Aucfan 3674
オークファン
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2022-05-16
2022-05-13
2022-04-15
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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
Business domains: As of end-FY09/21, Aucfan Co., Ltd.'s core businesses were aucfan.com, an online shopping/auction market statistics-based comparison service, and NETSEA, a B2B wholesale sales and purchasing platform. The company's main areas of business are identifying issues by visualizing the value of inventory (i.e., the price at which it can be sold off quickly), recirculating and monetizing imperfect products (e.g., products in older packages, products getting close to the best-before date, returned products), and optimizing sales prices and product lineups based on data. The company started out with aucfan.com and has since expanded its business domains to include the provision of product purchasing and efficiency improvement tools, as well as solutions for inventory-related issues. The company narrowed its segments to three in FY09/20, the Inventory Management Solution, the Merchandise Distribution Platform, and the Incubation segments.
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 COMPANY” means a company that builds unparalleled infrastructure integrating what the company refers to as society’s various types of "Re.” This 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.
Inventory Management Solution: Earnings in the Inventory Management Solution business primarily comes from subscriptions (monthly fee), 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. The main business in this segment is aucfan.com (Aucfan Pro Plus, Aucfan [premium]). In FY09/21, the segment reported sales of JPY1.8bn (-5.8% YoY) and operating profit of JPY343mn (-6.8% YoY).
aucfan.com: The number of paying members (not including those using the service for free) of aucfan.com as of end-FY09/21 was 36,790 (36,296 at end-FY09/20). The average monthly fee per user was about JPY1,600 in Q4 FY09/21, largely unchanged YoY. Based on these figures, it appears aucfan.com can generate service fee revenue of about JPY60mn each month, or about JPY700mn each year. Membership (including free users) was about 974,000 at end-January 2022, up from about 934,000 at end-January 2021.
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 in this segment include NETSEA Auction (previously ReValue), and NETSEA Bulk Mall. For FY09/21, the segment reported sales of JPY5.0bn (+3.7% YoY) and operating losses of JPY259mn (versus operating profit of JPY324mn in FY09/21).
NETSEA: The company is particularly focused on making investments in this business, which comprises the core of the Merchandise Distribution Platform business. With roughly 491,000 retailers and other companies as buyers as of end-January 2022 (looking to purchase goods), the NETSEA website handles about JPY9.0bn in transactions annually (wholesale price basis), making it one of the largest online platforms serving B2B wholesalers and corporate buyers in Japan (as of February 2022). 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.
As such, the company in Q3 FY09/21 established a division to develop new businesses that it expects to serve as the foundation for future growth. In FY09/21, the segment generated sales of JPY1.7bn (+34.5% YoY) and operating profit of JPY875mn (+73.7% YoY). In March 2020, Aucfan’s investee company, Cyber Security Cloud (TSE Mothers: 4493), went public. Reflecting mark-to-market valuations of its share holdings, the company's valuation difference on available-for-sale securities (unrealized net gains after tax effect deduction) in its Incubation portfolio was JPY917mn as of end-December 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 and businesses 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 in the near term 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 the near term, the company is placing more of an emphasis on GMV and gross profit growth than on operating profit growth.
Strengths and weaknesses
Shared Research sees Aucfan’s strengths as: 1) aucfan.com's membership base and stable monthly income; 2) its expertise in the use of secondary distribution data; and 3) a business structure that avoids direct competition with strong secondary C2C distribution services.
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
Aucfan Co., Ltd. announced monthly data for business use accounts for April 2022.
The number of business use accounts in April 2022 totaled 1,483,483. The number of new registrations was 5,303.
Monthly data for business use accounts
Aucfan Co., Ltd. announced monthly data for business use accounts for March 2022.
The number of business use accounts in March 2022 totaled 1,478,180. The number of new registrations was 6,759.
Acquisition of shares in OSR Net and Osaka Senba Ryutsu Mart
On March 14, 2022, Aucfan Co., Ltd. announced that it would acquire shares in OSR Net Co., Ltd. and Osaka Senba Rutsu Mart Co., Ltd., making both companies subsidiaries.
At a meeting of the company's Board of Directors on March 14, 2022, the Board approved plans of acquiring all outstanding shares in OSR Net Co., Ltd. and its subsidiary Osaka Senba Ryutsu Mart Co., Ltd. With this acquisition, OSR Net will become a subsidiary of Aucfan and Osaka Senba Ryutsu Mart will become a second-tier subsidiary.
