not compete directly with Aucfan given the differences in sales channels and the goods handled.
One of TATEMPO Guide’s competitors is Next Engine under Hamee Corporation (TSE1: 3134). Meanwhile, similar companies to the ReValue business are minor players such as recycling companies and small discount stores.
Note: Kakaku.com’s fiscal year ends in March (IFRS used from FY03/18). Raccoon Holdings and Hamee’s fiscal year ends in April. For example, in the table above, Aucfan’s results for FY09/20 are compared with the results of its competitors for FY03/21, and FY04/21.
Strengths and weaknesses
Strengths
Expertise in the use of secondary distribution data:
Although there is a great volume of up-to-date secondary distribution data to be obtained from outside sources, it is rough data with masking applied, so its effective use requires expertise and knowledge of product characteristics. Aucfan has experience analyzing transaction data for products distributed directly through its own websites along with historical chronological data, so it has the expertise to use even rough data from outside sources effectively.
Provision of full line of services needed in secondary distribution:
Within secondary distribution, the three main functions are visualization of inventory value to identify issues, redistribution of problematic products (for example, products with older packaging, products nearing expiry, and returned items) for monetization, and optimization of sales prices and product lineup based on data. Aucfan operates its own e-commerce channel, but also makes use of indirect distribution leveraging the abilities of users (cloud sellers) in the C2C secondary distribution market. The company’s provision of a full line of services helps it stand out from the competition.
Business structure that avoids direct competition with strong C2C secondary distribution services:
In Japan, the C2C secondary distribution market is dominated by the Mercari service from Mercari, Inc. (TSE Mothers: 4385) and Yahoo! Japan Auctions from Z Holdings Corporation (formerly Yahoo! Japan Corporation, TSE1: 4689). Aucfan avoids directly competing with the dominant services of other companies in the C2C secondary distribution market by primarily providing services to users (cloud sellers) in the B2C and C2C secondary distribution markets.
Weaknesses
Dependence on major auction sites for data:
Aucfan has its own website for direct liquidation, but its scale is still small in relation to the secondary distribution market as a whole. To compensate, it gathers data on winning bids and purchases from external sources, including major online websites such as Yahoo! Japan. Aucfan directs customers to these major online marketplaces, which send Aucfan transaction data in return. However, if the two sides come into competition as they work to expand their business areas, Aucfan might find it difficult to obtain the transaction data it needs.
Existence of merchandise categories in which it is difficult to leverage the company’s strengths:
In the case of non-brand-name apparel, for example, trends evolve rapidly, so a discriminating eye for individual products can be more important than data about price differences based on color, for instance. In addition, Aucfan avoids products that can be easily damaged while in storage or that require significant storage space.
Significant and uncontrollable uncertainties in the Incubation business:
Aucfan invests mainly in startups, generating revenue by selling investment securities and consulting for investee companies. However, the valuation of investment securities is sensitive to market changes, liquidity depends on the timing of investees’ IPOs, and the structure of the business means there are significant and uncontrollable uncertainties.
Historical performance
Income statement
Figures may differ from those reported by company owing to differences in rounding.
Consolidated results shown from FY09/15; change versus parent company figures the previous year shown for reference purposes only.
In FY09/19, the growth rate for sales was just 13.2%, partly due to the impact of a decline in sales at netprice. Despite the termination of netprice at the end of December 2019, sales grew by 18.7% YoY in FY09/20 as the COVID-19 pandemic provided tailwinds for the Merchandise Distribution Platform segment and sales in the Incubation segment were favorable, including those generated by the sale of shares associated with the IPO of Cyber Security Cloud, Inc., one of the company’s investees.
Balance sheet
Note: Figures above may differ from company figures due to rounding differences.
With expansion in the Incubation business and fair market valuation of an investee (Cyber Security Cloud, Inc.) following its IPO, the amount of operational investment securities (marketable securities) is trending upward. In FY09/20, the company recorded unrealized gains generated following fair market valuation (after tax effect deduction) as valuation difference on available-for-sale securities under net assets.
