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 app (launched in February 2012), which provides a safe and secure meeting place for singles. In FY06/20, the Advertising business had revenue of JPY9.8bn (+0.2% YoY) and segment profit of JPY891mn (+3.4% YoY), and the Media business had revenue of JPY4.5bn (+6.8% YoY) and segment profit of JPY449mn (+250.2% 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 it partners with. The company earns revenue by formulating marketing strategies for advertisers and providing them operational support. The advertisers are mostly beauty salons and companies engaged in HR and finance. A portion of the ad revenue Net Marketing earns is paid to the affiliates as performance fees. Profit margins vary by project, but the company says overall segment profit margin is a low 8.8%. In addition to affiliate ads, the company has focused on social advertising since Q4 FY06/18.
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-FY06/20, the number of paying members (monthly service users) was approximately 77,000 (-100 members YoY). A one-month plan was priced at JPY3,980/month (tax inclusive) as of August 2020, but long-term plans are discounted (e.g., the three-month plan was JPY3,320 yen/month [tax inclusive]). We estimate average revenue per paying users (ARPPU) to be around JPY5,000–6,000 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.
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. The company confirmed that it was highly likely that 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. These documents mainly include driver’s licenses, health insurance cards, passports, and My Number Cards (front side), with driver’s licenses making up the majority at about 60% of the total. In addition, in responding to this leak of member information, the company is incurring costs related to an investigation of the incident, security measures, and the handling of inquiries. It has established a Security Committee (tentative name) headed by the company’s representative director, and has begun reviewing its internal rules on personal information management and data security.
Market environment of matchmaking apps in Japan: According to “Matchmaking Activity Survey 2020” by Recruit Marketing Partners Co. Ltd.’s Bridal Research Institute, the percentage of people who got married through online matchmaking services was 6.3% in 2019. While dropping by 1.1pp YoY in 2019, this number has been trending up from roughly 2% in 2012–13, likely in line with users increasingly adopting mobile app versions of matchmaking services. 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.
Competition in the market for matchmaking apps in Japan: Rival apps are Pairs, run by a subsidiary of The Match Group (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 2020, we understand Pairs and Tapple have greater market shares than Omiai.
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 revised on July 16, 2021.
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 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.
Shared Research believes Net Marketing has three key strengths; 1) A rich customer base built on pursuing the top position in the niche affiliate consulting market; 2) an Advertising business centered on affiliate advertising, which is relatively unaffected by economic downturns; and 3) the steady promotion of multi-month plans in the Media business.
Weaknesses include: 1) the damage incurred on the Omiai brand, which had been touted as safe and secure, due to the leak of member information made public on May 2021; 2) The existence of competitors with a greater share of the Japan matchmaking app market; and 3) end clients in the Advertising business being overly weighted toward advertisers in certain industries, making the earnings structure vulnerable changes in the environment (See the “Strengths and weaknesses” section for details.)
Figures in this report may differ from company materials due to differences in rounding methods.
|Gross profit margin||-||-||-||21.1%||20.3%||25.7%||29.2%||30.8%||31.8%||32.3%|
|Operating profit margin||-||-||-||5.0%||3.1%||4.5%||4.9%||3.0%||5.1%||4.2%||8.6%|
|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%|
|Per-share data (JPY)|
|Shares issued (year-end; '000)||-||-||-||-||13,988||13,988||14,562||14,579||14,797||14,935|
|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|
|Investments and other assets||-||-||-||110||85||266||239||263||311||300|
|Total fixed assets||-||-||-||216||243||404||423||399||463||513|
|Total current liabilities||-||-||-||2,154||1,656||2,054||2,666||2,911||2,225||2,309|
|Total fixed liabilities||-||-||-||81||328||240||160||80||-||-|
|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|
|Number of employees||43||62||79||93||98||111||114||120||123|
|Revenue per employee||62.7||75.7||83.8||91.7||90.0||88.9||98.3||117.1||116.8|
|Operating profit per employee||-||-||-||4.6||2.8||4.0||4.8||3.5||6.0|
|Number of paying members||2016||28|
|Number of paying members YoY||2016||48.6%|
|Cumulative total number of members||2016||1,265||1,305||1,344||1,389||1,449||1,504||1,556||1,608||1,666||1,727||1,784||1,845|
|Change in the number of members||2016||48||40||39||45||60||55||52||52||58||61||57||61|
|Paying members, as % of total||2016||1.89%|
|Paying members, as % of new members||2017||20.8%||20.9%|
|Cumulative total number of matching||2016||4,179||4,346||4,561||4,778||5,032||5,260||5,498||5,736||5,978||6,250||6,552||6,881|
|Number of matching||2016||170||167||215||217||254||228||238||238||242||272||302||329|
|Number of matching per paying member||2016||8|
The company believes that the key to expanding its business lies in creating a virtuous cycle in the attraction of customers. More specifically, the company directs its advertising investment to promotions and then reinvests revenue gained from any subsequent increase in registered members toward additional promotional efforts. The number of new members and the number of paying members can easily be impacted by when the company chooses to advertise and how much it decides to spend on that advertising. The influx of new members appears to be increasing thanks to the company’s strategy of bolstering awareness of the services it offers. As of June 2020, the number of matches made per paying member was more than twice as high as it was as of June 2016.
