i-mobile 6535

アイモバイル

Recent Updates

2021-10-01

Full-year FY07/21 report update

2021-07-05

Determination of the selling price

2021-06-25

Conduct a secondary offering of its common stock

Get in touch

N 2F N.E.S. Building, 22-14 Sakuragaokacho, Shibuya-ku Tokyo 150-0031

https://www.i-mobile.co.jp/

03-5459-5290

Summary

i-mobile has two main business segments—Online Advertising and Consumer Service. Its primary aim is to convey the value of various goods and services accurately to consumers.

Interactive Media & Services

Key dates

2019-03-15

Coverage initiation

Full Report

2021-10-01

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Executive summary

Business overview

Business: i-mobile Co., Ltd. has two main business segments—Online Advertising and Consumer Service. i-mobile aims to be a company that can contribute to people’s lives through marketing, and operates a hometown tax donation business (Consumer Service business), ad platform business (Online Advertising business), and media solution business (Online Advertising business). In FY07/21, the company recorded revenue of JPY17.8bn (+19.7% YoY) and operating profit of JPY3.4bn (+50.6% YoY).

* This system grants taxpayers tax credits for making donations to local governments in their hometowns or other regions they wish to support. Up to a certain limit, taxpayers who make donations to prefectural governments or municipalities can receive any amount over JPY2,000 as a tax credit toward both income tax and resident tax. Local governments reciprocate by providing donors with gifts of services or local specialties corresponding to the amount donated. Operators of tax donation sites also give users points corresponding to the amount donated.

Consumer Service segment (39.2% of total revenue; 58.0% of total operating profit in FY07/21): The segment consists largely of the company’s hometown tax donation* business, which operates the hometown tax donation portal site “Furunavi.” Whenever a site user makes a tax payment (essentially a donation) to one of the 676 municipalities registered with Furunavi (as of July 31, 2021), i-mobile receives a commission from the local government receiving the donation. The company also operates a range of services for Furunavi members including a travel business, a restaurant PR business, and a point service business.

Revenue structure of Furunavi business: Donors donate to local government bodies via the company’s “Furunavi” website and, based on the amount donated, the company receives a commission from the local government receiving the donation. The gross profit margin at the Furunavi business is high. Sales promotion expenses for Amazon gift certificates rewards and advertising expenses for online ads are variable costs and largely linked to revenue; advertising expenses for TV commercials to increase public awareness of the Furunavi website are fixed costs. Under the hometown tax donation system, donors can receive an income tax deduction for the current calendar year (January 1–December 31), and residence tax credits for the following calendar year. The Furunavi business is seasonal. The number of donors tends to increase in December, which is the donation deadline for each fiscal year. As a result, the company’s revenue in Q2 (November to January of the following year) tend to be relatively high, while revenue in other periods tend to be relatively small.

Hometown tax market size: According to the “Results of the Survey on the Current Status of Furusato Tax Donation System (July 30, 2021)” released by the Municipal Tax Policy Division of the Local Tax Bureau, the amount of donations received for hometown tax in FY2020 was JPY672.5bn (about 1.4x the figure in FY2019), and the number of donations received was 35mn (about 1.5x as much as in FY2019). The amount of the resident tax credit was JPY431.4bn (about 1.2x higher than in FY2019), and the number of people eligible for the credit was 5.5mn (about 1.3x higher than in FY2019). The company attributes the growth in new middle-class users to an increase in the amount of time spent on the Internet resulting from an increase in telecommuting and refraining from going out due to the COVID-19 crisis, as well as taxpayers’ desire to save money.

Online Advertising segment (60.8% of total revenue; 40.2% of total operating profit in FY07/21): The Online Advertising segment includes the company’s ad platform business, media solutions business, ad agency business, and app operation business. The ad platform business consists of an ad network business and an affiliate business (payment-by-result ads). At its media solutions business, the company acts in the capacity of a Google Certified Publishing Partner to help client companies improve their media earnings over the long term with products provided by Google. The ad agency business conducted by subsidiary Cyber Consultant provides online ad agency services and digital solutions. As for i-mobile’s app operation business, subsidiary Ohte runs various apps such as puzzle game apps as the company’s proprietary media.

Revenue structure of Online Advertising segment: In FY07/21, the ad platform business (including other businesses) accounted for around 70% of revenue and 40% of gross profit, while the app operations and media solutions businesses together accounted for about 30% of revenue and 60% of gross profit. With both the app operation business and media solutions business accounting for a growing proportion of total revenue, the high gross margins at these two businesses are working to boost the overall operating profit margin at the Online Advertising segment along with some additional help from cuts in SG&A spending. The company adopted a new accounting standard for revenue recognition from FY07/22. As a result of this change, some of the company’s revenue will be recorded on a net basis rather than a gross basis (i.e., revenue will be equivalent to gross profit), which will have an apparent negative impact on revenue. If the new revenue recognition standard had been applied in FY07/21, consolidated revenue would have been JPY11.6 billion (JPY17.8bn under the old standard), revenue in the Consumer Service business would have been JPY7.7bn (JPY7.8bn), revenue in the Online Advertising business would have been JPY3.9bn (JPY12.2bn), and the OPM in the Online Advertising business would have been 36.3% (11.7%).

Earnings trends

FY07/21 results: For FY07/21, the company reported full-year consolidated revenue of JPY17.8bn (+19.7% YoY), gross profit of JPY11.6bn (+59.6% YoY), operating profit of JPY3.4bn (+50.6% YoY), recurring profit of JPY3.4bn (+49.8% YoY), and net income attributable to owners of the parent of JPY2.3bn (+33.1% YoY). Compared with the company’s revised full-year forecast issued April 20, 2021, consolidated revenue finished 5.3% ahead of expectations, while gross profit came in 5.5% above plan, operating profit 12.7% above plan, recurring profit 15.9% above plan, and net income18.1% above plan. By segment, Consumer Service reported a 71.9% increase in revenue and 48.0% rise in segment operating profit; Online Advertising logged a 6.1% increase in revenue and a 63.9% rise in segment operating profit. Both the Consumer Service business and the Online Advertising business have exceeded the April 2021 forecast.

FY07/22 forecast (reflects impact from the change in accounting standard for revenue recognition): For FY07/22, the company projects full-year consolidated revenue of JPY14.3bn (+23.1% YoY after retroactively applying the revised accounting standard to FY07/21 results; same below), operating profit of JPY3.8bn (+10.9% YoY), recurring profit of JPY3.7bn (+10.3% YoY), net income attributable to owners of the parent of JPY2.5bn (+8.9% YoY), and EPS of JPY116.49. In keeping with its shareholder return policy, the company plans to pay a regular, year-end dividend of JPY35.0 per share, equivalent to a dividend payout ratio of 30%, for FY07/22. By segment, for Consumer Service the company projects full-year revenue of JPY10.1bn (+31.1% YoY) and segment operating profit of JPY2.4bn (+22.2% YoY); key assumptions here include an operating profit margin of 23.7% (-1.8pp YoY) and 900 municipal governments registered with its hometown tax donation service by the end of FY07/22. For Online Advertising, the company projects full-year revenue of JPY4.2bn (+6.6% YoY) and segment operating profit of JPY1.4bn (+1.1% YoY), assuming an operating profit margin of 34.4% (-1.9pp YoY).

Medium-term business plan (FY07/22–FY07/24): Along with its FY07/21 results announcement on September 8, 2021, the company unveiled its new medium-term business plan for the years FY07/22 through FY07/24. Under the new plan, the company targets FY07/24 consolidated revenue of JPY16.0bn, operating profit of JPY4.5bn (representing an operating profit margin of 28.1%), and net income attributable to owners of the parent of JPY3.0bn. These target figures for FY07/24 represent CAGR of 11.4% for revenue, 10.0% for operating profit, and 9.4% for net income—note that CAGRs, including those for segments below, are calculated after adjusting FY07/21 figures for the change in revenue recognition standard. The company also targets an annual dividend payment of JPY42 per share, representing a dividend payout ratio of 30% on projected EPS of JPY140 for FY07/24. For the Consumer Service segment, i-mobile targets FY07/24 revenue of JPY11.3bn and segment operating profit of JPY2.8bn (representing an operating profit margin of 25.0%); these target figures for the segment represent CAGR of 13.7% for revenue and 13.0% for operating profit. For the Online Advertising segment, the new medium-term plan targets FY07/24 revenue of JPY4.7bn and segment operating profit of JPY1.8bn (representing an operating profit margin of 37.3%); these target figures for the segment represent CAGR of 6.5% for revenue and 7.6% for operating profit.

Strengths and weaknesses

Shared Research thinks i-mobile’s strengths are: (1) Brand recognition of the Furunavi hometown tax donation portal site among municipalities and taxpayers, (2) Furunavi’s large membership largely stemming from a tendency of taxpayers to remain with the same service allow it to remain competitive in the hometown tax donation business, and (3) a solid business foundation enables it to propose ads to both media and clients (advertisers) at the Online Advertising segment; its proprietary online advertising technology and marketing expertise developed at the Online Advertising segment can also be utilized at its app operation and hometown tax donation businesses.

We see its weaknesses as: (1) The company’s profit structure being easily affected by changes in tax systems and regulations since the hometown tax donation business accounts for a high percentage of operating profit, (2) the existence of competitors with a higher share in the hometown tax donation business than i-mobile, and (3) the fact that those competitors are increasing in profitability, and the limitation of the necessity of avoiding competition with major media platforms in the Online Advertising segment.

Note: Figures may differ from company materials due to differences in rounding methods.

