GMO Media,Inc. Q1 FY2025 earnings call

• Company Overview:

  • Founded in 2000, listed on Tokyo Stock Exchange Mothers (now Growth) market in 2015, with over 200 employees, more than half of which are engineers and designers. The company operates 10 core services across two main group subsidiaries.
  • Selected as one of MINKABU's 8 featured stocks in MINKABU Awards 2024, with current market capitalization of 8.8 billion yen, targeting 10 billion yen market capitalization and a move to the Prime Market as soon as possible.

• Core Business Models:

  • Point-related game platform: Operates a browser-based no-download game aggregation platform for major partner sites, with 19 paid game sites and 45 ad-supported game sites. Revenue comes from revenue sharing, and the model benefits from high user return visits for partners.
  • Beauty medical: Operates Kireipass, a clinic matching and ticket platform for non-invasive cosmetic medical procedures, with growing membership and transaction volumes. It also offers Kireipass Connect, a monthly SaaS platform for clinics that integrates customer acquisition, electronic medical records, and management tools; the company recently acquired a competing electronic medical record business to become the 2nd largest player in the space, targeting industry leadership.
  • Learning: Operates Koeteko, a portal for children's programming schools with 14,000 listed classrooms nationwide, plus Koeteko College, an online course hosting platform for educators. It has launched Koeteko Study byGMO, an AI-powered question generation tool for the newly added "Information I" university entrance exam subject, already adopted by multiple top high schools in Tokyo.

• AI and Operational Efficiency:

  • 100% of employees hold IT passports, 57% hold the G (AI) qualification. AI implementation cut customer support costs by 65 million yen between 2022 and 2024, from 100 million yen to 35 million yen.
  • Holds 2 granted AI generation patents with 7 more pending, with a multi-filter human-in-the-loop system to minimize hallucinations in AI-generated educational content.
  • Only 3 dedicated AI specialists, but all employees use AI in daily work.

• Growth Strategy:

  • Follow a three-stage compound growth model for industry-specialized segments: 1) media-driven customer acquisition for businesses, 2) monthly recurring SaaS to improve operational efficiency, 3) direct D2C business leveraging accumulated user data.
  • Prioritize growing recurring stock revenue to stabilize operating performance, and expand into new high-growth verticals beyond learning and beauty medical.
  • Open to synergistic M&A deals, with sufficient on-hand cash and willingness to use debt or stock-based acquisition when valuation improves.

1. Media Business (Point-related segment): 18.2% YoY gross profit growth, driven by strong performance of free ad-supported games. This segment accounts for over 50% of total 2024 gross profit, and currently makes up ~70% of total revenue. Its gross margin is approximately 33% due to required revenue sharing with game developers and traffic partners. 2. Media Business (Industry-specialized segment: beauty medical, learning): 20.7% YoY gross profit growth, with solid growth primarily from beauty medical-related revenue. This segment accounts for ~25% of total 2024 gross profit, and currently makes up ~30% of total revenue. Gross margin is nearly 100% for this segment. 3. Solution Business: Accounts for less than 20% of total 2024 gross profit, providing external clients with system and expertise developed from the company's B2C operations. For the full 2025 December fiscal year Q1, the company reported total revenue of 1.926 billion yen (+11.8% YoY), and total operating profit of 335 million yen (+38.3% YoY).

• Maintains full-year 2025 operating profit guidance of 915 million yen, with Q1 progress at 36.7% of target, in line with seasonal norm (Q1 typically contributes over 25% of full-year revenue, H1 typically contributes ~55%).
• Targets a long-term 50:50 revenue split between point-related and industry-specialized segments, prioritizing growth of the higher-margin industry-specialized segment.
• Plans to expand the AI question generation tool beyond "Information I" to other subjects including English, geography, and physics, and enter the growing computer-based testing market for corporate training and national qualification exams.
• Raises 2025 full-year dividend payout ratio from the historical base of 50% to 65%, targeting a per-share dividend of 241 yen.
• The recently acquired electronic medical record business will be consolidated starting May 2025.

• AI search and zero-click search pose a risk of reduced user traffic for SEO-dependent media, though this impact is limited for GMO Media as most business lines leverage existing user databases and have low reliance on organic search traffic.
• The market for "Information I" university entrance exam preparation is still relatively small, as most university admissions now happen via recommendation/early entry pathways rather than the common entrance test, limiting near-term revenue upside from this new product.
• Growth requires continued investment in new product development (such as Koeteko Study) which will increase costs in the first half of the fiscal year compared to Q1.
• Hallucinations in AI-generated content create a risk of incorrect educational materials, requiring additional fact-checking processes that add operational cost.

Q: How will S&M and hiring costs change from Q2 onward, and what types of new hires is the company targeting? / A: The company hired 3 new graduate engineers, which creates a small cost increase with no major expansion. Costs will rise in H1 due to continued investment in the AI service Koeteko Study. Hiring will be cautious overall, with a focus on upskilling existing staff to use AI, with priority given to adding sales and business development roles.

Q: What is the company's long-term target revenue split between point-related and industry-specialized segments, and how do gross margins compare? / A: Both segments are growing, so a full reversal of the current ~70:30 split is not expected near-term. The company targets an eventual 50:50 split, prioritizing growth of the industry-specialized segment which has a near 100% gross margin. Point-related revenue looks large on a top-line basis but only retains ~1/3 of revenue after sharing with game developers and traffic partners, so growing the industry-specialized segment will increase total gross profit faster.

Q: How does the company mitigate hallucination risks in AI-generated educational content, and what is the internal AI team structure? / A: The company uses a multi-step filtering system: a second AI checks and corrects generated content to minimize errors, and all AI-generated questions included in the service receive manual human review. Less than 1% of generated questions have errors, which are removed or corrected. There are only 3 dedicated AI specialists, but all employees use AI as part of their regular work.

Q: How is the company adapting to growth in AI search that impacts SEO-dependent media businesses? / A: AI search-driven traffic to the company's sites is growing, and the company is actively learning and implementing AIO/AEO best practices to adapt. However, most of the company's business does not rely heavily on organic Google search, as it leverages existing user databases from point activity and other services, so the risk of major impact is low.