Comparison with other industry sectors
In addition to interspace <2122>, the major affiliate operating companies include Funko Communications, Adways, ValueCommerce, LinkShare Japan (a subsidiary of Rakuten Group <4755>), and Rentracks. The scale of revenue varies among each company due to the expansion of other businesses, but the combined industry share of the six companies, including the company itself, in the affiliate service is approximately 60%, of which the company itself is considered to have less than 10% share. For the fiscal year 2023, each company has its own reasons, but all five companies saw a double-digit decline in operating profit. In addition, for the company plan in 2024, Rentracks expects an increase in profit, while the other four companies plan for a decrease. Although the internet advertising market continues to expand, the impact of the diversification of advertising methods is thought to be affecting it.
Looking at the features of other industry sectors, Funko Communications has about 3.44 million partner sites and 3,475 active advertiser ID numbers for "A8.net" as of March 2024, making it the largest in the industry in terms of partner site numbers. They have been providing advertising business for small and medium-sized enterprises for a long time and have a wide range of advertising projects centered around the EC field. The business performance has been affected by the shrinking of the smartphone advertising service "nend" in recent years, but they have withdrawn from the business as of March 2024. However, the advertising handling amount of "A8.net", which had been steadily increasing, was also down 12.6% year-on-year for the January-March 2024 period, showing a double-digit decrease and a harsh situation continuing.
Adways operates advertising platform business (ad network advertising delivery service, affiliate advertising service) and agency business (advertising agencies domestically and overseas). They have a high ratio of mobile users and are strong in gaming and digital comics. In recent years, they have expanded their business performance with the growth of smartphone ad network advertising delivery service "UNICORN" using machine learning, but there was a decline in profit due to a decrease in advertising submissions in the gaming and digital comics genres for the fiscal year end in December 2023 and for the January-March 2024 period they saw a decrease in revenue and profit in the financial and gaming areas.
ValueCommerce mainly operates marketing solutions business (affiliate service) and EC solutions business. The sales composition ratio by industry sectors for the marketing solutions business is highest in finance at just over 30%, and they also handle a wide range of industries in a well-balanced manner. As of the end of March 2024, the number of partner sites was 780,000 and the number of advertisers (ID numbers) was 708. For the January-March 2024 period, the performance of the marketing solutions business won spot projects in the finance sector, but performance declined slightly due to a decrease in items such as home appliances, human resources and beauty-related areas compared with the same period of the previous year.
Rentracks mainly operates performance-based advertising services and a marketplace-related business for used construction machinery. The breakdown of sales by industry sector for the performance-based advertising services (actual results for the fiscal year ended March 2024) is highest in finance at 39%, followed by real estate at 10%, and automobile buying and selling and esthetics at 8% each. The number of partner sites as of the end of March 2024 was 320,000. For the January-March 2024 period, due to a decrease in the financial and retail sectors, revenue and profit decreased by 6% compared to the same period of the previous year. For the fiscal year ending March 2025, they aim to increase revenue and profit by developing new genres, but the advertising handling amount for April decreased by a double digit compared to the same month of the previous year, indicating a sluggish start.
Looking at the stock market indicators, the company's stock price (closing price on May 28, 2024) is evaluated at the average level compared to the other 4 companies with a P/E ratio estimate of 13.5 times for the fiscal year ending in September 2024, ranging from 7 to 27 times. However, the EV/EBITDA ratio is the only one among the top 5 companies that is evaluated to be less than 1 times, with a ratio of 0.1 times, and the current market capitalization is at a level that is almost the same as the cash on hand. EV/EBITDA is a simple indicator of how many years it takes to recover the acquisition cost (market capitalization + interest-bearing debt - cash and deposits) with the period earnings (operating profit + depreciation) when acquiring a company. A lower ratio means that the acquisition cost can be recovered in a shorter period of time, which may mean low growth expectations in the stock market. However, the company's performance has remained relatively strong, even amongst other companies struggling, and we believe that if the business strategy currently being pursued leads to performance growth, the evaluation in the stock market will also change.
(Written by FISCO guest analyst, Jo Sato)