kubell Co.,Ltd. Q2 FY2025 earnings call

• Company & Market Context
  • kubell is a Japan-based SaaS and BPaaS provider, with core mission "Make work more enjoyable and creative" and vision "Bring a step-forward working style to everyone". It has 639 group employees, and is listed on the Tokyo Stock Exchange Growth Market.
  • The company targets the large untapped Japanese SME market: 68.8% of Japan's labor force works in SMEs, and SME labor productivity has remained flat at less than half of large enterprises' level for 20 years, held back by lack of IT talent and limited product options fitting SME needs. Business chat penetration across all Japanese enterprises is only 23.7%, and just 23.3% for SMEs under 300 employees, leaving huge room for growth.
• Core Product Strengths (Chatwork)
  • Chatwork is the No.1 business chat tool in Japan by active user count, with over 936,000 introduced companies and more than 7.5 million total users. 97.1% of paid customers are SMEs under 300 employees, giving the company a dominant position in the fragmented SME market.
  • Key differentiators: Simple user interface for non-IT savvy users, open platform model that allows single-account cross-organization communication fitting SMEs' multi-partner collaboration needs, free tier that enables organic viral growth via word-of-mouth, and very low monthly churn of 0.23%. It benefits from compound network effects that drive quadratic user growth.
• BPaaS Strategic Positioning
  • BPaaS (Business Process as a Service) is cloud-based business process outsourcing, which delivers full end-to-end business operation rather than just software. It is positioned as the ideal DX solution for majority of SMEs, who cannot handle selecting and operating multiple independent SaaS tools on their own. Users only need to communicate via Chatwork, and kubell handles all DX operations end-to-end.
  • The company leverages its existing massive Chatwork customer base to conduct low-cost cross-selling: customer success teams proactively reach out to existing Chatwork users to identify pain points, then pitch BPaaS services directly to pre-identified decision-makers (Chatwork admins, usually company founders or back-office heads), resulting in very low customer acquisition cost compared to traditional BPO.
  • BPaaS currently focuses on accounting and payroll processing services, and the vast majority of its operators are women, most working remotely, including many with flexible scheduling needs for childcare.
• AI Opportunity
  • The rise of generative AI is a major tailwind: most AI interfaces are chat-based, which increases the value of Chatwork's platform. AI can be integrated to add features like text generation and summarization directly to Chatwork, and it can also automate large parts of BPaaS operations, reducing operator training time and improving operational productivity.
  • Management expects BPaaS to progress from semi-automation to full automation over the next 5-10 years, driving continuous margin improvement over time.
• Three Core Mid-term Strategies
  1. Communication Platform Strategy: Evolve Chatwork from a simple chat tool to a high-value comprehensive platform.
  2. BPaaS Strategy: Scale BPaaS to deliver DX to SMEs without requiring in-house IT capability.
  3. Incubation Strategy: R&D for new businesses leveraging AI and data, to expand cross-selling opportunities beyond Chatwork and BPaaS.

1. SaaS Domain (centered on Chatwork): ARR of 7.77 billion yen, accounting for 89.1% of total company ARR. As of Q2, Chatwork has over 7.75 million registered IDs, 822,000 paid IDs (up 9% year-over-year), ARPU of 713.6 yen, and monthly churn rate of 0.88% (sub-1%, a very low level for SaaS). The domain also includes smaller acquired SaaS products such as attendance management and cloud storage, plus a discontinued legacy security software business that caused slight near-term growth drag. The overall SaaS stock revenue grew steadily.
2. BPaaS Domain (new growth business under the Takushita brand): ARR of 950 million yen, Q2 sales revenue of 246 million yen, accounting for 10.9% of total company ARR. Stock revenue grew 76% year-over-year, with very high growth momentum, and the business's revenue share is projected to increase continuously over time.
3. Other Minor Segments: Include advertising on Chatwork, accounting for less than 1% of total revenue.

