HENNGE 4475
HENNGE
Recent Updates
2022-05-13
2022-03-17
2022-02-13
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16-28 Daiwa Shibuya Square, Nampeidai-cho Shibuya,Tokyo, Japan
Summary
HENNGE provides proprietary software services to companies. Its core offering is HENNGE One.
Internet Software & Services
Key dates
2020-08-04
Coverage initiation
Executive summary
Business overview
HENNGE provides proprietary software services to companies. Its core offering is HENNGE One, a software service that facilitates consolidated management of IDs and passwords for a wide array of third-party cloud-based software services that traditionally had to be managed separately. HENNGE One’s ID integration functionality allows customers to access such services with a single sign-on (SSO). It also provides a full range of user management and security features including access restrictions that can be configured to block sign-ins from unauthorized devices or locations, device authentication for notebook PCs and smartphones, and data loss/leak prevention tools such as email attachment encryption, email archiving, and exchange of large files.
In FY09/21, the company reported revenue of JPY4.8bn and operating profit of JPY380mn. At end-FY09/21, it had 1,952 contracts for HENNGE One, and supplied services to approximately 15% of the companies listed on the Tokyo Stock Exchange. No individual customer accounts for more than 10% of HENNGE One’s total revenue. Major customers include Asahi Kasei Corporation (TSE1: 3407), Keio Corporation (TSE1: 9008), Persol Holdings Co., Ltd. (TSE1: 2181), and FamilyMart Co., Ltd. (TSE1: 8028). HENNGE One has 2.14mn (+9.7% YoY) users at its customer companies. HENNGE listed on the TSE Mothers market in October 2019.
The HENNGE One business generated revenue of JPY4.4bn (89.9% of total) and Professional Service and Others JPY490mn (10.1%) in FY09/21. The latter mainly provides cloud-based email services and packaged software for high-speed distribution of large volumes of emails.
Recurring revenue accounted for 97.4% (+0.3pp YoY) of total revenue in FY09/21. Revenue from the HENNGE One business is mostly recurring revenue, as is some revenue from the Professional Service and Others category. The company collects annual usage fees from customers as upfront payments (recorded as unearned revenue on the balance sheet), and books these as monthly revenue once service actually starts. This business model produces stable revenue, although the launch or cancellation of services for major customers can cause fluctuations. In FY09/21, the average monthly churn rate (TTM) was 0.25%, up 0.09pp YoY.
HENNGE One revenue can be roughly calculated by multiplying the number of users (customer companies × users per company) and average revenue per user (ARPU). As of September 2021, annual recurring revenue (ARR) for the business was JPY4.7bn (+17.0% YoY). The number of users was 2.14mn (+9.7% YoY), the number of customer companies was 1,952 (1,095 users per company), and annual ARPU stood at JPY2,217 (+10.5% YoY). The company had 213 employees (excluding part-time staff) as of end-FY09/21.
SSO demand is rising in Japan amid 1) increased adoption of cloud-based services by companies, 2) growing availability of convenient enterprise cloud-based services and a higher number of users relying on multiple such offerings to perform tasks, and 3) demand for new management systems to mitigate the risk of data loss/leaks, due to increased need for remote work.
HENNGE has pioneered cloud-based services such as ID and password authentication and management, SSO, and access restrictions in Japan, and commanded a 65.4% share of this market in 2017 (according to Fuji Chimera Research Institute). According to Gartner, the adoption rate of cloud computing in Japan is 18%, leaving ample room for growth.
HENNGE's revenue CAGR between FY09/16 and FY09/21 was high, at 23.0%. Okta Inc (NASDAQ: OKTA) is a leader in single sign-on (SSO) in the US, reporting revenue for FY01/21 of USD835mn (+42.5% YoY). Cloud services took off earlier in the US than in Japan, and Okta is ahead of the competition in terms of business scale. Cloud-based services used in each country and region diverge due to differences in legal systems and business practices. SSO providers need operational expertise in a wide range of cloud services, and the SSO market is therefore highly split by region.
Earnings trends
In FY09/21, revenue was JPY4.8bn (+16.7% YoY), operating profit JPY380mn (-29.4% YoY), recurring profit JPY383mn (-28.4% YoY), and net income attributable to owners of the parent JPY224mn (-36.9% YoY). The mainstay HENNGE One business drove overall revenue growth with steady increases in contracts and user count, while revenue in Professional Service and Others also rose.
The company made forward investment, seeing FY09/21 when users of cloud service are expected to accelerate, as a "once in a ten-year opportunity."
For FY09/22, HENNGE forecasts revenue of JPY5.8bn (+19.3% YoY), operating profit of JPY434mn (+14.2% YoY), recurring profit of JPY434mn (+13.2% YoY), net income of JPY273mn (+22.0% YoY), and EPS of JPY16.8. The company aims to boost revenue from HENNGE One to JPY5.3bn (+21.8% YoY) by expanding the numbers of customer companies and users while raising ARPU. The company forecasts revenue in Professional Service and Others of JPY476mn (-2.7% YoY).
Strengths and weaknesses
Shared Research believes HENNGE’s strengths are: 1) its core business (SSO) that is less vulnerable to service cancellations, 2) a strategy of differentiation by providing data loss/leak prevention services that can be flexibly tailored to customers’ security policies, and 3) its support system that encompasses popular Software as a Service (SaaS) offerings used by customers in Japan. Its weaknesses are 1) profit generation being hampered to some degree by upfront spending on customer acquisition, 2) the rollout of new services not contributing to higher service prices, and 3) uncertainty surrounding the company’s ability to secure customers with global operations (see the Strengths and weaknesses section for details).
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
1H FY09/22 results
Summary
Revenue increased JPY398mn YoY to JPY2.7bn. This is due to the JPY391mn YoY revenue increase in the mainstay HENNGE One business and the JPY8mn revenue increase in Professional Service and Others. Gross profit margin was 84.6% (+1.6pp YoY), maintaining a high level. SG&A expenses were JPY1.9bn, the same level as 1H FY09/21. Operating profit increased JPY372mn YoY to JPY350mn.