Key financial data

Income statement			FY12/11	FY07/13	FY07/14	FY07/15	FY07/16	FY07/17	FY07/18	FY07/19	FY07/20	FY07/21	FY07/22
(JPYmn)			Parent	Parent	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Revenue			3,132	5,962	10,008	15,064	14,750	15,689	17,981	21,139	14,902	17,834	14,270
		YoY	73.5%	90.4%	67.9%	50.5%	-2.1%	6.4%	14.6%	17.6%	-29.5%	19.7%	-
Gross profit			-	-	2,976	4,435	4,304	4,931	5,821	10,203	7,293	11,637	14,260
		YoY	-	-	-	49.0%	-3.0%	14.6%	18.1%	75.3%	-28.5%	59.6%	-
		Gross profit margin	-	-	29.7%	29.4%	29.2%	31.4%	32.4%	48.3%	48.9%	65.3%	99.9%
Operating profit			-	-	1,828	2,791	2,147	2,360	2,119	3,161	2,246	3,382	3,750
		YoY	-	-	-	52.7%	-23.1%	9.9%	-10.2%	49.2%	-28.9%	50.6%	10.9%
		Operating profit margin	-	-	18.3%	18.5%	14.6%	15.0%	11.8%	15.0%	15.1%	19.0%	26.3%
Recurring profit			439	1,092	1,833	2,881	2,128	2,355	2,095	3,150	2,248	3,367	3,715
		YoY	12.9%	148.7%	67.8%	57.2%	-26.1%	10.7%	-11.0%	50.3%	-28.6%	49.8%	10.3%
		Recurring profit margin	14.0%	18.3%	18.3%	19.1%	14.4%	15.0%	11.7%	14.9%	15.1%	18.9%	26.0%
Net income			278	672	1,132	1,830	1,428	1,539	1,166	1,368	1,728	2,300	2,504
		YoY	26.4%	141.7%	68.5%	61.6%	-22.0%	7.8%	-24.3%	17.3%	26.3%	33.1%	8.9%
		Net margin	8.9%	11.3%	11.3%	12.1%	9.7%	9.8%	6.5%	6.5%	11.6%	12.9%	17.5%
Per-share data (JPY)
Shares issued (year-end; '000)			1	1	1	1,000	22,154	22,154	21,175	24,171	21,780	21,848
EPS			-	-	62.9	101.7	79.3	75.0	55.1	57.3	76.7	107.4	116.5
EPS (fully diluted)			-	-	-	-	-	64.5	47.6	56.5	76.0	106.3
Dividend per share			-	-	-	-	-	-	-	-	-	100.0	35.0
Book value per share			-	-	110.0	211.9	289.1	504.4	554.8	542.2	607.1	683.9
Balance sheet (JPYmn)
	Cash and cash equivalents		-	-	2,677	4,402	4,754	10,572	11,152	13,975	12,363	15,422
Total current assets			-	-	4,550	6,746	6,505	12,744	13,482	15,805	14,039	17,627
		Tangible fixed assets	-	-	77	73	143	165	202	171	181	150
		Intangible assets	-	-	108	12	394	412	880	198	435	371
		Investments and other assets	-	-	156	176	382	835	902	737	704	845
Total fixed assets			-	-	341	261	918	1,412	1,984	1,106	1,320	1,365
Total assets			1,076	2,259	4,891	7,007	7,423	14,156	15,466	16,911	15,359	18,993
	Accounts payable		-	-	1,671	1,965	1,580	1,939	1,743	1,531	1,027	1,178
	Short-term debt		-	-	-	-	-	-	44	-	-	-
Total current liabilities			-	-	2,559	3,180	2,072	3,259	3,298	3,729	2,072	4,209
	Long-term debt		-	-	337	-	-	-	92	-	-	-
Total fixed liabilities			-	-	352	14	14	25	128	36	64	64
Total liabilities			-	-	2,911	3,194	2,086	3,284	3,426	3,765	2,136	4,272
Total liabilities and net assets			1,076	2,259	4,891	7,007	7,423	14,156	15,466	16,911	15,359	18,993
Total interest-bearing debt			-	-	337	-	-	-	135	-	-	-
Cash flow statement (JPYmn)
Cash flows from operating activities			-	-	1,456	2,129	1,045	2,505	1,476	3,261	440	3,959
Cash flows from investing activities			-	-	24	-128	-788	-643	-798	-245	-438	-83
Cash flows from financing activities			-	-	-	-347	135	3,952	-131	-173	-1,581	-817
Financial ratios
ROA (RP-based)			-	-	51.3%	48.4%	29.5%	21.8%	14.1%	19.5%	13.9%	19.6%
ROE			-	-	57.2%	63.2%	31.2%	19.0%	10.2%	10.9%	13.1%	16.5%
Equity ratio			-	-	40.5%	54.4%	71.9%	76.8%	77.9%	77.7%	86.1%	77.5%

Source: Shared Research based on company data. Per-share data adjusted for stock split.
Note: Figures may differ from company materials due to differences in rounding methods.

Accounting note: In the table above, the company’s estimates for FY07/22 reflect its adoption of the new accounting standard for revenue recognition while the figures shown for past years are based on its previous accounting standard used at the time. Under the new standard, from FY07/22 the company will record some of the revenue previously recognized on a gross basis on a net basis. As this means the revenue figures for FY07/22 and FY07/21 are not directly comparable, and can be compared only after adjusting the FY07/21 figures to the same accounting standard, the company has not given a figure for the YoY percentage changes in revenue and gross profit between FY07/22 and FY07/21.

Segment sales and profit			FY12/11	FY07/13	FY07/14	FY07/15	FY07/16	FY07/17	FY07/18	FY07/19	FY07/20	FY07/21
(JPYmn）			Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.
Revenue			-	-	10,008	15,064	14,750	15,689	17,981	21,139	14,902	17,834
	YoY		-	-	-	50.5%	-2.1%	6.4%	14.6%	17.6%	-29.5%	19.7%
	Consumer Service							1,093	2,412	8,015	4,563	7,846
		YoY	-	-	-	-	-	-	120.7%	232.2%	-43.1%	71.9%
		% of total	-	-	-	-	-	7.0%	13.2%	36.4%	28.5%	39.2%
	Online Advertising							14,596	15,846	13,991	11,466	12,163
		YoY	-	-	-	-	-	-	8.6%	-11.7%	-18.0%	6.1%
		% of total	-	-	-	-	-	93.0%	86.8%	63.6%	71.5%	60.8%
Operating profit			-	-	1,828	2,791	2,147	2,360	2,119	3,161	2,246	3,382
	YoY		-	-	-	52.7%	-23.1%	9.9%	-10.2%	49.2%	-28.9%	50.6%
	Consumer Service							223	681	2,314	1,326	1,962
		YoY	-	-	-	-	-	-	205.3%	239.8%	-42.7%	48.0%
		% of total	-	-	-	-	-	9.5%	32.8%	75.0%	60.5%	58.0%
		Operating profit margin	-	-	-	-	-	20.4%	28.2%	28.9%	29.0%	25.0%
	Online Advertising							2,128	1,395	771	867	1,420
		YoY	-	-	-	-	-	-	-34.5%	-44.7%	12.4%	63.9%
		% of total	-	-	-	-	-	90.5%	67.2%	25.0%	39.5%	42.0%
		Operating profit margin	-	-	-	-	-	14.6%	8.8%	5.5%	7.6%	11.7%

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

Recent updates

Full-year FY07/21 Report Update

2021-10-01

Shared Research updated the report following interviews with i-mobile Co., Ltd.

Trends and outlook

Quarterly trends and results

Cumulative		FY07/19				FY07/20				FY07/21				FY07/21
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue		5,386	12,345	17,376	21,139	3,346	9,012	12,015	14,902	3,373	11,108	14,196	17,834	105.3%	16,939
	YoY	17.5%	34.6%	29.1%	17.6%	-37.9%	-27.0%	-30.9%	-29.5%	0.8%	23.3%	18.2%	19.7%		13.7%
Gross profit		2,320	6,454	8,921	10,203	1,149	4,725	5,960	7,293	1,640	7,934	9,623	11,637	105.5%	11,029
	YoY	89.0%	118.9%	101.5%	75.3%	-50.5%	-26.8%	-33.2%	-28.5%	42.8%	67.9%	61.5%	59.6%		51.2%
	Gross profit margin	43.1%	52.3%	51.3%	48.3%	34.3%	52.4%	49.6%	48.9%	48.6%	71.4%	67.8%	65.3%
SG&A expenses		1,205	4,180	5,547	7,042	812	3,089	3,959	5,047	1,060	5,356	6,624	8,254
	YoY	80.9%	146.6%	106.3%	90.2%	-32.7%	-26.1%	-28.6%	-28.3%	30.6%	73.4%	67.3%	63.6%
	SG&A ratio	22.4%	33.9%	31.9%	33.3%	24.3%	34.3%	33.0%	33.9%	31.4%	48.2%	46.7%	46.3%
	Personnel expenses	423	845	1,255	1,682	428	843	1,248	1,652	403	817	1,213	1,613
	Sales promotion expenses	258	1,038	1,218	1,414	44	560	651	921	174	1,588	1,954	2,468
	Advertising expenses	155	1,543	1,969	2,557	63	1,100	1,224	1,436	262	2,434	2,729	3,178
	Other	306	627	961	1,214	238	500	704	856	183	437	605	828
	Depreciation and goodwill amortization	61	123	137	165	36	80	124	170	35	74	114	155
Operating profit		1,115	2,275	3,374	3,161	337	1,637	2,001	2,246	580	2,577	2,999	3,382	112.7%	3,000
	YoY	98.6%	81.5%	94.1%	49.2%	-69.8%	-28.0%	-40.7%	-28.9%	72.0%	57.5%	49.9%	50.6%		33.6%
	Operating profit margin	20.7%	18.4%	19.4%	15.0%	10.1%	18.2%	16.7%	15.1%	17.2%	23.2%	21.1%	19.0%		17.7%
Recurring profit		1,116	2,335	3,405	3,150	317	1,620	1,987	2,248	578	2,582	3,017	3,367	115.9%	2,904
	YoY	95.9%	86.3%	96.3%	50.3%	-71.6%	-30.6%	-41.6%	-28.6%	82.5%	59.4%	51.9%	49.8%		29.2%
	Recurring profit margin	20.7%	18.9%	19.6%	14.9%	9.5%	18.0%	16.5%	15.1%	17.1%	23.2%	21.3%	18.9%		17.1%
Net income		755	1,227	1,883	1,368	209	1,115	1,521	1,728	391	1,699	2,016	2,300	118.1%	1,947
	YoY	110.0%	49.0%	65.9%	17.3%	-72.4%	-9.1%	-19.2%	26.3%	87.6%	52.4%	32.6%	33.1%		12.7%
	Net margin	14.0%	9.9%	10.8%	6.5%	6.2%	12.4%	12.7%	11.6%	11.6%	15.3%	14.2%	12.9%		11.5%
Quarterly		FY07/19				FY07/20				FY07/21
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		5,386	6,958	5,032	3,763	3,346	5,666	3,003	2,887	3,373	7,735	3,088	3,637
	YoY	17.5%	51.8%	17.2%	-16.7%	-37.9%	-18.6%	-40.3%	-23.3%	0.8%	36.5%	2.8%	26.0%
Gross profit		2,320	4,134	2,466	1,282	1,149	3,576	1,235	1,333	1,640	6,293	1,689	2,013
	YoY	89.0%	140.3%	66.8%	-8.0%	-50.5%	-13.5%	-49.9%	4.0%	42.8%	76.0%	36.8%	51.1%
	Gross profit margin	43.1%	59.4%	49.0%	34.1%	34.3%	63.1%	41.1%	46.2%	48.6%	81.4%	54.7%	55.4%
SG&A expenses		1,205	2,974	1,368	1,495	812	2,277	871	1,088	1,060	4,296	1,268	1,630
	YoY	80.9%	189.2%	37.5%	47.6%	-32.7%	-23.5%	-36.3%	-27.2%	30.6%	88.7%	45.6%	49.9%
	SG&A ratio	22.4%	42.7%	27.2%	39.7%	24.3%	40.2%	29.0%	37.7%	31.4%	55.5%	41.1%	44.8%
	Personnel expenses	423	422	410	427	428	415	405	404	403	414	396	400
	Sales promotion expenses	258	780	180	196	44	516	91	270	174	1,414	366	514
	Advertising expenses	155	1,388	426	588	63	1,037	124	212	262	2,172	295	449
	Other	306	321	334	253	238	262	204	152	183	254	168	223
	Depreciation and goodwill amortization	61	62	14	28	36	44	44	46	35	39	40	41
Operating profit		1,115	1,160	1,099	-213	337	1,300	364	245	580	1,997	422	383
	YoY	98.6%	67.6%	126.8%	-	-69.8%	12.0%	-66.9%	-	72.0%	53.7%	15.9%	56.2%
	Operating profit margin	20.7%	16.7%	21.8%	-	10.1%	22.9%	12.1%	8.5%	17.2%	25.8%	13.7%	10.5%
Recurring profit		1,116	1,220	1,069	-255	317	1,303	367	261	578	2,003	436	349
	YoY	95.9%	78.4%	122.3%	-	-71.6%	6.8%	-65.7%	-	82.5%	53.7%	18.8%	33.6%
	Recurring profit margin	20.7%	17.5%	21.3%	-	9.5%	23.0%	12.2%	9.1%	17.1%	25.9%	14.1%	9.6%
Net income		755	472	656	-515	209	906	406	207	391	1,307	318	284
	YoY	110.0%	1.7%	110.4%	-	-72.4%	92.2%	-38.2%	-	87.6%	44.2%	-21.7%	36.9%
	Net margin	14.0%	6.8%	13.0%	-	6.2%	16.0%	13.5%	7.2%	11.6%	16.9%	10.3%	7.8%