Cash flow statement
Note: Figures above may differ from company figures due to rounding differences.
Cash flow associated with investment in, and sale of, operational investment securities is included in cash flows from operating activities. Cash flows from investing activities center on outflows related to the acquisition of intangible assets. Cash flows from financing activities mostly involve changes in interest-bearing debt, but in FY09/19, they included outflows of JPY160mn for the purchase of treasury shares and inflows of JPY363mn from the issue of shares in connection with the exercise of stock acquisition rights.
Historical performance
Q3 FY09/21 results
Overview
The company’s core businesses reported mixed results for the nine-month period through Q3, with the Inventory Management Solution segment reporting a 7.5% YoY decline in sales and a 12.6% YoY decline in operating profit, and the Merchandise Distribution Platform segment reporting a 21.1% YoY rise in sales and a 71.1% YoY decline in operating profit. At the gross profit level, the company saw a JPY322mn decline YoY, due mainly to its exit from the netprice business in FY09/20 and the drop in revenue from sales of inventories under custody following changes in zaicoban’s business model, to one that no longer seeks to be profitable on a standalone basis. As of end-July 2021, the company had a total of 1,439,071 business-use accounts and 5,955 new registrations (net change versus June).
At the Incubation segment, the company followed large sales of operational investment securities holdings during FY09/20 with sales of more large pieces of its operational investment securities holdings in Q1 FY09/21 (October–December 2020). In Q2 and Q3, the ongoing uncertainty surrounding the economic outlook prompted the company to take a conservative stance and book valuation losses on some of its remaining operational investment securities holdings. In Q3 (three months), the Incubation segment reported an operating loss of JPY108mn. As of end-Q3 FY09/21, the company reported an unrealized gain of some JPY2.1bn (net taxes) on other investment securities holdings.
On August 13, 2021, Aucfan announced revisions to its full-year FY09/21 forecast. The revised forecast calls for sales of JPY8.1bn (previously JPY10.9bn), operating profit of JPY630mn (JPY1.3bn), recurring profit of JPY500mn (JPY1.3bn), net income attributable to owners of the parent of JPY150mn (JPY800mn), and EPS of JPY14.53 (JPY77.50). Compared with the revised forecast, results for the nine-month period through Q3 left the company with 79.2% of its full-year target for consolidated sales, 109.3% of its full-year target for operating profit, 136.3% of its full-year target for recurring profit, and 271.3% of its full-year target for net income. For further details with respect to the company’s revision to its full-year forecast, see discussion under the Company forecast for FY09/21 section later in this report.
Breakdown of results by segment
Inventory Management Solution segment
In April 2021, the company announced it would be making changes in the business model for its zaicoban business; instead of trying to be profitable on a standalone basis, the zaicoban business will now offer its inventory diagnostic service for free with the aim of further increasing the transactions going through the company’s Merchandise Distribution Platform business. Reflecting this, the company booked JPY108mn in impairment losses on zaicoban software. Sales and earnings at aucfan.com were roughly flat YoY.
Merchandise Distribution Platform segment
The nine-month period through Q3 FY09/21 saw solid increases in both the transaction volumes and the number of users at NETSEA and ReValue B2B Mall (rebranded under the name NETSEA Auction in August 2021). To be precise, the total value of merchandise handled by NETSEA was up 148% YoY in Q3 (excluding the extraordinary surge in infection prevention goods at this time last year). One leading indicator of transaction value the company watches closely is the number of companies registered as NETSEA Standard Suppliers (users that pay a monthly fee of JPY20,000 plus taxes). As of end-Q3 FY09/21, this number was up to 898 companies versus 600 at the same time last year. With more companies on the platform as suppliers more buyers came as well, pushing up the volume and value of transactions going over the platform. In Q3 , the value of transactions going through the ReValue B2B Mall increased 166% YoY. With regard to purchases of single products or purchases involving multiple SKUs, the company said it was able to put the ReValue B2B Mall in a better position to handle such purchases with the help of changes in its warehousing operations, including changes in shifts so as to increase the time available for order fulfillment. As a result, for the nine-month period through Q3 FY09/21 NETSEA booked a gross profit of JPY589mn (versus JPY452mn in the same period last year, which included the impact of extraordinary demand for some products due to the pandemic) while ReValue B2B Mall posted gross profit of JPY201mn (versus JPY135mn). During the period the company also stepped up its efforts on the sales and development front and actively used special sales promotions aimed at maximizing NETSEA’s transaction value. Meanwhile, sales and earnings were down YoY at Otameshi and basically flat YoY at Good sellers.
