We will now start Z Holdings fiscal 2022 Q3 meeting on business results. Thank you very much for participating today. We apologize that the starting time of the business results meeting has been delayed. We apologize for the inconvenience. We will use the material that's available on the website regarding Q3 business results. Today with us we have from Z Holdings, the Representative Director and President, Co-CEO, Kentaro Kawabe. We also have Representative Director, Co-CEO in charge of marketing and sales, who is the CPO, Takeshi Idezawa. Director GCPO, Group Chief Product Officer, Jungho Shin. Director, Senior Managing Corporate Officer, E-Commerce CPO, Takao Ozawa. Senior Managing Corporate Officer CTIO, Global Business CPO, In Joon Hwang. Senior Managing Corporate Officer GCFO, Ryosuke Sakaue. First of all, from Kawabe and Sakaue, the fiscal 2022 Q3 results will be explained.
We will take any questions that you may have. Overall, we are planning an hour and a half for this meeting. This call is being live streamed as well. Here are some housekeeping announcement for the live streaming. If you are watching and if there are any problems with audio and video, please move to a different server from the bottom of the screen. Without further ado, we would like to start the presentation.
Hello, this is Sakaue of Z Holdings . Thank you very much for joining us today for the briefing on business results for the fiscal year 2022 third quarter. I will now explain the overview of Q3 business results. Please turn to the next page. Here are the topics. Revenue reached JPY 453.6 billion, a new quarterly high, partly due to the consolidation of PayPay.
For this quarter, as we focused on profit and managing the company, adjusted EBITDA achieved approximately 79% of the lower end of our full year guidance. As explained at the time of Q2 results, cost optimization and reorganization efforts to select and concentrate are steadily underway, and adjusted EBITDA excluding PayPay on a non-consolidated basis increased. PayPay is growing steadily with more than 54 million registered users and GMV exceeding JPY 2 trillion in the quarter. With PayPay now a consolidated subsidiary of Z Holdings group, we will accelerate growth even further. That's what we will strive to do. On the other hand, in light of the deterioration of the ad market, adjusted EBITDA guidance has been revised down to the lower range. Finally, in order to speed up the decision-making process for group management, we have decided to merge our company, Yahoo! JAPAN and LINE during fiscal 2023.
We plan to shift to the new structure in April 2023. Mr. Kawabe will explain the details later. Please turn to the next slide. From here on, I'll explain in the order of the agenda. Please turn to the next page. First, I will explain the consolidated results. Please turn to the next page. This is a summary of the company's business performance due to the fact of making PayPay a consolidated subsidiary from Q3. Consolidated results as well as results excluding PayPay on a non-consolidated basis are provided here. Even excluding PayPay's non-consolidated sales revenue, quarterly sales revenue reached a record high. We consolidated PayPay, which was loss-making, we maintained adjusted EBITDA margin of approximately 20% by simultaneously promoting company-wide cost optimization and business selection and concentration. Please turn to the next page. Here's the consolidated guidance for fiscal 2022.
Company-wide adjusted EBITDA has been revised from the previous range of JPY 331.5 billion- JPY 340 billion to the lower end of the range of JPY 331.5 billion. There are no changes in other items. We aim to achieve a revised company-wide EBITDA guidance of JPY 331.5 billion by absorbing changes in the macro environment in the media business and the decrease in profit due to the impact of PayPay's consolidation through cost optimization and business selection and concentration. Please turn to the next page. I'd like to explain our progress in responding to changes in market conditions, including cost optimization and business selection and concentration, which we are currently working on the most. We are proceeding with cost optimization, focusing on promotion expenses to the extent that it does not impair medium to long-term growth.
In addition, the hiring restraint has been in full swing since the second half of the fiscal year and is expected to contribute to profit from next fiscal year onward. In addition to the project listed here, we are considering the closure or a downsizing of about 10 services. On the very right, although there is no impact on adjusted EBITDA, equity and earnings of affiliates, which has been pointed out by investors, it is also improving due to progress in monetization and cost optimization. Please turn to the next page. The following is an explanation of the changes in financial indicators and guidance. Due to the consolidation of PayPay, the finance business is becoming a greater component of the group's financials.
We've changed our financial indicators and guidance to ensure financial soundness in accordance with the characteristics of each business in the form of financial services excluded and financial services. We will also revise the definition of net leverage ratio from excluding banking business to excluding financial business and maintain the leverage ratio below 3x to maintain both investment and financial soundness. Please turn to the next page. Here are the topics and results by segment. Please turn the page. I'd like to explain our media business. Please turn the page. This is the performance trend of the media business. In Q3, in addition to the deterioration of the advertising market, the impact of the renewal of LINE VOOM and the revenue growth effect of products launched in the previous fiscal year ran their course, resulting in a year-on-year decline.
Leveraging the strength of Z Holdings' uniqueness in account ads and search, the segment's adjusted EBITDA margin recovered from Q2 to 42%. Please turn to the next page. This is company-wide advertising related revenue. I'll explain the situation by product. First, Yahoo! display ads. Programmatic ads excluding commerce remained at the same level as the same period of the previous year. Demand in the overall market, like it has been, is shifting to programmatic advertisements. The number of placements for the reservation type ads continued to decline and impacted our performance. We'll touch upon this later, in addition, due to cost optimization in commerce, sales of commerce ads, which is linked to Yahoo! Shopping GMV, also declined. LINE's display advertising revenues wasn't impacted by the market, due to the impact of the renewal of LINE VOOM, revenues decreased.
On the other hand, account ads and search, which are Z Holdings' unique strengths, are less susceptible to changes in market conditions and continue to grow steadily. Please turn the page. Regarding LINE official accounts, the number of paid accounts continues to steadily increase regardless of industry or size, as the importance as a CRM tool grows even amid changing market conditions. Also, for accounts that continue to increase the number of friends through ongoing utilization, unit prices increased, contributing to top line growth. We'll continue to maximize user contact points through functional enhancements to promote continued use.