Purpose of acquisition
Aucfan's NETSEA has expertise in the operation of online wholesale malls and business relations with a wide range of mid-tier suppliers of various goods and an established customer base among small/medium-sized businesses and sole proprietors. OSR Net and Osaka Senba Ryutsu Mart have a physical presence in the Kansai region that provides space for vendors to display their wares, facilitates talks between small/medium-sized suppliers and large buyers, and generates roughly JPY4.0bn per annum in sales at the wholesale level.
The company said that its acquisition of OSR Net and Osaka Senba Ryutsu Mart was aimed at giving the suppliers currently using NETSEA the opportunity to hold physical exhibitions throughout Japan, while at the same time giving the suppliers currently displaying their wares in the exhibition space operated by OSR Net and Osaka Senba Ryutsu Mart the opportunity to make use of NETSEA and other online wholesale platforms operated by Aucfan. By giving suppliers the opportunity to market their wares using both online and brick-and-mortar channels in this manner, Aucfan thinks it will be able to expand both the number and variety of goods being offered through its channels as well as the number of vendors it works with, with this in turn leading to further increases in gross merchandise value handled (one of the group's key performance metrics).
Acquisition cost
The company has not disclosed the cost of the acquisition.
Acquisition schedule
Impact on company outlook
With respect to the impact of this acquisition on Aucfan's outlook for full-year consolidated results for FY09/22, the company said the inclusion of OSR Net and Osaka Senba Ryutsu Mart in consolidated results starting in April means the acquisition will contribute to full-year results in terms of sales and gross profit. At this time, however, it is analyzing the detail and will make any other disclosures as required in a timely fashion.
Monthly data for business use accounts
On March 15, 2022, Aucfan Co., Ltd. announced monthly data for business use accounts for February 2022.
The number of business use accounts in February 2022 totaled 1,471,421. The number of new registrations was 6,552.
Trends and outlook
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%.
Note: Figures may differ from those reported by company owing to differences in rounding.
Note: A dash ( - ) indicates YoY of over 1,000%.
1H FY09/22 results
Overview
*Net income attributable to owners of the parent
In its mainstay businesses (excluding Incubation and businesses the company has withdrawn from), Gross Merchandise Volume (GMV) was JPY5.4bn (+20% YoY), sales were JPY2.0bn (+20% YoY), and gross profit was JPY1.0bn (+2% YoY); the company recorded an operating loss of JPY34mn (versus an operating profit of JPY112mn in 1H FY09/21). The operating loss was attributable to upfront investments to expand GMV. The number of business use accounts in April 2022 was 1,483,000. Of these, 500,000 were NETSEA buyers and 984,000 were aucfan.com members. The progress rates for the mainstay businesses were 39% for GMV, 43% for sales, and 37% for gross profit.
In the Incubation business, sales were JPY215mn (-84.4% YoY), gross profit was JPY217mn (-75% YoY), and operating profit came to JPY120mn (-84.4% YoY). As of end-March 2022, the valuation difference on available-for-sale securities (net unrealized gains after tax effect) totaled JPY1.2bn. The progress rates in the Incubation business were 56% for sales, 62% for gross profit, and 120% for operating profit.
In businesses the company has withdrawn from (such as wholesale sales to corporations) and others, sales were JPY686mn (-55.0% YoY), gross profit was JPY35mn (-88% YoY), and the company recorded an operating loss of JPY29mn (versus an operating loss of JPY99mn in 1H FY09/21).
The company kept its full-year forecast for FY09/22 unchanged. The progress rates against the company's full-year FY09/22 forecast (initial forecast) were 56.8% for sales, 57.0% for operating profit, 70.2% for recurring profit, and 69.7% for net income attributable to owners of the parent. For details of the assumptions used for the initial forecast, please refer to the section "Company Forecast for FY09/22" below.
Results by segment
From FY09/22, as a result of organizational restructuring due to the implementation of business selection and concentration of the company's businesses, good sellers, a school-style side business support service had been classified as a Merchandise Distribution Platform business, was reclassified as an Inventory Management Solution business because the service for customers of the latter was primarily restructured as an element of performance measurement. As Shochi Shimashita Co., Ltd. was made a subsidiary at end-September 2021, the consulting services that had been classified as an Incubation business have been reclassified as an Inventory Management Solution business, as the company now mainly provides services to customers of the latter. As a result, YoY comparisons have been made by reclassifying the figures for 1H FY09/21 into the figures after the change in reporting segments.
