Business: Net Marketing was founded in July 2004 as an online ad agent handling affiliate ad plans for advertisers running promotional campaigns, and has since expanded into new products such as social advertising (defined here as advertising on social media platforms). It currently operates in two business segments: the Advertising business (online ad consulting), and the Media business that operates the Omiai matchmaking app (launched in February 2012), which provides a safe and secure meeting place for singles. In FY06/21, the company reported revenue of JPY14.0bn (-2.5% YoY) and operating profit of JPY584mn (-20.5% YoY). Breaking this down, the Advertising business had revenue of JPY9.2bn (-6.2% YoY) and segment profit of JPY556mn (-37.6% YoY), and the Media business had revenue of JPY4.8bn (+5.7% YoY) and segment profit of JPY686mn (+52.8% YoY).

Advertising business: The main product in this business is affiliate ads. Net Marketing connects advertisers with affiliate service providers (ASPs; affiliate ad distributors) or with the individual media and social media platforms with which it partners. The company earns revenue by formulating marketing strategies for advertisers and providing them operational support. Although its focus is affiliate advertising, the company also handles programmatic advertising, including social ads. The advertisers are mostly beauty salons, HR companies, and finance companies, and as of FY06/21, handling volume is split fairly evenly among these three business domains. A portion of the ad revenue Net Marketing earns is paid to the affiliates as performance fees. The company has applied the Accounting Standard for Revenue Recognition from the start of FY06/22, reporting net revenue in the Advertising business. Specifically, it reports revenue as the amount obtained by deducting listing fees paid to media from the conventional revenue figure.

Media business: Revenue in the Media business mainly comprises fees (monthly usage and added options) from paying members (male users) of the matchmaking app Omiai. As of end-FY06/21, the number of paying members (monthly service users) was approximately 86,000 (+9,732 YoY). A one-month plan was priced at JPY4,800/month (tax inclusive) as of September 2021, but long-term plans are discounted, to JPY4,266/month for the three-month plan, JPY2,466/month for the six-month plan, and JPY2,066/month for the 12-month plan (all tax inclusive). We estimate average revenue per paying user (ARPPU) to be around JPY4,000–5,000 based on past Media business revenue and numbers of paying members. Users often do not stop using the matchmaking app immediately after establishing a match, and the app allows for multiple simultaneous matches. However, once two members form a couple, there is no need for them to continue using the app since they can communicate by other means. In other words, there is turnover in paying members. This structure necessitates continuous acquisition of new subscribers, which calls for a certain amount of continuous promotional spending. Although some members pay for long-term plans and there is some repeat demand due to resumption of use, the profit structure is different from a typical subscription model that assumes long-term continuous use.

Leak of member information at Omiai (made public in May 2021): On May 21, 2021, the company announced a possible member information leak due to unauthorized access. Some of its Omiai matchmaking app’s member information had been leaked due to unauthorized access to the server that manages the app’s data. This leaked data included digital images of age verification documents for 1.7mn accounts submitted to the company between January 31, 2018, and April 20, 2021. The churn rate of paying members temporarily increased after the unauthorized access was made public in May, but returned to previously levels in June. On August 11, 2021, Net Marketing announced the results of its investigation of the incident, together with measures to prevent recurrence.

Market environment of matchmaking apps in Japan: According to “Matchmaking Activity Survey 2021” by Recruit Marketing Partners Co. Ltd.’s Bridal Research Institute, the percentage of people who got married through online matchmaking services was 11.1% in 2020 (up from 6.3% in 2019). Use of online matchmaking services grew substantially due to the COVID-19 outbreak. According to the “Online Matchmaking Service Market Size Forecast (2018–2026)” by MatchingAgent, Inc. and Digital inFact, Inc., the size of the matchmaking market was JPY62.2bn in 2020, and will be JPY165.7bn in 2026 (CAGR of approximately18%). Market size in 2020 exceeded the JPY51.0bn recorded in 2019 despite the COVID-19 pandemic. As well, the latest forecast revised up the market size growth trend projection, changing to an outlook of growth rates not slowing for some years beyond 2022.

Competition in the market for matchmaking apps in Japan: Rival apps are Pairs, run by a subsidiary of Match Group, Inc. (NASDAQ, MTCH), a global leader in the matchmaking app market; and Tapple run by a subsidiary of CyberAgent, Inc. (TSE1: 4751), a major online advertising company in Japan. Estimating from consumer app spending in 2021, we understand Pairs and Tapple have greater market shares than Omiai.

Trends and outlook

FY06/21 results: In FY06/21, Net Marketing reported revenue of JPY14.0bn (-2.5% YoY), operating profit of JPY584mn (-20.5% YoY), recurring profit of JPY593mn (-20.7% YoY), and net income of JPY337mn (-34.0% YoY). Results were in line with the company forecast as revised on July 16, 2021. In the Media business, in response to the leak of some member information due to unauthorized access to the Omiai matchmaking service, the company suspended all digital advertising to acquire new Omiai members immediately after announcement of the incident on May 21, 2021. With reduction in advertising expenditures because of this measure, promotional expenses were lower than initially expected. On the other hand, the company recorded extraordinary loss of JPY96mn for expenses related to the leak of member information. This mainly comprises the establishment and operation of a customer inquiry desk, systems research, and information security measures.

FY06/22 forecast: For FY06/22, the company forecast revenue of JPY5.8bn, operating profit of JPY500mn (-14.4% YoY), recurring profit of JPY500mn (-15.6% YoY), net income of JPY375mn (+11.4% YoY), and EPS of JPY25.11. It forecast a year-end dividend of JPY6 per share. Note that the company applied the Accounting Standard for Revenue Recognition from the start of FY06/22, and will report Advertising business revenue on a net basis. This entails deducting listing fees paid to media from revenue, which were not previously deducted. Hence, it is not possible to compare the revenue forecast with FY06/21 results. Assuming that the new standard was not applied, the (companywide) revenue forecast would be JPY15.1bn (+7.7% YoY). The company said it would invest heavily in strengthening security and management systems in FY06/22.

Medium-term plan: The previous medium-term plan ended with FY06/21, but Net Marketing has not announced a new plan covering FY06/22 onward. The company says it decided to hold off because it was prioritizing response to the leak of member information due to unauthorized access in FY06/21 (announced in May 2021); it was difficult to set quantitative medium- to long-term targets due to the lack of time since the announcement of the leak; and it considers fortifying security to be a priority management issue for FY06/22. However, with the exception of security enhancements, it has not made any particular changes to its qualitative medium- to long-term plans. In the Advertising business, the company aims to diversify advertiser attributes, continuing to promote the acquisition of advertising in industries and business categories that are less susceptible to the impact of the COVID-19 pandemic. In addition, it will seek expansion in the area of programmatic advertising, which offers a large market, even as it grows the affiliate advertising business. In the Media business, while enhancing security, the company will continue its rebranding efforts to improve awareness of the Omiai service and increase the paying member count as it strives to reap maximum benefit from the growing matchmaking service market.

Strengths and weaknesses

Shared Research believes Net Marketing has three key strengths: 1) the paying member count and the stability of revenue in its Media business have increased due to its promotion of multi-month plans; 2) rebranding the Omiai matchmaking app has improved its recognition and favorability; and 3) its Advertising business centers on affiliate advertising, which is relatively unaffected by economic downturns.

Weaknesses include: 1) the company has competitors whose matchmaking apps have captured greater market share in Japan; 2) a leak of member information made public on May 2021 has damaged the Omiai brand, which had been touted as safe and secure; and 3) the Advertising business mainly handles performance-based affiliate advertising, making it vulnerable to changes in the business environment that make it difficult to generate results. (See the “Strengths and weaknesses” section for details.)

Figures in this report may differ from company materials due to differences in rounding methods.

Key financial data

Income statement		FY06/12	FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20	FY06/21	FY06/22
(JPYmn)		Parent	Parent	Parent	Cons.	Cons.	Cons.	Cons.	Parent	Parent	Parent	Parent Est.
Revenue		2,697	4,691	6,619	8,524	8,824	9,868	11,210	14,051	14,364	14,011	5,785
	YoY	-	74.0%	41.1%	28.8%	3.5%	11.8%	13.6%	25.3%	2.2%	-2.5%	-
Gross profit		-	-	-	1,798	1,793	2,532	3,272	4,332	4,570	4,522
	YoY	-	-	-	-	-0.3%	41.2%	29.3%	32.4%	5.5%	-1.1%
	Gross profit margin	-	-	-	21.1%	20.3%	25.7%	29.2%	30.8%	31.8%	32.3%
Operating profit		-	-	-	425	274	441	551	424	735	584	500
	YoY	-	-	-	-	-35.6%	61.3%	24.9%	-23.1%	73.3%	-20.5%	-14.4%
	Operating profit margin	-	-	-	5.0%	3.1%	4.5%	4.9%	3.0%	5.1%	4.2%	8.6%
Recurring profit		-1	56	273	419	275	424	566	421	747	593	500
	YoY	-	-	391.5%	-	-34.4%	54.2%	33.7%	-25.6%	77.4%	-20.7%	-15.6%
	Recurring profit margin	0.0%	1.2%	4.1%	4.9%	3.1%	4.3%	5.1%	3.0%	5.2%	4.2%	8.6%
Net income		-4	61	163	271	177	297	404	284	510	337	375
	YoY	-	-	165.0%	-	-34.8%	68.1%	35.9%	-29.7%	79.6%	-34.0%	11.4%
	Net margin	-	1.3%	2.5%	3.2%	2.0%	3.0%	3.6%	2.0%	3.5%	2.4%	6.5%
Per-share data (JPY)
No. of shares outstanding at end of period('000 shares)		-	-	-	-	13,988	13,988	14,562	14,579	14,797	14,935
EPS				6.3	10.6	6.9	22.5	28.2	19.5	34.5	22.7	25.1
EPS(fully diluted)		-	-	-	-	-	22.1	27.0	19.0	33.9	22.4
Dividend per share		-	-	-	-	-	-	5.0	5.0	6.0	6.0	6.0
Book value per share		-	-	-	53.1	65.5	115.4	141.9	157.1	186.0	201.8
Balance sheet (JPYmn)
	Cash and cash equivalents	-	-	-	893	1,391	2,244	3,027	3,044	3,214	3,366
Total current assets		-	-	-	2,708	2,591	3,504	4,469	4,883	4,515	4,809
	Tangible fixed assets	-	-	-	20	21	17	141	121	107	99
	Intangible assets	-	-	-	86	138	121	43	15	45	114
	Investments and other assets	-	-	-	110	85	266	239	263	311	300
Total fixed assets		-	-	-	216	243	404	423	399	463	513
Total assets		805	1,637	2,079	2,924	2,835	3,908	4,892	5,281	4,978	5,322
	Short-term debt	-	-	-	94	103	88	80	80	80	-
Total current liabilities		-	-	-	2,154	1,656	2,054	2,666	2,911	2,225	2,309
	Long-term debt	-	-	-	80	328	240	160	80	-	-
Total fixed liabilities		-	-	-	81	328	240	160	80	-	-
Total liabilities		617	1,388	1,668	2,235	1,984	2,294	2,826	2,991	2,225	2,309
Total net assets		187	249	411	690	851	1,614	2,066	2,290	2,753	3,013
Total liabilities and net assets		805	1,637	2,079	2,924	2,835	3,908	4,892	5,281	4,978	5,322
Total interest-bearing debt		-	-	-	174	430	328	240	160	80	-
Cash flow statement(JPYmn)
Cash flows from operating activities		-	-	-	360	356	718	920	213	368	426
Cash flows from investing activities		-	-	-	-127	-96	-227	-22	43	-71	-118
Cash flows from financing activities		-	-	-	-95	250	342	-33	-159	-127	-157
Financial ratios
ROA (RP-based)		-	4.6%	14.7%	16.7%	9.5%	12.6%	12.9%	8.3%	14.6%	11.5%
ROE		-	28.2%	49.3%	49.7%	22.9%	24.1%	21.9%	13.0%	20.2%	11.7%
	Financial leverage (equity multiplier)	-	5.6	5.6	4.5	3.7	2.7	2.4	2.3	2.0	1.8
	Total asset turnover	-	3.8	3.6	3.4	3.1	2.9	2.5	2.8	2.8	2.7
	Net margin	-0.2%	1.3%	2.5%	3.2%	2.0%	3.0%	3.6%	2.0%	3.5%	2.4%
Equity ratio		23.3%	15.2%	19.8%	23.6%	30.0%	41.3%	42.2%	43.4%	55.3%	56.6%
Employee metrics
Number of employees (excluding temporary workers)(　)		43	62	79	93	98	111	114	120	123	130
Revenue per employee		62.7	75.7	83.8	91.7	90.0	88.9	98.3	117.1	116.8	107.8
Operating profit per employee		-	-	-	4.6	2.8	4.0	4.8	3.5	6.0	4.5