Next, about strengthening the short video business. As the video ad market expands, we intend to strengthen the short video business through selection and focus. The LINE VOOM was renewed last year, and main viewers shifted from those in their thirties and forties to the teens. The service KPIs are steadily expanding. As already announced, GYAO! and LINE LIVE will be terminated at the end of March this year. We will put the knowhow and human resources cultivated in these two services into LINE VOOM, and that will strengthen our competitive edge in the video content. The combined cost reduction from the termination of the two will be about JPY 3 billion per year for the year. Next page, please. These are new promotion solutions for manufacturers. We announced a sales promotion solutions for manufacturers to maximize the brand LTV last December.
The first is the LINE, Yahoo! Japan and PayPay mileage program. The second is PayPay's product-specific coupons. The first one, the mileage offered by the three companies allow customers to accumulate mileage for purchasing specific products and receive rewards according to the mileage they have accumulated. By linking the LINE official account, messages based on the purchase history can be delivered to enhance users' continuous CRM and brand loyalty. The second one, the PayPay users can acquire a product-specific coupon, which will be applied automatically for the payment of the product, and they get points. This allows for flexible spot marketing, such as promotion of new products. These new solutions will allow manufacturers to visualize who has purchased their products and where. With these, we are fully committed to developing the digital promotion market. Next slide, please. Next is Commerce business. Next slide, please.
This shows Commerce business performance. Through cost optimization, including promotion cost and the fundamental reinforcement of business platform, such as integration of Yahoo! Shopping and PayPay Mall, we try to improve the balance between growth and profitability. As a result, we achieved increased revenue and profit. Going forward, by expanding PayPay's ecosystem and through new e-commerce initiatives, we will lead to expand Japan's EC market and to achieve our long-term growth. Next slide, please. This shows e-commerce transaction value performance. Mainly due to progress in cost optimization, group EC transaction value achieved JPY 1.11 trillion, in line with the plan. Thanks to economic reopening and Japan's nationwide travel incentives, domestic service EC grew as high as 34.8% from last year. Next slide, please. This shows domestic merchandise transaction value.
This is a repeat, but the shopping business, along with the fundamental strengthening of products and cost optimization progress through changes in campaign programs, and resulted in JPY 471.2 billion, in line with our expectation, although this was down from last year. For reuse business, it continued to grow steadily, mainly driven by PayPay Flea M arket, which grew 8% from last year. Next slide, please. This shows the status after integration of sales platforms. For including fixed point provision expenses, cost optimization made good progress and impact on transaction value from the sales platform integration was within the expectations, thanks to improved advertisement take rate and efficient promotions. Gross margin improved by 8 points. We will continue to operate by monitoring the balance of transaction value growth and profitability.
We rebuilt the basic reward campaign for daily use to take root and w eekday transaction value increased compared to the period before the change. Ratio of Blue-Ribbon delivery also steadily increased along with the integration of the platform. We will further drive fundamental improvement of products to achieve sustainable growth. Next page, please. Next is Strategic business. Next, please. This is the Strategic business overall performance. Thanks to the PayPay consolidation, in this quarter we achieved a significant revenue increase. Excluding PayPay stand-alone, adjusted EBITDA deficit got smaller. Going forward, we will improve profitability through growth in PayPay, cost optimization, and review or termination of loss-generating businesses. Next slide, please. This shows a business overview of PayPay. The registered user number of PayPay, partly thanks to Japanese government's promotion of Individual Number Card system, hit 54 million as of December 2022, and it continues to grow.
Along with the expansion of users, average spend and number of transaction increased, leading to a high growth in transaction volume and sales revenue and steady improvement of EBITDA, as you can see. Going forward, we will drive integrated operation with PayPay Card, provide seamless payment experience through smartphone apps. We will accelerate efforts for multilayer business expansion. Next slide, please. This shows PayPay and PayPay Card initiatives and current situation. We launched PayPay Card Gold in November as one of measures so that the PayPay Card will be a first choice credit card. Far, we noticed that the unit spending by new Gold Card users trends higher than regular PayPay Card new users, about 2.2x more. Thanks to collaboration with PayPay programs such as PayPay Atobarai or deferred payment, overall transaction volume went up 26.4% from last year. Very steady growth.
Next page, please. This shows the other domestic financial business KPIs. PayPay Card revolving balance showed a steady increase. PayPay Bank loan balance also increased from last year, thanks to expansion of personal loans. As for LINE Financial business, thanks to the product offering utilizing the LINE user base, especially the loan balance significantly increased, particularly the LINE Pocket Money. Next slide, please. Lastly, we announced merger of core companies. Kawabe will explain now.
I, Kawabe, Representative Director and co-CEO, will explain from here on. To date at Z Holdings , the advertising business had drove profits. Ever since the latter half of fiscal 2022, business conditions have suddenly deteriorated. Regarding the main reason for the market deterioration, partly it is due to the competitiveness of Z Holdings' media products relative to competition, and we are feeling a strong sense of crisis. In light of the market changes, Z Holdings ad revenue has declined mainly around display, as the difference against the beginning of the year guidance is substantial, and Q3 has been showing negative growth. Next page, please.
In order to break through this situation, we felt that we need to carry out bold and drastic measures. In order to generate revenue and adjusted EBITDA, as well as secure funds for medium to long term investments and to make a breakthrough, the management at Z Holdings decided to make a big decision.