Unification of branding for inventory liquidation services
Effective August 2021, the company unified its various inventory liquidation services under the NETSEA brand, changing the name of ReValue B2B Mall (specializing in returned goods) to NETSEA Auction; in September the same year the company rolled out a new service, NETSEA Bulk Mall, a joint purchasing platform to help sellers liquidate large lots of slow-moving inventories. With these changes, the NETSEA brand will include not only primary distribution services for new goods and secondary distribution services for used goods, but also distribution services for goods that are not considered new or used, such as returns, new but outdated or out-of-season goods, goods designed for sale thru outlet malls, and older models (if primary distribution is considered 1.0 level distribution and secondary distribution 2.0 level distribution, this would be 1.5 level distribution). By unifying these different services under the NETSEA brand name, the company believes it will be able to increase both the efficiency and effectiveness of its marketing efforts which had previously been divided among different types of services. The change will also be helpful for users, as users will have a single account ID giving them seamless access to all NETSEA services.
Incubation segment
Following large sales of operational investment securities holdings in FY09/20, the company offloaded more large pieces of its operational investment securities holdings during Q1 FY09/21 (October–December 2020). In Q2 (January–March 2021) and Q3 (April–June 2021), the ongoing uncertainty surrounding the economic outlook prompted the company to take a conservative stance and book valuation losses on some of its remaining operational investment securities holdings. For the three-month period of Q3, the Incubation segment reported an operating loss of JPY108mn. As of the end of Q3 FY09/2021, the company reported an unrealized gain of some JPY2.1bn (net of taxes) on other investment securities holdings.
Also in Q3 FY09/21, the company established a special department to oversee development of new businesses. While these new businesses will drive growth in the future, in the near term they will naturally require upfront spending.
1H FY09/21 results
Overview
*Net income attributable to owners of the parent
Versus full-year company targets, sales reached 42.6%, operating profit 60.9%, recurring profit 62.7% and net income 62.8%. In the mainstay businesses (excluding Incubation business), the progress rate was 32.6% for sales and 2.6% for operating profit. The progress rate for the Incubation business was 153.5% for sales and 97.2% for operating profit.
In the mainstay businesses, sales fell 16.2% YoY and operating profit fell 19.5% YoY in the Inventory Management Solution business and sales grew 25.9% YoY and operating profit fell 52.8% YoY in the Merchandise Distribution Platform business. In the Inventory Management Solution business, the company recorded an impairment loss of JPY108mn on the entire book value of zaicoban software. The Merchandise Distribution Platform business enjoyed solid distribution volume in NETSEA and ReValue B2B Mall, but upfront investments made in NETSEA resulted in profit decline. The number of business use accounts in April 2021 totaled 1,417,214. The number of new registrations was 7,562.
In the Incubation business, in a continuation of performance in FY09/20, the company sold a large volume of investment securities in Q1. In Q2, in light of the unpredictable economic situation, the company cautiously recorded partial write-downs on investment securities. As a result, the Incubation business recorded sales of JPY1.3bn and operating profit of JPY778mn. For Q2 (three months), the company recorded an operating loss of JPY374mn in the segment. As of end-March 2021, the valuation difference on available-for-sale securities (net unrealized gains after excluding tax effects) stood at JPY2.3bn.
