Estore Corporation and its group companies offer comprehensive B2B services related to the development and operations of e-commerce websites. Its business consists of E-Commerce Systems (72.0% revenue share in FY03/21), Payment Settlement Services (15.4%), and Marketing Services (12.5%). The E-Commerce Systems business provides a service to help customers build their own e-commerce sites. The Payment Settlement Services business processes payments for e-commerce sites. The Marketing Services business supports customers’ sales promotion activities. The company acquired Commerce21 Corporation, a systems development company in January 2020, and WebCrew Agency Inc. (currently WCA Inc.), an advertising agency, in March 2020. These acquisitions enabled the company to build a customer base that ranges from SMEs with annual revenue of around JPY1.0bn to large enterprises with annual revenue of around JPY100bn.

Earnings structure of E-Commerce Systems: The business supplies shopserve (e-commerce system for SMEs), and Sell-Side Solution and ECo2 (e-commerce systems for large corporations). shopserve is a cloud-based (SaaS) e-commerce system that earns recurring revenue (number of customers x monthly fixed fees) and royalty revenue (GMV x payment settlement fee rate; see section on Payment Settlement Services below). Sell-Side Solution is a service for companies building e-commerce websites using their own servers. It earns royalty revenue in the form of a system integration fee (contracted revenue = number of new customers x order unit price) plus revenue from additional system development and contracted work (number of existing customers x percentage of customers that order additional system development x unit price of additional development). It also earns recurring revenue in the form of maintenance and operation fees. ECo2 is a service that supports the building of e-commerce systems that use rental servers.

Earnings structure of Payment Settlement Services: A service that processes payments of customer companies’ e-commerce websites on their behalf. Revenue consists of payment settlement fees (number of customers x GMV x payment settlement fee rate). Shared Research estimates that the payment settlement fee rate based on shopserve GMV of JPY79.3bn in FY03/20 and payment settlement fee revenue (small fee linked to GMV; JPY1.9bn) was 2.4%. The company started providing a new payment settlement service to customers of Commerce21, who are mainly large corporations.

Earnings structure of Marketing Services: The company’s sales promotion services comprise survey analysis, strategy formulation, and consulting; customer acquisition outsourcing; outsourced production; and outsourced operations. The company offers highly itemized pricing options ranging from JPY10,000 to over JPY1mn. For the Full Assist Plan, a one-stop service including survey, analysis, strategy formulation, production, and customer acquisition services, the company offers pricing plans such as JPY1mn per month (six months for JPY6mn) and JPY5mn per month (six months for JPY30mn).

Ecosystem of three Estore businesses: The company builds and operates e-commerce websites for customer companies (E-Commerce Systems) and provides marketing services that help them grow their revenues (Marketing Services). If the marketing services produce an increase in GMV at the customer’s e-commerce site, the company provides a payment settlement service (Payment Settlement Services) to support customers from the payments side as well. According to Estore, customers’ earnings growth starts a virtuous cycle of an emerging need for further development (additional features) of e-commerce systems, which leads to attracting new customers. The parent company believes that the acquisitions of Commerce21 and WCA will provide access to large corporations with ample e-commerce budgets, enable upselling to customers of the parent company, and raise order unit prices.

Shift in focus business: The company is shifting its focus from general purpose ASP systems for small e-commerce operators (shopping carts) to dedicated converged e-commerce systems (package systems) for large corporations. In other words, it has been shifting focus from the Systems business to the Marketing business. Additionally, the company is working to strengthen its customer base of large corporations in the Marketing business. There are about 8,000 companies (stores) using Estore’s shopserve e-commerce system, most of which are SMEs. The company has intentionally narrowed its focus on larger and more profitable customers. As a result, annual customer GMV per store rose from JPY5.7mn in FY03/14 to JPY12.4mn in FY03/21. In the longer term, the company expects the number of customer companies to contract to around 5,000–7,000 (stores).

Trends and outlook

In FY03/22, Estore reported full-year revenue of JPY5.8bn (+6.1% YoY when applying the Accounting Standard for Revenue Recognition to the previous year's figures), operating profit of JPY1.1bn (+16.0% YoY), recurring profit of JPY1.1bn (+0.4% YoY), and net income attributable to owners of the parent of JPY677mn (+40.3% YoY). The annual dividend per share was JPY40.0 (JPY32.0 in the previous year). Starting in FY03/22, the company applied the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29). E-commerce consumption remained strong throughout the year, and strong corporate demand for digital transformation (DX) investment led to higher revenue and profits.

For FY03/23, the company forecasts revenue of JPY6.6bn (+14.8% YoY), operating profit of JPY1.3bn (+18.9% YoY), recurring profit of JPY1.3bn (+17.8% YoY), net income attributable to owners of the parent of JPY800mn (+18.1% YoY), and annual dividend per share of JPY50.0 (JPY40.0 in FY03/22). The company expects higher revenue and profits on the back of continued growth in e-commerce consumption and increased corporate investment in digital translation (DX).

Estore on November 12, 2020 announced the formulation of Dynamic Ascension, its new, five-year medium-term management plan starting in FY03/21 with FY03/25 as its final year. The company bolstered the group’s operating base as a medium- to large-scale e-commerce support provider by acquiring two companies through M&A in January and March 2020. The company aims to roughly double its revenue (based on new revenue recognition standard) from JPY5.5bn in FY03/21 to JPY10.1bn in FY03/25 and quadruple its operating profit to JPY2.0bn over the same period. Key group strategies are increasing earnings and reducing costs through group synergies and focusing on recurring revenue. The company also aims to harness the know-how it has gained over 20 years in the business to expand into hands-on DX (making partner companies’ businesses its own) as well as actively engage in capital and business alliances and M&A.

Strengths and weaknesses

Shared Research believes the company’s strengths include: 1) over 20 years of experience and expertise in launching and operating e-commerce sites for small e-commerce operators; 2) attractive revenue mix in the sales systems business serving as a revenue base for the sales promotion services business; and 3) competitive advantage built on its specialized trade consulting approach as a part of its differentiation strategy.

Weaknesses include: 1) positioning between dominant e-commerce marketplaces such as Amazon and instant e-commerce platforms with free plans; 2) slow shift toward new business and large enterprise customers amid the increasing commoditization of e-commerce systems for SMEs; and 3) lack of HR development capabilities to serve the needs of major projects for large customers.

Key financial data

Income statement (JPYmn)			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22	FY03/23
Cons.			Cons.	Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.	Cons.	Cons.	Cons. Est.
Revenue			5,963	5,871	5,772	5,724	-	-	4,932	4,853	10,505	5,747	6,600
	YoY		11.7%	-1.5%	-1.7%	-0.8%	-	-	-	-1.6%	116.5%	-45.3%	14.8%
Gross profit			1,850	1,847	1,740	1,825	-	-	1,490	1,504	2,613	2,799
	YoY		4.6%	-0.1%	-5.8%	4.9%	-	-	-	0.9%	73.7%	7.1%
	Gross profit margin		31.0%	31.5%	30.1%	31.9%	-	-	30.2%	31.0%	24.9%	48.7%
Operating profit			645	552	572	619	-	-	516	478	907	1,052	1,250
	YoY		29.5%	-14.5%	3.7%	8.3%	-	-	-	-7.3%	89.7%	16.0%	18.9%
	Operating profit margin		10.8%	9.4%	9.9%	10.8%	-	-	10.5%	9.9%	8.6%	18.3%	18.9%
Recurring profit			659	554	576	621	-	-	583	527	1,074	1,078	1,270
	YoY		30.9%	-16.0%	4.0%	7.7%	-	-	-	-9.6%	104.0%	0.4%	17.8%
	Recurring profit margin		11.1%	9.4%	10.0%	10.8%	-	-	11.8%	10.9%	10.2%	18.8%	19.2%
Net income			390	324	333	403	-	-	410	368	483	677	800
	YoY		38.8%	-16.9%	2.8%	21.1%	-	-	-	-10.3%	31.3%	40.3%	18.1%
	Net margin		6.5%	5.5%	5.8%	7.0%	-	-	8.3%	7.6%	4.6%	11.8%	12.1%
Per-share data (split-adjusted; JPY)
Shares issued at year-end ('000 shares)			10,326	10,327	20,654	20,654	-	-	5,161	5,161	5,399	5,637
		Treasury shares ('000)	911	2,145	4,397	5,166	-	-	387	388	388	608
EPS (JPY)			91.7	97.9	55.7	75.4	-	-	79.7	77.0	100.3	134.7	-
EPS (fully diluted; JPY)			91.6	97.9	55.7	75.4	-	-	75.0	64.0	84.1	121.9
Dividend per share (JPY)			14.0	15.5	17.0	24.0	-	-	29.0	29.0	32.0	40.0	50.0
Book value per share (JPY)			245.9	165.0	200.6	196.7	-	-	294.2	365.9	467.7	554.7
Balance sheet (JPYmn)
		Cash and cash equivalents	2,874	2,005	2,311	2,385	-	-	2,977	3,289	4,768	4,450
Total current assets			3,695	2,847	3,118	3,058	-	-	3,710	4,970	6,395	5,865
Tangible fixed assets			198	159	103	82	-	-	107	263	315	265
Investments and other assets			258	245	279	256	-	-	622	845	900	1,106
Intangible fixed assets			282	216	122	109	-	-	57	1,298	995	975
Total assets			4,434	3,468	3,622	3,506	-	-	4,496	7,376	8,604	8,212
		Short-term debt	7	106	103	326	-	-	1	166	416	551
Total current liabilities			2,293	2,291	2,341	2,471	-	-	2,066	3,538	4,477	3,858
		Long-term debt	9	127	25	3	-	-	1,000	1,886	1,551	1,359
Total fixed liabilities			20	139	43	19	-	-	1,026	2,091	1,784	1,564
Total liabilities			2,313	2,430	2,384	2,490	-	-	3,091	5,629	6,261	5,422
		Shareholders' equity	2,087	996	1,183	1,012	-	-	1,403	1,747	2,336	2,666
Total net assets			2,121	1,038	1,238	1,015	-	-	1,404	1,747	2,344	2,790
Total liabilities and net assets			4,434	3,468	3,622	3,506	-	-	4,496	7,376	8,604	8,212
Total interest-bearing debt			15	233	127	329	-	-	1,000	2,052	1,967	1,910
Cash flow statement (JPYmn)
Cash flows from operating activities			828	444	678	613	-	-	-27	596	1,661	416
Cash flows from investing activities			-588	283	-122	-163	-	-	-350	-1,168	-198	-269
Cash flows from financing activities			-104	-1,198	-252	-376	-	-	513	885	15	-464
Financial ratios
ROA (RP-based)			15.6%	14.0%	16.3%	17.4%	-	-	13.0%	8.9%	13.4%	12.8%
ROE			20.1%	21.0%	30.5%	36.7%	-	-	29.2%	23.4%	23.7%	27.1%
		Equity ratio	47.1%	28.7%	32.7%	28.9%	-	-	31.2%	23.7%	27.1%	32.5%
		Total asset turnover	141.2%	148.6%	162.8%	160.6%	-	-	109.7%	81.8%	131.5%	68.4%
		Net margin	6.5%	5.5%	5.8%	7.0%	-	-	8.3%	7.6%	4.6%	11.8%
Number of employees			137	141	154	155	-	-	143	280
		No. of temporary workers (average)	28	29	28	36	-	-	38	31

Source: Shared Research based on company data
The company began applying the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29) in April 2021. Note that the FY03/22 company forecast is also based on this accounting standard.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Per share metrics revised retroactively.

