Metaps utilizes data analysis and integration technologies to provide solutions to support business efficiency and automation initiatives of customer companies. Such corporate initiatives are commonly referred to as “digital transformation (DX).” The company’s main business domains are fintech and digital marketing. In the former, the company mainly offers payment solutions and business efficiency services; in the latter, it provides mobile advertising and consulting services among others.

Since its inception in 2007, the company has received advertising and promotion orders from smartphone app developers (advertisers). Its proprietary analytics tool Metaps Analytics supports app monetization based on analysis of users and ad effectiveness. These data-driven marketing initiatives drove the company’s growth. In 2014, Metaps launched the online payment service SPIKE to scale up its operations in the finance industry. The service focused on comprehensive management, integration, and utilization of customer payment and lifestyle data (discontinued in November 2017). In 2016, the company made Pay Design Inc. (currently Metaps Payment) a subsidiary in a move that significantly expanded its transaction volume and lineup of services. Metaps had also ventured into cryptocurrency (blockchain) and B2C payment services in the same year, guided by the previous management. However, it later decided to withdraw from the cryptocurrency business due to growing uncertainty in the global market (triggered by the hacking of several cryptocurrency exchanges in 2018 and the tightening of related regulations in various countries afterward). Metaps suffered a substantial loss in FY12/19 as a result of the exit. The company is currently restructuring its operations with the Finance segment at its core.

Metaps operates in the Finance, Marketing, and Other (digital transformation [DX] support business) segments. In FY12/20, it reported Finance revenue of JPY3.5bn (41.2% of total revenue) and segment profit of JPY282mn (OPM of 8.0%), and Marketing revenue of JPY5.0bn (57.9% of total revenue) and segment profit of JPY352mn (OPM of 7.1%). It has not disclosed results for the DX support business in the Other segment, which was launched in February 2020. Overseas operations accounted for roughly 44% of total revenue in FY12/20. The domestic operations of its Finance segment and the DX support business are recurring revenue businesses, and the Marketing segment and overseas operations are one-time revenue businesses. The company plans to expand recurring revenue businesses and downsize overseas operations.

In the Finance segment, Metaps processes payments as an intermediary between merchants and credit card companies, providing a diverse lineup of payment solutions to business operators (Payment service revenue = Total transaction volume x Service fee charged to affiliated merchants [around 1.0% after allocating acquirer and issuer service fees]). Major competitors tend to leverage economies of scale to lower service fees, but Metaps avoids such competition. Instead, it mainly targets smaller markets where credit cards have not been widely adopted (e.g., where small amounts of recurring billing are settled in cash). It offers the package payment solution Kaihi Pay to operators of flat-rate membership services such as gyms (Kaihi Pay revenue = Total transaction volume x Service fee of 3.5% [includes payment settlement fee] + JPY100). The major selling point of Kaihi Pay is that it automates peripheral administrative tasks such as accounting management and sending payment reminders for business operators, in addition to processing payments. Metaps also provides the real-time salary payment service CRIA, which allows companies to improve benefits for employees without incurring additional costs (CRIA revenue = Number of companies using service x Number of employees at such companies x Usage rate x JPY550 x Frequency per month [average of 1.5x]).

In the Marketing segment, Metaps offers data feed services that optimize product information for items sold by e-commerce websites. It reformats the product data (price, sales inventory, etc.) to match the requirements of ad slots of major marketing platforms such as Google Shopping and Criteo, and automatically uploads the data to such platforms. The company functions as an online ad buyer from the perspective of advertisers, and as a sales agent for online ad slots from the standpoint of advertising media companies such as Criteo. Metaps also formulates advertising strategies for e-commerce companies, provides consulting services, and supports Japan operations of companies based in Greater China.

In the DX support business, the company plans to launch Metaps Cloud in the spring of 2021. This system allows customer companies to centrally manage various software as a service (SaaS) in a single platform, including usage status and cost analysis. SaaS adoption is currently booming in corporate environments, but a large number of companies lack the tools to monitor SaaS usage conditions. Metaps Cloud uses single sign-on (SSO) functionality and allows SaaS access privileges to be configured by individual employees and terminals. While competitors such as Hennge (TSE Mothers: 4475) and Okta (NASDAQ: OKTA) emphasize the ease of login with the use of SSO and security of their services, Metaps focuses on centralized management of SaaS as the key differentiator. Put differently, Metaps Cloud is a solution for issues accompanying the rapid increase of SaaS in customers’ technology portfolio (e.g., issues related to costs, efficiency, and security risks). Over the medium term, the company envisions a “SaaS matching services” as a new source of recurring revenue. In this scheme, Metaps plans to 1) enter into comprehensive agency agreements with numerous SaaS providers, 2) introduce optimal SaaS solutions to customer companies through Metaps Cloud, and 3) provide comprehensive support ranging from contract signing to payment processing. Metaps Cloud revenue is calculated as: Number of users x ARPU x (1 - Churn rate).

In terms of the cost structure, advertising media costs (payments to companies such as Google and Facebook) in the Marketing segment and payment service costs in the Finance segment make up over 90% of cost of revenue. As the Marketing segment has a low profit margin, generating high gross profit is essential. Overseas, Metaps reported losses in FY12/19 as a result of weakening earnings at subsidiaries Metaps Plus and Smartcon. This was attributable in part to impact from a maturing game app market and the exit from the cryptocurrency market.

Trends and outlook

In FY12/20, Metaps reported revenue of JPY8.6bn, gross profit of JPY4.1bn, operating loss of JPY460mn, and loss attributable to owners of the parent of JPY108mn. Although it continued to review its business portfolio and posted write-downs for restructuring costs, the company recorded operating profit of JPY72mn in Q4, moving into the black for the first time in five quarters.

Metaps has yet to disclose a FY12/21 forecast due to difficulties in compiling reasonable estimates at the present time.

The company unveiled its medium-term plan “The Road to 2025” in August 2020. The plan calls for FY12/25 operating profit of JPY3.0–5.0bn (JPY3.0bn generated organically and JPY2.0bn derived from M&A activities). Metaps looks to withdraw from or downsize its overseas businesses over the medium term. It plans to invest heavily in the fintech space with a strong focus on payment services. In the DX support business, the company will concentrate on centralized SaaS management (SaaS solutions that help manage third-party SaaS solutions).

Strengths and weaknesses

Shared Research sees that Metaps’ strengths are: 1) attractive workplace for engineers thanks to adoption of latest development methodologies (agile) and technologies (blockchain); 2) ability to serve niche markets with products that drive business efficiency and automation; and 3) credibility as a payment processing company underpinned by technical prowess in online payment solutions. Its weaknesses are: 1) overseas operations are holding back earnings (44% of revenue in FY12/20; scheduled to be exited or downsized in the future); 2) Yet to develop a system to fully utilize customer data to create synergies among businesses; and 3) the need to replace the existing sales model focused on one-off sales of package solutions with one that supports SaaS business through customer success initiatives.

Key financial data

Consolidated income statement		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19	FY12/20
(JPYmn)		JGAAP	IFRS	IFRS	IFRS	IFRS	IFRS
Revenue		4,126	8,817	13,572	10,240	13,292	8,569
	YoY	82.2%	113.7%	53.9%	-24.6%	-	-
Gross profit		618	1,629	3,008	4,136	5,609	4,100
	YoY	13.2%	163.7%	84.7%	37.5%	-	-
	Gross profit margin	15.0%	18.5%	22.2%	40.4%	42.2%	47.8%
Operating profit		-320	-333	251	-214	-2,990	-460
	YoY	-	-	-	-	-	-
	Operating profit margin	-	-	1.8%	-	-	-
Pre-tax profit		-358	-571	278	-319	-3,152	-510
	YoY	-	-	-	-	-	-
	Pre-tax profit margin	-	-	2.0%	-	-	-
Profit attributable to owners of the parent		-391	-718	260	-454	-2,861	-108
	YoY	-	-	-	-	-	-
	Profit margin	-	-	1.9%	-	-	-
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000)		12,332	12,879	12,974	13,462	13,567	13,567
EPS (JPY)		-41	-57	20	-34	-211	-8
EPS (fully diluted; JPY)		-41	-57	20	-34	-211	-8
Dividend per share (JPY)		-	-	-	-	-	-
Book value per share (JPY)		648.08	559.42	504.12	576.36	359.64	417.34
Balance sheet (JPYmn)
	Cash and cash equivalents	7,783	6,273	6,650	7,054	4,683	6,648
	Trade and other receivables	720	4,399	6,749	6,193	9,752	9,195
Total current assets		8,762	11,342	13,964	14,793	15,259	16,546
	Tangible fixed assets	41	106	165	389	205	437
	Intangible assets	403	1,593	1,729	2,011	576	-
Total noncurrent assets		533	4,577	5,822	7,893	5,625	5,376
	Short-term debt	-	862	1,278	379	883	889
Total current liabilities		1,264	6,958	9,968	11,081	13,965	13,746
	Long-term debt	-	1,142	2,701	2,466	1,460	1,469
Total noncurrent liabilities		11	1,405	2,996	3,254	2,403	2,197
Total liabilities		1,274	8,363	12,964	14,335	16,367	15,944
	Shareholders' equity	7,956	7,237	6,582	7,787	4,899	5,662
Total equity		8,021	7,556	6,822	8,350	4,517	5,977
Total liabilities and equity		9,295	15,919	19,786	22,685	20,884	21,921
Cash flow statement (JPYmn)
Cash flows from operating activities		-2	-1,114	-311	396	-644	271
Cash flows from investing activities		-259	-1,927	-931	-378	-946	-147
Cash flows from financing activities		7,767	1,680	1,595	374	-761	1,866
Financial ratios
ROA (pre-tax profit-based)		-	-	1.6%	-	-	-
ROE		-	-	3.8%	-	-	-
Debt-to-equity ratio		-	0.16	0.47	0.33	0.48	0.42
Equity ratio		85.6%	45.5%	33.3%	34.3%	23.5%	25.8%
Adjusted on-hand liquidity		7,843	5,194	6,041	5,727	3,305	5,549
Adjusted on-hand liquidity ratio		100.4	33.1	22.4	14.7	7.5	18.1

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Adjusted on-hand liquidity = Cash and deposits + Trade receivables - Trade payables
Adjusted on-hand liquidity ratio = Adjusted on-hand liquidity / Monthly average SG&A expenses (excluding depreciation)

Trends and outlook

Quarterly trends and results

Cumulative		FY12/19 (16 months period)					FY12/20				FY12/21			FY12/21
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1–Q5	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	% of Est.	FY Est.
Revenue		2,339	5,019	8,363	11,507	13,292	2,087	4,222	6,326	8,569	2,179	4,072	5,965	-	-
	YoY	-18.2%	-7.4%	6.7%	12.4%	-	-	-	-	-	4.4%	-3.6%	-5.7%		-
Gross profit		948	2,419	4,231	5,898	5,609	1,067	2,043	3,012	4,100	1,061	2,058	3,078		-
	YoY	-6.2%	13.0%	41.4%	42.6%	-	-	-	-	-	-0.6%	0.7%	2.2%		-
	Gross profit margin	40.5%	48.2%	50.6%	51.3%	42.2%	51.1%	48.4%	47.6%	47.8%	48.7%	50.5%	51.6%
SG&A expenses		1,389	2,605	3,987	5,250	7,019	1,186	2,180	3,094	4,092	1,008	2,002	2,964
	YoY	36.6%	23.2%	23.3%	12.3%	-	-	-	-	-	-15.0%	-8.2%	-4.2%
	SG&A ratio	59.4%	51.9%	47.7%	45.6%	52.8%	56.8%	51.6%	48.9%	47.8%	46.3%	49.2%	49.7%
Operating profit		1,478	1,719	2,388	2,778	-2,990	-186	-414	-532	-460	464	415	3,902	-	-
	YoY	-	417.8%	-	-	-	-	-	-	-	-	-	-		-
	Operating profit margin	63.2%	34.2%	28.6%	24.1%	-	-	-	-	-	21.3%	10.2%	65.4%
Pre-tax profit		1,475	1,703	2,274	2,579	-3,152	-262	-559	-668	-510	486	437	3,832		-
	YoY	-	388.0%	-	-	-	-	-	-	-	-	-	-		-
	Pre-tax profit margin	63.1%	33.9%	27.2%	22.4%	-	-	-	-	-	22.3%	10.7%	64.2%
Profit attributable to owners of the parent		947	1,043	1,412	1,646	-2,861	-228	-531	-681	-108	370	267	3,358	-	-
	YoY	-	604.7%	-	-	-	-	-	-	-	-	-	-		-
	Profit margin	40.5%	20.8%	16.9%	14.3%	-	-	-	-	-	17.0%	6.6%	56.3%
Quarterly		FY12/19 (16 months period)					FY12/20				FY12/21
(JPYmn)		Q1	Q2	Q3	Q4	Q5	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Revenue		2,339	2,680	3,344	3,144	1,785	2,087	2,135	2,104	2,243	2,179	1,893	1,893
	YoY	-18.2%	4.6%	38.4%	30.9%	-	-	-	-	-	4.4%	-11.3%	-10.0%
Gross profit		948	1,471	3,283	1,667	-289	1,067	976	969	1,088	1,061	997	1,020
	YoY	-6.2%	30.2%	285.3%	45.8%	-	-	-	-	-	-0.6%	2.2%	5.3%
	Gross profit margin	40.5%	54.9%	98.2%	53.0%	-	51.1%	45.7%	46.1%	48.5%	48.7%	52.7%	53.9%
SG&A expenses		1,389	1,216	2,598	1,263	1,769	1,186	994	914	998	1,008	994	962
	YoY	36.6%	10.7%	132.2%	-12.2%	-	-	-	-	-	-15.0%	0.0%	5.3%
	SG&A ratio	59.4%	45.4%	77.7%	40.2%	99.1%	56.8%	46.6%	43.4%	44.5%	46.3%	52.5%	50.8%
Operating profit		1,478	241	669	390	-5,768	-186	-228	-118	72	464	-49	3,487
	YoY	-	-22.8%	-	-	-	-	-	-	-	-	-	-
	Operating profit margin	63.2%	9.0%	20.0%	12.4%	-	-	-	-	3.2%	21.3%	-	184.2%
Pre-tax profit		1,475	228	799	876	-5,731	-262	-297	-109	158	486	-49	3,395
	YoY	-	-27.8%	-	-	-	-	-	-	-	-	-	-
	Pre-tax profit margin	63.1%	8.5%	23.9%	27.9%	-	-	-	-	7.0%	22.3%	-	179.3%
Profit attributable to owners of the parent		947	96	465	603	-4,507	-228	-303	-150	573	370	-103	3,091
	YoY	-	-28.9%	-	-	-	-	-	-	-	-	-	-
	Profit margin	40.5%	3.6%	13.9%	19.2%	-	-	-	-	25.5%	17.0%	-	163.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Year-on-year changes of over 1,000% are shown by “-”.
Note: FY12/19 was an irregular 16-month accounting period. As a result, YoY comparisons for FY12/20 use the 12-month period from September 1, 2018 to August 31, 2019 as the basis for comparison.