As of the May 2021 monthly disclosure, there were 7.0mn cumulative members, 135,000 new members, and 68.1mn cumulative matches made. 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 paused posting digital ads, its main strategy in capturing new members for its Omiai matchmaking app, starting soon after its May 21 disclosure and continuing as of the date of this release, July 7.
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. Comparisons based on revenue under the previous standard are in the discussion of quarterly results.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||% of Est.||FY Est.|
|Gross profit margin||32.6%||32.3%||31.7%||31.8%||30.8%||33.2%||32.8%||32.3%||77.1%|
|Operating profit margin||9.6%||6.6%||5.3%||5.1%||6.1%||3.7%||3.3%||4.2%||19.6%||8.6%|
|Recurring profit margin||9.6%||6.6%||5.4%||5.2%||6.4%||3.8%||3.4%||4.2%||19.8%||8.6%|
|Gross profit margin||32.6%||32.0%||30.5%||32.1%||30.8%||35.9%||32.1%||30.7%||77.1%|
|Operating profit margin||9.6%||2.9%||2.7%||4.3%||6.1%||1.1%||2.6%||6.4%||19.6%|
|Recurring profit margin||9.6%||2.9%||2.8%||4.4%||6.4%||1.1%||2.6%||6.4%||19.8%|
|% of total||70.9%||69.3%||69.2%||68.5%||66.8%||64.7%||64.9%||65.8%||22.8%|
|% of total||29.1%||30.7%||30.8%||31.5%||33.2%||35.3%||35.1%||34.2%||77.2%|
|Operating profit margin||9.6%||6.6%||5.3%||5.1%||6.1%||3.7%||3.3%||4.2%||19.6%|
|% of total||67.3%||70.5%||74.0%||66.5%||50.4%||51.0%||52.0%||44.8%||30.8%|
|Operating profit margin||12.4%||10.6%||9.9%||9.1%||8.0%||6.8%||6.5%||6.0%||44.9%|
|% of total||32.7%||29.5%||26.0%||33.5%||49.6%||49.0%||48.0%||55.2%||69.2%|
|Operating profit margin||14.7%||10.0%||7.9%||9.9%||15.9%||12.0%||11.0%||14.3%||29.8%|
|% of total||70.9%||67.3%||69.0%||65.7%||66.8%||62.5%||65.3%||68.3%||22.8%|
|% of total||29.1%||32.7%||31.0%||34.3%||33.2%||37.5%||34.7%||31.7%||77.2%|
|Operating profit margin||9.6%||2.9%||2.7%||4.3%||6.1%||1.1%||2.6%||6.4%||19.6%|
|% of total||67.3%||77.5%||85.6%||39.1%||50.4%||51.9%||54.4%||30.5%||30.8%|
|Operating profit margin||12.4%||8.2%||8.5%||5.6%||8.0%||5.5%||5.8%||4.9%||44.9%|
|% of total||32.7%||22.5%||14.4%||60.9%||49.6%||48.1%||45.6%||69.5%||69.2%|
|Operating profit margin||14.7%||4.9%||3.2%||16.8%||15.9%||8.4%||9.2%||24.2%||29.8%|
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 such factors impacting both the Advertising and Media businesses. However, 2020 was an abnormal year due to the impact of COVID-19.
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.
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.
In Q1 FY06/22, Net Marketing reported revenue of JPY1.3bn, operating profit of JPY257mn (+22.0% YoY), recurring profit of JPY260mn (+18.5% YoY), and net income of JPY217mn (+44.6% 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, Q1 revenue would have been JPY3.3bn (-3.5% YoY). The change in accounting standard does not affect operating profit. In the Media business, the company suspended online advertising until August 2021, following the April 2021 leak of member information. This reduced marketing costs, and pushed up profit temporarily.
The company booked an extraordinary gain of JPY100mn in insurance income and extraordinary loss of JPY46mn in information security measures associated with the April 2021 data leak. It said that Q1 marked the end of significant costs involved with resolving the matter.