Revenue by business
HENNGE One
The company reported 1H FY09/22 revenue in the mainstay HENNGE One business of JPY2.5bn (+18.9% YoY). Annual recurring revenue (ARR) for the service expanded to JPY5.1bn (+18.5% YoY). The company added 104 contracts from end-FY09/21, bringing the total number of customers to 2,056 companies (+13.4% YoY). The total number of users at customer companies was 2.2mn (+11.6% YoY).
Annual revenue per user (ARPU) was JPY2,290 (+6.2% YoY; average monthly revenue per user was JPY190.8). The churn rate (12-month monthly average; value basis) stayed low at 0.27% (+0.09pp YoY).
ARR = N (number of customer companies) × n (number of users per company) × annual ARPU
JPY5.1bn (+18.5% YoY) = 2,056 companies (+13.4% YoY) × 1,089 users/company (-1.6% YoY) × JPY2,290/user (+6.2% YoY)
Notes: Figures based on results in the last month of the respective quarter (i.e., December, March, June, and September).
Figures may differ from company materials due to differences in rounding methods.
Professional Service and Others
The company reported Professional Service and Others revenue of JPY244mn (+JPY8mn YoY).
Cost trends
SG&A expenses increased JPY0.4mn YoY to JPY1.9bn. Advertising expenses fell JPY295mn YoY, personnel expenses rose JPY108m YoY, outsourcing expenses rose JPY102mn YoY, and other SG&A expenses rose JPY81mn YoY.
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY09/22 company forecast
Note: Figures may differ from company materials due to differences in rounding methods.
For FY09/22, HENNGE forecasts revenue of JPY5.8bn (+19.3% YoY), operating profit of JPY434mn (+14.2% YoY), recurring profit of JPY434mn (+13.2% YoY), net income of JPY273mn (+22.0% YoY), and EPS of JPY16.8. The company aims to grow HENNGE One revenue to JPY5.3bn (+21.8% YoY) by adding customer companies and users, and increasing ARPU. It expects revenue in Professional Service and Others to come in at JPY476mn (-2.7% YoY).
Policies for FY09/22
HENNGE One
By increasing the number of users and ARPU, the company aims to achieve sustained annual growth in ARR of 20% or more.
Professional Service and Others
The company expects the impact of the discontinuation of on-premises products that it has traditionally sold to contribute to a decrease in revenue.
Marketing activities
HENNGE will continue to conduct advertising in the form of online, magazine, and transport ads, as well as TV commercials, to raise awareness of the new services. The company has also taken into consideration the possibility of the end of the pandemic and will attempt to approach customers based on the situation by investing in multilayered marketing. This would include increased exposure at in-person and online events.
Personnel plan
The company plans to recruit aggressively to achieve a net increase of more than 50 employees company-wide compared to FY09/20. To promote sales of the new plan, which was launched in October 2021, the company will focus on bolstering the sales force and Customer Success Division.
To promote sales of the new HENNGE One plan, which was launched in October 2021, the company plans to focus on increasing the number of sales and customer success staff in particular. The company will avail itself of outsourcing services until it has achieved sufficient staffing levels.
Growth strategy
Numerical targets
The company aims to achieve ARR of JPY10.0bn or more by FY09/25.
Growth strategy: Accelerate customer acquisition for HENNGE One with a focus on lifetime value
HENNGE’s growth strategy centers on expanding revenue in its core service HENNGE One, which combines an Identity as a Service (IDaaS) solution that facilitates secure and reliable access and single sign-on (SOO scheme that allows customers to log into multiple online services or applications with a single ID and password) for a wide range of third-party cloud services used by its customers, with secure and reliable emailing and other services that mitigate the risk of data loss/leaks.
The company believes any office with 30 or more employees is either already using multiple cloud services or likely to do so at some point in the future, and it expects demand for secure and reliable email services to expand as a result. Japan has around 325,000 offices with a workforce of at least 30 people, and they employ a total of 29mn people (based on 2016 Economic Census by the Ministry of Internal Affairs and Communication [MIC] and the Ministry of Economy, Trade and Industry [METI]). At end-September 2021, HENNGE only provided services to 1,952 companies (share of 0.6%) and 2.14mn users (share of 7.3%), leaving ample room for growth.
HENNGE One is a service that is difficult to cancel once subscribed to. It not only provides convenience to users by eliminating the need to manage multiple IDs and passwords, but also allows system administrators to effectively control access privileges. Cancelling the service to switch to a competing one is a cumbersome process that requires time and additional costs to reconfigure and manage user IDs and passwords (number of employees × IDs and passwords for number of services in use).
At end-FY09/21, the churn rate was 0.25% (average monthly churn rate [TTM]). The company theoretically estimates the average years of contract duration to be roughly 33 years (calculated as 1 / (0.25% × 12 months), and believes its low churn rate will contribute to long-term revenue. Based on this calculation, it estimates a lifetime value (LTV) per acquired user of JPY73,000 (= annual ARPU of JPY2,217 × 33 years) and an LTV of JPY80mn per acquired customer company (LTV of JPY73,000 per user × 1,095 users per company). HENNGE accordingly pursues a strategy of rapidly acquiring new customers to expand corporate value.
Cultivating new customers
From a cost-effectiveness standpoint, the company plans to cultivate new customers among businesses with 300 to 5,000 employees. On a net basis, it added 243 companies as customers in FY09/16, 286 in FY09/17, 248 in FY09/18, 252 in FY09/19, 239 in FY09/20, and 285 in FY09/21. HENNGE looks to further accelerate the net annual increase in customer companies from the current pace of roughly 250 companies per year.
Notes: Figures reflects results in last month of the fiscal year (i.e., September).
Figures may differ from company materials due to differences in rounding methods.
HENNGE aims to cultivate new customers by: 1) actively participating in exhibitions and events and carrying out advertising campaigns (raise name recognition), 2) strengthening its sales force, and 3) expanding operations outside the Tokyo metropolitan area.