Quarterly performance by segment (cumulative; to be updated after interviews with the company)

By segment (cumulative)				FY12/19					FY12/20				FY12/21
(JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1–Q5	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2
Revenue				2,339	5,019	8,363	11,507	13,292	2,087	4,222	6,326	8,569	2,179	4,072
	YoY			-18.2%	-7.4%	6.7%	12.4%	-	-	-	-	-	4.4%	-3.6%
	Marketing
		Revenue from external customers		1,346	2,639	4,242	5,753	7,820	571	1,186			604	1,330
			YoY	14.7%	19.4%	33.3%	35.4%	-	-	-			5.8%	12.1%
			% of total	57.5%	52.6%	50.7%	50.0%	58.8%	27.4%	28.1%			27.7%	32.7%
		Intersegment revenue		18	18	22	23	23	1	7			23	48
	Finance
		Revenue from external customers		921	2,262	3,971	5,574	5,264	420	787			507	1,051
			YoY	-43.7%	-27.5%	-12.5%	-2.9%	-	-	-			20.7%	33.5%
			% of total	39.4%	45.1%	47.5%	48.4%	39.6%	20.1%	18.6%			23.3%	25.8%
		Intersegment revenue		1	1	1	1	2	0	0			0	0
	Overseas
		Revenue from external customers							844	1,831			877	1,336
			YoY	-	-	-	-	-	-	-			3.9%	-27.0%
			% of total	0.0%	0.0%	0.0%	0.0%	0.0%	40.4%	43.4%			40.2%	32.8%
		Intersegment revenue							0	0			0	0
	Other
		Revenue from external customers		72	119	150	180	207	252	417			190	356
			YoY	38.5%	28.0%	27.1%	-28.0%	-	-	-			-24.6%	-14.6%
			% of total	3.1%	2.4%	1.8%	1.6%	1.6%	12.1%	9.9%			8.7%	8.7%
		Intersegment revenue							146	237			125	248
	Adjustments			-117	-232	-361	-570	-768	-147	-245			-148	-296
Gross profit				948	2,419	4,231	5,898	5,609	1,067	2,043	3,012	4,100	1,061	2,058
	YoY			-6.2%	13.0%	41.4%	42.6%	-	-	-	-	-	-0.6%	0.7%
	Gross profit margin			40.5%	48.2%	50.6%	51.3%	42.2%	51.1%	48.4%	47.6%	47.8%	48.7%	50.5%
	Marketing			238	528	832	1,118	1,519	122	244			108	218
			YoY	-	-0.4%	5.3%	7.3%	-	-	-			-11.5%	-10.7%
			% of gross profit	25.1%	21.8%	19.7%	19.0%	27.1%	11.4%	11.9%			10.2%	10.6%
			Gross profit margin	17.7%	20.0%	19.6%	19.4%	19.4%	21.4%	20.6%			17.9%	16.4%
	Finance			675	1,827	3,318	4,678	3,974	380	703			438	909
			YoY	-	16.1%	54.0%	61.1%	-	-	-			15.5%	29.3%
			% of gross profit	71.2%	75.5%	78.4%	79.3%	70.9%	35.6%	34.4%			41.3%	44.2%
			Gross profit margin	73.3%	80.8%	83.6%	83.9%	75.5%	90.5%	89.3%			86.4%	86.5%
	Overseas								501	985			485	871
			YoY						-	-			-3.2%	-11.6%
			% of gross profit						47.0%	48.2%			45.7%	42.3%
			Gross profit margin						59.4%	53.8%			55.3%	82.9%
	Other			35	64	81	102	116	64	111			30	353
SG&A expenses				1,389	2,605	3,987	5,250	7,019	1,186	2,180	3,094	4,092	1,008	2,002
	YoY			36.6%	23.2%	23.3%	12.3%	-	-	-	-	-	-15.0%	-8.2%
	% of total			59.4%	51.9%	47.7%	45.6%	52.8%	56.8%	51.6%	48.9%	47.8%	46.3%	49.2%
Adjusted EBITDA				27	359	1,031	1,700	350	-76	149	421	811	197	411
	YoY			-87.4%	-59.2%	0.0%	-16.6%	-	-	-	-	-	-	175.8%
EBITDA				-147	1,971	2,756	3,353	-2,295	-76	-203	-219	-44	-	-
	YoY			-	249.5%	529.2%	1,040.5%	-	-	-	-	-	-	-
	Marketing			52	139	214		228	49	108			41	78
			YoY	-	41.8%	40.8%	-	-	-	-	-	-	-15.6%	-27.5%
			EBITDA margin	3.9%	5.3%	5.0%	-	2.9%	8.6%	9.1%	-	-	6.8%	5.9%
	Finance			-37	428	1,069		-77	113	175			170	336
			YoY	-	-18.5%	97.6%	-	-	-	-	-	-	50.7%	92.0%
			EBITDA margin	-	18.9%	26.9%	-	-	26.9%	22.2%	-	-	33.5%	32.0%
	Overseas								-84	-25			79	92
			YoY						-	-	-	-	-	-
			EBITDA margin						-	-	-	-	9.0%	6.9%
Operating profit				1,478	1,719	2,388	2,778	-2,990	-186	-414	-532	-460	464	415
	YoY			-	417.8%	-	-	-	-	-	-	-	-	-
	Other income and expenses			1,867	1,875	2,179	2,227	-1,242	-25	-192	-325	-297	458	455
			YoY	-	537.8%	641.2%	637.4%	-	-	-	-	-	-	-
			Operating profit margin	79.8%	37.4%	26.1%	19.4%	-	-	-	-	-	21.0%	11.2%
	Finance income and expenses			-3	-16	-115	-198	-162	-77	-144	-135	-50	21	22
			YoY	-	-	-	-	-	-	-	-	-	-	-
			Operating profit margin	-	-	-	-	-	-	-	-	-	1.0%	0.5%
Profit attributable to owners of the parent				947	1,043	1,412	1,646	-2,861	-228	-531	-681	-108	370	267

Source: Shared Research based on company data.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Year-on-year changes of over 1,000% are shown by “-”.
Note: FY12/19 was an irregular 16-month accounting period. As a result, YoY comparisons for FY12/20 use the 12-month period from September 1, 2018 to August 31, 2019 as the basis for comparison. No segment breakdown is given for Q3 and Q4 FY12/20 due to a reporting segment change.

Q3 FY12/21 results

Summary

Revenue: JPY6.0bn (-5.7% YoY)
Gross profit: JPY3.1bn (+2.2% YoY)
Operating profit: JPY3.9bn (versus loss of JPY532mn in Q3 FY12/20)
Net income attributable to owners of the parent: JPY3.4bn (versus loss of JPY681mn in Q3 FY12/20)

Key points

Revenue fell JPY361mn YoY. Finance segment revenue was up JPY374mn and Marketing segment revenue up JPY350mn, but these gains were offset by declines of JPY1.0bn in Overseas segment revenue and JPY72mn in Other segment revenue. The mainstay Finance segment performed strong.

At the operating level, Metaps turned a JPY532mn operating loss in Q3 FY12/20 to operating profit. The company booked a JPY435mn gain on sales of shares of subsidiaries following the transfer of shares in Metaps Entertainment in Q1. Further, the company decided to transfer shares in equity-method affiliate pring to Google, and booked a JPY3.5bn gain on sale of shares in associates in Q3.

Topics

As part of a reassessment of its business portfolio, Metaps transferred all share of Metaps Alpha (which operates mime, an online marketplace using blockchain technology for trading digital items) to Coincheck on February 12, 2021. The company also transferred all shares of Metaps Entertainment, a holding company in Greater China that operates a cross-border marketing business, to Digital Hearts Holdings Co., Ltd. on March 29, 2021.

The company officially rolled out Metaps Cloud, Japan’s first SaaS central management tool, on March 30, 2021.

The company decided to transfer all shares in equity-method affiliate pring, a smartphone payments service company, to Google for JPY4.9bn (scheduled for August 2021), and accordingly plans to book profit from the sale of shares in an affiliate of JPY3.5bn in Q3.

The company published its first SDGs Report on August 13, 2021.

FY12/21 outlook

Metaps has yet to disclose a FY12/21 forecast, but Shared Research understands that it plans to grow its earnings by focusing on recurring revenue businesses, based on its medium-term management plan announced in August 2020.

Kaihi Pay and CRIA to drive growth in recurring revenue businesses

The impact of the COVID-19 pandemic remains a concern. Particularly in Tokyo, Kanagawa, Chiba, and Saitama, state of emergency declarations by national and local governments were expected to extend to September 30 2021, making revenue growth from the Ticket Pay package solutions difficult. Shared Research understands that Metaps will be unavoidably dependent on Kaihi Pay and CRIA in FY12/21.

One-time expenses related to review of business portfolio declined

Shared Research thinks disruptive factors that destabilized operating profit will fade across the board. In 1H, the company sold all shares of Metaps Alpha and all shares of Metaps Entertainment (a holding company in Greater China). In Q1, the company recorded gains of JPY43mn and JPY435mn on the sale of shares in Metaps Alpha and Metaps Entertainment, respectively. Combined total of JPY478mn were booked from the sale of affiliated company shares. In Q2, the company decided to transfer its shares in its equity method affiliate, pring Inc., to Google at a sale price of JPY4.9bn. The company expects to record JPY3.5bn from sales of shares in affiliated companies during Q3 accounting period.

Finance

Japan

Earnings are gradually recovering. Inquiries for Kaihi Pay are increasing in tandem with an acceleration in DX initiatives at affiliated businesses. Gross profit at Kaihi Pay seems to be growing at a pace of about JPY1mn per month. Shared Research thinks earnings will keep receiving a boost from continued growth of Kaihi Pay and the operation of real-time salary payment service CRIA at major customers (with workforces of several thousand employees).

The company’s strategy for acquiring new affiliated businesses for Kaihi Pay is to target large chains, such as cram school and fitness gym chains with a nationwide presence.

Overseas

The impact of the pandemic was limited, and Metaps thinks demand for corporate promotion is bouncing back. Shared Research understands that the company plans to strengthen B2B sales and create additional profit streams by launching new services.

Marketing

Japan

Despite lingering impact of the COVID-19 pandemic, the company expects traffic for internet services will remain at present levels. It will concentrate its resources on customers that are expanding their advertising budgets.

Overseas

The business environment continues to improve. Metaps plans to focus its resources on key customers while reducing and controlling expenses.

Other

The company officially released Metaps Cloud on March 30, 2021.

Medium-term plan

Medium-term management plan “The Road to 2025” (released August 2020)

In August 2020, Metaps unveiled the medium-term management plan “The Road to 2025” that incorporated a new management policy. The plan calls for 1) investment in the fintech field centered on payment services, 2) investment in the DX support business centered on SaaS, and 3) an operating profit target of JPY3.0–5.0bn.

When it announced FY12/19 results, Metaps had already stated its intention to withdraw from the cryptocurrency business, and review its Marketing segment and Finance segment (see table below). The medium-term plan released on August 14, 2020 revealed that the company will make additional investments in the DX support business with a focus on SaaS, and laid out operating profit targets.

Review of medium-term management policy

Cryptocurrency business		Reviewed (as of FY12/19 earnings release)
The South Korean cryptocurrency business was launched as a new business in 2017. However, the complexity of related legislation increases around the world, and uncertainty surrounding the business continues.	⇒	Withdraw from the business as the originally envisioned earnings targets will be difficult to achieve in light of compliance with future legislation and security/audit expenses.
Marketing
Growth in the Marketing segment is softening as a result of reductions in advertising budgets at advertisers (particularly in the game industry) and due to intensifying competition.	⇒	Reposition the Marketing segment from a growth business to a stable earnings business, narrow down target markets, and focus on the provision of services to mid-tier customers.
Finance
The accelerated adoption of digital solutions for cashless payments and bank services is further expanding investment opportunities in the Finance segment in Japan, which continues to enjoy steady growth.	⇒	Further develop package solutions (such as Kaihi Pay) and the real-time salary payment service CRIA. Various collaborative initiatives to be considered under the capital and business alliance with Seven Bank.

Source: Shared Research based on company data (FY12/19 summary of financial results)

Numerical targets

Metaps aims to achieve the following numerical targets by FY12/25.

Marketing segment: operating profit of JPY500mn; positioned as stable growth business.

Finance segment: operating profit of JPY1.5bn; identify and develop solid growth businesses within the segment.

DX support business: operating profit of JPY1.0bn; create new recurring revenue businesses through DX support operations with a focus on SaaS.

M&A, etc.: operating profit of JPY2.0bn; explore acquisitions of companies that operate recurring revenue businesses, particularly in the payment services field.

