'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/230/original/2019-02-26_16-49-25.png?1551182690" class="editor-image img-responsive" data-smartkarma-image-id="80230"></figure>
Source: Japan Analytics
</div>
LARGE CAP RESULTS &amp; REVISION SCORES - The final instalment of our series of reviews of Japan's most recent earnings and revisions announcements covers the Results &amp; Revision Scores for Japan's 785 larger capitalisation companies with a market capitalisation of over ¥100b.
In the DETAIL section below we look at:- 
<ul>
<li>The 30 top and bottom-ranked companies by Results &amp; Revision Score as well as the top and bottom thirty ranked by change in score over the last quarter and provide brief comments on companies and topics of note.</li>
<li>By comparing Results Scores and Forecast/Revision Scores, we sort companies into'Optimists', 'Pessimists', 'Increasingly Optimistic' and 'Increasingly Pessimistic' categories.</li>
<li>As shown above, the relationship between the Results &amp; Revision Score (RRS) and our Relative Price Score (RPS) for each company and divide the large-cap universe into four 'quadrants' - 'Contrarian Buy' (Low RRS &amp; Low RPS) , 'Contrarian Sell' (High RRS &amp; High RPS), 'Peak Growth' (High RRS &amp; Low RPS) and 'Ex-Growth/Turnaround'  (Low RRS &amp; High RPS), highlighting the outliers in each quadrant.
<ul>
<li>In the two 'Contrarian' quadrants, the market is aligned with the current earnings momentum of the companies suggesting opportunities exist only for those willing or brave enough to take a contrarian view. </li>
<li>For 'Peak Growth', the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies.</li>
<li>The 'Ex-Growth' quadrant often consists of former 'Contrarian Sell's where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain 'Turnarounds' - formerly 'Contrarian Buys' where the market is correctly anticipating a change in fortunes.   </li>
</ul>
</li>
<li>Finally, we provide tables of the top and bottom five ranked companies in each of our 30 Sectors.</li>
</ul>



Source: Japan Analytics

LARGE CAP RESULTS &amp; REVISION SCORES - The final instalment of our series of reviews of Japan's most recent earnings and revisions announcements covers the Results &amp; Revision Scores for Japan's 785 larger capitalisation companies with a market capitalisation of over ¥100b.
In the DETAIL section below we look at:- 

The 30 top and bottom-ranked companies by Results &amp; Revision Score as well as the top and bottom thirty ranked by change in score over the last quarter and provide brief comments on companies and topics of note.
By comparing Results Scores and Forecast/Revision Scores, we sort companies into'Optimists', 'Pessimists', 'Increasingly Optimistic' and 'Increasingly Pessimistic' categories.
As shown above, the relationship between the Results &amp; Revision Score (RRS) and our Relative Price Score (RPS) for each company and divide the large-cap universe into four 'quadrants' - 'Contrarian Buy' (Low RRS &amp; Low RPS) , 'Contrarian Sell' (High RRS &amp; High RPS), 'Peak Growth' (High RRS &amp; Low RPS) and 'Ex-Growth/Turnaround'  (Low RRS &amp; High RPS), highlighting the outliers in each quadrant.

In the two 'Contrarian' quadrants, the market is aligned with the current earnings momentum of the companies suggesting opportunities exist only for those willing or brave enough to take a contrarian view. 
For 'Peak Growth', the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies.
The 'Ex-Growth' quadrant often consists of former 'Contrarian Sell's where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain 'Turnarounds' - formerly 'Contrarian Buys' where the market is correctly anticipating a change in fortunes.   


Finally, we provide tables of the top and bottom five ranked companies in each of our 30 Sectors.