Source: Shared Research based on company data.
Notes: Per share data has been adjusted to reflect the 2-for-1 stock split enacted by the company on March 14, 2018.
Figures may differ from company materials due to differences in rounding methods.
Figures for non-consolidated YoY growth in FY06/19 reflect a comparison to consolidated earnings in FY06/18. These differ slightly from the figures for YoY growth on the company’s financial statements summary, as those figures reflect a comparison of non-consolidated earnings in both years.

The company has applied the Accounting Standard for Revenue Recognition from the start of FY06/22, reporting net revenue in the Advertising business. Specifically, it reports revenue as the amount obtained by deducting listing fees paid to media from the conventional revenue figure. For this reason, it is not possible to make a simple comparison of the FY06/22 revenue projection with actual FY06/21 revenue, so "－" is displayed in this table for the YoY revenue comparison.

Recent updates

Monthly investor relations news for April 2022

2022-05-11

On May 11, 2022, Net Marketing Co., Ltd. released monthly investor relations news for April 2022.

Monthly Media Business data: Omiai membership and matches made

('000)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Number of paying members	2017						40			44			45
	2018			48			53			65			65
	2019			69			77			81			76
	2020			78			77			81			87
	2021			90			86			77			68
	2022
Number of paying members YoY	2017						41.4%
	2018						33.1%			46.2%			45.2%
	2019			45.2%			43.8%			24.8%			16.8%
	2020			13.2%			-0.2%			0.5%			14.1%
	2021			14.5%			12.7%			-4.8%			-22.0%
	2022
('000)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Cumulative total number of members	2017	1,922	1,984	2,051	2,120	2,198	2,270	2,336	2,413	2,484	2,557	2,625	2,699
	2018	2,790	2,864	2,942	3,024	3,124	3,214	3,320	3,425	3,517	3,611	3,700	3,783
	2019	3,881	3,964	4,068	4,158	4,271	4,385	4,481	4,599	4,703	4,806	4,898	5,011
	2020	5,123	5,216	5,317	5,405	5,507	5,605	5,708	5,840	5,964	6,109	6,249	6,377
	2021	6,524	6,639	6,759	6,890	7,026	7,104	7,195	7,308	7,421	7,541	7,661	7,760
	2022	7,868	7,965	8,065	8,166
('000)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Change in the number of members	2017	77	62	67	68	79	72	66	77	71	73	68	74
	2018	91	74	78	82	100	91	106	105	92	94	89	83
	2019	98	83	104	90	112	114	96	118	104	103	92	113
	2020	112	93	101	88	102	98	103	132	124	145	140	128
	2021	147	115	120	131	135	79	91	113	113	120	120	99
	2022	109	96	100	102
('000)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
New members	2017							66	76	70	73	67	75
	2018	90	73	77	82	99	90	106	103	92	94	88	82
	2019	98	82	94	99	112	113	108	118	103	102	92	112
	2020	111	93	101	87	102	97	103	131	124	144	139	128
	2021	146	115	120	130	135	78	90	112	113	119	120	98
	2022	108	96	100	101
(％)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Paying members, as % of total	2017						1.77%			1.78%			1.67%
	2018			1.62%			1.66%			1.83%			1.73%
	2019			1.70%			1.75%			1.71%			1.52%
	2020			1.47%			1.37%			1.36%			1.36%
	2021			1.33%			1.22%			1.04%			0.87%
	2022
(％)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Paying members, as % of new members	2017									20.8%			20.9%
	2018			19.8%			19.7%			21.4%			24.7%
	2019			25.2%			23.7%			24.5%			24.9%
	2020			25.7%			26.8%			22.6%			21.2%
	2021			23.5%			25.2%			24.5%			20.1%
	2022
('000 pairs)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Cumulative total number of matching	2017	7,252	7,597	7,953	8,329	8,868	9,359	9,883	10,535	11,215	11,989	12,706	13,434
	2018	14,305	15,061	15,880	16,661	17,547	18,408	19,429	20,522	21,584	22,637	23,698	24,892
	2019	26,225	27,386	28,651	29,842	31,127	32,513	33,955	35,461	36,917	38,358	39,694	41,074
	2020	42,558	43,907	45,341	46,680	48,104	49,458	50,909	52,491	54,054	55,707	57,430	59,179
	2021	61,082	62,687	64,431	66,141	68,075	69,499	71,059	72,641	74,141	75,573	77,015	78,332
	2022	79,763	81,038	82,732	84,361
('000 pairs)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Number of matching	2017	371	345	356	376	540	491	524	652	680	774	717	728
	2018	872	755	819	781	886	861	1,021	1,093	1,062	1,053	1,061	1,194
	2019	1,333	1,161	1,265	1,191	1,285	1,386	1,442	1,506	1,456	1,441	1,336	1,380
	2020	1,484	1,349	1,434	1,339	1,424	1,354	1,451	1,582	1,563	1,653	1,723	1,749
	2021	1,903	1,605	1,744	1,710	1,934	1,424	1,560	1,582	1,500	1,432	1,442	1,317
	2022	1,431	1,275	1,694	1,629
(pairs)	Date	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Number of matching per paying member	2017						12			15			16
	2018			17			16			16			18
	2019			18			18			18			18
	2020			18			18			19			20
	2021			19			16			19			19
	2022

Source: Shared Research based on company data
Notes: Monthly data from the company is limited to cumulative total number of members, new members, and cumulative total number of matching. All other figures were calculated independently by Shared Research. As of July 2020 monthly data, the company has been able to release finalized figures earlier than before. As such, the company revised its data to be more detailed. The table above shows the revised figures.
The number of paying members is disclosed only on the last month in each quarter (shown on a graph in the company’s results briefing materials)
Only men are paying members.
Paying members are those paying a monthly fee and excluding those who do not use the monthly service and have purchased the point premium pack only.
Monthly ARPPU (about JPY5,000) can be calculated based on Media business segment revenue/cumulative 12-months total of paying members.
Definition of matching: A match is considered made when an interested party clicks the equivalent of a “Like,” and the person to whom that click was sent replies with a “Thank you” click.

Supplementary explanation regarding monthly data
After the Q3 earnings announcement, the company on May 21, 2021, announced a leak of member information in the Media business due to unauthorized access to Omiai. Any impact on the increase in new members in May was limited to the period following the announcement. The number of new members in May was higher than in April because the early part of May (prior to the announcement) included a major string of holidays that constitute one of the service’s busy periods, and the company had not yet halted its promotion of the service. The company expects the number of new members from June onward to be affected by the data leak. However, the cumulative member count is the total of all users until now (not reflecting the departure of existing members) and is therefore not the same as the number of active users, so the figure will not be directly affected by the data leak.

The number of new members in June was 78,000, reaching only about 60% of the average of the last three months (March–May), due to the member information leak caused by unauthorized access announced on May 21, 2021. The main reason for the decline in new member count was that the company suspended all digital advertising, its main strategy to acquire new members for its Omiai matchmaking app.

On August 11, 2021, Net Marketing announced the results of its investigation into the leak of some member information due to unauthorized third-party access to the Omiai matchmaking app service. After the company announced the unauthorized access in May 2021, it suspended all promotions related to Omiai, but resumed them on August 13. The number of new members reached 112,000 in August, up from 78,000 in June and 90,000 in July.

Monthly investor relations news for March 2022

2022-04-07

On April 7, 2022, Net Marketing Co., Ltd. released monthly investor relations news for March 2022.

Trends and outlook

Quarterly trends and results

The company applied the Accounting Standard for Revenue Recognition from the start of FY06/22, and is reporting Advertising business revenue on a net basis. This entails deducting listing fees paid to media from revenue (which were not previously deducted). Therefore, a simple comparison of revenue from FY06/22 onward with FY06/21 results is not possible.