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

Cumulative			FY07/19				FY07/20				FY07/21
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Revenue			5,386	12,345	17,376	21,139	3,346	9,012	12,015	14,902	3,373	11,108	14,196	17,834
	YoY		17.5%	34.6%	29.1%	17.6%	-37.9%	-27.0%	-30.9%	-29.5%	0.8%	23.3%	18.2%	19.7%
	Consumer Service		1,737	5,459	7,499	8,015	493	3,447	3,977	4,563	879	6,268	6,947	7,846
		YoY	631.8%	374.3%	315.2%	232.2%	-71.6%	-36.9%	-47.0%	-43.1%	78.1%	81.8%	74.7%	71.9%
		% of total	31.7%	43.3%	42.4%	36.4%	14.6%	34.7%	30.6%	28.5%	23.9%	48.4%	43.1%	39.2%
	Online Advertising		3,735	7,145	10,187	13,991	2,891	6,481	9,018	11,466	2,796	6,679	9,176	12,163
		YoY	-15.4%	-12.5%	-14.1%	-11.7%	-22.6%	-9.3%	-11.5%	-18.0%	-3.3%	3.1%	1.7%	6.1%
		% of total	68.3%	56.7%	57.6%	63.6%	85.4%	65.3%	69.4%	71.5%	76.1%	51.6%	56.9%	60.8%
Operating profit			1,115	2,275	3,374	3,161	337	1,637	2,001	2,246	580	2,577	2,999	3,382
	YoY		98.6%	81.5%	94.1%	49.2%	-69.8%	-28.0%	-40.7%	-28.9%	72.0%	57.5%	49.9%	50.6%
	Operating profit margin		20.7%	18.4%	19.4%	15.0%	10.1%	18.2%	16.7%	15.1%	17.2%	23.2%	21.1%	19.0%
	Consumer Service		915	1,926	2,854	2,314	110	1,136	1,304	1,326	322	2,007	2,028	1,962
		YoY	-	317.0%	400.7%	239.8%	-88.0%	-41.0%	-54.3%	-42.7%	192.4%	76.6%	55.5%	48.0%
		Operating profit margin	52.7%	35.3%	38.1%	28.9%	22.3%	33.0%	32.8%	29.0%	36.7%	32.0%	29.2%	25.0%
		% of total	83.1%	86.0%	86.0%	75.0%	34.8%	71.2%	67.0%	60.5%	55.6%	77.9%	67.6%	58.0%
	Online Advertising		187	315	465	771	206	459	643	867	258	570	971	1,420
		YoY	-63.6%	-59.2%	-59.1%	-44.7%	10.5%	45.8%	38.3%	12.4%	25.0%	24.3%	51.0%	63.9%
		Operating profit margin	5.0%	4.4%	4.6%	5.5%	7.1%	7.1%	7.1%	7.6%	9.2%	8.5%	10.6%	11.7%
		% of total	16.9%	14.0%	14.0%	25.0%	65.2%	28.8%	33.0%	39.5%	44.4%	22.1%	32.4%	42.0%
Quarterly			FY07/19				FY07/20				FY07/21
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue			5,386	6,958	5,032	3,763	3,346	5,666	3,003	2,887	3,373	7,735	3,088	3,637
	YoY		17.5%	51.8%	17.2%	-16.7%	-37.9%	-18.6%	-40.3%	-23.3%	0.8%	36.5%	2.8%	26.0%
	Consumer Service		1,736	3,723	2,040	516	493	2,954	530	586	879	5,389	679	899
		YoY	632.5%	307.4%	211.5%	-14.9%	-71.6%	-20.7%	-74.0%	13.6%	78.1%	82.4%	28.1%	53.5%
		% of total	31.7%	52.2%	40.1%	11.9%	14.6%	45.1%	17.3%	19.3%	23.9%	58.1%	21.4%	23.1%
	Online Advertising		3,735	3,410	3,041	3,804	2,891	3,590	2,537	2,448	2,796	3,883	2,497	2,988
		YoY	-15.3%	-9.2%	-17.7%	-4.5%	-22.6%	5.3%	-16.6%	-35.7%	-3.3%	8.2%	-1.6%	22.1%
		% of total	68.3%	47.8%	59.9%	88.1%	85.4%	54.9%	82.7%	80.7%	76.1%	41.9%	78.6%	76.9%
Operating profit			1,115	1,160	1,099	-213	337	1,300	364	245	580	1,997	422	383
	YoY		98.6%	67.6%	126.8%	-	-69.8%	12.0%	-66.9%	-	72.0%	53.7%	15.9%	56.2%
	Consumer Service		915	1,011	927	-540	110	1,026	168	21	322	1,685	21	-66
		YoY	-	139.3%	759.2%	-	-88.0%	1.5%	-81.9%	-	192.4%	64.2%	-87.6%	-
		Operating profit margin	52.7%	27.2%	45.4%	-104.7%	22.3%	34.7%	31.7%	3.6%	36.7%	31.3%	3.1%	-7.3%
		% of total	83.1%	88.8%	86.0%	-	34.8%	80.2%	47.7%	8.7%	55.6%	84.3%	5.0%	-17.2%
	Online Advertising		186	128	151	306	206	253	184	223	258	313	401	449
		YoY	-63.7%	-50.5%	-58.8%	18.5%	10.8%	97.3%	22.5%	-26.9%	25.0%	23.7%	117.3%	101.0%
		Operating profit margin	5.0%	3.8%	4.9%	8.0%	7.1%	7.0%	7.3%	9.1%	9.2%	8.1%	16.1%	15.0%
		% of total	16.9%	11.2%	14.0%	-	65.2%	19.8%	52.3%	91.3%	44.4%	15.7%	95.0%	117.2%

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

Seasonality: The hometown tax donation business (Consumer Service segment) is highly seasonal. Under the hometown tax donation system, donors can receive an income tax deduction for the current year as counted from January 1–December 31, and residence tax credits for the following year. Due to the December 31 cutoff, the number of donors tends to increase in December, and sales tend to be relatively large in Q2 (November–January) and relatively small at other times of the year. The Minister of Internal Affairs and Communications introduced new criteria that went into effect in June 2019. This generated rush demand in FY07/19, shifting the seasonality of the system from the typical year.

Full-year FY07/21 results

For FY07/21, the company reported full-year consolidated revenue of JPY17.8bn (+19.7% YoY), gross profit of JPY11.6bn (+59.6% YoY), operating profit of JPY3.4bn (+50.6% YoY), recurring profit of JPY3.4bn (+49.8% YoY), and net income attributable to owners of the parent of JPY2.3bn (+33.1% YoY). Compared with the company’s revised full-year forecast issued April 20, 2021, consolidated revenue finished 5.3% ahead of expectations, while gross profit came in 5.5% above plan, operating profit 12.7% above plan, recurring profit 15.9% above plan, and net income 18.1% above plan. By segment, Consumer Service reported a 71.9% increase in revenue and 48.0% rise in segment operating profit; Online Advertising logged a 6.1% increase in revenue and a 63.9% rise in segment operating profit. Both the Consumer Service business and the Online Advertising business have exceeded the April 2021 forecast.

Consumer Service segment: The number of donations in Q4 (May–July 2021) was up 89.3% YoY, driven by steady growth in both the number of members and registered municipalities at the hometown tax donation (Furunavi) service. At the end of Q4 FY07/21, the Furunavi service had roughly 1.2mn members and 676 registered municipalities (versus target of 650).

Online Advertising segment: The company provided a rough breakdown of full-year segment revenue and gross profit by its ad platform business (ad network and affiliate ad businesses), as well as its app operation and media solutions businesses. The ad platform business (including other businesses) accounted for around 70% of revenue and 40% of gross profit in FY07/21, while the app operations and media solutions businesses together accounted for about 30% of revenue and 60% of gross profit. With both the app operation business and media solutions business accounting for a growing proportion of total revenue, the high gross margins at these two businesses are working to boost the overall operating profit margin at the Online Advertising segment along with some additional help from cuts in SG&A spending.

SG&A expenditures: The SG&A expense ratio of 46.3% for the full-year compares unfavorably with the 33.9% figure the company reported last year. Out of total SG&A spending of JPY8.3bn, spending on television and online advertising to promote its hometown tax donation business (under the Consumer Service segment) and advertising to support its app operation businesses (under Online Advertising segment) came to a combined total of JPY3.2bn, an increase of JPY1.4bn YoY. Spending on promotions totaled JPY2.5bn, an increase of JPY921mn YoY, the jump in spending here largely reflecting the high redemption rate of Amazon gift certificates during its busy season in Q2 (the redemption rate soaring to 8% versus a normal rate of 1%) and promotional spending in Q3 in collaboration with Yahoo! Japan. Despite the pressure from this increase in the SG&A expense ratio, the company was still able to boost its consolidated operating profit margin for the full year to 19.0% (+3.9pp versus 15.1% in FY07/20) thanks to the handsome payoffs from its investments in high-margin businesses and resulting progress in structural changes in its business portfolio.

FY07/22 forecast (reflects the impact from change in accounting standard for revenue recognition): For FY07/22, the company projects full-year consolidated revenue of JPY14.3bn (+23.1% YoY after retroactively applying the new accounting standard to FY07/21 results; same below), operating profit of JPY3.8bn (+10.9% YoY), recurring profit of JPY3.7bn (+10.3% YoY), net income attributable to owners of the parent of JPY2.5bn (+8.9% YoY), and EPS of JPY116.49. In keeping with its policy targeting a dividend payout ratio of 30%, the company plans to pay a regular, year-end dividend of JPY35.0 per share for FY07/22. By segment, for Consumer Service the company projects full-year revenue of JPY10.1bn (+31.1% YoY) and segment operating profit of JPY2.4bn (+22.2% YoY); key assumptions here include an operating profit margin of 23.7% (-1.8pp YoY) and 900 municipal governments registered with its hometown tax donation service by the end of FY07/22. For the Online Advertising Service segment, the company projects full-year revenue of JPY4.2bn (+6.6% YoY) and segment operating profit of JPY1.4bn (+1.1% YoY), assuming an operating profit margin of 34.4% (-1.9pp YoY). For further details on the assumptions underlying the company’s estimates for FY07/22, see discussion under the “Company forecast for FY07/22” section.

Medium-term business plan for FY07/22–FY07/24: Under its new medium-term business plan, the company targets FY07/24 consolidated revenue of JPY16.0bn, operating profit of JPY4.5bn (representing an operating profit margin of 28.1%), and net income attributable to owners of the parent of JPY3.0bn. The company’s target figures for FY07/24 represent CAGR of 11.4% for revenue, 10.0% for operating profit, and 9.4% of net income. Note that with the company switching to the new accounting standard for revenue recognition in FY07/22, the CAGRs shown for its target figures for FY07/24, including those for segment targets below, have all been calculated after adjusting FY07/21 figures to the same accounting basis. Under the new medium-term plan, the company plans to pay an annual dividend of JPY42 per share, representing a dividend payout ratio of 30% on projected EPS of JPY140 for FY07/24. For the Consumer Service segment, the company targets FY07/24 revenue of JPY11.3bn and operating profit of JPY2.8bn (representing an operating profit margin of 25.0%). These target figures for the Consumer Service segment represent CAGR of 13.7% for revenue and 13.0% for operating profit. For the Online Advertising segment, the company targets FY07/24 revenue of JPY4.7bn and segment operating profit of JPY1.8bn (representing an operating profit margin of 37.3%). These target figures for the segment represent CAGR of 6.5% for revenue and 7.6% for operating profit. Shared Research will provide more details with respect to the new medium-term plan following a post-earnings announcement interview with management.