Assumptions underpinning numerical targets, and uncertainties

The medium-term management plan reflects projected earnings for recurring revenue operations in the Finance segment and Other segment (specifically Metaps Cloud in the DX support business), but does not take into account earnings contributions from overseas operations (Greater China business led by Metaps Entertainment, and South Korea business led by Metaps Plus). The company plans to aggressively raise capital from outside sources for its overseas operations, while reducing its own stakes in overseas companies. On February 12, 2021, the company sold its entire stake in Metaps Alpha to Coincheck, Inc. Further, on March 29, 2021, it transferred its holdings in Metaps Entertainment, its wholly owned subsidiary and a holding company for Greater China operations, to Digital Hearts Holdings Co., Ltd.

Metaps prepares its financial statements under International Financial Reporting Standards (IFRS). This means its operating profit is affected by fluctuations in other revenue and other expenses and by equity in earnings/losses of affiliates. The company is restructuring its businesses, including by downsizing its overseas operations, which is expected to bring down one-time expenses. Reducing its holdings in equity-method affiliates will also lessen their impact on operating profit.

While earnings fluctuations driven by overseas operations and equity-method affiliates are declining, it is not clear when Metaps will fully remove its overseas businesses from the scope of consolidation. Also, the deconsolidation of overseas subsidiaries may lead to heavy but temporary fluctuations in earnings.

Performance at subsidiaries

Metaps Pte. Ltd.		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19	KOL Media		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.
Revenue		2,190	2,056	1,430	-	-	Revenue		-	-	-	-	1,653
	YoY	-	-6.1%	-30.4%	-	-		YoY	-	-	-	-	-
Pre-tax profit		-88	-113	34	-	-	Pre-tax profit		-	-	-	-	130
	YoY	-	-	-	-	-		YoY	-	-	-	-	-
	Operating profit margin	-	-	2.4%	-	-		Pre-tax profit margin	-	-	-	-	7.9%
Profit		-89	-113	34	-	-	Profit attributable to owners of the parent		-	-	-	-	112
	YoY	-	-	-	-	-		YoY	-	-	-	-	-
	Profit margin	-	-	2.4%	-	-		Profit margin	-	-	-	-	6.8%


Metaps Plus Inc.		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19	Smartcon		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19
(JPYmn)		Cons.	Cons.	Cons.	Cons.		(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.
Revenue		-	1,807	2,069	-	1,953	Revenue		-	-	1,877	10,196	1,480
	YoY	-	-	14.5%	-	-		YoY	-	-	-	443.2%	-85.5%
Pre-tax profit		-	141	3	-	-2,657	Pre-tax profit		-	-	-46	239	-431
	YoY	-	-	-97.9%	-	-		YoY	-	-	-	-	-
	Pre-tax profit margin	-	7.8%	0.1%	-			Pre-tax profit margin	-	-	-	2.3%	-
Profit		-	119	26	-	-2,728	Profit attributable to owners of the parent		-	-	-49	186	-422
	YoY	-	-	-78.1%	-	-		YoY	-	-	-	-	-
	Profit margin	-	6.6%	1.3%	-	-		Profit margin	-	-	-	1.8%	-


Metaps Payment		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19	Metaps One		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.
Revenue		-	-	2,547	3,486	5,300	Revenue		-	-	-	-	2,701
	YoY	-	-	-	36.9%	52.0%		YoY	-	-	-	-	-
Pre-tax profit		-	-	154	308	367	Pre-tax profit		-	-	-	-	107
	YoY	-	-	-	100.0%	19.2%		YoY	-	-	-	-	-
	Pre-tax profit margin	-	-	6.0%	8.8%	6.9%		Pre-tax profit margin	-	-	-	-	-
Profit attributable to owners of the parent		-	-	218	284	347	Profit attributable to owners of the parent		-	-	-	-	116
	YoY	-	-	-	30.3%	22.2%		YoY	-	-	-	-	-
	Profit margin	-	-	8.6%	8.1%	6.5%		Profit margin	-	-	-	-	4.3%

Source: Shared Research based on company data
In February 2021, the company sold its holdings in Metaps Alpha to Coincheck. In March 2021, the company sold its holdings in Metaps Entertainment and its seven subsidiaries to Digital Hearts Holdings Co., Ltd.

Key performance indicators

Metaps’ key performance indicators are adjusted EBITDA in positive territory, annual recurring revenue (ARR) and monthly recurring revenue (MRR) growth, and gross profit growth.

Logic behind earnings forecast

The company has not factored in the timing of sale of overseas subsidiaries. This will be considered in tandem with growth in recurring revenue businesses.

The Marketing segment is a stable growth business with a one-time revenue model. Therefore, the company expects modest growth for the segment in its base case scenario.

In the Finance business, trends at overseas subsidiaries are a key factor influencing earnings.

Accordingly, the main growth drivers will be 1) domestic operations in the Finance business, and 2) the DX support business (results disclosed under the Other segment) centered on Metaps Cloud.

Finance

Competitors in the payment service sphere tend to pursue growth in total transaction volume at the expense of service fees. Conversely, Metaps targets growth in gross profit by focusing on high-margin products and services (such as the package payment solution Kaihi Pay and the real-time salary payment service CRIA). The company aims to generate gross profit in package payment solutions and credit businesses, and this mainly hinges on MRR growth in subscription businesses (i.e., package solutions) and the launch of new businesses. In FY12/20, total ARR for domestic operations in the Finance segment and for the Other business was JPY2.3bn (MRR of JPY194mn). It appears that the company is targeting MRR of roughly JPY300mn in the Finance segment to achieve its medium-term plan targets.

DX support business

Metaps targets operating profit of JPY1.0bn in the DX support business, mainly driven by its new service Metaps Cloud. This figure includes profit from existing services, such as analytics tool Metaps Analytics and freelancer matching platform re:shine, but Metaps Cloud is expected to contribute the lion’s share of the profit target. Assuming an OPM of 25%, this would suggest the company is looking for Metaps Cloud revenue of JPY4.0bn (operating profit of JPY1.0bn / OPM of 25%).

Business

Business overview

Utilizes data analytics to support companies’ “digital transformation (DX)”

Metaps utilizes data analytics and integration technologies to provide solutions to support what is commonly referred to as “digital transformation (DX)” of customer companies. DX encompasses initiatives aimed at improving business efficiency and automating various operations. Leveraging data analytics expertise gained through mobile game app monetization businesses, the company develops unique products and services that help guide customers through the various stages of DX—namely, digitalization, cloud migration, visualization, and automation. In the fintech field, Metaps provides payment solution and business optimization services to e-commerce and other companies. In the digital marketing area, it offers consulting and ad distribution services to help developers monetize their apps online. In the DX space, the company develops a software as a service (SaaS) platform to centrally manage multiple third-party SaaS solutions.

Digital transformation (DX): The use of data and digital technologies by companies to cope with sharp changes in the business environment, and the resulting transformation of business models, operations, organizations, processes, and corporate culture and practices in accordance with customer and societal needs with the aim of gaining a competitive advantage over rivals (Ministry of Economy, Trade and Industry [METI]).

Metaps has three segments: 1) Marketing segment (57.9% of revenue in FY12/20, segment profit margin of 7.1%), operated by subsidiary Metaps One (wholly owned) and Greater China subsidiaries; 2) Finance segment (41.2% of revenue in FY12/20, operating profit of JPY282mn), operated by subsidiary Metaps Payment (80% owned) and South Korean subsidiaries; and 3) Other segment, which includes the DX support business operated by the parent company (established in February 2020). Overseas operations accounted for 44% of total revenue in FY12/20.

The Finance segment is the core business and encompasses payment services and package payment solutions. In payment services, Metaps processes payments as an intermediary between merchants and credit card companies or other settlement companies, functioning as a general processing company. The company provides a wide array of cashless payment methods, including online credit card payments, payments processed by credit card terminals in physical stores, convenience store payments, electronic money payments, and QR code payments. In package payment solutions, Metaps offers Kaihi Pay, a payment service bundled with business optimization tools for operators of flat-rate membership services (e.g., small and mid-sized cram schools, gyms, and various lesson providers). Subsidiary Metaps Payment mainly provides these services.

In the Marketing segment, the company provides online advertising (display ads, listing ads, and pure ads), specializing in the distribution of cutting-edge display ads. It also offers data feed services that optimize product data for the advertising formats of major platforms such as Google Shopping and Criteo, and automatically upload such product data to these platforms. Subsidiary Metaps One provides these data-driven marketing solutions, and pursues businesses in the field of advertising management and media.

In the DX support business, the company provides the analytics tool Metaps Analytics to app developers. This tool facilitates in-depth analysis of app user behavior data and ad effectiveness data. The company also provides data-driven consulting services to app developers seeking to enhance user engagement. This business is operated by the parent company. Metaps has launched the DX support business by harnessing its expertise in data analytics accumulated in the smartphone app business. It plans to roll out Metaps Cloud, Japan’s first platform to centrally manage corporate SaaS solutions, in the spring of 2021. Metaps Cloud is a SaaS equipped with the following essential functionality to manage a wide range of third-party SaaS: 1) SaaS account registration and cancellation, 2) SaaS cost analysis, 3) visualization and analysis of SaaS usage by employees and access privileges, 4) automation of tasks required every time an employee joins or leaves a company or division, and 5) centralized management of third-party SaaS through consolidated ID and password management (IDaaS).

Overhaul of business model

Metaps was established as e-Factor Inc. in 2007, and originally provided marketing consulting services with a focus on search engine optimization (SEO). Guided by its corporate philosophy of “transforming money and the economy through technology,” the company entered the payment services field in earnest from 2014. It launched the online payment platform SPIKE in the same year, and aggressively pursued M&A activity. In 2016, it ventured into the fintech field (specifically, blockchain and cryptocurrency operations) in South Korea. However, it later decided to withdraw from the cryptocurrency business due to growing uncertainty in the global market as various countries tightened regulations after several cryptocurrency exchanges were hacked in 2018. Metaps suffered a substantial loss in Q5 FY12/19 (irregular 16-month period) as a result. In its medium-term plan “The Road to 2025” released in August 2020, the company positioned the Finance segment as its core business, and resolved to withdraw from loss-making overseas operations. It intends to adopt a more selective management approach toward one-time revenue businesses, and implement measures such as shifting its focus to recurring revenue and SaaS businesses, and pursuing M&A with mature companies.

Online payment platform SPIKE: A now discontinued payment service geared toward e-commerce operators. It allowed e-commerce operators to expand their sales functionality by simply embedding a link that would provide credit card payment options on their website. The service was offered under a freemium model with no upfront costs or monthly fixed fees. Customer businesses were charged fees when monthly sales exceeded JPY100,000. Metaps signed up over 250,000 customer businesses, and annual transaction volume rose to JPY100.0bn. Over 70% of the customers were individually owned businesses selling a broad range of merchandise from home appliances to information services. The platform was also used by cross-border e-commerce operators. Metaps integrated the platform into Metaps Payment in November 2017, and discontinued the service.
Overseas operations: On February 12, 2021, the company sold its entire stake in Metaps Alpha to Coincheck, Inc. On March 29 of the same year, it sold its holdings in Metaps Entertainment Ltd., a wholly owned subsidiary and a holding company for the company’s Greater China operations, to Digital Hearts Holdings Co., Ltd. (Metaps Entertainment oversaw the Marketing business in Greater China, and KOL Media and Luminous provided support for corporate promotion ranging from online ad distribution, data analysis, and promotional optimization). As of end-May 2021, the company had a South Korea business operated by subsidiary Metaps Plus (79.8% owned).

Performance

Shared Research based on company data

Business model

Customers

In the Finance segment, Metaps provides a wide array of payment solutions for e-commerce websites and physical stores, ranging from credit card payments to convenience store payments, electronic money, and Pay-easy (service that allows users to make utility payments via their computer, smartphone or other mobile phone, or an ATM). It supplies payment services (for both online and physical store payments) to merchants (e-commerce companies) who wish to adopt online payment solutions, and package solutions to operators of flat-rate membership services (e.g., cram schools and gyms). The company also offers the real-time salary payment service CRIA to large companies with high credit ratings.

In the Marketing segment, Metaps mainly offers services to mobile game/app developers, e-commerce operators, and e-book suppliers. The Finance and Marketing segment have distinct customer bases. In the DX support business, the company supplies the comprehensive analytics tool Metaps Analytics to over 200 app developers (in May 2020, the parent company absorbed Metaps Links, the subsidiary tasked with development and operation of Metaps Analytics, thus effectively creating opportunities for active cross-selling to the customers of other segments). The target customers for Metaps Cloud are companies with 50 or more employees as well as major corporations across various industries and use multiple SaaS.

Overview of Metaps customers

Business			Business
Finance segment
	Payment services
		Online payment services	Affiliated merchants such as e-commerce companies
		Physical store payment services	Affiliated merchants such as e-commerce companies
		Real estate related payment services	Real estate companies
		Customized payment services	Examples of customers include JTB, Nippon Life Insurance Company, and Nippon Gas
	Package solution service
		Kaihi Pay	Companies and organizations where credit cards are not widely adopted due to the small scale of operations and cash payments are the norm. Typical examples are businesses that offer flat-rate services to customer bases of 30–40 people, such as cram schools, lesson providers, various other schools, gyms, yoga/Pilates class providers, fan clubs, membership organizations, and co-working spaces.
		Event Pay	Event organizers and groups
		Ticket Pay	Organizers of music, sports, and other events ranging from individually organized events to those held at stadiums
	Real-time salary payment service CRIA		Mainly large companies with low credit risk (restaurant, service, retail, entertainment, staffing, etc.)
Marketing segment			Companies such as smartphone game/app developers, e-commerce operators, and e-book providers
DX support business
	Metaps Analytics, etc.		Smartphone app developers (including game apps)
	Metaps Cloud		Targeted at companies that employ over 50 people and use multiple cloud services, ranging from startups to individually owned businesses and major companies.

