NETSTARS Co.,Ltd. Q4 FY2024 earnings call

Core Financial Results

• Full-year 2024 total revenue was 3.902 billion yen, up 13.2% year-over-year. Q4 2024 revenue rose 13.2% year-over-year and 17.2% quarter-over-quarter, driven by 18%+ growth in transaction volume and steady payment fee performance.
• The company achieved profitability in the second half of 2024: Q4 2024 net profit increased by 113 million yen, and H2 2024 net profit increased by 177 million yen, beating consensus estimates significantly. Full-year 2024 net loss was 37 million yen, a 343 million yen improvement year-over-year and 68 million yen better than the revised full-year forecast, driven by accelerated cost efficiency improvements and high gross margins from the payment business offsetting DX segment weakness.
• Gross margin remained strong at over 75%, driven by the high-margin payment business.

Core Competitive Advantages

• Technology and cost efficiency: The company is the only payment gateway provider in Japan using cloud-native container technology. AI tools including generative AI are integrated into development and maintenance operations to improve testing stability, enable more flexible development, and cut costs. Per-transaction server costs fell from ~0.06 yen to 0.05 yen quarter-over-quarter in Q4.
• Merchant and partner network: New merchant acquisition met full-year targets, with expansion into new verticals including gas stations (e.g., Kygnus Sekiyu). Total merchant accounts grew to 500,000, and the company holds the largest number of supported cashless payment brands (~60) in the market. The company partners with third-party sales channels, with a current focus on deepening partnerships with credit card acquirers. Churn rate remains stable at low levels.
• Profitability profile: The company maintains top-tier gross profitability compared to peer payment service providers (PSPs), though DX underperformance weighed on 2024 overall growth.

2030 Mid-Term Vision

• Strategic direction: Evolve from a pure payment service provider to a world-class cashless DX platform anchored on "Payment × DX × Global Expansion".
• Targets for 2030: GPV over 6 trillion yen, payment-related revenue over 10 billion yen, total company revenue over 12 billion yen, maintain gross margin of 70%+, and achieve operating and net profit margin of 25%+.
• Key strategic priorities: 1) Leverage the existing large merchant network to accelerate new merchant acquisition and cross-sell/upsell integrated solutions including cashless processing, DX, and remittance to existing merchants; 2) Develop industry-specific fintech products leveraging advanced technologies including AI, cloud, Web3.0, and blockchain, with customized solutions for different verticals to differentiate from competitors; 3) Continue cost optimization and system efficiency improvements, using AI automation to cut infrastructure and operating costs while maintaining stable service; 4) Accelerate global expansion, building on existing entry into Qatar, Cambodia, and Mongolia by expanding into new markets leveraging Japan's cashless and DX expertise.

2025 Key Operational Priorities

• Multi-brand cashless payment: Increase connection partners for StarPay, add interoperability with more third-party terminals and payment providers, partner with POS vendors to support POS system renewals, and pursue connections with merchant proprietary payment services to expand the company's economic footprint. Expand beyond the core retail vertical into new industry segments and target growth in the non-face-to-face payment segment.
• DX solutions: Offer fully flexible delivery options (off-the-shelf, partial customization, full custom development) across all device and format types, and focus on serving high-demand verticals including restaurant chains, leisure, hotels, fitness, car rental, food courts, and karaoke. Cross-sell DX solutions with StarPay core payment services to support merchant labor reduction and digital transformation.
• Global expansion: Support the Japan-led JPQR unified QR code initiative, expand payment services in existing markets (including infrastructure projects such as Cambodia entry visa processing), and plan new market launches in 2025 focused on infrastructure-related payment opportunities.
• **Financial policy: Maintain no dividend while the company is unprofitable, will consider dividends or shareholder perks once full-year profitability is achieved. Continue hiring at ~10% annual growth with no large planned capital expenditures.

1. Payment-related segment: Full-year 2024 revenue grew year-over-year, contributing over 80% of total adjusted revenue. Full-year gross payment volume (GPV) reached 1.5 trillion yen, the first time the company exceeded this annual threshold. The segment maintains high gross margins that drive overall company profitability, with Q4 2024 GPV up 18.6% quarter-over-quarter supported by recovering domestic consumption, new merchant acquisition, and inbound tourism growth. 2. DX solution segment: 2024 full-year revenue came in at 360 million yen, well below prior year levels, due to project delivery delays and underperformance that drove a full-year negative impact of approximately 300 million yen on revenue.

• Full-year 2025 total revenue is projected at 4.85 billion yen, up 24% year-over-year. Payment-related revenue is expected to grow 23% year-over-year, in line with 25% year-over-year GPV growth targeting over 2 trillion yen. DX revenue is projected to increase by 203 million yen year-over-year.
• Full-year 2025 gross profit is forecast at 3.677 billion yen, up 24% year-over-year in line with revenue growth. Full-year operating profit is projected at 233 million yen, targeting full-year net profitability, with the company prioritizing significant profit growth in 2025 and 2026.
• The guidance incorporates conservative assumptions: only 10% probability weighting is applied to two large delayed DX projects, and partial launch is assumed for large new merchants that require POS modification, as revenue contribution will not fully hit in 2025 for these accounts.
• Large new merchant acquisition has outperformed expectations, with ~200 million yen in total POS modification costs required (recorded as sales promotion expense), driving a 49% year-over-year increase in 2025 sales promotion expenses. These costs are upfront investments that will drive revenue growth over multiple future years.
• Quarterly profit profile: Q1 2025 is expected to post a net loss of 40 million yen, Q2 2025 is expected to post net profit of ~30 million yen, as upfront sales promotion costs for new merchants weigh on first half results. Transaction volume and payment revenue will grow sequentially from H2 2025 as new merchants launch and contribute.

• Project delivery delays in the DX segment can lead to revenue shortfalls relative to projections, as seen in 2024 when DX underperformance reduced full-year revenue by ~300 million yen.
• Large new merchant acquisitions require upfront POS modification investment, which creates near-term profit pressure and exposes the company to delays in merchant launch timelines that can push revenue contribution into future periods.
• Intensifying competition in the Japanese cashless payment market driven by market expansion and technological change could pressure market share and margins.
• Consumer spending weakness could negatively impact transaction volume growth and payment revenue, as seen in 2024 when weak consumption during Golden Week and Silver Week moderately reduced full-year results.

The provided earnings call transcript does not include a disclosed Question and Answer section, so no exchanges can be summarized.