Recent updates

Company announces revision of dividend forecast for FY03/22 (dividend increase)

2022-05-15

On May 13, 2022, Estore Corporation announced a revision to its dividend forecast (dividend increase) for FY03/22.

The company revised its FY03/22 year-end dividend forecast to JPY40 per share (previous forecast was JPY32 per share).

Reason for revision

The company's dividend policy is to provide shareholders with a stable return on their investment, and it takes into account a variety of factors, including operating results, financial position, retained earnings, and the payout ratio. Based on this policy, the company has increased the year-end dividend for FY03/22 from the previous forecast.

Trends and outlook

Quarterly trends and results

Cumulative		FY03/21				FY03/22				FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue		2,444	4,990	7,767	10,505	1,373	2,842	4,330	5,747	97.4%	5,900
	YoY	109.3%	111.0%	114.4%	116.5%	-	-	-	-		9.0%
Gross profit		566	1,164	1,853	2,613	691	1,425	2,127	2,799
	YoY	51.9%	57.3%	62.7%	73.7%	22.2%	22.5%	14.8%	7.1%
	Gross profit margin	23.1%	23.3%	23.9%	24.9%	50.3%	50.1%	49.1%	48.7%
SG&A expenses		368	788	1,195	1,706	441	885	1,330	1,748
	YoY	42.4%	55.3%	57.2%	66.2%	19.8%	12.3%	11.3%	2.4%
	SG&A ratio	15.1%	15.8%	15.4%	16.2%	32.1%	31.1%	30.7%	30.4%
Operating profit		197	376	657	907	250	540	797	1,052	103.1%	1,020
	YoY	73.4%	61.6%	73.9%	89.7%	26.7%	43.7%	21.3%	16.0%		12.3%
	Operating profit margin	8.1%	7.5%	8.5%	8.6%	18.2%	19.0%	18.4%	18.3%		17.3%
Recurring profit		242	550	924	1,074	228	540	847	1,078	100.8%	1,070
	YoY	79.2%	86.4%	106.2%	104.0%	-6.0%	-1.7%	-8.3%	0.4%		-0.3%
	Recurring profit margin	9.9%	11.0%	11.9%	10.2%	16.6%	19.0%	19.6%	18.8%		18.1%
Net income		92	316	580	483	153	349	541	677	91.5%	740
	YoY	-2.9%	45.2%	80.6%	31.3%	66.7%	10.2%	-6.8%	40.3%		53.3%
	Net margin	3.8%	6.3%	7.5%	4.6%	11.1%	12.3%	12.5%	11.8%		12.5%
Quarterly		FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		2,444	2,546	2,777	2,738	1,373	1,469	1,487	1,417
	YoY	109.3%	112.6%	120.9%	122.5%	-	-	-	-
Gross profit		566	598	689	760	691	734	702	672
	YoY	51.9%	62.7%	72.9%	107.8%	22.2%	22.7%	1.9%	-11.6%
	Gross profit margin	23.1%	23.5%	24.8%	27.8%	50.3%	49.9%	47.2%	47.4%
SG&A expenses		368	420	408	511	441	443	445	418
	YoY	42.4%	68.6%	61.0%	92.1%	19.8%	5.7%	9.2%	-18.2%
	SG&A ratio	15.1%	16.5%	14.7%	18.7%	32.1%	30.2%	29.9%	29.5%
Operating profit		197	179	281	249	250	290	257	254
	YoY	73.4%	50.4%	93.5%	149.4%	26.7%	62.5%	-8.7%	2.0%
	Operating profit margin	8.1%	7.0%	10.1%	9.1%	18.2%	19.8%	17.3%	17.9%
Recurring profit		242	307	374	150	228	313	307	231
	YoY	79.2%	92.5%	144.3%	91.1%	-6.0%	1.8%	-18.1%	54.1%
	Recurring profit margin	9.9%	12.1%	13.5%	5.5%	16.6%	21.3%	20.6%	16.3%
Net income		92	224	264	-98	153	195	192	137
	YoY	-2.9%	82.2%	155.1%	-	66.7%	-12.9%	-27.3%	-
	Net margin	3.8%	8.8%	9.5%	-	11.1%	13.3%	12.9%	9.6%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.

Revenue by earnings model

(Cumulative)			FY03/21				FY03/22				FY03/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue			1,239	2,601	4,056	5,415	1,373	2,842	4,330	5,747	97.4%	5,900
	YoY		-	-	-	-	10.8%	9.3%	6.7%	6.1%		9.0%
	E-Commerce Systems		890	1,889	2,922	3,900	1,010	2,135	3,223	4,291	101.5%	4,227
		YoY	-	-	-	-	13.5%	13.0%	10.3%	10.0%		8.4%
		% of total	71.8%	72.6%	72.0%	72.0%	73.6%	75.1%	74.4%	74.7%		71.6%
	Payment Settlement Services		195	403	633	835	210	408	654	852	91.4%	932
		YoY	-	-	-	-	7.7%	1.2%	3.3%	2.0%		11.6%
		% of total	15.7%	15.5%	15.6%	15.4%	15.3%	14.4%	15.1%	14.8%		15.8%
	Marketing Services		153	308	498	678	151	298	448	598	80.7%	741
		YoY	-	-	-	-	-1.3%	-3.2%	-10.0%	-11.8%		9.3%
		% of total	12.3%	11.8%	12.3%	12.5%	11.0%	10.5%	10.3%	10.4%		12.6%
(Quarterly)			FY03/21				FY03/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue			1,239	1,362	1,455	1,357	1,373	1,469	1,487	1,417
	YoY		6.1%	13.7%	15.8%	10.2%	10.8%	7.9%	2.2%	4.4%
	E-Commerce Systems		890	998	1,034	977	1,010	1,125	1,088	1,068
		YoY	-	-	-	-	13.5%	12.7%	5.2%	9.3%
		% of total	71.8%	73.3%	71.1%	72.0%	73.6%	76.6%	73.1%	75.4%
	Payment Settlement Services		195	208	230	200	210	197	247	198
		YoY	-	-	-	-	7.7%	-5.3%	7.4%	-1.0%
		% of total	15.7%	15.3%	15.8%	14.7%	15.3%	13.4%	16.6%	14.0%
	Marketing Services		153	155	190	179	151	146	151	150
		YoY	-	-	-	-	-1.3%	-5.8%	-20.5%	-16.2%
		% of total	12.3%	11.4%	13.1%	13.2%	11.0%	9.9%	10.2%	10.6%

The company began applying the Accounting Standard for Revenue Recognition in FY03/22. This standard has been applied retroactively to figures for FY03/21 above.
Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.

GMV and number of stores

(Quarterly)		FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
GMV (JPYbn)		26.1	23.3	27.6	23.1	24.2	23.0	29.7	23.4
	YoY	-	-	-	-	-7.3%	-1.3%	7.6%	1.3%
Transaction value (JPYbn)		18.1	15.5	17.9	15.6	16.3	15.3	19.2	15.3
	YoY	-	-	-	-	-9.9%	-1.3%	7.3%	-1.9%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.

Full-year FY03/22 results (out May 13, 2022)

Summary

Revenue: JPY5.7bn (+6.1% YoY when applying the Accounting Standard for Revenue Recognition to the previous year's figures; 97.4% achievement rate vs. full-year forecast)

Operating profit: JPY1.1bn (+16.0% YoY; 103.1%)

Recurring profit: JPY1.1bn (+0.4% YoY; 100.8%)

Net income attributable to owners of the parent: JPY677mn (+40.3% YoY; 94.2%)

The company has adopted the Accounting Standard for Revenue Recognition from FY03/22. The year-on-year change is based on the retroactive application of the new standard to the figures for FY03/21.

Revenue by earnings model

E-commerce Systems: JPY4.3bn (+10.1% YoY)
Payment Settlement Services: JPY854mn (+2.3% YoY)
Marketing Services: JPY559mn (-11.7% YoY)

Key points

E-commerce Systems revenue was JPY4.3bn (+10.1% YoY), on the back of strong e-commerce consumption and demand for corporate investments in digital transformation (DX). Demand was strong for the systems for large-scale e-commerce systems offered by subsidiary Commerce21 Corporation, and the company received repeat orders from existing customers.

Payment Settlement Services revenue was JPY854mn (+2.3% YoY). While the 1H performance was sluggish due to the dropping out of special demand related to COVID-19 seen in the previous year, the 2H results exceeded the previous year's.

Marketing Services revenue was JPY599mn (-11.7% YoY). The company shifted its focus to online promotions for e-commerce, resulting in lower revenue generated by traditional advertising agency services.

Full-year FY03/23 company forecast (announced May 14, 2021)

Cons.	FY03/21			New revenue recognition standards
Cons.	FY03/21			FY03/21	FY03/22			FY03/23	YoY
(JPYmn)	1H Act.	2H Act.	FY Act.	FY Act.	1H Act.	2H Act.	FY Act.	FY Est.	FY Est.
Revenue	4,990	5,515	10,505	5,415	2,842	2,905	5,747	6,600	14.8%
Cost of revenue	3,826	4,066	7,892		1,417	1,530	2,948
Gross profit	1,164	1,449	2,613		1,425	1,374	2,799
Gross profit margin	23.3%	26.3%	24.9%		50.1%	47.3%	48.7%
SG&A expenses	788	919	1,706		885	863	1,748
SG&A ratio	15.8%	16.7%	16.2%		31.1%	29.7%	30.4%
Operating profit	376	531	907	906	540	511	1,052	1,250	18.9%
Operating profit margin	7.5%	9.6%	8.6%	16.7%	19.0%	17.6%	18.3%	18.9%
Recurring profit	550	524	1,074	1,073	540	538	1,078	1,270	17.8%
Recurring profit margin	11.0%	9.5%	10.2%	19.8%	19.0%	18.5%	18.8%	19.2%
Net income	316	167	483	482	349	329	677	800	18.1%
Net margin	6.3%	3.0%	4.6%	8.9%	12.3%	11.3%	11.8%	12.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures for FY03/22 revenue (1H results and the full-year forecast) reflect the application of the Accounting Standards for Revenue Recognition (company estimates).

