Trends and business content in the cloud market.
2. Business content
The business segments of Telus Sky <3915> are divided into two categories: solution business and product business. In the fiscal year ending February 2024, solution business accounts for 91.3% of revenue and 110.1% of operating profit, becoming the main business. In terms of segment profit margin, the solution business is relatively stable at a level in the 10% range. The central part of the business involves the development and introduction of cloud systems, and the operating and maintenance revenue ratio that becomes stock sales accounts for about 15% of revenue. The order status of development/introduction projects, productivity of projects, and operational status of engineers are all factors affecting profit fluctuations, but for Salesforce-related projects, Telus Sky has top-class engineers domestically, and relatively stable profitability can be ensured even for advanced projects. Although profit margins have declined somewhat in the past year or two, the increased investment costs for newly established subsidiaries such as Thai subsidiaries and Quemix, and the increase in understaffed project costs to personnel training costs, are the reasons cited.
On the other hand, the profit margin of the product business has been negative since the fiscal year ending February 2022. The reason is due to continued upfront investment such as development costs and promotion costs related to 'mitoco' and the large-scale projects for major automobile manufacturers having concluded. The pre-depreciation profit margin in the fiscal year ending February 2024 is 5.1%, and more than 90% of revenue comes from stock sales. Therefore, if the sales scale expands due to an increase in the number of contract customers, it is expected that the company will become profitable and surpass the solution business in terms of profitability.
When divided by cloud sales, the revenue composition ratio for the fiscal year ending February 2024 was 59% for Salesforce-related and 41% for IaaS-related (AWS, GCP, etc.). The revenue composition ratio for Salesforce-related has decreased by 10 points from 69% in the fiscal year ending February 2020. This is because the large-scale introduction project of Salesforce-related that contributed to revenue in the product business in the fiscal year ending February 2020 has concluded, and the revenue scale of BeeX and IaaS-related businesses operated by subsidiaries, including the Telus Sky Group, is steadily growing. In terms of actual amount, revenue from Salesforce-related has continued to grow in the double digits.
(1) Solution business
In the solution business, Telus Sky develops systems utilizing the cloud according to the needs of client companies, and provides support for introduction. Specifically, it handles everything from requirement definition for front systems and core systems to design/development/testing/operation/effect verification/improvement measures/systemization plans. Salesforce development is particularly common as a front system, and Telus Sky has signed a license sales contract with Salesforce and is expanding introduction support. The cumulative number of introductions of cloud systems, particularly those centered on Salesforce, is over 7,000 by the company alone (over 18,000 for the group), making it one of the top class in the domestic market. Toyota Motor <7203>, Hitachi <6501>, Mizuho Financial Group <8411>, Odakyu Electric Railway <9007> Group, KDDI <9433>, etc., have introduced it to many companies regardless of industry, business type, or corporate size, but the proportion of large-scale projects for sales/service/marketing divisions of large enterprises is high due to Salesforce's strength in the CRM field. In addition, more than half of the revenue comes from maintenance/operation fees from existing customers or continuous/additional development projects. In the event of introducing Salesforce, development will continue, including additions of new functions, and the cloud integrator who provided the introduction support initially will continue to receive orders for the service.
In addition, BeeX, a subsidiary, is expanding SAP cloud migration support and development/introduction support for AWS (Microsoft Azure also supported if requested). In particular, it has a track record of many cases of supporting SAP cloud migration, backed by high technological capabilities. In addition, at Sky 365, MSP services related to cloud introduction projects such as Salesforce and AWS are offered. Telus Sky Technologies, Cuon, Libre Sky, Quemix, DiceWorks, and the business of the subsidiary in Thailand are also included in the solution business.
(2) Product business
In the product business, the company develops and provides cloud-focused services as a SaaS vendor, as well as includes the AI platform business developed by its subsidiary, Enoki. The main products include 'mitoco X' (formerly DataSpider Cloud), 'SkyVisualEditor', 'mitoco', etc. Revenue is divided into flow revenue recorded at the time of introduction and stock revenue for monthly billing (subscription revenue), with stock revenue accounting for more than 90% of the share. Looking at the breakdown of services, 'mitoco X' accounts for 43%, 'SkyVisualEditor' accounts for 24%, and 'mitoco' accounts for 25%, with these three products accounting for over 90%.
'Mitoco X' is a tool that automatically links on-premises systems owned by customer companies and data from various cloud services such as Salesforce. Since it became available for solo sales under the company brand from September 2023, revenue sharing with its co-development partner, Seazon Information Systems, will be eliminated in the future, enabling the company to strengthen its product development and capabilities. Additionally, 'SkyVisualEditor' is a tool that allows each company to easily customize Salesforce screens to their liking for business purposes, and has established itself as an industry-defacto product.
The 'mitoco' product, which is being developed as a focus product, is a groupware product that allows smooth communication within the company, with features such as workflow, calendar, and bulletin board available on Salesforce and compatible with mobile devices. In addition, without the need to purchase additional Salesforce licenses, it is possible to share information such as Salesforce calendars, customers, and responsible persons, eliminating the division of information between the Salesforce used by the sales department and the schedule and workflow system used by all employees, and achieving centralized management of customer-centric information for efficient business operations, making the most of Salesforce. Various functions are released one after another, such as expense settlement in December 2021, attendance management in August 2022, financial accounting in September 2023, and debt management in March 2024. This is a highly rated product with the highest rating as 'Leader' in the 'Salesforce Extension Category' and continuous 'High Performer' awards in the 'Groupware Category' at the 'ITreview Grid Awards', which recognizes and awards products and services with high user ratings based on user reviews of IT products and cloud services.
(Written by FISCO guest analyst, Jo Sato)