The company actively takes part in exhibitions and events as it believes this is an effective way to improve name recognition for HENNGE One. In FY09/20, the company participated in Japan IT Week Kansai and Security Days 2020 Nagoya, among other events. After the COVID-19 outbreak halted in-person events, the company proactively participated in online seminars, holdings its own seminars, presenting at online AWS (Amazon Web Service) seminars, and co-hosting seminars with affiliated companies. In FY09/21, it plans to host a large-scale digital event with over 10,000 participants as it aims to improve name recognition among corporate decision makers and engineers at partnered agents (e.g., system integrators).
HENNGE had a sales team of 66 people as of September 2021, and it plans to continue adding a dozen or so new sales staff per year. The company acknowledges it has been unable to fully capture emerging demand for its services due to a combination of its low profile and a shortage of sales staff. Its name recognition increased following the listing on the TSE Mothers section in October 2019, and its reputation as an employer has improved following an increase in disclosure of information about its operations. Leveraging this momentum, HENNGE aims to actively hire sales staff.
The company is headquartered in Tokyo, with its sales structure centering on the Tokyo metropolitan area, which presents a large market. However, businesses with workforces of 300 to 5,000 employees can also be found in large numbers in other areas of the country. HENNGE set up branch offices in Osaka in June 2015, in Nagoya in August 2016, and in Fukuoka in August 2018, laying the foundations to cultivate new customers in areas outside of the Tokyo metropolitan area. The company plans to increase sales staff at such branch offices going forward to support its customer development efforts across Japan.
Aims to maximize users and increase ARPU through activities that contribute to customer success
HENNGE has established a Customer Success Division that was staffed with 44 employees as of September 2021. In addition to expanding its sales force, which is its first priority, the company plans to further increase the number of employees in this division. The primary responsibilities of the Customer Success Division are to respond to customer inquiries, elevate customer satisfaction, and prevent service cancellations. The company set up the division in FY09/17, and has continued to work to improve customer satisfaction. These efforts have paid off in the form of a low churn rate of 0.25% as of September 2021 (average monthly churn rate [TTM]). HENNGE is working to further reduce its churn rate by expanding efforts to support customer success.
Other important tasks of the Customer Success Division include collecting information on service usage conditions and proposing new features. For example, the division could up-sell device authentication and other services to customers who are only subscribed to SSO or email-related services, if it identifies a clear need for such services.
In addition, the division listens to customer opinions and requests in an effort to gather information on SaaS solutions used by customer companies and features that may improve their productivity. HENNGE thinks that identifying the issues confronting customers can lead to development of new features. Its strategy is to leverage the customer feedback obtained by its Customer Success Division to deploy additional features that provide convenience to a large number of companies, and accordingly create opportunities to up-sell services to its entire customer base.
HENNGE consolidated its previous price structure into three main price plans in June 2019 to promote new features under a simplified price structure. It expects spread of these plans to drive up ARPU. The new plans are 1) HENNGE One Secure Access (JPY400/month per user), 2) HENNGE One Standard (JPY500/month per user), and 3) HENNGE One Business (JPY700/month per user). Because the company pays mediation fees to partners (agents such as telecom carriers and system integrators) and offers discounts to large companies, it does not collect the aforementioned prices in full as revenue.
In October 2021, HENNGE One underwent a major update. The new features offered are HENNGE Secure Download, HENNGE Cloud Protection, and HENNGE Lock Plus. The company expects ARPU to increase further once more customers adopt the new price plans and use new features.
In the medium term, HENNGE aims to grow ARPU by adding new features. In November 2020, the company launched its new multi-factor authentication feature, HENNGE Lock. The service, which supports iOS and Android operating systems, incorporates the user’s smartphone or smartwatch as an additional authentication factor to enable users to log in to SaaS platforms such as Microsoft 365, Google Workspace, Box, LINE WORKS and Slack without using passwords. Currently, the feature is available to HENNGE One users at no additional charge. In the future, the company intends to develop more new features and services to increase ARPU, such as by making them optional features available for an additional charge, or offering the features exclusively as a part of top-tier plans.
Note: Figures may differ from company materials due to differences in rounding methods.
Overseas operations
In October 2016, HENNGE established subsidiary HENNGE Taiwan K.K. in Taiwan to support full-scale sales of HENNGE One in Asia. Through HENNGE Taiwan, the company also monitors cloud service trends in Asia, develops new services, and gauges sales potential. At present, contributions from the overseas subsidiary are negligible (revenue of JPY8mn and operating loss of JPY22mn in FY09/20 after subtracting parent revenue and operating profit from consolidated results). However, HENNGE intends to expand its customer base in Asia and Europe over the medium term.
Launching new services
The company considers revenue growth for HENNGE One as its growth driver in the foreseeable future. At the same time, it is committed to broadly distributing proprietary, leading-edge technologies to customers under its management philosophy, “Liberation of Technology.” HENNGE actively adopts and tests new technologies internally to determine if they can be utilized in its services. This practice is part of its corporate culture, and the company aims to continue launching new services as deemed appropriate. Recent examples of such services are HENNGE Workstyle (released in February 2019) and Chromo Education (April 2019)
In February 2019, HENNGE launched HENNGE Workstyle, a service powered by Internet of Things (IoT) technology. The service matches data obtained from motion sensors installed in meeting rooms with meeting schedule data obtained from Microsoft 365 or Google Workspace calendars to facilitate effective use of meeting rooms. It comes with a range of features that allow users to confirm meeting room bookings from various devices, play an alarm sound at the end of a scheduled meeting time, and aggregate data on meeting room usage. It is attracting attention as a tool that can help resolve meeting room shortages faced by customers.
In April 2019, the company rolled out Chromo Education, a new service that allows schools and nurseries to securely and reliably deliver emails to guardians. To prevent spam, telecom carriers generally impose some restrictions on the simultaneous distribution of large volumes of emails. Chromo Education harnesses the technologies underpinning HENNGE’s email services for companies to enable schools and nurseries to effectively communicate with guardians via email. The service ensures rapid and reliable distribution of emails, cuts out unnecessary features, and is equipped with a simplified and easy-to-operate user interface. In August 2020, the company launched CHROMO, a service geared for local government bodies. Through the service, HENNGE aims to contribute to the revitalization of local communities by facilitating smooth two-way communication between local government employees and residents.