🇯🇵 Japan • Winter Large Cap Results & Revision Scores - Contrarian Buys & Sells/​Peak & Ex-Growth

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On Friday 22 February 2019 after the close, <a href="https://www.smartkarma.com/entities/5415" target="_blank" data-smartkarma-citation="entities:5415:1">Nintendo Co Ltd (7974 JP)</a><a href="https://www.nintendo.co.jp/ir/pdf/2019/190222_1.pdf" target="_blank">announced</a> (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding. Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe. On the same day, Nintendo <a href="https://www.nintendo.co.jp/ir/pdf/2019/190222_2e.pdf" target="_blank">announced</a> (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also <a href="https://www.nintendo.co.jp/ir/pdf/2019/190222_3e.pdf" target="_blank">announced</a> (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.This is the first buyback Nintendo has announced in five years. The Nikkei <a href="https://www.nikkei.com/article/DGXMZO41630980S9A220C1DTA000/" target="_blank">article</a> discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.<div class="content-highlight">
The real reason why this selldown is happening - also noted in the Offering Document "reason for the offering" - is because of the heightened focus on policy cross-holdings highlighted in the changes to the Corporate Governance Code (especially Principle 1.4) which went live June 1 2018. The major changes were discussed in <a href="https://www.smartkarma.com/insights/japan-s-corporate-governance-code-amendments-a-much-bigger-stick-for-activists-and-stewards" target="_blank" data-smartkarma-citation="insights:20961">Japan's Corporate Governance Code Amendments - A Much Bigger Stick for Activists and Stewards</a> at that time, but the hint of how this might play out was discussed in <a href="https://www.smartkarma.com/insights/japan-crossholdings-japan-exchange-s-sale-of-sgx-shares-sets-a-precedent-watch-closely" target="_blank" data-smartkarma-citation="insights:18986">Japan Crossholdings: Japan Exchange's Sale of SGX Shares Sets A Precedent - Watch Closely</a> from 1 April 2018. In an announcement after the close on the last day of the last fiscal year, <a href="https://www.smartkarma.com/entities/11266" target="_blank" data-smartkarma-citation="entities:11266:1">Japan Exchange Group (8697 JP)</a> announced it would sell down its 4.95% stake in <a href="https://www.smartkarma.com/entities/1047" target="_blank" data-smartkarma-citation="entities:1047:1">Singapore Exchange (SGX SP)</a> over the space of three years. 
The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight). 
My words then still stand.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/871/original/Screenshot%202019-02-23%20at%208.31.13%20PM.png?1550925267" class="editor-image img-responsive" data-smartkarma-image-id="79871"></figure>And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.
</div>The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.

On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five shareholder banks, with an overallotment of 364,300 shares. This will be a little bit over 2% of shares outstanding. Applying a hypothetical 4% discount to the last traded price of ¥30,030/share, this is an ¥80bn Offering including greenshoe. On the same day, Nintendo announced (E) a share buyback program to buy up to 1 million shares or up to ¥33 billion worth (whichever is reached first) to last from the business day immediately following the delivery date of the Offering shares (practically speaking, a day on or between 13 March and 18 March 2019) to 12 April 2019. Based on an average daily volume traded of 2.2mm shares, 10% participation would mean the buyback would take 5 days to complete. 5% would take 9 days. The company also announced (E) it would cancel 10 million shares on 29 March 2019. That may only be 45% of the post-buyback treasury share position, but it leads to another event investors should watch.This is the first buyback Nintendo has announced in five years. The Nikkei article discussing the situation suggests that the possibility of supply/demand being weak is the reason for the buyback. The stated reason for the Offering as proposed by Nintendo in its Offering announcement, suggested a goal of increasing and diversifying the shareholder base.
The real reason why this selldown is happening - also noted in the Offering Document "reason for the offering" - is because of the heightened focus on policy cross-holdings highlighted in the changes to the Corporate Governance Code (especially Principle 1.4) which went live June 1 2018. The major changes were discussed in Japan's Corporate Governance Code Amendments - A Much Bigger Stick for Activists and Stewards at that time, but the hint of how this might play out was discussed in Japan Crossholdings: Japan Exchange's Sale of SGX Shares Sets A Precedent - Watch Closely from 1 April 2018. In an announcement after the close on the last day of the last fiscal year, Japan Exchange Group (8697 JP) announced it would sell down its 4.95% stake in Singapore Exchange (SGX SP) over the space of three years. 
The fact that JPX was selling the shares was not important. The reasoning was. And JPX provided an example of how it should be done (as explained in the insight). 
My words then still stand.
And JPX provided an example of how it should be done (as explained in the insight). The ramifications are significant.
The ramifications of this Offering are significant too. This is a lot more than just an offering by entities looking to take profits.

