Q&A at Earnings Investor Briefing for Q2 FY2021
Date | Thursday, November 4, 2021 6:00 pm - 7:00 pm |
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Speakers | SoftBank Corp.: Kazuhiko Fujihara (Board Director, Executive Vice President & CFO) Takashi Naito (Vice President, Head of Finance and Accounting Division) Osamu Akiyama (Head of Strategic Finance Division) |
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Regarding net adds, what is the monthly performance in Q2 and how do you view the future trend? In addition, what is your view on mobile service prices?
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Net adds in April was weak, but recovered in June. For Q2, July to September, there was no big change in trend. Q2 improved compared to Q1. On the other hand, Q2 had faced the state of emergency due to COVID-19, and our strength could not be exercised in the market, as there were not many fully implemented events and the number of customers coming to mass retailers were limited. In October, because the state of emergency has been lifted, the people in the field are more energetic about holding sales events. So, I believe we will be able to leverage our strength if the situation becomes stable. Regarding mobile service prices, we will keep the current pricing to acquire customers.
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ARPU in Q2 declined by JPY210 year on year, and the annual average ARPU decline is also expected to be JPY210. What will be the trend from Q3 onwards?
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Decline in ARPU due to mobile service price reduction will enlarge in each quarter going forward. On the other hand, ARPU was impacted positively by the slowdown in the year on year growth of smartphone debut plan subscribers which have already achieved a certain penetration rate, an year on year positive impact from accounting on first-year/half-year discounts, and less sales of iPads, which have a low ARPU, due to a stock shortage. Net of these factors, we expect the decline in ARPU other than mobile service price reduction will become smaller in Q3 onwards.
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You have talked about JPY 26 billion of mobile service price reduction impact. Does it include the brand mix deterioration? Will the trend of brand mix deterioration continue in the future?
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The existing impact of migrations among different brands is excluded from impact of mobile service price reduction. Only brand mix deterioration due to mobile service price reduction is included as mobile service price reduction impact. As users usually change to new price plans when they upgrade their mobile phones, we expect the negative impact to ARPU may last for about 2 to 3 years. Of course, as we deploy 5G we want to look for opportunities to upsell.
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What is the situation for 5G handset sales? Please talk about the 5G coverage, as well as the base station construction status.
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Our handset sales are mainly 5G capable smartphones and are growing steadily along with the number of 5G subscribers. Base station construction is going well and 5G population coverage is around 80%. Our plan to achieve 90% in spring 2022 remains unchanged.
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In the Enterprise business, operating income was 6.6% of year on year increase in Q2. Compared to my expectation, it seems the growth rate in profit was slightly weak. Can you give me the reasons? Can you explain your policy going forward?
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I do not think we delivered enough in mobile and business solutions, but in the second half, we expect to revamp more of our sales in these areas. Meanwhile, as we have many projects from enterprises and municipals, there are short of hands. In the first half, we did not put any brake on cost and worked on many projects that focus on growth.
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If the Enterprise business has a single-digit growth in revenue, will the organic growth in segment income also become single-digit?
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In the Enterprise business, we do cross-selling for many kinds of products with different margins. Generally speaking, if revenue increases, margin improves. Of course, we want to grow business including digital marketing with increase on efficiency.
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In the Enterprise business, does the iPad stock shortage have derivative effects other than device sales?
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Compared with Q1, roughly half of the slowdown in the mobile revenue was due to the decrease in device sales including iPad stock shortage effect. There are no other effects at present.
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In the first half of the fiscal year, there was an increase in the sales promotion cost. What is the full year outlook for the sales promotion cost?
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In Q1 last fiscal year, we limited sales activities due to COVID-19, and therefore sales promotion cost increased year on year as a rebound. However, in Q4 last fiscal year, we significantly invested in sales promotion. So, for full year we expect a decrease in sales promotion cost. Since we expect decline in the Consumer segment, while we insist on net adds we will strictly control the costs.
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In terms of the operating income in the second half of the fiscal year, can you show us the forecast by segment? Is it a correct thinking that the profit drop in the Consumer segment will be offset by Enterprise and Yahoo! JAPAN/LINE segments, and result in slight decrease year on year? And in Q4, does the main factor for year on year significant profit increase come from controlling sales promotion cost for the Consumer segment?
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In the Consumer segment, though the pressure from mobile service price reduction is large, since negative impacts such as half price support will be gone, the decrease in profit will be smaller in Q3 than in Q2. Also, in Q4, we will control sales promotion costs in the Consumer segment, and there will be a rebound from last fiscal year's impairment losses in Z Holding Corporation. In the Z Holdings Corporation business, there was a reduction in the payment of trademark license fee, but there will be investment in commerce business. To leave decisions for operation to Z Holding Corporation, I will avoid talking about their outlook. As for the Enterprise segment, JPY128 billion is the target that we would like to achieve.
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In terms of consolidation and IPO of PayPay Corporation, are there any changes in your thinking?
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For PayPay Corporation, the start of charging payment system fee is a substantial progress toward breakeven. We were thinking breakeven in horizon by roughly 2022. But to become the absolute No. 1, we want to focus more on growth. Therefore, breakeven timing will depend on how much we will spend on marketing going forward. In that sense, we will consider marketing spend in line with growth and may invest further if opportunities arise. With regards to IPO, we have not made any decisions. Consolidation of PayPay Corporation will be possible from April 2022.
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Regarding PayPay Corporation, you talked about extending the timing for breakeven, and focus on expanding its scale. What is the most important KPI? And with regards to losses, is it getting smaller?
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One of the most important KPIs is number of payments, and we also look at number of registered users and number of merchants to determine the business growth. For the current fiscal year, our policy is to focus on growth and invest in marketing. In the next fiscal year and beyond, if growth opportunities arise, we may continue the same policy.
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