From October 1, 2021, the company began offering the following: two set plans; HENNGE One Basic and HENNGE One Pro; and three single-function HENNGE IDP Edition plans; IDP Lite, IDP, and IDP Pro. The difference between the new HENNGE One Pro license and the old HENNGE One Business license is that the new plan adds multi-app device control to HENNGE Access Control, with optional HENNGE Cloud Protection (advanced protection for attachments, and scanning of URLs in calendars, contacts, and tasks).
Business
Business description
HENNGE provides proprietary software services to companies. Its core offering is HENNGE One, a software service that facilitates consolidated management of IDs and passwords for a wide array of third-party Software as a Service (SaaS) solutions—essentially cloud-based applications—that would typically have to be managed separately. HENNGE One’s ID integration functionality allows users to access such services with a single sign-on (SSO). HENNGE One is also equipped with a full range of user management and security features, including access restrictions to block sign-ins from unauthorized terminals or locations, device authentication for notebooks and smartphones, and data loss/leak prevention tools such as email attachment encryption, email archiving, and large-file exchange. HENNGE listed on the TSE Mothers market in October 2019.
The company reported revenue of JPY4.8bn and operating profit of JPY380mn in FY09/21. As of end-FY09/21, HENNGE One had 1,952 customer companies with about 2.14mn users. HENNGE had 213 employees at end-FY09/21.
In FY09/21, the HENNGE One business contributed revenue of JPY4.3bn (89.9% of total revenue) and Professional Service and Others revenue of JPY490mn (10.1%). Recurring revenue made up 97.4% of total revenue. The HENNGE One business mostly generates recurring revenue, and the same applies to some services in Professional Service and Others. The company collects annual usage fees from customers as upfront payments (recorded as unearned revenue on the balance sheet), and books these as monthly revenue once service actually starts. This business model produces stable revenue, although securing or losing large customers can cause revenue fluctuations.
HENNGE One
Core services
HENNGE One is a cloud-based SaaS offered to companies. It provides a comprehensive ID and password management service that consolidates IDs and passwords for a wide array of third-party SaaS into single sets of login credentials. It also offers one-stop user management and security services that prevent data loss/leaks. According to the “2018 Cloud-based Groupware/Security Service Market Trends” survey by Fuji Chimera Research Institute, HENNGE had captured a share of 65.4% of the domestic SSO market in 2017 (on a shipment volume basis).
HENNGE One comprises six core services: 1) Access Control, 2) Secure Browser, 3) Device Certificate, 4) Email Archive, 5) Email DLP, and 6) Secure Transfer. In addition to a comprehensive ID management service, HENNGE One also includes data loss/leak prevention services such as safe and reliable email and email archiving solutions that the company has developed based on expertise accumulated in other businesses, which differentiate the company from its competition.
1) HENNGE Access Control is an access control service that facilitates SSO for users and allows system administrators to manage IDs and impose access restrictions with ease. By authenticating its users, HENNGE One is able to log them into multiple cloud services with a single account. The service also comes with access restriction features to prevent unauthorized access such as IP address restrictions, cookie restrictions, device certificates, and two-factor authentication.
2) HENNGE Secure Browser provides a secure web browser for PCs, tablets, smartphones, and other devices. By blocking the storage of documents and email attachments on devices (so that users can only view such files in the browser), it aims to prevent data loss/leaks in scenarios such as devices being lost or infected by viruses. Also, text displayed in the browser cannot be copied and pasted, further reducing the risk of data loss/leaks.
3) HENNGE Device Certificate is a service under which the company issues device certificates that are registered on notebooks (Windows/Mac) or smart devices (iOS/Android). In this way, customers can restrict access to their cloud-based services to devices that have the certificate installed. By only allowing access from PCs or smart devices that have the certificate installed, companies can block access from unregistered PCs and smart devices, thus mitigating the risk of data loss/leaks and unauthorized access.
4) HENNGE Email Archive is a storage and search service for emails. It stores all email data sent and received by individual users, and allows system administrators to search emails and attachments (with Japanese language support), browse, forward, or download all archived emails as necessary. It provides settings to configure the archiving period in line with the security policy of each company. The service allows companies to rapidly investigate leaks of insider information or personal information.
5) HENNGE Email DLP reduces erroneous email transmissions, and provides cloud-based email security features that coordinate with email services such as Microsoft 365 and Gmail, including email filtering, email monitoring, and zip-file encryption of email attachments. The service allows companies to keep emails on hold before sending until authorization is obtained from another person other than the sender, and facilitates effortless and secure transmissions of attachments by automatically encrypting attachments in locked zip files and sending their passwords in a follow-up email. DLP stands for data loss or data leak prevention.
6) HENNGE Secure Transfer allows users to exchange large files securely and reliably with internal and external parties. Senders can send files to other individuals inside or outside their organizations by generating download passwords and setting an expiration date for each download. They can also generate upload links to obtain large files from such individuals.
Demand growth drivers
In the past, many companies operated on-premises information systems, which entailed running software on in-house servers. Under this approach, only devices installed within offices and connected to a company’s local area network (LAN) could access internal information systems, making it possible to prevent external data leaks to a large extent by managing physical access to company premises.
However, despite the security advantages afforded by on-premises information systems, a growing number of companies have switched to fixed-cost software services because: 1) operating on-premises information systems requires significant spending on equipment and software updates, maintenance, and management, 2) a range of convenient SaaS solutions have become available at low upfront costs with the advent of increasingly diverse cloud-based computing services offered by many vendors, and 3) software service providers are now able to provide third-party authentication thanks to advances in data management systems. In addition, factors such as the pursuit of improved labor productivity, the use of mobile devices such as smartphones, work style reforms, and remote work can all create the need for information systems to be accessible from outside a company. In such scenarios, managing physical access to office premises no longer suffices as data management.
However, strict management of ID and password data becomes even more important when switching to cloud-based systems. When using external software services, different IDs and passwords are generally needed for each service. This means terminal users need to properly manage such information and enter their ID and password every time they wish to use the software in question (also, if a password is forgotten, it needs to be reissued). With HENNGE One’s SSO, users only need to sign in to HENNGE One and the system subsequently signs in to various third-party SaaS on behalf of the users, giving them access to all services without requiring individual sign-ins. This increases user convenience and productivity.
