LY Corporation Q2 FY2025 earnings call

System Failure

• Apologized for ransomware attack on ASKUL Corporation causing system failure and partial information leakage, committed to recovery and strengthening information security framework across the group.

Financial Results

• Consolidated revenue JPY 505.7 billion, up 9.4% Y-o-Y. Consolidated adjusted EBITDA grew 11.3% Y-o-Y to JPY 125.4 billion. AI agentization, LINE Official Account and Mini apps expansion, and LINE renew preparations ongoing.

Strategy

• Key strategy: advance with AI agentization of all services and enhancement of Official Account and MINI Apps. Goal of 100 million DAU for AI services. Plan to increase share of high gross margin OA and MINI Apps to ~40% over 3 years, aim for adjusted EBITDA margin 40%-45%.

Media Business

• Both revenue and adjusted EBITDA declined, but continuous cost-saving efforts led to improvement in adjusted EBITDA margin Q-on-Q. Search advertising revenue contracted, while account advertising growth drove total advertising revenue increase.

Commerce Business

• Second quarter revenue reached JPY 216.6 billion, up 7.2% Y-o-Y. Adjusted EBITDA was JPY 33.3 billion; profit declined due to increased promotional expenses related to hometown tax donation program, but decline narrowed from previous quarter. Full consolidation of BEENOS contributed to revenue.

Strategic Businesses (Payment and Financial Services)

• Revenue driven by PayPay consolidated, reaching JPY 109.7 billion, up 35% Y-o-Y. Adjusted EBITDA JPY 22.9 billion, up 52.1% Y-o-Y, with margin remaining at high level. Full consolidation of LINE Bank Taiwan contributed to revenue.

• Consolidated revenue slightly behind guidance due to search advertising decline, but adjusted EBITDA and EPS on track.
• Upward revision of dividend forecast from JPY 7 to JPY 7.3 due to share repurchase and cancellation.
• Forecast Q3 and Q4 search ad negativity similar to Q2.
• Target to have 50% of human resources allocated to growth areas by FY 2028, reduce fixed cost by JPY 15 billion by end of fiscal year 2026.

• Ransomware attack on ASKUL Corporation leading to partial information leakage and system disruption.
• Concerns about GenAI impact on search ad performance.
• Dependence on successful execution of AI agentization and OA/MINI Apps expansion strategies.

Q: On search ads, degree of toughness and guidance for second half?

A: Sakaue said major client budget allocation weak continued into Q2, other clients reduced, Q3/Q4 negativity same as Q2.

Q: On MINI App expansion, pathway to JPY 280 billion sales?

A: Idezawa said display/search have baseline measures, growth from OA, MINI Apps, and SaaS; MINI App platform stronger in later half.

Q: On GenAI impact on search-linked ad?

A: Sakaue and Kataoka said Yahoo! Search 10% of queries from AI search, business queries from AI search have no ad opportunity, mid-to-long term see opportunity in GenAI-led search monetization.

Q: On Commerce Business growth excluding BEENOS?

A: Hide said Yahoo! Shopping had significant hometown tax impact, Reuse excluding BEENOS had mid-single digit growth, expecting similar growth in second half.

Q: On MINI App monetization?

A: Ikehata said monetization through payment function and advertising within MINI App, strengthening sales force for monetization from next fiscal year and beyond.