Nintendo Offering & Buyback: The Import & The Dynamics

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/000/original/2019-02-16_10-06-13.png?1550279195" class="editor-image img-responsive" data-smartkarma-image-id="79000"></figure><div class="content-caption">Source: Japan Analytics</div>WORST Q SINCE AUTUMN 2016 - Since our last Results Flash in November - <a href="https://www.smartkarma.com/insights/japan-autumn-results-revisions-flash-flatlining-weakest-quarter-in-two-years" target="_blank" data-smartkarma-citation="insights:25804">Japan: Autumn Results &amp; Revisions Flash - Flatlining + Weakest Quarter in Two Years</a> - the operating and net profits of Japanese listed companies have peaked and declined by 2.0% and 7.5%, respectively while forecasts for the same have fallen by 1.7% and 4.1%. The stock market's initial reaction to the peaking of earnings for this cycle was a sharp 15.5% decline which climaxed on Christmas Day. A softer tone from the US Federal Reserve and a weaker Yen have helped restore a degree of confidence and the recent 12.1% rally has taken aggregate market capitalisation back to early-December.  As a result of the downturn in profits, trailing and forecast earnings multiples have reverted to August 2018 levels and can no longer be considered a bargain. For the restoration of a 'normal' market multiple (16.7x), either share prices have to rise by 18% (all else equal) or net income has to decline by a further 16%. Our money is on the latter being the more likely outcome.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/004/original/2019-02-16_10-43-29.png?1550281425" class="editor-image img-responsive" data-smartkarma-image-id="79004"></figure>Source: Japan Analytics
</div>ROLLING TTMs - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5-6% a year, and by 1-2% a quarter, however, the rate of increase is slowing and the implied growth rate for the current quarter is just 0.5%. Operating Income declined by 1.9% qoq in the quarter just declared and will be flat this quarter, although, as few companies revise full-year forecasts with Q3 earnings results, this forecast should be considered optimistic. Operating margins are forecast to be 33bps lower than in TTM-3. TTM Net Income fell by 8% qoq, although yoy growth is still a positive 3%. The 1.6% forecast growth for this quarter implies that the most recent quarter had an excessive level of write-offs. We are not so sanguine.SECTOR BREAKDOWNS - In the DETAIL section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite.

Source: Japan AnalyticsWORST Q SINCE AUTUMN 2016 - Since our last Results Flash in November - Japan: Autumn Results &amp; Revisions Flash - Flatlining + Weakest Quarter in Two Years - the operating and net profits of Japanese listed companies have peaked and declined by 2.0% and 7.5%, respectively while forecasts for the same have fallen by 1.7% and 4.1%. The stock market's initial reaction to the peaking of earnings for this cycle was a sharp 15.5% decline which climaxed on Christmas Day. A softer tone from the US Federal Reserve and a weaker Yen have helped restore a degree of confidence and the recent 12.1% rally has taken aggregate market capitalisation back to early-December.  As a result of the downturn in profits, trailing and forecast earnings multiples have reverted to August 2018 levels and can no longer be considered a bargain. For the restoration of a 'normal' market multiple (16.7x), either share prices have to rise by 18% (all else equal) or net income has to decline by a further 16%. Our money is on the latter being the more likely outcome.
Source: Japan Analytics
ROLLING TTMs - Our series of rolling trailing-twelve-month (TTM) quarterly aggregates of all listed companies confirm the profit peak. Revenues are still increasing by 5-6% a year, and by 1-2% a quarter, however, the rate of increase is slowing and the implied growth rate for the current quarter is just 0.5%. Operating Income declined by 1.9% qoq in the quarter just declared and will be flat this quarter, although, as few companies revise full-year forecasts with Q3 earnings results, this forecast should be considered optimistic. Operating margins are forecast to be 33bps lower than in TTM-3. TTM Net Income fell by 8% qoq, although yoy growth is still a positive 3%. The 1.6% forecast growth for this quarter implies that the most recent quarter had an excessive level of write-offs. We are not so sanguine.SECTOR BREAKDOWNS - In the DETAIL section below we shall examine the trends in earnings results and forecasts for the 30 sectors that make up our Market Composite.  

