Metaps 6172
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2022-05-16
2022-03-22
2022-02-15
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Summary
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).
IT Services
Key dates
2020-11-26
Coverage initiation
Executive summary
Business overview
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.
Meanwhile, the company’s withdrawal from its overseas operations will be completed in FY12/22.
Metaps operates in the Finance, Marketing, and Other (digital transformation [DX] support business, established in February 2020) segments. In FY12/21, it reported Finance revenue of JPY2.3bn (35.8% of total revenue) and Marketing revenue of JPY2.8bn (44.4% of total revenue). The company positions its Finance segment and DX support business as recurring revenue business, which is the focus of its expansion efforts. Meanwhile, its Marketing segment serves as a one-time revenue business.
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 and provides consulting services.
In the Other segment (DX support business), the company launched Metaps Cloud in 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.
Trends and outlook
In FY12/21, revenue amounted to JPY5.7bn (+14.3% YoY), operating profit JPY3.3bn (versus operating loss of JPY563mn in FY12/20), pre-tax profit JPY3.3bn (versus pre-tax loss of JPY590mn in FY12/20), and profit attributable to owners of the parent JPY4.1bn (versus JPY108mn in loss attributable to owners of the parent in FY12/20). While adjusting its business portfolio in pursuit of targets included in its medium-term management plan, the company completed a transfer of shares in equity-method affiliate pring Inc. in Q3 FY12/21 and recorded a JPY3.5bn gain on the sale of shares of subsidiaries and affiliates.
Metaps did not disclose its FY12/22 forecast at the outset of the fiscal year, but has indicated its intent to release a forecast during the fiscal year.
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) the company has yet to develop a system to fully utilize customer data to create synergies among businesses; 2) the company needs to replace the existing sales model focused on one-off sales of package solutions with one that supports SaaS business through customer success initiatives, and; 3) it will take time to monetize the Other segment (DX support business).
Key financial 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)
Metaps Entertainment was deconsolidated in FY12/21. In addition, the overseas segment has been classified as a discontinued operation due to the company's decision to transfer its shares in Mafin Inc.
Trends and outlook
Quarterly trends and results
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: Metaps Entertainment was deconsolidated in FY12/21. In addition, the overseas segment has been classified as a discontinued operation due to the company's decision to transfer its shares in Mafin Inc. Consequently, FY12/2020 results have been retroactively revised.
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: Metaps Entertainment was deconsolidated in FY12/21. In addition, the overseas segment has been classified as a discontinued operation due to the company's decision to transfer its shares in Mafin Inc.
Consolidated results for Q1 FY12/22
Summary
Key points
Q1 consolidated revenue of JPY1.4bn was up JPY124mn versus the same quarter the previous year. Reflecting solid results at existing business, the Finance segment reported Q1 revenue of JPY575mn (+JPY68mn YoY), Marketing segment revenue of JPY629mn (+JPY2mn YoY), and Other segment revenue of JPY327mn (+JPY11mn YoY). Annual recurring revenue (ARR) derived from recurring revenue businesses came in at JPY2.7bn. At the Finance segment, its Kaihi Pay and Event Pay services were hit by temporary suspensions of certain transactions but still reported solid top-line growth thanks to a 147.2% YoY jump in monthly recurring revenue (MMR) at its package solutions and credit businesses.
The operating loss of JPY325mn compared with a loss of JPY29mn in Q1 FY12/21. Operating loss reported for Q1 reflected a loss of JPY390mn booked in connection with the security breach discovered in December last year (suspected leaks of personal data resulting from unauthorized access to a credit card transaction data base operated by one of Metaps's subsidiaries). This amount was recorded under SG&A expenses (JPY385mn representing additions to loss reserves and JPY5mn in miscellaneous expenses). After adding back the non-cash charges related to the security breach and other non-cash expenses, EBITDA for the quarter came to JPY210mn.
The transfer of the Korean business was postponed and is expected to be completed during the second quarter of this fiscal year. In addition, BUZZCAST, an equity-method affiliate, was transferred to Plott, which operates a YouTube animation business (March 31, 2022).
Company outlook for FY12/22
Metaps has yet to disclose its FY12/22 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.
In particular, with restructuring of its business portfolio now in the final stage, this is to involve focusing on achieving accelerated growth while concentrating management resources on priority areas during this fiscal year.
Investment plan
The company will commit funds to security expenditures necessary given the situation where unauthorized access to the payment data systems of subsidiary Metaps Payment resulted in an external breach of data. In terms of scale of investment, the company will incur substantial financing costs both for upfront investment in achieving functional enhancement of various package payment solutions services and in arranging working capital for the real-time salary payment service CRIA, which is poised for growth.
