CEO Comment Volume 45, 2010.05
Revision to Financial Forecasts for Fiscal Year Ending June 2010 and Outline of New Mid-Term Business Plan
Shift to Media Incubation Business and Progress of Twitter Business
We are sorry to make our shareholders feel concerned by drastically reviewing our financial forecasts, but this is intentional reorganization primarily directed toward our next phase of growth. We hope that you will focus on the fact that we are successfully maintaining the strong momentum of business growth driven by Twitter as set forth in the “Outline of New Mid-Term Business Plan” and consider that this is rather a dynamic change of our business structure (transitional financial results) to establish business infrastructure tailored to our faster-than-expected growth.
The details are as follows.
I. Mid-Term 3-Year Business Plan for future Digital Garage Group and outline of business strategy by segment
Priority policy and targets in the three-year plan
Change business structure and shift from commissioned-type system development business to “Media Incubation business driven by Twitter”
Digital Garage will aim at the “mid-term management targets and structure” stated below under the new structure.
We will launch the new structure in the fiscal year ending June 2013, setting specific target figures at consolidated ordinary income of more than 5 billion yen and consolidated ROE of more than 25%.
Management targets in Mid-Term 3-Year Plan
[1] We will fuse the existing e-context settlement platform and DG&Ibex solutions and start pursuing a media establishment-type alliance strategy in the Hybrid Solution business. We will also aim at expanding the fulfillment business to be started by our joint venture with Nippon Express across the board.
[2] Our mid-term growth is led by the Media Incubation business. We will conclude a new agreement with Twitter, Inc. of the U.S. with a view to further promoting the use of Twitter and increasing Twitter-related businesses. In addition to advertisements served on the official PC Twitter site, advertisements on the mobile site will soon be monetized. Accelerating the third party business (API-based external participation type business) with strategic partners in various areas, we will endeavor to “establish an ecosystem for the Twitter business in Japan” in these two business areas.
[3] In addition to Silicon Valley-type hands-on incubation, the Venture Incubation business will operate the Open Network Lab to create Japan’s first global standard originated in Japan and support new domestic ventures with the help of the Singaporean government.
Target figures in Mid-Term 3-Year Plan
II. Factors behind the financial forecast revision
We determined that our intentional change of strategy and a special factor were behind the revision. As representative real time media, Twitter’s growth is remarkably fast and we are determined to shift the Digital Garage Group’s resources to the Twitter business to seize the growth opportunity to the maximum extent.
1. After reforming the business structure of DG&Ibex Company, we conservatively lowered the company’s goodwill appraisal (2.9 billion yen) by about 50% after consultation with our auditor and logged an appraisal loss of 1.4 billion yen in the fiscal year ending June 2010. This accounting procedure does not accompany any capital outflow, while our annual depreciation cost will decrease by 100 million yen as a result from the next fiscal year.
2. Sales fell short of our forecast by 2.8 billion yen due to the cancellation of a large system development project and the shift of engineering resources engaged in the Integration business to the Media Incubation business.
3. Prior spending on management and support generated by the sharp increase in user numbers following the “establishment of Twitter Company” inside Digital Garage
4. Prior investment in Twitter-related, domestic original service businesses
Revised consolidated financial results for the fiscal year ending June 2010
III. New business partnership and the overview of the Twitter business
This time, Digital Garage signed a new collaboration agreement with Twitter, Inc. of the U.S. in a bid to strengthen our strategic partnership and further expand the Twitter business in Japan. We also made our fifth additional investment with the approval of Twitter at the same time.
In this agreement, Digital Garage and Twitter agreed to start selling advertisement space on the official Twitter mobile site in addition to the PC site and carry out test marketing of new services in series, while supporting the operation of the official Twitter site, allying with a range of strategic partners in Japan (such as mobile carriers, media companies, leading social media and content providers) and providing technical support.
In addition, U.S. Twitter’s core staff members engaged in the Japanese business will be temporarily transferred to Twitter Company inside Digital Garage to establish a seamless business promotion structure between the two countries.
Digital Garage has been supporting the diffusion of Twitter in Japan by 1) promoting the use of Twitter itself, while planning and running the “twinavi” official navigator site and 2) in the area of domestic original services (third party business) in Japan since the Twitter service was launched in 2008.
Please look at the overall Twitter business relationship diagram below.
1)-1 Official Twitter site
Twitter not only works in conjunction with Internet media, but is also just
in the course of diffusion that could be described as the Twitter movement,
which is being covered by TV, radio, newspapers and magazines, promoted through
tie-ups with TV commercials and used as the theme of a popular drama series
on Fuji Television. As a result, PV and UU counts are growing more than I expected
with the PC version posting 20 million PV/day in March, rising about three times
more than the 7 million PV/day in January in just three months.
Advertisement space on the PC site is also sold out through June. When advertising on the mobile site is soon commercialized, monetization on both the PC and mobile wings will start.
1)-2 Twitter navigation site/“twinavi”
Twitter navigation site, “twinavi,” has also started growing as a popular new
site that collects about 20% of overall Twitter traffic, seeing PV and UU counts
smoothly growing on both PC and mobile sites. Ad placement is thriving as well
and packaged advertisements, which could be referred to as a Twitter advertisement
mix combining “ad on Twitter site + ad on twinavi site + ad on mass media/web
media,” are being formulated as a promotion method to be used after opening
a corporate account.
2) Third party business
In the third party business, Digital Garage is currently preparing “new strategic
services” one after another from our group companies in areas such as “operation
support tools for business customers,” “affiliates” and “client billing solutions
for content” in collaboration with strategic partners, leveraging the IT (information
technology), MT (marketing technology) and FT (financial technology) that Digital
Garage has fostered for years. Please keep your eyes on our next move.
We are determined to strive to increase shareholder value as a company that makes a contribution to the world through the next-generation Internet business by precisely catching the waves of the “real time web Twitter revolution” and the “evolution and diversification of the smartphone” that are taking place almost simultaneously all over the world, as well as “cloud computing,” the third wave of the information society that lies behind the former two waves.
We sincerely appreciate your continued support and guidance for both Digital
Garage Group companies and Digital Garage Inc.