Next page, please. Z Holdings Corporation decided to merge with core operations LINE Corporation and Yahoo! JAPAN Corporation. We decided on the policy of merging by around end of FY 2023. This will expedite decision on group management, and we can control costs through elimination or consolidation of overlapping functions. In March 2021, we integrated with LINE, and at that time, we mentioned adjusted EBITDA of JPY 390 billion as the midterm goal for FY 2023. When I became president, we try to achieve by in early 2020s to be a number one domestic EC merchandise transaction value driver, and we try to achieve that as a group. However, external condition changed and market worsened than we had thought. We decided to revise the goal.
The guidance for FY20 23 will be explained in detail in the next earnings meeting for further cost optimization. That should, we hope to achieve year-on-year an increase of 10% going forward. We from domestic EC transaction value, we seek growth and profit through maximum usage of group asset instead of point provision and sales promotion. We will explain details in the next earnings call. Under new management, along with merger, we will be shifted to product-first management structure. First this year, we will shift from co-CEO to a single CEO structure. The new Representative Director will welcome Jungho Shin, who is a Group Chief Product Officer. Kentaro Kawabe will be a Chairperson so that the revised goals will be more clear.
The new President, Idezawa, and Shin, the new Representative Director, will be supported by me. For the structure after merger, that is not clearly defined, but we will introduce company system, delegate authority to promote service development and allocate an autonomous growth. That's all. Thank you very much. We would like to move on to Q&A.
If you have a question, please press the Raise Hand button on Zoom. When it's your order and the MC calls upon your name, please go ahead with your question. Just to repeat, if you have a question, please press the Raise Hand button on Zoom. When your order comes and the MC calls upon your name, please go ahead with your question. We would like to limit your questions to 1 and 2 questions each. Please ask all of the questions at once. We would like to start Q&A. If you have a question, please press the Raise Hand button. Thank you. First person is from SMBC Nikko, Mr. Maeda. Please unmute and go ahead.
Thank you for taking my question. I have two questions. The first one is regarding towards the Q4 and your thoughts on revenue. For the commerce business and the media business in Q3, revenue has decelerated. You have been suppressing sales promotion costs, but for commerce or for shopping, are we going to expect a turnaround and positive growth?
For media with LINE VOOM and the migration, if you think that a migration is going to run its course, are we going to see better momentum in Q4 compared to Q3? The first question was about revenue. Second question is about the merger. Regarding costs and synergies, I presume that you haven't yet been able to come up with an estimate, but what are your thoughts around it? For ID linkage, things have been delayed somewhat, but are you going to be accelerating your efforts? From a revenue standpoint, cost standpoint, what are your expectations around benefits? Can you take a deeper dive into that?
Thank you, Mr. Maeda. Regarding your first question, I would like to take your question. This is Sakaue. If for media and commerce, if there's any add-on comments, Ozawa-san and Idezawa-san may answer. I'll take the first question. First of all, regarding the fourth quarter revenue and our thoughts around it, we are not going to disclose our actual outlook. For the media business or account ads, like Q3, we are expecting continued robust growth. For search, we are expecting similar levels. On the other hand, for display, trends like Q3 are likely to be ongoing. On a year-over-year basis Q4 may be similar to what we saw in Q3, meaning it may be a tough quarter.
Of course, VOOM is going to run its course, but overall, that is the underlying trend. Next, regarding commerce. In March, last year as well as two years ago, we had Cho PayPay Matsuri, Ultra PayPay Festival. For this fiscal year we will be having it, but the scale of it is likely to become smaller from a cost point of view. Of course, we will build a lot of energy around it, but cost-wise it's going to be lower. For revenue, for Yahoo! Shopping or Commerce, Q4 may be a little tough. That is our outlook. From an EBITDA standpoint, we are going to make our sales promotion cost efficient, so that should be better on a year-over-year basis. That will be my answer for your first question.
For Media and Commerce, do any of the other people have anything to add? They were saying no. That's it for the first question. For the second question regarding cost synergies in light of the merger, for the details, we would like to provide more color at the end of the fiscal year, when we have the results briefing, including strategies as well. Regarding the merger, we were saying somewhere around fiscal 2023, at this point in time, it is really hard to answer your question. As Mr. Kawabe said, next fiscal year is also going to be a year where advertising revenue is presumably going to be tough. That is our outlook internally.
On top of that, also based off that, we are going to strive for double-digit or 10% earnings growth. That is going to be through the cost optimization initiatives that are currently underway and also by merging overlapping businesses and functions, can be made more efficient from a cost standpoint. That is how we would like to achieve double-digit growth. That is the overall direction we're working on. Regarding the scale, we hope we can give you more color when we have the full year business results meeting. That's all from myself. Thank you.
For shopping, I have an ad ditional question For the time being you're going to be focusing on EBITDA, and how about GMV growth? It seems that you're not going to focus on GMV growth for a while. Is that the case?
Number one in commerce in Japan, you have decided to revise that target. It seems that you have changed strategy. Can I just confirm? Mr. Ozawa will answer that question.
Yes, I will answer that question. For the shopping mall business, GMV growth, we would like to do whatever we can within the realms of cost control. For e-commerce, as a business in Z Holdings as a whole, if I may give you a little bit more explanation, there it can be divided into two large ways. First is margins, as well as rolling out the financial businesses in association with that. Regarding the spreads of the shopping business, it's very low. Internally, we have ZOZO, ASKUL , and we have the used furima business and Yahoo! Auctions that we would like to grow.
From mall, we are going to control and suppress the points provision. Mall GMV, however, can lead to PayPay and credit card growth, which has been our track record, so we'll focus on that. It doesn't mean that we need to continue to strive to become number one in the mall business, per se. Being the goal of becoming GMV number one, is that our priority, was the question we posed. Like, Mr. Kawabe explained earlier, it's more about growing PayPay or developing new financial businesses. It's about leveraging group assets, and it's about drastically changing our group strategy that we are currently in the middle of considering. From April onwards, when Yahoo! and LINE merges together, we will need to strategize one more time by considering the user profile. It's not just about growing the mall business going forward. Your perception is correct. That's all from me. Thank you.