Regarding eligibility for TSE Prime Market listing: The company was not eligible for a TSE Prime Market listing as of the recent cutoff date for determining eligibility. However, it subsequently carried out a secondary share offering (announced June 26, 2021) with the aim of meeting the eligibility requirements for a Prime Market listing (by increasing the float of its shares). Based on its own calculations, the company believes it now qualifies for a listing on the TSE Prime Market and, on September 8, 2021, submitted an application to this effect to the Toyo Stock Exchange.

Breakdown of FY07/21 results by segment

Consumer Service segment

For FY07/21, the Consumer Service segment reported full-year revenue of JPY7.8bn (+71.9% YoY) and segment profit of JPY2.0bn (+48.0% YoY).

The company does not provide a breakdown of segment revenue, but has indicated that its hometown tax donation (Furunavi) service accounts for the majority of segment revenue. The number of donations in Q4 (May–July 2021) was up 89.3% YoY, driven by steady growth in both the number of members and registered municipalities. The number of middle-class users has expanded due to taxpayers’ increased internet contact time and their interest in saving money. Revenue in Q4 was up 53.5% YoY, while the average amount of a donation was down YoY. The company said this was mainly due to a shift in returns to food items such as rice, meat, and fruits. As of the end of Q4 FY07/21, the Furunavi service reported more than 1.2mn members and 676 registered municipalities (versus target of 650).

To prepare for sales promotion expenses associated with the use of incentives granted to users (redemption through Amazon gift certificates in the hometown tax donation business), the company has set aside a sales promotion reserve based on past performance. The company changed its allowance estimate in FY07/21 because it judged that it could estimate future estimated usage more reasonably by accumulating actual data for a sufficient period of time and using a method that better reflects recent usage. As a result, operating profit, recurring profit, and pre-tax profit for FY07/21 each decreased by JPY328mn.

According to the most recent report on hometown tax donation system usage report released on July 30, 2021 by the Municipal Tax Planning Division of the Local Tax Bureau, during FY2020 the hometown tax donation system processed roughly 35mn donations (up roughly 50% YoY) worth JPY672.5bn (up about 40% YoY), with these transactions yielding a total resident tax credits of JPY431.1bn (up about 20% YoY) for roughly 5.5mn individual taxpayers (up roughly 30% YoY). The company attributes the growth in new middle-class users to an increase in the amount of time spent on the Internet resulting from an increase in telecommuting and refraining from going out due to the spread of COVID-19, as well as taxpayers’ interest in saving money. In Q2 FY7/21, which is the company’s busy season in the Consumer Service business, revenue grew 82.4% YoY, higher than the overall market growth rate, suggesting that the company’s market share in 2020 has improved. The company attributed the success to various advertising and sales promotion activities, including year-round TV commercials, Amazon gift certificate redemption programs, and collaboration with other media such as Yahoo!.

Online Advertising segment

For FY07/21, the Online Advertising segment reported full-year revenue of JPY12.2bn (+6.1% YoY) and segment profit of JPY1.4bn (+63.9% YoY).

During FY07/21, the company aggressively expanded its business in the targeted growth areas of app operation and media solutions; meanwhile, at its ad platform business (ad network and affiliate businesses), it focused less on revenue growth and more on creating a stable earnings stream at the operating profit level. The company provided a rough breakdown of full-year revenue and gross profit for the segment, by the ad platform business, as well as the app operation and media solutions businesses. At the Online Advertising segment, the ad platform business (including other businesses) accounted for about 70% of revenue but around 40% of gross profit, while the app operation and media solutions businesses together accounted for about 30% of revenue and 60% of gross profit. With both the app operation business and media solutions business accounting for a growing proportion of total revenue, the high gross margins at these businesses are working to boost the overall operating profit margin at the Online Advertising segment along with some additional help from cuts in SG&A spending.

At its app operation business, which is a strategic investment area, results were boosted by improved advertising efficiency and new customer acquisitions through aggressive ad spending, leading to a 24% YoY increase in the number of monthly active users (MAUs) in Q4 FY07/21. At its media solutions business, the number of accounts that installed Google for Publishers in Q4 was up 17% YoY.

At its ad network business, the company made changes to its organizational structure and product offerings so as to better facilitate the delivery of total solutions services to clients and, along with this, also restructured its sales team and sales procedures to better address client needs based on the type of ad sponsors targeted, advertising budget size, and other factors. The changes in its sales organization and procedures are aimed at reducing swings in revenue and earnings and otherwise creating a stable earnings stream by expanding and diversifying its customer base. Reflecting these efforts, in Q4 the ad network business saw an 84% YoY increase in highly effective playable ads on the back of rising transaction volumes through manga apps. Meanwhile, the affiliate ad business reported new client wins in the area of (social media) influencers and an ongoing stream of large orders for game apps, e-commerce related, and other projects. As a result, Q3 and Q4 revenue and operating profit in the ad platform business exceeded the company’s April 2021 forecast.

For details on previous quarterly and annual results, please refer to the “Historical performance and financial statements” section.

Company forecast for FY07/22 (see note regarding change in accounting standards)

		FY07/20			FY07/21			FY07/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	FY Est.
Revenue		9,012	5,890	14,902	11,108	6,725	17,834	14,270
	YoY	-27.0%	-33.0%	-29.5%	23.3%	14.2%	19.7%	-
Cost of revenue		4,287	3,322	7,609	3,175	3,022	6,197	10
Gross profit		4,725	2,568	7,293	7,934	3,703	11,637	14,260
	YoY	-26.8%	-31.5%	-28.5%	67.9%	44.2%	59.6%	-
	Gross profit margin	52.4%	43.6%	48.9%	71.4%	55.1%	65.3%	99.9%
SG&A expenses		3,089	1,958	5,047	5,356	2,898	8,254	10,510
	YoY	-26.1%	-31.6%	-28.3%	73.4%	48.0%	63.6%	27.3%
	SG&A ratio	34.3%	33.2%	33.9%	48.2%	43.1%	46.3%	73.7%
Operating profit		1,637	609	2,246	2,577	805	3,382	3,750
	YoY	-28.0%	-31.2%	-28.9%	57.5%	32.1%	50.6%	10.9%
	Operating profit margin	18.2%	10.3%	15.1%	23.2%	12.0%	19.0%	26.3%
Recurring profit		1,620	628	2,248	2,582	785	3,367	3,715
	YoY	-30.6%	-22.9%	-28.6%	59.4%	25.0%	49.8%	10.3%
	Recurring profit margin	18.0%	10.7%	15.1%	23.2%	11.7%	18.9%	26.0%
Net income		1,115	613	1,728	1,699	601	2,300	2,504
	YoY	-9.1%	335.6%	26.3%	52.4%	-1.9%	33.1%	8.9%
	Net margin	12.4%	10.4%	11.6%	15.3%	8.9%	12.9%	17.5%

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

Accounting note:
In the table above, the company’s estimates for FY07/22 reflect its adoption of the new accounting standard for revenue recognition while the figures shown for past years are based on its previous accounting standard used at the time. Under the new revenue recognition standard, from FY07/22 the company will record some of the revenue previously recognized on a gross basis on a net basis. As this means the revenue figures for FY07/22 and FY07/21 are not directly comparable, and can be compared only after adjusting the FY07/21 figures to the same accounting standard, the company has not given a figure for the YoY percentage change in revenue and gross profit between FY07/22 and FY07/21 in the table above.

Forecast and actual results after adoption of the new revenue recognition standard

		FY07/20			FY07/21			FY07/22
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	FY Est.
Revenue		-	-	7,563	-	-	11,592	14,270
	YoY	-	-	-32.1%	-	-	53.3%	23.1%
Cost of revenue		-	-	270	-	-	8	10
Gross profit		-	-	7,293	-	-	11,584	14,260
	YoY	-	-	-28.5%	-	-	58.8%	23.1%
	Gross profit margin	-	-	96.4%	-	-	99.9%	99.9%
SG&A expenses		-	-	5,047	-	-	8,201	10,510
	YoY	-	-	-28.3%	-	-	62.5%	28.2%
	SG&A ratio	-	-	66.7%	-	-	70.7%	73.7%
Operating profit		-	-	2,246	-	-	3,382	3,750
	YoY	-	-	-28.9%	-	-	50.6%	10.9%
	Operating profit margin	-	-	29.7%	-	-	29.2%	26.3%
Recurring profit		-	-	2,248	-	-	3,367	3,715
	YoY	-	-	-28.6%	-	-	49.8%	10.3%
	Recurring profit margin	-	-	29.7%	-	-	29.0%	26.0%
Net income		-	-	1,728	-	-	2,300	2,504
	YoY	-	-	26.3%	-	-	33.1%	8.9%
	Net margin	-	-	22.8%	-	-	19.8%	17.5%

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

Initial company forecast for FY07/22 (released September 8, 2021)

For FY07/22, the company forecasts full-year consolidated revenue of JPY14.3bn (+23.1% YoY after retroactively applying the new revenue recognition standard to FY07/21 results), operating profit of JPY3.8bn (+10.9% YoY), recurring profit of JPY3.7bn (+10.3% YoY), net income attributable to owners of the parent of JPY2.5bn (+8.9% YoY), and EPS of JPY116.49. In keeping with its policy of targeting a dividend payout ratio of 30%, the company plans to pay a regular, year-end dividend of JPY35.0 per share for FY07/22.

Impact of adopting the new accounting standard for revenue recognition

With the company’s move to the new accounting standard for revenue recognition in FY07/22, some revenue previously recognized on a gross basis will instead be recognized on a net basis (the net amount being equal to the amount previously booked as gross profit on these revenue). As this change will give the appearance of reducing revenue but have no impact on operating profit, on the surface the operating profit margin will appear to be rising. The impact from this change in revenue recognition standard will show up mainly in the figures reported for the Online Advertising segment, as some of the revenue previously reported by its ad platform business, ad agency business, and media solutions business will change from being reported on a gross basis to a net basis.

By way of example, the company said that the JPY17.8bn in consolidated revenue reported for FY07/21 under the old revenue recognition standards would come down to JPY11.6bn under the new revenue recognition standards. At the individual segment level, the revenue reported by the Consumer Service segment for FY07/21 would come down to JPY7.7bn versus JPY7.8 under the old standards. The revenue reported by the Online Advertising segment for FY07/21 would come down to JPY3.9bn versus JPY12.2bn under the old standard, but the Online Advertising segment would show an operating profit margin of 36.3% versus 11.7% under the old standard.

Breakdown of company forecast for FY07/22 by segment

Consumer Service segment

For the Consumer Service segment, the company projects full-year revenue of JPY10.1bn (+31.1% YoY, after retroactively applying the new revenue recognition standard to FY07/21 results) and segment operating profit of JPY2.4bn (+22.2% YoY); key assumptions include an operating profit margin of 23.7% (-1.8pp YoY) and 900 municipal governments registered with its hometown tax donation service by the end of FY07/22.

In FY07/22, the company aims to increase its market share by aggressively investing in marketing to attract new users and improve the usage rate of existing users. As for the market growth rate, the company interprets 2020 as including the tailwind effect of the expansion of middle-class users due to the increase in internet contact time resulting from the increase in telecommuting and refraining from going out due to the COVID-19 pandemic, as well as taxpayers’ interest in saving money. The company further assumes that the market growth rate will converge to a normal level in 2021. As for the elements of revenue growth, the company expects the market growth effect to contribute to around 10% growth and the market share increase effect around 20%, for overall revenue growth of over 30%. The company expects to increase TV commercial expenses (included in advertising expenses) from FY07/21, but the specific scale is not disclosed.