HENNGE One also reduces the management burden on system administrators, who ordinarily have to manage a large number of IDs and passwords (one set per user for each service). HENNGE One provides fine-grained control over access privileges, allowing system administrators to configure which individuals or divisions/ranks can use which services and to what extent. Access can also be restricted based on location. For example, attempts to access sensitive personal information via public Wi-Fi in places such as airports or coffee shops can be blocked.
When new employees join a company or existing employees are transferred within the company, HENNGE One removes the need to install or delete software from each of their work devices, and allows administrators to update their user privileges in one stroke, alleviating the workload of information system divisions. When employees resign, their user privileges can be cancelled immediately, preventing data leaks to the external world. These benefits are driving up demand for SSO services.
In addition to SSO, HENNGE provides one-stop user management and security features such as device certificates that restrict system access to notebook PCs, tablets, smartphones, private desktop computers authorized by information system divisions, and a secure browser that allows data to be viewed and handled in a browser on authorized devices, but prevents downloading, storing, or copying data to devices. In other words, the company’s services help prevent data loss/leaks, reduce burdens on users and administrators, increase productivity, and improve convenience.
HENNGE also provides the email-related services HENNGE Email Archive and HENNGE Email DLP, which are used by many companies. These are designed to prevent data loss/leaks, which can often be traced back to email exchanges with the outside world. HENNGE Email Archive allows customers to flexibly store incoming and outgoing emails for a specific period in line with their information security policy. In the event of a data leak, system administrators can search the archived emails and find out whether the leak originated internally. Even if emails are deleted on user devices, they remain stored in the archives at customer companies. Therefore, simply informing staff that the information system division has access to all exchanged emails through the archives can be an effective strategy to reduce data leaks.
Many companies subscribe to the aforementioned services when they start using cloud services such as Microsoft 365 and Google Workspace. While Microsoft 365 and Google Workspace also provide archiving and search solutions, HENNGE’s services are highly received as they allow archiving periods to be configured in accordance with the information security policies of each customer, and offer better performance for searches in the Japanese language. For such reasons, it is not uncommon for companies to adopt HENNGE One at the same time as services such as Microsoft 365 and Google Workspace.
The HENNGE Email DLP service is used by many customers for tasks such as filtering emails based on specific text strings (e.g., account numbers) included in emails, delaying deliveries of outgoing emails after the send button was pressed (the delay time can be configured in accordance with a company’s security policy; a delay of one to five minutes is commonly used), and automatically encrypting attachments into password-protected zip files and generating corresponding passwords that are sent in a following email.
As many email errors such as forgotten or erroneous attachments are only noticed after a sender has pressed the send button, the HENNGE Email DLP feature to cancel emails shortly after they are sent has been well received by customers. Some of HENNGE’s customers cancel up to 500 emails per year in this manner. The feature was developed based on the assumption that human beings are prone to errors and that immediate correction of those errors is critically important. Its ultimate aim is to reduce the risk of data loss/leaks.
From the standpoint of data security, it is advisable to encrypt email attachments in password-protected zip files, and many companies intend to do so. However, manually zipping files and setting passwords is a laborious process. The HENNGE Email DLP service comes with features that automate the entire process of zipping files, generating passwords, and sending passwords in following emails. In addition to lowering the risk of data loss/leaks, the service reduces the work burden for users, thus contributing to enhanced productivity.
HENNGE has offered email-related services in Japan since 2000, when it began developing and selling mail servers and packaged software for email management. It provides several specialized email services in Professional Service and Others. Its HENNGE Email DLP service incorporates email data loss/leak prevention strategies accumulated by the company by gauging email-related needs of customers over many years. Some of the company’s customers have adopted HENNGE One based on its solid track record in email services (over 1.80mn users across customer companies) and in providing services to customers that require the highest level of reliability such as financial institutions (including banks) and local governments.
Usage fees
HENNGE introduced three new price plans in June 2019. Its Secure Access plan provides Access Control, Secure Browser, and Device Certificate as a package for a monthly fee of JPY400/user. Its Standard plan, which is mainly geared toward email services, includes Access Control, Secure Browser, Email Archive, Email DLP, and Secure Transfer for a monthly fee of JPY500/user. Its Business plan offers all six services mentioned above for a monthly fee of JPY750/user.
The usage fees cited above are standard prices per user, and do not correspond to revenue per user. The company also provides HENNGE One through partners, and records wholesale prices as revenue in such cases. In addition, it offers discounts to high-volume customers. At end-FY09/21, annual ARPU stood at JPY2,217 (monthly ARPU of JPY184.8). HENNGE expects ARPU to increase further once more customers adopt the new price plans.
(ex. tax; annual contract)
included in the plan
HENNGE Secure Browser
HENNGE Device Certificate
HENNGE Secure Browser
HENNGE Email Archive
HENNGE Email DLP
HENNGE Secure Transfer
HENNGE Secure Browser
HENNGE Email Archive
HENNGE Email DLP
HENNGE Device Certificate
HENNGE Secure Transfer
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In October 2021, HENNGE One underwent a major update. The new features offered are HENNGE Secure Download, HENNGE Cloud Protection, and HENNGE Lock Plus. On October 1, 2021, the company began offering the following: two set plans; HENNGE One Basic and HENNGE One Pro; and three single-function HENNGE IDP Edition plans; IDP Lite, IDP, and IDP Pro. The difference between the new HENNGE One Pro license and the old HENNGE One Business license is that the new plan adds multi-app device control to HENNGE Access Control, with optional HENNGE Cloud Protection (advanced protection for attachments, and scanning of URLs in calendars, contacts, and tasks).