For FY03/23. the company forecasts revenue of JPY6.6bn (+14.8% YoY), operating profit of JPY1.3bn (+18.9% YoY), recurring profit of JPY1.3bn (+17.8% YoY), net income attributable to owners of the parent of JPY800mn (+18.1% YoY), and annual dividend per share of JPY50.0 (JPY40.0 in FY03/22). The company expects higher revenue and profits on the back of continued growth in e-commerce consumption and increased corporate investment in digital translation (DX).

The following is a description of the company's initiatives for FY03/22. Shared Research will update the summary of the forecast and initiatives after interviewing the company.

Initiatives in FY03/22

In FY03/22, the company plans to expand its e-commerce system offerings, modularize its payment settlement service functions to implement them in large stores, consolidate marketing services in-house, and incorporate user needs by enhancing in-house engineering.

Strengthening e-commerce system portfolio

Estore is rolling out its new ECo2 service (provided by Commerce21) in FY03/22. ECo2 covers the market segment between shopserve, a service for SMEs provided by the parent company, and Sell-Side Solution, a service for large corporations provided by Commerce21.

ECo2 is a platform as a service (PaaS), which is more scalable than shopserve, which is software as a service (SaaS). The system is developed under contract. Target users are companies with annual revenue of over JPY1bn. Sell-Side Solution is a packaged solution that is customized to the customer’s business model, providing a system for e-commerce websites for companies with annual revenue of tens of billions of yen. It is the most scalable of the company’s service platforms, with systems developed specifically for each customer.

The development lead time is approximately one month for shopserve, three to six months for ECo2, and six to nine months for Sell-Side Solution. Average annual revenue per customer is around JPY250,000 for shopserve, JPY12mn for ECo2, and JPY50mn for Sell-Side Solution.

According to the company, major retailers are increasingly investing in OMO (Online Merges with Offline) to integrate their brick-and-mortar stores with their own e-commerce sites. ECo2 is a system infrastructure with similar scalability to Sell-Side Solution, but with a smaller investment cost (several hundred million yen). Therefore, the company believes that ECo2 is well suited for capturing OMO needs.

Estore has ample expertise in building systems that integrate customers' brick-and-mortar stores and e-commerce sites (i.e., OMO investment). According to the company, companies with OMO needs are those that have a wide range of stores, a large sales force, and their own e-commerce sites. Estore's client companies want to centrally manage their online and offline assets, using both their stores and their e-commerce sites as touchpoints with customers. Estore recognizes that OMO investment by major retailers with brick-and-mortar stores has entered an expansion phase earlier than expected, as the COVID-19 pandemic accelerated the development of e-commerce sites. The company thus expects OMO investments to become the mainstream of investments in digital transformation (DX) by major retailers.

In its medium-term management plan, the company has already foreseen that as the population ages and declines, retailers will shift their focus to increasing the lifetime value (LTV) of existing customers through repeat purchases rather than by expanding the new customer count. The company believes that OMO investment will be a means to achieve LTV-oriented management.

Providing payment settlement services to Commerce21 customers

The company will begin offering payment settlement services to customers of Commerce21 (mainly large corporations) in FY03/22. So far, the service had mainly been for customers of the parent company (i.e., shopserve clients). Estore does not expect this change to make much impact on FY03/22 earnings.

Strengthening contact points with customers

Estore plans to support customer companies’ revenue growth by making effective proposals based on data marketing, which it has been working on for some time. It will offer marketing services that help increase the number of repeat users of customers’ e-commerce websites.

Integrating marketing services in WCA

The company decided to transfer the Marketing services functions of the parent company to WCA to centralize resources as another way to strengthen contact points with customers.

Enhancing in-house engineering through M&A

The company made Irvine Systems Inc. (unlisted) a subsidiary in July 2021, with the aim of enhancing its in-house engineering capabilities. The company had been outsourcing development work to Irvine Systems for some time, and the acquisition enabled the company to quickly enhance its development capabilities, while maintaining development speed and ensuring growth in the e-commerce system and payment settlement service domains.

Medium-term management plan

Medium-term management plan (FY03/21–FY03/25)

Objectives and background of the new medium-term management plan

Many companies in the industry launched digital transformation (DX) strategies in recent years, and the company thinks that expanding and strengthening e-commerce will be a key theme in these efforts, resulting ultimately in a change in how e-commerce is handled. The company believes that when building an e-commerce system, the focus should not only be on "adding up" individual processes of sales, promotion, and distribution, but also on achieving a "multiplying effect" by enhancing efficiency and optimization of the system as a whole. The Estore group’s policy is to generate synergies between group companies to provide a larger, higher quality, and faster e-commerce platform to client companies.

Medium-term management plan targets

The company’s medium-term management plan targets FY03/25 revenue (based on the new Accounting Standard for Revenue Recognition) of JPY10.1bn, roughly twice* the revenue level for FY03/21, with operating profit roughly quadrupling over the same period to JPY2.0bn. The company also aims for earnings and a governance structure allowing stock market listing changes and the listing of subsidiaries.

*Doubling of revenue: The introduction of the new accounting standard means a change in the way revenue is recorded. As such, FY03/21 revenue of JPY10.5bn would equal about JPY5.5bn under the new standard.

Management strategy

The company’s business domain is in supporting in-house e-commerce sites. As the e-commerce market is expanding and transforming at an accelerating pace, quickly enhancing and synthesizing services is crucial. In addition, the company believes that responding to changes in consumer sentiment will be important as the elderly population increases, and the overall population continues to decline.

Anticipated behavior of consumers going forward

As society becomes more digitalized, e-commerce will be used further to streamline people’s lives. Consumers will shift from spending in a wide variety of areas to spending on a few concentrated areas. Massive amounts of information will circulate, and people will be unable to digest it. As the population ages, so will the buildings. Environmental awareness will rise, and reuse and other forms of recycled consumption will increase. Consumers will focus more on the quality and reliability of products and services.

Anticipated behavior of businesses going forward

Businesses will promote e-commerce and streamline management through digital transformation (DX). The focus will be on ARPU and LTV rather than new customer acquisition. Advertising space will be depleted or become less effective as mainstream media loses its appeal, and advertising costs on search sites will soar. The use of internet will progress as a way to support the elderly. There will be a shift from mass production to small-lot and build-to-order production. Quality information and logistical bottlenecks will need to be addressed.

Estore’s group strategy

The company’s policy is to promote the following four group strategies: 1) demonstrate synergy among the three group companies, with each company concentrating on its area of expertise, improving quality, increasing profitability, accelerating speed, and reducing costs; 2) redefine the Estore group as an “e-commerce infrastructure corporate group” and focus on recurring profits to maximize ARPU* and LTV**; 3) implement hands-on DX that leverages the knowledge and expertise gained over the past 20 years on e-commerce businesses hosted by the group; and 4) accelerate strategies 1) through 3) by actively and aggressively pursuing capital and business tie-ups and M&A, as well as by utilizing the balance sheet.

*ARPU: Average Revenue Per User.
**LTV: Life Time Value. This refers specifically to customer lifetime value, or the total value of a company’s products or services purchased by a customer over his/her lifetime, and how much the company profits as a result.

Strategy by business

E-commerce support business (extension of the existing business)

With the redefining of the entire group as an “e-commerce business platform provider,” Estore aims to rapidly develop a quality e-commerce support business by providing a comprehensive range of services, including those related to systems, marketing, fulfillment, and payments. The company also seeks to strengthen alignment with customer growth to expand payment settlement earnings.

In the past ten years, systems and marketing have been supplied and utilized separately, but the company expects internet-based advertising and other IT tools to become increasingly sophisticated in the years ahead. E-commerce business operators, which are the company’s customers, are under growing pressure to integrate sales, promotion, and distribution processes to better provide quality services to consumers, and it is essential for platform providers such as the company to provide customers with advanced operations, analysis, and speedy responses to help expand customer earnings. Customers will migrate from medium-sized SaaS to large PaaS solutions as they grow.

The company group aims to strengthen its team structure to better meet the needs of e-commerce business operators.

Hands-on DX business (new business)

The company believes that there are many companies with excellent products, content, and customers that are missing out on opportunities due to a lack of budget and e-commerce expertise. To address this, in addition to the e-commerce support business, the company intends to use the knowledge and expertise it has gained over the past 20 years to move into the e-commerce business as a host and develop it as its own business. The company expects ARPU* and LTV** to become key areas of management focus over the long term, and expects this new business to help prepare for that eventuality. The company will pursue a hands-on DX business involving investment in companies that are unable to fully leverage the value of their business assets due to insufficiencies in e-commerce expertise, operational personnel, or funding.

Capital and business alliance with FPC Inc.

As the first hands-on DX business, in January 2021, the Estore group entered into a capital and business alliance with FPC Inc.* FPC provides high-end table tennis-related services, including the operation of the table tennis information site Mingles**, player and tournament management, coordination services, and online product sales. Driven by the launch of T.League and the rise of promising young players, the number of table tennis players has been on the rise. FPC has built a system for coordinating and booking competitions, practice matches, and lessons across the country. Estore intends to contribute its own knowledge and expertise to jointly create and manage a comprehensive system environment that can be operated on a business level.

This business is the first step of the "Hands-on DX busines" in the Estore group’s medium-term management plan. The company will underwrite a JPY100mn investment of FPC (34.6% stake), and by deploying its personnel and e-commerce expertise, it will carry out the business hands-on in terms of system operation, marketing, and project management.

*FPC Inc.: Serving as an agent for athletes, FPC negotiates with sponsor companies, arrange appearances on various media including TV programs, manage social media to increase visibility of athletes, and conduct branding and other marketing activities. It also organizes table tennis tournaments and events, operates e-commerce sites, and offers lessons to promote the sport of table tennis.
**Mingles: High-end table tennis information site: https://www.mingles.jp/

Group business policies

Systems infrastructure business (PaaS)

The systems infrastructure business (PaaS) will be managed by subsidiary Commerce21. The organization will be restructured to capture advanced large-scale projects. The company will expand its service lineup through aggressive business alliances. It will provide marketing and payment settlement services to customers.

Systems infrastructure business (SaaS)

The systems infrastructure business (SaaS) will be managed by Estore (parent). The company will redefine KPIs to acquire high unit price projects. It will expand its service lineup through aggressive business alliances and provide marketing and payment settlement services to customers.