The company made no changes to its latest FY09/21 full-year earnings forecasts, disclosed on November 13, 2020. For details on the assumptions used in the forecast, please refer to the company forecast for FY09/21 section below.
Results by segment
Inventory Management Solution
In Q2 (January-March), the company recorded sales of JPY439mn (-23.2% YoY) for the segment. Due to the spread of the COVID-19 infection, companies curbed ad spending, which resulted in a sharp decline in sales related to advertising management agency services. In the same period of the previous year, the impact was limited due to the early stage of the outbreak.
In April 2021, the company announced that it would change its policy of monetizing “zaicoban” on a stand-alone basis and provide a free inventory diagnostic service in order to expand the GMV of Merchandise Distribution Platform. As a result, the company recorded an impairment loss of JPY108mn on the entire book value of “zaicoban” software in Q2.
Merchandise Distribution Platform
The business had solid growth in distribution volume and number of users, notably in NETSEA and ReValue B2B Mall. In Q2, the GMV of NETSEA, excluding anti-infection goods (excluding special demand elements) was up more than 140%. Q2 GMV of ReValue B2B Mall was up more than 230% YoY. The company strengthened sales and development and implemented proactive promotions in effort to maximize the GMV of NETSEA distribution. The company says it plans to continue to implement proactive promotions going forward.
On the other hand, distribution volume and number of users in negotiated transactions, in which inventory is purchased in bulk and sold to corporations without going through the “ReValue B2B Mall,” decreased in Q2 from Q1. Due to this, Q2 sales (JPY1,209mn) were slightly lower than Q1 sales (JPY1,231mn). In Q2, the company incurred a little less than 70 million yen in bad debt losses (SG&A expenses) on negotiated transaction sales.
In Q2, the company acquired all shares in Aucfan Partners, making it a subsidiary. The increase in goodwill was JPY22mn.
Incubation
In a continuation of performance in FY09/20, the company sold a large volume of operational investment securities in Q1. In Q1, the company acquired all shares in Shochi Shimashita Co., Ltd., making it a subsidiary. The company intends to use its knowledge of KPI management to improve the profitability of its investees. The increase in goodwill was JPY20mn. In Q2, in light of the unpredictable economic situation given the spread of COVID-19, the company conservatively booked partial write-downs on operational investment securities. For Q2 (three months), the company recorded an operating loss of JPY374mn in the segment. As of end-March 2021, the valuation difference on available-for-sale securities (net unrealized gains after excluding tax effects) stood at JPY2.3bn.
Q1 FY09/21 results
Overview
*Net income attributable to owners of the parent
Versus full-year company targets, sales reached 27.2%, operating profit 94.2%, recurring profit 97.2% and net income 114.8%. In the mainstay businesses (excluding Incubation business), the progress rate was 16.7% for sales and 14.5% for operating profit. The progress rate for the Incubation business was 144.2% for sales and 144.0% for operating profit.
In the mainstay businesses, sales fell 8.5% YoY and operating profit fell 15.7% YoY in the Inventory Management Solution business and sales grew 16.0% YoY and operating profit grew 96.0% YoY in the Merchandise Distribution Platform business. The Inventory Management Solution business was affected by delays in cultivating major corporate customers, but the Merchandise Distribution Platform business enjoyed an increase in distribution volume thanks to stay-at-home consumption. Moving forward, the company plans to continue focusing on TATEMPO Guide; zaicoban, which is linked with TATEMPO Guide; and NETSEA. Accordingly, it has actively invested in primarily online advertising aimed at raising recognition regarding these services. In the Incubation business, in a continuation of performance in FY09/20, the company sold a large volume of investment securities in Q1. As a result the Incubation business recorded sales of JPY1.3bn and operating profit of JPY1.2bn that included gains from the sale of shares not originally factored into company forecasts. As of end-December 2020, the valuation difference on available-for-sale securities (net unrealized gains after excluding tax effects) stood at JPY2.2bn.
The number of business use accounts in February 2021 totaled 1,401,014. The number of new registrations was 8,245. Growth has been on an uptrend again since January 2020.