Maximum 2 GB Unlimited
Maximum 2 GB Unlimited
Maximum 2 GB Unlimited
Maximum 2 GB Unlimited
(excl. tax)
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HENNGE One’s SSO service integrates with over 190 verified cloud services (as of September 2021). The company collects feedback from customers and actively pursues integration with new cloud services that are gaining in popularity. However, any cloud service that implements the Security Assertion Markup Language (SAML: a standard for exchanging user authentication data between different internet domains)—even those not verified by the company—should at least in principle integrate with HENNGE One. At present, the company does not regard its number of supported cloud services as a KPI. If services emerge that compete with HENNGE ONE and the number of supported SaaS becomes a metric to determine user convenience or competitiveness, the company will actively verify such services and aggressively work to ensure integration with a larger number of services.
Google Workplace
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LINE WORKS
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CYDAS
SAP HANA
servicenow
concur
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kintone
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kaonavi
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In November 2020, the company launched the HENNGE One Product Alliance Program, a new system aimed at explicitly promoting the connectivity gained by linking participating companies’ various SaaS applications with a single sign-on function of HENNGE One for users. In this manner, companies using a single sign-on can securely select SaaS, and companies using various SaaS can adopt a single sign-on without security concerns. The company looks to further enhance the convenience for user companies by encouraging more SaaS partners to participate in the program.
Business model
HENNGE One revenue is essentially determined by the number of users and service fees per user. The company regards annual recurring revenue (ARR), the number of customer companies (N), the number of users per company (n), annual ARPU, the churn rate, and GPM as important KPIs for the HENNGE One business. It will focus on these KPIs, while determining its spending (including operating-related costs).
ARR = N (number of customer companies) × n (number of users per company) × annual ARPU
At end-September 2021, HENNGE had 1,952 companies as customers, roughly 30% of which were listed. It supplies services to about 13% of the companies listed on the Tokyo Stock Exchange. HENNGE’s customers operate in a range of industries, and the company is not reliant on any particular industry. It generally sees growth in users at customer companies in the three months starting from April and October (in the company’s Q1 and Q3), when many companies add or transfer personnel, and increases in new customers (companies) in the remaining months of the year (in its Q2 and Q4).
The number of users per customer company is determined by the staff size of the company, and is therefore difficult to control through management efforts. The number of users varies by customer, but has hovered at around 1,100 employees per company over the past five years. The company sees the benefits of HENNGE One for companies with at least 30 employees. From the perspective of cost-effectiveness, however, it aims to secure new customers with 300 to 5,000 employees.
Annual ARPU reached JPY2,217 (monthly ARPU of JPY184.8) at end-FY09/21. The company introduced a simplified price structure consisting of three new price plans in June 2019. The company says many of its customers have opted for the mid-range HENNGE One Standard plan (JPY500/month per user), and that ARPU for new customers is trending above average ARPU for all customers. This suggests that ARPU should rise further if the company continues to secure new customers at a steady pace. However, ARPU may drop over the near term if the number of users increases through service usage expansion to other divisions at existing customers with low service price per user (i.e., customers that signed up for the service early on, use a limited range of features, or receive volume discounts).
Note: Figures may differ from company materials due to differences in rounding methods.
HENNGE’s churn rate was low at 0.25% at end-FY09/21. The company utilizes gross revenue churn rate—lost subscription revenue due to service cancellations as a percentage of existing subscription revenue—and discloses the average monthly churn rate (TTM). The recent churn rate has been sufficiently low, and HENNGE theoretically estimates the average years of contract duration to be about 33 years (calculated as 1 / [0.25% × 12 months]). HENNGE is expanding staff in its Customer Success Division in addition to its sales force. It aims to raise customer satisfaction to reduce its churn rate, strengthen features and services based on customer feedback, and believes such efforts will lead to growth in ARPU.
Professional Service and Others
In FY09/21, HENNGE reported Professional Service and Others revenue of JPY490mn (10.1% of total revenue). This business mainly comprises services such as Customers Mail Cloud, HDE Mail Application Server #Delivery, and HDE Mobile MTA. The company does not allocate significant management resources to this business category at present as it thinks it needs to continue allocating its resources to the HENNGE One business. In addition, it is in the process of terminating support for several existing products, as a result of which support revenue is trending down. Consequently, revenue in Professional Services and Others is unlikely to expand in the foreseeable future.
Customer Mail Cloud is a cloud-based email service that enables the distribution of large volumes of emails to mobile phones, PCs, and smartphones. Systems developed by information system developing companies have the capability to notify users of email delivery but as their user base grows and notifications increase in frequency, they require additional mechanisms to prevent email delays or failures. Customer Mail Cloud facilitates the distribution of large volumes of emails over the cloud, removing the need to build such mechanisms. The service is mainly used by e-commerce providers and other companies that regularly send out large volumes of emails.
HDE Mail Application Server #Delivery and HDE Mobile MTA are packaged software products deployed on customer premises that facilitate secure, reliable, and high-speed distribution of large volumes of emails to mobile phones, PCs, and smartphones. HDE Mail Application Server #Delivery is mainly used as a backbone system by financial institutions and local government bodies to send important emails that must be delivered without fail such as ATM withdrawal notices or disaster prevention notices. HDE Mobile MTA achieves reliable email distribution by using a high-speed email distribution server customized for mobile carriers and technology that clearly identifies senders.
In 1997, HENNGE started developing and selling web servers. In 2000, the company launched email-focused electronic customer relationship management (eCRM) packaged software, and started operating mail servers. It has accumulated a long track record in the email space, and although it positions the HENNGE One business as its core business today, accumulation of email-related technologies remains a core part of the company.
Cost structure
In FY09/21, cost of revenue ratio came to 17.0%. Although labor expenses are a major cost component within cost of revenue, a large portion of these is transfer to other account and booked as R&D expenses under SG&A expenses. In real terms, therefore, the largest expense item within cost of revenue is service and system usage fees. These mainly consist of Amazon Web Services (AWS) usage fees, which increase in tandem with growth in business scale. Other costs include outsourcing costs and royalties paid, but these are not strongly correlated to revenue.