Japan: Winter Results & Revisions Flash - Cycle Earnings Peak Was December 26th

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/341/original/2019-02-10_05-07-57.png?1549742898" class="editor-image img-responsive" data-smartkarma-image-id="78341"></figure><div class="content-caption">Source: Japan Analytics</div>BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/154" target="_blank" data-smartkarma-citation="entities:154:1">Honda Motor (7267 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi (6501 JP)</a> were the most significant contributors, each declining by more than ¥200b. Three 'financials', <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group (8411 JP)</a>, and <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank (8358 JP)</a> subtracted ¥400b between them. Only <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a> and <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba (6502 JP)</a> added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.<div class="content-highlight">In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on <a href="https://www.smartkarma.com/entities/13176" target="_blank" data-smartkarma-citation="entities:13176:1">Nabtesco Corp (6268 JP)</a>, <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a>, <a href="https://www.smartkarma.com/entities/20823" target="_blank" data-smartkarma-citation="entities:20823:1">Nakanishi (7716 JP)</a>, and <a href="https://www.smartkarma.com/entities/747" target="_blank" data-smartkarma-citation="entities:747:1">DeNA (2432 JP)</a></div>

Source: Japan AnalyticsBOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which Toyota Motor (7203 JP), Honda Motor (7267 JP), Softbank Group (9984 JP), Hitachi (6501 JP) were the most significant contributors, each declining by more than ¥200b. Three 'financials', Nomura Holdings (8604 JP), Mizuho Financial Group (8411 JP), and Suruga Bank (8358 JP) subtracted ¥400b between them. Only Sony (6758 JP) and Toshiba (6502 JP) added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on Nabtesco Corp (6268 JP), Workman (7564 JP), Nakanishi (7716 JP), and DeNA (2432 JP)

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

Equity Bottom-Up

<div class="content-caption">

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/315/original/2019-02-09_12-04-43.png?1549681495" class="editor-image img-responsive" data-smartkarma-image-id="78315"></figure>
Source: Japan Analytics
</div>
TUMBLING DICE - After <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a> (-52%) and <a href="https://www.smartkarma.com/entities/27149" target="_blank" data-smartkarma-citation="entities:27149:1">Mercari (4385 JP)</a> (-50%), <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">CyberAgent (4751 JP)</a> is the worst-performing large-cap Internet stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market annually over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.
PASSIVE PERILS - We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace <a href="https://www.smartkarma.com/entities/19521" target="_blank" data-smartkarma-citation="entities:19521:1">Furukawa (5715 JP)</a> in the Nikkei 225 index, with the inclusion occurring on October 1st. Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/317/original/2019-02-09_12-52-50.png?1549684397" class="editor-image img-responsive" data-smartkarma-image-id="78317"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
SUMMARY - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called 'Abema Towers' in March. We shall refrain from making any analogies to the <a href="https://en.wikipedia.org/wiki/Skyscraper_Index" target="_blank">Skyscraper Index</a>. 
<div class="content-highlight">
This Insight will review: - 
<ul>
<li class="">CyberAgent's growth strategy</li>
<li class="">The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins </li>
<li class="">The three main business segments - Internet Advertising, Game Software, and Media</li>
<li class="">Cash Flow and Valuation</li>
</ul>
We will also attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. 
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/318/original/2019-02-09_13-06-39.png?1549685220" class="editor-image img-responsive" data-smartkarma-image-id="78318"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
VISION SHIFT? - In previous years, CyberAgent had a clear vision statement - 'To create the 21st century's leading company'. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just 'Aiming to be a company with medium to long-term supporters'.  In the vein of the lyrics from the best song on the best Rolling Stones album, Exile on Main Street, the business has recently been at 'all sixes and sevens and nines'. In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. 
<center><iframe src="https://www.youtube.com/embed/6U8JlcB_BzA" width="963" height="722" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></center>
<div class="content-caption">Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 </div>