Cumulative		FY06/20				FY06/21				FY06/22			FY06/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	% of 1H	FY Est.
Revenue		4,255	7,752	11,314	14,364	3,447	6,672	10,239	14,011	1,312	2,593	3,892	67.3%	5,785
	YoY	23.1%	18.6%	15.3%	2.2%	-19.0%	-13.9%	-9.5%	-2.5%	-	-	-		-
Gross profit		1,386	2,504	3,590	4,570	1,062	2,218	3,362	4,522	1,011	1,958	2,953
	YoY	41.1%	28.2%	20.1%	5.5%	-23.4%	-11.4%	-6.3%	-1.1%	-4.7%	-11.7%	-12.2%
	Gross profit margin	32.6%	32.3%	31.7%	31.8%	30.8%	33.2%	32.8%	32.3%	77.1%	75.5%	75.9%
SG&A expenses		979	1,996	2,987	3,835	851	1,970	3,021	3,938	754	1,650	2,574
	YoY	2.6%	3.5%	5.0%	-1.9%	-13.1%	-1.3%	1.1%	2.7%	-11.4%	-16.3%	-14.8%
	SG&A ratio	23.0%	25.7%	26.4%	26.7%	24.7%	29.5%	29.5%	28.1%	57.5%	63.6%	66.1%
Operating profit		406	508	603	735	211	248	341	584	257	308	379	75.9%	500
	YoY	1,410.1%	1,857.6%	318.9%	73.3%	-48.0%	-51.3%	-43.4%	-20.5%	22.0%	24.5%	11.2%		-14.4%
	Operating profit margin	9.6%	6.6%	5.3%	5.1%	6.1%	3.7%	3.3%	4.2%	19.6%	11.9%	9.7%		8.6%
Recurring profit		410	513	613	747	220	256	350	593	260	316	393	78.7%	500
	YoY	1,413.8%	2,244.2%	338.9%	77.4%	-46.5%	-50.1%	-43.0%	-20.7%	18.5%	23.3%	12.6%		-15.6%
	Recurring profit margin	9.6%	6.6%	5.4%	5.2%	6.4%	3.8%	3.4%	4.2%	19.8%	12.2%	10.1%		8.6%
Net income		283	352	420	510	150	172	236	337	217	253	306	81.5%	375
	YoY	1,574.7%	3,740.5%	359.4%	79.6%	-46.8%	-51.0%	-43.8%	-34.0%	44.6%	47.0%	29.5%		11.4%
	Net margin	6.6%	4.5%	3.7%	3.5%	4.4%	2.6%	2.3%	2.4%	16.5%	9.8%	7.9%		6.5%
Quarterly		FY06/20				FY06/21				FY06/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Revenue		4,255	3,497	3,562	3,050	3,447	3,224	3,567	3,773	1,312	1,280	1,299
	YoY	23.1%	13.6%	8.6%	-28.0%	-19.0%	-7.8%	0.1%	23.7%	-	-	-
Gross profit		1,386	1,118	1,086	980	1,062	1,156	1,145	1,160	1,011	946	995
	YoY	41.1%	15.1%	4.8%	-27.0%	-23.4%	3.4%	5.4%	18.3%	-4.7%	-18.1%	-13.1%
	Gross profit margin	32.6%	32.0%	30.5%	32.1%	30.8%	35.9%	32.1%	30.7%	77.1%	73.9%	76.6%
SG&A expenses		979	1,016	992	848	851	1,119	1,051	917	754	896	924
	YoY	2.6%	4.5%	8.0%	-20.2%	-13.1%	10.1%	6.0%	8.1%	-11.4%	-20.0%	-12.1%
	SG&A ratio	23.0%	29.1%	27.8%	27.8%	24.7%	34.7%	29.5%	24.3%	57.5%	70.0%	71.1%
Operating profit		406	102	95	133	211	36	94	243	257	51	71
	YoY	1,410.1%	-	-19.8%	-52.7%	-48.0%	-64.2%	-0.9%	83.4%	22.0%	39.3%	-23.9%
	Operating profit margin	9.6%	2.9%	2.7%	4.3%	6.1%	1.1%	2.6%	6.4%	19.6%	4.0%	5.5%
Recurring profit		410	103	100	134	220	36	94	243	260	55	78
	YoY	1,413.8%	-	-15.3%	-52.4%	-46.5%	-64.7%	-6.2%	81.1%	18.5%	52.4%	-16.9%
	Recurring profit margin	9.6%	2.9%	2.8%	4.4%	6.4%	1.1%	2.6%	6.4%	19.8%	4.3%	6.0%
Net income		283	69	68	90	150	22	63	101	217	36	52
	YoY	1,574.7%	-	-17.4%	-53.1%	-46.8%	-67.9%	-6.5%	11.6%	44.6%	63.2%	-17.7%
	Net margin	6.6%	2.0%	1.9%	3.0%	4.4%	0.7%	1.8%	2.7%	16.5%	2.8%	4.0%

Source: Shared Research based on company data
Figures for non-consolidated YoY growth in FY06/19 reflect a comparison to consolidated earnings in FY06/18. These differ slightly from the figures for YoY growth on the company’s financial statements summary, as those figures reflect a comparison of non-consolidated earnings in both years.

Earnings trends by segment

Cumulative			FY06/20				FY06/21				FY06/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3
Revenue			4,255	7,752	11,314	14,364	3,447	6,672	10,239	14,011	1,312	2,593	3,892
	YoY		23.1%	18.6%	15.3%	2.2%	-19.0%	-13.9%	-9.5%	-2.5%	-	-	-
	Advertising		3,018	5,372	7,831	9,835	2,304	4,318	6,647	9,222	299	632	1,019
		YoY	23.2%	19.9%	16.8%	0.2%	-23.7%	-19.6%	-15.1%	-6.2%	-	-	-
		% of total	70.9%	69.3%	69.2%	68.5%	66.8%	64.7%	64.9%	65.8%	22.8%	24.4%	26.2%
	Media		1,238	2,380	3,483	4,529	1,144	2,354	3,592	4,789	1,013	1,960	2,872
		YoY	23.1%	15.9%	12.0%	6.8%	-7.6%	-1.1%	3.1%	5.7%	-11.4%	-16.7%	-20.0%
		% of total	29.1%	30.7%	30.8%	31.5%	33.2%	35.3%	35.1%	34.2%	77.2%	75.6%	73.8%
Operating profit			406	508	603	735	211	248	341	584	257	308	379
	YoY		1,410.1%	1,857.6%	318.9%	73.3%	-48.0%	-51.3%	-43.4%	-20.5%	22.0%	24.5%	11.2%
	Operating profit margin		9.6%	6.6%	5.3%	5.1%	6.1%	3.7%	3.3%	4.2%	19.6%	11.9%	9.7%
	Advertising		375	568	778	891	184	294	430	556	134	307	531
		YoY	112.3%	80.5%	57.3%	3.4%	-50.9%	-48.2%	-44.8%	-37.6%	-27.0%	4.3%	23.7%
		% of total	67.3%	70.5%	74.0%	66.5%	50.4%	51.0%	52.0%	44.8%	30.8%	46.6%	56.9%
		Operating profit margin	12.4%	10.6%	9.9%	9.1%	8.0%	6.8%	6.5%	6.0%	44.9%	48.5%	52.1%
	Media		182	238	274	449	181	283	397	686	302	351	403
		YoY	-	-	413.0%	250.2%	-0.4%	19.0%	45.1%	52.8%	66.4%	24.0%	1.5%
		% of total	32.7%	29.5%	26.0%	33.5%	49.6%	49.0%	48.0%	55.2%	69.2%	53.4%	43.1%
		Operating profit margin	14.7%	10.0%	7.9%	9.9%	15.9%	12.0%	11.0%	14.3%	29.8%	17.9%	14.0%
	Adjustments		-151	-298	-449	-605	-154	-330	-485	-658	-179	-350	-555
Quarterly			FY06/20				FY06/21				FY06/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Revenue			4,255	3,497	3,562	3,050	3,447	3,224	3,567	3,773	1,312	1,280	1,299
	YoY		23.1%	13.6%	8.6%	-28.0%	-19.0%	-7.8%	0.1%	23.7%	-	-	-
	Advertising		3,018	2,354	2,459	2,004	2,304	2,014	2,329	2,575	299	333	387
		YoY	23.2%	15.9%	10.6%	-35.5%	-23.7%	-14.4%	-5.3%	28.5%	-	-	-83.4%
		% of total	70.9%	67.3%	69.0%	65.7%	66.8%	62.5%	65.3%	68.3%	22.8%	26.0%	29.8%
	Media		1,238	1,142	1,103	1,046	1,144	1,210	1,238	1,197	1,013	947	912
		YoY	23.1%	9.0%	4.5%	-7.4%	-7.6%	6.0%	12.3%	14.4%	-11.4%	-21.7%	-26.3%
		% of total	29.1%	32.7%	31.0%	34.3%	33.2%	37.5%	34.7%	31.7%	77.2%	74.0%	70.2%
Operating profit			406	102	95	133	211	36	94	243	257	51	71
	YoY		-	-	-19.8%	-52.7%	-48.0%	-64.2%	-0.9%	83.4%	22.0%	39.3%	-23.9%
	Operating profit margin		9.6%	2.9%	2.7%	4.3%	6.1%	1.1%	2.6%	6.4%	19.6%	4.0%	5.5%
	Advertising		375	193	210	113	184	110	135	127	134	172	225
		YoY	112.3%	39.8%	16.7%	-69.3%	-50.9%	-42.9%	-35.6%	12.3%	-27.0%	56.6%	65.9%
		% of total	67.3%	77.5%	85.6%	39.1%	50.4%	51.9%	54.4%	30.5%	30.8%	77.7%	81.4%
		Operating profit margin	12.4%	8.2%	8.5%	5.6%	8.0%	5.5%	5.8%	4.9%	44.9%	51.8%	58.0%
	Media		182	56	35	175	181	102	114	289	302	50	51
		YoY	-	-	-51.0%	134.2%	-0.4%	82.0%	220.4%	65.0%	66.4%	-51.3%	-54.8%
		% of total	32.7%	22.5%	14.4%	60.9%	49.6%	48.1%	45.6%	69.5%	69.2%	22.3%	18.6%
		Operating profit margin	14.7%	4.9%	3.2%	16.8%	15.9%	8.4%	9.2%	24.2%	29.8%	5.2%	5.6%
	Adjustments		-151	-147	-151	-156	-154	-176	-155	-173	-179	-171	-205

Source: Shared Research based on company data. Sales to external customers shown for Advertising business.
Notes: Figures may differ from company materials due to differences in rounding methods.
Figures for non-consolidated YoY growth in FY06/19 reflect a comparison to consolidated earnings in FY06/18. These differ slightly from the figures for YoY growth on the company’s financial statements summary, as those figures reflect a comparison of non-consolidated earnings in both years.

Seasonal factors

With revenue at the company maintaining an upward course over the long term, it is somewhat difficult to get a clear picture of the seasonal factors in the near term, but there are such factors impacting both the Advertising and Media businesses. However, 2020 was an abnormal year due to the impact of COVID-19.

Advertising business

Revenue tends to increase in Q1 and Q4 as advertising orders, in line with the seasonal nature of advertiser products, pick up just before the onset of summer.

Media business

There are a number of holiday periods in Japan lasting over several days between December and May. Membership tends to increase duing this period as people have a chance to use the app for an extended period of time. Moreover, member activity, including the number of matches made, tends to increase during this period. However, operating profit may not increase, as the timing and amount of advertising spending by the company can have an impact on near-term earnings.