Source: Shared Research based on company data

Products and services

The Finance segment is led by subsidiary Metaps Payment, which offers 1) payments services such as online payment services, physical store payment services, and electronic money payment services, and 2) customized (package) payment solutions such as Kaihi Pay and Event Pay. The company’s payment services stand out by virtue of their focus on user applications and usage settings. Whereas its rivals in the payment services field aim to scale up total transaction volume, Metaps targets niche markets by identifying user needs. In addition, equity-method affiliate pring Inc. operates the remittance service “pring.” In South Korea, subsidiary Smartcon Co., Ltd. provides electronic money and coupon services.

In the Marketing segment, subsidiary Metaps One operates a data feed business, an internet advertising business, a marketing solutions business, and a media business. Equity-method affiliate BUZZCAST Inc. operates a video advertising marketing business that utilizes in-game footage of mobile games.

In May 2020, the parent company launched the DX support business after absorbing subsidiary Metaps Links. The business offers app analytics, app consulting, freelancer matching, and SaaS services. The original core service was the analytics tool Metaps Analytics, but the company shifted its attention with the official launch of Metaps Cloud, a centralized management service for corporate SaaS, on March 30, 2021. Equity-method affiliate KUMONO UCYUSEN Co., Ltd., a joint venture with Nippon Gas group and others, operates a business optimization system for energy companies.

Main products and services offered in Japan, and providers

			Service category					Operator
			Online payment	Store payment	Electronic money	Customized payment	Rent payment	Metaps	Metaps Payment	Metaps One	pring (equity-method affiliate)	Kumo-no Ucyusen (equity-method affiliate)	BUZZCAST (equity-method affiliate)	SMARTCON (South Korea)
Payment services
	Online payment
		Credit card	✔						✔
		Convenience store	✔						✔
		CRIA (salary real-time payment)	✔			✔			✔
		Online account-to-account transfer	✔						✔
		Paysys (email payment link service)	✔						✔
		Pay-easy payment	✔						✔
	Store payment
		Credit card payment for physical stores		✔					✔
	Electronic money
		Electronic money payment (C-CHECK）			✔				✔
Customized payment
	Kaihi Pay					✔			✔
	Event Pay					✔			✔
	Ticket Pay (ticket management system)					✔			✔
	E-commerce module with payment plugins					✔			✔
	System for chamber of commerce and industry					✔			✔
	BeesRent (rent payment service)					✔	✔		✔
	HUBees (rental property-related payment system)					✔	✔		✔
	Spocil (system for public services run by voluntary entities)					✔			✔
pring											✔
SMARTCON														✔
Marketing
	Data feed
		Become Feed Platform (BFP)								✔
	Online ads
		X-aid								✔
		rossi								✔
	Marketing solutions
	Media
		Become								✔
		WizerAZ								✔
	BUZZCAST												✔
Digital transformation (DX) support
	Metaps Bridge							✔
	Metaps Analytics							✔
	Metaps Cloud							✔
	re:shine							✔
	Kumo-no Ucyusen											✔
Mobile apps
	miel									✔
	Filmstory / Filmstory Pro							✔
	Sweet Movies / Sweet Movies Pro							✔
	Video Smith							✔
	Pop Weight							✔

Source: Shared Research based on company data

Value provided to customers

Value provided as payment processing company

In the core Finance segment, subsidiary Metaps Payment processes payments as an intermediary between affiliated merchants and credit card companies or other entities. It stands between affiliated merchants and settlement companies, handling payment review, contract procedures, and the management of sales payments.

Payment processing company: A company that acts as an intermediary between e-commerce operators (affiliated merchants) who wish to adopt a range of payment methods (such as credit card payments, convenience store payments, telecom carrier payments) and various payment institutions (settlement companies such as credit card companies). It provides access to such payment solutions and management systems as bundled services. E-commerce websites commonly offer a range of payment options to expand their customer reach. However, the increase in payment options also drives up the data volume that needs to be managed, leading to an expansion in work volume and personnel costs. To circumvent such burdens, e-commerce operators utilize a payment processing company.

Differentiation of value provided by package solutions

In addition to general payment processing operations, Metaps provides Kaihi Pay, a package payment solution equipped with business management tools, to small and mid-sized operators of flat-rate membership services (e.g., cram schools, gyms, and various lesson providers). These markets primarily deal with small recurring billing settled in cash, and are small in scale. Consequently, they have been overlooked in the marketing strategies of credit card companies and failed to attract credit cards as a widespread payment option. In general payment processing operations, Metaps faces competition from major rivals that compete on service fees by leveraging economies of scale, but it can avoid such competition in these niche markets.

Metaps also provides CRIA, a service that allows employees to collect their salary in real time. In essence, the service provides an advance (daily) payment for work performed. As it allows employees to obtain funds without taking on debt, it is generally seen as safer alternative to credit card loans and consumer loans available in the market. From a company standpoint, the service contributes to employee benefits and reduces staff turnover. In addition, it enables daily and weekly salary payments schemes, which can be advantageous in hiring part-timers and employees.

Value provided by Marketing segment

The Marketing segment includes 1) the data feed business, 2) the internet advertising business, 3) the marketing solutions business, and 4) the media business. A data feed service is used when a customer company wishes to serve dynamic ads (automatically display personalized ads based on products browsed by consumers during past visits to the website of the advertiser). By automatically converting product data, companies can distribute their ads through a larger number of platforms.

Value provided by DX support business

In the DX support business, Metaps provides the analytics tool Metaps Analytics to app developers. It also offers data-driven consulting services and related solutions to app developers seeking to enhance their app’s user engagement. Meanwhile, the Metaps Cloud platform allows customers to visualize the usage conditions for various third-party SaaS solutions, which has become a challenge for many companies amid rising SaaS usage. Other key advantages of Metaps Cloud include reduced security risks for companies introducing telework (which involves increased external access to intranet), and enhanced operational efficiency (e.g., by reducing the time required to configure SaaS access privileges whenever employees join or leave an organization).

Development structure and sales channels

Engineers accounted for roughly 30% of the total workforce (272) in FY12/19. Software development time varies by project, but typically ranges from a minimum of three months to roughly six months.

Some 40–50% of the company’s employees are sales staff, the majority of whom sell payment solutions. Metaps approaches customers through social media marketing and sales agents. It plans to increase staff count in the Finance segment and DX support business by 10% annually and expects staff count in the Marketing segment to either remain flat or rise modestly.

Earnings structure

The company reported revenue of JPY8.6bn in FY12/20, with domestic operations accounting for 56%. (Reference: FY12/19 domestic revenue was JPY1.6bn for the Marketing segment and JPY787mn for the Finance segment.) The GPM and segment profit margin (including overseas operations) were 21.2% and 7.1% in the Marketing segment and 84.7% and 8.0% in the Finance segment, respectively.

Earnings for payment services in the Finance segment are calculated as: Total transaction volume x Service fees collected from affiliated merchants (around 1.0% after allocating acquirer and issuer service fees). The company says Metaps Payment has total transaction volume of around several hundred billion yen. Service fees are charged to affiliated merchants at the rate of around 3.0% of the transaction volume, but the company needs to pay out 1.5% to credit card issuers and another 0.5% to acquirers, leaving its own service fee at roughly 1%. Affiliated merchants pay an initial registration fee and monthly fees to the company, but charges vary by payment method. The initial registration fee covers registration expenses and is paid when a merchant starts using the service. It also includes system fees linked to payment settlement and screening fees for credit card companies and convenience store operators. The monthly fees cover a range of expenses paid by customer companies (affiliated merchants) to Metaps after a contract goes into effect, such as running costs, monthly fixed fees, processing fees, and transfer fees.

Earnings for package solutions such as Kaihi Pay are calculated as: Total transaction volume x service fee (3.5%) + JPY100. Package solutions generate double the earnings of payment services.

Earnings in the real-time salary payment service CRIA are calculated as: Monthly revenue = Number of companies x Number of employees x Usage rate x Average usage frequency per employee per month x JPY550. Metaps says the average usage rate is around 20–30% (i.e., average usage by 2,000–3,000 employees in a company of 10,000 employees), and the average monthly usage frequency per employee is 1.5x.

In the DX support business, the parent company offers the analytics tool Metaps Analytics (previously operated by Metaps Links), and manages advertising budgets on behalf of app developers. It records the difference between these and actual advertising costs as earnings, and GPM fluctuates based on the advertising media used. The bulk of the advertising budgets is spent on social media platforms such as Facebook and Twitter, where ads are highly effective, and GPM averages around 15%.

Earnings for Metaps Cloud in the DX support business are calculated as: Number of users (Number of companies x Number of employees per company) x ARPU x (1 - Churn rate).

Cost structure

Advertising media costs (payments to advertising media such as Google, Facebook, and ad network operators) account for the lion’s share of cost of revenue (93% in FY12/19). Payment service costs include system fees, but do not include payments to credit card companies (acquirers) as service fee revenues are recorded on a net basis. The company has a high share of variable costs and a low contribution margin, and therefore generating high gross profit is essential. Based on an analysis of quarterly results for the Marketing segment (starting from Q1 FY08/18) using the total cost method (total cost = revenue - segment profit), we can infer a variable cost ratio of 94.1% and a marginal profit ratio of 3.4% (these metrics are difficult to calculate in the Finance segment due to the presence of variables such as the booking of cryptocurrency, and the presentation of total and net amounts recognized as revenue).

Finance segment (73.0% of gross profit in FY12/20)

Payment services

Online payment services

Metaps provides a range of payment services such as online credit card payments, convenience store payments, Pay-easy (which allows payments to be made through ATMs), electronic money systems, and telecom carriers payments. According to the company, online payment services account for roughly 40% of payment services revenue (revenue figures broken down by payment service are not disclosed).

Service fees differ by payment method, but the company collects an initial registration fee and monthly fees from affiliated merchants such as e-commerce operators. Initial registration fees include systems fees to settle the payment and screening fees for credit card companies and convenience store operators, and they are charged when service is launched. The monthly fees mainly cover fixed monthly expenses, processing fees, and transfer fees. In the case of credit card payments, the company’s earnings can be calculated by multiplying the total transaction volume by a service fee of 3.24%. The total transaction volume of the company’s payment services amounts to several hundred billion yen.

Credit card payments: Metaps provides comprehensive support for credit card payments used on application or e-commerce websites. It supports five major credit card networks (Visa, Mastercard, JCB, AMERICAN EXPRESS, and Diners Club) as well as credit cards issued by a wide range of domestic issuers. The company provides secure payment environments compliant with international standards.

Pay-easy payments: Similar to convenience store payments, Pay-easy allows consumers to request a payment number when applying to purchase products or services. Using this number, they can make a payment via ATMs or online banking services of financial institutions such as regular banks, Japan post bank, or shinkin banks. Unlike traditional bank transfers, Pay-easy payments can be confirmed by the receiving party on the day of the transaction, regardless of whether the payment was made on a business day, weekend, or holiday.
Telecom carrier payments: A simple payment method that allows consumers to pay for services and products on websites by entering a code on a telecom carrier’s smartphone (DoCoMo, au, SoftBank, etc.). Telecom carrier payments also support subscription and one-click payments.
Electronic money payments: The company provides electronic payment services with support for electronic money systems such as C-CHECK and Rakuten Edy. Because electronic payments use prepaid funds, they prevent overspending and provide peace of mind to consumers.

Physical store payment services

Metaps provides credit card terminals to affiliated merchants. These terminals are used to process in-store payments by consumers, providing comprehensive support for a range of payments, including electronic money payments and foreign-currency credit card transactions. As a rule, the company provides these terminals for a fee (pricing details are not disclosed).

Real estate related payment services

The company provides payment services that enhance business efficiency for real estate companies. BeesRent is an app that streamlines the process from applying for a rental property to making rent payments. The app facilitates payments of monthly rent to rental property owners (either withdrawn from bank accounts or charged to credit cards). It allows tenants to complete registration for payment methods online, leading to a decrease in administrative errors (which tend to occur more frequently when accepting paper-based applications) and a reduction in postal fees. These benefits enhance business efficiency for real estate management companies.

Customized payment services

Metaps also develops customized payment systems for affiliated merchants. For example, JTB Tokyo Metropolitan Corporation, a travel services provider that operates 170 travel branches in the Tokyo metropolitan region, only accepted in-store payments and bank transfers in the past. Metaps developed a customized payment system for the company that offered customers the choice between online credit card payments, convenience store payments, and Pay-easy payments made through ATMs. This enabled the company to accept payments round the clock and from any location, reducing waiting lines in JTB branches. Other companies and organizations that have adopted customized payment solutions from Metaps include Nippon Life Insurance Company, Nippon Gas Co., Ltd., Yotsuya Otsuka Inc., Central Community Chest of Japan, the Institute of Jitsumu Ginou Kentei (proficiency test for secretarial skills), and Excel Air Service Inc.

Package solutions (packaged payment services)

The entry of new players such as PayPay and LINE Pay into the cashless payment space has put downward pressure on service fees. In response, Metaps has developed package payment solutions that help enhance business efficiency, thus providing value-added beyond payment services.

Kaihi Pay

Kaihi Pay is a payment and customer management service for businesses or organizations that offer flat-rate services. It mainly targets operators of membership services such as various lesson providers (25% of customers as of end-March 2020), gyms (14%), online services (9%), medical services (7%), online community sites (7%), associations and academic societies (7%), beauty salons (6%), and coworking spaces (6%).

By adopting Kaihi Pay, businesses can automate online operations such as 1) membership applications, 2) payment details registration, 3) registration of members in member management database, 4) monthly payment collection, and 5) payment reminders. This in turn frees up resources that can be redirected to core operations. Kaihi Pay automates peripheral administrative tasks that have traditionally been conducted manually using paper documents such as processing applications, registering bank details using automatic bank withdrawal request forms, entering application data into customer management systems, uploading monthly invoice data, and sending reminders for outstanding payments.

Kaihi Pay is a one-stop payment solution that automates peripheral administrative tasks such as membership application, member management, and monthly payment collection. While Metaps has offered specialized payment solutions previously, Kaihi Pay is its first service package to comprehensively cover these peripheral tasks. Within the first two years of operation (April 2018 to March 2020), Metaps signed up over 1,500 businesses for the service, and that figure exceeded 2,000 as of June 2020.