Business strategy
Finance
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 JPY1.0mn per month (FY12/2020). Shared Research deems that gross profit of the Kaihi Pay service will generate growth commensurate with the 1.8x YoY increase in the total number of affiliated stores and the 2.0x YoY increase in total transaction volume achieved during FY12/21. Meanwhile, the company’s medium-term management plan targets revenues from the Kaihi Pay service of approximately JPY3.0mn per month. Shared Research believes 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).
Kaihi Pay and CRIA to drive growth in recurring revenue businesses
Whereas the impact of the COVID-19 pandemic remains a concern, prospects of the pandemic coming to an end have given rise to hopes of increased revenues from package payment solutions such as Ticket Pay.
Marketing
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.
Other
The company reckons that the Metaps Cloud service will begin fully contributing to profitability in FY12/23.
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.
Numerical targets
Metaps aims to achieve the following numerical targets by FY12/25.
Finance segment: operating profit of JPY1.5bn; identify and develop solid growth businesses within the segment.
Marketing segment: operating profit of JPY500mn; positioned as stable growth business.
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
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).
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.
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. 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.
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 March 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 (the company intends to complete the withdrawal from its overseas operations in April 2022). 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.
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.
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 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.
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.
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 (229) in FY12/21. 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
Of the JPY5.7bn in revenue for FY12/21, 35.8% is accounted for by the Finance segment, 44.4% by the Marketing segment, and 19.7% by the Other segment. Of the company’s gross profit, 74.3% is accounted for by the Finance segment, 18.0% by the Marketing segment, and 25.6% by the Other segment.
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.
Marketing segment revenue is contingent on customer advertising budgets. Advertising media costs constitute the segment’s cost of revenue.
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 (93.6% in FY12/20). 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.
Finance segment (74.3% 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.
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, according to interviews held at the company), 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. Metaps has signed up over 3,000 businesses as of April 2021.
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.
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.
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).
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.
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 (18.0% 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).
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.
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.
Price plans
The company collects transaction fees based on the number of monthly active users.
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.
Fee structure
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.
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 (2020), 39.4% of Japanese companies say they are making use of cloud services company-wide. The figure climbs to 68.7% 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.
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.
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.
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).
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).
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).
Internet advertising market
The Japanese internet advertising market expanded 21.4% YoY to JPY2,705.2bn in FY2021, which exceeds advertising spending via the four traditional media channels. 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 JPY3,300.0bn in FY2024.
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 FY09/21, GMO Payment Gateway reported segment revenue of JPY30.8bn (+33.7% YoY) and segment profit of JPY14.4bn (+24.6% YoY) for the business. Segment revenue has expanded at a CAGR of 29.0% in the five years since 2016. GMO Payment Gateway is generating high profit margins thanks to economies of scale, with OPM at 46.8%. The company processes payments amounting to more than JPY8tr annually.
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 FY09/21, it reported segment revenue of JPY10.2bn (+7.8% YoY) and segment profit of JPY2.1bn (+16.3% 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.
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 213 people as of FY09/21. It also operates branches in Osaka (established in 2015), Nagoya (2016), and Fukuoka (2018). Overseas, it has opened a branch in Taiwan.
In FY09/21, the company reported total revenue of JPY4.8bn (+16.7% YoY) and HENNGE One revenue of JPY4.4bn (+20.4% YoY). Its revenue expanded at a CAGR of 23.0% from FY09/16 to FY09/21.
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 1,952 companies at end-FY09/21. The number of users per company averages more than 1,000, and ARPU is JPY2,217 per year. The company excels in supporting customer success, which is apparent in its low monthly churn rate of 0.25%.
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.
Okta reported FY01/22 revenue of USD1.3bn (+55.6% YoY). The company has reported successive operating losses due to upfront spending, but its revenue has expanded at a CAGR of 50.0% over the last four years. Subscription-based services account for over 96% of its revenue and have continued to grow at a CAGR of 51.6%.
The main factor driving earnings at Okta is its high ARPU, which is the result of a high annual increase in subscribers (CAGR of 36.3% over the last four years) and a high share of large customers (20.7%) among total subscribers. The company’s subscription revenue per client is JPY8.3mn after conversion to yen (assuming JPY100/USD), which is more than triple the JPY2.2mn for Hennge.
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
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.
Time required for monetization of the Other segment (DX support business): 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. Meanwhile, whereas the company set an operating profit target of JPY1.0bn for its DX support business in its medium-term plan, it will take about one to two years for client companies to review and make decisions on adopting new software. With that in mind, SR deems that the DX support business won’t start substantially contributing to profitability until FY12/23 or later.
Historical results and financial statements
Income statement