LY Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• System Failure Apology: Addressed the ransomware attack on ASKUL Corporation, expressing sincere apologies for the concern and inconvenience caused and stating the company is cooperating with recovery and investigation efforts.
• Financial Results Overview: Consolidated revenue was JPY 505.7 billion, up 9.4% Y-o-Y. Consolidated adjusted EBITDA grew 11.3% Y-o-Y to JPY 125.4 billion. Adjusted EBITDA and EPS are on track with guidance despite consolidated revenue being slightly behind guidance due to decline in search advertising revenue.
• AI Agentization and OA/MINI Apps: Progress in AI agentization with 100 million user goal; DAU for AI services is 8.6 million. Enhancement of Official Accounts and MINI Apps with target to increase share of high gross margin OA and MINI Apps to about 40% over 3 years and aim for an adjusted EBITDA margin of 40% to 45%.
• LINE Renew Preparations: Renewals of talk, shopping, and wallet tabs rolled out in phases since September; home tab renewal scheduled for test release this year.
• Dividend Revision: Annual dividend revised upward from JPY 7 to JPY 7.3 due to share repurchase and cancellation completed.
• Resource Optimization: Reallocating human resources to growth areas like AI agents, Official Accounts, and MINI Apps; aiming to allocate 50% of resources to growth areas by FY 2028 and reduce fixed cost by JPY 15 billion by end of fiscal year 2026.

Segment Performance

• Media Business: Revenue and adjusted EBITDA declined, but adjusted EBITDA margin improved quarter-on-quarter. Search advertising revenue contracted, while account advertising grew.
• Commerce Business: Second quarter revenue reached JPY 216.6 billion, a year-on-year increase of 7.2%. Adjusted EBITDA was JPY 33.3 billion; profit declined due to increased promotional expenses related to the hometown tax donation program, but the decline narrowed compared to the previous quarter. The full consolidation of BEENOS contributed to the results.
• Strategic Businesses (Payment and Financial Services): Revenue was driven by PayPay consolidated, reaching JPY 109.7 billion, a year-on-year increase of 35%. Adjusted EBITDA continued to grow, reaching JPY 22.9 billion, a year-on-year increase of 52.1% with a high margin. The full consolidation of LINE Bank Taiwan also contributed to increased revenue.

Guidance

• Consolidated adjusted EBITDA and EPS are on track with guidance despite consolidated revenue being slightly behind.
• Q3 and Q4 search ad negativity is expected to be the same as Q2.
• Aim to increase the share of high gross margin OA and MINI Apps to about 40% over the next 3 years and achieve an adjusted EBITDA margin of 40% to 45%.
• Target to double sales from JPY 140 billion to JPY 280 billion over the next 3 years, with focus on expanding MINI Apps and launching SaaS services from H1 2026.

Risks

• Ransomware attack on ASKUL Corporation on October 19, causing partial information leakage and system failure. The company is working to restore systems and investigate the cause, with concerns about potential impact on customers and business partners and the need to strengthen information security framework across the group.

Question and Answer

• Q: On search ads, the degree of toughness and realistic guidance towards the second half? A: Ryosuke Sakaue stated second quarter was worse than Q1 due to a major client's weak budget allocation continuing into Q2 and additional budget reductions in other clients. Forecasts Q3 and Q4 negativity to be same as Q2.
• Q: On MINI Apps, pathway to achieve sales target? A: Takeshi Idezawa mentioned supporting baseline for display and search, leveraging growth of OA with 16% CAGR, and expanding with MINI Apps and SaaS services. MINI App platform expected to strengthen in the later half.
• Q: Impact of GenAI on search-linked ad? A: Ryosuke Sakaue noted Yahoo! Search has 10% of queries from AI search, but answers from AI search are business queries with no ad opportunity. Hiroshi Kataoka added no major time shift in search trend and ad performance hasn't deteriorated, with opportunities for monetization in GenAI-led search.
• Q: Commerce Business growth excluding BEENOS? A: Unknown Executive stated Yahoo! Shopping growth was about 19% in Q2, with hometown tax impact in late high single digits to mid-single digits. Reuse (excluding BEENOS) had mid-single digit growth, expected to continue in second half.