Thank you very much. Next from J.P. Morgan Securities, Mr. Mori, please unmute yourself and ask your question.
Thank you for the explanation. I have two questions. There is some overlap to the question from Maeda regarding the change in management structure and the merger. Three representative directors is going to support the merger and the roles and responsibility of those, the management structure, can you explain more in depth what's going to change? It's not very clear to me. Can you explain that? What kind of change do you expect from the new management structure and also the merger and integration? Regarding cost reduction effect, as of today, it's not disclosed. But as Sakaue-san commented, and this is a confirmation, next year EBITDA growth of 10%, it's about JPY 30 billion. Top line actually for advertisement businesses could be a negative growth, and you can achieve cost reduction that can drive increased profit. Is that what's you're thinking?
That's the first question. Regarding the second question, for ad revenue sales and the condition is rather tough, and as Kawabe-san mentioned, it's not just market condition only. Specifically regarding LINE VOOM, Idezawa-san and Shin-san, can you answer? VOOM needs to be successful, otherwise, LINE service as a whole can be impacted. That's my concern. On the other hand, YouTube Shorts and TikTok, are you able to catch up from this level now? It's not clear to me. Therefore, creator and user, TikTok and YouTube Shorts, what are the designs for the incentives that they move to VOOM? Maybe there are some actions you have already taken, but high time spent, sheer growth. How do you achieve that? Can you explain that? Thank you.
Thank you for the question. Regarding cost reduction, Sakaue will answer. For the roles and responsibility of the three representative, Kawabe will answer. For ad revenue, Shin, especially VOOM, will be answered by Shin. First, regarding cost reduction, continuation from the first question. As for the account ad and search ads, especially account ads, it's not so severe as a decrease, but for display ad, the current situation is rather tough. My answer is that it should be covered by cost optimization, cost reduction, and consolidation or elimination of businesses. We achieve 10% increase in EBITDA, close to JPY 30 billion. That's the question to the second part of the question. Regarding your question about 3 directors' roles and responsibility, Kawabe will answer.
This is Kawabe speaking. The merger and management structure after merger, you need to consider two aspects. Intention of the merger is that the Z Holdings and the two companies, LINE and Yahoo! JAPAN, and they tend to look at their own operation as they try to optimize. That's the summary from the past two years. Important decisions are made, and the group's overall optimization need to be achieved. For that, the core companies, LINE, Yahoo! JAPAN, Z Holdings, need to be one to make the decision so that we can have a streamlined decision, and we can have faster decision. That is very important for our future growth. In the past two years, we have accelerated mutual understanding, data protection, and this has been very significant and meaningful. Going forward, we need to move to the next phase, so merger should help.
After merger, the structure and also from April first, maybe before merger, we have a new structure and Chief Product Officer, Shin, becomes Representative Director. The services of core companies and the product owner will be his responsibility, and the services' overall optimization will be achieved and also each respective service optimization should be also achieved. For product, he will exercise strong leadership to achieve overall optimization. The services under Shin's leadership can be improved or could be surprises, Wow and others. That should be put into profit and revenues. Idezawa, after elimination of Co-CEO, he will be CEO and President, and the decision-making will be streamlined, and we have a rapid decision process and a strong leadership. Those two will pro-drive businesses in that sense, they are drivers. I am the Representative Chairperson.
I will be supporting them from the backside. That's what I want to do. For Z Holdings and the services in the society should be well-accepted, and we want to show presence in various scenes and external activities so that our activities will be better understand and the customers are taking now that show and also the government-related areas and also broader, broadly in the society, our services should be well understood because we should be playing a very important platform. We hope I will be supporting for that kind of understanding to prevail. Service by Shin and business by Idezawa, I will support those. From Co-CEO, CPO, compared to that, we have a clear definition of roles and responsibility, and decision-making will be more clear.
VOOM and TikTok, how are you going to win in competition? What's the merit for the users? How do you achieve that merit?
This is Jungho Shin. I will answer to the question. Going forward, how do we fight and achieve results? Service function differentiated, that needs to be strengthened all the time. Also LINE VOOM, LINE type, we are driving big changes, and the service KPIs are achieved. KPIs are achieved, increasing the number of reviews and replays, and maybe new ad frameworks slots should be achieved. So new ad space should be created. Regarding the competitors, what are our differentiating point? What's the competitive edge for us? First, user base, including LINE, we have broader LINE of customer base and pro tech, and TikTok is buzz. But creators and actual users, and in terms of the scale of users, there is much room for growth.
VOOM will be able to appeal to various age groups, that is the strength of the VOOM. Our user base can be leveraged. In terms of content procurement, some, we have a broad base, so some may enter as creators. Through entertainment companies, we can provide or procure new contents. That is our focus. The new contents that other competitors cannot procure and that appeal to the users, and we want to strengthen contents. That's my third point of what we can do. Thank you.
Just one point. Incentive reward system started depending on how often they review, and that is very popular. Other creators are delivering their contents to VOOM or EC or local other services are also available. We want to collaborate those services into our service menu. That is all for the question.
Thank you very much. Regarding the VOOM, just one more. TikTok do not really have good format of ads, it seems to me. For the VOOM, you are making progress about your products and how soon you would be able to actively introduce ads and place ads.
Well, VOOM monetization is a question, and Takeshi Idezawa is answering to that question.
Thank you for that question. Regarding monetize efficiency, well, ad format being designed including added features, and we have better efficiency now. Compared to the conventional feed ad, unit price is still low, and we try to improve that now. As of now, it's 100% achieved and, well, ready. We are not there yet. We are still tuning. That's where we are now. Thank you.
Well, that means for the next year, we can't expect so much catch-up. Is that right?