Marketing business

The Marketing business will be managed by WCA. The company will strengthen sales efforts to acquire high unit price projects. It will offer marketing services to system customers with a focus on lowering the ratio of customer acquisition advertising operations and boosting the ratio of direct marketing.

Hands-on DX business

The hands-on DX business will be executed as a three-company project. The group will develop a full hands-on alliance with a strong base of partners, and will build systems, marketing, and operations vertically.

Financial targets for FY03/25 (as of November 27, 2020)

Companywide targets

Revenue: JPY10.1bn (FY03/21 forecast: JPY5.1bn
Operating profit before goodwill amortization: JPY2.1bn (FY03/21 forecast: JPY620mn), OPM: 21% (FY03/21 forecast: 12%)
Operating profit after goodwill amortization: JPY2.0bn (FY03/21 forecast: JPY500mn), OPM: 20% (FY03/21 forecast: 10%)

The company’s aim is to quadruple profits, and it envisions the following as the drivers of earnings growth: 1) a consolidated three-company structure, 2) high market growth, 3) earnings growth for each company, 4) synergies, and 5) development of new businesses.

Systems infrastructure business (PaaS)

Revenue: JPY4.4bn (FY03/21 forecast: JPY1.9bn)
Operating profit: JPY600mn (FY03/21 forecast: JPY120mn), OPM: 15% (FY03/21 forecast: 6%)

Systems infrastructure business (SaaS)

Revenue: JPY2.6bn (FY03/21 forecast: JPY2.4bn)
Operating profit: JPY800mn (FY03/21 forecast: JPY490mn), OPM: 30% (FY03/21 forecast: 20%)

Marketing business

Revenue: JPY1.6bn (FY03/21 forecast: JPY740mn)
Operating profit: JPY200mn (FY03/21 forecast: JPY10mn), OPM: 12% (FY03/21 forecast: 1%)

Hands-on DX business

Revenue: JPY1.5bn (FY03/21 forecast: N/A)
Operating profit: JPY500mn (FY03/21 forecast: N/A), OPM: 34% (FY03/21 forecast: N/A)

Financial strategy

Stock market plan

Meet TSE Prime market criteria for Estore

Satisfy venture market listing requirements for group companies

Equity plan

▷ Implement capital policies to improve performance, including alliances
▷ Proactively leverage debt
▷ Carry out M&A
▷ Effectively use treasury stock
▷ Strengthen shareholder returns

Management strategies

Seven-year growth cycle

In February 1999, back when Rakuten Ichiba had less than 100 stores, the company launched its in-house e-commerce support services business with aims to boost the number of specialty boutiques on the internet, while making clear distinctions from online marketplaces. Since then, Estore grew while adjusting to changes in the business environment, shifting its focus area every seven years or so. The company has continually repeated the cycle of establishing its revenue base in existing businesses, then either reinvesting the profits or acquiring and integrating other companies to create its next new revenue base. FY03/21 marks the beginning of the company’s fourth growth cycle with the addition of Commerce21 and WebCrew Agency (now WCA). A recap of the first, second, and third growth cycles are below.

First cycle (FY03/00–FY03/06)

Estore started with a shopping cart solution service. Then, it began providing rental servers for websites, which went on to become the revenue base supporting the company’s early days. In addition to these two main businesses, the company prepared the groundwork for “shopserve,” a comprehensive e-commerce support service provided via an application service provider (ASP) model.

Second cycle (FY03/07–FY03/13)

In January 2006, the company launched shopserve, which became its main revenue stream over the seven-year period between FY03/07–FY03/13. The recurring revenue from monthly subscription fees for ASP services helped stabilize the company’s operating base. At the same time, the company started expanding its royalty revenue (GMV-linked revenue), where it collects a percentage of sales as payment settlement fees. etc.

Third cycle (FY03/14–FY03/20)

With recurring and royalty revenues growing in line with higher customer e-commerce sales, the company started investing in enhancing its sales promotion business and building its media business (made Precision Marketing a consolidated subsidiary in June 2011) with aims to make its Marketing business the next mainstay business. The sales promotion business provided outsourced business operations and consulting services, and the media business operated online marketplace “park.” The company added the sales promotion systems business (offering COMPARE and QUERY software) as a store backroom support systems lineup, making it a part of the focus area along with the sales promotion services business. Meanwhile, the group discontinued its media business at end-September 2018 (Precision Marketing was deconsolidated in January 2016), as the likes of Amazon and Rakuten (TSE1: 4755) dominated the space. In August 2018, the company established CrossTrust, an electronic authentication business.

Performance trends since establishment (seven-year growth cycle)

Growth cycle								Total business			Sales system (shopserve)					Medium-term business plan
	Cons. /Par.	Cons. subsidiaries	Term	FY	Revenue	Recurring profit	Net income	No. of customers	Total customer GMV	GMV per customer	No. of customers	Total customer GMV	GMV per customer	Total assets	Net assets
	Cons. /Par.	Cons. subsidiaries	Term	FY	(JPYmn)	(JPYmn)	(JPYmn)	(stores)	(JPYmn)	(JPYmn)	(stores)	(JPYmn)	(JPYmn)	(JPYmn)	(JPYmn)
0	Parent		1	FY03/99	0	-7	-7	-	-	-	-	-	-	4	3
1	Parent		2	FY03/00	283	38	21	4,855	-	-	-	-	-	599	490
	Parent		3	FY03/01	1,233	331	172	23,594	-	-	-	-	-	995	662
	Parent		4	FY03/02	1,416	306	173	23,327	-	-	-	-	-	1,378	1,208
	Parent		5	FY03/03	1,272	68	43	20,350	6,070	0.30	-	-	-	1,347	1,255
	Parent		6	FY03/04	1,359	89	58	20,822	9,780	0.47	-	-	-	1,671	1,513
	Parent		7	FY03/05	1,840	170	109	25,131	16,110	0.64	-	-	-	1,735	1,250
	Parent		8	FY03/06	2,384	203	124	35,615	28,480	0.80	-	-	-	1,991	1,347
2	Parent		9	FY03/07	2,809	328	145	41,651	42,180	1.01	-	-	-	2,458	1,143
	Parent		10	FY03/08	2,870	422	232	44,765	63,270	1.41	-	-	-	2,502	1,326
	Parent		11	FY03/09	3,257	423	238	48,426	78,950	1.63	-	-	-	2,815	1,476
	Parent		12	FY03/10	3,643	506	288	48,333	89,940	1.86	-	-	-	3,203	1,571
	Parent		13	FY03/11	4,069	592	329	47,262	94,590	2.00	-	-	-	3,383	1,619
	Cons.	Precision Marketing	14	FY03/12	5,337	504	281	32,773	93,080	2.84	-	-	-	4,013	1,809
	Cons.		15	FY03/13	5,963	659	390	28,865	92,690	3.21	-	-	-	4,434	2,121
3	Cons.		16	FY03/14	5,871	554	324	21,733	89,080	4.10	13,929	76,888	5.52	3,468	1,038
	Cons.		17	FY03/15	5,772	576	333	19,867	84,580	4.26	12,986	75,059	5.78	3,622	1,238
	Cons.		18	FY03/16	5,724	621	403	18,681	89,640	4.80	12,591	79,575	6.32	3,506	1,015
	Parent		19	FY03/17	4,775	402	286	17,018	87,860	5.16	11,590	79,739	6.88	3,492	1,173	Former 5-year plan (management target)
	Parent		20	FY03/18	5,044	582	412	-	-	-	10,503	79,823	7.60	3,980	1,463
	Cons.	Cross Trust	21	FY03/19	4,932	583	410	-	-	-	9,432	77,531	8.22	4,496	1,404
	Cons.	Cross Trust	22	FY03/20	4,853	527	368	-	-	-	9,004	82,300	9.15	7,376	1,747
4	Cons.	C21, WCA	23	FY03/21	10,505	174	483	-	-	-	8,398	103,900	12.36	8,604	2,344

Source: Shared Research based on company data
Note: C21 refers to Commerce21.

Previous medium-term management plan (FY03/17–FY03/21)

In 2015, the Estore group formulated a five-year medium-term management plan (FY03/17–FY03/21) with the goal of offsetting the intended decline in revenue for the Systems business (see below) with higher revenue in the Marketing business. After announcing FY03/20 results, which was the fourth-year of the medium-term plan, the company revealed its internal medium-term target of achieving JPY5.0bn in revenue. In FY03/16, when the current medium-term plan was formulated, the company deconsolidated Precision Marketing (January 2016) as results were below expectations and shifted its Marketing business investment away from the media business (operations of online marketplace “park”) and toward the sales promotion business.

Stagnant sales due to structural reform

Estore (parent) has already moved forward with its strategy of narrowing its target to quality customers, intentionally reducing customer count, and growing GMV per customer. However, the company faced challenges in formulating strategies to launch sales promotion systems and promote large-scale solutions, which prevented it from offsetting the revenue decline in the Systems business with revenue growth in the Marketing business (sales promotion services) for some time. The composition of revenue for Estore (parent) and its group companies has gradually shifted from the Systems business to the Marketing business, but revenue until FY03/20 has been stagnant at around JPY5.0bn.

M&A strategy

To overcome delays in its medium-term management plan, the company brought in investment fund Advantage Advisors and raised just under JPY1.0bn in November 2018 through a third-party allocation of convertible bonds. In January and March 2020, the company acquired all shares in Commerce21 and WebCrew Agency (now WCA), making them subsidiaries and successfully incorporating the dedicated converged e-commerce systems business geared for large enterprise customers as well as the marketing and website production businesses. In other words, the acquisitions helped establish the next foundation for growth quickly, enabling the company to achieve what it was unable to do on its own.

Advantage Advisors is part of the Advantage Partners group, which has been creating markets for private equity investments in Japan since its early days. Advantage Partners specializes in majority investments (buyouts) and Advantage Advisors specializes in minority investments in public companies. While both firms are the same in terms of providing funding and management support, the main difference is whether the firm sends in new management (Advantage Partners) or supports the existing management team as shareholders (Advantage Advisors).

Synergies

Since Commerce21 provides large-scale e-commerce systems to large enterprise customers, it can offer sales promotion services as a value-added option. Meanwhile, WCA provides sales promotion services to Commerce21, and also contributes to service improvement for Estore (parent)’s sales promotion services. In this way, the three group companies complement one another and create synergies, enabling the group to handle a wide variety of customer needs addressing companies of all sizes for both the Systems and Marketing business. Instead of operating independently of one another, the three companies need to achieve organic growth in group earnings through synergies. With the group consolidating its offices and creating a system capable of handling large projects, the company is prepared to realize synergies such as joint marketing and cross-selling in both the sales promotion services and sales systems businesses.