The company maintained its initial FY06/22 forecast, stating that companywide revenue and operating profit were largely in line with expectations. Progress versus its full-year forecasts was 22.7% for revenue, 51.5% for operating profit, 52.1% for recurring profit, and 57.9% for net income. In the 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).
In Q1 FY06/22, revenue in the Advertising business was JPY299mn and segment profit was JPY134mn (-27.0% YoY).
Under the previous accounting standard, Q1 revenue would have been JPY2.4bn (-2.8% 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. However, conditions remained tough for beauty salon related advertising, where salon visits are criteria for conversion, as the pandemic affected the flow of people.
In Q1 FY06/22, revenue in the Media business was JPY1.0bn (-11.4% YoY) and segment profit was JPY302mn (+66.4% YoY).
The company suspended online advertising until August 2021, following the April 2021 leak of member information, reducing marketing costs. At end-Q1, the company had 77,000 paying members, down from 86,000 at end-FY06/21. While new member numbers declined temporarily as the company suspended online advertising, it commented that paying member count at end-Q1 was within its expectations.
As of the October 2021 monthly disclosure, there were 7.5mn cumulative members, 119,000 new members, and 75.6mn cumulative matches made. Following the partial resumption of online advertising in August, new member count was 112,000 in August, 113,000 in September, and 119,000 in October.
As of November 11, 2021, the IMS certification audit was ongoing.
|FY06/20 (parent)||FY06/21 (parent)||FY06/22 (parent)|
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||FY Est.|
|Cost of revenue||5,248||4,545||9,794||4,454||5,035||9,489|
|Gross profit margin||32.3%||-0.5%||31.8%||33.2%||-1.0%||32.3%|
|Operating profit margin||6.6%||-1.4%||5.1%||3.7%||0.5%||4.2%||8.6%|
|Recurring profit margin||6.6%||-1.4%||5.2%||3.8%||0.4%||4.2%||8.6%|
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 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.
|Results vs. Initial Est.||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20||FY06/21|
|Revenue (Initial Est.)||-||-||-||-||-||-||11,296||14,465||16,302||15,500|
|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%|
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 app (launched in February 2012), which provides a safe and secure meeting place for singles. In FY06/20, the Advertising business had revenue of JPY9.8bn (+0.2% YoY) and segment profit of JPY891mn (+3.4% YoY), and the Media business had revenue of JPY4.5bn (+6.8% YoY) and segment profit of JPY449mn (+250.2% YoY).
|Segment revenue and profit||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20|
|(JPYmn)||Parent Act.||Parent Act.||Parent Act.||Cons. Act.||Cons. Act.||Cons. Act.||Cons. Act.||Parent Act.||Parent Act.|
|% of total||-||-||-||85.1%||83.4%||75.5%||72.0%||69.8%||68.5%|
|% of total||-||-||-||14.9%||16.6%||24.5%||28.0%||30.2%||31.5%|
|Segment sales adjustments||-2||-||-3||-0||-||-|
|Gross profit margin||-||-||-||21.1%||20.3%||25.7%||29.2%||30.8%||31.8%|
|% of total||-||79.4%||62.5%||51.6%||46.1%||36.1%||-||-||-|
|Gross profit margin||-||-||-||12.8%||11.2%||12.3%||-||-||-|
|% of total||-||20.6%||37.5%||48.4%||53.9%||63.9%||-||-||-|
|Gross profit margin||-||-||-||68.5%||65.9%||67.0%||-||-||-|
|% of total||-||-||-||35.9%||32.5%||23.0%||-||-||-|
|% of total||-||-||-||64.1%||67.5%||77.0%||-||-||-|
|Operating profit margin||-||-||-||5.0%||3.1%||4.5%||4.9%||3.0%||5.1%|
|% of total||-||-||-||76.1%||73.2%||63.1%||58.1%||87.1%||66.5%|
|Operating profit margin||-||-||-||7.4%||6.0%||7.0%||7.7%||8.8%||9.1%|
|% of total||-||-||-||23.9%||26.8%||36.9%||41.9%||12.9%||33.5%|
|Operating profit margin||-||-||-||13.2%||10.9%||12.7%||14.3%||3.0%||9.9%|
|Segment profit adjustments||-275||-325||-386||-516||-566||-605|
Net Marketing specializes in the affiliate ad consulting business, providing a complete service lineup covering everything from strategic advertising planning to operational support. In affiliate advertising, the advertiser pays a performance fee to the publisher (the affiliate) when, for example, the published ad is viewed, a web form is filled, or a purchase is made. Net Marketing acquires ad spaces from a medium’s publisher or an Affiliate Service Provider (ASP), then earns commissions by connecting the advertiser with the publisher or the ASP. Gross profit margins in the agency business are low, generally in the 10%–15% range, though the company’s operating profit margin in the segment stands at about 8% by keeping SG&A expenses low through systemization. However, it should be remembered that gross profit margins can vary by project, and in projects in which Net Marketing has been able to ensure efficient and effective operations, the company has proven itself successful in lowering costs and bolstering gross profit margins.