Inventory Management Solution
The number of paying members of aucfan.com as of end-Q2 was approximately 37,000 plus (approximately 36,000 plus in 1H FY09/21). Q2 gross profit of aucfan.com was JPY224mn (+12% YoY).
Merchandise Distribution Platform
NETSEA's GMV in Q2 was JPY2.5bn (+17% YoY), and gross profit was JPY207mn (+7% YoY). Intensified promotions resulted in gross profit margin decline, which was within presumed parameters. The GMV of NETSEA Auction in Q2 was JPY198mn (+35% YoY), and gross profit was JPY63mn (-8% YoY).
Incubation
In preparation for planned investments in its mainstay businesses, the company sold a portion of its operational investment securities (shares in Cyber Security Cloud) in Q1; as of end-March 2022, the valuation difference on available-for-sale securities (net unrealized gains after tax effect) totaled JPY1.2bn. Since Q3 FY09/21, 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.
FY09/22 company forecast (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. The company expects withdrawal from zaicoban, otameshi, and wholesale sales to corporate customers in FY09/21 to result in a significant decline in sales in FY09/22. Although the withdrawal from these services will have a positive impact on operating profit, the company expects to incur JPY600 million in upfront investment under SG&A expenses, resulting in a YoY lower profit forecast.
Mainstay businesses (other than exited businesses and the Incubation segment)
Outside of the exited businesses and the Incubation segment, the company expects GMV of JPY14.0bn (+47% YoY), sales of JPY4.8bn (+35% YoY), gross profit of JPY2.8bn (+32% YoY), and operating profit of JPY0mn in its mainstay businesses.
The GMV growth forecast is mainly based on expected growth at NETSEA, which is the core of the Merchandise Distribution Platform business. The company also expects a contribution from NETSEA Bulk Mall, which was launched in September 2021. Sales are not expected to grow as fast as GMV, as it includes aucfan.com, which has a lower growth rate than NETSEA.
The company forecasts JPY600mn in upfront investments as SG&A expenses and expects to continue to invest until earnings reach the operating profit breakeven point. If the company sees the potential for accelerated growth, it will consider further investment.
Gross profit breakdown
Assuming that the take rate of GMV in FY09/22 will be the same level as it was in FY09/21, NETSEA would account for about JPY1.6bn of total gross profit, with much of the remaining JPY1.2bn coming from aucfam.com. Calculated as NETSEA and NETSEA Auction gross profit/GMV, the take rate of GMV in FY09/21 was 11.3%.
Leveraging aucfam.com
The company plans to conduct a major updating and new development for aucfan.com. Given the long history and aging systems structure of the aucfan.com business, the company will update its system structure to facilitate easier maintenance and the development of new functions, and will add new functions for SMB after the updating. The company expects a gradual increase in the number of paying members (not including free members) from 36,790 as of end-September 2021. At the same time, the company expects the average monthly fee per use to remain roughly flat at around JPY1,600 from Q4 FY09/21. Based on these estimates, the company expects aucfan.com service fee revenue to top JPY700mn in FY09/22.
Forward investment in NETSEA and NETSEA Auction
The company targets forward investment of JPY600mn, including JPY216mn for measures aimed at expanding NETSEA buyers, JPY150mn to build reverse logistics infrastructure for NETSEA Auction, JPY56mn for recruitment in new business divisions related to NETSEA and NETSEA Auction, JPY80mn for new business division personnel expenses, and JPY62mn for administrative costs associated with increased personnel. For NETSEA, the company aims to expand the number of products and suppliers, and plans to make upfront investments as it needs to expand the number of buyers in the areas in which it expands. In FY09/22, the company does not intend to air the television commercials it aired in FY09/21. For NETSEA Auction, considering future growth potential, the company expects to relocate and expand its distribution warehouses and invest in systems as the capacity of its current distribution warehouses is reaching its limit.
Incubation segment
The company expects the Incubation business to generate sales of JPY400mn, gross profit of JPY350mn, and operating profit of JPY100mn. In Q3 FY09/21, the company established a special department to oversee development of new businesses, with costs accordingly incurred throughout the year in FY09/22.
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 in the near term 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 the near term, the company is placing more of an emphasis on GMV and gross profit growth than on operating profit growth. In the medium to long term, the company plans to expand GMV by outsourcing operations such as "merchandise pickup," "assessment," "perspective," "putting goods up for sale," "repair," "sale," and "delivery" to SMB.