Regarding LINE VOOM, as service grows and monetization, what we are trying to achieve. Regarding the sales revenue, we are not bullish yet. We try to provide good services, creating good base. Also with VOOM, what happens when you mentioned, but LINE ad, including LINE NEWS and Talk Headv iew. For the LINE NEWS, timeline type shift is being prepared now. For the Talk Headv iew, we are testing some ideas, and both are showing good numbers. All those together as display ads, we hope to achieve recovery. That is our plan.
Thank you very much.
Thank you. Next is from Goldman Sachs, Munakata-san. Please go ahead with your question.
Hello. This is Munakata. I have two questions as well. First of all is regarding strengthening your competitiveness. In your explanation, you were talking about a decline, having a sense of crisis around it. That is why you are going to be merging your core subsidiaries. From a product point of view and strengthening its competitiveness, I think it goes back to R&D and the approach towards services by merging together. Do you think that we should expect some changes? I'm an amateur on this, but for example, maybe the expertise that each of the business companies have is going to be shared. Because you're going to be able to make decisions faster, you'll be able to capture the trends. That was what I was imagining.
Can you give us more color on that? That's my first question. The other question is regarding your mid to long-term earnings target, revenue target. Next year, you're going to be shifting to the new management structure through the merger. You're probably going to be solidifying the foundation next year. That's the way I perceived it, and I might be jumping to conclusions. When you look two years ahead, originally, you were aiming for JPY 390 billion. Should we have an image that you're going to be aiming for that level, or are you going to be aiming higher? This time around, because you are changing direction in a drastic way and internal structures are going to be changing, do you think you're going to need more time? For ID linkage, should we expect this to be delayed even more? That's it for me. Thank you.
Well, for the first question regarding strengthening the competitiveness of the products and what's going to happen in light of the merger, our CPO, Mr. Shin, will answer that question. For a medium to long-term earnings targets, I will take that question. Mr. Shin.
This is Shin speaking. For the merger, one of the major aims is to go beyond the barriers, getting rid of the barriers, and to generate synergies in the areas where we weren't able to in the past. Expectations would be, for example, like you said, R&D. From an AI point of view, instead of doing R&D on an individual basis, we should be able to share more, so doing joint development and also developing trendy new services, our capabilities will become two or three times greater.
From a services point of view, we will be able to speed up development of functions and so forth. Organizationally as well as product-wise, we will be able to reinforce our efforts, and the speed of launching new services probably can be expedited. That's all for me.
Regarding your second question, regarding medium to long-term earnings targets, at the end of the fiscal year, when we explain our strategy for the new fiscal year, we will talk about our thinking around growth strategies. For ID linkage, like we've been communicating from the past, 2023 and beyond is the plan we have in place for ID linkage. If there are any changes, we will communicate accordingly. That's all for me. Thank you.
Thank you. I have one follow-up question regarding my first question. Thank you for your commentary. I understood it very well. During next fiscal year, thinking about that you're going to be merging next fiscal year, getting rid of boundaries and generating synergies, I guess is going to start to take place in two fiscal years' time. Would that be when we're going to visibly see impact come through?
Well, we have decided on the merger as a direction. of course, it may take some time, but as a policy, but I think we can head towards that direction. as we already know that, and I think things will be delivered. Some will be delivered over the short term, some will probably take more time. Thank you very much. I understood that very well.
Next, from Citigroup, Tsuruo-san, go ahead.
Thank you very much. My first question is, single CEO, Idezawa-san. My question is for you. You will be a CEO and, top line may decline or does not grow and cost reduction is what you would have to deal with first. You don't have to explain details, but what would be different from the past from Idezawa-san, your point of view of what are opportunities going forward? Again, you explain your thought on this, please. The second question is a bit technical question. For the next year, EBITDA and, because of ad revenue numbers, you have changed your numbers and cash flow or other forecast, this would be changed for impairment test. I think you are doing by segment, but, when would be the timing and what do you check for impairment test?
This change for the midterm change, midterm goals, how does that impact goodwill or it doesn't impact going forward? Can you explain your assessment now? Thank you.
Regarding the first question, since you mentioned Idezawa, the new president, the second question will be answered by Sakaue. Idezawa first.
Thank you. In a challenging situation, what we find are opportunities. That's your question. Yes, we are facing a difficult situation next year or this year and onward. Revenue recovery is rather difficult to see good visibility, so efficiency, streamlining, that would be the basic approach for us. So far in the past two years, we worked with Kawabe as Co-CEO. We had various discussions and overlapping functions or businesses.
Regarding those, we have had good discussion, by this merger of three companies, what we have discussed would be implemented in the execution. We will speed up to make efficient review or rearrangement of overlapping functions. We execute that, and that is one of the opportunities. Also collaboration among the group members would be much easier than before. Service collaboration would lead to service growth, and sales collaboration will lead to top line growth. That is, we can achieve. Those are the opportunities that we want to explore and drive. Thank you.
I will answer the second question, some explanation included. Currently LINE integration, goodwill and others, CGU group in media, that's major part of that. Some are financial, but most of that is in media CGU.
Regarding the impairment test in media, Yahoo! Display ad and search ad is included to look at overall profitability going forward as a group. We do that once a year to evaluate risk of impairment. That's what we do. For FY2 023, outlook in Advertisement business is challenging, but EBIT margin is over 40%, number-wise we maintain good profit. Regarding the media impairment risk for FY 2023 EBITDA change, even with that, it's not going to be a big risk for us. Thank you.
Thank you. Just one or two follow-up questions. I mentioned some mem-numbers. Sakaue-san, in your presentation, you mentioned 10% of elimination or consolidation of businesses, and that... how can that impact cost reduction and hiring freeze would be placed and there will be some natural attenuation. How would that impact in terms of cost reduction? If you can disclose any information, please.
