[Upward Revision → Forecast for Full-Year Profitability] FY2024 Q3 Financial Results Announced.
Hello, this is Kashima, CFO of note (5243).
We have just announced our financial results for the third quarter of the fiscal year ending November 2024, and I would like to provide an overview.
Overview of FY2024 Q3 Financial Results
Financial Highlights
The highlight of our FY24 Q3 results is an upward revision and a forecast for full-year profitability. Since our IPO, we have gradually reduced our losses through revenue growth and strengthened cost management, achieving our first-ever quarterly profit in the previous quarter (FY24 Q2). This trend continued into Q3, with quarterly operating profit reaching a record high of 22 million yen. The total for Q1 through Q3 reached 34 million yen, and after considering our investment levels for the remaining three months, we have decided to revise our full-year forecast upward to profitability.
Since our IPO, the number one question I have received from investors in IR meetings and other forums is When will you become profitable?. I have always answered that we would achieve it as soon as possible, and we were able to issue a full-year profit forecast in our second year as a public company.
Background of the Upward Revision
As I have mentioned in previous financial reports, note itself has consistently continued to grow both before and after our IPO, and our losses have narrowed every quarter due to revenue growth and cost management.
To put it bluntly, we had already reached a revenue scale at the break-even point where we could generate profit if we chose to, so the actual profit level was determined by how much we decided to spend on expenses and investments.
As I mentioned at the beginning of the fiscal year, we are making strategic investments for medium- to long-term business growth this year, but since selling, general, and administrative expenses, primarily personnel costs, are expected to be lower than our initial plan, we have decided to make this upward revision.
The main reason for the lower personnel costs is that the pace of hiring has been slightly slower than our initial plan. While it would be better to be able to hire as planned, our policy is not to compromise on quality just to fill positions, as we want to bring talented people into our company, and that is reflected in the numbers.
As noted in the comment section on the right side of the slide above (p.28), we are proceeding with new service development and other projects in collaboration with external outsourcing partners, so we have not forced a reduction in costs.
Furthermore, because revenue per employee and productivity have increased due to operational efficiency, we have not changed our revenue projections despite the cost savings.
Rather than forcing a profit, I believe this upward revision naturally reflects the current strength of note.
Trends in Key KPIs
Of course, our top line and various KPIs are also progressing steadily. The GMV (Gross Merchandise Value) of our core note service reached 4,345 million yen (YoY +20.5%), a figure that exceeds our Q1 record high. When breaking down GMV into the number of subscribers and ARPPU, both figures have increased from the previous quarter.
While note has become a platform used by many people (MAU fluctuates by month but is generally over 50 million), and the number of note subscribers is increasing every month, it is still in the 500,000 range, meaning that relative to the scale of the platform, the number of people who have purchased a note is still small. In IR briefings and study sessions for individual investors, I often ask the participants, "Have you ever purchased a note?" Even among those who are highly sensitive to information, interested in investing, and active on social media, less than half have had the experience of purchasing a note (though I do feel it is gradually increasing).
This is entirely due to our own lack of effort and insufficient promotion, but conversely, I believe this represents the growth potential of note. In the modern age, I think those who have never used e-commerce like Amazon or Rakuten are in the minority. Also, there are probably very few people who have never bought a book in their lives.
Content on the internet has primarily been monetized through advertising, with almost no monetization through charging for the content itself, and I am proud that note has pioneered that market and culture. Just as people have long paid money to purchase books, newspapers, and DVDs, it is natural to pay for valuable content. I understand that by actually making purchases, the value of high-quality note content is conveyed, leading to repeat purchases and a quarterly increase in the number of subscribers.
I don't know if you remember the day you first used Amazon, but the things you nervously pressed the purchase button for at first have become convenient, and now you probably purchase them quite frequently every month. We are improving and updating the service daily, thinking that a time will come when note becomes an essential infrastructure for people just like that.
Recent Initiatives
Allow me to introduce two points that support the expansion and infrastructure-building of the note platform.
Becoming one of the largest access platforms in Japan
One is data from an external company's survey, but in data released by Similarweb, which provides services such as access analysis, there was news that note's access count is the highest among domestic blog services and 14th among all websites.
The services ranked above note are all renowned names such as Google, Yahoo!, and YouTube, and the expansion of the note platform has been demonstrated by the numbers.