The company made no changes to its latest FY09/21 full-year earnings forecasts, disclosed on November 13, 2020. Although it considered revision of its full-year outlook, it elected to leave its forecasts intact, partially in consideration of the major changes in the market environment caused largely by COVID-19 and reflecting the risk of impairment losses from Q2 investment securities held by the Incubation business (operating investment securities). Please see the “FY09/21 full-year company forecasts” section for earnings forecast assumptions.
Results by segment
Inventory Management Solution
The company continued invest in advertising and promotions to attract customers and grow sales of its various solutions while strengthening its hiring activities.
There were delays in obtaining new orders as uncertainties over the prolonged COVID-19 pandemic prompted major customers to rein in marketing expenditures. As a result, sales for the zaikoban inventory management AI lagged projections due to lead times required in orders from major accounts. The company does not anticipate a change in this trend as most Japanese companies head into their new fiscal year beginning from April, so from Q2, the company integrated zaicoban with its TATEMPO Guide one-stop online shop management tool, and for major customers with prolonged lead times to orders, it is focusing efforts in the near term on growing sales of low-rate plans targeting the company’s strong area of small and medium-sized businesses and SMB (side businesses and sole proprietorships). Specifically, the company aims to grow sales by increasing low-rate plans through cross-selling to existing customers.
The number of Aucfan paying members (Premium, Pro, and Light combined) has been on a recovery trend since bottoming in May 2020 following price revisions. The company attributes this to increased need for side businesses due to declining incomes after the COVID-19 pandemic-fueled state of emergency declaration was lifted in Apr–May 2020.
Accordingly, Inventory Management Solution sales in Q1 declined 8.5% YoY to JPY472mn, although they exceeded Q4 FY09/20 (Jul–Sep) sales of JPY470mn.
Merchandise Distribution Platform
The Merchandise Distribution Platform business, in a continuation of the trend in 2H FY09/20, continued to see solid growth in distribution volume and customers, notably for NETSEA and Otameshi. Stay-at-home consumptions led to growth in distribution volume in the business. Sales opportunities increased as companies built up inventory. Otameshi had brisk performance in packaged sales of multiple merchandise. The company expects these trends to continue.
On the other hand, resources in Q1 were allocated to medium-term initiatives expected to contribute to sales from Q2 onward such as the collaboration between NETSEA and Ehime Prefecture, an initiative that is aimed at expanding the number of NETSEA suppliers (sellers). One reason for the emphasis on this project is that a positive outcome would facilitate further collaborations with other local governments. In addition, terms of some large transactions booked as Revalue business sales in Q4 FY09/20 did not match with subsequent terms in Q1.
As a result, Merchandise Distribution Platform sales in Q1 were up 16.0% YoY to JPY1.2bn but failed to reach the JPY1.7bn level posted in Q4 FY09/20 (July–September).
Incubation
In a continuation of performance in FY09/20, the company sold a large volume of investment securities in Q1. The company booked gains from the sale of listed and unlisted stocks that had not originally been anticipated. As of end-December, the valuation difference on available-for-sale securities (net unrealized gains after excluding tax effects) stood at JPY2.2bn. Of the JPY4.0bn in operating investment securities as of end-December 2020, over 80% was accounted for by shares of Cyber Security Cloud Co., Ltd (TSE Mothers: 4493) while the remainder (nearly 20%) was other unlisted stocks.
Full-year FY09/20 results
Overview
*Net income attributable to owners of the parent
Versus full-year company targets, sales reached 96.6%, operating profit 100.6%, recurring profit 99.4% and net income 99.7%. In the mainstay businesses (excluding Incubation business), the progress rate was 87.1% for sales and 52.0% for operating profit. Previously, the company made the decision not to revise its full-year forecast despite performance that was somewhat lower than expected in Q1 and Q2. It based this decision on the expectation that it would accumulate earnings during 2H. Sales generated by core businesses in Q4 turned out to be slightly lower than the projection released along with Q3 financial results had indicated, but operating profit in Q4 was generally in line with the projection thanks in part to tailwinds associated with the COVID-19 pandemic. The progress rate for the Incubation business was 222.0% for sales and 245.7% for operating profit.