Online Advertising Service segment

For the Online Advertising Service segment, the company projects full-year revenue of JPY4.2bn (+6.6% YoY, after retroactively applying the new revenue recognition standard to FY07/21 results) and segment operating profit of JPY1.4bn (+1.1% YoY), assuming an operating profit margin of 34.4% (-1.9pp YoY).

In the ad platforms business, the company expects the market environment to remain challenging. Despite the strong performance in Q3 and Q4 FY07/21, the company does not expect this momentum to be sustained and has conservative projections. In addition, amendments to the Pharmaceuticals and Medical Devices Act came into effect in August 2021. The company's advertising regulations have also been adjusted to comply with the revisions to the Act. The revision is expected to reduce advertising efficiency in some client industries, resulting in a decrease in ad placements, and the company expects its ad platform business to be partially affected. This impact has, however, been reflected in the initial plan. The company also stated that its app operation business would not be affected by the revision of the Pharmaceuticals and Medical Devices Act.

The company expects to make investments in Ohte (app operation business). However, the company expects the investments to be at a level that will ensure profit growth in the Online Advertising business as a whole.

Overview of amendments to the Pharmaceuticals and Medical Devices Act
The Act on 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.

Medium-term business plan (FY07/22–FY07/24)

Along with its FY07/21 results announcement on September 8, 2021, i-mobile unveiled its new medium-term business plan for the years FY07/22 through FY07/24, as outlined below. Under the new medium-term plan, the company intends to focus its efforts on creating a stable revenue and earnings stream at its ad platform business while strengthening the growth businesses of its hometown tax donation service and app operations business. The company will use its assets to grow its businesses with the aim of sustaining growth over the medium to long term.

Positioning of each domain

Strategic investment areas: Capturing cultivated businesses through M&A, etc., and monetizing Furunavi peripheral businesses

Growth areas to be strengthened: Hometown tax donation business (Furunavi), media domain such as Ohte, media solutions business

Mature areas: Aim for stable earnings in the ad platform business

Stance on M&A

The company cited (1) growth potential and (2) high user engagement as conditions for potential M&A targets. As long as these conditions are met, any industry can be an investment target, the company says. Ohte and Simple App Studio Inc., a weight management application operator that the company has already announced it would make a wholly owned subsidiary, meet these conditions. For example, Simple App Studio’s app, which requires users to measure and record their weight every day, is a service with high user engagement.

New medium-term business plan (FY07/22–FY07/24)

Consolidated earnings targets

Under its new medium-term business plan, the company targets FY07/24 consolidated revenue of JPY16.0bn, operating profit of JPY4.5bn (representing an operating profit margin of 28.1%), and net income attributable to owners of the parent of JPY3.0bn. These target figures for FY07/24 represent CAGR of 11.4% for revenue, 10.0% for operating profit, and 9.4% of net income. Note that since the company has adopted the new accounting standard for revenue recognition from FY07/22, the CAGRs indicated for its target figures for FY07/24, including those for segment targets below, have been calculated after adjusting FY07/21 figures to the same accounting basis. The company targets an annual dividend payment of JPY42 per share, representing a dividend payout ratio of 30% on projected EPS of JPY140 for FY07/24.

Revenue growth is expected to be highest in FY07/22 (+23.1% YoY), followed by FY07/23 (+7.2% YoY) and FY07/24 (+4.9% YoY). This is largely due to the growth rate of the Consumer Service business described below.

The company expects the OPM to decline 2.9pp YoY to 26.3% in FY07/22, but expects it to rise to 27.5% in FY07/23 and 28.0% in FY07/24. The decline in FY07/22 will be largely due to the Consumer Service business, while the rise in FY07/23 will be largely due to the Online Advertising business.

Consolidated three-year plan

		FY07/21	FY07/22	FY07/23	FY07/24
(JPYmn)		Act.	Est.	Est.	Est.
Revenue		11,592	14,270	15,291	16,044
	YoY	53.3%	23.1%	7.2%	4.9%
Gross profit		11,584	14,260	15,282	16,034
	YoY	58.8%	23.1%	7.2%	4.9%
	Gross profit margin	99.9%	99.9%	99.9%	99.9%
Operating profit		3,382	3,750	4,200	4,500
	YoY	50.6%	10.9%	12.0%	7.1%
	Operating profit margin	29.2%	26.3%	27.5%	28.0%
Net income		2,300	2,504	2,811	3,011
	YoY	33.1%	8.9%	12.3%	7.1%
	Net margin	19.8%	17.5%	18.4%	18.8%
Dividend per share (JPY)		100.0	35.0	39.2	42.0
	Payout ratio	93.1%	30.0%	30.0%	30.0%
EPS (JPY)		107.4	116.5	130.8	140.0

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

Three-year plan by segment

			FY07/21	FY07/22	FY07/23	FY07/24
(JPYmn)			Act.	Est.	Est.	Est.
Consumer Service
	Revenue		7,708	10,102	10,691	11,317
		YoY	68.9%	31.1%	5.8%	5.9%
	Operating profit		1,962	2,398	2,575	2,829
		YoY	48.1%	22.2%	7.4%	9.9%
		Operating profit margin	25.5%	23.7%	24.1%	25.0%
Online Advertising
	Transaction volume*		12,163	12,261	13,198	13,324
		YoY	6.1%	0.8%	7.6%	1.0%
	Revenue		3,915	4,173	4,607	4,734
		YoY	28.9%	6.6%	10.4%	2.8%
	Operating profit		1,420	1,436	1,705	1,768
		YoY	64.0%	1.1%	18.7%	3.7%
		Operating profit margin	36.3%	34.4%	37.0%	37.3%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Transaction volume equals revenue under the previous revenue recognition standard.

Consumer Service

For the Consumer Service segment, the company targets FY07/24 revenue of JPY11.3bn and segment operating profit of JPY2.8bn (representing an operating profit margin of 25.0%). These target figures for FY07/24 represent CAGR of 13.7% for revenue and 13.0% for operating profit.

Revenue growth is expected to be highest in FY07/22 (+31.1% YoY), with 5.8% YoY growth expected in FY07/23 and 5.9% YoY growth in FY07/24. Although the company expects the market size (total amount of donations received) of hometown tax donation to grow at an annual rate of 10% or more in the near term, it has made conservative assumptions about the growth rate of the market from FY07/23 in this medium-term business plan. In addition, the company assumes that the increase in the market growth rate will gradually slow down as the broadening of the user base means a decrease in the amount of donations per person. The company also took into account the risk of downward pressure on take rates in the medium to long term due to changes in the external environment.

The company expects the OPM to decline 1.8pp YoY to 23.7% in FY07/22, when it plans to invest proactively in marketing. The OPM is forecast to rise, however, to 24.1% in FY07/23 and 25.0% in FY07/24.

Online Advertising

For the Online Advertising segment, the company targets FY07/24 revenue of JPY4.7bn and segment operating profit of JPY1.8bn (representing an operating profit margin of 37.3%). These target figures for FY07/24 represent CAGR of 6.5% for revenue and 7.6% for operating profit.

Revenue growth is expected to be 6.6% YoY in FY07/22, 10.4% YoY in FY07/23, and 2.8% YoY in FY07/24. In FY07/23, the company aims to increase overseas revenue and accelerate domestic revenue growth supported by the results of marketing investments related to Ohte, which are expected in FY07/22. The company assumes that the OPM will decrease 1.9pp YoY to 34.4% in FY07/22—when Ohte plans to invest proactively in marketing—but that it will rise to 37.0% in FY07/23 and 37.3% in FY07/24.

From FY07/22 onward, due to the application of the new revenue recognition standard, revenue after the application of the new standard will be the amount equivalent to gross profit on revenue under the old standard. This means that there will no longer be continuity with revenue under the old standard.

Capital and shareholder returns policies

The company has stated that there will be no change in its capital and shareholder return policies in or after FY07/21.

Capital policy: While securing the internal reserves necessary for future business development and strengthening of the financial position, the company aims to maximize shareholder returns by raising the return on equity (ROE) through direct profit distribution and by realizing a total return on equity. This includes an increase in the share price through sustainable business growth.

Shareholder returns policy: The company thinks the hometown tax donation system has stabilized thanks to increased awareness and legal amendments. Considering that uncertainty in the hometown tax donation business has declined and the business has entered a period of stable growth, the company has determined that the conditions have been met for the implementation of a shareholder return program. In addition to stable and sustainable dividend payment with a target payout ratio of 30%, the company will flexibly conduct share buybacks to provide total shareholder returns.

Sustainability initiatives

The company has formulated a basic sustainability policy in conjunction with this medium-term management plan. In order to realize the group's vision of “Continuing to create businesses that contribute to the future of people,” the company will work to solve social issues through its business and other corporate activities, and will aim to continuously improve its enterprise value as an attractive company for all stakeholders.

Revenue from the hometown tax donation business, one of the company’s core businesses and the one that accounts for the majority of the Consumer Service business, is fee income from local governments, which can be said to be borne indirectly by taxpayers. As a precondition for the company’s sustainable business, it is important that society, local governments, and taxpayers continue to support the hometown tax donation system.

Four materiality (key) issues

In particular, the company plans to support the four materiality issues listed below through its Furunavi and corporate hometown tax donation businesses. The figure below shows the correspondence with the SDGs as indicated by the company.

Improving people’s quality of life: Companies will work together to address issues facing local communities and improve people’s quality of life.

Creation of social value: The company aims to contribute to technological innovation by continuing to create new value for the market by leveraging its speed, creativity, and the unique technological capabilities it has cultivated over the years.

Sustainable urban development: The company will effectively cooperate with local governments to address social issues facing local communities and proactively provide support to areas affected by natural disasters. In doing so, it intends to contribute to safe and sustainable urban development.

Creating regional attractions: By creating new regional brands, the company can help revitalize the region.

Corporate version of hometown tax donation (Furunavi): An initiative to revitalize local communities by having companies contribute to local community development initiatives implemented by local governments.
SDGs (Sustainable Development Goals) are global goals that serve as a “blueprint to achieve a better and more sustainable future for all” that “leaves no one behind.” The SDGs were presented as part of the 2030 Agenda for Sustainable Development adopted by all United Nations member states at the 2015 UN Summit. The SDGs are to be achieved by 2030 and consist of 17 goals and 169 targets.
Quality of life (QOL): One of the indicators used to measure the quality of life from a social perspective.

Sustainability initiatives (correspondence table with SDGs goals)

Source: Shared Research based on company data

Business

Corporate profile

i-mobile Co., Ltd. is an online marketing company with two core segments: Consumer Service business and Online Advertising business. i-mobile aims to be a company that can contribute to people's lives through marketing, and operates the hometown tax donation business (Consumer Service business), ad platform business (Online Advertising business), and media solution business (Online Advertising business). In FY07/21, the company posted revenue of JPY17.8bn (+19.7% YoY) and operating profit of JPY3.3bn (+50.6% YoY).

Business overview

Source: Shared Research based on company data

Summary by segment

Consumer Service segment

Overview

In FY07/21, i-mobile’s mainstay Consumer Service segment delivered revenue of JPY7.8bn (39.2% of total revenue). Operating profit was JPY2.0bn (58.0% of total operating profit), and segment OPM was 25.0%. The Consumer Service segment’s core business is Furunavi (https://furunavi.jp/), the hometown tax donation portal site service. The company has not disclosed revenue composition by business in the Consumer Service segment, but says that in FY07/21 the bulk of revenue and operating profit came from Furunavi.