Business

Business model

Overview

Supports companies building in-house e-commerce sites

The group offers comprehensive services related to the development and operations of in-house e-commerce websites for customer companies. An in-house e-commerce site is one whereby a company obtains its own domain name and operates the site itself, as opposed to using online marketplaces like Amazon, Rakuten Ichiba, and Yahoo! Shopping. Estore offers the following three services:

E-Commerce Systems (FY03/21 revenue of JPY3.9bn, 72.0% revenue share): Records revenue from building customers’ e-commerce sites. The company offers two systems for larger companies (Sell-Side Solution and ECo2), and one for SMEs (shopserve).

Payment Settlement Services (FY03/21 revenue of JPY835mn, 15.4% revenue share): The company processes payments made at customers’ in-house e-commerce sites on their behalf.

Marketing Services (FY03/21 revenue of JPY678mn, 12.5% revenue share): The company provides sales promotion services for customers’ e-commerce operations.

The Estore group consists of nine companies: Estore (parent), four consolidated subsidiaries, and four affiliates (three of which are equity method affiliates). E-Commerce Systems are provided mainly by the parent and Commerce21, while the parent provides Payment Settlement Services. WCA is the main provider of Marketing Services.

The company acquired Commerce21 in January 2020 and WebCrew Agency (now WCA) in March 2020, gaining access to large corporations who are customers of Commerce21 with ample budgets for building and operating e-commerce systems.

The parent and WCA were both operating Marketing Services through FY03/21, but the company transferred the business run by the parent to WCA in FY03/22.

Main provider of each service

Main service	Main provider
E-Commerce Systems	Estore (parent): For SMEs
E-Commerce Systems	Commerce21: For large corporations
	Irvine Systems: System engineering
Payment Settlement Services	Estore (parent)
Marketing Services	WCA

Source: Shared Research based on company data

Ecosystem of three Estore businesses

The company builds and operates e-commerce websites for customer companies (E-Commerce Systems) and provides marketing services that help them grow their revenues (Marketing Services). If the marketing services produce an increase in GMV at the customer’s e-commerce site, the company provides a payment settlement service (Payment Settlement Services) to support customers from the payments side as well. According to Estore, customers’ earnings growth starts a virtual cycle of an emerging need for further development (additional features) of e-commerce systems, which leads to attracting new customers.

No involvement with building online marketplace systems

Some e-commerce websites are online marketplaces where multiple companies form one large shop (marketplace). Estore has no involvement in this business, specializing in building in-house e-commerce sites. The company builds long-term relationships with customer companies to provide solutions to individual problems. Its strength (point of difference) is the experience and know-how acquired over more than 20 years in the business of building e-commerce sites for SMEs.

Business domain

(JPYmn)			FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/21
Parent/Consolidated			Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.	Cons.	Cons. (New revenue recognition standards)
Revenue			5,871	5,772	5,724	4,775	5,044	4,932	4,853	10,505	5,415
	YoY		-1.5%	-1.7%	-0.8%	-16.6%	5.6%	-2.2%	-1.6%	116.5%	-
	E-Commerce Systems								1,934	3,900	3,900
		YoY							-	101.7%	-
		% of total							39.9%	37.1%	72.0%
	Payment Settlement Services								1,704	2,368	835
		YoY							-	39.0%	-
		% of total							35.1%	22.5%	15.4%
	Marketing Services								1,213	4,207	678
		YoY							-	246.8%	-
		% of total							25.0%	40.0%	12.5%
[Former segments]
Systems			4,078	3,836	3,975	3,934	3,880	3,706	3,606
	YoY		-3.9%	-5.9%	3.6%	-1.0%	-1.4%	-4.5%	-2.7%
	% of total				69.4%	82.4%	76.9%	75.1%	74.3%
	Small and medium: Gen. purpose ASP (Estore)		4,078	3,836	3,975	3,934	3,880	3,706	3,606
		YoY	-3.9%	-5.9%	3.6%	-1.0%	-1.4%	-4.5%	-2.7%
		% of total	69.5%	66.5%	69.4%	82.4%	76.9%	75.1%	74.3%
	Large: Dedicated converged system (Commerce21)
		YoY
		% of total
Marketing					1,748	788	1,131	1,190	1,213
	YoY		-	-	-	-54.9%	43.6%	5.2%	2.0%
	% of total		0.0%	0.0%	30.5%	16.5%	22.4%	24.1%	25.0%
	Small and medium: Production and promotion (Estore)		1,735	1,889	1,748	788	1,131	1,190	1,213
		YoY	8.0%	8.9%	-7.5%	-54.9%	43.6%	5.2%	2.0%
		% of total	29.5%	32.7%	30.5%	16.5%	22.4%	24.1%	25.0%
	Large: Marketing and production (WebCrew Agency)
		YoY
		% of total
Other			58	46	1	54	34	36	34
	YoY		-47.8%	-20.5%	-97.7%	-	-37.3%	7.5%	-5.8%
	% of total				0.0%	1.1%	0.7%	0.7%	0.7%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

E-Commerce Systems (72.0% of FY03/21 revenue)

Overview

E-Commerce Systems comprise: shopserve, Estore’s (parent) cloud-based e-commerce system; ECo2, Commerce21's cloud-based e-commerce system; and Sell-Side Solution, Commerce21’s package-type e-commerce system.

Sell-Side Solution and shopserve have completely different systems. While the former is a system that allows full customization as preferred by the customer, the latter is not built for customization. These two systems are therefore operated independently, even now that Commerce21 has become a subsidiary of the company. ECo2 enables the introduction of highly scalable services at low cost to the customer through the provision of certain functions carved out from Sell-Side Solution.

The main differences between the three systems are as follows (in order of average development lead time).

shopserve: A general-purpose SaaS system, one-month average development lead time, targets SMEs (annual revenue of a few hundred million yen)

ECo2: A new service launched in FY03/22 using a rental server. Systems are developed to order for each customer. Three to six months’ average development lead time, targets companies with annual revenue of over JPY1.0bn. More scalable than shopserve.

Sell-Side Solution: On-premise system developed to order for each customer using an in-house server . Six to nine months’ average development lead time, targets companies with annual revenue of tens of billions of yen. Most scalable of the three systems.

There are no cases of customers who had introduced Sell-Side Solution switching to the less scalable shopserve, but there are cases of customers having switched from shopserve to Sell-Side Solution in pursuit of greater scalability.

There are also examples of customers cancelling contracts for the company's services and migrating to free alternatives, but in the majority of such cases the customers in question do so because they are struggling and need to cut costs, or they have limited business data and so it is easy to move to another company's services. It is rare, on the other hand, for a customer whose business is performing well to migrate to another company's services.

Shopserve

Overview

Shopserve is a shopping cart solution that automatically calculates the total amount of purchases, processes payments, and sends out order confirmation emails. It is a general-purpose e-commerce system that integrates all functions required for operating an in-house e-commerce site (store pages, domain names, emails, payment processing, order fulfillment, customer management).

Shopserve features include: operational design standards focused on reducing customer time and labor costs, stability based on over 20 years of operational experience, and the scalability that comes with 150 application programming interfaces (APIs). Target companies are those with annual revenue of a few hundred million JPY or lower. The company is working to improve the system to make it easier to receive repeat orders, and new services are released every month.

Revenue structure

Revenue for shopserve consists of recurring revenue (monthly fixed fees) and royalty revenue (linked to gross merchandise value [GAV]). The former is collected as monthly subscription fees for ASP services, and the latter is collected as a percentage of sales made via stores on the shopserve platform as payment settlement fees (revenue source of Payment Settlement Services; see below). Commission rates are fixed for both revenue categories, so GPM and OPM are relatively stable as long as sales do not fluctuate drastically.

shopserve revenue trends

Both revenue streams of shopserve have contributed to Estore’s growth and business stability as customer count expanded (peaked in FY03/09). As intensified competition resulted in lower profitability in recent years, Estore made a strategic shift, focusing on quality customers and intentionally reducing customer count (FY03/12: 14,596 stores, FY03/20: 8,679 stores). As a result, annual GMV per store rose from JPY5.7mn in FY03/14 to JPY9.1mn in FY03/20, with annual total GMV flat at JPY79.0bn.

In the sales systems business, recurring revenue peaked in FY03/11 and royalty revenue peaked in FY03/18, with both on a declining trend since the increase in revenue per customer has not been enough to offset the decline in customer count.

shopserve revenue (data disclosed through FY03/20)

Source: Shared Research based on company data

KPIs

shopserve’s revenue as a percentage of total customer GMV* declined gradually from 5.1% in FY03/14 to 4.4% in FY03/20. This metric shows what percentage of sales systems costs is charged to the customer**. Sales systems revenue per customer store*** has risen from JPY0.29mn in FY03/14 to JPY0.42mn in FY03/20.

* Estore and its group companies’ sales systems revenue divided by the total GMV of customer stores in operation
** Sales systems revenue for Estore parent includes rental server revenue, and excluding this yields a slightly lower figure
*** Estore and its group companies’ sales systems revenue divided by total customer store count

shopserve customer store count and GMV

Key performance indicators		FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
Sales systems		Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.	Cons.
No. of customer stores		13,929	12,986	12,597	11,590	10,503	9,432	9,004	8,398
	YoY	-3.7%	-6.8%	-3.0%	-8.0%	-9.4%	-10.2%	-4.5%	-6.7%
Customer GMV per store (JPYmn)		5.69	5.78	6.32	6.88	7.60	8.22	9.15	12.36
	YoY	10.0%	1.7%	9.3%	8.9%	10.5%	8.2%	11.3%	35.1%
Total customer GMV (JPYmn)		79,200	75,059	79,613	79,739	79,823	77,531	82,300	103,900
	YoY	5.9%	-5.2%	6.1%	0.2%	0.1%	-2.9%	6.2%	26.2%
Sales systems revenue as % of customer GMV		5.1%	5.1%	5.0%	4.9%	4.9%	4.8%	4.4%
Sales systems revenue per customer store (JPYmn)		0.29	0.30	0.32	0.34	0.37	0.39	0.40

Source: Shared Research based on company data

Pricing plans

Shopserve pricing plans include Public, Basic, Prime, and Premium. Customers can further customize their plan based on the number of registered products, number of registered customers, data disk storage size, website network traffic, and various optional plans. According to Estore, with an increase in the number of customers with relatively large e-commerce budgets, sales has been shifting from the Public plan to the higher-priced Basic plan.