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 that includes four listed ASPs and dozens focusing on mobile ads. 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 (TSE 1: 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 (TSE 1: 2461), and Interspace (TSE Mothers: 2122).
|Ticker||Company||Latest full-year results||Main businesses (% of revenue)|
|FY||Revenue||Operating profit||Operating profit margin||ROE|
|2461||F@N Communications||FY12/20||29,379||2,852||9.7%||9.6%||CPA Ad Network (71), CPC / Targeting Ad Network (27), Others (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||FY09/20||24,880||452||1.8%||5.1%||Online Ad (97), Media (3)|
|2491||ValueCommerce||FY12/20||29,171||6,218||21.3%||32.6%||Marketing Solutions (74), E-commerce Solutions (26)|
From FY06/15 through FY06/18, the percentage of Advertising business revenue from the company’s three largest customers hovered at a rather high level of just over 60%. Due in part to revenue growth in the Media business, there was only one large customer (accounting for at least 10% of total revenue) in FY06/19 and two in FY06/20, yet revenue and profit in the Advertising business continues to grow.
In FY06/19, the company had only one large customer in the Advertising business (accounting for at least 10% of revenue based on the company’s disclosure), and yet revenue growth accelerated during the year. Net Marketing’s major customer base centers on the Dentsu Group. It also has a firm grip on advertisers that favor affiliate ads such as those in the services sector (including beauty salon and human resources businesses). Thus, Net Marketing continues to attract new projects in this segment without incurring large promotional expenses. Shared Research believes the company’s strength lies in the depth of its customer base.
As lead advertising agencies, Dentsu Group and EPARK (operates the EPARK online reservations service for beauty salons, fee-based parking lots, hairdressers, medical facilities, and restaurants) will often refer affiliate advertising prospects to the company.
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 Net Marketing rarely losing orders while receiving numerous orders from customers who wish to switch from other companies. It has become all the much easier for the company to maintain its close relationship with its customers.
As noted, the Advertising business includes a consulting function, and its main customers in the business center around large-lot customers who can best merit from such added value. The main service in the Advertising business is affiliate advertising. As of FY06/20, a high ratio of these advertisers were store-based consulting service providers that were easily affected by restricted operating hours and the tendency for consumers to refrain from leaving the 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 advertisers. 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.
|(JPYmn)||Parent Act.||Parent Act.||Parent Act.||Cons. Act.||Cons. Act.||Cons. Act.||Cons. Act.||Parent Act.||Parent Act.|
|Large-lot account ratio||63.2%||61.7%||61.7%||63.0%||-||-|
In addition to the affiliate advertising business, the company launched its social advertising business in Q4 FY06/18, 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’s revenue in this business stems from the number of times advertisements on these social networking sites are viewed.
The company is focused on establishing a foundation in social advertising, and is working to build the business as a second pillar next to affiliate advertising.
The company uses Facebook ads to advertise its own Media business app and has thus gained 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.
Social advertising customers include, but are not limited to, affiliate advertising customers. Net Marketing is also focused on aggressive efforts in the cross-selling of advertising.
On May 21, 2021, Net Marketing announced a possible member information leak due to unauthorized access. The company confirmed that it was highly likely that 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. The impact of this incident on the company’s earnings performance was not determined as of May 21, 2021. Regarding its impact on the earnings forecast for FY06/21, the company said it would make a timely announcement if it finds any matters that require disclosure in its future assessment. As of June 10, 2021, there was only limited information available from the company, and the impact on future earnings remained largely undetermined. For this reason, this report does not reflect the impact of the leak of member information, except where specifically noted. The main impact anticipated as of June 10, 2021, is described in the “Full-year company forecast” section.
On April 28, 2021, Net Marketing detected irregular activities in the server that manages member information for its Omiai matchmaking service. The company promptly conducted an internal probe and found traces of unauthorized access to digital images of documents submitted by members to verify their age as required by laws and regulations. Soon after the discovery, the company blocked the IP addresses of specified unauthorized persons and strengthened network restrictions as emergency measures. At the same time, it began investigating the scope of the impact of the incident, but determined that doing so with an internal probe alone would take time and decided to cooperate with an external specialist company to conduct a forensic investigation and reinforce its monitoring structure. Further, the company began third-party verification of its overall system, and tightened access restrictions for other information used in the service as well. Analysis of communication logs of possible unauthorized transmission revealed that it was highly likely that digital images of age verification documents of some members (including former members who had already left the service) was leaked over multiple instances between April 20–26.