Reference information (excl. the impact of Accounting Standard for Revenue Recognition)

Cumulative		FY06/20				FY06/21				FY06/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3
Revenue		4,255	7,752	11,314	14,364	3,447	6,672	10,239	14,011	3,325	6,985	10,996
	YoY	23.1%	18.6%	15.3%	2.2%	-19.0%	-13.9%	-9.5%	-2.5%	-3.5%	4.7%	7.4%
Gross profit		1,386	2,504	3,590	4,570	1,062	2,218	3,362	4,522	1,011	1,958	2,953
	YoY	41.1%	28.2%	20.1%	5.5%	-23.4%	-11.4%	-6.3%	-1.1%	-4.7%	-11.7%	-12.2%
	Gross profit margin	32.6%	32.3%	31.7%	31.8%	30.8%	33.2%	32.8%	32.3%	30.4%	28.0%	26.9%
SG&A expenses		979	1,996	2,987	3,835	851	1,970	3,021	3,938	754	1,650	2,574
	YoY	2.6%	3.5%	5.0%	-1.9%	-13.1%	-1.3%	1.1%	2.7%	-11.4%	-16.3%	-14.8%
	SG&A ratio	23.0%	25.7%	26.4%	26.7%	24.7%	29.5%	29.5%	28.1%	22.7%	23.6%	23.4%
Operating profit		406	508	603	735	211	248	341	584	257	308	379
	YoY	1,410.1%	1,857.6%	318.9%	73.3%	-48.0%	-51.3%	-43.4%	-20.5%	22.0%	24.5%	11.2%
	Operating profit margin	9.6%	6.6%	5.3%	5.1%	6.1%	3.7%	3.3%	4.2%	7.7%	4.4%	3.5%
Recurring profit		410	513	613	747	220	256	350	593	260	316	393
	YoY	1,413.8%	2,244.2%	338.9%	77.4%	-46.5%	-50.1%	-43.0%	-20.7%	18.5%	23.3%	12.6%
	Recurring profit margin	9.6%	6.6%	5.4%	5.2%	6.4%	3.8%	3.4%	4.2%	7.8%	4.5%	3.6%
Net income		283	352	420	510	150	172	236	337	217	253	306
	YoY	1,574.7%	3,740.5%	359.4%	79.6%	-46.8%	-51.0%	-43.8%	-34.0%	44.6%	47.0%	29.5%
	Net margin	6.6%	4.5%	3.7%	3.5%	4.4%	2.6%	2.3%	2.4%	6.5%	3.6%	2.8%
Quarterly		FY06/20				FY06/21				FY06/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Revenue		4,255	3,497	3,562	3,050	3,447	3,224	3,567	3,773	3,325	3,660	4,011
	YoY	23.1%	13.6%	8.6%	-28.0%	-19.0%	-7.8%	0.1%	23.7%	-3.5%	13.5%	12.4%
Gross profit		1,386	1,118	1,086	980	1,062	1,156	1,145	1,160	1,011	946	995
	YoY	41.1%	15.1%	4.8%	-27.0%	-23.4%	3.4%	5.4%	18.3%	-4.7%	-18.1%	-13.1%
	Gross profit margin	32.6%	32.0%	30.5%	32.1%	30.8%	35.9%	32.1%	30.7%	30.4%	25.9%	24.8%
SG&A expenses		979	1,016	992	848	851	1,119	1,051	917	754	896	924
	YoY	2.6%	4.5%	8.0%	-20.2%	-13.1%	10.1%	6.0%	8.1%	-11.4%	-20.0%	-12.1%
	SG&A ratio	23.0%	29.1%	27.8%	27.8%	24.7%	34.7%	29.5%	24.3%	22.7%	24.5%	23.0%
Operating profit		406	102	95	133	211	36	94	243	257	51	71
	YoY	1,410.1%	-	-19.8%	-52.7%	-48.0%	-64.2%	-0.9%	83.4%	22.0%	39.3%	-23.9%
	Operating profit margin	9.6%	2.9%	2.7%	4.3%	6.1%	1.1%	2.6%	6.4%	7.7%	1.4%	1.8%
Recurring profit		410	103	100	134	220	36	94	243	260	55	78
	YoY	1,413.8%	-	-15.3%	-52.4%	-46.5%	-64.7%	-6.2%	81.1%	18.5%	52.4%	-16.9%
	Recurring profit margin	9.6%	2.9%	2.8%	4.4%	6.4%	1.1%	2.6%	6.4%	7.8%	1.5%	1.9%
Net income		283	69	68	90	150	22	63	101	217	36	52
	YoY	1,574.7%	-	-17.4%	-53.1%	-46.8%	-67.9%	-6.5%	11.6%	44.6%	63.2%	-17.7%
	Net margin	6.6%	2.0%	1.9%	3.0%	4.4%	0.7%	1.8%	2.7%	6.5%	1.0%	1.3%

Source: Shared Research based on company data

Earnings trends by segment

Cumulative			FY06/20				FY06/21				FY06/22
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3
Revenue			4,255	7,752	11,314	14,364	3,447	6,672	10,239	14,011	3,325	6,985	10,996
	YoY		23.1%	18.6%	15.3%	2.2%	-19.0%	-13.9%	-9.5%	-2.5%	-3.5%	4.7%	7.4%
	Advertising		3,018	5,372	7,831	9,835	2,304	4,318	6,647	9,222	2,312	5,025	8,123
		YoY	23.2%	19.9%	16.8%	0.2%	-23.7%	-19.6%	-15.1%	-6.2%	0.4%	16.4%	22.2%
		% of total	70.9%	69.3%	69.2%	68.5%	66.8%	64.7%	64.9%	65.8%	69.5%	71.9%	73.9%
	Media		1,238	2,380	3,483	4,529	1,144	2,354	3,592	4,789	1,013	1,960	2,872
		YoY	23.1%	15.9%	12.0%	6.8%	-7.6%	-1.1%	3.1%	5.7%	-11.4%	-16.7%	-20.0%
		% of total	29.1%	30.7%	30.8%	31.5%	33.2%	35.3%	35.1%	34.2%	30.5%	28.1%	26.1%
Operating profit			406	508	603	735	211	248	341	584	257	308	379
	YoY		1,410.1%	1,857.6%	318.9%	73.3%	-48.0%	-51.3%	-43.4%	-20.5%	22.0%	24.5%	11.2%
	Operating profit margin		9.6%	6.6%	5.3%	5.1%	6.1%	3.7%	3.3%	4.2%	7.7%	4.4%	3.5%
	Advertising		375	568	778	891	184	294	430	556	134	307	531
		YoY	112.3%	80.5%	57.3%	3.4%	-50.9%	-48.2%	-44.8%	-37.6%	-27.0%	4.3%	23.7%
		% of total	67.3%	70.5%	74.0%	66.5%	50.4%	51.0%	52.0%	44.8%	30.8%	46.6%	56.9%
		Operating profit margin	12.4%	10.6%	9.9%	9.1%	8.0%	6.8%	6.5%	6.0%	5.8%	6.1%	6.5%
	Media		182	238	274	449	181	283	397	686	302	351	403
		YoY	-	-	413.0%	250.2%	-0.4%	19.0%	45.1%	52.8%	66.4%	24.0%	1.5%
		% of total	32.7%	29.5%	26.0%	33.5%	49.6%	49.0%	48.0%	55.2%	69.2%	53.4%	43.1%
		Operating profit margin	14.7%	10.0%	7.9%	9.9%	15.9%	12.0%	11.0%	14.3%	29.8%	17.9%	14.0%
	Adjustments		-151	-298	-449	-605	-154	-330	-485	-658	-179	-350	-555
Quarterly			FY06/20				FY06/21				FY06/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Revenue			4,255	3,497	3,562	3,050	3,447	3,224	3,567	3,773	3,325	3,660	4,011
	YoY		23.1%	13.6%	8.6%	-28.0%	-19.0%	-7.8%	0.1%	23.7%	-3.5%	13.5%	12.4%
	Advertising		3,018	2,354	2,459	2,004	2,304	2,014	2,329	2,575	2,312	2,712	3,099
		YoY	23.2%	15.9%	10.6%	-35.5%	-23.7%	-14.4%	-5.3%	28.5%	0.4%	34.7%	33.1%
		% of total	70.9%	67.3%	69.0%	65.7%	66.8%	62.5%	65.3%	68.3%	69.5%	74.1%	77.3%
	Media		1,238	1,142	1,103	1,046	1,144	1,210	1,238	1,197	1,013	947	912
		YoY	23.1%	9.0%	4.5%	-7.4%	-7.6%	6.0%	12.3%	14.4%	-11.4%	-21.7%	-26.3%
		% of total	29.1%	32.7%	31.0%	34.3%	33.2%	37.5%	34.7%	31.7%	30.5%	25.9%	22.7%
Operating profit			406	102	95	133	211	36	94	243	257	51	71
	YoY		-	-	-19.8%	-52.7%	-48.0%	-64.2%	-0.9%	83.4%	22.0%	39.3%	-23.9%
	Operating profit margin		9.6%	2.9%	2.7%	4.3%	6.1%	1.1%	2.6%	6.4%	7.7%	1.4%	1.8%
	Advertising		375	193	210	113	184	110	135	127	134	172	225
		YoY	112.3%	39.8%	16.7%	-69.3%	-50.9%	-42.9%	-35.6%	12.3%	-27.0%	56.6%	65.9%
		% of total	67.3%	77.5%	85.6%	39.1%	50.4%	51.9%	54.4%	30.5%	30.8%	77.7%	81.4%
		Operating profit margin	12.4%	8.2%	8.5%	5.6%	8.0%	5.5%	5.8%	4.9%	5.8%	6.4%	7.2%
	Media		182	56	35	175	181	102	114	289	302	50	51
		YoY	-	-	-51.0%	134.2%	-0.4%	82.0%	220.4%	65.0%	66.4%	-51.3%	-54.8%
		% of total	32.7%	22.5%	14.4%	60.9%	49.6%	48.1%	45.6%	69.5%	69.2%	22.3%	18.6%
		Operating profit margin	14.7%	4.9%	3.2%	16.8%	15.9%	8.4%	9.2%	24.2%	29.8%	5.2%	5.6%
	Adjustments		-151	-147	-151	-156	-154	-176	-155	-173	-179	-171	-205

Source: Shared Research based on company data. Advertising business revenue is sales to external customers, derived by deducting Media business revenue from external sales.
Notes: Figures may differ from company materials due to differences in rounding methods.

Q3 FY06/22 results

Earnings summary

In Q3 FY06/22, Net Marketing reported revenue of JPY3.9bn, operating profit of JPY379mn (+11.2% YoY), recurring profit of JPY393mn (+12.6% YoY), and net income of JPY306mn (+29.5% YoY). The company applied the Accounting Standard for Revenue Recognition from the start of FY06/22, and is reporting Advertising business revenue on a net basis. This entails deducting listing fees paid to media from revenue (not previously deducted). Therefore, a simple comparison of FY06/22 revenue with FY06/21 results is not possible. Under the previous standard, Q3 FY06/22 revenue would have been JPY11.0bn (+7.4% YoY). The change in accounting standard does not affect operating profit.

The company maintained its initial FY06/22 forecast. Progress versus the company's full-year forecasts was 67.3% for revenue, 75.9% for operating profit, 78.7% for recurring profit, and 81.5% for net income. Revenue was somewhat behind the company projection. However, operating profit was more or less in line with the target.

Earnings by segment

Advertising business

In Q3 FY06/22, revenue was JPY1.0bn and segment profit was JPY531mn (+23.7% YoY).

Under the previous accounting standard, Q3 FY06/22 revenue would have been JPY8.1bn (+22.2% YoY). The change in accounting standard does not affect operating profit.

Financial industry business was strong thanks to brisk activity in the forex and cryptocurrency markets. The handling volume reached a record high on a quarterly basis in Q3 FY06/22 (January–March).

Media business

In Q3 FY06/22, revenue in the Media business was JPY2.9bn (-20.0% YoY) and segment profit was JPY403mn (+1.5% YoY).

Revenue fell while profit rose. The company focused management resources on improving its services. The company, for example, strengthened security, implemented measures to deal with fraudulent members, and temporarily suspended advertising.

At end-Q3 FY06/22, the company had 70,000 paying members, exceeding 68,000 at end-1H FY06/22. The number of paying members had been on the decline since end-FY06/21 until it began to rise in Q3 FY06/22.

