Japan Specialist

Mark Chadwick

Equity Bottom-Up

<div>
<p><strong><span xml:lang="EN-US" data-contrast="auto">Q2 Trading update</span> </strong></p>
</div>
<div>
<ul>
<li>
<span xml:lang="EN-US" data-contrast="auto"><a href="https://www.smartkarma.com/entities/teamspirit-inc" target="_blank" data-smartkarma-citation="entities:29704:1" rel="noopener">TeamSpirit Inc (4397 JP)</a>  reported 2Q FY8/21 earnings after the April 9 close. The stock price fell by around 20% following that and a full-year guidance cut. </span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span>
</li>
<li>
<span xml:lang="EN-US" data-contrast="auto">The market reacted to the slower than anticpated growth in licences, which is the key revenue driver. Full year sales estimates were cut 8% to ¥2.9b. </span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span>
</li>
<li>
<span xml:lang="EN-US" data-contrast="auto">We take a positive view of management reaffirming its growth strategy and stepping up marketing activities for the new enterprise product, TeamSpirit EX. </span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> <br><br></span>
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<p></p>
</li>
</ul>
</div>


Q2 Trading update 




TeamSpirit Inc (4397 JP)  reported 2Q FY8/21 earnings after the April 9 close. The stock price fell by around 20% following that and a full-year guidance cut.  


The market reacted to the slower than anticpated growth in licences, which is the key revenue driver. Full year sales estimates were cut 8% to ¥2.9b.  


We take a positive view of management reaffirming its growth strategy and stepping up marketing activities for the new enterprise product, TeamSpirit EX.    








Japan Small Cap Growth: TeamSpirit - Better Days Ahead

<div>
<p><strong><span xml:lang="EN-US" data-contrast="auto">Q1 trading update</span> </strong></p>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto"><a href="https://www.smartkarma.com/entities/teamspirit-inc" target="_blank" data-smartkarma-citation="entities:29704:1" rel="noopener">TeamSpirit Inc (4397 JP)</a>  released Q1 results on 12 Jan, which were generally in line with previously released guidance for the full year. Covid restrictions continue to be a negative headwind on contracting new clients, which is impacting top line growth rates.  This seems especially true of small and mid-sized companies, where growth has stalled badly, and we believe competition may be heating up in that segment. In response, Team Spirit is shifting its sales focus towards larger enterprises and this mix improvement is a bright spot in the Q1 report, with the number of enterprise licences jumping 44% YoY. The share price remains around 30% below its 52-week high. </span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> <br><br></span></p>
<table class="table table-striped">
<colgroup> <col width="261"> <col span="5" width="99"> </colgroup>
<tbody>
<tr>
<td style="width: 196pt;">Million Yen</td>
<td style="width: 74pt;">1Q20</td>
<td style="width: 74pt;">2Q20</td>
<td style="width: 74pt;">3Q20</td>
<td style="width: 74pt;">4Q20</td>
<td style="width: 74pt;"><strong>1Q21</strong></td>
</tr>
<tr>
<td>Sales</td>
<td>552</td>
<td>606</td>
<td>631</td>
<td>654</td>
<td><strong>671</strong></td>
</tr>
<tr>
<td><em>Sales growth </em></td>
<td><em>40%</em></td>
<td><em>35%</em></td>
<td><em>39%</em></td>
<td><em>26%</em></td>
<td><em><strong>22%</strong></em></td>
</tr>
<tr>
<td>Operating Profit</td>
<td>44</td>
<td>84</td>
<td>106</td>
<td>50</td>
<td><strong>71</strong></td>
</tr>
<tr>
<td><em>Operating margin</em></td>
<td><em>8%</em></td>
<td><em>14%</em></td>
<td><em>17%</em></td>
<td><em>8%</em></td>
<td><em><strong>11%</strong></em></td>
</tr>
<tr>
<td>Net Income</td>
<td>14</td>
<td>42</td>
<td>55</td>
<td>142</td>
<td><strong>36</strong></td>
</tr>
</tbody>
</table>
<p><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>


Q1 trading update 


TeamSpirit Inc (4397 JP)  released Q1 results on 12 Jan, which were generally in line with previously released guidance for the full year. Covid restrictions continue to be a negative headwind on contracting new clients, which is impacting top line growth rates.  This seems especially true of small and mid-sized companies, where growth has stalled badly, and we believe competition may be heating up in that segment. In response, Team Spirit is shifting its sales focus towards larger enterprises and this mix improvement is a bright spot in the Q1 report, with the number of enterprise licences jumping 44% YoY. The share price remains around 30% below its 52-week high.    