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.
Digital images of age verification documents for 1.7mn accounts submitted to the company between January 31, 2018 and April 20, 2021 were targeted. These documents mainly include driver’s licenses, health insurance cards, passports, and My Number Cards (front side), with driver’s licenses making up the majority at about 60% of the total. Information collected outside the aforementioned period was stored in a different location, so it was not leaked. The company does not hold members’ credit card information as it outsources payment processing operations to financial institutions.
On May 21, 2021, the company began distributing a statement via the Omiai app apologizing and explaining the incident to users whose digital images of age verification documents may have been leaked.
The company has established a Security Committee (tentative name) headed by the company’s representative director, and has begun reviewing its internal rules on personal information management and data security.
Consideration of drastic changes to the information management system within the company (including organizational reform regarding persons and departments in charge)
Review of personal information access authorities and persons granted such authorities (limiting access to an even smaller number of people)
Shortening of retention periods for age verification document image data
Review of storage methods and security measures for age verification document image data (including encryption)
Review of internal handling and storage systems for age verification document image data (including transfer of authorities to a specialist outsourcing vendor)
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 does. 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.
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 2020, 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 JPY4.5bn in FY06/20, we estimate the company’s share at around 7–8%.
As of 2020, 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.
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) thus 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.
Omiai requires no fee to register, but basically charges male members monthly fees to sign up for additional services. 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-FY06/20, the number of paying members (monthly service users) was approximately 77,000 (-100 members YoY). A one-month plan was priced at JPY3,980/month (tax inclusive) as of August 2020, but long-term plans are discounted (e.g., the three-month plan was JPY3,320 yen/month [tax inclusive]). We estimate ARPPU to be around JPY5,000–6,000 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), 30% of the price—treated as cost of revenue at Net Marketing—is generally paid to the platform. Cost of revenue includes settlement fees, server costs, software maintenance costs, and outsourcing costs.
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 free 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. In addition, matching accuracy can change depending on the composition ratio 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 August 2020, monthly prices of competitors’ paid plans (basic monthly charges not including options) fall in the range of JPY3,500–4,000, which is the same level as Net Marketing.
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. What becomes essential is to boost LTV alongside the efficient acquisition of members.
When the company spends on advertising, it first sees an increase in the number of free 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 advertises, there is a slight lag from the point when expenses are incurred to the point when the effects show up as revenue.
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 2020.
Given the substantial mass marketing restrictions still in effect in Japan in 2020, 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 advertising in the Media business. In FY06/19, the company sharply increased strategic investment in advertising in an effort to bolster member acquisitions, resulting in a deterioration in member acquisition costs. While spending on advertising was not so different in FY06/20, the company saw enhanced efficiency in member acquisitions as strategies aimed at improving brand awareness led to an increase in new members. Shared Research estimates the cost of acquiring paying members as of FY06/20 to be just under JPY7,000 per member. As in Q4 FY06/20, the company in FY06/21 is continuing to invest in advertising with a focus on efficiency in member acquisitions, and if TV advertising is excluded, efficiency in member acquisitions looks to improve by even more than in FY06/20. We estimate monthly ARPPU to be roughly JPY5,000–6,000 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||FY06/12||FY06/13||FY06/14||FY06/15||FY06/16||FY06/17||FY06/18||FY06/19||FY06/20|
|Promotion expenses (company data; JPYmn)||-||-||-||487||619||1,085||1,387||2,467||2,047|
|New members (YoY change, monthly disclosure; '000)||938||1,163||1,226|
|Paying members, as % of new members (SR est.)||20.0%||24.0%||25.0%|
|New members acquired (SR est.; '000)||188||279||307|
|CPA per paying member (JPY)||7,393||8,837||6,678|
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 the younger generation. 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.
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 it has now been expanded to cover online matchmaking services as well. For the first round of certification, the application deadline was end-September 2020, with screening conducted starting in October. It was expected that the granting of certification marks would begin around March 2021, but screening is continuing as of June 10, 2021. 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. Net Marketing attaches great importance to improving the trustworthiness of the matchmaking app industry, and applied for the first round of certification.
An outline of the requirements to receive IMS certification in the online matchmaking service industry is as follows.
The company believes that major competitors in Japan will also apply for IMS certification.
Explicit indication that being single is a requirement for membership
A requirement for users to explicitly confirm that they are single when registering for membership
A policy of having applicants certify their singleness in writing if there is any doubt about the singleness of the applicant during the application screening, or if there is a complaint from another member while using the app. (However, this excludes asking for a copy or extract of the family register).