Key services

Source: Shared Research based on company data

Hometown tax donation business (Furunavi)

The hometown tax donation business accounts for the bulk of revenue in the Consumer Service segment. i-mobile’s Furunavi tax donation portal site (https://furunavi.jp/) lists gifts from about 676 registered municipalities (as of end-July 2021). When a site visitor makes a tax donation, i-mobile receives a commission (amount undisclosed) from the relevant municipality. Since the revenue from this commission is not recorded until the donation is recognized by the municipality, there is a delay from the time when a website visitor makes a donation and i-mobile books the corresponding revenue. For example, the company may not record revenue from commissions on tax donations made near the end of December until January.

Furunavi’s business model

Source: Shared Research based on company data

Market share

The company aims for a 20% market share (versus an estimated share of 14% in 2018).

Commission rates

The company does not disclose the rates it charges municipalities, nor does it disclose calendar-year revenue. However, Shared Research estimates commission rates are likely a little less than 10% based on interviews with the company and Consumer Service revenue in 2H FY07/18 and 1H FY07/19.

Earnings structure

Donors donate to local government bodies through the “Furunavi” site, and the company receives revenue from the local governments in the form of commissions based on the amount donated. Furunavi’s gross profit margin is high. Sales promotion expenses (such as awarding Amazon gift certificates) are variable costs and largely linked to revenue, while advertising expenses to increase consumer awareness of the site (such as TV commercials and online ads) are fixed costs. The company has internalized advertising operations for its hometown tax donation business. One reason for the company’s competitiveness is its ability to efficiently acquire new users through the ad technology and marketing know-how it has cultivated over the years.

Seasonality

The Furunavi project is seasonal. The number of donors tends to increase in December, which is the donation deadline for each fiscal year. As a result, the company’s revenue in Q2 (November to January of the following year) tends to be relatively large, while revenue in other periods tends to be relatively small. The number of contracted municipalities is also seasonal, with a large increase in Q2, the peak season, and a slower increase in the other quarters.

Service users (donors)

Users of i-mobile’s services (donors) are individuals with enough income to be eligible to make hometown tax donations. The higher an individual’s income, the larger their maximum creditable tax donation. Therefore, we estimate that higher-income earners participate in the hometown tax donation system at a high rate. As the market grows, the remaining latent users (those not yet participating) will be comprised of two types of people: lower-income earners with a small maximum creditable tax donation, and individuals who feel applying to the system is troublesome. The changing makeup of latent donors means that the company will have to change the targets of its marketing efforts as the hometown tax donation market expands. Also, since existing users are information-sensitive, it will be important for the company’s portal site to provide existing users with the utmost value to remain attractive.

Characteristics of the company’s service

Furunavi has more municipalities listing home appliances as gifts in return for donations than its rivals. Users typically make donations using i-mobile’s website, but since November 2020 it has been possible to use Yahoo! Shopping, operated by Yahoo!, a subsidiary of Z Holdings (TSE1: 4689). i-mobile also offers services such as Furunavi Premium, a service for large donors.

Services aiming to enhance user convenience

Furunavi Gourmet Points: A restaurant reservation service for Furunavi members, where points are awarded for restaurant use and restaurant review.

Furunavi Premium (launched November 2015): A free-of-charge hometown tax donation-related service limited to users donating JPY1mn or more. Tax donation “concierges” propose optimal donation plans.

Furunavi Travel: In exchange for tax donations, individuals receive Travel Points that can be used on travel expenses. The company plans to strengthen cooperation with municipalities to have the service further promote population mobility in rural areas through travel

Furunavi Catalogue (launched in October 2019): In general, when donors make tax donations they must first choose the gift they would like to receive in return. However, Furunavi Catalogue enables users to choose their gift at the timing of their choice, not necessarily at the point when they make a donation. Since they can decide on what kind of gift they would like to receive after making a donation, Furunavi Catalogue makes hometown tax donation easy during the period right before the deadline at the end of the year.

Services aiming to contribute to society

Furunavi Saigai Shien (launched in April 2016): This fundraising site uses the hometown tax donation system to aid recovery in municipalities (or their proxies) that have been affected by natural disaster.

Furunavi Crowdfunding (launched in April 2018): Municipalities, or individuals or groups recognized by municipalities, can become crowdfunding project owners. When users make tax donations using Furunavi, they can receive gifts from municipalities or other gifts prepared by project owners.

Online Advertising segment

Impact of adopting the new accounting standard for revenue recognition

Overview

In FY07/21, the Online Advertising segment had revenue of JPY12.2bn (60.8% of total revenue), operating profit of JPY1.4bn (42.0% of total), and segment OPM of 11.7%. The Online Advertising segment includes the company’s ad platform business, media solutions business, ad agency business, and app operation business. The ad platform business consists of an ad network business and an affiliate business (payment-by-result ads). At its media solutions business, the company acts in the capacity of a Google Certified Publishing Partner to help client companies improve their media earnings over the long term with products provided by Google. The ad agency business conducted by subsidiary Cyber Consultant provides online ad agency services and digital solutions. As for i-mobile’s app operation business, subsidiary Ohte runs various apps such as puzzle game apps as the company’s proprietary media.

In FY07/21, the policy was to aggressively expand business in the growth areas of app operation and media solutions, and to prioritize securing stable operating profit rather than expanding revenue in the ad platform business. In its full-year financial results for FY07/21, the company disclosed, albeit roughly, the composition of segment revenue and gross profit by the ad platform business (ad network business and affiliate business), app operation business, and media solutions. In FY07/21, the ad platform business (including other businesses) accounted for about 70% of revenue but around 40% of gross profit, while the app operation and media solutions businesses together accounted for about 30% of revenue and 60% of gross profit. With both the app operation business and media solutions business accounting for a growing proportion of total revenue, the high gross margins at these businesses are working to boost the overall operating profit margin at the Online Advertising segment along with some additional help from cuts in SG&A spending.

Business domains of the Online Advertising segment

Source: Shared Research based on company data

Main services

Source: Shared Research based on company data

CPC and CPM pricing

* Cost-per-click (CPC) is the main payment method for listing ads (ads associated with search keywords and results on search engines), whereas cost-per-mille (CPM; i.e., cost-per-1,000 impressions) is one of several methods used to price demand-side platform (DSP) ads (display ads). The advantage of CPM is that unlike CPC, ads can be delivered at a lower cost even on sites with a high click rate. Since prices can be adjusted for each ad slot, it is possible to increase delivery volume to quality slots at a higher rate and set a lower rate for ineffective slots to finely control delivery volume. A disadvantage of CPM is that it does not guarantee site inflow (clicks). Also, although CPM allows fine-tuning of each ad display, many adjustments are necessary, making analysis of ad effectiveness difficult.

CPA pricing

* A type of payment-by-result pricing, CPA stands for cost-per-action or cost-per-acquisition. A fee is paid when an outcome that the advertiser considers to be a positive result (e.g., purchase or inquiry) is achieved. An advantage of this method is that since it is payment by result, no money is wasted on advertising unless there is a result. A disadvantage is that an affiliate ad may not run, because the media site operator decides which ads to display. The hurdle is higher for advertisers, because there is usually an upfront fixed cost. CPA is the cost required to obtain one particular result, calculated as the total cost of all marketing actions divided by the number of results obtained. For example, if a membership registration campaign that cost JPY1mn attracted 100 members, the cost per registration was JPY10,000. The lower the CPA value, the more effective the ad is. CPA is commonly used for payment-by-result type affiliate ads.

In the Online Advertising segment, i-mobile’s clients are advertisers that wish to place ads on media (operated by companies that supply ad space as inventory to the company). The company attracts advertisers through ad agencies (accounting for 60–70% of revenue) and directly (30–40%). The main ad agencies that the company works with are CyberAgent (TSE1: 4751) and Septeni (JASDAQ: 4293). Main advertisers include game app and e-commerce companies. The number of sites (partner media) that publish ads for its mainstay ad network business was roughly 150,000 for PCs and 264,000 for smartphones as of January 31, 2019. More than 20 companies, including i-mobile, are operating ad network businesses.

Ad network business

The ad network business provides an online ad delivery service for PCs and smartphones (pay-per-click service). Pay-per-click means that the advertiser is charged (and the medium that publishes the ad earns revenue) every time a user clicks on an ad. Ad networks are formed by bundling ad slots on websites and apps, with ad bundles delivered in network units. Ad networks may be paid on a per-click (cost-per-click or CPC) or per-impression (cost-per-mille or CPM; an ad displayed once when a web page opens is counted as one impression) basis.

The company has integrated video rewards ads, which it previously developed under the brand maio, video interstitial ads, and playable ads into i-mobile Ad Network services. It has unified these services under the i-mobile Ad Network name.

Outstream video ads

These are video ads that are delivered to advertising spaces on web media and applications, differentiated from in-stream video ads, which are played before or during video content often seen in major streaming media.

Native ads largely fit will with surrounding content and engage the viewer. Banner ads enable advertisers to stream video ads across a wide range of media platforms and engage large numbers of users. An inRead ad appears within the other content thereby coming into the user’s field of view. As such, this is a good format for video ad content featuring a narrative.

Mobile applications often use the reward and interstitial advertising formats. Reward ads feature high completion rates given that they are often structured so that users are able to acquire items that can be used in games by watching such video ads from beginning to end. Interstitial ads are distinguished by the substantial impact they deliver to viewers given that they are displayed at the application start-up phase or when a game application switches to a different screen image as the app loads the next level of the game.

Affiliate ad (ASP*, launched in March 2013)

The affiliate ad business engages in payment-by-result ad delivery in the web services industry. When the desired result is achieved (such as request for information materials or acquisition of members), a fee is charged to the client and received by the media operator providing the ad slot. The company started the service in March 2013 and had about 30,000 registered partner sites as of January 31, 2019.

* Affiliate service provider (ASP): An ad agency service that acts as an intermediary between e-commerce sites that sell products and services online and affiliates that list ads for these sites. It is time-consuming for a medium selling ad space to deal directly with advertisers. Ad operation and management also require time and expertise. By registering basic information with an ASP, media can place ads on blogs and websites without directly dealing with advertisers. Sites that place ads receive a fee according to results such as the number of times an ad is viewed or clicked on. Using an ASP means a smooth flow of links with e-commerce sites and fee collection as well as saving time in the process of placing an ad. Companies with e-commerce sites ask an ASP to place an online ad. The ad is referred to affiliates (companies and individuals who place ads for products and services on behalf of others) via the ASP site. Affiliates can find the ad they want to place by searching the ASP site instead of receiving ad proposals from e-commerce sites, which saves them the time it takes to place an ad.

Ad agency business

Cyber Consultant, a wholly owned subsidiary, sells listing ads* and display ads** and provides an ad delivery service utilizing media, as well as management and operation consulting services.

* A service that displays ads related to a search keyword on the search results page of search engines like Google and Yahoo. These ads are more useful to users compared with traditional ads that may be unrelated to their interests and are likely to be more effective for advertisers.
** Display ads appear on the right hand side or bottom of the screen when a user views a portal or blog site. When users click on an image or other part of the ad, they are redirected to a site set up by the advertiser. Display ads are also known as banner ads because many are displayed as banner images. Most are CPC, although some are priced according to the number of times displayed, e.g., CPM.

Media solutions business

The company aims to increase its long-term media earnings as Google’s officially registered media solutions partner (Google Certified Publishing Partner) by using Google-sponsored products such as Google Ad Manager, AdMob, and Google AdSense.

According to the company, a large component of the media solutions business revenue is recurring revenue. This is due to the difficulty clients have in switching services caused by the necessity to embed tags when providing services. Also, the company says that as media solutions services are delivered along with consulting, it is difficult for clients to switch to overseas players.

Google Ad Manager

An integrated host ad delivery platform allowing the efficient management of ad delivery directed at specific targets on web sites, mobile webpages, mobile apps, games, or some combination of media.

