■reed's inc <4372> company overview

4. Company's Strengths

(1) The technology to reliably, quickly, and efficiently conduct large-scale distribution.

In the large-scale email delivery market, it is common to tune common mail servers for speed, but the company has adopted a design philosophy specialized in speed and the parallel processing language 'Erlang' suitable for achieving high-speed. Their unique transmission program allows for fast and reliable communication control, enabling them to handle deliveries of up to 10 million messages per hour (with a monthly distribution volume of 7.6 billion messages), which is a strength. There are only two companies, including the company, that can handle large-scale and high-speed deliveries at this level, and as e-commerce and digital marketing progress, there is strong interest in their services.

It is also a characteristic feature to have a dedicated team analyzing the 7.6 billion monthly emails. By analyzing the data and calculating the optimal delivery rate for each mail service and carrier, they have achieved a high delivery rate through data analysis methods and optimal values accumulated over about 25 years.

The company's long-established technical expertise and efficient delivery know-how cannot be easily imitated by other companies overnight, making them competitive. With only two competitors, the Company believes it can maintain high profitability in the future.

(2) Distributed service sites and high uptime.

Customers practicing digital marketing and DX, especially in industries like finance that require mission-critical systems, emphasize the importance of 'continuously providing services'. The company has 3 areas and 6 data centers distributed domestically, achieving a high uptime of 99.99% or more. They also provide a 'Disaster Recovery Plan' that allows for the continued use of the same IP address in the event of a disaster.

There is a possibility that if the IP address is different from the conventional one, it may be judged as spam. From the perspective of continuous digital marketing implementation, our company sees the ability to use the same IP address even in emergencies as appealing.

(3) Comprehensive support system

The fact that they have achieved a cancellation rate below the industry average through a comprehensive support system is also one of the company's attractions. The monthly average cancellation rate for email services in December 2023 was 0.43%, and for SMS services, it was 0.63%, which are very low figures (considered low even in the industry at 1-2%). The company handles everything from planning, design, development to operation, sales, and maintenance in an integrated manner, promptly addressing customer questions and issues to improve customer satisfaction. In addition, by conducting regular customer surveys and appropriately reflecting customer needs and satisfaction in the support system, they have built a mechanism to continuously maintain high customer satisfaction.

(4) Stable sales due to low cancellation rate

One of the charms of the SaaS business model is the high proportion of stock-based sales. By keeping the cancellation rate low, it is possible to consistently increase stable sales. In this sense, the low cancellation rate is considered one of the company's strengths.

(5) High proportion of stock sales in revenue

Stock sales at the company refer to revenues that are regularly recognized such as monthly fees. In the second quarter of the fiscal year ending December 2024, stock sales accounted for 96.2% of the company's revenue. Unlike traditional single transaction models, it is an efficient business model that can increase sales with less effort, resulting in high profitability.

(6) Premium customer segment

The company's customers are mostly large corporations. As of the end of December 2023, the penetration rate of companies that have introduced the company's services among TOPIX Core30, Large70, and Mid400 is 30.0% (an increase of 3.3 points from the previous period), 31.4% (an increase of 2.9 points), and 16.3% (a decrease of 1.8 points) respectively, showing a high adoption rate in large enterprises. Systems used by large enterprises need to be mission-critical, and the cancellation rate is significantly lower compared to small and medium-sized enterprises because they carefully determine before making a purchase. Therefore, it can be said that having many large corporate customers is one of the company's strengths.

Thanks to the six strengths mentioned above, the company achieves stable sales and high profit margins (23.3% operating margin and 16.1% interim net margin in the second quarter of the fiscal year ending December 2024) and its key performance indicators that the company values, such as MRR and monthly churn rate, are showing favorable trends. The monthly MRR calculation formula is "Previous MRR + (New MRR + Expansion MRR - Downgrade MRR - Churn MRR)", indicating that an increase in MRR means that the contract amounts of new customers and existing contract upgrades exceed the contract amounts of canceled customers and downgraded existing contracts. The company's MRR has been steadily increasing in recent years, showing continued growth and expansion in its business (Regarding SMS, although there was a temporary decrease due to specific customer demand erosion, the contract numbers are steadily increasing, indicating a recovery trend).

Monthly Recurring Revenue (MRR): Revenue that is generated regularly every month.

New MRR: Recurring revenue obtained from new customers.

Expansion MRR: Recurring revenue obtained from existing customers upgrading their contracts.

Downgrade MRR: Recurring revenue decrease resulting from existing customers downgrading their contracts.

Churn MRR: Revenue decrease resulting from existing customers canceling their contracts.

It is expected that the digital marketing market will continue to expand smoothly in the future. Amid favorable external environment expectations, we believe that by exerting such competitive advantages, our company will continue to steadily expand its performance.

(Written by FISCO Guest Analyst Yoichiro Shimizu)