Businesses that adopt Kaihi Pay do not have to pay initial fees or monthly fees. They are charged two system usage fees: the first (a) corresponds to 3.5% of the payment amount and the second (b) is a flat JPY100 fee per payment processed.

System usage fee (a): This includes the payment service fee (no separate payment service fee is charged). It corresponds to 3.5% of the amount obtained by subtracting system usage fee (b) from the payment amount.
System usage fee (b): This is a flat fee charged per successfully processed payment. It is paid by the service user (business operator) as a service usage fee, but can be passed on in full or in part to customers or members as an additional sales charge on purchases.
Other fees: When a service user registers a bank account or changes a registered bank account, a fee of JPY500 (excl. tax) is charged. Service users are also charged a transfer fee of JPY300 (excl. tax) for money transfers.

Kaihi Pay: Comparison with rival companies

		Kaihi Pay	Competitor A	Competitor B	Competitor C
Payment	Credit card	✔	✔	✔	✔
	Online account-to-account transfer	✔	-	-	-
	Convenience store	✔	-	✔	-
System	Application form	✔	-	-	✔
	Customer management	✔	✔	✔	✔
	Invoice management	✔	✔	✔	✔
	Email distribution	✔	✔	-	✔
	Booking system	-	-	-	✔
Screening	Screening	3 business days	2 weeks	5 business days	Same day
Fee	Initial	JPY0	JPY0	Quoted separately	JPY0
	Monthly	JPY0	JPY0	Quoted separately	JPY0–30,000
	Commission	3.5%	5%	2.65–4.00％	4.90%

Source: Shared Research based on company data

Metaps continues to improve the convenience of the service by adding new functionality through integration with other services such as freee (accounting software) and Akerun (system that manages physical access to offices). As a result, users are growing steadily.

Event Pay

Event Pay is a software similar in concept to Kaihi Pay. It allows for centralized management of event-related tasks ranging from accepting event/seminar applications (automatic generation of application forms, batch event registration, calendar function, waiting list function, etc.) to collecting payments and managing participants (generation of participant lists, management of payment status, email distribution, and management of telephone applications). The service integrates with Zoom, and can automatically send out online meeting and webinar URLs to event participants.

Event Pay: Comparison with rival companies

		Event Pay	Competitor A	Competitor B
Fee	Initial	JPY0	JPY0	JPY0
	Monthly	JPY0	JPY0	JPY19,980
	System usage	3.5%	5.0%	4.9％+JPY99
Basic feature	Credit card	✔	✔	✔
	Convenience store	✔	✔	✔
	Pay-easy	✔	✔	✔
	Refund for cancellation	✔	✔	✔
Payment feature	Credit card	✔	✔	✔
	Convenience store	✔	✔	-
	Pay-easy	✔	-	-
	Refund for cancellation	✔	✔	✔
Additional feature	Loyalty mileage points	Not required	Required	Required
	Member app	Not required	Required	Required
	Reminder	✔	✔	✔
	Invoice	✔	-	✔
	Polling	✔	✔	✔
	Calendar	✔	-	✔
	Seat reservation	-	✔	-
	ZOOM	✔	-	✓ (paid)

Source: Shared Research based on company data

Ticket Pay

Ticket Pay is a ticket sales system that allows event organizers to accept reservations and sell tickets for events such as movie showings, concerts, theater showings, and sports events. Metaps books service fees on ticket sales as revenue. Ticket Pay also provides functions such as lottery-based sales and automatic seat allocation, and gives event organizers access to all applicant data. It can be used for a wide range of events regardless of scale (from individually organized events to those held at large stadiums) and across various genres (from music to sports and public talks). It can be used in a wide range of settings, from online event administration to ticket sales and collections of donations during live streams. Tickets can be collected at FamilyMart branches across Japan (roughly 16,600 stores).

Ticket Pay: Comparison with rival companies

	Ticket Pay	Competitor C	Competitor E
Seat type	Reserved/non-reserved	Non-reserved	Reserved/non-reserved
Initial contract fee	JPY0	JPY0–5,000	From JPY10,000
Event registration (per event)	JPY0	JPY0–5,000	JPY10,000
Ticket sales commission	5.5%	8–10%	10–12%
Cost for paper	JPY0	JPY10	JPY10.0–16.2
Days from application to ticketing	Same day	2–6 business days	8 business days
Feature	Ordinary/lottery-based sales	Ordinary/lottery-based sales	Ordinary/lottery-based sales
	Reference number/non-reserved seats	Reference number/non-reserved seats	Reference number/non-reserved seats
	Reserved seat		Reserved seat
	Seat selection		Seat selection
	Member-only sales

Source: Shared Research based on company data

pring

pring is a remittance service operated by equity-method affiliate pring Inc. It was founded as M Wallet Preparation Company Inc. in 2017 by Metaps, Mizuho Financial Group, Mizuho Bank, and WiL. In November 2018, pring raised JPY1.3bn from Nippon Gas and SBI Investment, and this reduced Metaps’ stake from 60.5% to 45.3%, making pring an equity-method affiliate.

pring’s main offering is a monetary communication app that enables remittances between individuals or between companies and individuals. The cumulative remittance value for the app reached JPY3.0bn in May 2019. The app provides an easy-to-use interface and does not charge remittance fees, offering benefits over traditional individual-to-individual remittance services. Funds stored in the app can be used to make payments at retail stores that support Smart Codes, such as Lawson and Yamada Denki branches. Users who wish to take out cash from their app can do so from their bank account or from Seven Bank ATMs without any charges.

The app also provides a platform through which consumers can make small donations to sports teams or influencers as a means to show their support. The donation service has seen rapid growth in users since audience-attended sports events and other events were suspended due to the COVID-19 pandemic. In its corporate business, pring provides “business pring,” a service that facilitates remittances between companies and individuals. The service allows companies to sharply reduce remittance fees, and is used to reimburse expenses incurred by employees and provide remuneration to contractors.

Smart Code: A QR code and barcode payment system provide by JCB. Participating merchants can process code-based payment methods for all payment settlement companies that support Smart Codes.

pring service monetization

Business	Description	Monetization	Fees	Adoption by companies
Corporate business	Bulk remittances from companies to individuals. Used to reimburse transportation costs, etc.	Remittance fees, in-app advertising sales	JPY100 per remittance	Nippon Gas: Uses the service to pay for work outsourced to gas meter readers, and to reimburse expenses to employees
Money SNS business	Platform to make donations to influencers, sports teams, etc.	Donation fees	10% of remittance amount	Soccer clubs such as Gamba Osaka, Kawasaki Frontale, Urawa Red Diamonds, and Sanfrecce Hiroshima
Payment business	Payment service based on QR codes.	Payment service costs	1% of payment amount	Retailers that support Smart Codes (such as Yamada Denki and Lawson), FamilyMart
ASP business	Provision of payment systems used internally by companies, such as Yakult Pay.	OEM development	From several million yen to several hundred million yen	Yakult Pay (Yakult)

Source: Shared Research based on pring IR materials and website

Real-time salary payment service

CRIA

CRIA is a real-time salary payment service that allows employees to collect salary for work performed in real time. It is monetized by charging users (employees) a service fee. Metaps advances the salary and offsets advanced amounts at the end of the month. It says the service is used by 20% of the employees of companies that have adopted the service, with an average monthly usage frequency of 1.5x. Earnings from the service are calculated as: Monthly revenue = Number of employees x Usage rate x Average monthly usage frequency x JPY550. Companies that adopt the service do not incur any charges or expenses, and can leverage it as an employee benefit service to boost job applications and staff retention.

CRIA transaction structure

Source: Shared Research based on company materials

The benefits of CRIA to employees are manifold: 1) easy registration and application, 2) same-day access to salary, 3) round-the-clock and year-round support system, and 4) multilingual support. The service is also available to foreign nationals. Because the funds issued through CRIA are not loans, employees can easily sign up through an app and request to have salary paid out without having to undergo any type of screening. Requested funds can in principle be received in cash round-the-clock all year long, giving employees a way to cover unexpected expenses.

The benefits to companies are 1) a higher number of job applicants, 2) improved staff retention, 3) expanded employee benefits, and 4) zero additional costs because the funds are advanced by Metaps. Companies that have adopted the service can offer daily and weekly salary payment schemes, which can be promoted in recruiting conditions for part-time and full-time staff and increase job applications. Metaps says CRIA can also help boost employee motivation and reduce staff turnover. The service enhances employee benefits at no additional costs to companies. Consequently, it removes the need for companies to prepare funds or set up special accounts—which could potentially strain cashflow—to accomplish the same service.

Marketing segment (25.7% of gross profit in FY12/20)

Data feed business

Data feed services organize the product data (product name, category, code, price, inventory status, etc.) of a company into formats suitable for marketing platforms, and distribute the optimized data to such platforms. The company provides a data feed service that automatically reformats customer product data as listing ads for Google Shopping, affiliate ads, and targeted ads for Criteo, as well as for price-comparison websites and other marketing platforms.

Customer companies benefit from a data feed service because the automation of data reformatting allows them to get their ads served on a larger number of platforms. Maintaining large amounts of data manually is a costly process. A data feed service not only reduces data conversion work but also increases the number of marketing platforms ads can be served. Data feeds are essential for dynamic advertising (automated display of personalized ads based on consumers’ product browsing history on advertiser website).

Former Become Japan Corporation: Become was launched in 2005 as the management company for Japan’s largest product search website at the time. As customers (advertisers) increasingly leveraged data feeds to serve ads through advertising media companies such as Criteo and Google from around 2011, Become launched the Become Feed Platform (BFP), Japan’s first data feed platform, in 2012. BFP optimizes companies’ product data for services such as Google Shopping and Criteo, and automatically uploads the converted data to such platforms. It creates product data for companies in various industries ranging from e-commerce to staffing and real estate. BFP serves dynamic ads based on data feeds, including through its own Become.co.jp website, and uses related expertise to further optimize data feed operations. Over 200 companies have adopted BFP. The platform is available in two plans: standard (outsourced) and self-managed (independent operation of data generation through a dedicated management screen).

Internet advertising business (advertising agency and management services)

In the internet advertising business, Metaps handles display, video, listing, pure, and affiliate advertising. It excels in services for the data feed advertising market. It is the only data feed vendor to be recognized as a Two Star Criteo Certified Partner in Japan. The company has engaged in data feed advertising since Criteo expanded into the Japanese market. It manages advertising budgets on behalf of customers, and distributes ads through the optimal advertising media. It acts as an agent for several such media, including Criteo. Its primary customers are e-commerce customers of Become.co.jp, the product search website operated by the company’s media business. Metaps adopts two approaches toward ad management. It supports the acquisition of customers through product search services by optimizing data feeds, and targets users in the lower stage of the marketing funnel (those with apparent willingness to buy) through retargeting ads. GPM is roughly 15%, and OPM is 3–4%.

X-aid

X-aid is a system that measures the effectiveness of online advertising. It links up with other systems such as major ad networks, demand-side platforms (DSP), affiliate service providers (ASP), and listing ad platforms. It allows users to gauge ad effectiveness in a single management screen, and can therefore support ad management that optimizes ad effectiveness. It is equipped with a range of essential features such as in-depth ad campaign management across ad types, sophisticated data aggregation reports, and support for landing page optimization (LPO).

rossi

rossi is a screening tool that ensures product images to be used in dynamic ads comply with the posting standards of advertising media, ad networks, or DSPs. It uses AI-powered diagnostic imaging technology to streamline the distribution of dynamic ads. Using traditional methods, removing products that are not suitable for dynamic ads from massive data feeds involves visually inspecting and assessing each image. This is a time-consuming and expensive process that slows down ad distribution. For example, visually scanning 200,000 ad images or products would take a minimum of 200 hours, with the time increasing further depending on the complexity of the work.

Marketing solutions business

In the Marketing solutions business, Metaps provides the following services.

Marketing consulting and planning

Strategic proposals to resolve marketing challenges, market and competitor-related research, and corresponding execution and management

Consulting aimed at transforming and improving marketing through IT

Web and system solutions

Website development and recovery; support for/implementation of customer expansion strategies

Planning and production of owned media

Planning, production, and implementation of content

Introduction and management of marketing; support for building data integration mechanisms

Introduction of databases and infrastructure (data management platforms [DMP], marketing dashboards, etc.)

Sales support solutions and platform development

Introduction of customer relationship management (CRM) systems

Support for digitalization

Development of/support for new businesses powered by IT

Support for business optimization and automation to drive sales growth through digital solutions

Media businesses

Product search website Become.co.jp

In the media businesses, the company operates the Become.co.jp product search website, and it develops and operates smartphone apps such as miel. Become.co.jp offers a service that redirects site users to e-commerce advertisers. The site handles over JPY20.0bn in transactions annually for over 1,300 companies. It aims to increase search hits by optimizing product titles and descriptions in its data feed, and also provides various filters that facilitate product comparisons. Once users click on a product of interest, they are redirected to the e-commerce page from where a purchase can be made immediately. The user base is skewed toward women in their 20s to 40s, which is the optimal demographic for the product categories such as clothing, interior goods, and recreational sports.

Other business (DX support business)

Metaps Analytics

Metaps Analytics is an analytics tool for app developers, who naturally have a keen interest in app monetization. The equation below illustrates how apps are monetized. To maximize revenue growth, app developers need to visualize KPI’s from both a marketing and product perspective, and there must be a shared recognition of challenges on both sides of the spectrum. Because factors such as retention rate and usage frequency involve both the marketing and product areas, PDCA cycles for resolving problems do not always work. The key considerations with regard to improving retention and usage frequency are 1) how to attract users to the app that are likely to become active users, and 2) how to increase exposure to the app to boost retention rates and prevent inactivity. Metaps Analytics provides marketing strategies focused on user acquisition or user retention.

