■ Business Overview

Interspace <2122> was established in 1999 primarily for the internet advertising business, and it operates two businesses: performance marketing centered on affiliate advertising and media business. In the business segment composition ratio for the fiscal year ending September 2024, the performance marketing business accounts for 62.8% of revenue and 76.6% of business profit, comprising more than half.

As of the end of September 2024, the group has 9 consolidated subsidiaries. Domestically, there is Storefront Co., Ltd., which was spun off in April 2018 (primarily developing store-type DX solutions), TAG STUDIO Co., Ltd., established in 2018 (operating comparison and review media), 4MEEE Inc., which was made a subsidiary in January 2018 (operating media services targeting women in their 20s such as "4MEEE" and "4yuuu" targeting sensitive mothers), Unite Project Co., Ltd., which was made a subsidiary in April 2020 (operating the tutoring portal site "Juku Shiru"), and N1 Technologies, which acquired the website improvement tool "Ken-Gawa" (currently renamed "SiteLead") business from tact Co., Ltd. in April 2023. Furthermore, there are 4 companies in Southeast Asia (Indonesia, Thailand, Singapore, Malaysia) conducting performance marketing business and one equity-method company established in Vietnam through a local joint venture (with a 49% investment ratio, engaging in performance marketing business).

1. Performance Marketing Business

The performance marketing business consists of performance advertising (i.e., affiliate advertising) through the affiliate service "Access Trade" operated by the company and its overseas subsidiaries, the store-type DX solution "Mobile Window (formerly Storefront Affiliate)" developed by Storefront, and the website improvement tool "SiteLead" managed by N1 Technologies. Approximately 62% of revenue is derived from performance advertising income, with the remainder accounted for by marketing solution revenues from store-type DX solutions and "SiteLead." It occupies a significant position among industry-leading affiliate operators, with competitors listed in the stock market such as Fun Communications <2461>, Adways <2489>, ValueCommerce <2491>, and Rentrax <6045>.

Affiliate advertising refers to performance-based internet advertising, where the advertiser pays the operators of the website (partner sites) or email newsletters that display the ads based on the generation of final outcomes such as product purchases or requests for materials. Between the advertiser and the ad publishers (media partners), an intermediary like the company providing the affiliate program functions as an operator (affiliate service provider). Regarding revenue, from the fiscal year ending September 2022, the method of recording revenue was changed to deduct media costs from the advertising fees received from advertisers. Since media costs previously included in cost of sales are no longer recorded, there is no impact on operating profit. The gross profit margin on advertising trading volume is approximately 20-30%, with the remaining portion being payouts to partners (based on the old accounting standards).

The affiliate program is a tool that allows advertisers to display ads on their websites, with user-friendly tools provided by various operators. The company developed "Access Trade" in 2001, and as of the end of September 2024, the number of registered partners is approximately 2.82 million sites, with 3,576 active programs. Particularly, since 2019, the increase in overseas partners has been significant, now accounting for more than 70%. The expansion of online business in Southeast Asian countries suggests the widespread adoption of affiliate services.

Additionally, the store-type DX solution primarily provides services at mobile phone retail stores. Shop staff recommend content apps or services provided by advertisers to smartphone purchasers, leading to performance rewards upon downloading or starting services; in the case of subscription services, revenue is generated throughout the contract period. This direct product/service explanation and proposal by store staff makes it a highly cost-effective advertising service for advertisers. Currently, subscription-based services dominate revenue, forming a stock-type business model that increases revenue in line with the number of contracts. Key products include Security products for smartphone users, as well as in-house products like the cloud backup service "Pocket Backup*1" and the nuisance call prevention service "Dareka na Block*2." A notable competitor is MTI <9438>.

※ For a monthly fee of 550 yen (tax included), this service automatically saves data from Smart Phones to the cloud with unlimited capacity. Since it is an in-house service, the gross profit is slightly higher than that of other companies, with a monthly fee of several tens of yen per contract.

※ For a monthly fee of 495 yen (tax included) (with in-app purchases in iOS apps at 500 yen), this in-house service enables identification and automatic blocking of nuisance calls, automatic identification of the caller's source, and SMS filtering.

The website improvement tool "SiteLead" is a subscription-based service aimed at improving the landing pages and conversion rates of the operated websites. It displays the exit rate and provides a Heat Map analysis to visualize where users tend to drop off, along with various exit prevention features (such as pop-up functions and recommendation widget functions). Competing services offer similar features for about 30,000 yen per month every 0.1 million page views, while "SiteLead" provides these services at an unprecedented price of approximately 3,500 yen. As of the end of September 2024, the number of contracts stands in the thousands, with individual business owners typically as users, but recently, the sales strategy targeting corporate clients such as internet Advertising Agencies has also been promoted.

2. Broadcasting Business

In the Broadcasting Business, we operate content-based media as well as comparison and review type media. The revenue scale is similar for both media, but the business profit is generated primarily from the content-based media, while the comparison and review type media is in the early investment stage. The flagship of the content-based media is the information platform "Mama Star," which is one of the largest media outlets in the industry targeting mothers. Display advertisements and tie-up advertisements published in this media serve as the source of income. Due to being industry-specific media, client companies can easily reach targeted users, which results in a high number of monthly visitors, leading to higher advertising rates compared to common portal sites. Additionally, we focus on content-based media targeting women, operating lifestyle media "saita" aimed at women in their 40s to 50s, trend media "4MEEE" aimed at women in their 20s, and yoga & beauty online news media "Yoga Journal Online."

On the other hand, comparison and review type media adopts a performance-based business model that generates revenue by sending potential customers to client companies that post information on the same site. In addition to "Juku Shiru" (a tutoring portal site) operated by the Unite Project, there are "Job Dispatch Search" and "Job Finder" (comparison and search sites for staffing service companies) operated by TAG STUDIO, and "Pro Ria" (a review site for programming schools).

(Written by FISCO guest analyst, Jo Sato)