As of the April 2022 monthly disclosure, there were 8.2mn cumulative members, 101,000 new members, and 84.4mn cumulative matches made. While membership growth is somewhat sluggish, the company is promoting its services with an emphasis on efficiency and profitability.

As of May 12, 2022, the IMS certification audit was ongoing. Institution for Matchmaking Service (IMS) announced on March 17, 2022 that it would begin certifying qualified business operators by around July 2022.

* IMS certification system: IMS is an abbreviation for Institution for Matchmaking Service, which is a non-profit organization. IMS is a third-party organization that conducts certification examinations of businesses in the matchmaking service industry, granting a “suitability mark” to passing businesses. In the past, the scope of IMS was limited to brick-and-mortar matchmaking services, but has been expanded to cover online matchmaking services as well. The purpose of the certification system is not to examine the quality of services, but to certify specific services operated by proper businesses aiming for solid consumer protection in compliance with relevant laws and regulations. Under the system, certified business operators can display a certification mark issued by the organization on their website and/or advertisements, allowing consumers to select business operators that provide appropriate services. Please see "Business overview (Media business: Omiai matchmaking app)" below for an overview of the certification standards for the online matchmaking service industry.

Full-year company forecast

Full-year FY06/22 forecast

		FY06/20 (parent)			FY06/21 (parent)			FY06/22 (parent)
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.
Revenue		7,752	6,612	14,364	6,672	7,340	14,011	2,593	3,192	5,785
	YoY	18.6%	-12.0%	2.2%	-13.9%	11.0%	-2.5%	-	-	-
Cost of revenue		5,248	4,545	9,794	4,454	5,035	9,489	635
Gross profit		2,504	2,067	4,570	2,218	2,304	4,522	1,958
	Gross profit margin	32.3%	31.3%	31.8%	33.2%	31.4%	32.3%	75.5%
SG&A expenses		1,996	1,840	3,835	1,970	1,968	3,938	1,650
	SG&A ratio	25.7%	27.8%	26.7%	29.5%	26.8%	28.1%	63.6%
Operating profit		508	227	735	248	337	584	308	192	500
	YoY	-	-43.0%	73.3%	-51.3%	48.3%	-20.5%	24.5%	-43.0%	-14.4%
	Operating profit margin	6.6%	3.4%	5.1%	3.7%	4.6%	4.2%	11.9%	6.0%	8.6%
Recurring profit		513	234	747	256	337	593	316	184	500
	YoY	-	-41.4%	77.4%	-50.1%	43.9%	-20.7%	23.3%	-45.3%	-15.6%
	Recurring profit margin	6.6%	3.5%	5.2%	3.8%	4.6%	4.2%	12.2%	5.8%	8.6%
Net income		352	158	510	172	164	337	253	122	375
	YoY	-	-42.4%	79.6%	-51.0%	3.8%	-34.0%	47.0%	-25.9%	11.4%
	Net margin	4.5%	2.4%	3.5%	2.6%	2.2%	2.4%	9.8%	3.8%	6.5%

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

Supplementary commentary as of 1H results announcement (February 10, 2022)

The company maintained its initial FY06/22 forecast. Progress versus the company's full-year forecasts was 44.8% for revenue, 61.6% for operating profit, 63.1% for recurring profit, and 67.6% for net income. In the Media business, the company suspended online advertising until August 2021, following the April 2021 leak of member information due to unauthorized access. This reduced marketing costs, such that the progress rate for profit appears high.

Supplementary commentary as of Q1 results announcement (November 11, 2021)

The company maintained its initial FY06/22 forecast, stating that companywide revenue and operating profit were largely in line with expectations. Results were slightly under forecast in the Advertising business and slightly above in the Media business. Progress versus its full-year forecasts was revenue 22.7%, operating profit 51.5%, recurring profit 52.1%, and net income 57.9%. Q1 profit progress in the Media business was strong as the company had suspended online advertising until the middle of Q1, providing a temporary boost to segment margins.

Media business

The churn rate of paying members temporarily increased after the unauthorized access was made public in May, but returned to previous levels in June. The company promotes multi-month plans, but as of end-September 2021, only the churn rate for the single-month and three-month plans had been confirmed due to the data leak. Churn for users of the company's most popular six-month plan should become clear in November 2021 as shown by the change in paying member count as of end-December 2021 in its 1H FY06/22 results announcement.

Advertising business

The company said it saw signs of resumed advertising for new and existing projects following the lifting of the state of emergency, which continued until end-September. It said a rapid recovery in the Advertising business was unlikely from Q2 onward because summer is the peak season for beauty salon related business, but that the full-year forecasts were achievable.

Initial forecast (August 12, 2021)

For FY06/22, the company forecast revenue of JPY5.8bn, operating profit of JPY500mn (-14.4% YoY), recurring profit of JPY500mn (-15.6% YoY), net income of JPY375mn (+11.4% YoY), and EPS of JPY25.11. It forecast a year-end dividend of JPY6 per share. The company said it would invest heavily in strengthening security and management systems in FY06/22. It has not announced any earnings projections by segment.

The company has applied the Accounting Standard for Revenue Recognition from the start of FY06/22, reporting net revenue in the Advertising business. Specifically, it reports revenue as the amount obtained by deducting listing fees paid to media from the conventional revenue figure. For this reason, it is not possible to make a simple comparison of the FY06/22 revenue projection with actual FY06/21 revenue. Assuming that the new standard was not applied, the (companywide) revenue forecast would be JPY15.1bn (+7.7% YoY). The new standard has no impact on the various profit lines or on revenue in the Media business.

The company recorded extraordinary loss of JPY96mn in FY06/21 for expenses related to the leak of member information and expects to record additional extraordinary loss in Q1 FY06/22. It is possible that a portion of extraordinary loss recorded in both of these fiscal years will be covered by insurance, in which case the company will recognize extraordinary gain in FY06/22. These factors are reflected in the earnings forecast based on estimates at the time the company formulated its initial forecast.

Advertising business

As mentioned, the application of the Accounting Standard for Revenue Recognition makes a simple YoY comparison of Advertising business revenue impossible. Assuming no application of the revenue recognition standard, if Media business revenue is subtracted from the companywide revenue projection, the company estimates that Advertising business handling volume would rise YoY (to roughly JPY10.2–10.5bn). It says the profit margin for the Advertising business will not change significantly, and therefore estimates that operating profit will be JPY600–700mn.

In FY06/22, the company expects handling volume to grow YoY, since new orders won in FY06/21 will contribute throughout the fiscal year, and new orders were also robust in July and August 2021.

An increase in the number of confirmed COVID-19 cases during summer 2021 resulted in ongoing state of emergency declarations in numerous urban areas. However, unlike the first emergency declaration running from April to May 2020, fewer advertisers closed their stores for the duration of the declarations, and people simply continued to refrain from unnecessary outings. For its initial forecast, the company assumed the pandemic would not have as large an impact as when the first emergency declaration was declared, but also that it could not expect a rapid recovery in outings.

Amendments to the Pharmaceuticals and Medical Devices Act took effect in August 2021. As of September 2021, the amended act had no particular impact on the company's earnings. However, the company believes advertisers may change their appetite for advertising once specific administrative guidelines are released. Nevertheless, it says its initial forecast took into account the expected impact of the amended act.

Although Net Marketing will not disclosed handling volume in its financial statements, it is considering supplemental disclosure in its explanation of earnings results for FY06/22 to ensure comparability with its earlier accounting methods.

Overview of amendments to the Pharmaceuticals and Medical Devices Act
The Act on Securing Securing Quality, Efficacy, and Safety of Products Including Pharmaceuticals and Medical Devices (hereinafter referred to as the Pharmaceuticals and Medical Devices Act) was partially amended and went into effect on August 1, 2021. The products subject to the regulation are pharmaceuticals, quasi-drugs, cosmetics, medical devices, and others. However, health foods are also subject to the regulation if they claim effects similar to those of pharmaceuticals. As for the regulated parties, the article states, “No person shall advertise, describe, or disseminate false or exaggerated articles, whether explicit or implicit, regarding the name, manufacturing method, efficacy, effects, or performance of drugs, quasi-drugs, cosmetics, medical devices, or regenerative medicine products.” It can be interpreted that not only advertisers, but also advertising agencies and influencers are subject to regulation and subject to a cease and desist order. At the same time, a system of surcharges on advertisers was introduced. Companies that engage in false or exaggerated advertising will be subject to a surcharge of 4.5% of the sales value of the product in question. Previously, the maximum fine for violating false or exaggerated advertising was JPY2mn for both individuals and businesses, but the upper limit will be effectively eliminated. This amendment has made the advertising regulations of major media companies and ad networks stricter than before.

Media business

Net Marketing had suspended all promotional activities in response to the unauthorized access that occurred in FY06/21 and has been prioritizing security enhancement in preparation for renewed growth from FY06/23 onward. It did resume promotions on August 13, 2021 (detail follows), and therefore expects revenue to be just slightly below the JPY4.8bn it reported in FY06/21. Subtracting projections for Advertising business operating profit and common expenses, we believe the company is looking to post Media business operating profit of several hundred million yen. In FY06/22, the company expects costs to increase due to security enhancement, hiring of engineers, and enhanced customer support.

On August 11, 2021, Net Marketing announced the results of its investigation into the leak of some member information due to unauthorized third-party access to the Omiai matchmaking app service. After the company announced the unauthorized access in May 2021, it suspended all promotions related to Omiai, but resumed them on August 13. The number of new members reached 112,000 in August, up from 78,000 in June and 90,000 in July.

The company resumed promotions on August 13, 2021, at about 60% of the level prior to announcement of unauthorized access, with no significant change in member acquisition efficiency or routes. It plans to fully resume promotions once it has completed security enhancement measures. As a result, the company expects profits to be higher than usual in Q1 with the temporary suspension of promotional activities, but lower in 2H FY06/22 (for the short term) with an increase in promotional spending.

Even while promotions were suspended, there was still some organic inflow of new members. Looking at the number of such members after the unauthorized access, the company says the incident appears to have had little impact on organic inflow. For this reason, it believes that after the resumption of ad placement on August 13, 2021, the number of new members will gradually recover to the level observed before the incident was announced.

The churn rate of paying members temporarily increased after the unauthorized access was made public in May, but returned to previously levels in June. The company promotes multi-month plans, but as of end-September 2021, only the churn rate for the single-month and three-month plans had been confirmed in connection with the unauthorized access. The rate for users of the six-month plan, the company's most popular plan, should become clearer in November 2021, so we expect to confirm the impact on six-month plan members by looking at the change in paying member count as of end-December 2021 in the company's 1H FY06/22 results announcement.

In September 2021, after Net Marketing announced the discontinuation of credit card and convenience store payment, an agreement reached between Apple and the Fair Trade Commission will allow certain types of apps to use links to payment methods outside the Apple platform early in 2022. For this reason, it seems likely Net Marketing will rethink its approach to off-platform payment methods (including credit cards). However, the availability of off-platform payment methods is not reflected in the initial forecast, as the change in approach to payment settlement occurred after the initial forecast was announced.