AdMob

A service allowing app developers to earn income by displaying narrowly targeted in-app ads based on specified conditions.

Google AdSense

An ad delivery service for website administrators allowing a website to earn income by displaying ads. The service displays highly relevant ads that have high CPC rates.

App operation business

Ohte (mobile game apps)

The subsidiary provides mobile game apps in Japan that combine high-quality puzzles with a prize system. The main series is Puzzle de Kensho, which includes several titles such as Numplay de Kensho and Crossword de Kensho. Users receive points when they clear puzzles, which they can use to enter raffles for consumer electronics, tickets, and other prizes. The expense of providing prizes comes out of revenue from in-game ad slots sales.

Downloads of Ohte apps topped 10.0mn as of end-July 2021. The popularity of mobile games is generally affected by trends, with many games having short-lived success. However, i-mobile says Ohte’s games are longer lived and subject to a lesser degree of fluctuation in popularity—in other words, a lower dropout rate—since they are basic puzzle games. As for Puzzle de Kensho, the number of female users is slightly higher than that of male users.

The acquisition should allow the company to optimize in-game advertising, thereby increasing Ohte’s earnings. Owning media of its own should also give the company an advantage in selling online ads.

Ohte’s business model

Source: Shared Research based on company data

Market and value chain

Consumer Service

Hometown tax donation market scale

Under the hometown tax donation system, individuals required to pay income tax who make tax donations to prefectural governments or municipalities can, in principle, receive a tax credit to income tax and individual resident tax for the amount over JPY2,000 (up to a certain limit). This does not mean there is no limit on the amount by which tax donations can be used to reduce resident tax. In general, the maximum hometown tax donation should equal no more than 20% of the resident tax, but in fact the income tax rate impacts calculations. The White Paper on Local Public Finance, 2021 (FY2019 results) says individual resident tax totaled JPY13.1tn in 2019, so the latent market should be roughly 20% of that figure, or JPY2.6tn.

Potential size of hometown tax donations (latent market size)

(JPYbn)		FY2011	FY2012	FY2013	FY2014	FY2015	FY2016	FY2017	FY2018	FY2019
Total individual resident tax		11,184	11,624	12,003	12,217	12,395	12,459	12,787	12,913	13,135
Latent market size		2,237	2,325	2,401	2,443	2,479	2,492	2,557	2,583	2,627
	YoY	-1.6%	3.9%	3.3%	1.8%	1.5%	0.5%	2.6%	1.0%	1.7%

Source: Shared Research based on the Ministry of Internal Affairs and Communications’ White Paper on Local Public Finance. Potential size of hometown tax donations is calculated as 20% of individual resident tax revenue.

According to the "Results of the Survey on the Current Status of Furusato Tax Donation System (July 30, 2021)" released by the Municipal Tax Division of the Local Tax Bureau, the amount of donations received for hometown tax in FY2020 was JPY672.5bn (about 1.4x as much as in FY2019), and the number of donations received was 35mn (about 1.5x as much as in FY2019). The amount of the resident tax credit was JPY431.4bn (about 1.2x higher than in FY2019), and the number of people eligible for the credit was 5.5mn (about 1.3x higher than in FY2019). The actual scale of the hometown tax donation market grew conspicuously in 2014 as awareness of the hometown tax donation system grew. The market continued to grow by double digits through 2018. The rate of market growth should gradually diminish after an initial spurt. However, 2018 growth outstripped the 2017 rate thanks to an active PR campaign and some municipalities offering highly liquid, high value gifts relative to their tax donation. In 2019, the market shrank YoY in reaction to the high growth achieved in the previous year. In 2020, the company attributed the expansion of new middle-class users to an increase in internet contact time resulting from an increase in telecommuting and refraining from going out due to the spread of COVID-19, as well as taxpayers’ interest in saving money.

Hometown tax donations (countrywide totals)

		FY2011	FY2012	FY2013	FY2014	FY2015	FY2016	FY2017	FY2018	FY2019	FY2020
Hometown tax donation amount (JPYbn)		12.2	10.4	14.6	38.9	165.3	284.4	365.3	512.7	487.5	672.5
	YoY	19.0%	-14.4%	39.9%	166.8%	325.4%	72.1%	28.4%	40.3%	-4.9%	37.9%
Hometown tax donation count ('000)		101	122	427	1,913	7,260	12,711	17,302	23,224	23,336	34,888
	YoY	26.2%	21.3%	249.1%	347.9%	279.5%	75.1%	36.1%	34.2%	0.5%	49.5%

Source: Shared Research based on Municipal Tax Planning Division of the Local Tax Bureau data. Results are based on figures for the fiscal year (figures for 2019 reflect those from April 2019–March 2020).

The hometown tax donation system

Regarding hometown tax donation

Up to a certain limit, taxpayers who make donations to prefectural governments or municipalities can receive a tax credit toward both income tax and resident tax for any amount donated over JPY2,000. Local governments reciprocate by providing donors with gifts of services or local specialties corresponding to the amount donated. Operators of tax donation sites also give users points corresponding to the amount donated.

Credit for income tax and resident tax

The creditable limit is determined based on the number of family members, annual income, medical expense deductions, mortgage loan tax credits, and other factors. In the following example, a working couple with no children and annual income of JPY7mn make a JPY30,000 hometown tax donation and receive a JPY28,000 tax credit (the first JPY2,000 cannot be subtracted).

Illustration of a tax credit for hometown tax donation

Source: Shared Research based on Ministry of Internal Affairs and Communications data

Standard maximum donation amounts to keep the real residence tax burden at JPY2,000

(JPY'000)	Single person, two-income couple	Couple (without children)	Couple (with children)	Couple (on pension)
Annual salary	Spouse deduction not applied	Spouse deduction applied	Spouse deduction applied; with children aged 16 or older
3,000	28	19	11	19
4,000	43	33	25	36
5,000	61	49	40	59
6,000	77	68	60	78
7,000	109	85	77	111
8,000	131	120	111	134
9,000	153	141	132	158
10,000	177	165	156	185
15,000	384	380	368
20,000	552	546	534
30,000	1,034	1,027	1,013
50,000	2,056	2,046	2,031
100,000	4,316	4,312	4,297

Source: Shared Research based on Ministry of Internal Affairs and Communications data

The upper limit of donations is determined by income. Therefore, high-income earners are important customers for the company since they generate high commissions. There has been some criticism of the hometown tax donation system for allegedly having a systemic bias in favor of high-income earners.

Criteria of eligibility

Since June 1, 2019, municipalities eligible to participate in the hometown tax donation system are limited to those designated by the Minister for Internal Affairs and Communications. The Minister will judge a municipality eligible based on three criteria: 1) municipalities must implement appropriate recruitment of donations, 2) gifts must not exceed 30% of the value of donations, and 3) gifts must be produced in the municipality receiving donations. Appropriate recruitment is defined as that which is in line with the original aim of the system, does not push total expenses above 50% of the donation amount, and have not had a significant negative impact on other municipalities. A municipality will lose eligibility to participate in the system upon failing to meet any of these criteria.

The four municipalities with the highest transaction volume in 2018 (totaling roughly 22% in 2018) were disqualified based on these criteria (according to a survey of the hometown tax donation system released August 2, 2019 by the Municipal Tax Planning Division of the Local Tax Bureau). However, in June 2020, the Supreme Court of Japan ruled that it was illegal to exclude municipalities from the hometown tax system based on results under the previous system, and in July 2020 the four municipalities have reentered the system.

Gifts and costs

Municipalities give tax donors local specialties and services, with gift amounts corresponding to the amount of donation. These gifts include local products (such as beef, crab, or rice), leisure services (including pottery, paragliding, and birdwatching experiences), consumer electronics and electrical appliances, and gift vouchers. Around 2016, a number of municipalities began to compete for tax donations by offering gifts that appeared excessive given donated amounts.

The cost of procuring gifts in 2020 was 26.5% of donations, with all costs related to supplying gifts amounting to 45.1% (according to a survey of the hometown tax donation system released July 30, 2021 by the Municipal Tax Planning Division of the Local Tax Bureau). The hometown tax system received some criticism as an inefficient way of correcting the tax income disparity among municipalities, and legal revisions regarding eligibility under the hometown tax donation program were put into effect beginning in June 2019. Under the revisions, the value of a reciprocal gift provided in return for a tax donation must amount to no more than 30% of the amount of the tax donation, and the value of a reciprocal gift and expenses (the portion of expenses allocated to commissions which act as company revenue and Amazon gift voucher points) combined must also amount to no more than 50% of the tax donation. Also, it became clear that gifts have to be locally produced, and as such the government banned gifts with little connection to the municipality such as household electronics and gift vouchers (although the law does not ban locally produced household electronics and vouchers for stays at local accommodation providers).
The breakdown of expenditures in the Local Tax Bureau survey was 26.5% for procurement costs of gifts, 7.7% for shipping, 0.6% for PR activities, 2.3% for costs associated with payment, and 8.0% for administrative and other expenses.

The expanded restrictions on the types and values of reciprocal gifts the municipalities can offer should result in increased homogenization in terms of functionality and monetary value of reciprocal gifts. This trend should make it more difficult to differentiate i-mobile’s Furunavi portal site from competitor sites based on the gifts on offer.

Recruitment in line with the aim of the system

The government has determined the following practices contrary to the aim of the system and will disqualify any municipality found engaging in them.

Promising to deliver monetary rewards or other economic benefits to specific persons or using any other wrongful means to encourage them to refer hometown tax donors.

Employing advertisements that aim to attract donors by drawing attention to the reciprocal gifts. However, the ordinary provision of information on privately run hometown tax donation portal sites (such as i-mobile’s Furunavi) is not subject to this restriction (according to an April 1, 2019 Q&A session on criteria of eligibility related to hometown tax donation).

Providing information with language that could bias a tax donor in their choice of municipality, keeping them from choosing an appropriate one. Concretely, terms such as discount, max cost performance, giant portion, freebie included, overwhelming volume, sale, buy, purchase, and return are banned (according to the April Q&A). Using these kinds of expressions on a privately run hometown tax donation portal site at the request of municipalities is also banned (April Q&A).

Providing reciprocal gifts to persons with a residence in the municipality itself.

Recruitment that does not have a significant negative impact on other municipalities

The Ministry of Internal Affairs and Communications removes municipalities from the hometown tax donation system whose recruitment efforts since November 2018 resulted in receiving markedly more in donations than their peers in such a way as to negatively affect them and conflict with the aim of the system.

Simplification of hometown tax donation (tax deduction) filing process

Starting in the 2021 tax year, the filing process for the hometown tax donation (tax deduction) has been simplified. When filing final tax return, a donor no longer needs to provide a receipt for each donation but instead can present a “certificate of tax deduction”, which covers all the tax-deductible donations made during the year, provided that the recipient of the tax-deductible donation is a local government body (i.e., making this a hometown tax donation). This certificate is issued by an authorized service provider. Prior to this, to qualify for tax deduction when making donations to six or more municipalities, the individual filing a tax return form had to attach a receipt for each donation issued by the local government in question. It should be noted that if the taxpayer makes donations to five or fewer municipalities, a final tax return does not need to be filed (hometown tax one-stop exemption system).

Under the simplified rules, the service providers authorized to issue a certificate on behalf of a local government are defined as those under contract with that local government to serve as an intermediary to handle tax-deductible donations (i-mobile’s Furunavi portal website, for example), and officially recognized by Japan’s national tax agency as being capable of keeping orderly and accurate records of tax-deductible donations. As of September 15, 2021, there were 13 such commercial service providers, including i-mobile and its three largest competitors.