• Full-year 2025 fiscal year guidance revised from original full-year targets:
  • Revenue growth: Changed from 15%+ year-over-year to a range of 13% to 16% year-over-year.
  • EBITDA: Upward revision, changed from 1 billion yen+ to a range of 1.005 billion yen to 1.3 billion yen+, with the lower bound raised, indicating better-than-expected profit performance.
  • Management now discloses full guidance for all profit levels from operating income downward, which was not provided at the start of the fiscal year.
• Mid-term (2024-2026) financial targets:
  • CAGR of total revenue of 30% year-over-year, reaching 15 billion yen in total revenue by 2026.
  • EBITDA target of 2.25 billion yen by 2026, with EBITDA margin rising from 10% to 15%, targeting both revenue and profit growth.
  • Growth will come from steady Chatwork growth, faster BPaaS expansion, plus incremental growth from M&A and new incubated businesses.
• Long-term financial targets: EBITDA margin of 25% to 40%, operating margin of 15% to 30%, achieved by cost control on sales, marketing and general administrative expenses as the business scales.

• BPaaS operational scalability risk: Unlike SaaS which can scale easily by adding server capacity, BPaaS relies on human operators, and requires pre-hiring and training of specialized talent (particularly for specialized verticals like accounting and payroll). Excess demand can lead to delivery delays, and poor organizational management can increase turnover. The company had to pause new order intake for certain overloaded verticals in the early stage of business building, and currently still pauses intake for some capacity-constrained segments even after two years of scaling.
• Chatwork growth rate pressure: As Chatwork has scaled to nearly 8 billion yen in ARR, maintaining historical high growth rates has become harder, and growth has slowed to ~10% year-over-year, below earlier expectations.
• Competitive pressure: While the market is still underpenetrated and incumbents have clear market segmentation, existing BPO providers focus on large enterprises and do not serve small SMEs, and few competitors have the existing large-scale Chatwork customer base to enable low-cost cross-selling to SMEs, but new competitors are increasingly entering the BPaaS space, which could increase pricing and market share pressure over time.

Q: How does kubell plan to restore or maintain Chatwork's growth rate, which has slowed to around 10% ARR growth, and what key levers will it use? / A: Management notes that growth slowdown is natural as ARR scales to nearly 8 billion yen. The two core growth levers are expanding the number of paid IDs and increasing ARPU. After a 40% price increase two years ago caused temporary growth deceleration, the company is now investing heavily in product improvements, including adding AI features, to increase product value and justify future price improvements. New customer acquisition contributes limited annual growth because of the stock-based SaaS model, so ARPU expansion is the main growth driver, and growth will also come from cross-selling BPaaS and new incubated services to both paid and free Chatwork users, increasing platform-level lifetime value per user even if standalone Chatwork ARPU growth is limited.

Q: Can BPaaS sustain its 70%+ growth rate, and is operator capacity a constraint on growth? / A: BPaaS is not as easily scalable as SaaS because it relies on human labor, and the company faced early challenges due to lack of existing BPO operational experience, even pausing order intake at one point due to capacity constraints. After two years of building out recruitment and training processes, capacity has stabilized, but some high-specialization verticals like accounting and payroll are still capacity constrained, so the company currently pauses new intake for overloaded segments while keeping open capacity for underloaded segments. The company now has a stable system to pre-hire and train staff to match demand growth.

Q: What is kubell's M&A strategy for the BPaaS space? / A: kubell has already completed 3 M&A deals in the BPaaS space, and is actively pursuing more deals via its corporate venture capital arm for sourcing. The strategy is to roll up existing small BPO operators that already have customers, operators and domain expertise. After acquisition, kubell can integrate them into its platform, drive cross-selling from Chatwork's customer base, and achieve cost synergies, which improves the acquired business's profitability. This roll-up strategy will accelerate BPaaS growth.

Q: Who are BPaaS competitors, and what is kubell's competitive advantage? / A: Pricing levels are broadly similar across comparable BPaaS providers. kubell's core advantage is its extremely low marketing cost: it can pitch BPaaS directly to its existing 936,000 Chatwork customers, who already use the platform daily, so it avoids the high customer acquisition cost that requires competitors to spend heavily on advertising and sales. Management is focused on building a hybrid human-AI operational model to drive long-term margin improvement, which will create a sustainable profitable business model.