The company has not announced specifics in terms of when it expects to recover profits. However, the company thinks that a certain level of profit will be generated when GMV reaches the tens of billions of yen level. Given the size of the wholesale market the company is targeting, if it appears that GMV and gross profit can be increased further, the company will consider investing more aggressively. According to the Ministry of Economy, Trade and Industry's the FY2020 Global Economy Survey for Formulating an Integrated Domestic and External Economic Growth Strategy (E-Commerce Market Survey), the size of the B2B e-commerce market in Japan's wholesale industry in 2020 reached about JPY92tn (-10.3% YoY). Following a sustained upward trend, the percent of wholesale transactions conducted via e-commerce is estimated at 30.6% (+1.8pp YoY).
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
Business domains
As of end-FY09/21, the company's core businesses were aucfan.com, an online shopping/auction market data comparison service, and NETSEA, a B2B wholesale sales and purchasing platform. The company's main areas of business are identifying issues by visualizing the value of inventory (i.e., the price at which it can be sold off quickly), recirculating and monetizing imperfect products (e.g., products in older packages, products getting close to the best-before date, returned products), and optimizing sales prices and product lineups based on data. The company started out providing market data via aucfan.com, and then expanded its operations to include the provision of tools that improve the efficiency of procurement and solutions for inventory issues. The company narrowed its segments to three in FY09/20, the Inventory Management Solution, the Merchandise Distribution Platform, and the Incubation segments.
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 COMPANY” represents a company that builds unparalleled infrastructure integrating what the company refers to as society’s various types of "Re.” This 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 relationships between people and goods that leads to improved circumstances for both.
Inventory Management Solution
Revenue generated by Inventory Management Solution primarily comes from subscriptions (monthly fees), 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. The main business in this segment is aucfan.com (Aucfan Pro Plus, Aucfan [premium]). In FY09/21, the segment reported sales of JPY1.8bn (-5.8% YoY) and operating profit of JPY343mn (-6.8% YoY).
aucfan.com
The number of aucfan.com paying members (not including those using the service for free) as of end-FY09/21 was 36,790 (36,296 as of end-FY09/20). The average monthly fee per user was about JPY1,600 in Q4 FY09/21, largely unchanged YoY. Based on these figures, it appears aucfan.com can generate service fee revenues of about JPY60mn each month, or about JPY700mn each year. Membership (including free users) was about 974,000 at end-January 2022 (934,000 at end- January 2021).
Merchandise Distribution Platform
Sales and earnings generated by Merchandise Distribution Platform are 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 therefore a certain transaction level must be maintained to recover fixed costs. Main businesses in this segment include NETSEA, NETSEA Auction (an inventory liquidation service, previously, ReValue), and NETSEA Bulk Mall. In FY09/21, the segment reported sales of JPY5.0bn (+3.7% YoY) and operating loss of JPY259mn (versus operating profit of JPY324mn in FY09/20).
NETSEA
The company is particularly focused on making upfront investments in this business, which comprises the core of the Merchandise Distribution Platform business. With roughly 491,000 retailers and other companies as buyers as of end-January 2022 (looking to purchase goods), the NETSEA website handles about JPY9.0bn in transactions annually (wholesale price basis), making it one of the largest online platforms serving B2B wholesalers and corporate buyers in Japan (as of February 2022). Supplier (companies supply [sell] products from manufacturers, wholesalers, and others) registration fee is JPY20,000 (plus tax) per month. In addition, the company receives commissions of 8–10% on the transactions going over the platform from suppliers. A 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. Buyers can use NETSEA free of charge.
Incubation business
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. As such, in Q3 FY09/21, the company established a division to develop new businesses that it expects to serve as the foundation for future growth. In FY09/21, the Incubation segment generated sales of JPY1.7bn (+34.5% YoY) and operating profit of JPY875mn (+73.7% YoY). In March 2020, Aucfan’s investee company, Cyber Security Cloud (TSE Mothers: 4493), went public. Reflecting mark-to-market valuations of its share holdings, the company's valuation difference on available-for-sale securities (unrealized net gains after tax effect deduction) in its Incubation portfolio was JPY917mn as of end-December 2021.
Segment outlines
Inventory Management Solution
Earnings generated by the Inventory Management Solution segment primarily come from subscriptions (monthly fees), 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. aucfan.com is not only the company's ancestor business, but also the company's revenue base.
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, as of November 2021, it had a cumulative total of 70.0 billion data points over the past 10 years.
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 JPY300 (excluding tax) for Aucfan Lite, 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. The average monthly fee per user was about JPY1,600 in Q4 FY09/21, largely unchanged YoY.