Source: Japan Analytics

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market annually over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.
PASSIVE PERILS - We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace Furukawa (5715 JP) in the Nikkei 225 index, with the inclusion occurring on October 1st. Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   

Source: CyberAgent Way 2018
SUMMARY - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called 'Abema Towers' in March. We shall refrain from making any analogies to the Skyscraper Index. 

This Insight will review: - 

CyberAgent's growth strategy
The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins 
The three main business segments - Internet Advertising, Game Software, and Media
Cash Flow and Valuation

We will also attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. 


Source: CyberAgent Way 2018
VISION SHIFT? - In previous years, CyberAgent had a clear vision statement - 'To create the 21st century's leading company'. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just 'Aiming to be a company with medium to long-term supporters'.  In the vein of the lyrics from the best song on the best Rolling Stones album, Exile on Main Street, the business has recently been at 'all sixes and sevens and nines'. In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. 

Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 

Japan

DeNA Co., Ltd. operates social media site, auction and shopping web site such as Mobage-town and Bidders.  DeNA also provides mobile-related services such as mobile game and community site.

Price Gauge
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DeNA (2432 JP)

🇯🇵 Japan • Winter Large Cap Results & Revision Scores - Contrarian Buys & Sells/Peak & Ex-Growth

LARGE CAP RESULTS & REVISION SCORES - The final instalment of our series of reviews of Japan's most recent earnings and revisions...

Campbell Gunn

Nintendo Offering & Buyback: The Import & The Dynamics

On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five...

Travis Lundy

Japan: Winter Results & Revisions Flash - Cycle Earnings Peak Was December 26th

WORST Q SINCE AUTUMN 2016 - Since our last Results Flash in November - Japan: Autumn Results & Revisions Flash - Flatlining + Weakest Quarter...

Campbell Gunn

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market...

Campbell Gunn

CyberAgent: Tumbling Dice

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in...

Campbell Gunn

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🇯🇵 Japan • Winter Large Cap Results & Revision Scores - Contrarian Buys & Sells/​Peak & Ex-Growth

LARGE CAP RESULTS & REVISION SCORES - The final instalment of our series of reviews of Japan's most recent earnings and revisions...

Campbell Gunn

Nintendo Offering & Buyback: The Import & The Dynamics

On Friday 22 February 2019 after the close, Nintendo Co Ltd (7974 JP)announced (J) a Secondary Shares Uridashi Offering of 2,428,700 shares by five...

Travis Lundy

Japan: Winter Results & Revisions Flash - Cycle Earnings Peak Was December 26th

WORST Q SINCE AUTUMN 2016 - Since our last Results Flash in November - Japan: Autumn Results & Revisions Flash - Flatlining + Weakest Quarter...

Campbell Gunn

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market...

Campbell Gunn

CyberAgent: Tumbling Dice

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in...

Campbell Gunn

🇯🇵 Japan • Winter Large Cap Results & Revision Scores - Contrarian Buys & Sells/Peak & Ex-Growth