Shopserve pricing plans

shopserve plans		Public	Basic	Prime	Premium
Initial fee (JPY, ex. tax)		15,000	15,000	15,000	15,000
Monthly fee (JPY, ex. tax)	Always On SSL: Domain validated	11,400	16,500	22,000	46,800
Monthly fee (JPY, ex. tax)	Always On SSL: Organization validated	-	19,700	25,200	50,000
No. of registered products		500	3,000	3,000	3,000
No. of registered customers		10,000	30,000	Unlimited	Unlimited
Store domain charge		Free	Free	Free	Free
Subdomain availability		-	Y	Y	Y
Smartphone site		Y	Y	Y	Y
Wide payment options		Y	Y	Y	Y
WordPress linkage		Optional	Optional	Y	Y
Regular purchase, buyers clubs		Optional	Optional	Optional	Y
LP cart (landing page with built-in form)		Optional	Optional	Optional	Y
HTML email distribution		Optional	Optional	Y	Y
No. of emails distributed		50,000	50,000	100,000	100,000
Number of email addresses available		20	50	50	50
Multiple staff login		Y	Y	Y	Y
Data disk storage size		1GB	3GB	10GB	10GB
Website data transfer volume		150GB	150GB	200GB	200GB

Note: Prices are exclusive of consumption tax as of June 2021.
Source: Shared Research based on company data

Customer attributes

As of FY03/21, there are about 8,000 companies (stores) using Estore’s shopserve e-commerce system, most of which are SMEs. The company has intentionally narrowed its focus on quality customers and expects customer count to decline to between 5,000 and 7,000 in the future. The company defines quality customers as large corporations and high-growth SMEs that have high GMV and revenue per store, as well as ample system development and sales promotion budgets.

Since 2009, Estore has held the Online Store GRANDPRIX Awards every year, awarding stores based on a number of criteria including sales, order count, growth rate, repeat purchase ratio, member count, and design quality. This has yielded some positive results (i.e., upselling of sales promotion services) by helping the company identify and nurture quality customers as a part of its marketing efforts.

The company selects the stores with the highest sales for the year overall and by category, and awards the overall top selling store the “Grand Prix” award, and the top-selling store in each category the “Category Top” award. Additionally, the company selects the store with the highest annual order count (including repeat orders) in a certain category as the “Category Premium” and awards the highest-selling new store (stores that have been in operation for one year) the “New Shop Award.”

Many of the winners are specialty stores selling lifestyle improvement products for women such as jewelry and watches; beauty, healthcare and diet products; kids, baby, and maternity products. Also, in the food category, the winners are not stores selling daily necessities, but those specializing in local gourmet food and other high-end ingredients. The company stimulates its customers’ drive to expand sales, which in turn leads to higher royalty revenue and sales promotion services revenue for Estore.

Estore customer Grand Prix winning stores

Year	Grand Prix	Category
2020	Takumi Honpo	Foods
2019	GINZA RASIN	Jewelry and watches
2018	Takumi Honpo	Foods
2017	CeraLabo	Beauty and healthcare
2016	Karadanorecipe	Beauty and healthcare
2015	Takumi Honpo	Foods
2014	Sweet Mommy	Kids, babies, maternity
2013	Takumi Honpo	Foods
2012	Milk tea	Kids, babies, maternity
2011	Tansunogen Honten	Lifestyle, interior
2010	Natural Garden	Diet and healthcare
2009	Tansunogen Honten	Lifestyle, interior

Source: Shared Research based on company website

shopserve customers (partial list)

Sell-Side Solution (Commerce21)

Overview

In addition to general-purpose e-commerce systems for SMEs, the company offers dedicated converged e-commerce systems for large corporations. These packaged systems can flexibly meet the needs of large corporations that require high scalability. The development, production, and maintenance of converged e-commerce systems are handled by Commerce21, which became a consolidated subsidiary in January 2020.

Commerce21 has 100 engineers with a wealth of experience in building large-scale e-commerce systems. The main development team members for each account serve as support and maintenance contact points after system deployment, providing speedy and reliable service. Additionally, Commerce 21 maintains an open package specification by disclosing the source code. This way, it can help customers with in-house development and enable other vendors to develop and maintain systems. To meet the needs of large-scale e-commerce systems (scalability, stable operations, high security), Commerce 21 flexibly responds to development of customized functions, provides comprehensive e-commerce solutions, and enables integration with external systems and ASP services.

It offers e-commerce systems that operate stably, even with millions of products, billions of yen in sales, and thousands of real-time transactions, and offers a differentiated service compared to typical e-commerce packaged systems and systems developed from scratch.

Revenue structure

Sell-Side Solution, a PaaS system, records contracted revenue (number of new customers x order unit price) as royalty revenue.

Large corporations’ e-commerce websites tend to require additional development after the initial system is completed. Consequently, Sell-Side Solution records revenue from additional system development/contracted work (number of existing customers x percentage of customers that order additional system development x unit price of additional development) over the longer term.

Sell-Side Solution also records maintenance and operation fees.

According to the company, the average annual revenue per customer for large-scale e-commerce systems for Commerce21’s 80 active customers is about JPY21.0mn, about 50 times higher than the average annual revenue per customer of JPY0.42mn for small-to medium-scale e-commerce systems.

Customer attributes

According to the company, the top 500 e-commerce operators by revenue combine for a total of JPY3.0tn in revenue, of which Commerce21’s customers account for over a 10% share at more than JPY320bn. Twelve of the top 100 domestic e-commerce companies by revenue are Commerce21 customers. Commerce21 has implemented its systems in over 300 major domestic e-commerce companies.

Commerce21’s customers range from B2C (apparel; food, beauty, and healthcare; sports and outdoors; home electronics, PC, and office supplies; CDs, DVDs, and books; DIY, auto and motorcycle parts and accessories; general merchandise; etc.) to B2B. Of the more than 300 companies that installed Commerce21’s large-scale e-commerce system, there are about 80 companies with active installations.

The company recognizes that it has strengths in technology related to database integration, and that it can offer solutions of an excellent quality, especially to customers with problems in that area.

Customers using large-scale e-commerce systems (partial list)

Vertical	Store	Operator
Apparel	OEM-based C21 to EC solution (fulfillment) operation	Magaseek
	Wacoal Web Store	Wacoal
	Pal Closet	Pal
	F.O. Online	F.O. International
	Angeliebe official online shop	Angeliebe
Food, beauty, and healthcare	HABA Online Shop	Haba Laboratories
Food, beauty, and healthcare	Kenkou Town	Kenkou Corporation
Sports and outdoor	Alpen group online store	Alpen
	GDO Golf Shop	Golf Digest Online
	Mizuno Shop	Mizuno
Home electronics, PC, and office supplies	Sanwa Direct	Sanwa Supply
	kojima.net	Kojima
	PC Depot	PC Depot Corporation
CDs, DVDs, and books	Shinshu Otani-ha Higashi Honganji	Shinshu Otani-ha Higashi Honganji
	U-Can shop	U-Can
	Bookoff Online	Bookoff Online
	LEC On-line Shop	Tokyo Legal Mind
DIY, auto and motorcycle parts and accessories	Komeri.com	Komeri
DIY, auto and motorcycle parts and accessories	DCM Online	DCM Holdings
General merchandise	dinos online shop	Dinos Cecile
B2B	Market Catalogue	Biznet
	Web Maruko	Kodansha
	sign city	Trade
Other	au Online Shop	KDDI
	Toys"R"Us Babies"R"US online store	Toys"R"Us-Japan
	Komehyo Online Shop	Komehyo

Note: As of June 2021
Source: Shared Research, based on company website

Payment Settlement Services (15.4% of FY03/21 revenue)

Overview and earnings structure

Payment Settlement Services provide payment processing services for customer companies’ in-house e-commerce websites.

The service records payment settlement fees (number of customers x GMV x payment settlement fee rate). The company disclosed these fees as royalty revenue through FY03/20.

Royalty revenue was JPY1.9bn for shopserve in FY03/20. GMV was JPY79.3bn (8,679 stores x GMV per store of JPY9.1mn) and we estimate that the average fee rate was 2.4%.

Settlements made through credit card or Amazon Pay create revenue for the company's payment settlement services, but cash on delivery does not. Cash on delivery accounts for approximately one third of GMV.

Marketing Services (12.5% of FY03/21 revenue)

Overview

Marketing Services were previously called sales promotion services. The company conducts e-commerce sales promotions on behalf of its customers. The outsourced operations include project strategy, survey and analysis, and advertisement production, and services are constantly being improved to help customers realize the benefits of opening an e-commerce store.

Through FY03/21, Estore (parent) and WebCrew Agency (now WCA), which became a consolidated subsidiary in March 2020, offered sales promotion services, but their resources were integrated at WebCrew Agency in FY03/22.

Estore (parent) previously provided sales promotion services to SMEs and WCA provided services to large companies through FY03/21.

Overview of WCA

WCA is an advertising agency that provides consulting services for the latest internet advertising methods as well as proposals and operations for listing ads on Google and Yahoo!, social media ads centered around Twitter and Facebook, proposals for traditional media such as magazines, radio, and direct mail, and production of landing pages (the first page of a website that users see), banners, and websites. WCA serves about 100 customers with a sales-driven 30-person team.

Major customers (vendors, partners, etc.) include Yahoo (a wholly owned subsidiary of Z Holdings [TSE1: 4689]), Google, Toppan Printing (TSE1: 7911), Hakuhodo DY Holdings (TSE1: 2433), Dentsu Group (TSE1: 4324), Dai Nippon Printing (TSE1: 7912), Fan Communications (TSE1: 2461), Interspace (TSE Mothers: 2122), and ValueCommerce (TSE1: 2491).

Marketing service portfolio of WCA (partial list)

Customer	Track record
Netz Toyota Yokohama	Landing page
Netz Toyota Higashikanagawa	Landing page
Toyota Corolla Saitama	Landing page
Jaguar Tokyo	Landing page
Yell	Landing page
Keiyo Group	Landing page
Tokyu Security	Landing page
Haseko Community	Landing page
metabolic	Landing page
The Kids	Landing page
Pac Ex	Landing page
Mitsui Kaihatsu	Landing page, website
Hirosima Kensetsu	Landing page, website
Life Cycle	Website, video ad
Japan Total Club	Website
New Otani	Video ad
Choice Hotels Japan	Video ad
Sogo & Seibu	Video ad
Intage	Video ad

Source: Shared Research, based on company website

Service content

The services include providing visual creations such as webpages and advertisements, promotional advertisements to attract customers, email newsletters to encourage repeat customers, and making distribution-related arrangements such as for warehousing. Until FY03/21, Estore (parent) provided extensive customer services through: 1) full sales management by account, 2) outsourced webpage production and promotions, and 3) inventory and logistics management consulting to prevent order loss. As a result, upselling to existing customers was steady and the order unit price for sales promotion services trended upward.