   


Million Yen
1Q20
2Q20
3Q20
4Q20
1Q21


Sales
552
606
631
654
671


Sales growth 
40%
35%
39%
26%
22%


Operating Profit
44
84
106
50
71


Operating margin
8%
14%
17%
8%
11%


Net Income
14
42
55
142
36



 


Japan Small Cap Growth: TeamSpirit (4397) - Expect Brighter Second Half

<div>
<p><span xml:lang="EN-US" data-contrast="auto">In May, Facebook CEO Mark Zuckerberg said that more than 95% of the company’s workforce was working remotely and that it planned to ensure employees could continue to do so on a long-term basis. Google workers will stay remote until summer 2021. Many others made similar announcements. </span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto">This would have been unthinkable even a decade ago, but cloud-based platforms are enabling employees to work from anywhere, on any device. Companies must now deploy systems rapidly, in a cost-effective and scalable manner to adapt to this new worldview. </span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto"><a href="https://www.smartkarma.com/entities/teamspirit-inc" target="_blank" data-smartkarma-citation="entities:29704:1" rel="noopener">TeamSpirit Inc (4397 JP)</a> ’s</span><span xml:lang="EN-US" data-contrast="auto"> workforce management platform helps Japanese companies to support telework, not only an essential way of working following the outbreak of COVID-19, but also a necessity as companies shift to a hybrid workforce. </span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
<p><strong> <span xml:lang="EN-US" data-contrast="auto">Recent FY8/20 numbers (13 October)</span> </strong></p>
<div class="content-highlight">
<div>
<p><span xml:lang="EN-US" data-contrast="auto">Q4 revenue +25% YoY to ¥654m (slowed from 38% YoY in Q3)</span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto">Gross margin 60%</span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto">Annual Recurring Revenue +32% to ¥2.2b</span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto">Number of active licenses rose 41% to 269,000</span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> <br></span><span xml:lang="EN-US" data-contrast="auto">Number of client companies 1,409 (+14% YoY; +2% QoQ)</span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto">Covid had a negative impact on the business. The inflow of leads slowed due to the cancellation of promotional events. On boarding was delayed as customer struggled with the unfamiliarity of telework, with small businesses in particular slowing in terms of </span><span xml:lang="EN-US" data-contrast="auto">licenses</span><span xml:lang="EN-US" data-contrast="auto"> added.</span><span xml:lang="EN-US" data-contrast="auto"> </span><span xml:lang="EN-US" data-contrast="auto">The company guided for 29% revenue growth in FY8/21</span><span data-ccp-props='{"201341983":0,"335559739":160,"335559740":259}'> </span></p>
</div>
<div>
<p><span xml:lang="EN-US" data-contrast="auto">The stock has corrected by around 20% in the week following full year earnings and is worth looking at for long-term growth investors.</span></p>
</div>


In May, Facebook CEO Mark Zuckerberg said that more than 95% of the company’s workforce was working remotely and that it planned to ensure employees could continue to do so on a long-term basis. Google workers will stay remote until summer 2021. Many others made similar announcements.  


This would have been unthinkable even a decade ago, but cloud-based platforms are enabling employees to work from anywhere, on any device. Companies must now deploy systems rapidly, in a cost-effective and scalable manner to adapt to this new worldview.  


TeamSpirit Inc (4397 JP) ’s workforce management platform helps Japanese companies to support telework, not only an essential way of working following the outbreak of COVID-19, but also a necessity as companies shift to a hybrid workforce.  

 Recent FY8/20 numbers (13 October) 


Q4 revenue +25% YoY to ¥654m (slowed from 38% YoY in Q3) 


Gross margin 60% 


Annual Recurring Revenue +32% to ¥2.2b 


Number of active licenses rose 41% to 269,000  Number of client companies 1,409 (+14% YoY; +2% QoQ) 



Covid had a negative impact on the business. The inflow of leads slowed due to the cancellation of promotional events. On boarding was delayed as customer struggled with the unfamiliarity of telework, with small businesses in particular slowing in terms of licenses added. The company guided for 29% revenue growth in FY8/21 


The stock has corrected by around 20% in the week following full year earnings and is worth looking at for long-term growth investors.


Small Cap Growth: TeamSpirit (4397) - Nirvana for Workers

Japan

TeamSpirit Inc. designs and develops enterprise software. The Company mainly offers attendance management, expense adjustment, man-hour analaysis, and other services. TeamSpirit provides services in Japan.

TeamSpirit Inc (4397 JP)

Japan Small Cap Growth: TeamSpirit - Better Days Ahead

High growth Japan Small Cap, TeamSpirit, had a poor quarter. The stock corrected 20% and is trading close to its 52-week low. Attractive entry...

Mark Chadwick

Japan Small Cap Growth: TeamSpirit (4397) - Expect Brighter Second Half

Team Spirit provides a cloud-based software solution to help companies manage their workforce. Changes to regulations and shift to WFH increase...

Mark Chadwick

Small Cap Growth: TeamSpirit (4397) - Nirvana for Workers

TeamSpirit is a cloud-based Workforce Management SaaS that enables workers to work from anywhere and allows companies to get the best out of their...

Mark Chadwick