Sorry, I may not have been clear. I said about 10 services may be closed going forward. It's not %, it's the number of services or business I was mentioning. The second part is hiring freeze and there is some natural attrition and how much of that is included in the cost reduction? Can you be more specific on that? I will not go into detailed numbers, but to a certain extent, since hiring is frozen, there is natural attrition. This is Japanese company, in April 1st, we will have hundreds of new hires. Overall there will be a bit of decrease for FY 2023.
Thank you.
Thank you. From Okasan Securities, next person is Okumura-san. Mr. Okumura, over to you. Please unmute.
This is Okumura from Okasan Securities. Thank you very much for taking my question. I also have two questions. The first one is about LINE display ad results. Revenue declined by approximately 10% and according to your presentation, you were saying Voom renewal impacts led to lower CPM. For Talk Headv iew, LINE NEWS, is revenue also declining? If it's possible, can you give us more color on the ups and downs of revenue by product? That's my first question. Second question is around the merger between LINE and Yahoo!. Based off this policy, going forward, for the listed subsidiaries and optimal capital ratio, what are your view, what are your views on that? Last year-
You had the integration of the mall platform, and there were some subsidiaries that were impacted in a negative way in reality. For ZOZO and ValueCommerce ASKUL, that still remain. Should also absorb them or sell them more than before is management discussing these affairs? As much as possible, can you share with us your views? Those are my two questions. Thank you.
Thank you for your questions. Both of the questions will be answered by me for display ads and the breakdown. As explained in the presentation, the big reason for the decline in revenue was mainly due to LINE VOOM. For LINE NEWS or a Talk Headv iew on a year-over-year basis, it was slightly below last year levels. However, on the other hand, regarding new media space, we were able to offset the decline through other areas like the home screen. Regarding for the second question around listed subsidiaries. We do understand that we own listed subsidiaries, so of course, a variety of options are at times being discussed internally. But at this point in time, we haven't decided on doing anything, nor are we deliberating anything. That's it for me. Thank you.
Thank you. I just want to confirm one thing about the second part. We're optimizing the equity ratio. It might be hard to explain in a quantitative way, but for the current ownership ratio and maintaining it, according to your explanation, you believe that the current balance is optimal. Is that the right way to view it?
Yes. As you rightly said, we believe that the ratio currently we have is optimal. Of course, in making additional investments, we are going to expect increased return, so we'll need to think about it from that standpoint. Of course, we might be able to capture more net profit, but in any way, I will have to think about the overall balance by looking at return. At this point in time, we believe the current ratios are optimal. That's it for me. Thank you.
That's it for me. Thank you.
Thank you very much. From UBS Securities, Mr. Fukuyama, please unmute yourself and ask your question.
Thank you very much. I have two questions. First is Media business, second is Commerce business. First, as for Media business, fundamental challenges, what are they according to your assessment, for example, for Yahoo! Japan core portal, smartphone proportion is rather low and going forward, a reopening may further decrease that number. What should be changed? Can you explain more on that? The second question is about commerce business. 8% growth is achieved by reuse business. Commerce as a whole is about 19%, but reuse profitability, how much is that? Especially PayPay Flea Market, when you look at take rate is low against competition. Going forward, cost is your priority and including take rate, what is going to be the change in terms of profitability? Those two questions. Thank you.
Regarding the first question, media business, media service included, Idezawa will answer. The second question, including profit, Sakaue will answer, and Ozawa will add comments. Idezawa for the first question.
Fundamental challenges in media business were, you mentioned search business. Display ad is where we are struggling. As for search business, there is growth year on year and 10% or more growth. The display challenge is rather significant. Demand is low as the basic assumption, and the budget is very difficult to get. The video associated media is scarce. We need inventory of video. We don't have many video inventories. That is a structural issue and a challenge for us. LINE VOOM was in that sense, we made investment in VOOM and also distribution accuracy and capability. We do have some good aspect, but still in some areas we need improvement, and that would be the challenge for us.
On the other hand, including integration ad-related systems and products, they should be upgraded in a comprehensive manner by integration including. That's one of the purposes of mergers, and we need a good approach for our challenges. Thank you.
The second question is about reuse. Take rate and also promotion, we need to have good margin as we operate PayPay Flea Market download number is over 15 million as the product is received as good quality, so we enjoy good growth. If you look at the numbers, and maybe you mentioned, so let me ask transaction value for reuse was up 8%, good growth. For the revenue, you may think it is decreasing, and it is true.
As for that number for revenue from this year, we had a change in accounting, and we are not retrospectively applying that. Promotion expenses are deducted from sales, and that is from this year. GMV and sales revenue may have some gaps. It's not disclosed, this reuse business profit can cancel all that, and we are achieving good growth. Ozawa-san, do you have any additional comment?
Yes, let me comment. Regarding reuse service and flea market in Yahoo! Auctions, you need to look at those two together. Structurally, users increasing in flea market and we capture new customers and take rate is high for Yahoo! Auctions. The customers will be referred to them, we can have very good profit. You need to consider those two as a pack or set.
Competition is strong, yes, but for flea market and against the competitors, we have a good cycle by having flea market. For Yahoo! Auctions, including competitors' users, reuse buyers and sellers are increasing, so we have virtual cycle, and that can improve growth of Yahoo! Auctions. That is the situation in the recent more recently. In terms EC portfolio, reuse is a treasure for us going forward. Of course, rather than cost reduction in EC business, selection and focus, and this is the area where we should make investment. Thank you.
Thank you. Very clear.
Thank you. Next person is from Mitsubishi UFJ Morgan Stanley. Mr. Araki, please unmute and go ahead with your question.