Revenue structure and customer attributes

Marketing services comprise survey analysis, strategy formulation, and consulting; customer acquisition outsourcing; outsourced production; and outsourced operations. The company offers highly itemized pricing options ranging from JPY10,000 to over JPY1mn. For the Full Assist Plan, a one-stop service including survey, analysis, strategy formulation, production, and customer acquisition services, the company offers pricing plans such as JPY1mn per month (six months for JPY6mn) and JPY5mn per month (six months for JPY30mn).

Estore’s (parent) sales promotion services for SMEs had around 200 active customers and average annual revenue per customer of around JPY6mn through FY03/21. Sales activities targeted 350 or so companies (including potential customers).

Sales promotion services for large companies had average annual revenue per customer of approximately JPY36mn based on around 100 customers of WCA, or six times the JPY6mn revenue per customer for SMEs.

Purpose of three-company structure of Estore, Commerce21, and WCA

The group has been shifting its focus business area from general-purpose ASP systems for SMEs to dedicated converged e-commerce systems for large corporations. In other words, it is shifting from the Systems business to the Marketing business, from shopping cart solutions (shopserve) to large-scale e-commerce package systems, and from machine processing to service delivery. The company is shifting away from the general-purpose shopping cart business as price competition has intensified with over 100 companies in the space, many of which are operating at a loss. The business is now in the same category as the already-commoditized rental server business, making it difficult to differentiate services with so many vendors in the space. As e-commerce system sales and operations require largely the same amount of effort and personnel for both small and large systems, the company intends to strengthen efforts to win large projects, which yield better sales and service efficiency.

Estore’s policy has been to lower its focus on the increasingly commoditized sales systems (Systems business) and shift toward sales promotion services (Marketing business), which show substantial potential demand. However, like the sales systems business, the sales promotion services business has over 1,000 production companies and advertising agencies, and competition in the e-commerce support area is intensifying. As such, the company plans to focus on pursuing large projects in the sales promotion business as well.

The changes in the company’s scope of business and areas of focus before and after the acquisition of Commerce21 and WebCrew Agency (now WCA) are shown in the table below. Prior to the merger, Estore (parent) was in the process of shifting its focus from the Systems business (small- to medium-scale) to the Marketing business (small- to medium-scale).

Scope of business and focus areas (pre--M&A)

Source: Shared Research, based on company data and interview

Scope of business and focus areas (post-M&A)

Source: Shared Research, based on company data and interview

At the time of the acquisitions, Commerce21, which was spun off (discussed below), operated its own large-scale converged e-commerce system business and WebCrew Agency (now WCA) had its own marketing and production business. After the acquisitions, WebCrew Agency CEO Fujio Hino became head of the entire Marketing business, overseeing projects of all sizes and promoting cross-selling and upselling within the group. In the Systems business, Estore (parent) will focus on small- to medium-scale projects while Commerce21 pursues large projects. This is because the company competes directly with large consulting, IT, and advertising firms for new larger projects, and the group’s competitive landscape will be separated by project size.

Overview of business area (revenue, average revenue per customer, customer count, sales and development structure, competitors, etc.)

	Systems (machine)	Marketing
Small- to medium-scale	General-purpose ASP system (shopping cart)	E-commerce operation service
	Estore (shopserve)	Estore (consulting, production, advertising, other)
	JPY3.6bn=JPY0.4mn x 9,000 companies	JPY1.2bn=JPY6mn x 200 companies
	Subscription and royalty	Royalty
	Operates development	Operates marketing
	Competition: more than 100 (mostly money losers)	Competition: Over 1,000 (ad agencies)
	Estore (151 employees + 29 temporary workers)
Large scale	Dedicated converged system (package)	Marketing and production
	Commerce21 (large EC building software development)	WCA (outsourced ad services)
	JPY1.8bn=JPY2.1mn x 80+ companies	JPY3.6bn=JPY3.6mn x 100 companies
	Software development companies, system integrators	Royalty
	Operates development (100 employees)	Operates marketing (30 employees)
	Competition: ecbeing, other	Competition: Large ad agencies and consulting companies

Source: Shared Research, based on company data and interview
*Revenue = average revenue per customer multiplied by customer count

Competitive landscape

With the acquisitions of Commerce21 and WebCrew Agency (now WCA), the Estore group began acquiring large customers with substantial e-commerce budgets. Commerce21 was originally a system integrator in the software development industry and WebCrew Agency’s main business was in advertising. The company sees ecbeing Corp., which is focused on developing large-scale e-commerce systems, as a direct competitor in this space. According to “2019 EC Solutions Market Share” published by Fuji Chimera Research Institute, ecbeing held a 47.1% share in developing e-commerce website packages for B2B transactions in 2018, and has maintained the top position for the 11th consecutive year. For Estore (parent), the main focus has been on building shopping carts for B2C e-commerce sites, but going forward the company will also focus on developing e-commerce site packages for B2B websites.

The group survived more than 20 years of intense competition with its differentiation strategy based on its “Mikawaya-san” approach, or in other words, the trade consulting approach. Mikawaya-san refers to a locally owned liquor store that understands what its customers need and makes personal recommendations for them. The store recommends only what customers need, thereby boosting customer satisfaction and building a lasting relationship. Estore believes that consumers (demand side) are feeling the effects of information overload in the digital age, and that companies (i.e., Estore’s customers) would benefit from adopting an analog approach that cultivates a sense of resonance with consumers and creates the perception that they are receiving special attention. The company believes the trade consulting, or Mikawaya-san strategy, will prove effective in capturing new large B2B projects.

The company competes with major IT companies, consulting firms, and advertising agencies for large B2B e-commerce projects. Rather than directly competing with these companies that have already tapped into the market, the group plans to take a specialized trade consulting approach to uncover the underlying needs of large customers, and collaborate with other companies to approach customers depending on the circumstances.

Synergies

Effects of M&A

Since Commerce21 provides large-scale e-commerce systems to large corporations, it can offer sales promotion services as a value-added option. Meanwhile, WCA will be able to provide sales promotion services to Commerce21 and also contribute to service improvement for Estore’s sales promotion services. In addition to cross-selling, the company expects to upsell services to its existing customers, which should lead to higher order unit prices. In this way, the three group companies can complement one another and create synergies, enabling the group to handle a wide variety of customer needs in both the Systems and Marketing business, addressing companies of all sizes.

Made Commerce21 a subsidiary (January 2020)

Previously, Commerce21 was a wholly owned subsidiary of Yahoo. Yahoo spun off the application performance management business from Commerce21 to establish B-SLASH, then transferred the business to ValueCommerce. Estore acquired Commerce21, which continued to operate its converged e-commerce package solution business after the spinoff, from Yahoo and made it a consolidated subsidiary. Commerce21 posted revenue of JPY1.8bn and operating profit of JPY100mn in FY03/20 (after the spinoff).

With the addition of Commerce21, the group is now able to respond to requests for large-scale e-commerce system development projects from customers of its sales promotion services. On the other hand, the company can provide sales promotion services to large corporations, which are Commerce21’s mainstay customers. The company expects that these synergies will help improve the satisfaction of existing customers while strengthening new sales capabilities, thereby boosting group earnings.

Made WebCrew Agency (now WCA) a subsidiary (March 2020)

WebCrew Agency was a wholly owned subsidiary of WebCrew (subsidiary of NFC Holdings [Jasdaq: 7169]), an IT services company primarily engaged in the operation of an insurance comparison website. WebCrew Agency has a wide range of customers centering on large corporations, and is able to offer a diverse selection of planning solutions for online and real-world sales promotions. The company posted revenue of JPY4.1bn and operating profit of JPY100mn in FY03/20. The addition of WebCrew Agency strengthened the group’s sales promotion services and large-project portfolio. Estore believes WebCrew Agency will help enhance both the quantity and quality of its sales promotion services.

Post-M&A annual rent reduction effect

Although the three companies will continue to operate under their existing brands for the time being following the M&A, Estore relocated its headquarters during FY03/21 to improve group-wide efficiency. With the group now capable of handling large projects, the company is prepared to realize synergies such as joint marketing and cross-selling in both the sales promotion services and sales systems businesses. In conjunction with the office relocation, the group will revise its work rules and regulations to promote teleworking, thereby reducing the size of the office. The average price per square meter will rise from JPY0.10mn to JPY0.12mn after the relocation, but the group expects to reduce annual rent by about JPY30mn, from JPY277mn to JPY248mn, due to a reduction in floor space from 2,909sqm to 2,122sqm.

M&A results

			Before consolidation				After
Commerce21			FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
			Act.	Act.	Act.	Act.	Act.
Revenue			506	1,645	2,038	1,807	-
Operating profit			15	18	362	100	-
	Operating profit margin		3.0%	1.1%	17.8%	5.5%	-
Recurring profit			16	17	363	-	-
Net income			16	-34	209	-	-
Total assets			1,051	1,211	1,369	-	-
Net assets			609	574	783	-	-
No. of employees (ex. temporary workers)			-	-	-	100	-
No. of temporary workers (average)			-	-	-	2	-

WebCrew Agency (now WCA)			FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
			Act.	Act.	Act.	Act.	Act.
Revenue			3,219	3,311	3,385	4,100	-
Operating profit			87	130	59	100	-
	Operating profit margin		2.7%	3.9%	1.7%	2.4%	-
Recurring profit			87	130	59	-	-
Net income			67	76	38	-	-
Total assets			255	331	332	-	-
Net assets			752	792	736	-	-
No. of employees (ex. temporary workers)			-	-	-	29	-
No. of temporary workers (average)			-	-	-	-	-

Estore (parent)			FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
			Act.	Act.	Act.	Act.	Act.
Revenue			4,775	5,044	4,926	4,830	-
Operating profit			407	554	494	421	-
	Operating profit margin		8.5%	11.0%	10.0%	8.7%	-
Recurring profit			402	582	524	430	-
Net income			286	412	359	291	-
Total assets			3,492	3,980	4,422	5,881	-
Net assets			1,174	1,463	1,354	1,505	-
No. of employees (ex. temporary workers)			168	143	143	151	-
No. of temporary workers (average)			54	55	38	29	-
Estore (consolidated)			FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
			Act.	Act.	Act.	Act.	Act.
Revenue			-	-	4,932	4,853	10,505
	Office relocation costs (one-time)						230
	Amortization of goodwill						130
Operating profit			-	-	516	478	907
	Operating profit margin		-	-	10.5%	9.9%	8.6%
	Before office relocation costs						1,137
		Operating profit margin					10.8%
	Before relocation costs and amortization						1,267
		Operating profit margin					12.1%
Recurring profit			-	-	583	527	1,074
Net income			-	-	410	368	483
Total assets			-	-	4,496	7,376	-
Net assets			-	-	1,404	1,747	-
No. of employees (ex. temporary workers)			-	-	143	280	-
No. of temporary workers (average)			-	-	38	31	-

Source: Shared Research based on company data
Note: FY03/17–FY03/20 earnings are pre-merger figures (however, Estore consolidated total assets, net assets, and employee count for end-FY03/20 are post-merger figures).