Excitement of the Creative Awards 2024 and Expansion of Recognition as a Creative Infrastructure
Also, the Creative Awards, one of Japan's largest creative contests held since 2022, saw over 50,000 entries this year, and its recognition as a creative infrastructure for creators is also expanding. Last year's winning works have led to drama adaptations and book publications, making it a place where we can offer various opportunities to many talented creators, and that track record is leading to a further increase in the number of applicants.
Regarding the progress of note pro
It wouldn't be fair to only write about the good things, so I will also share our sense of challenges. For the note pro business, which is note for corporations, revenue (ARR) continues to accumulate from the previous quarter, up 15.2% YoY, while the number of paid contracts has slightly decreased from 739 to 734.
Due to the price revision of note pro in 2023 (from 50,000 yen/month to 80,000 yen/month), although ARPPU has increased, the current acquisition pace has weakened slightly, which is reflected in the number of contracts. Our policy is to maximize total ARR including the revised prices, so ARR growth is our top priority, but the number of contracts is also not at a satisfactory level.
Even when talking to people at other companies, I feel that there is no awareness that note provides a paid plan for corporations, so I believe we need to clearly define the value provided compared to the free version and communicate it widely. Of course, we will also proceed with functional updates and development to meet the primary needs of companies in parallel.
Regarding the impact of the Bank of Japan's policy interest rate hike and the yen's appreciation on our company
Although this is not news specific to our company, I would like to touch upon the macro environment as well. Triggered by the Bank of Japan raising short-term policy interest rates from late July to early August this year, the yen appreciated rapidly, causing a significant drop in major stock indices such as the Nikkei Stock Average and TOPIX, and our company's stock price was also significantly affected.
Generally, interest rate hikes are thought to lead to increased borrowing costs for companies, and a stronger yen is considered to have a negative impact on the Nikkei Stock Average, which includes many export-related stocks. On the other hand, our company currently has limited borrowing, so even if there were a significant interest rate hike of 1%, the impact on our business performance would be minimal, and for better or worse, our business is currently focused on the domestic market, so exchange rate fluctuations have almost no impact on our sales. In terms of costs, we have some payments made in dollars to overseas operators for overseas cloud server and SaaS usage fees, which are currently recorded as communication expenses, and these will act in the direction of cost reduction (profit improvement) when the yen strengthens.
Regarding exchange rates, they have continued to fluctuate wildly, from the 160 yen range in July to the 140 yen range in September, and to the 148 yen range as of October 9, the day of this earnings announcement, but we achieved a profit in this 3Q even after experiencing the weak yen levels of July, so we believe that even if the yen weakens again in the future, it is a level we can absorb.
In the chart above, we have posted the performance trends compared to major stock indices following the recent Bank of Japan interest rate hike. Since this was an event that affected the entire market, I believe the decline in our stock price itself is unavoidable. On the other hand, the fact that our stock price recovery is lagging behind the Nikkei Stock Average and others, which contain many companies more susceptible to the effects of interest rate hikes and a stronger yen than we are, is due to my own lack of ability to clearly communicate that the impact on our business is minimal. Simply put, I believe the current stock price level is undervalued, and I intend to communicate this appropriately in future IR activities.
Upcoming IR Events
As an upcoming IR event, I will be speaking at a study session for individual investors hosted by Kobe Investment Study Group on Saturday, October 19th. I (CFO Kashima) will explain the latest situation based on these 3Q financial results, so please join us.
You can register for participation from the link below (free of charge).
Various Disclosure Materials
The materials disclosed in the FY24-3Q financial results are as follows, so please check them as well.
They are posted in the "IR Library" on our IR website.
https://ir.note.jp/library
Contact for IR Inquiries
For IR-related inquiries, such as questions about financial results or opinions and feedback on our IR initiatives, please use the inquiry form below.
https://ir.note.jp/inquiry
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We operate the "IR note Magazine," where you can see IR information published by listed companies on note in one place. It shares information about each company's initiatives that cannot be fully explained through timely disclosures or IR websites, so please take a look at this magazine as well.
https://note.com/notemagazine/m/m530d4bde968b
We are also accepting new participants at any time. Listed companies wishing to participate, please contact us via our IR inquiry desk.
Conclusion
In this financial report, we were able to present several figures that demonstrate note's growth, including an upward revision, a full-year profit forecast, and expansion of our scale as a platform.
Now that the third quarter has ended and we are in the final sprint of this fiscal year, our employees are working together to execute, plan, and consider various initiatives that will lead to medium- to long-term growth beyond what we have introduced here. This is truly an exciting time, so we look forward to your continued support of note!