Basic revenue structure of app

Source: Shared Research based on company data
Notes: DAU refers to daily active users. ARPPU refers to average revenue per paid user

With Metaps Analytics, companies can measure ad effectiveness (return on investment) for their online advertising campaigns, and easily assess performance for various advertising media on a single management screen. In addition, the tool offers functions such as data analysis, push notifications, and in-app measures, making it an effective solution for smartphone app developers. It allows users to create various type of reports and comes with an intuitive dashboard. Metaps says the tool is ideal for first-time app developers/operators or app analytics users. The tool has been adopted by over 200 companies in a broad range of industries. Examples of customers include Pokémon Company, Daiei, Sofmap, and Stripe International.

Difference with Google Analytics and other products

While Google Analytics and comparable solutions offered by other companies only offer minimal ad tracking functionality, Metaps Analytics allows companies to perform in-depth analysis. For example, companies can analyze how many and what type of users are engaging with their app on the 15th day after install. By analyzing user segments in this way, they can target push notifications and other ads.

Equipped with essential marketing features

The user behavior analysis function built into Metaps Analytics leverage fundamental and app-specific KPIs to discover triggers for user abandonment. This is an important feature that informs basic app management and thus helps prolong user engagement over the long term. Measuring ad effectiveness by visualizing ROI and user behavior in response to advertising campaigns allows companies to identify ineffective campaigns and optimize their investment decisions over the long term. Metaps Analytics can also determine benchmark apps (rival apps that can serve as a reference for comparison) based on data sourced from the iOS and Android app stores, as well as analyze user reviews.

Range of paid versions

The company provides a range of paid-for optional services such as a personalized data management platform (DMP) for data accumulation, and support for customized push notifications sent to users who have been mostly inactive. Metaps Analytics can also display popup messages inside apps to assist users and prevent them from losing interest in an app, thus reducing app abandonment rates.

Strategic business alliance with Kochava

In April 2017, Metaps entered into a strategic business alliance with Kochava Inc. to collaborate on the development of domestic businesses and technology integration. Kochava had previously served as an ad tracking partner for Metaps Analytics. Its services have been adopted by many ad effectiveness measurement tools, including AppsFlyer and adjust.

AppsFlyer: An ad effectiveness measurement tool operated by an Israeli company. The tool has been adopted by over 12,000 companies in the world, and has a global share of 72%. AppsFlyer complies with various international standards and is designed with security at the forefront. As a result, it has gained traction with industry-leading companies such as Coca Cola, Recruit, and Visa.
Adjust: A Germany-based industry leader in mobile marketing measurement and ad fraud prevention technologies. Its solutions have been adopted by over 600 leading publishers in Germany and are used in over 40,000 apps worldwide, including apps published by global brands such as Procter & Gamble and Tencent Games. Adjust offers ad fraud prevention features such as SDK spoofing (fraudulent simulation of installs and user engagement) without additional costs. Its solutions have also been adopted by leading Japanese companies such as Rakuten, Recruit, Gunosy, LINE, and Mercari.

Price plans

The company collects transaction fees based on the number of monthly active users.

Metaps Analytics price plans (monthly subscription)

Analytics
	Basic Plan	Advance Plan	Enterprise Plan
MAU	0–300,000	300,001–1,000,000	1,000,001 or more
Transaction price	JPY100,000	JPY300,000	JPY500,000

Attribution
	Ad-Basic Plan	Ad-Advance Plan	Ad-Enterprise Plan
Ad-Clicks (price per click)	JPY0.2	JPY0.15	JPY0.1
Ad-install (price per click)	JPY0.2	JPY0.15	JPY0.1
No. of free attributions	-	400,000	1,200,000
Price	-	JPY50,000	JPY150,000

Source: Shared Research based on company data

Metaps Bridge

Metaps Bridge is a data platform that helps fuel growth for consumer apps. While Metaps Analytics measures ad effectiveness, Metaps Bridge concentrates on user analysis. Through app analysis, it allows companies to obtain in-app event data and other useful data that contribute to a deeper understanding of users. In addition to performing data analysis, it leverages the results of such analysis to propose and implement measures necessary to drive app growth. Metaps Bridge helps app developers resolve problems by supporting the design of in-app marketing (such as push notifications based on in-app user behavior), supporting optimization of online advertising budgets through data analysis, and implementing measures to reverse inactivity informed by user data.

Metaps Bridge enables integration, visualization, and utilization of various data related to mobile apps. It integrates various user data such as marketing data, in-app behavior, and membership information, and offers an environment to utilize the integrated data in app analysis and when serving ads. It can also visualize data for subscription-type apps, which has long been a challenge. Smartphone app developers can harness the data acquired through Metaps Bridge to drive growth for their apps.

SaaS business

Metaps Cloud

Overview

The company officially launched its proprietary DX-support tool Metaps Cloud—a platform designed for centralized management of various SaaS within a company’s IT portfolio—on March 30, 2021.

Metaps Cloud enables centralized management of SaaS usage conditions, cost analysis, and security. Companies are grappling with an increase in SaaS used in their businesses, and ascertaining usage conditions has become a challenge. Meanwhile, the rise of telework, which accompanies increased external access to corporate data, has expanded demand for secure access environments. Another problem faced by many companies is the time required to configure SaaS access privileges whenever new employees join the company or existing employees leave.

Metaps Cloud aims to resolve such problems by focusing on visualization, security, and efficiency. In terms of visibility, the platform summarizes information such as SaaS login conditions and costs per organizational unit and employee in a central dashboard. This allows customers to pinpoint SaaS with an excessive number of accounts and scope for cost reductions. On the security front, Metaps Cloud allows companies to manage SaaS access through single sign-on (SSO) system, and configure access privileges for individual employees or terminals. It provides a secure environment for accessing data, which is also convenient for teleworking. Turning to efficiency, Metaps Cloud is equipped with a management screen from where accounts for new or leaving employees can be added or deleted. It enhances business efficiency for IT and management departments through centralized management.

Earnings for Metaps Cloud are calculated as: Number of users (Number of companies x Number of employees per company) x ARPU x (1 - Churn rate). It expects the churn rate for the service to be lower than for ordinary SaaS due to the high expenses associated with switching to a competing service.

Medium-term objectives for SaaS business

Metaps is accumulating data on SaaS contract conditions and utilization at its customers, and building a database of individuals and companies. The objective is to use these data to help match companies to optimal SaaS solutions (recommend optimal SaaS solutions, propose proprietary and third-party SaaS services, and propose financial products) and accordingly optimize SaaS adoption. Over the medium term, the company says it aims to conclude comprehensive agency agreements with SaaS providers to offer support ranging from contract signing to payment processing. It expects such agreements to generate additional recurring revenue. Metaps sees scope to diversify into data bank and other operations by having customers route their SaaS payments through its own payment services.

Long-term objectives for SaaS business

Over the long term, the company aims to integrate all SaaS used by companies into Metaps Cloud, and achieve a fully automated workflow. For example, it envisions a future in which the procedures required when employees join or leave a company can be fully automated once the initial employment contract is signed. In other words, the entire workflow from the initial hiring stage (e.g., employment contract, procedure for entering the company, and registration for SaaS of affiliated division) to the procedure to exit the company would be automated, thus eliminating manual labor for IT department in particular.

KUMONO UCYUSEN (Metaps stake: 25%)

KUMONO UCYUSEN is an equity-method affiliate of Metaps that was originally established as a joint venture by a consortium of companies led by the Nippon Gas group to provide business optimization systems for energy companies. KUMONO UCYUSEN entered into a capital alliance with Metaps in 2016, hoping to benefit from the latter’s insights in data analysis and business automation. At present, the major shareholders of KUMONO UCYUSEN are Nippon Gas group (stake of 55.2%), Metaps (25.0%), KDDI Corporation (9.9%), and Hitachi Capital Corporation (9.9%).

KUMONO UCYUSEN provides an eponymous business optimization system for the energy industry. It conducts all operations through cloud computing using smartphones and other mobile terminals. It sharply increases efficiency of business and logistics operations when used in combination with logistics facilities and equipment, for which Nippon Gas provides the expertise.

Progress with electricity and gas liberalization in the energy industry has created demand for cost optimization as companies seek to remain price competitive. Against this backdrop, Nippon Gas started developing a cloud-based IT solution package to supply electricity and city gas, and this ultimately led to the creation of the Kumono Ucyusen system.

re:shine

In accordance with the “Action Plan for the Realization of Work Style Reform” (approved by the Council for the Realization of Work Style Reform in March 2017), the Ministry of Health, Labor and Welfare is promoting workers to pursue side jobs or businesses. However, many freelancers still believe their income is low or unstable (according to the results of the Survey on Freelancer Conditions conducted by the Japan Economic Revitalization Bureau of the Cabinet Secretariat in May 2020), revealing a major discrepancy between government policy and the reality on the ground.

In September 2019, Metaps launched re:shine, a freelancer matching service and freelance-type regular employee system that provides mechanisms and services to bridge the aforementioned gap. The business aims to develop environments that allow individuals to work in their preferred style while at the same time supporting stable income and social credibility (both of which can be a challenge for freelancers) and providing a retirement benefit plan eligible for tax incentives.

The application requirements for the freelance-type regular employee system are 1) a certain track record in completing projects through re:shine services, 2) a track record as a freelancer and proof of such work, and 3) a skillset that has a strong affinity with the operations of Metaps. Individuals who pass Metaps’ screening can enter into a regular employment agreement governed by its Special Professional Work Regulations.

In terms of monetization, once a project requested by an ordering party to a freelancer is completed through re:shine, the ordering party pays the agreed wages directly and in full to the freelancer, and a fee equivalent to 5% of the total wages to re:shine.

From the perspective of the ordering party, a fee of 5% is more attractive than the 30% charged by most recruitment agents. In addition, recruitment agents often charge fees on a year’s worth of wages, whereas re:shine only collects fees on a monthly basis for the duration of the project.

Differences between working as a freelancer and as a freelance-type regular employee

	Freelancer	Freelance-type regular employee
Sales activities	Need to be conducted independently	Same as on left + support from re:shine
Contract	Contract details and risks need to be ascertained independently	Same as on left + legal check by re:shine
Business-related consultations	Acquaintances and customers	Same as on left + re:shine registered members
Invoices	Need to be issued and sent independently	Same as on left + issued and sent by re:shine
Confirmation of payment	Needs to be conducted independently	Handled by re:shine, which pays out invoices as a salary. If the worker in question does not earn wages from secondary businesses, he/she does not need to submit a final tax return.
Withholding tax slips / payment records	Request payment records at the end of the year from companies that have withheld taxes on invoiced amounts, and verify that the amounts on the payment records match the amounts received
Final tax return	Needs to be prepared and submitted independently based on payment records and other documentation
Insurance, etc.	Enroll in National Health Insurance and National Pension at own expense	Can enroll in social insurance, splitting the cost burden with re:shine and resulting in better insurance and pension coverage

Source: Shared Research based on company data

Market and value chain

Market size

Digital transformation market

Approaching “2025 Digital Cliff” and digital transformation

In its “Report on Digital Transformation (DX)” published in September 2018 (“the DX Report”), METI warned that delays in upgrading existing IT systems in Japan are hampering digital transformation, a phenomenon it referred to as “2025 Digital Cliff.” This outlook was partly based on the fact that SAP, the leading enterprise resource planning (ERP) provider, had announced its plan to end the maintenance support for its previous core system (SAP ERP) in 2025 (SAP subsequently extended the support deadline until 2027). In the report, METI estimates that by 2025, 60% of all core systems used by companies in Japan will have been in operation for over 21 years. It points out that these systems will need to be upgraded, and that companies that fall behind in such efforts may lose significant business opportunities. The report also estimates that failure to overcome the 2025 Digital Cliff could lead to economic losses of as much as JPY12tn from 2025 to 2030. Conversely, scrapping or upgrading existing IT systems by 2025 could drive up real GDP to over JPY130tn by 2030.

Cloud service market

According to the White Paper on Information and Communications in Japan (2019), 33.1% of Japanese companies say they are making use of cloud services company-wide. The figure climbs to 58.7% if including companies reporting that they use cloud services in some offices and departments, and usage continues to increase every year. This expansion is also driving up demand for public cloud services such as software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS).
Research by IDC Japan found that the market for public cloud services grew 31.2% YoY to JPY877.8bn in FY2019, and looks for a further expansion to JPY2,064.4bn in FY2024, reflecting a CAGR of 18.7% from FY2019 to FY2024.

Size of public cloud service market

Cloud service market in Japan	2018	2019	2020	2021	2022	2023	2024	2019–2024
(JPYbn)	Act.	Act.	Forecast	Forecast	Forecast	Forecast	Forecast	CAGR
Public (SaaS, IaaS, PaaS)	669	878	1,042	1,236	1,467	1,742	2,064	18.7%

Source: Shared Research based on Japan Public IT Cloud Services Forecast (IDC Japan)

Target markets for Metaps Cloud

Metaps Cloud operates in the identity as a service (IDaaS), single sign-on (SSO), and cloud security markets, all of which are expanding globally. In Japan, these three markets are expected to expand to JPY7.7bn, JPY31.5bn, and JPY75.0bn, respectively, by 2025.

Size and projected growth for SaaS, IDaaS, SSO, and cloud security markets

		2019	2020	2021	2022	2023	2024	2025	CAGR
SaaS
	Global (USDmn)	930	1,066	1,204	1,360	1,536	1,735	1,959	13.2%
	Japan (JPYmn)	723,800	807,200	890,600	974,000	1,057,400	1,147,900	1,246,200	9.5%
IDaaS
	Global (USDmn)	2,500	3,300	4,100	4,900	5,700	6,500	7,412	19.9%
	Japan (JPYmn)	2,900	3,700	4,600	5,300	6,000	6,800	7,700	17.7%
SSO
	Global (USDmn)	1,147	1,343	1,539	1,736	1,932	2,128	2,325	12.5%
	Japan (JPYmn)	14,600	17,000	19,500	22,000	24,800	27,900	31,500	13.7%
Cloud security
	Global (USDmn)	29,350	30,600	31,850	33,100	34,350	35,600	36,895	3.9%
	Japan (JPYmn)	34,300	40,200	46,200	52,100	58,800	66,400	75,000	13.9%

Source: Shared research based on company data (original sources: global SaaS data from HIS Technology, domestic SaaS data from Fuji Chimera Research Institute, global IDaaS data from MarketsandMarkets, domestic IDaaS data from ITR Market’s “View Identity/Access Management Market 2020,” global SSO data from QY Research, domestic SSO and cloud security research from IDC Japan, and global cloud security data from Mordor Intelligence LLP).