A policy of terminating the contract and a making a claim for damages in the case of a breach of a single pledge
Items concerning respect for basic human rights and compliance with related laws and regulations such as the Act on Specified Commercial Transactions, Consumer Contract Act, and Act on the Protection of Personal Information
Explicit indication of the outline of service content, billing method, the presence or absence of automatic renewal, cancelation method, and other policies to make this information available to general consumers
Explicitly display the final confirmation screen in addition to the application screen as a measure against consumer errors
Give notification before implementing automatic contract renewal
Regulation and monitoring of sexual expression and expression going against the intended use and alerting of members in order to ensure sound quality as a matchmaking service
Authentication via documents verifying identity to prevent spoofing and misuse
Adoption of an around-the-clock monitoring system for sound use
Establishment of contact channels (telephone, e-mail, or inquiry form) for customers to use
Adoption of sufficient measures against malware and viruses to provide safe services to consumers
Examination of the status of complaints with the National Consumer Affairs Center of Japan to substantially eliminate malicious sites from certification
Adoption of a flat-rate billing method (e.g., monthly charges) instead of pay-as-you-go billing
In terms of offline activities, Net Marketing sees social value in helping resolve the issue of Japan’s declining birthrate, and aspires to provide safe and secure services that help lift the marriage rate. It has participated in related events such as government-hosted conferences, the NPO-sponsored Marriage Support Project, and the Japan Dating Summit for industry players. In particular, the company is cooperating with municipalities that are focused on addressing the issue of the declining birth rate. These efforts include working with Okayama Prefecture, the city of Izumo (Shimane Prefecture), Aomori Prefecture, and the city of Kurashiki (Okayama Prefecture) to host matchmaking parties at each of these locations. In November 2020, well after the arrival and spread of COVID-19, the company cooperated with Tottori Prefecture to hold an online matchmaking party. The company aims to enhance awareness of Omiai through a mix of real world and online efforts, and to ultimately become the leading matchmaking business in Japan through synergistic effects.
The following is an overview of the online advertising market in Japan based on a survey by Dentsu Inc. (TSE1: 4324) titled Advertising Expenditures in Japan and a survey by Dentsu and its group companies D2C Inc., Cyber Communications Inc., and Dentsu Digital Inc. titled Advertising Expenditures in Japan: Detailed Analysis of Expenditures on Internet Advertising Media.
Total advertising expenditures (including offline advertising) have been in the range of 1.14–1.30% of nominal GDP since 2005, suggesting the level of total advertising expenses is affected by economic trends.
The ratio of online advertising expenditures to total advertising expenditures is increasing year by year, reaching about 30% in 2019. Total advertising expenditures grow at a CAGR of only few percentage points (exception being 2020 that was affected by the COVID-19 pandemic), which seems to suggest that offline advertising expenditures are being replaced by online advertising expenditures. In 2020, online advertising expenditures were JPY2.22tn, closing on those for four mass media (newspapers, magazines, radio, and TV), at JPY2.25tn.
In 2019, a new category of advertising expenditure, ad expenditures in e-commerce platforms dedicated to sale of goods (advertising expenditures invested in goods-retailing e-commerce platforms by businesses opening stores on those platforms; it does not indicate overall advertising expenditures aimed at sales promotion in the e-commerce domain), was created. This had the effect of making statistical growth in online advertising in 2019 slightly larger than it would otherwise be.
In 2019, online advertising expenditures exceeded TV media advertising expenditures for the first time (even excluding the impact of the newly established product sales e-commerce platform ad expenditures category). In 2020, ad placement declined 11.2% YoY amid the COVID-19 outbreak, and total advertising expenditures fell significantly YoY. However, online ad spending bounced back quickly, and despite a slowdown it managed to maintain positive growth (+5.9% YoY). Dentsu forecasts it to grow by 7.7% YoY in 2021.
Most online advertising media expenditure is programmatic advertising. Social ads make up over 30% of online advertising, and video ads, over 20%.
|Total advertising expenses||5,891.3||5,976.2||6,152.2||6,171.0||6,288.0||6,390.7||6,530.0||6,938.1||6,159.4|
|Online advertising expenditures||868.0||938.1||1,051.9||1,159.4||1,310.0||1,509.4||1,758.9||2,104.8||2,229.0|
|% of total advertising expenditures||14.7%||15.7%||17.1%||18.8%||20.8%||23.6%||26.9%||30.3%||36.2%|
|Product sales EC platform ad expenditures||106.4||132.1|
|Social||Social media ads||389.0||489.9||568.7|
|Other than social ads||1,059.0||1,173.1||1,188.0|
Programmatic advertising: Paid search ads and bidding through digital platforms (tools) and ad networks.