Thank you. I have two questions. First of all, regarding numbers and PayPay. In the presentation, you were saying JPY 33.8 billion in revenue and adjusted EBITDA - 4.4% . In the appendix, page 37, it says JPY 36.6 billion revenue and JPY 3.8 billion adjusted EBITDA. With these two revenue numbers, which is correct? Can you give us some commentary on that? For EBITDA and adjusted EBITDA, is that the difference between 4.4% and JPY 3.8 billion? Now, this is also in my first question, but in expenses, due to the PayPay consolidation, commissions have been growing. Also for advertising costs and sales promotion costs for PayPay's portion, is it mainly under advertising cost?
Are they not included in sales promotion cost? That's another confirmation point in Q1. The second question is a simple question. For the integration of the three companies, what is going to happen to the company's name? You have LINE and Yahoo! that respectively have strong branding, what is going to happen to the corporate name? That's all from me. Thank you.
For PayPay, you asked two questions, Investor Relations will give you additional comments. There is a footnote here for IFRS and the standalone PayPay numbers is based off JGAAP. That is why there has been some adjustments made, which is the difference between JPY 3.8 billion and 4.4%. For revenue, some of the expenses have been deducted. Investor Relations will follow up on that.
Regarding advertising cost and sales promotion cost, I think it's sales promotion cost, but we will get back to you through IR. Regarding the company name, at this point in time, it is still TBD. Once that's decided, we would like to disclose.
Thank you.
Next, CLSA Securities. Mr. Oliver Matthew, please.
Hello. I have two questions. The first question, you say you have a crisis in media. I hope you will be proactive before you have a crisis in e-commerce. If we look at China, it seems quite obvious that short video e-commerce is taking a lot of market share from the old merchant e-commerce model. How are you preparing for that in Japan? Are you planning to link VOOM to e-commerce? How about linking VOOM to ZOZO? Why is there no ZOZO button on the top page of PayPay? That's my first question. Second question, for new management, who will be responsible for revenue and who will be responsible for costs? Thank you.
Both questions will be taken by Idezawa-san.
Regarding VOOM linkage in Commerce, we have been looking at examples in China and we have been making deliberations and considering, and we have been testing as well. On the other hand, we also believe that it's not going to pick up right away, so we would like to determine the right timing as we go ahead with this. Essentially, in Commerce, it's going to be really important to come up with a new strategy. Therefore, currently, it's going to be about growth and striking a balance between growth and efficiency. When we come up with the new policies, we would like to announce them in April when we announce our new strategies. Cost and revenue, the person who is responsible under the new management structure will be myself, Idezawa. I will be responsible for executing your strategies there. Thank you.
Thank you. Just to clarify, you are working on a new e-commerce strategy overall right now, and you will tell us more in April, correct?
Yes, exactly.
That's great. I look forward to it. Thank you.
We are accepting questions. If you have a question, please use Raise Hand function of Zoom. If you have a question, please use the Zoom function of raising hand. Next, from Nomura Securities, Mr. Matsuno, you can ask your question, please.
I have two questions related to PayPay. Actual EBITDA, I think you are seeing better efficiency in PayPay and PayPay Atobarai coordination or PayPay Card Gold collaboration. Why is it possible to make this efficient operation? Can you explain the background of this piece for PayPay?
If you have two questions, you can ask up front both of them.
The second question is regarding PayPay EBITDA. PayPay may be a bit away from the merger, but you have the card and PayPay and Gold Card was announced and a larger scale service may be what you announced that in the previous meeting, and I wonder how that's going to evolve. Can you explain more about mid to long term?
Regarding the first question, Atobarai deferred payment and Gold Card, Ozawa will answer to that question. The second question, card and PayPay is integrated in operational way. Regarding the card or financial businesses, what is assessment for the mid and long term? Ozawa will answer to the both question.
Regarding the first question, the big trend is PayPay has really rooted in people's everyday life, so natural increase of monthly KPIs of usage is growing very well.
Even without sales promotion, we are in a very good virtual cycle. That's the basis. Additionally, promotion has been covered by PayPay, but stores, manufacturers may provide some funding for that percentage have increased. They are beneficiarily, they can receive customers, their products are selling. That out of promotion cost, the manufacturers would pay, that is also the revenue for PayPay, which is very ideal. This is a good synergy coming from this cycle. We have had the construction, that is shifting in that way going forward. The Gold cards and other sales promotion is required for new launch of services. To a certain extent, there would be some expenses for promotions. Regarding the second question, just clarify among ourselves internally. Thank you. Thank you for waiting.
PayPay Card PayPay, this year, they integrated, and we see synergy effect. As to Atobarai, deferred payment included, card transaction numbers increased, and in December, Gold Card was launched. Card, PayPay, together, the payment value is what we monitor. Why do we monitor both? Depending on stores, cards only can be used, not PayPay. PayPay is not introduced. High-end products, users want to pay with credit cards. That is often the idea for the customers or users. We hope that the user would use both, but until that behavior change happens, or maybe it doesn't change at all. We have card and PayPay. In the back, we have the mobile payment or Atobarai ePayment, and the system may be integrated. Whichever is used, they are reflected in loyalty program, and so the total point will increase.
The points are often operated in a common manner. Caching may be derived business out of that, and we have a continuous business from that, while Gold Card may be announced and Atobarai is announced. Little by little, those are put into reality, and when there is more ideas that is going to be implemented, we will share with you.
Just for clarification, according to what you are explaining, non-continuous effort will be made for both PayPay and the Card. This is what you have incorporated in your plan and design of the model?
Yes, continuous or non-continuous may depend on definition, but from PayPay Card, PayPay users is huge, and with that, the number of users may expand, and also transaction value is increasing. That is what we see.
Continuous, non-continuous, we will push both. Thank you.
Thank you very much. That's all.
Thank you. From CLSA Securities, we would like to now take a question from Oliver Matthew. Please unmute and go ahead.