Differences between initial targets and actual results

Results vs. Initial Est.		FY06/12	FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20	FY06/21
(JPYmn)		Parent	Parent	Parent	Cons.	Cons.	Cons.	Cons.	Parent	Parent	Parent
	Revenue (Initial Est.)	-	-	-	-	-	-	11,296	14,465	16,302	15,500
	Revenue (Results)	2,697	4,691	6,619	8,524	8,824	9,868	11,210	14,051	14,364	14,011
Results vs. Initial Est.		-	-	-	-	-	-	-0.8%	-2.9%	-11.9%	-9.6%
	Operating profit (Initial Est.)	-	-	-	-	-	-	540	373	813	500 to 800
	Operating profit (Results)	-	-	-	425	274	441	551	424	735	584
Results vs. Initial Est.		-	-	-	-	-	-	2.1%	13.7%	-9.6%	-27.0% to 16.9%
	Recurring profit (Initial Est.)	-	-	-	-	-	-	538	372	812	500 to 800
	Recurring profit (Results)	-1	56	273	419	275	424	566	421	747	593
Results vs. Initial Est.		-	-	-	-	-	-	5.3%	13.3%	-8.0%	-25.9% to 18.5%
	Net income (Initial Est.)	-	-	-	-	-	-	371	258	563	340 to 550
	Net income (Results)	-4	61	163	271	177	297	404	284	510	337
Results vs. Initial Est.		-	-	-	-	-	-	8.8%	10.0%	-9.4%	-38.8% to -1.0%

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

Medium-term plan

The previous medium-term plan ended with FY06/21, but Net Marketing has not announced a new plan covering FY06/22 onward. The company says it decided to hold off because it was prioritizing response to the leak of member information due to unauthorized access in FY06/21 (announced in May 2021); it was difficult to set quantitative medium- to long-term targets due to the lack of time since the announcement of the leak; and it considers fortifying security to be a priority management issue for FY06/22.

However, other than security enhancements, it has not made any particular changes to its qualitative medium- to long-term plans. In the Advertising business, the company aims to diversify advertiser attributes, continuing to look for advertisers in industries and business categories less susceptible to the impact of the COVID-19 pandemic. It aims to expand in programmatic advertising, a large market, while it grows the affiliate advertising business. In the Media business, while enhancing security, the company will continue its rebranding efforts to improve awareness of Omiai and increase the paying member count as it strives to reap maximum benefit from the growing matchmaking service market.

Future growth vision

At its 1H FY06/22 results briefing, the company flagged its future vision revolving around B2B2C marketing. It said that it would make an announcement regarding specific measures once it was in a position to do so.

B2B2C marketing as espoused by the company entails contributing to the success of the client’s business by bringing about a successful user experience. The reason the company put forth this vision is that as industries associated with the Internet mature, it is increasingly difficult to provide value added significantly above competitors simply by methods that follow changes in KPIs, such as only choosing media or ASPs in affiliated ads. Going forward, the company aims to shift more toward consulting, getting involved in client strategy.

Business

Business overview

Net Marketing was founded in July 2004 as an online ad agent handling affiliate ad plans for advertisers running promotional campaigns, and has since expanded into new products such as social advertising. It currently operates in two business segments: the Advertising business (online ad consulting business), and the Media business that operates the Omiai matchmaking app (launched in February 2012), which provides a safe and secure meeting place for singles. In FY06/21, the company reported revenue of JPY14.0bn (-2.5% YoY) and operating profit of JPY584mn (-20.5% YoY). Breaking this down, the Advertising business had revenue of JPY9.2bn (-6.2% YoY) and segment profit of JPY556mn (-37.6% YoY), and the Media business had revenue of JPY4.8bn (+5.7% YoY) and segment profit of JPY686mn (+52.8% YoY).

Earnings by segment

Segment revenue and profit			FY06/12	FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20	FY06/21
(JPYmn)			Parent	Parent	Parent	Cons.	Cons.	Cons.	Cons.	Parent	Parent	Parent
Revenue			2,697	4,691	6,619	8,524	8,824	9,868	11,210	14,051	14,364	14,011
	YoY		-	74.0%	41.1%	28.8%	3.5%	11.8%	13.6%	25.3%	2.2%	-2.5%
	Advertising					7,254	7,357	7,458	8,074	9,812	9,835	9,222
		YoY	-	-	-	-	1.4%	1.4%	8.3%	21.5%	0.2%	-6.2%
		% of total	-	-	-	85.1%	83.4%	75.6%	72.0%	69.8%	68.5%	65.8%
	Media					1,270	1,467	2,411	3,136	4,239	4,529	4,789
		YoY	-	-	-	-	15.5%	64.3%	30.1%	35.2%	6.8%	5.7%
		% of total	-	-	-	14.9%	16.6%	24.4%	28.0%	30.2%	31.5%	34.2%
Gross profit			-	-	-	1,798	1,793	2,532	3,272	4,332	4,570	4,522
	YoY		-	-	-	-	-0.3%	41.2%	29.3%	32.4%	5.5%	-1.1%
	Gross profit margin		-	-	-	21.1%	20.3%	25.7%	29.2%	30.8%	31.8%	32.3%
	Advertising					928	827	914
		YoY	-	-	-	-	-10.9%	10.6%	-	-	-	-
		% of total	-	79.4%	62.5%	51.6%	46.1%	36.1%	-	-	-	-
		Gross profit margin	-	-	-	12.8%	11.2%	12.3%	-	-	-	-
	Media					870	966	1,618
		YoY	-	-	-	-	11.1%	67.4%	-	-	-	-
		% of total	-	20.6%	37.5%	48.4%	53.9%	63.9%	-	-	-	-
		Gross profit margin	-	-	-	68.5%	65.9%	67.1%	-	-	-	-
SG&A expenses						1,373	1,519	2,090	2,721	3,908	3,835	3,938
	YoY		-	-	-	-	10.7%	37.6%	30.2%	43.6%	-1.9%	2.7%
	SG&A ratio		-	-	-	16.1%	17.2%	21.2%	24.3%	27.8%	26.7%	28.1%
	Advertising					394	388	392
		YoY	-	-	-	-	-1.5%	0.9%	-	-	-	-
		% of total	-	-	-	35.9%	32.5%	23.0%	-	-	-	-
		SG&A ratio	-	-	-	5.4%	5.3%	5.3%	-	-	-	-
	Media					703	806	1,312
		YoY	-	-	-	-	14.6%	62.8%	-	-	-	-
		% of total	-	-	-	64.1%	67.5%	77.0%	-	-	-	-
		SG&A ratio	-	-	-	55.3%	54.9%	54.4%	-	-	-	-
Operating profit						425	274	441	551	424	735	584
	YoY		-	-	-	-	-35.6%	61.3%	24.9%	-23.1%	73.3%	-20.5%
	Operating profit margin		-	-	-	5.0%	3.1%	4.5%	4.9%	3.0%	5.1%	4.2%
	Advertising					533	438	522	620	862	891	556
		YoY	-	-	-	-	-17.8%	19.2%	18.8%	39.0%	3.4%	-37.6%
		% of total	-	-	-	76.1%	73.2%	63.1%	58.1%	87.1%	66.5%	44.8%
		Operating profit margin	-	-	-	7.4%	6.0%	7.0%	7.7%	8.8%	9.1%	6.0%
	Media					167	161	306	447	128	449	686
		YoY	-	-	-	-	-3.9%	90.3%	46.2%	-71.3%	250.2%	52.8%
		% of total	-	-	-	23.9%	26.8%	36.9%	41.9%	12.9%	33.5%	55.2%
		Operating profit margin	-	-	-	13.2%	10.9%	12.7%	14.3%	3.0%	9.9%	14.3%
	Segment profit adjustments					-275	-325	-386	-516	-566	-605	-658

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Segment gross profit no longer disclosed from FY06/18. Segment SG&A expenses calculated by subtracting operating profit from segment gross profit.

Advertising business

The main product in this business is affiliate ads. Net Marketing connects advertisers with affiliate service providers (ASPs; affiliate ad distributors) or with the individual media and social media platforms with which it partners. The company earns revenue by formulating marketing strategies for advertisers and providing them operational support. Although its focus is affiliate advertising, the company also handles programmatic advertising, including social ads. The advertisers are mostly beauty salons, HR companies, and finance companies, and as of FY06/21, handling volume is split fairly evenly among these three business domains. A portion of the ad revenue Net Marketing earns is paid to the affiliates as performance fees. The company has applied the Accounting Standard for Revenue Recognition from the start of FY06/22, reporting net revenue in the Advertising business. Specifically, it reports revenue as the amount obtained by deducting listing fees paid to media from the conventional revenue figure.

Affiliate ad consulting

Net Marketing was founded as an ASP that would build a network of major media it could offer to advertisers. The company later shifted focus to the agent business, as it had entered the market after the major ASPs were already established, and recognized a strong and untapped need for agency services. Advertisers are faced with many difficult decisions. They must choose from a variety of media including TV, magazines, newspapers, radio, and the internet. In the internet category alone, advertisers are presented with the challenge of developing listing ad and search engine optimization (SEO) strategies, as well as the issue of sifting through the various affiliates. An ASP simplifies the process by assuming responsibility for purchasing ad space from the publishers of media and making performance-based payments. However, choosing among ASPs can be a labor-intensive task requiring advertisers to spend a considerable amount of time and effort sorting through a pool of dozens of ASPs. The company decided to focus its attention on the agency business to save advertisers time and hassle. As a first step, Net Marketing developed ALLADiN, a systems tool allowing centralized management of the complex operations involved in the affiliate agency business. The tool helped the company close contracts with several dozen companies.

Net Marketing positions ALLADiN—which has the ability to centralize a substantial number of ASPs—as an ASP gateway, and deploys its operations team to manage a consulting business that offers strategic planning as well as advertising operations for the advertiser. Net Marketing selects an appropriate ASP for the advertiser from an unbiased standpoint and proposes optimal pricing. The company also provides information and management services to advertisers in cooperation with E-Guardian (TSE1: 6050), which monitors affiliates to ensure quality. Major advertising agencies typically treat affiliate advertising as merely one service among many in their portfolio. Net Marketing’s strength, however, lies in the fact that it specializes in the affiliate business and can thus offer an accumulated wealth of knowledge and knowhow in this type of advertising. According to the company, Net Marketing ranks among the top players in the agency industry based on affiliate advertising revenue. The company has also secured agency contracts with ASP leaders Adways (TSE Mothers: 2489), F@N Communications (TSE1: 2461), and Interspace (TSE Mothers: 2122).

Major ASP companies

Ticker	Company	Latest full-year results					Main businesses (% of revenue)
		FY	Revenue	Operating profit	Operating profit margin	ROE
		FY	(JPYmn)	(JPYmn)	(％)	(％)
2461	F@N Communications	FY12/21	26,700	2,319	8.7%	8.2%	CPA solution (78) , AD communication (20) , Other (2)
2489	Adways	FY03/21	49,020	1,626	3.3%	12.2%	Advertising (88), Apps and Media (1), Overseas (10), Other (1)
2122	Interspace	FY09/21	23,142	484	2.1%	8.1%	Online Ad (97), Media (3)
2491	ValueCommerce	FY12/21	33,560	7,905	23.6%	20.9%	Marketing solution(51), EC solution(49)

Source: Shared Research based on company data

Programmatic ad consulting

In addition to the affiliate advertising business, the company in Q4 FY06/18 launched its social advertising business, which shows even stronger potential for growth. Social advertising refers to advertising on social networking sites such as Facebook, Twitter, LINE, and Instagram. Net Marketing purchases and sells advertising space on these media and also provides consulting and operational support to advertisers.