In FY09/21, SG&A expenses mainly comprised personnel expenses, outsourcing expenses, advertising expenses, and R&D expenses. At end-FY09/21, the company had 213 employees. It plans to add some 30 employees per year, focusing particularly on sales force and staff in its Customer Success Division. HENNGE has a flexible hiring policy and is not fixated on hiring Japanese nationals. For example, the company’s Development Division has a large number of non-Japanese employees. Outsourcing expenses are used to cover personnel shortages, especially for support tasks. If the company continues to bring on new staff, it should be able to cut outsourcing expenses. Advertising expenses are trending up. HENNGE aims to effectively invest in advertising to increase its name recognition and, by extension, expand its revenue.
On a consolidated basis, the company had 213 employees at end-September 2021. A unique characteristic of the company is that it actively hires non-Japanese talent. Of its 213 employees (including part-time staff) at end-September 2021, 20.61% were non-Japanese. HENNGE is committed to the pursuit of continual change. Although it is headquartered in Japan and mainly supplies services to Japanese companies, the company believes diversity is the driving force behind continual change (new technologies are often launched in the English language first, and diversity allows the company pick these up at an early stage). HENNGE uses English as its official language for internal use and launched a global internship program in 2012 to recruit non-Japanese talent. Through FY09/21, it had received applications from over 17,924 applicants from 163 countries. Many applicants are drawn to the prospect of working in Japan, which they see as an additional benefit of working at HENNGE.
By division, the company allocates large numbers of staff to research and development for HENNGE One, sales, and the Customer Success Division.
Growth trajectory
Establishment
HENNGE was founded in 1996. Its current representative director and CEO Kazuhiro Ogura set up Horizon Digital Enterprise Ltd. with some friends as a college student. Fascinated by the rapid technological advances in the IT space, Mr. Ogura founded the company with the intention of using his knowledge of IT and programming to create services that contribute to society. At the time, the company focused primarily on developing corporate websites.
As their graduation from college approached, Mr. Ogura as well as other founding members Kazuaki Miyamoto and Yoshiki Nagatome (currently serving as HENNGE’s representative director/executive vice president and director/executive vice president, respectively) faced the dilemma of whether to join a major company or continue their business after graduation. They concluded that if they were to carry on with the business, it would need a clear purpose. Aspiring to “become a company that provides its own unique and unprecedented value,” the trio set out to create a company that could serve as a “technology bridge” to share leading-edge technologies with a large number of people. The company’s motto “Liberation of Technology,” which encapsulates HENNGE’s corporate vision, was coined around this time.
Web servers
The company started selling web servers and server management tools around 1997. It realized that it would need to sell hardware with embedded technology to accomplish the vision of sharing its technological expertise with a large number of people. It ultimately settled on web servers as the vehicle through which to distribute its accumulated technologies. These servers sold at a price of roughly JPY400,000 per unit, and attracted a certain degree of attention within the IT industry. A web server market was formed as competing products emerged, and HENNGE assumed a leading position in this market.
Packaged email services
HENNGE began selling electronic customer relationship management (eCRM) software in 2000. Having gained the expertise to sell server management tools as packaged software, it transitioned from being a supplier of hardware (products) to a developer and provider of packaged software (services). Its eCRM software mainly focused on email management. Email had been rapidly spreading as a communication tool, and HENNGE concentrated on how to reliably send emails to a large number of recipients and prevent data loss/leaks. The technologies accumulated through these efforts are being utilized in its mainstay HENNGE One service to this day. While sale of the eCRM packaged software series was initially brisk, the company’s revenue dropped by half after the IT bubble burst, and its financial condition deteriorated significantly thereafter.
Under the business model of selling packaged software, HENNGE did not get to know its customers, making it difficult to reflect customer feedback in follow-up development. The company realized it needed to cultivate another earnings pillar to stabilize its business. To pivot to a business model with a stronger emphasis on services and communication with customers, the company shifted its focus to system integration services. Leveraging its high-volume and high-speed email technologies, HENNGE developed email services tailored to local government bodies which need to be able to send disaster prevention notifications and financial institutions which need email services linked to bank ATM systems. It started selling these services through partners such as IBM Japan, NEC (TSE1: 6701), and Fujitsu (TSE1: 6702). While the plan was to sell these services to its already solid customer base, the company faced another challenging business environment when banks scaled back capital investment in the wake of the financial crisis that erupted in the US in 2008.
Still, the customer base acquired by the company through this period eventually proved a major asset to the company. HENNGE has supplied services to roughly 1,000 local government bodies, which practically means about one-third of such bodies across Japan have adopted the company’s software services. The company’s digitally signed email services have been adopted by a large number of banks, including megabanks such as Sumitomo Mitsui Banking Corporation (Sumitomo Mitsui Financial Group [TSE1: 8316]), for online banking usage notifications. The adoption of the company’s email systems by local government bodies and leading banks expanded its reputation as a provider of reliable systems, which is having a positive impact on customer acquisition for HENNGE One.
Move to cloud services
In the aftermath of the 2008 global financial crisis, the company’s earnings worsened due to a sharp decline in capital investment demand from financial institutions, forcing the company to explore new businesses. Cloud computing services had just started taking off in the US, and cloud technology appeared, to the company, to be the next big thing poised to significantly transform the world, which made a perfect fit for a company committed to the pursuit of leading-edge technologies. The company launched HDE Mail Service in March 2011, its first cloud-based service that leveraged the email technologies the company had accumulated. HDE Mail Service was the precursor to HENNGE One, the current mainstay service. In January 2014, the company added access security features (login authorization/denial based on IP address and device information; establishing an SSO environment) and device security features (providing secure browser) to the service, and rebranded it as HENNGE One (which had launched as HDE One).
Further growth under the HENNGE name
The company changed its name to HDE in 2007, and subsequently to HENNGE in February 2019. Having experienced several ups and downs throughout its history, it selected the name HENNGE (originating from the Japanese characters for “transformation” and “challenge”) to reflect its conviction that “continual change is essential to survive in the ever-changing IT industry.” The name also includes a warning to avoid resting on one’s laurels after having achieved a certain measure of success.
HENNGE has cultivated a corporate culture that encourages continual change. It eagerly adopts new technologies under the slogan “plucking unripe technological fruits.” This philosophy of “taking the first bite” of immature technologies naturally leads to (minor) failures. However, HENNGE believes the lessons learned from such failures are instrumental in providing customers with optimal solutions.
