ibis inc. Q3 FY2025 earnings call

• Market Position & User Base

  • ibisPaint, the company's flagship mobile painting app, has ranked #1 in active users among Japanese apps in Europe and the US for 5 consecutive years, and top 3 globally in its category.
  • The app has reached 500 million cumulative downloads, with 93.3% of downloads and 73.9% of revenue coming from overseas. Monthly Active Users (MAU) total 38.06 million, with 70% female users and strong support from Generation Z and Alpha.
  • 86.5% active user market share against direct competing mobile painting apps.

• Strategic Transformation

  • The company is actively shifting its business model from a freemium ad-based model to a subscription-focused paid model. In 3Q cumulative results, in-app payment revenue surpassed ad revenue for the first time, with subscription alone expected to exceed ad revenue next fiscal year.
  • Continued investment in product development: increased development headcount to maintain product competitiveness, launched Mac version of ibisPaint in August 2025 to target the professional market and prevent user churn.
  • Continued development of AI-powered features for ibisPaint including AI super-resolution, AI background removal, and AI art filters.

• M&A and New Business

  • Completed acquisition of Technospeech (AI singing voice synthesis) and more recently ZeroIchistart. The deemed acquisition date for ZeroIchistart is December 31, and it will be consolidated into the balance sheet at year-end.
  • ZeroIchistart is a profitable fast-growing firm specializing in no-code/low-code AI development, with expected synergy with the existing Solution segment from its strong sales capabilities and high development efficiency.
  • Technospeech's main product VoiSona is an AI singing voice synthesis app, currently in incubation with plans to leverage ibisPaint's global reach for expansion, and cross-product synergy through combined use of VoiSona and ibisPaint for animation and music video creation.

1. Mobile Segment: Revenue increased 3.9% YoY, segment profit increased 6.0% YoY. Within the segment, app advertising sales decreased 20.1% YoY (missing plan targets), while subscription sales grew 71.0% YoY, exceeding plan and surpassing app advertising sales for the first time this quarter. Subscription plus one-time purchase sales now account for over 50% of total mobile segment revenue.
2. Solution Segment: Revenue decreased 0.1% YoY, segment profit increased 13.8% YoY. IT technician dispatching decreased 0.3% YoY, while contract development increased 8.1% YoY. The segment has recovered to prior period revenue levels after organizational restructuring that improved hiring and retention rates.
3. AI Singing Voice Synthesis Segment: Revenue is 72 million yen, segment loss is 60 million yen, 30 million yen of which comes from goodwill amortization. The segment is still in the incubation stage.

• Full-year FY2025/12 results are expected to meet the original plan. While ad sales are expected to come in below plan, the overperformance of subscription sales will offset the shortfall, and both the Mobile and Solution segments are expected to deliver revenue and profit growth.
  • Full year plan targets: total revenue 5.02 billion yen (+8.6% YoY), operating profit 1.17 billion yen (+1.8% YoY), subscription sales 1.11 billion yen (+62.2% YoY). As of 3Q, revenue progress is 72.4%, operating profit progress is 72.1%, all within expected range.
  • The original plan projected that paid revenue would surpass ad revenue in 2 years, but the faster-than-expected growth of subscriptions means this milestone will be reached earlier than planned. Full year FY2025/12 is already expected to see total paid revenue exceed ad revenue.
  • Medium-term strategic target: grow subscription contracts to 2 million users (from 351,000 currently), reaching 6.0 billion yen in subscription revenue, targeting a total CAGR of over 10% across all business segments.
  • The company targets pro-market growth from Windows and Mac versions, which have already delivered faster subscription growth than mobile (2.6x YoY for PC vs 1.7x YoY for mobile).

• Ad sales eCPM has remained stagnant at depressed levels, which is the main factor behind the company's muted overall revenue growth this year. Ad market cycles are hard to predict, and there is no clear timeline for a recovery to prior year levels.
  • Ransomware cyberattack risk: While a full server encryption event is considered very unlikely, the company maintains multiple layers of backup. 98% of ibisPaint functions run locally on user devices, and payment processing is handled through third-party app stores, so any outage would have limited impact on users and revenue.
  • Competitive pressure: Affinity recently launched a free ad-free version of its painting software, which the company views as a meaningful competitive threat, though past similar competitor moves (from pixiv and Adobe) did not result in material impact on ibisPaint's business.
  • Subscription growth will naturally slow over time as the user base expands, making it increasingly difficult to maintain the current high growth rate.

Q: How has Affinity's recent free pricing affected your sales and user base? / A: Management views the free, ad-free high-quality offering as a meaningful competitive threat and is monitoring the situation closely. However, they note that similar free launches from competitors like pixiv and Adobe in the past did not end up having material impact, as users rarely switch abruptly from an app they already use regularly. Management will continue to watch developments closely.

Q: When do you expect ad sales to recover to prior year levels? / A: Management believes the current low ad sales level is the bottom, and expects conditions to improve from here, but cannot predict if or when ad sales will return to last year's levels. The market outlook remains uncertain at this point.

Q: Is a ransomware attack a major risk to ibisPaint operations, and what would the impact be? / A: Management says a full ransomware encryption of ibisPaint servers is very unlikely. Multiple redundant backups mean recovery would be fast if an attack occurred. Also, 98% of ibisPaint functions run locally on user devices, and all payment processing is handled by third-party app stores, so only a small set of non-core cloud-dependent features would be affected, limiting user disruption and revenue impact.

Q: What is driving the stronger-than-expected subscription growth, and can this growth continue next year? / A: Management says the Mac release had minimal impact, and the faster PC subscription growth is driven mostly by Windows, which targets professional users with higher purchasing power. Subscription growth will naturally slow over time as the base grows, but the company expects high growth to continue, with similar growth trends in both domestic and overseas markets, no country-specific targeting is needed as the product appeal is global. The current 76.4% YoY growth rate is not expected to continue indefinitely, but growth will remain strong.