The company uses social advertising to advertise its own Media business app and has thus gained operational experience in social advertising from the advertiser’s perspective. Using this knowledge, it decided to venture into selling social media ads in its Advertising business. The company is using its Media business experience (e.g., its understanding of how CPA changes based on activities in the social media platform), to develop the social advertising business, while simultaneously using knowledge gained in the social advertising business to improve its advertising efforts in the Media business.

As of FY06/21, while the company focuses on social advertising in terms of programmatic ad consulting, it also handles other programmatic advertising such as listing ads.

Customers

Customers of the Advertising business include both advertising agencies (such as First Charge, Dentsu Group, and EPARK) and advertisers (such as Recruit Career). Net marketing did not disclose the names of large-lot customers (those who account for more than 10% of the company's total revenue) in FY06/21, but this does not mean it lost those customers, just that there was greater customer diversification. The advertisers are mostly beauty salons, HR companies, and finance companies, and as of FY06/21, handling volume is split fairly evenly among these three business domains. The company says profit margins differ from project to project. However, financial sector customers are mainly large corporations with relatively large projects, and margins as a share of handling volume tend to be small. According to the company, it usually takes about one to two months between receiving an order and launching a project.

The company says it has won praise from its customers for the ads’ effectiveness. It attributes this success to the consulting work it offers to the affiliate ad customers where it focuses not only on points that lead to the company’s own revenue generation (for example, helping customers bolster the number of store visits or card loan applications made by ad viewers) but also on the customers’ revenue generation thereafter (how the ad could lead to a contract after the store visit or a successful screening after the loan application, in the above examples). In addition to an understanding of the affiliates, this kind of advertising consulting requires knowledge on individual sectors, which the company has accumulated thanks to its long consulting experience in the beauty salon, human resources, and financial sectors. This has resulted in it being easier for the company to maintain close relationships with customers. Also, the Advertising business includes a consulting function, and customers of a certain size can benefit from such added value.

Impact of COVID-19 pandemic

The main service in the Advertising business is affiliate advertising. As of FY06/20, a high ratio of customers who are store operators were affected by restricted operating hours and the tendency for consumers to refrain from leaving home. Affiliate advertising is a type of performance-based advertising, so revenue is not generated unless consumers visit the stores of end clients or fill applications. As a result, the company’s Advertising business was significantly affected by the COVID-19 pandemic reducing spending among store operators. Addressing a key issue it has faced for some time, the company has been working to optimize its customer portfolio in order not to be overly dependent on specific customers or products, and aims to further its efforts in this area with the goal of expanding earnings and stabilizing the business.

Revenue from large-lot customers

Large-lot accounts	FY06/12	FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20	FY06/21
(JPYmn)	Parent	Parent	Parent	Cons.	Cons.	Cons.	Cons.	Parent	Parent	Parent
Dentsu Digital				-	-	1,434	1,420	-	-	-
EPARK				-	-	1,136	2,437	-	-	-
DMM.com Labo				1,621	1,439	1,044	-	-	-	-
Recruit Career				-	886	990	1,230	1,624	2,116	-
Dentsu Digital				1,682	1,314	-	-	-	-	-
NEXTAGE Dentsu				-	897	-	-	-	-	-
AI Pacific				1,284	-	-	-	-	-	-
First Charge				-	-	-	-	-	1,446	-
Other Advertising business customers				2,666	2,821	2,853	2,987	8,188	6,273	9,222
Advertising revenue				7,254	7,357	7,458	8,074	9,812	9,835	9,222

Source: Shared Research based on company data

Media business (Omiai matchmaking app)

Point to note: Results of investigation into member information leak and measures going forward

On August 11, 2021, the company announced the results of an investigation into the leak of member information due to unauthorized access by third parties into the company’s Omiai matchmaking app (announced May 2021) and measures to prevent a recurrence.

Overview of unauthorized access

In the unauthorized access incident, external parties used the company’s API server to fraudulently obtain age verification document image data from the company’s contracted cloud server on multiple occasions over April 20–26, 2021. The investigation revealed that the third parties fraudulently obtained information needed to access the image data, and succeeded in making numerous requests for the data. It took some time (until April 28) to discover the unauthorized access, as access was not obtained via malware or exploiting system vulnerabilities, but took the form of apparently legitimate data requests. It also took considerable time to conduct the full investigation, because it was necessary to identify the specific means of access by the attacker from among many logs, including those from normal use. The company immediately blocked the access source following discovery of unauthorized activity and took emergency measures to ensure the safety of all age verification document image data it held. It said there were no signs of any new unauthorized access since the emergency measures were put in place.

Age verification made compulsory
In 2009, the “Act on Regulation on Soliciting Children by Using Opposite Sex Introducing Service on Internet” was amended to make age verification using identification documents mandatory. There are multiple methods of age verification, for example by allowing users to register a credit card, which can ordinarily only be held by someone 18 years or older. In some cases, the verification process is handled by a specialist outsourcing vendor.

Details of member information leaks

The company confirmed that digital images of age verification documents for 1.7mn accounts submitted to it between January 31, 2018 and April 20, 2021 were targeted (no change from the number announced in May 2021). Following analysis of log information for the company’s Omiai service and internal network, the investigation found no leakage of personal information other than that for the age verification documents. Further, between the announcement of the incident and August 11, 2021, there was no specific secondary damage related to the data leak or any event with a clear causal relationship found.

Types of age verification document image data: Driver’s licenses, health insurance cards, passports, and My Number Cards (front side), with driver’s licenses and health insurance cards accounting for over 90% of the total.

Measures to prevent recurrence

After taking emergency steps to prevent unauthorized data acquisition by third parties (the direct cause of the incident), the company formulated the measures listed below encompassing its system security overall to prevent a recurrence, and is working swiftly to implement them. The company plans to announce new security measures going forward in a timely manner.

Tighten restrictions on access and requests from external networks

Review authentication settings for apps

Relocate and encrypt digital images of age verification documents held by the company

Tighten access control and authority for systems and information, and strengthen password policies

Tighten server login authentication and enhance audit trail

Deploy constant dynamic monitoring infrastructure for internal endpoints

Assess vulnerabilities of internal corporate networks and services that are available externally, such as corporate websites

Review network configuration and app installation based on above assessment, and strengthen security

Install external Electronic Know Your Customer (eKYC) service to tighten and enhance safety of age verification screening processes

Management of customer data going forward

After discovering the unauthorized access, the company set up a personal information and security measures committee, which has reviewed personal information management and information security rules and looked into new policies for customer information management. Following the completion of the investigation, the company decided on the final policies below.

Changes in member information retention period

Before: A uniform 10 years after membership lapses

Current (began from January 31, 2022): For customers’ personal information, 90 days after membership lapses.

For former members of the Omiai service, the company plans to progressively delete all of the digital images of age verification documents and personal information starting from December 1, 2021. However, the company concluded that it would be problematic to delete such data for the 1.7mn accounts that were accessed fraudulently at present, as the data might be needed to confirm facts in the event of secondary damage and for the company to respond. Going forward, the company will promptly delete the data when it determines that holding them is unnecessary, according to circumstances. The company will encrypt all of the data involved in the unauthorized access, and store them on a server totally cut off from the external internet, completely separate from the Omiai database.

Retention period for customer data
There is no standardization in the industry in terms of data retention period, with some competitors retaining data for just 90 days, and other retaining it for as long as 10 years, as Net Marketing was doing. The company’s intention behind conducting strict identity verification through documents (including disallowing data masking) and retaining that data for a long time was to create a safe and secure app by carefully barring malicious users, but this policy has backfired.

Market share

According to the “Online Matchmaking Service Market Size Forecast (2018–2026)” by MatchingAgent, Inc. and Digital InFact, Inc., the size of the matchmaking market was JPY62.2bn in 2020, and will be JPY165.7bn in 2026 (CAGR of approximately18%). Market size in 2020 exceeded JPY51.0bn in 2019 despite the COVID-19 pandemic. As well, the latest forecast revised up the market size growth trend projection, changing to an outlook of growth rates not slowing for some years beyond 2022.

There are many competitors because the matchmaking app market has low barriers to entry. However, matchmaking apps require a sufficient number of members to deliver a certain level of matching accuracy, and there is constant turnover in paying members. These facts necessitate operating the business on a scale large enough to maintain advertising spending. The major competing apps in Japan are Pairs of Match Group, Inc. (NASDAQ, MTCH), which develops matching apps globally, and Tapple operated by CyberAgent, Inc. Based on app spending as of 2021, Pairs and Tapple’s shares seems to exceed that of Omiai.

Given the abovementioned market size of JPY62.2bn in 2020 and the company’s Media business revenue of JPY4.5–4.8bn in FY06/20 and FY06/21, we estimate the company’s share at around 7–8%.

As of 2022, there are many restrictions on mass marketing in the online matchmaking business in Japan, including, for example, a prohibition on TV commercials. This limits the advertising methods available to companies in the field. If these restrictions are lifted, Net Marketing and competitors are expected to significantly increase advertising spending to engage in mass marketing efforts. Therefore, if the external environment changes, for example the ban on TV commercials is lifted, the market growth rate and each company’s share is expected to change significantly.

Business model

Basic mechanism

In the Media business, Net Marketing operates the Omiai matchmaking app. The service, which uses Facebook authentication, assists men and women in their search for partners. Whereas the service was previously limited to users with Facebook accounts, it is now available to internet users in general.

A match is considered made on the app when an interested party clicks the equivalent of a “like”, and the person to whom that click was sent replies with a “thank you” click. Once a match is made, the parties can exchange messages. The exchange of messages is a paying member feature, which only men pay, so successful matching can be seen as a factor contributing to an increase in paying members.

On Tuesday, May 26, 2020, the company began providing the new online dating feature, which allows users to video call their potential matches within the Omiai matchmaking app. The new feature makes available video calling, which may be used up to 15 minutes a day, once a user has exchanged messages with his/her potential match for more than three times. Because the video call feature can only be used in the Omiai app, there is no need for users to exchange their personal information such as telephone numbers or user IDs for other external communication tools.

Omiai is a Japanese word referring to a meeting between a man and woman through the mediation of a third party for the purpose of marriage. The name of the company’s app (Omiai) therefore gives the impression that it is more “marriage oriented” and safer than other companies’ apps. This impression seems to affect the attributes of the user base.

Revenue structure

Omiai requires no fee to register, but basically charges male members monthly fees to sign up for additional services. Men need to become paying members once they start messaging a female user following a match. As a consequence, the matching rate is an important motivator for shifting to the paid service. It also charges for a variety of features, including points allowing an additional number of contacts and premium packs with functions that can increase the matching rate. Revenue can be calculated by multiplying the number of paying members by ARPPU (average revenue per paying user).