Reservation-based advertising: Pure ads and tie-up ads that are sold to advertisers directly or via agencies or media representatives, or those that are purchased through digital platforms (tools) and ad networks via non-bid (fixed price) transactions.
Affiliate advertising: Ads in which advertisers reward the hosting media and browsing user when the user performs a preset action after viewing an online advertisement.
Types of advertisement
Display ads: Text- and image-based ads that are displayed in frames or banners on websites or apps.
Paid search ads: Ads that are displayed on search results pages when users query specific keywords.
Video ads: Ads in video file format (video/audio).
Affiliate ads: Ads in which advertisers reward the hosting media and browsing user when the user performs a preset action after viewing an online advertisement.
Other online advertising: Online advertising in formats other than the above. Includes email ads, audio ads, and others.
Advertisements deployed on social media* services
*Media (platforms) that provide services for sharing and interaction between users and whose content comprises information posted by users
(Source: JIAA Internet Advertising Basic Glossary FY2019)
Examples of social media: Social networking services, blog services, mini (micro) blogs, video sharing sites, social bookmarking, electronic bulletin boards
Video (video/audio) format ads. Includes following.
In-stream ads: Video ads that play before, during, or after video content.
Out-stream ads: Video ads that play in non-video environments such as display ad spaces. Includes in-feed video ads that play in online advertising spaces or article content screens.
The Dentsu survey stopped disclosing the advertising expenditure breakdown by device at the end of 2018, but as of 2018, more than two-thirds of online advertising media expenditures were mobile advertising. We understand mobile advertising will continue to drive the whole as long as there are no major changes in consumer lifestyles.
Among the types of advertising, video advertising has shown particularly high growth in recent years. Although the CAGR of video advertising slowed in 2019, it was still nearly 60%.
The Dentsu Group’s “Advertising Expenditures in Japan: Detailed Analysis of Expenditures on Internet Advertising Media” began disclosing information on social advertising and the breakdown of social advertising in 2019. The social advertising market is worth around 30% of online advertising media expenditures as of 2019 (JPY490.0bn).
Another survey, MIC Research Institute Ltd.’s “Current Status and Outlook of the Internet Advertising & Web Solutions Market FY2019,” estimates the market size in 2023 at JPY448.6bn (CAGR of 24% from FY2018). However, it should be noted that since this survey was announced in June 2020, it seems that the impact of the COVID-19 pandemic was not taken into consideration in the forecasts.
Another survey by CyberBuzz, Inc. (TSE Mothers: 7069) and Digital inFact, Inc., dated October 14, 2020 “Market survey of domestic social media marketing” forecasts that in 2025, the social advertising market will be worth JPY1.0tn (CAGR of around 15% from FY2020 estimate). “Social advertising” is defined as ads delivered on YouTube, Facebook, Instagram, LINE, Twitter, and TikTok, and excludes ads on blog sites.
Social advertising’s market size in 2019 shows that it has become a significant advertising method. Although survey results vary from company to company, timing, and survey method, the market is likely to grow at a CAGR of roughly 10–20% in 2023–2025.
|Social media ad agency||34.0||61.4||114.3||154.0||214.3||260.0||307.4||361.5||448.6|
|Social media ad agency||375.5||463.0||493.2||598.2||697.2||796.6||899.7||1,001.2|
In recent years, with development in digital communications and the spread of smartphones, users have become able to easily distribute information. As a result, distributors of information are becoming more and more able to influence the consumption behavior of those following them on social media platforms such as YouTube and Instagram. The influencer marketing market is expected to expand accompanying such changes in the environment. A survey by Digital inFact, Inc., estimates the market to grow by a CAGR of more than 10% until around 2024, although growth rates are likely to slow over time.
Influencer: A distributor of information who influences a certain user group through online media, mainly on social media platforms such as YouTube, Instagram, or Twitter, or on blogs.
|Twitter and blogs||5.0||7.0||7.2||9.0||10.5||12.0||13.0||13.8|
In affiliate advertising, a content provider (affiliate) posts a link to an advertiser’s webpage on their website, blog, social media account, or other media, and is paid a fixed performance fee per conversion (for example, when the visitor registers as a member, fills a web form, visits the company’s store, or purchases a product on the company’s site after having clicked through using the link). Since affiliate advertising is performance-based, as long as customer lifetime value (LTV) exceeds the payout to the affiliate, there is no incentive for the advertiser to reduce affiliate advertising.
A Yano Research Institute survey of Japan’s affiliate advertising market estimates the size of the market will reach JPY495.1bn in FY2024 (growing at a CAGR of around 10% from FY2019). It should be noted that since the survey was published in February 2020, it seems that the impact of the COVID-19 pandemic was not taken into consideration in the forecasts. In addition, the size of the affiliate advertising market in Japan according to the Yano Research Institute survey is larger than the size of the affiliate advertising market according to the Dentsu survey mentioned above. This difference may be the result of differences in definitions and scope as well as differences in research methods. The Yano Research Institute survey assumes a somewhat slower growth rate in 2020, likely because of COVID-19.