In the mainstay businesses, sales grew 0.8% YoY and operating profit fell 8.6% YoY in the Inventory Management Solution business and sales grew 19.9% YoY and operating profit grew 372.4% YoY in the Merchandise Distribution Platform business. In the Incubation business, sales increased by 57.2% YoY and operating profit declined by 12.1% YoY. The company sold a large volume of investment securities in Q3 and Q4. As of end-September 2020, the valuation difference on available-for-sale securities (net unrealized gains after excluding tax effects) stood at JPY4.4bn.
The company started providing monthly disclosures in June 2020. The number of business use accounts in October 2020 totaled 1,369,331. The number of new registrations was 7,595. Since May 2020, the pace of account growth has slowed down compared to April, but remained at a higher level (net increase of over 7,500 accounts per month) compared to levels (net increase of around 6,000–7,000 accounts per month) before January 2020 or before the COVID-19 outbreak in Japan.
The full-year company earnings forecast for FY09/21 calls for sales of JPY10.9bn (+38.4% YoY), operating profit of JPY1.3bn (+58.4% YoY), recurring profit of JPY1.3bn (+54.5% YoY), net income attributable to owners of the parent of JPY800m (+86.6% YoY), and EPS of JPY78.03. The breakdown is as follows: sales of JPY10.0bn (+51.4% YoY) and operating profit of JPY500.0mn (+57.6% YoY, including impact from common expenses) in the mainstay businesses (other than Incubation), and sales of JPY900.0mn and operating profit of JPY800.0mn in Incubation business. For more details regarding assumptions on which the company’s full-year earnings forecast is based, please see the section below, entitled “Full-year company forecast.”
In Q1 FY09/20, the company shifted from four reportable segments (Media, Marketplace, Solution, and Incubation) to the following three segments: Inventory Management Solution, Merchandise Distribution Platform, and Incubation. Therefore, YoY comparisons are based on FY09/19 figures after adjustment to reflect the new reportable segments.
Results by segment
Inventory Management Solution
The company is investing in zaicoban which uses AI to make inventory values visible, identify issues related to company inventory and optimize sales prices and product lineups, and TATEMPO Guide (an ASP service that allows users to place products simultaneously on multiple online marketplaces and adjust inventory), with a focus on sales expansion and marketing and advertising.
Merchandise Distribution Platform
In April 2020, the company posted a record high monthly GMV of JPY1.3bn in the NETSEA business as FY09/20 GMV reached a record high of JPY8.1bn (+24% YoY). Meanwhile, the company booked record high profits in the ReValue business, which has maintained its strong performance since. In addition, consolidated subsidiary SynaBiz started a new business of stocking and selling mainly used goods from Q3 with the aim of promoting corporate inventory redistribution.
Incubation
In Q3 and Q4, the company sold off a major part of its operational investment securities. In Q4 (July–September), the company recognized an impairment loss on operational investment securities. Accordingly, operating profit (net amount after the recognition of the impairment loss) was only JPY96mn despite sales of JPY663mn. Operational investment securities increased by JPY6.0bn YoY due to the valuation difference on Cyber Security Cloud (TSE Mothers: 4493) shares following its IPO. As of end-September 2020, the valuation difference on available-for-sale securities (net unrealized gains after excluding tax effects) stood at JPY4.4bn.
Other information
History
Shuichi Takenaga, founder and representative director, started out by launching an online auction business as a sole proprietor while still in college. As sales grew, in April 2004 he established Defactostandard, Ltd., which later became Aucfan. The experience of operating Defactostandard, which primarily sold items through actions, provided Takenaga with know-how on profit maximization though buying and selling secondhand products. In January 2006, Defactostandard took over management of an auction statistics website (now aucfan.com) run by an individual, and began operating a media business enabling auction price comparison and market data search.