This corporate culture of valuing changes is also apparent in the company’s recruiting policy. HENNGE has adopted English as its official language for internal use, and launched a global internship program to aggressively hire non-Japanese talent. It thinks strictly Japanese teams are prone to filter out diverging voices or perspectives. To prevent this, HENNGE aggressively promotes diversity in the workplace, and believes this fosters a corporate climate in which new technologies, cultures, and lifestyles are actively adopted.
In sum, the company name HENNGE embodies the idea of not eschewing changes but rather valuing failure, transformation, and learning, as well as an understanding that success is fueled by the lessons from past failures.
Market and value chain
Cloud services market
The company positions its core HENNGE One service as a Software as a Service (SaaS) that facilitates the use of a broad range of third-party cloud computing services (including Infrastructure as a Service [IaaS], Cloud as a Service [CaaS], Platform as a Service [PaaS], and other SaaS) with a high degree of security, reliability, and convenience. The single sign-on (SSO) functionality built into HENNGE One, which allows customer companies to consolidate IDs and passwords for multiple cloud computing services into single sets of login credentials, becomes more useful in proportion to the number of third-party SaaS used by customers. In this sense, the company’s growth hinges to a large extent on expansion in third-party cloud services, particularly SaaS.
According to the Ministry of Internal Affairs and Communications' White Paper on Information and Communications in Japan (2021), the global cloud services market was worth USD164.0bn in 2017, and has continued to expand since. The COVID-19 pandemic is estimated to have further accelerated market growth by prompting a global shift to remote work and online learning.
Cloud services are often categorized into SaaS, PaaS, CaaS, and IaaS. SaaS generally refers to the delivery of software services that were supplied as packaged software in the past, through a web browser. SaaS examples are Google Workspace offered by Google (Alphabet Inc. [NASDAQ: GOOGL]) and Salesforce provided by Salesforce.com, Inc. (NYSE: CRM).
PaaS is comprehensive platforms (hardware and OS to run application software) offered as an online service. Examples are Microsoft Azure offered by Microsoft Corporation (NASDAQ: MSFT) and Google App Engine offered by Google. CaaS is hybrid-type services that offer third-party cloud services over the cloud. Finally, IaaS provides hardware and networking infrastructure such as virtual servers, which are necessary to run information systems, as an online service. Examples are Amazon Elastic Compute Cloud (EC2) offered by Amazon Web Services (AWS), a subsidiary of Amazon.com, Inc. (NASDAQ: AMZN), and Google Compute Engine offered by Google.
Note: Includes some estimates by Shared Research
The Japanese public cloud services market was valued at JPY1.09tn (+15% YoY) in 2020, according to a survey by IDC Japan. As companies continue to transition from conventional IT systems to cloud solutions, IaaS and PaaS have expanded rapidly as infrastructure for new digital services (specifically, mobile and web applications that strengthen customer engagement). The domestic SaaS market is enjoying stable growth supported by steady expansion in information-centric SaaS, which were launched early on (comparatively speaking), and the emergence of a multitude of industry-specific SaaS. Systems that take advantage of public cloud services have diversified from information systems to backbone systems and digital transformation, and applications continue to expand. IDC Japan expects the market to grow to JPY2.1tn by 2024 (CAGR of 18.6%). In other words, the Japanese cloud services market is poised for further growth.
While the cloud services market is expanding in Japan, Shared Research thinks that adoption of such services remains low. The "2019 Communications Usage Trend Survey" showed that only 36.1% of surveyed companies were using cloud services across the company, with that percentage rising to 64.7% after adding in respondents that indicated some offices or divisions used cloud services. Although usage exceeded 50% in 2017 and continues to increase, a large number of companies have yet to adopt cloud services or are only using them to a certain degree.
By industry, usage of cloud services is relatively high in the information communications, financial, and insurance industries, but low in the transportation, postal services, manufacturing, services, and other industries. By company size, 80% of companies with capital of JPY500mn or more use cloud services, but only a small percentage of small and medium-sized companies do so. Although the latter stand to reap significant benefits from the adoption of cloud services due to the absence of upfront investment and availability of pay-per-use billing, the data show that the use of cloud services by SMEs is expected to grow in the future.
Companies that use cloud services mainly do so to “store and share files,” “use email services,” and “gain access to servers.” While the usage rates for such services are the highest overall, they still remain at only around 50 to 60%.
Usage rates are low for operations such as “salary, finance and accounting, human resources,” “sales support,” “e-learning,” “information sharing with business partners,” “systems development and website building,” and “production management, logistics management, or store management,” leaving ample scope for further growth in usage of cloud services.
Among surveyed cloud service subscribers (companies), 87.1% of the respondents indicated they derive some type of benefits from the use of cloud services, with 32.5% reporting “major benefits” and 54.6% “some benefits.” This shows many companies have a positive view of cloud services, and suggests resistance to such services may be waning. Many companies were reluctant to adopt cloud services in the past either because they had no need for them or due to security concerns over data loss/leaks or concerns over network stability. However, as adoption of cloud services expands, the number of companies that get to experience the benefits of such services is increasing.
Main competitors
The SSO and Identity as a Service (IDaaS) solutions provided in the core HENNGE One service do not face competition from major companies in Japan. HENNGE One commanded a 65.4% market share of the domestic cloud-based IDaaS market in 2017 (on a shipment basis), according to the “2018 Cloud-based Groupware/Security Service Market Trends” survey published by Fuji Chimera Research Institute.
Below, we present information on US-based Okta Inc. (NASDAQ: OKTA), which entered the SSO space at an early stage and is mainly expanding earning in the US, as a reference.
Okta reported FY01/21 revenue of USD835mn (+42.5% YoY), of which SSO subscription revenue accounted for over 90%. Its revenue growth averaged a high 51.0% in the four years from FY01/17. The company had more than 14,000 customers as of December 2021, and offered support for over 7,000 SaaS solutions. Cloud computing services became popular in the US between 2005 and 2010, and many software providers in the US started offering subscription-based services to companies around that time. However, such services only gained traction in Japan at a later stage.