Number of fee-paying members, fees per member
Aucfan Premium, Aucfan Pro Plus, and Aucfan Lite are fee-based services. The number of paying members (not including those using the service for free) of aucfan.com as of end-FY09/21 was 36,790 (36,296 at end-FY09/20). The average monthly fee per user was about JPY1,600 in Q4 FY09/21, largely unchanged YoY. Based on these figures, it appears aucfan.com can generate service fee revenue of about JPY60mn each month, or about JPY700mn each year. Membership (including free users) was about 974,000 at end-January 2022 (934,000 at end-January 2021).
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
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.
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 mainly targets small and medium-sized businesses, and it offers a 1,000-order plan with a monthly fee of JPY24,000 or more (free for three months) on a pay-for-use basis. 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).
Merchandise Distribution Platform
Sales and earnings generated by Merchandise Distribution Platform are primarily in the form of commissions and product sales, 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. Calculated as NETSEA and NETSEA Auction gross profit/GMV, the take rate of GMV in FY09/21 was 11.3%.
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
With roughly 491,000 retailers and other companies (as of end-January 2022) as buyers (looking to purchase goods), the NETSEA website handles about JPY9.0bn in transactions annually (wholesale price basis), making it one of the largest online platforms serving B2B wholesalers and corporate buyers in Japan (as of February 2022). 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.
Aucfan acquired NETSEA, the predecessor of the business, from DeNA Co., Ltd. (TSE: 2432) in July 2015. The company particularly focuses on investments in NETSEA, which comprises the core of the Merchandise Distribution Platform business. In FY09/21, NETSEA's GMV was JPY8.9bn (+14% YoY), and gross profit was JPY790mn (+24% YoY). This figure includes anti-infection goods. The take rate, excluding special factors, has hovered at around 8% in recent years.
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.
Competing services include Super Delivery by Raccoon Holdings (TSE Mothers: 3031).
NETSEA Auction (formerly ReValue)
The company in January 2016 acquired predecessor business ReValue from Dream Incubator (TSE: 4310). In August 2021, the company unified the brand name to NETSEA, and users were given a single account. This has enabled users to use the company's services seamlessly.
NETSEA Auction 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. In FY09/21, the GMV of NETSEA Auction was JPY525mn (+85% YoY), and gross profit was JPY277mn (+39% YoY). Its take rate is declining as the company is in the process of expanding merchandise categories, but it remains in double digits and is higher than for NETSEA because the company shoulders the inventory risk.
NETSEA Auction is a members-only auction website for businesses. Many of the products handled are single products only. Buyers include secondhand stores, online stores, individual business owners, and overseas companies.
Suppliers are mainly mail-order companies that place large orders and sell in large quantities. They mainly use the platform for returned goods. The advantage to suppliers is that they can reduce the cost of inspecting and disposing of returned goods.
While recognizing the need to factor in inventory risk, the company said that inventory risk is unlikely to materialize, mainly as most of the products are returned items that have already been sold once and the company can set the timing and starting price of auctions. In addition, by using its own market-information database, the company can calculate appropriate purchase and sales prices, resulting in a high inventory turnover rate and high profit margins.
For NETSEA Auction, the company is working to expand merchandise categories to increase GMV. While it thinks it is preferable to balance GMV growth with a steady take rate, questions such as how much inventory risk to carry for new merchandise categories and what kind of margins to expect, can to a certain extent only be answered while an initiative is actually underway. For this reason, the company’s policy is to first expand merchandise categories on a trial basis, and only keep those categories expected to deliver a combination of minimal inventory risk and a certain margin. For merchandise categories where shouldering inventory risk in-house is deemed to be difficult, the company will increase gross profit through an outsourced sales scheme. Its strategy is to expand GMV and gross profit by repeating this process of trial and error.
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.
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 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 FY09/21, but expects its stake to decline to about 51% due to external funding in the future.
Market and value chain
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).
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.
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
aucfan.com's membership base and stable monthly income
The aucfan.com service had 36,790 paying users as of end-September 2021, with average monthly fees remaining steady at about JPY1,600. It appears aucfan.com can generate service fee revenue of about JPY60mn each month, or about JPY700mn each year. This stable monthly income is the foundation of the company's revenue base.
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.
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 C2C secondary distribution markets through aucfan.com.
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. In FY09/21, companywide sales growth was in the single digits and profit declined, largely due to the impact of lower sales and operating loss in exited businesses, including zaicoban, otameshi, and the wholesale sales to corporations business.
Balance sheet