With the move to a more simplified system for claiming deductions for hometown tax donations, the use of authorized service providers to handle donations benefits the individuals filing the tax returns by reducing their paperwork, and benefits the local governments receiving donations by freeing them from the time and expense involved in sending out receipts to individual donors. With these changes, local governments will find little benefit in entering into new contracts with service providers that have not been approved by the national tax agency. While this will make it more difficult for new entrants to come into the industry, the company does not expect the size of the hometown tax donation market itself to change much as a result of this simplification.

Social significance of hometown tax donation

The hometown tax donation system has a redistribution function to correct disparities in local tax collection. Any municipality (hometown or a local government a taxpayer wishes to support) is eligible to receive hometown tax donations. The hometown tax donation system functions similarly to the universal services of electric and gas companies, JR, domestic airlines, and telecommunications companies (which provide equitable services regardless of load density) or to cross-subsidization (in which departments operating in the black cover for departments operating in the red within a scope deemed sound). The owner of a listed company must try to strike a balance between the public good and turning a profit, with capital markets and analysts helping to keep the company in check. In the case of the hometown tax donation system, i-mobile’s hometown tax donation portal site Furunavi, as a private enterprise, bears part of that social weight.

*In terms of local tax collection, if the national average is considered to be 100, when the effective tax collected per capita is compared between prefectures, Tokyo tops the list at 162.9, followed by Aichi at 117.3. However, Nagasaki has the smallest figure at 71.1, followed by Akita at 71.5. The disparity between Tokyo and Nagasaki is therefore about 2.3x. Comparing only individual resident tax, Tokyo’s 161.1 is about 2.5x Akita’s 64.8. (White Paper on Local Public Finance, 2020 [FY2018 Settlement])

Gifts provided via the tax donation system can lead to the development of local industries, and small entrepreneurs and producers are able to gain online marketing and e-commerce expertise through the tax donation system. Municipalities that are the top recipients of tax donations are not the only ones to benefit. Even municipalities operating on a small financial scale enjoy significant tax revenue from donations. Municipalities can also use the hometown tax donation system for crowdfunding.

Internet marketing and issues related to hometown tax donation

Numerous issues have been identified in the hometown tax donation system in relation to both general taxation and donation taxation. In addition to these issues, there has been criticism of the way the tax donation system leads people to make donations in order to receive gifts in return and leads municipalities to compete on gifts. The aim of the system and the reality differ greatly. Imbalances between producers and companies within municipalities have also arisen. In principle, municipalities are meant to select gifts produced locally, within their own borders, but only those producers and companies behind the selected products benefit from their selection, leaving other producers and companies behind. Some municipalities invite the participation of many producers and companies to supply gifts in return, but not all do. Imbalances also arise when only certain specialty goods are supported with the aim of revitalizing local industry. These sorts of issues are polarizing municipalities and companies within municipalities despite original purpose of the hometown tax donation system as a method of correcting tax collection disparity.

i-mobile’s collaboration with local governments on online marketing functionality related to the hometown tax donation system may be able to resolve some issues with the system. Hereafter, municipalities and companies supplying gifts (or with plans to do so) will need to work together on marketing activities to attract donors and encourage repeaters. Most municipalities are constrained by their physical distance from urban areas where many donors live, so they will need the sort of data i-mobile has on donor behavior and attributes, and companies supplying gifts will need to conduct quality control based on such data. For these reasons, collaboration between municipalities and companies supplying gifts and hometown tax donation portal sites such as i-mobile’s is indispensable, and the direction of regional promotions conducted by municipalities and companies supplying gifts matches i-mobile’s aspirations to develop its online marketing business.

Online Advertising

Fundamental mechanisms of Ad Platform business (including relevant players and technologies)

Market conditions for programmatic advertising (as of 2020)

Source: Shared Research based on company data

Demand-side platform (DSP): A platform that automatically optimizes various processes for advertisers or advertising agencies, such as purchasing ad inventory, distributing ads, placing ads, analyzing creatives, adjusting bid prices, and targeting audiences. DSPs place real-time bids when requiring inventory by connecting to a range of SSPs via real-time bidding (RTB).

Supply-side platform (SSP): A platform for maximizing online publishers’ advertising revenues. These platforms connect to multiple ad networks, demand-side platforms (DSPs), and ad exchanges, delivering the most appropriate and profitable ads to impressions. Plus, they reduce publishers’ operational costs by consolidating advertising management and distribution.

Ad network: An ad distribution method under which an ad distribution network is formed by pooling a large number of ad media websites, and ads are distributed to such websites. Ad networks provide major benefits to advertisers by bringing together a large number of websites as publishers and providing access to large traffic volume, as well as to publishers, by handling ordering and ad placement procedures.

Mechanics of ad distribution

Modern ad distribution systems have grown in complexity. From around 2011, such systems developed along two separate tracks: SSPs (publisher side) and DSPs (advertisers). Real-time bidding (RTB) has been used to complete transactions. Under this system, only ads that win auctions through RTB are displayed to consumers. On the DSP side, decisions such as which ad space to bid for when attempting to place ads held in inventory, as well as related purchase prices, are entirely driven by RTB.

Ad space in this context refers to websites around the world, nearly all of which are used by SSPs. Because it is not possible to manually specify conditions for all of these sites, it is necessary to automate decisions based on historical data. Machine learning is an effective way to compile the data that can inform such decisions. DSPs need a valuation of ad impressions to determine bid prices in auctions, and that valuation is derived from click rate and conversion rate estimates obtained via machine learning. Consequently, DSPs currently require functions that can—in a matter of milliseconds—estimate probabilities, determine a bid price, and select the appropriate ad to send in response to an ad request from an SSP.

While advertisers evidently wish to narrowly target the users who will see their ads, SSPs are a service used by publishers and therefore do no need to identify users. Consequently, ad-related privacy is unlikely to become an issue for SSPs.

Conditions under which ads cannot be distributed are problematic for both SSPs and ad networks. However, while publisher-oriented SSPs need to avoid this at all costs, ad networks can tolerate such conditions to a certain extent. In other words, SSPs and ad networks differ in terms of business requirements, and there are also technological differences that separate the two, including the functions they need to prioritize in development.

Real-time Bidding (RTB)
A system under which the right to display ads is sold in real time every time a user browses a website with available ad space. In RTB, the management of ad space is handled by SSPs and the management of ads by DSPs. Once a user accesses a website, servers automatically submit bids for the relevant ad space, and the ad with the winning bid is ultimately displayed to the user in the browser. Because bids are sent each time a user browses a website, the servers that issue the bids must be able to rapidly process high-traffic volume. In addition, advertisers who place the ads need to decide in advance the conditions based on which to bid on ad space and at which price, which means they not only need a bid server to place bids, but also a management interface to configure settings and functions to log winning bids and corresponding prices.

Important correlation between timing of ad revenue generation and click rate projections

Whereas ad networks earn revenue when ads are clicked (monetization based on cost per click [CPC]), DSPs earn revenue when impressions are served (monetization based on cost per mille [CPM]). In other words, the timing at which ad revenue is booked is different. Consequently, the importance of projecting click rates is also different.

DSP

Once a DSP secures the right to display an ad by submitting the winning bid in an auction, it receives an ad placement fee from the advertiser. DSPs cater exclusively to advertisers. To the extent they can sell ads at adequate prices and deliver satisfactory results to advertisers, they can increase profit by reducing purchasing costs.

Unlike ad networks that receive ad requests from contracted ad space (websites), DSPs need to purchase ad space through auction bids. Without a click rate, however, they cannot calculate appropriate bid prices for the rights to display their ads. Consequently, the ability to project click rates is of major importance to DSPs.

DSPs not only manage individually contracted ad space, but receive random ad requests from a large number of websites. Also, because DSPs collect ad placement fees at an earlier stage than ad networks, they require modeling powered by machine learning. In sum, DSP operations hinge on the ability to estimate click rates and receive commensurate payments, and click rate projections are therefore an important factor in determining bid prices.

Ad networks

Ad networks collect payments from advertisers and pay publishers once an ad is clicked. They supply services to advertisers and publishers, passing on ad placement fees from the former to the latter and take a margin of several percent on the transaction. They need to ensure their services are found satisfactory by advertisers and publishers, and their operations are margin-driven.

Ad networks determine prices based on cost per click (CPC), but click probability rates are not a major focus when managing CPC. Click rates for ad networks are largely a function of ad spaces and corresponding ads, and ad networks have plenty of historical data about ad distribution. This means they can simply use averages derived from such data as click rate projections.

Since ad networks determine CPC based on conversion rates, probability rates for post-click conversion are more important to them. This is because advertisers wish to know conversion rates and determine CPC—the ad fees paid to publishers—based on such data.

Ad networks pay publishers based on CPC, and they charge advertisers an amount equivalent to CPC plus their margin.

RTB auction methods

Real-time bidding (RTB) employs a sealed-bid approach under which bidders do not know the bid prices of other participants.

First-price auctions are a common type of sealed-bid auction in which the highest bidder pays the submitted price.

In second-price auctions, the highest bidder wins the auction but pays the second-highest bid for the ad. This type of auction is widely used in RTB for online ads. Second-price auctions deliver the highest expected return when bidders submit bids that reflect their true valuation. Put differently, they offer a superior mechanism under which bidders do not have to concern themselves with bids from other auction participants.

However, the use of first-price auctions in RTB is growing at present. RTB sometimes uses multiple auctions to determine which advertiser’s ads to display in response to ad requests. In second-price auctions, however, the bidder submitting the highest bid at the lowest-level auction cannot become the winner at higher-level auctions. To prevent this, some industry participants are switching from second-price to first-price auctions.

The online advertising market in Japan

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 only grow by a few percent per year (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.

A new category of advertising expenditure was created in 2019: 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 online advertising expenditures aimed at sales promotion in the e-commerce domain). 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 EC platform ad expenditures category). In 2020, total advertising spending fell sharply (-11.2% YoY) as fewer ads were placed during the COVID-19 pandemic. However, Online Advertising bounced back quickly and maintained positive growth (+5.9% YoY) despite some slowdown. Online Advertising expenditures are expected to increase by another 7.7% in 2021.

Programmatic advertising accounts for the largest share of online advertising media expenditure, followed by social advertising, which accounts for just over 30% of online advertising, and video advertising, which accounts for just over 20%.

Online advertising expenditures and their breakdown

(JPYbn)				2012	2013	2014	2015	2016	2017	2018	2019	2020	2021
													Forecast
Total advertising expenditures				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
	YoY			3.2%	1.4%	2.9%	0.3%	1.9%	1.6%	2.2%	6.2%	-11.2%
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%
	YoY			7.7%	8.1%	12.1%	10.2%	13.0%	15.2%	16.5%	19.7%	5.9%
	Medium expenditures			662.9	720.3	824.5	919.4	1,037.8	1,220.6	1,448.0	1,663.0	1,756.7	1,891.2
	Product sales EC platform ad expenditures										106.4	132.1
	Production costs			205.1	217.8	227.4	240.0	272.2	288.8	310.9	335.4	340.2
Transaction method		Performance-based		339.1	412.2	510.6	622.6	738.3	940.0	1,151.8	1,326.7	1,455.8
		Reserved						153.8	175.8	197.1	231.4	202.4
		Affiliate						145.7	104.8	99.1	104.9	98.5
Device		Mobile		80.0	207.3	345.0	497.9	647.6	831.7	1,018.1
		Desktop		582.9	513.0	479.5	421.5	390.2	388.9	429.9
Ad category		Display							498.8	563.8	554.4	573.3
		Paid search							483.1	570.8	668.3	678.7
		Video				29.0	51.6	86.9	115.5	202.7	318.4	386.2	426.3
			Instream									180.0	207.2
			Outstream									206.3	219.1
		Affiliate