Thank you. I have a question about e-commerce. I just want to check my understanding. It looks like you cut the promotions by about 8 percentage points, and the GMV was growing about kind of high single digits and now dropped to negative. Are you getting some kind of correlation between the promotion spend and GMV growth? What kind of learnings have you had reducing the promotion points? Thank you.
This is Ozawa. I will take your question. Well, for Yahoo! Shopping or the mall business, I think your question is associated with the mall business. For Yahoo! Shopping and the mall, the points that we give to users and the sales promotion cost we spend is extremely correlated with GMV growth. Less points means that GMV will be affected negatively by a certain degree. On a Z Holdings basis and sales promotion cost control, by spending sales promotion on high margin businesses what, is what we're doing, and we're holding back on spending on the mall business. The shopping mall business GMV goes down. However, e-commerce as a business overall, is healthier due to our cost control. That is what we are learning regarding spending. That's all for me. Thank you.
Does that mean you're very confident the EBITDA growth will continue for the next three quarters for e-commerce?
Well, we haven't set forth any specific targets, but the EBITDA margins, we will focus on maintaining it. We'll be mindful of the profits generated by GMV growth.
Okay. Thank you.
Thank you very much. Next, MST Financial Services PTY LTD, David Gibson. Please unmute yourself and ask your question.
Thank you. I have one question. Since LINE was acquired, you've been working to integrate or work with it and Yahoo! together. Can you give an example of what didn't work in the last year or so, and hence why you think the full merger of the two companies is needed, please?
Kawabe-san will take your question.
I will answer your question. It's not about what didn't work out well, it's about making things work better. That is why we opted to go ahead with the complete merger. In the past two years, respective services culture was being mutually understood, and we had exchange at the talent level. We did data protection at the same time and providing the linkage of services. That was what we had been doing, but we want to accelerate our efforts. We thought that in order to do so, we need to become one organization and make the decision-making process more simple and have more linkage between our services. That's our thought process. There were three different companies, basically. Each of the companies try to optimize individually.
I think that's one aspect we have been observing. I guess that's pretty much the answer to your question. Basically, individual optimization is what we would like to break through so that we could generate new synergies under the new organization. Mr. Shin will be in charge of products. For business and revenue or earnings, Idezawa-san will be in charge, so that we could generate good results. Thank you.
Thank you. To follow up, what is the difference in culture between the three companies then currently, in which obviously you want to unify?
Thank you. Well, first of all, for Z Holdings, it's a holdings company, basically, and it's only has been several years since it's been set up. There is no really unique culture. It's more about the culture at Yahoo! as well as LINE. My comprehension, I think Idezawa-san should answer this question as well, but what's common between the two companies is a priority on product, priority on users, and through the services, we want to contribute to society. We have a lot of young employees that are managing the business. That's common. It's all about service.
Based off that, it's been 25 years since Yahoo! was established, so as a company, it's more mature. LINE, relatively, has a more challenging spirit. On a relative basis, LINE has more of a bottom-up approach, trying to do things what's happening at the job site. For Yahoo!, in recent years, myself, Mr. Ozawa, has been part of management, and there has been some maturity in our services, so a lot of transformation has been happening top-down. I think that is some of the differences. Idezawa-san, do you have anything to add?
Yes. I think, Kawabe-san, rightly, pretty much said what I wanted to say. Yahoo! was mainly engaged in businesses in Japan. For LINE, even for the services as well as the development basis, it mainly was engaging in business in Asia. That was just an addition, a follow-up comment. Thank you.
Okay, thanks very much.
Thank you very much. Well, the closing time is approaching, we would take the last question. Tsuruo-san from Citigroup, please ask your question.
Thank you very much. Just one question. It's a bit technical, this is the first time I attended this. In appendix, PayPay financial statement is on the right-hand side. Net working capital is negative in this company. As business expands, there may be some access to capital. This is the first time I'm attending. I'm not familiar with this kind of business. Free cashflow or cashflow in your business expansion, what kind of cash demand or what are the needs for the capitals?
Thank you for the questions. Maybe you used this, for PayPay, we are strengthening deferred payment or that users maybe use after charging. That's the majority of the users. Cash, JPY 470.4 million is the cash charged by the users. Payments are made to stores or merchants that we have received a charge from the users and that will be paid to the store. That's the cashflow. Going forward for market, for our business expansion, as of now, this is operating very well at the moment.
I see. Thank you very much.
Araki-san has a question, this is regarding the second point, advertisement cost and the promotion costs of PayPay. That was the question. Much of that was the promotion cost, and that is how it is mentioned in our Z's P&L on page 3. +JPY 7.4 billion, that is increase of promotion cost. That is mainly because of PayPay.
In footnote, LINE and Yahoo! reduced promotion expenses. This part is because of consolidation of the PayPay. For ad and promotion, there is an increase, and that is PayPay's consolidation effect. There's a Japanese government travel incentive, and Yahoo! had a large promotion in the third quarter, and that is why there is an increase in the sales promotion. Thank you. Sorry, advertisement. Thank you.
Thank you very much. With this, we would like to close Q&A session. Lastly, Kawabe will give you a closing comment.
Kawabe speaking. Thank you very much for attending this earnings meeting. This is a very important turning point. We announced very important points. Personally, mid-term plan, a revision was made, and I feel responsible for that. In terms of the management, I should be the supporter for the new management.
With the renewed management, some goals would be revised, but our visions and mid-term or long-term profit. Under new management, we want to achieve those goals, and I will be a part of the management in that sense. I hope you will continue to support us going forward. For five years, I led the business. Many things I could achieve and not achieved, but I did my best, and I hope that you will provide your support to the new management of the new, renewed Z Holdings. Thank you very much.
With this, we close the third quarter earnings report meeting for FY20 23 of Z Holdings. Thank you very much for your participation.