Japanese market for cashless payments

Share of cashless payments

In June 2017, the third Abe Cabinet approved the growth strategy “Investments for the Future Strategy 2017—Reform to Realize Super Smart Society (Society 5.0),” which called for an increase in the share of cashless payments to about 40% by June 2027.
Cashless payments have continued to gain traction in part thanks to promotional measures implemented by METI, with the share rising from 18.2% in 2015 to 24.1% in 2018.

Share of cashless payments:
The share of cashless payments is calculated as: Total value of payments made through cashless modes (Electronic money + Debit and credit cards) / Household final consumption expenditure in Japan. In other words, the share of cashless payments made by consumers can be obtained by dividing the credit card, debit card, and electronic money payment data in the Redbook Statics [2017] published by the Bank for International Settlements (BIS), by the household final consumption expenditure data published by the World Bank (based on System of National Accounts [SNA]). Using BIS data also facilitates comparison with other countries. However, the numerator in our formula does not include 1) fund transfers between bank accounts, and 2) payments for data-based transactions involving virtual accounts (smartphone payments, etc.). One other problem is that electronic money solutions charged with credit cards result in double counting. In addition, the consumption value in the denominator of our formula is based on SNA definitions, which means it includes imputed rent and final consumption expenditure of private non-profit institutions serving households, both of which do not involve actual payment activity.

According to a household spending survey conducted by the Japan Credit Card Association (JCAA), cashless payments made up JPY120.2tn of the total JPY193.2tn in spending (total settlement amount) in 2019, leaving cash payments at JPY73.0tn (Objective Assessment of Consumption Conditions with a View toward Realization of Cashless Society survey report by JCAA and Nomura Research Institute, February 2020).

Cashless payments (JCAA definition): In the abovementioned survey report, cashless payments are defined as all payment methods other than cash (physical notes and coins). This includes payments by credit cards, electronic money, code payments, account-to-account transfers (used to transfer funds between the accounts of one person or for outside payments such as utility bills), and bank transfers.

Cash vs. cashless payments: estimated amounts and shares

Payment method			Amount (JPYtn)	% of total
Cashless			120.2	62.2%
	Credit card		57.7	29.9%
		Credit card (member)	51.6	26.7%
		Credit card (family member)	6.1	3.2%
	Debit card		0.2	0.1%
	Electronic money		7.5	3.9%
	QUICPay, iD (contactless)		0.6	0.3%
	QR code payments		1.0	0.5%
	Gift certificates, prepaid cards		1.7	0.9%
	Account-to-account transfer		41.4	21.4%
	Bank transfer		10.0	5.2%
Cash			73.0	37.8%
Total			193.2	100.0%

Source: Shared Research based on Objective Assessment of Consumption Conditions with a View toward Realization of Cashless Society survey report by JCAA and Nomura Research Institute, February 2020

Further growth potential for cashless payments estimated at a minimum of JPY41tn

The JCAA estimates cashless payments could entirely overtake cash payments, and under this scenario puts the additional growth potential for cashless payments at JPY73.0tn. It refers to this as the “broadly defined” growth potential for cashless payments. In addition, consumers who currently use cash and cashless payments for different purposes account for 40% of the total. JCAA estimates cash payments for consumers in this group at JPY41.2tn, and views this as the “narrowly defined” growth potential for cashless payments. If the “narrowly defined” growth potential is realized and JPY41.2tn is converted to cashless payments, the share of cashless payments based on the household spending survey would jump to 83% (JPY161tn).

People who switch intentionally between cash and cashless payments account for 40% of survey respondents: The JCAA survey report found that respondents could be divided into three groups based on their use of cash and/or cashless payments: 1) cash group: people who only use cash for regular purchases (36%), 2) cash & cashless group: people who use cash payments for regular purchases, and cashless payments only when shopping at specific stores or purchasing specific items (40%), and 3) cashless group: people who use cashless payments for regular purchases wherever possible (24%).

The “narrowly defined” growth potential for cashless payments of JPY41.2tn breaks down into 1) JPY37.9tn for in-store payments in supermarkets, drugstores, and convenience stores, 2) JPY1.3tn for e-commerce (goods and services), and 3) JPY1.9tn for periodic payments in settings other than stores, such as payments of utility bills, telecommunication fees, or insurance premiums.

Potential market for Kaihi Pay valued at JPY1.9tn

Kaihi Pay is a payment solution targeting consumers who pay monthly fees for various lessons or gym memberships. Such payments likely correspond to ad-hoc or periodic payments in the household budget, suggesting the JPY1.9tn market for periodic payments mentioned above (currently paid in cash) is the potential market for Kaihi Pay.

Potential market for CRIA

Based on a nationwide average annual income of JPY4.4mn, 50mn income earners, and a 20% usage rate for salary advance payments, we estimate the potential market for salary advance payments at roughly 10mn people. Assuming 10mn people use the service 18x per year (1.5x per month), we arrive at a potential market size of JPY99.0bn (fee of JPY550 x 18 x 10mn people).

Size of blockchain market

Blockchain-related market

METI has identified five major areas in which blockchain technology will drive social transformation and be applied to business. It estimates the technology will have an impact on a domestic market worth JPY67.0tn in the future (source: Summary of Report on Core Infrastructure for IT Adoption and Service Promotion in Japanese Economy “Survey on Domestic and Overseas Trends in Services that Use Blockchain Technology” by Information Economy Division of the Commerce and Information Policy Bureau at METI).

Below, we outline the five areas and provide specific examples and market sizes.
⑴Distribution of value, use of reward points, and development of platform infrastructure: regional currencies, electronic coupons, reward point services (JPY1.0tn)
⑵Decentralization of activities that attest to rights: land registration, electronic medical records, various other types of registration (JPY1.0tn)
⑶Elimination of idle assets and achievement of high-efficiency sharing: digital contents, ticket services, C2C auctions (JPY13.0tn)
⑷Realization of open, efficient, and reliable supply chain: Certification of authenticity for retail products, precious metals management, and artworks (JPY32.0tn)
⑸Realization of fully automated and optimized processes and transactions: wills, IoT, electricity services (JPY20.0tn)

Blockchain market

The Yano Research Institute estimates the domestic market for services using blockchain technology was worth JPY17.2bn in FY2019 (based on company revenue figures; the same applies below), and expects that figure to expand to JPY123.6bn in FY2022 (assuming five-year CAGR of 108.8% from FY2017–2022) driven by the forthcoming provision of Blockchain as a Service (BaaS) solutions.

Internet advertising market

The Japanese internet advertising market expanded 5.9% YoY to JPY2,229.0bn in FY2020, similar in scale to advertising spending via the four traditional media channels. Although the market felt the impact of the COVID-19 pandemic, e-commerce among other businesses remained strong throughout the year. Internet advertising expenditures (internet advertising expenditures excluding production costs and e-commerce platform ad expenditures for product sales) were up 5.6% YoY to JPY1,756.7bn. As people spent more time at home to avoid COVID-19, there was increased opportunity to use social networks, e-commerce, and video distribution services, resulting in greater demand for performance-based ads centered on major platform operators. The Yano Research Institute expects the Japanese internet advertising market to expand further to JPY2,800.0bn in FY2023.

Internet advertising spending and corresponding shares

			Advertising expenditures (JPYbn)			YoY		% of total
			2018	2019	2020	2019	2020	2018	2019	2020
Total advertising expenditures			6,530.0	6,938.1	6,159.4	6.2%	-11.2%	100.0%	100.0%	100.0%
Traditional media			2,702.6	2,609.4	2,253.6	-3.4%	-13.6%	41.4%	37.6%	36.6%
	Newspaper		478.4	454.7	368.8	-5.0%	-18.9%	7.3%	6.6%	6.0%
	Magazines		184.1	167.5	122.3	-9.0%	-27.0%	2.8%	2.4%	2.0%
	Radio		127.8	126.0	106.6	-1.4%	-15.4%	2.0%	1.8%	1.7%
	Television		1,912.3	1,861.2	1,655.9	-2.7%	-11.0%	29.3%	26.8%	26.9%
		Terrestrial TV	1,784.8	1,734.5	1,538.6	-2.8%	-11.3%	27.3%	25.0%	25.0%
		Satellite media	127.5	126.7	117.3	-0.6%	-7.4%	2.0%	1.8%	1.9%
Internet			1,758.9	2,104.8	2,229.0	19.7%	5.9%	26.9%	30.3%	36.2%
	Digital advertising carried by traditional media companies		58.2	71.5	80.3	22.9%	12.3%	0.9%	1.0%	1.3%
	Newspaper digital		13.2	14.6	17.3	10.6%	18.5%	0.2%	0.2%	0.3%
	Magazines digital		33.7	40.5	44.6	20.2%	10.1%	0.5%	0.6%	0.7%
	Radio digital		0.8	1.0	1.1	25.0%	10.0%	0.0%	0.0%	0.0%
	Television media digital		10.5	15.4	17.3	46.7%	12.3%	0.2%	0.2%	0.3%
		TV media-related movie ads	10.1	15.0	17.0	48.5%	13.3%	0.2%	0.2%	0.3%
	Merchandising-related EC platform advertising		-	106.4	132.1	-	24.2%	-	1.5%	2.1%
Promotion media			2,068.5	2,223.9	1,676.8	7.5%	-24.6%	31.7%	32.1%	27.2%
	Outdoor		319.9	321.9	271.5	0.6%	-15.7%	4.9%	4.6%	4.4%
	Transit		202.5	206.2	156.8	1.8%	-24.0%	3.1%	3.0%	2.5%
	Flyers		391.1	355.9	252.5	-9.0%	-29.1%	6.0%	5.1%	4.1%
	Direct mailing		367.8	364.2	329.0	-1.0%	-9.7%	5.6%	5.2%	5.3%
	Free newspaper, telephone directories		228.7	211.0	153.9	-7.7%	-27.1%	3.5%	3.0%	2.5%
	POP		200.0	197.0	165.8	-1.5%	-15.8%	3.1%	2.8%	2.7%
	Events, exhibitions, screen displays		358.5	567.7	347.3	58.4%	-38.8%	5.5%	8.2%	5.6%

Source: Shared Research based on Advertising Expenditures in Japan by Dentsu

Trends at competitors

Competition in payment processing services market

GMO Payment Gateway (TSE1: 3769)

GMO Payment Gateway operates the Payment Processing business that offers in-store and online payment services geared mainly toward the B2C market. In FY09/20, GMO Payment Gateway reported segment revenue of JPY23.0bn (+22.5% YoY) and segment profit of JPY11.6bn (+15.4% YoY) for the business. Segment revenue has expanded at a CAGR of 27.8% in the four years since 2016. GMO Payment Gateway is generating high profit margins thanks to economies of scale, with OPM at 50.3%. Its total transaction volume is around JPY4tn.

GMO Payment Gateway: Performance by segment

Segment sales		FY09/16	FY09/17	FY09/18	FY09/19	FY09/20
(JPYmn)		Act.	Act.	Act.	Act.	Act.
Payment Processing		8,632	11,914	14,801	18,812	23,038
	YoY	-	38.0%	24.2%	27.1%	22.5%
Money Service		2,243	5,802	6,255	7,478	9,416
	YoY	-	158.7%	7.8%	19.6%	25.9%
Payment Enhancement		1,239	4,079	5,361	633	602
	YoY	-	229.2%	31.4%	-88.2%	-4.9%
Adjustments		-212	0	0	0	-9
	YoY	-	-	-	-
Total		12,114	21,795	26,417	26,923	33,046
	YoY	-	79.9%	21.2%	1.9%	22.7%
Segment profit		FY09/16	FY09/17	FY09/18	FY09/19	FY09/20
(JPYmn)		Act.	Act.	Act.	Act.	Act.
Payment Processing		5,067	6,580	8,065	10,032	11,581
	YoY	-	29.9%	22.6%	24.4%	15.4%
	Segment profit margin	58.7%	55.2%	54.5%	53.3%	50.3%
Money Service		217	226	1,378	1,973	1,800
	YoY	-	4.1%	509.7%	43.1%	-8.8%
Payment Enhancement		159	508	-178	110	77
	YoY	-	219.5%	-	-	-
	Segment profit margin	12.9%	12.5%	-	-	12.9%
Adjustments		-1,624	-2,299	-2,714	-2,552	-3,070
	YoY	-	41.6%	18.1%	-
Total		3,820	5,015	6,551	9,563	10,389
	YoY	-	31.3%	30.6%	46.0%	8.6%
	Segment profit margin	31.5%	23.0%	24.8%	35.5%	31.4%

Source: Shared Research based on company data

GMO Payment Gateway also offers a range of fintech services such as deferred payment processing and transaction lending services in its Money Service business. In FY09/20, it reported segment revenue of JPY9.4bn (+25.9% YoY) and segment profit of JPY1.8bn (-8.8% YoY) for the business. While the revenue scale and margins in the Money Service business still lag the Payment Processing business, GMO Payment Gateway aims to grow the business into a new earnings pillar by responding to financial needs in the market. Other competitors in the payment services space are outlined in the table below.