Aucfan Co. Ltd. was established in June 2007 after Defactostandard separated the media business as an independent entity. At that time, Takenaga sold his stake in Defactostandard to BEENOS (TSE Mothers: 3328). Takenaga currently has no capital relationship with Defactostandard, which now operates Brandear, a platform for trading brand items.
The number of business use accounts in March 2021 totaled 1,409,652. The number of new registrations was 8,638.
In Aucfan’s early years, it was based mainly on an online advertising revenue model at the Media business. It started generating service fee revenue with the introduction of premium services for members in August 2008. Since then, Aucfan has added steadily to its lineup of revenue-generating services, with the start of the Aucfan School (now Good sellers) and its correspondence courses specializing in auction topics in December 2008, the launch of the Monochekki smartphone app in October 2011, the introduction of Aucfan Pro comprehensive data analysis tools in November 2011, and the December 2012 launch of Global Aucfan, a one-stop e-commerce website search service.
Following its listing on the Mothers section of the Tokyo Stock Exchange in April 2013, Aucfan began moving into peripheral business areas, but the big turning point came with the acquisition of NETSEA Co., Ltd. in July 2015. With the acquisition, Aucfan extended outside of its traditional Media business (providing price data for online B2C and C2C transactions) into the larger B2B market.
Major shareholders (as of end-March 2021)
The company has 216,000 treasury shares, but is not listed as a major shareholder.
Corporate governance and top management
Corporate governance (as of December 28, 2020)
Top management
Aucfan’s president and representative director is Shuichi Takenaga (born 1978). He began an online auction business as a sole proprietor in 2000, while still a student at Kyoto University. In 2004 he founded Defactostandard, Ltd. and became its representative director. In June 2006, Aucfan Co. Ltd. was founded through an incorporation-type company split.
Employees
Aucfan has been reporting consolidated results since FY09/15. As of the end of FY09/20, Aucfan had 146 (149 in FY09/19) employees (consolidated figures). The employee statistics that follow are parent company figures.
Note: Average annual compensation includes compensation other than base wages.
Dash (-) denotes when avg. number of temporary staff is less than 10% of employees.
Dividend policy
The company intends to begin paying dividends once earnings and its financial position support such a move. However, since it is still in the growth stage, Aucfan’s current priority is building up the internal reserves needed to fund future business expansion and strengthen its financial position. Aucfan has paid no dividends from the time of its founding through FY09/20. It intends to eventually pay dividends, but has not yet made a decision regarding whether paying a dividend is possible or when a dividend might be initiated.
Origin of company name
The name Aucfan comes from the company’s vision of gathering together auction fans to create a new whirlwind that will blow around the world.
News and topics
Monthly data for business use accounts for July 2021
Aucfan Co., Ltd. announced earnings results for Q3 FY09/21.
On the same day, the company announced revisions to its earnings forecast.
Revised full-year FY09/21 forecast
*Net income attributable to owners of the parent
Reasons for revisions
Sales: Aucfan expects product sales in the Merchandise Distribution Platform business, including corporate wholesale and overseas sales, to be 57.8% of the initial plan as a result of restraint on transactions in light of risks regarding uncollected receivables. In addition, it expects marketing support sales in the Inventory Management Solution business to be just 64.2% of plan.
Operating profit: In addition to a projected JPY301mn drop in operating profit due to the aforementioned decrease in sales, the company anticipates a negative impact of JPY220mn in the Inventory Management Solution business from a change in the sales strategy for the zaicoban inventory management AI.
Aucfan considered trying to offset the decline in sales and operating profit via NETSEA and ReValue in the Merchandise Distribution Platform business, and by selling investment securities in the Incubation business. However, it decided instead to revise its full-year FY09/21 forecast, taking into account performance during cumulative Q3, along with the selection and concentration of businesses and ongoing investment in growth businesses leading into FY09/22. The forecast revisions are based on conservative e