Revenue in the Media business mainly comprises fees (monthly usage and added options) from paying members (male users) of the matchmaking app Omiai. As of end-FY06/21, the number of paying members (monthly service users) was approximately 86,000 (+9,732 members YoY). A one-month plan was priced at JPY4,800/month (tax inclusive) as of March 2022. Long-term plans require a lump-sum payment in advance, but are discounted, to JPY4,266/month for the three-month plan, JPY2,466/month for the six-month plan, and JPY2,066/month for the 12-month plan (all tax inclusive). We estimate ARPPU to be around JPY4,000–5,000 based on past Media business revenue and numbers of paying members.

Users often do not stop using the matchmaking app immediately after establishing a match, and the app allows for multiple simultaneous matches. However, once two members form a couple, there is no need for them to continue using the app since they can communicate by other means. In other words, there is turnover in paying members. This structure necessitates continuous acquisition of new subscribers, which calls for a certain amount of continuous advertising spending. Although some members pay for long-term plans and there is some repeat demand due to resumption of use, the profit structure is different from a typical subscription model that assumes long-term continuous use.

Paid membership is rather fluid, with members either moving to different sites or ending their subscription after finding a partner. Of course, the higher the matching rate and the easier it is to find a partner, the higher the termination rate. On the other hand, a higher matching rate means the majority of users feel more motivated to match. Since these users would have previously left the service after only a short amount of time (roughly two months), the upshot of increasing the matching rate is an overall increase in the number of users paying monthly fees and the average paying membership period. Moreover, sites where it is easy to find a partner often produce synergistic effects such as more rapid influx of members (including repeat members). The Harvard Business Review recently published an article titled “The Strategy Puzzle of Subscription-Based Dating Sites,” which introduced several case studies and raised the following points.

The method for men and women to meet each other has evolved from traditional matchmaking, to dating sites, and now to matchmaking sites. This has raised the question of whether the matchmaking site operator is really introducing the best technologies to ensure the best match. A number of these companies employ subscription-based models, but as matching technologies improve and it becomes easier to find a partner, the termination rate among subscribers tends to rise, ultimately impacting that company’s profits.
Source: Yue Wu, V. “Paddy” Padmanabhan, “The Strategy Puzzle of Subscription-Based Dating Sites” Harvard Business Review Jan. 2019

Breaking down the company’s cost of revenue, when excluding media costs (Advertising business), cost of revenue is generally the same as cost of revenue in the Media business, and consists mainly of settlement fees. When payment is made via an app platform operator (e.g., Apple, Google), the platform is said to charge as much as 30% of the payment amount—treated as cost of revenue at Net Marketing. Cost of revenue includes settlement fees, server costs, software maintenance costs, and outsourcing costs.

On September 16, 2021, the company ended the purchase of new paid options via credit card or convenience store payment. It says it plans to discontinue the web version of its service as part of security enhancement measures and is therefore ending credit card and convenience store payment, which was used mainly by web version users. Credit card and convenience store payments do not go through the Apple Inc. or Alphabet Inc. platforms, so fees are lower than for the iOS and Android versions, in which the platforms are said to charge up to 30% of the payment amount. In September 2021, after Net Marketing announced the discontinuation of credit card and convenience store payment, an agreement reached between Apple and the Fair Trade Commission will allow certain types of apps to use links to payment methods outside the Apple platform as early as 2022. For this reason, it seems likely Net Marketing will rethink its approach to off-platform payment methods (including credit cards).

Maximizing lifetime value (LTV)

From the perspective of maximizing revenue from each paying user (lifetime value [LTV]), the company aims to maximize the factors in the LTV equation: monthly unit price and paying member retention period. The unit price is determined by the amount members are willing to pay based on the balance between the matching rate and other benefits for the members and the pricing of competitors. Since raising the unit price excessively depresses the paying member retention period, the company emphasizes finding an overall balance between the unit price and the paid membership retention period to improve LTV. Moreover, it is necessary to maintain a certain matching rate for members because if the matching rate falls too low, the satisfaction of paying members decreases, leading them to judge the service as not worth the unit price, which increases the withdrawal rate and shortens the paying member retention period.

Omiai members who leave the service do so mainly because they cannot find a good match. As such, Net Marketing believes that increasing the opportunity to make a match and introducing long-term plans will result in contract extension of members who might otherwise leave after only a short time. Something else to consider is that if the matching rate is high, a member who withdraws after making match may at some point return as a repeat user. The company and its competitors are working on a variety of ways to increase the matching rate and thereby extend the average contract period to yield a higher number of paying members on a monthly basis. For example, some companies focus on achieving high membership turnover rates (indicating successful matching) and improving their ability to attract customers by offering highly efficient member services to boost matching accuracy and speed, including those employing advanced technologies such as AI. Eureka is one of these; its Pairs service is involved in a joint research and development project focusing on matchmaking algorithms with the Yamazaki Laboratory at the University of Tokyo’s Graduate School of Information Science and Technology.

Assuming there is no technological disparity, the size of the number of members (including nonpaying members) is also important because the larger the population of members, the easier it is for any given member to find matches, which increases satisfaction. It is also important to sign up new members. Due to the nature of the matching app, a certain level of churn is unavoidable, so the matching accuracy will decline unless there is a steady inflow of new members. Matching accuracy also depends on the share of men and women and whether a member has attributes conducive to matching (e.g., is part of a well-represented age group).

While most paying members opt for the monthly plan, the company has also introduced multi-month plans that are cheaper on a monthly basis than the monthly plan, but require the user to sign on for several months. While the multi-month plans put downward pressure on unit prices, they also work to extend contract length, which in turn looks to boost ARPPU over the long term (to put it differently, if they didn’t lift ARPPU, the company would stick with only the monthly plan). In addition, as those using the multi-month plans are counted among the paying members for a particular period, these plans also have the effect of increasing the total number of paying members.

As of September 2021, monthly prices of competitors’ paid plans (basic monthly charges not including options; based on iOS and Android versions) fall in the range of JPY4,000–4,500, which is slightly lower than Net Marketing's JPY4,800.

Review of Omiai pricing structure

At its 1H FY06/22 results briefing, the company flagged the possibility of revising the Omiai pricing structure in 2H FY06/22.

The company intends to revise the Omiai pricing structure if it concludes that an increase in conversion rates to paying members would lead to higher revenue overall (despite lower prices) based on price sensitivity research it has carried out and an assessment of external conditions.

To improve revenue and profit, the company also intends to analyze accumulated user data in closer detail than before, and use it in considerations of its brand, pricing, and product strategies.

An uptick in member acquisition costs

Users often do not stop using the matchmaking app immediately after establishing a match, and the app allows for multiple simultaneous matches. However, once two members form a couple, there is no need for them to continue using the app since they can communicate by other means. In other words, there is turnover in paying members. This structure necessitates continuous acquisition of new subscribers, which calls for a certain amount of continuous promotional spending. What becomes essential is to boost LTV alongside the efficient acquisition of members.

When the company spends on promotions, it first sees an increase in the number of nonpaying members (new members), some of whom switch to paid memberships. Net Marketing expects paying members to continue their contracts for a certain period of time. In this manner, when the company actively promotes the service, there is a slight lag from the point when expenses are incurred to the point when the effects show up as revenue. Due to the nature of the matching app, a certain level of churn is unavoidable, so it is necessary to continue promotions to keep acquiring new members.

While there was a time the company focused its efforts on acquiring customers mainly through Facebook advertising, it is now working to diversify advertising sources to cap cost per action (CPA) increases and more effectively acquire new customers. In particular, the company is focused on non-Facebook social networking sites, including LINE and Twitter, as well as YouTube advertising and universal app campaigns (campaigns that can deliver ads to most Google ad outlets). Thanks to a simplified process, logging in through Facebook was still the preferred method of many of the company’s members in 2021.

Given the substantial mass marketing restrictions still in effect in Japan in 2022, including a ban on TV commercials, the company’s options for advertising remained rather limited. A lifting of these restrictions would likely significantly expand mass market advertising by the company and its competitors, with a change in the external environment, including as a result of the TV commercial ban being lifted, contributing to a substantial shift in CPA and market growth rate trends.

The majority of promotion expenses (a subset of SG&A expenses) are accounted for by promotions in the Media business. However, expenses to raise brand awareness are recorded separately as Other items (advertising expenses) under SG&A expenses. In FY06/19, the company sharply increased strategic investment in promotions in an effort to bolster member acquisition, resulting in deterioration in member acquisition costs. In FY06/20 and FY06/21, the company saw enhanced efficiency in member acquisition due to greater organic inflow triggered by the matchmaking market as a whole enjoying increased awareness and by the company's own rebranding measures (see below). Shared Research estimates the cost of acquiring paying members as of FY06/21 to be roughly JPY5,000 per member. We estimate monthly ARPPU to be roughly JPY4,000–5,000 based on past Media business revenue and numbers of paying members, which means the company is able to recover the paying member acquisition cost within two months.

Cost per action (CPA) estimation

Cost per action (CPA) estimation	FY06/12	FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20	FY06/21
	Parent	Parent	Parent	Cons.	Cons.	Cons.	Cons.	Parent	Parent	Parent
Promotion expenses (company data; JPYmn)	-	-	-	487	619	1,085	1,387	2,467	2,047	1,748
New members (YoY change, monthly disclosure; '000)							938	1,163	1,226	1,493
Paying members, as % of new members (SR est.)							20.0%	24.0%	25.0%	23.0%
New members acquired (SR est.; '000)							188	279	307	343
CPA per paying member (JPY)							7,393	8,837	6,678	5,091

Source: Shared Research based on company data
“Paying members, as % of new members” was estimated by dividing the number of paying members by the number of new members inflowing for three months.
It is difficult to estimate figures before FY06/18 using the same criteria as for FY06/18 and after due to a lack of data.

Rebranding of Omiai

In February 2020, the company launched a rebranding promotion for the Omiai matchmaking app. It updated the logo of the Omiai brand, creating a simple and monotone design based on the concept of supporting sincere matchmaking that leads to loving relationships (by emphasizing the letters “ai,” which mean “love” in Japanese). Furthermore, the company began employing NON (the stage name of famous actress and creative artist Rena Nonen) as a brand ambassador.

According to Net Marketing, these rebranding efforts are aimed at increasing recognition of and favorability toward the Omiai brand among other matchmaking services in Japan. The company decided to implement these rebranding measures to increase organic user inflow because it realized in FY06/19 that achieving further growth would be difficult if it were to merely rely on its previous online advertising strategy that was driven by cost per action (CPA). Net Marketing indicated that these rebranding efforts are particularly focused on raising recognition of and favorability toward the Omiai brand among younger generations. Unlike promotions that primarily rely on online advertising, these rebranding efforts are not focused on raising short-term earnings and instead target future organic increases in member volume. Accordingly, the company collectively views these measures as a long-term initiative that will last several years.

Net Marketing thinks that higher levels of brand recognition produced by these efforts will lead to an increase in organic member inflow. The company also projects that this larger inflow will help curtail advertising expenses and raise OPM.

Omiai material after rebranding (September 2021)