Reference: Old segments

Old segment reporting

The Estore group reported results through two segments between FY03/12 and FY03/16: the Marketing business and Systems business. The Marketing business consisted of the media business (online marketplace “park”) operated by Precision Marketing, which became a consolidated subsidiary in June 2011. The Group reduced its stake in Precision Marketing and deconsolidated the company in January 2016 and ceased segment reporting from FY03/17.

Reporting by service

Between FY03/17 and FY03/20, Estore (parent) and its group companies reported revenues by scope of business, which included sales promotion services, sales promotion systems (recurring and royalty revenue), and others (electronic authentication business, media business [which ended as of end-September 2018], etc.). However, figures for sales promotion systems and electronic authentication services were not disclosed in FY03/20 as revenues were minimal (about JPY30mn combined).

New segment reporting

As Commerce21 and WCA have been fully consolidated, the Estore group plans to report through two segments in FY03/21: Systems and Marketing. In its 2019 shareholder report, the company disclosed its FY03/21 revenue forecast of JPY10.1bn, comprised of JPY5.9bn for the Systems business and JPY5.1bn for the Marketing business (the company also disclosed historical results from FY03/17 to FY03/20; see third chart below).

Since the small- to medium-scale Systems business is categorized as a non-core business, and Commerce21 and WCA revenues are not broken down into recurring and royalty revenues, the company is undecided about continuing to disclose recurring revenue (monthly fixed fees) and royalty revenue (GMV-linked revenue) for sales systems from FY03/21 onward.

Business domains (JPYmn)			FY03/05	FY03/06	FY03/07	FY03/08	FY03/09	FY03/10	FY03/11	FY03/12	FY03/13
Parent/Consolidated			Parent	Parent	Parent	Parent	Parent	Parent	Parent	Cons.	Cons.
Revenue			1,840	2,384	2,809	2,870	3,257	3,643	4,069	5,337	5,963
	YoY			29.6%	17.8%	2.2%	13.5%	11.9%	11.7%	31.2%	11.7%
	Sales promotion services									1,132	1,606
		YoY								-	41.9%
		% of total								21.2%	26.9%
	Sales promotion systems
		YoY
		% of total
	Sales systems (recurring: fixed monthly fee)		1,279	1,701	2,012	2,084	2,242	2,367	2,507	2,378	2,372
		YoY	-	33.0%	18.3%	3.6%	7.6%	5.6%	5.9%	-5.1%	-0.3%
		% of total	69.5%	71.4%	71.6%	72.6%	68.8%	65.0%	61.6%	44.6%	39.8%
	Sales systems (royalty: linked to GMV)		142	267	373	586	881	1,177	1,480	1,684	1,873
		YoY	-	88.0%	39.7%	57.1%	50.3%	33.6%	25.7%	13.8%	11.2%
		% of total	7.7%	11.2%	13.3%	20.4%	27.0%	32.3%	36.4%	31.6%	31.4%
	Other		419	416	424	200	134	99	82	143	112
		YoY	-	-0.8%	1.9%	-52.9%	-32.9%	-25.9%	-17.5%	74.6%	-21.8%
		% of total	22.8%	17.4%	15.1%	7.0%	4.1%	2.7%	2.0%	2.7%	1.9%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Business domains (JPYmn)			FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Parent/Consolidated			Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.
Revenue			5,871	5,772	5,724	4,775	5,044	4,932	4,853
	YoY		-1.5%	-1.7%	-0.8%	-16.6%	5.6%	-2.2%	-1.6%
	Sales promotion services		1,735	1,889	1,748	788	1,131	1,190	1,213
		YoY	8.0%	8.9%	-7.5%	-	43.6%	5.2%	2.0%
		% of total	29.5%	32.7%	30.5%	16.5%	22.4%	24.1%	25.0%
	Sales promotion systems						3	14	-
		YoY					-	419.8%	-
		% of total					0.1%	0.3%	-
	Sales systems (recurring: fixed monthly fee)		2,298	2,099	2,060	1,967	1,856	1,724	1,688
		YoY	-3.1%	-8.7%	-1.9%	-4.5%	-5.7%	-7.1%	-2.1%
		% of total	39.1%	36.4%	36.0%	41.2%	36.8%	34.9%	34.8%
	Sales systems (royalty: linked to GMV)		1,780	1,737	1,915	1,967	2,024	1,983	1,918
		YoY	-5.0%	-2.4%	10.2%	2.7%	2.9%	-2.0%	-3.3%
		% of total	30.3%	30.1%	33.5%	41.2%	40.1%	40.2%	39.5%
	Other		58	46	1	54	31	22	34
		YoY	-47.8%	-20.5%	-97.7%	-	-42.3%	-27.7%	52.0%
		% of total	1.0%	0.8%	0.0%	1.1%	0.6%	0.5%	0.7%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Revenue by former segment (JPYmn)		FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Cons.		Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.
Segment revenue		5,871	5,772	5,724	4,775	5,044	4,932	4,853
	Systems	4,136	3,882	3,976
	Marketing	2,040	2,072	1,881
	Internal transactions or transfer	-305	-182	-133
Segment sales, % of total
	Systems	67.0%	65.2%	67.9%
	Marketing	33.0%	34.8%	32.1%
YoY		-1.5%	-1.7%	-0.8%
	Systems	-2.4%	-6.1%	2.4%
	Marketing	6.5%	1.6%	-9.2%
Former segment revenue (external customers; JPYmn)		FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Cons.		Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.
Segment revenue (external customers)		5,871	5,772	5,724	4,775	5,044	4,932	4,853
	Systems	4,136	3,882	3,976	3,988	3,913	3,743	3,640
	Marketing	1,735	1,889	1,748	788	1,131	1,190	1,213
Segment sales, % of total
	Systems	70.5%	67.3%	69.5%	83.5%	77.6%	75.9%	75.0%
	Marketing	29.5%	32.7%	30.5%	16.5%	22.4%	24.1%	25.0%
YoY		-1.5%	-1.7%	-0.8%	-	-	-2.2%	-1.6%
	Systems	-2.4%	-6.1%	2.4%	0.3%	-1.9%	-4.4%	-2.7%
	Marketing	0.5%	8.9%	-7.5%	-	-	5.2%	2.0%
Former segment profit (JPYmn)		FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Cons.		Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.
Segment profit		552	572	619
	Systems	852	799	701
	Marketing	-296	-223	-79
	Goodwill amortization, eliminations	-4	-4	-3
Segment profit, % of total
	Systems	153.4%	138.8%	112.7%
	Marketing	-53.4%	-38.8%	-12.7%
Segment profit margin		9.4%	9.9%	10.8%
	Systems	20.6%	20.6%	17.6%
	Marketing	-14.5%	-10.8%	-4.2%
YoY		-14.5%	3.7%	8.3%
	Systems	6.8%	-6.2%	-12.3%
	Marketing	-	-	-

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Electronic authentication and other revenues are included in System business revenue.
Media business revenue are shown for Marketing business between FY03/12 and FY03/16.
Unconsolidated FY03/16 revenue of JPY4.7bn consists of JPY4.1bn in System revenue and JPY596mn in Marketing revenue.
Figures for FY03/17-FY03/21 are calculated from revenue by service, which the company has continued to disclose since FY03/17.

Profitability

Profit margins		FY03/11	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
(JPYmn)		Parent	Cons.	Cons.	Cons.	Cons.	Cons.	Parent	Parent	Cons.	Cons.
	Gross profit	1,783	1,768	1,850	1,847	1,740	1,825	1,548	1,449	1,490	1,504
	Gross profit margin	43.8%	33.1%	31.0%	31.5%	30.1%	31.9%	32.4%	28.7%	30.2%	31.0%
	Operating profit	604	498	645	552	572	619	407	554	516	478
	Operating profit margin	14.8%	9.3%	10.8%	9.4%	9.9%	10.8%	8.5%	11.0%	10.5%	9.9%
	EBITDA	791	714	849	742	747	721	492	642	598	543
	EBITDA margin	19.4%	13.4%	14.2%	12.6%	12.9%	12.6%	10.3%	12.7%	12.1%	11.2%
	Net margin	8.1%	5.3%	6.5%	5.5%	5.8%	7.0%	6.0%	8.2%	8.3%	7.6%
Financial ratios
	ROA (RP-based)	18.0%	13.6%	15.6%	14.0%	16.3%	17.4%	11.5%	15.6%	13.7%	8.9%
	ROE	20.6%	16.5%	20.1%	21.0%	30.5%	36.7%	26.1%	31.2%	28.6%	23.4%
	Total asset turnover	123.6%	144.3%	141.2%	148.6%	162.8%	160.6%	136.5%	135.0%	116.4%	81.8%
	Working capital (JPYmn)	338	478	238	315	294	385	394	385	389	397
	Current ratio	148.0%	152.7%	161.1%	124.3%	133.2%	123.8%	131.1%	143.3%	179.6%	140.5%
	Quick ratio	147.6%	148.0%	160.8%	123.8%	132.1%	123.4%	130.7%	143.0%	178.7%	136.6%
	OCF / Current liabilities	0.38	0.30	0.37	0.19	0.29	0.25	0.20	0.29	-0.01	0.21
	OCF / Total liabilities	0.36	0.27	0.36	0.18	0.28	0.25	0.20	0.27	-0.01	0.11
	Cash conversion cycle (days)	21.3	21.3	12.6	5.6	8.6	13.5	23.3	22.4	22.0	11.2
	Change in working capital	22	141	-240	77	-21	90	10	-9	4	8

					FY03/11	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Accounts receivable turnover					9.2	8.8	8.6	8.6	8.3	9.4	8.5	8.5	8.3	5.2
Days in accounts receivable					39.7	41.2	42.7	42.5	44.0	38.9	43.2	42.7	44.0	70.4

					FY03/11	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Inventory turnover					387.9	722.2	832.3	772.8	789.8	823.1	463.1	438.3	267.3	46.4
Days in inventory					0.9	0.5	0.4	0.5	0.5	0.4	0.8	0.8	1.4	7.9

					FY03/11	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Accounts payable turnover					18.9	17.8	12.0	9.8	10.2	14.1	17.7	17.2	15.7	5.4
Days in accounts payable					19.3	20.5	30.5	37.4	35.8	25.8	20.6	21.2	23.3	67.0

					FY03/11	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20
Tangible fixed asset turnover					17.6