The Yano Research Institute’s survey categorizes affiliate advertising players into four types: 1) ASP (agency): an agency mediates between various advertisers and website (media) owners, receiving advertising fees and commissions from advertisers, and paying website owners, 2) online marketplace: an online marketplace receives advertising fees and commissions from member stores to promote their products, and pays website owners, 3) independent: a company takes the role of advertiser to promote the products and content sold through its proprietary online store, and pays website owners, 4) platform: a platform provides advertisers with the tracking system and analysis tools necessary for affiliate advertising and receives compensation. The affiliate market in the survey was calculated by adding up performance fees, commissions, and various costs (initial cost, monthly cost, option cost, etc.) incurred from affiliate advertising.
Yano Research Institute’s “Affiliate Advertising Market Trends and Outlook 2021” forecasts the size of the mobile affiliate advertising market as follows. It can be seen that affiliate advertising is shifting to mobile. It assumes only a minor impact of COVID-19 in 2020.
|Mobile affiliate advertising||235.4||267.1||311.9||360.0||405.0||450.5|
During the global financial crisis in 2009, despite total advertising spending falling by double digits, online advertising spending was able to barely maintain growth. As of 2020, a major difference from 2009 is that online advertising spending grew to account for over 30% of the total market. Ad placement slowed in 2020 amid the spread of COVID-19, resulting in a steep YoY decline in total advertising expenditures (-11.2% YoY). However, spending on online advertising recovered quickly, maintaining YoY growth in 2020 (+5.9% YoY), although slowing from previous years.
|Total advertising expenses||6,823.5||6,939.9||7,019.1||6,692.6||5,922.2||5,842.7||5,709.6||5,891.3||5,976.2||6,152.2||6,171.0||6,288.0||6,390.7||6,530.0||6,938.1||6,159.4|
|Online advertising expenditures||377.7||482.6||600.3||698.3||706.9||774.7||806.2||868.0||938.1||1,051.9||1,159.4||1,310.0||1,509.4||1,758.9||2,104.8||2,229.0|
|% of total advertising expenditures||5.5%||7.0%||8.6%||10.4%||11.9%||13.3%||14.1%||14.7%||15.7%||17.1%||18.8%||20.8%||23.6%||26.9%||30.3%||36.2%|
|Product sales EC platform ad expenditures||106.4||132.1|
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.
Given the abovementioned market size of JPY62.2bn in 2020 and the company’s Media business revenue of JPY4.5bn in FY06/20, we estimate the company’s share at around 7–8%.
According to “Matchmaking Activity Survey 2020” by Recruit Marketing Partners Co. Ltd.’s Bridal Research Institute, the percentage of people who got married through online matchmaking services was 6.3% in 2019. Despite the 1.1pp YoY decline, this number has seen continuous growth from roughly 2% in 2012–13, which seems to have been caused by users increasingly adopting mobile app versions of matchmaking services. According to the company, there were no events in particular in 2019 that contributed to a reversal in the uptrend in online matchmaking service usage in place through 2018, so the dip in usage that year may have been due to an error made during the survey. Management noted that with the spread of COVID-19, it expects the usage ratio for online matchmaking services to increase YoY in 2020.
According to the survey, the percentage of singles that are seeking partners and have experience of using online matchmaking services was up in 2018, 2019, and 2020 (when it reached 19.1%). Women have experience using online matchmaking services at a slightly higher rate than men. By age, the younger the generation, the higher the usage rate for both men and women.
According to a research paper by the University of Chicago in 2013, which details a survey of about 20,000 people in the US married from 2005 to 2012, roughly 35% of those surveyed met their spouses online. Of those meeting online, about 45% met through a dating app, while about 20% met through social media. Breaking down those who met through a dating app, about 25% met through eHarmony, while about 25% met through Match (the research paper was instigated by eHarmony.com).
The company believes utilization rates for matchmaking apps are still lower in Japan than they are in the US, with the Japanese market, even when taking into account the cultural differences between the two countries, still showing room for growth. Moreover, the substantial restrictions on mass market advertising in Japan as of 2020, including the ban of TV commercials, means awareness of the services offered by the company’s app is still rather low. The company believes a lifting of these restrictions could boost awareness of the services offered by its app and the market will also grow sharply. In the FY06/21 full-year company forecast, Net Marketing has indicated that TV commercials will be implemented in Q4 FY06/21 or after.