Trends at competitors in the payment services space

Payment service market in Japan (JPYmn)	Transaction volume	Revenue	Operating profit	Market share	Service fee	Operating profit margin
GMO Payment Gateway	5,800,000	23,037	11,581	30.0%	0.4%	53.3%
SB Payment Service	3,536,100	16,074	6,900	18.3%	0.5%	42.9%
VeriTrans	2,100,000	16,044	1,935	10.8%	0.6%	12.1%
Payment service market overseas (USDmn)	Transaction volume	Revenue	Operating profit	Market share	Service fee	Operating profit margin
PayPal	712,000	17,772	2,719	-	2.5%	15.3%

Source: Shared Research based on company data
Note: Revenue and operating profit figures for GMO Payment Gateway reflect revenue and segment profit data for the company’s Payment Processing business.
Note: PayPal results reflect GAAP figures. On a non-GAAP accounting basis, operating profit was USD4.1bn and OPM 23%.
Note: Market shares are calculated based on B2C e-commerce market size (JPY19.4tn) reported in the E-Commerce Market Survey by METI.

Competition in IDaaS market

Hennge (TSE Mothers: 4475)

Hennge provides HENNGE One, a service that enhances security and login convenience by combining access management and ID integration functionality. Headquartered in Tokyo, the company employed 194 people as of FY09/20 (26 engineers, 48 sales representatives, and 39 customer success staff). It also operates branches in Osaka (established in 2015), Nagoya (2016), and Fukuoka (2018). Overseas, it has opened a branch in Taiwan.

In FY09/20, the company reported total revenue of JPY4.2bn (+21.2% YoY) and Hennge One revenue of JPY3.6bn (+24.1% YoY). Its revenue expanded at a CAGR of 25.4% from 2015 to 2020.

Hennge’s earnings are a function of the number of customer companies, the average number of users per company, and ARPU. Its customer base is growing, and stood at 1,667 companies at end-FY09/20. The number of users per company averages 1,000, and ARPU is JPY2,007 per year. The company excels in supporting customer success, which is apparent in its low monthly churn rate of 0.16%.

KPIs for Hennge One

Hennge KPI		FY09/18	FY09/19	FY09/20
		Act.	Act.	Act.
ARR (JPYmn)		2,552	3,240	3,909
	YoY	34.5%	27.0%	20.6%
Number of contracts (companies)		1,176	1,428	1,667
	YoY	26.7%	21.4%	16.7%
Number of users per contract		1,166	1,171	1,169
	YoY	5.3%	0.4%	-0.2%
ARPU (JPY)		1,861	1,938	2,007
	YoY	0.7%	4.1%	3.6%
Revenue per contract (JPYmn)		19.5	20.4	21.7
	YoY	6.1%	4.6%	6.3%
Average monthly churn rate (TTM)		0.2%	0.12%	0.16%
	YoY		-0.03pt	-0.04pt

Source: Shared Research based on company data

Okta (NASDAQ: OKTA)

Okta is a US-based company that pioneered the single sign-on (SSO) space. It was founded in San Francisco in 2009, and has continued to expand its operations, opening offices in San Jose, Bellevue, Toronto, Washington DC, London, Amsterdam, Sydney, Paris, and Stockholm. In September 2020, it established a subsidiary in Japan, paving the way for an expansion into the Japanese market. As of June 2020, it had a global workforce of 2,489 employees.

Okta reported FY01/21 revenue of USD835mn (+42.5% YoY). The company has reported successive operating losses due to upfront spending, but its revenue has expanded at a CAGR of 48.2% over the last three years. Subscription-based services account for over 95% of its revenue and have continued to grow at a CAGR of 49.9%.

The main factor driving earnings at Okta is its high ARPU, which is the result of a high annual increase in subscribers (CAGR of 32.0% over the last three years) and a high share of large customers (19.5%) among total subscribers. The company’s subscription revenue per client is JPY8mn after conversion to yen (assuming JPY100/USD), which is more than triple the JPY2.3mn for Hennge.

KPIs for Okta

Okta KPI		FY01/18	FY01/19	FY01/20	FY01/21
		Act.	Act.	Act.	Act.
Subscription revenue (USD'000)		236,422	370,855	552,688	796,613
	YoY	-	56.9%	49.0%	44.1%
Number of contracts (companies)		4,350	6,100	7,950	10,000
	YoY	-	40.2%	30.3%	25.8%
USD100'000 ACV)","orderIdx":1}]" class="translated-term">No. of large-lot clients (>USD100'000 ACV)		691	1,038	1,467	1,950
	% of total	15.9%	17.0%	18.5%	19.5%
Revenue per contract (JPYmn)		54.3	60.8	69.5	79.7
	YoY	-	11.9%	14.4%	14.6%
	Ref. JPY-basis (JPYmn; JPY100/USD)	5.4	6.1	7.0	8.0

Source: Shared Research based on company data

Performance at Okta (left) and Hennge (right)

Okta			FY01/18	FY01/19	FY01/20	FY01/21	Hennge			FY09/18	FY09/19	FY09/20
(USD'000)			Act.	Act.	Act.	Act.	(JPYmn)			Act.	Act.	Act.
Revenue			256,547	399,254	586,067	835,424	Revenue			2,835	3,427	4,153
	YoY		59.5%	55.6%	46.8%	42.5%		YoY		27.4%	20.9%	21.2%
	Subscription		236,422	370,855	552,688	796,613		Subscription		2,289	2,916	3,618
		YoY	63.2%	56.9%	49.0%	44.1%			YoY	-	27.4%	24.1%
		% of total	92.2%	92.9%	94.3%	95.4%			% of total	80.7%	85.1%	87.1%
	Professional services and others		20,125	28,399	33,379	38,811		Professional services and others		547	511	535
		YoY	26.6%	41.1%	17.5%	16.3%			YoY	-	-6.5%	4.7%
		% of total	7.8%	7.1%	5.7%	4.6%			% of total	19.3%	14.9%	12.9%
Cost of revenue			80,755	113,421	159,382	217,681	Cost of revenue			631	605	735
	YoY		-	40.5%	40.5%	36.6%		YoY		8.6%	-4.1%	21.5%
Gross profit			175,792	285,833	426,685	617,743	Gross profit			2,204	2,822	3,417
	YoY		214.2%	62.6%	49.3%	44.8%		YoY		77.8%	82.3%	21.1%
SG&A expenses			287,644	405,455	612,517	821,902	SG&A expenses			2,002	2,635	2,879
	YoY		-	65.6%	51.1%	34.2%		YoY		34.1%	31.6%	9.3%
	SG&A ratio		112.1%	101.6%	104.5%	98.4%		SG&A ratio		70.6%	76.9%	69.3%
Operating profit			-111,852	-119,622	-185,832	-204,159	Operating profit			202	187	539
	YoY		-	-	-	-		YoY		32.9%	-7.3%	187.7%
	Operating profit margin		-	-	-	-		Operating profit margin		7.1%	5.5%	13.0%

Source: Shared Research based on company data

Differences from competitors

Hennge and Okta offer SSO services as their core product with a focus on security. In contrast, Metaps places emphasis on the SaaS management aspect of Metaps Cloud in addition to security, thus providing tools for managers to reduce man hours. In this way, the value provided to customers by Metaps Cloud is different from that offered by its two competitors.

Strengths and weaknesses

Strengths

Attractive workplace for engineers thanks to adoption of latest development methods and technologies: Metaps does not employ the traditional software development approach (waterfall model that divides the development process into the stages of plan, design, implement, and test). Instead, it has adopted the agile development methodology. According to a survey on application development (AD) conducted by Gartner Japan (February 2019), only 15% of Japanese application developers have adopted the agile method. Globally, over 70% of companies have adopted agile development (Pulse of the Profession 2017, Project Management Institute, 2017). In this regard, Metaps’ progressive stance on development allows it to capitalize on the opportunities offered by the age of rapid SaaS adoption. The company has a track record of developing and releasing unique products in quick succession, including SPIKE (payment platform), Kaihi Pay (package payment solution for small recurring billing), and Metaps Cloud (Japan’s first centralized SaaS management tool). Its managers and engineers work closely together to pioneer new technologies such as blockchain. The company is increasingly attracting engineers with prior work experience at other industry frontrunners such as LINE and Mercari, which is further proof that its efforts to keep abreast of the latest development approaches and technologies are boosting its appeal among engineers.

Ability to serve niche markets with products that drive business efficiency and automation: In the B2B payment processing field, Metaps has rolled out package solutions such as Kaihi Pay and Event Pay. These services target markets where credit cards are not widely adopted because small amounts of payments are usually settled in cash. For instance, Kaihi Pay serves businesses that offer flat-rate membership services for under JPY5,000 to a customer base of around 30 people (members), such as gyms and cram schools. These markets are not pursued by major competitors because developing payment solutions for businesses with such small customer bases is not cost-effective. Kaihi Pay has managed to carve out a new market because it offers more than a payment solution, adding attractive tools to streamline cumbersome tasks for business operators. Although Metaps charges a relatively high service fee for Kaihi Pay (3.5% + JPY100, versus 3.0% for credit card payments), the user base continues to expand. This suggests that customers believe the service fee is reasonable in light of the additional benefits provided by the service, such as visualization of the user base, efficiency gains from a shift to paperless operations, and workflow automation. The company has also launched CRIA, a real-time salary payment service allowing employees to collect salary advances, which helps enhance employee benefits and reduce staff turnover.

Credibility as payment processing company built on technical prowess in online payment solutions: Advances in information technology have sparked an unbundling of financial functions and led to the emergence of specialized fintech companies. Traditional financial companies will need to partner with such companies to ensure their survival in the age of digital transformation. Payment services have historically been handled by licensed financial institutions such as banks because this is a field with zero tolerance for error from a consumer standpoint. Put differently, credibility is of paramount importance for payment services providers. In 2016, Metaps entered into a business alliance with Mizuho Financial Group and Mizuho Bank to provide new payment services. It has also partnered with Seven Bank to provide the real-time salary payment service CRIA, allowing employees to collect salary advances through Seven Bank’s network of 25,000 ATMs across Japan. Metaps was able to form these alliances with major banks thanks to 1) its broad expertise in leveraging the usage potential of smartphones, 2) its experience in IT-powered data analytics, and 3) its wide business network in Asia, where smartphones gained traction ahead of Japan. In sum, the company has built up credibility in the industry, which is difficult to accomplish in the fintech space.

Weaknesses

Overseas operations (which the company intends to exit or downsize in the future) are holding back earnings: Following an expansion under the previous management, Metaps has decided to scale down its consumer business (e.g., by removing pring Inc. from the scope of consolidation). It has also resolved to withdraw from or downsize its overseas operations. The company currently positions its domestic operations in the Finance segment as the core business, and intends to develop its centralized SaaS management service Metaps Cloud in the DX support business into a growth driver over the medium term. Metaps Cloud may reap early mover advantages in tandem with progress of digital transformation. However, the company’s earnings are strongly influenced by its overseas operations, which accounted for 44% of revenue in FY12/20. Consequently, the growth story of its domestic operations will likely remain obscured until the company fully exits its overseas businesses.

Yet to develop a system to fully utilize customer data to create synergies among businesses: Fintech companies such as household accounting app developer Money Forward (TSE Mothers: 3994) and cloud accounting solutions provider Freee (TSE Mothers: 4478) have expanded their businesses by utilizing the data of credit card companies. They have created systems where consumers and companies can freely access and utilize their data held by credit card companies. Under the previous management, Metaps also unveiled a “Datanomics Vision,” and aimed to create a business that collects and utilizes consumer payment processing data. However, without being involved in credit card issuer and acquirer operations, it is hard to collect useful consumer or transaction data. Acquirers possess data on store and sales attributes but lack information on consumer (member) attributes, and the reverse is true for issuers. Since Metaps is a payment solutions provider with no involvement in issuer or acquirer operations, there are limits on the data it can collect. In other words, unless the company issues credit cards while building platforms for affiliated merchants, giving it access to consumer and corporate data, it will remain unable to organically link such data to its existing businesses (Finance, Marketing, and DX support) and generate economies of scale or synergies. At present, it has no choice but to expand its track record in niche markets with products such as Kaihi Pay.

One-off sales of package solutions need to make way for a sales model that supports SaaS business through customer success initiatives: Metaps has entered the SaaS business with the launch of its DX support business. To generate a return on investment in this field, the company will need to lock in customers by heeding their feedback, frequently releasing new functions, and consistently offering quality services. Unlike conventional customer support that deals with metrics such as number of inquiries handled and customer satisfaction, the key to running a profitable SaaS business lies in being laser focused on revenue and the churn rate, and in implementing initiatives that lead customers to success. Because the Finance segment collects service fees on fixed monthly payments, it can technically be categorized as a recurring revenue business. In practice, however, the segment concentrates on one-off sales of package solutions that do not necessitate the type of customer communication that is a must for SaaS business. As a result, getting the SaaS business off the ground will require more than simply transferring sales staff and engineers from the Finance segment. Metaps will need to change its mindset from a focus on costs to the pursuit of profit, switch from passive to proactive initiatives, and increase its sales staff, engineers, and account managers. The company understands it has work to do in these areas and realizes it faces organizational challenges. However, the reality is that it will not be able to fulfill these requirements with existing staff of the Finance segment and DX support businesses, and will need to invest in personnel training and recruiting.

Historical results and financial statements

Income statement

Income statement		FY08/15	FY08/16	FY08/17	FY08/18	FY12/19	FY12/20
(JPYmn)		JGAAP	IFRS	IFRS	IFRS	IFRS	IFRS
Revenue		4,126	8,817	13,572	10,240	13,292	8,569
	YoY	82.2%	113.7%	53.9%	-24.6%	29.8%	-35.5%
Cost of revenue		3,508	7,188	10,564	6,104	7,683	4,469
Gross profit		618	1,629	3,008	4,136	5,609	4,100
	Gross profit margin	15.0%	18.5%	22.2%	40.4%	42.2%	47.8%
SG&A expenses		938	1,882	3,239	4,673	7,019	4,092
	SG&A ratio	22.7%	21.3%	23.9%	45.6%	52.8%	47.8%
Other income			16	518	559	2,325	82
	Gain on revaluation of shares in affiliates		-	232	-	1,759
	Gain on sale of shares in affiliates		-	146	-	124
	Change in fair value of contingent considerations		-	101